Micro quiz

Which of the following was not a reason OPEC failed to keep the price of oil high?

The agreement OPEC members signed allowed each country to produce as much oil as each wanted.

Elasticity of demand is closely related to the slope of the demand curve. The more responsive buyers are to a change in price, the

flatter the demand curve will be.

Which of the following statements is not correct concerning government attempts to reduce the flow of illegal drugs into the country? Drug interdiction

shifts the demand curve for drugs to the left.

If the price of walnuts rises, many people would switch from consuming walnuts to consuming cashews. But if the price of salt rises, people would have difficulty purchasing something to use in its place. These examples illustrate the importance of

the availability of close substitutes in determining the price elasticity of demand.

In January, the price of dark chocolate candy bars was $2.00, and Willy's Chocolate Factory produced 80 pounds. In February, the price of dark chocolate candy bars was $2.50, and Willy's produced 110 pounds. In March, the price of dark chocolate candy bars was $3.00, and Willy's produced 140 pounds. Using the midpoint method, the price elasticity of supply of Willy's dark chocolate candy bars was about

1.42 when the price increased from $2.00 to $2.50 and 1.32 when the price increased from $2.50 to $3.00.

Which of the following could be the price elasticity of demand for a good for which a decrease in price would increase total revenue?

2.6

Using the midpoint method, between prices of $70 and $80, price elasticity of demand is about

3.00

Total revenue when the price is P1 is represented by

areas B + D.

Refer to Figure 5-3. At a price of $70 per unit, sellers' total revenue equals

$1,050.

If rectangle D is larger than rectangle A, then which of the following is not correct?

An increase in price from P1 to P2 will cause an increase in total revenue.

A government program that reduces land under cultivation hurts farmers but helps consumers.

False

A linear, downward-sloping demand curve has a constant elasticity but a changing slope.

False

An advantage of using the midpoint method to calculate the price elasticity of demand is that it uses the metric system.

False

Cross-price elasticity is used to determine whether goods are inferior or normal goods.

False

If a firm is facing inelastic demand, then the firm should decrease price to increase revenue.

False

If we observe that when consumers' incomes rise by 10%, the quantity demanded of ice cream increases by 5%, then ice cream is an inferior good.

False

The flatter the demand curve that passes through a given point, the more inelastic the demand.

False

A "Just Say No" drug education policy that successfully educates consumers to reduce their demand for drugs will lower drug prices and reduce the quantity of drugs demanded.

True

If the cross-price elasticity of demand for two goods is negative, then the two goods are substitutes.

True

If we observe that when a consumer's income rises by 10%, the quantity demanded of chocolate candy bars increases by 15%, then chocolate candy bars are are a normal good for that consumer.

True

A decrease in supply will cause the largest increase in price when

both supply and demand are inelastic.

Demand is said to be price elastic if

buyers respond substantially to changes in the price of the good.

Milk has an inelastic demand, and steak 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.

decrease in both the milk and steak markets.

If the price elasticity of supply is 0.7, and price increased by 24 percent, quantity supplied would

increase by 16.80 percent.

Milk has an inelastic demand, and steak 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. Total consumer spending on milk will

increase, and total consumer spending on steak will decrease.

When large changes in price lead to no changes in quantity demanded, demand is perfectly

inelastic, and the demand curve will be vertical.

The supply of a good will be more elastic, the

longer the time period being considered.

Suppose researchers at the University of Wisconsin discover a new vitamin that increases the milk production of dairy cows. If the demand for milk is relatively inelastic, the discovery will

lower both price and total revenues.

Income elasticity of demand measures how

the quantity demanded changes as consumer income changes.

The price elasticity of supply measures how much

the quantity supplied responds to changes in the price of the good.