ECON Chapter 6 7

When quantity demanded responds strongly to changes in price, demand is said to be

elastic

supply is typically more _____ in the long run than in the short run.

elastic

Normal goods have negative income elasticities of demand, while inferior goods have positive income elasticities of demand.

false

When the price of knee braces increased by 25 percent, the Brace Yourself Company increased its quantity supplied of knee braces per week by 75 percent. BYC's price elasticity of supply of knee braces is 0.33.

false

Suppose good X has a negative income elasticity of demand. This implies that good X is

inferior good

complements have _____ cross-price elasticities

negative

inferior goods have ____ income elasticities

negative

Normal goods have ____ income elasticities

positive

At a price of $1.00, a local coffee shop is willing to supply 100 cinnamon rolls per day. At a price of $1.20, the coffee shop would be willing to supply 150 cinnamon rolls per day. Using the midpoint method, the price elasticity of supply is about

2.2

Good news for farming can be bad news for farmers because the A. demand for basic foodstuffs is usually inelastic, meaning that factors that shift supply to the right decrease total revenues to sellers. B. supply curve for an individual farmer is usually perfectly inelastic. C. supply curve for an individual farmer is usually perfectly elastic. D. demand for basic foodstuffs is usually elastic, meaning that factors that shift supply to the right increase total revenues to sellers.

A

If sellers do not adjust their quantities supplied at all in response to a change in price, A. supply is perfectly inelastic. B. the time period under consideration must be very long. C. advances in technology must be prevalent. D. supply is perfectly elastic.

A

If we observe that when the price of chocolate increases by 10%, quantity demanded falls by 5%, then the demand for chocolate is price inelastic. a. TRUE b. FALSE

A

Price elasticity of supply measures how much the quantity supplied responds to changes in the price. a. TRUE b. FALSE

A

Scenario 5-4 Milk has an inelastic demand, and beef has an elastic demand. Suppose that a mysterious increase in bovine infertility decreases both the population of dairy cows and the population of beef cattle by 50 percent. Refer to Scenario 5-4. The change in equilibrium price will be A. greater in the milk market than in the beef market. B. the same in the milk and beef markets. C. greater in the beef market than in the milk market. D. Any of the above could be correct.

A

Which of the following should be held constant when calculating an income elasticity of demand? A. the price of the good B. income C. the quantity of the good demanded D. All of the above should be held constant.

A

Drug interdiction, which reduces the supply of drugs, may decrease drug-related crime because the demand for drugs is inelastic. a. TRUE b. FALSE

B

Elasticity is A. the maximum amount that a buyer will pay for a good. B. a measure of how much buyers and sellers respond to changes in market conditions. C. the study of how the allocation of resources affects economic well-being. D. the value of everything a seller must give up to produce a good.

B

The difference between slope and elasticity is that slope A. measures changes in quantity demanded more accurately than elasticity. B. is a ratio of two changes, and elasticity is a ratio of two percentage changes. C. is a ratio of two percentage changes, and elasticity is a ratio of two changes. D. None of the above is correct; there is no difference between slope and elasticity.

B

The price elasticity of demand measures how much A. demand responds to a change in supply. B. quantity demanded responds to a change in price. C. quantity demanded responds to a change in income. D. price responds to a change in demand.

B

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 good is a luxury rather than a necessity. C. the time period in question is relatively short. D. All of the above are correct.

B

Total revenue A. increases as price increases, as long as demand is elastic. B. remains unchanged as price increases when demand is unit elastic. C. decreases as price increases, as long as demand is inelastic. D. always increases as price increases.

B

When demand is inelastic, a decrease in price increases total revenue. a. TRUE b. FALSE

B

When the price of good A is $50, the quantity demanded of good A is 500 units. When the price of good A rises to $70, the quantity demanded of good A falls to 400 units. Using the midpoint method, the price elasticity of demand for good A is A. 1.50, and an increase in price will result in a decrease in total revenue for good A. B. 0.67, and an increase in price will result in an increase in total revenue for good A. C. 0.67, and an increase in price will result in a decrease in total revenue for good A. D. 1.50, and an increase in price will result in an increase in total revenue for good A

B

Which of the following could be the cross-price elasticity of demand for two goods that are complements? A. 0.2 B. -1.3 C. 1.4 D. 0 Hide Feedback

B

A city wants to raise revenues to build a new municipal swimming pool next year. The mayor suggests that the city raise the price of admission to the current municipal pools this year to raise revenues. The city manager suggests that the city lower the price of admission to raise revenues. Who is correct? A. the city manager B. the mayor C. The answer depends on the price elasticity of demand. D. The answer depends on the costs of construction of the new municipal swimming pool

C

A key determinant of the price elasticity of supply is the A. extent to which buyers alter their quantities demanded in response to changes in prices. B. number of close substitutes for the good in question. C. length of the time period. D. extent to which buyers alter their quantities demanded in response to changes in their incomes

C

A linear, upward-sloping supply curve has A. both a constant slope and a constant price elasticity of supply. B. a changing slope and a constant price elasticity of supply. C. a constant slope and a changing price elasticity of supply. D. both a changing slope and a changing price elasticity of supply.

C

The price elasticity of demand for a good measures the willingness of A. firms to produce more of a good as price rises. B. consumers to avoid monopolistic markets in favor of competitive markets. C. consumers to buy less of the good as price rises. D. firms to respond to the tastes of consumers.

C

The demand for Godiva mint chocolates is likely quite elastic because A. the market is narrowly defined. B. there are many close substitutes. C. this particular type of chocolate is viewed as a luxury by many chocolate lovers. D. All of the above are correct. Hide Feedback

D

If the price of gasoline rises, when is the price elasticity of demand likely to be the highest? A. immediately after the price increases B. one month after the price increase C. three months after the price increase D. one year after the price increase

D

In the market for oil in the short run, demand A. is elastic and supply is inelastic. B. and supply are both elastic. C. is inelastic and supply is elastic. D. and supply are both inelastic.

D

Suppose that two supply curves pass through the same point. One is steep, and the other is flat. Which of the following statements is correct? A. The flatter supply curve represents a supply that is inelastic relative to the supply represented by the steeper supply curve. B. A decrease in demand will increase total revenue if the steeper supply curve is relevant, while a decrease in demand will decrease total revenue if the flatter supply cure is relevant. C. Given two prices with which to calculate the price elasticity of supply, that elasticity would be the same for both curves. D. The steeper supply curve represents a supply that is inelastic relative to the supply represented by the flatter supply curve

D

When the price of chai tea lattés is $5, Maxine buys 20 per month. When the price is $4, she buys 30 per month. Maxine's demand for chai tea lattés is A. inelastic, and her demand curve would be relatively flat. B. elastic, and her demand curve would be relatively steep. C. inelastic, and her demand curve would be relatively steep. D. elastic, and her demand curve would be relatively flat

D

The cross-price elasticity of demand for bacon and eggs likely would be negative because bacon and eggs are complements for many people.

True