chapter 5-- eco 2023

A decrease in supply will cause the smallest increase in price when a. both supply and demand are elastic. b. demand is elastic and supply is inelastic. c. demand is inelastic and supply is elastic. d. both supply and demand are inelastic.

a. both supply and demand are elastic.

Suppose the cross-price elasticity of demand between hot dogs and mustard is -2.00. This implies that a 20 percent increase in the price of hot dogs will cause the quantity of mustard purchased to a. fall by 40 percent. b. fall by 200 percent. c. rise by 40 percent. d. rise by 200 percent.

a. fall by 40 percent.

For a good that is a luxury, demand a. tends to be elastic. b. tends to be inelastic. c. has unit elasticity. d. cannot be represented by a demand curve in the usual way.

a. tends to be elastic.

The value of the price elasticity of demand for a good will be relatively large when a. there are no good substitutes available for the good. b. the time period in question is relatively short. c. the good is a luxury rather than a necessity. d. All of the above are correct.

c. the good is a luxury rather than a necessity.

Studies indicate that the price elasticity of demand for beer is about 0.9. A government policy aimed at reducing beer consumption changed the price of a case of beer from $10 to $20. According to the midpoint method, the government policy should have reduced beer consumption by a. 30%. b. 40%. c. 74%. d. 60%.

d. 60%.

Which of the following statements helps to explain why government drug interdiction increases drug-related crime? a. The direct impact is on buyers, not sellers. b. Drug addicts will have an even greater need for quick cash to support their habits. c. In the short run, both equilibrium quantities and prices will fall in the markets for illegal drugs. d. Successful drug interdiction policies reduce the demand for illegal drugs.

b. Drug addicts will have an even greater need for quick cash to support their habits.

Which of the following is likely to have the most price inelastic demand? a. optional textbooks b. lightbulbs c. leather boots d. tablet computers

b. lightbulbs

A perfectly inelastic demand implies that buyers a. decrease their purchases when the price rises. b. purchase the same amount as before when the price rises or falls. c. increase their purchases only slightly when the price falls. d. respond substantially to an increase in price.

b. purchase the same amount as before when the price rises or falls.

Skip's Sealcoating Service increased its total monthly revenue from $12,000 to $13,500 when it raised the price of driveway repairs from $600 to $750. The price elasticity of demand for Skip's Sealcoating Service is a. 0.11. b. 1.12. c. 0.47. d. 2.11.

c. 0.47.

Which of the following statements is correct? a. The demand for natural gas is more elastic over a short period of time than over a long period of time. b. The demand for smoke alarms is more elastic than the demand for Persian rugs. c. The demand for bourbon whiskey is more elastic than the demand for alcoholic beverages in general. d. All of the above are correct.

c. The demand for bourbon whiskey is more elastic than the demand for alcoholic beverages in general.

For a particular good, an 8 percent increase in price causes a 4 percent decrease in quantity demanded. Which of the following statements is most likely applicable to this good? a. The good is a luxury. b. There are many close substitutes for this good. c. The market for the good is broadly defined. d. The relevant time horizon is long.

c. The market for the good is broadly defined.

Holding all other forces constant, if decreasing the price of a good leads to an increase in total revenue, then the demand for the good must be a. unit elastic. b. inelastic. c. elastic. d. None of the above is correct because a price decrease never leads to an increase in total revenue.

c. elastic.

Suppose goods A and B are substitutes for each other. We would expect the cross-price elasticity between these two goods to be a. either positive or negative. It depends whether the current price level is on the elastic or inelastic portion of the demand curve. b. negative. c. positive. d. either positive or negative. It depends whether A and B are normal goods or inferior goods.

c. positive.

Which of the following statements about the price elasticity of demand is correct? a. The price elasticity of demand for a good measures the willingness of buyers of the good to buy less of the good as its price increases. b. Price elasticity of demand reflects the many economic, psychological, and social forces that shape consumer tastes. c. Other things equal, if good x has close substitutes and good y does not have close substitutes, then the demand for good x will be more elastic than the demand for good y. d. All of the above are correct.

d. All of the above are correct.

The midpoint method for calculating elasticities is convenient in that it allows us to a. assume that sellers' total revenue stays constant when the price changes. b. restrict all elasticity values to between 0 and 1. c. ignore the percentage change in quantity demanded and instead focus entirely on the percentage change in price. d. calculate the same value for the elasticity, regardless of whether the price increases or decreases.

d. calculate the same value for the elasticity, regardless of whether the price increases or decreases.