ECON 1: Homework 4 (Ch. 5)

Which of the following could be the price elasticity of demand for a good for which a decrease in price would decrease revenue? A. 0.8 B. 1.8 C. 2.4 D. 1

A. 0.8

D. decrease in total revenue of $120, so the price elasticity of demand is less than 1 in this price range.

A decrease in price from $20 to $10 leads to a A. decrease in total revenue of $200, so the price elasticity of demand is less than 1 in this price range. B. decrease in total revenue of $200, so the price elasticity of demand is greater than 1 in this price range. C. decrease in total revenue of $120, so demand is elastic in this price range. D. decrease in total revenue of $120, so the price elasticity of demand is less than 1 in this price range.

If marijuana were legalized, it is likely that there would be an increase in the supply of marijuana. Advocates of marijuana legalization argue that this would significantly reduce the amount of revenue going to the criminal organizations that currently supply marijuana. These advocates believe that the A. demand for marijuana is inelastic. B. demand for marijuana is elastic. C. supply for marijuana is inelastic. D. supply for marijuana is elastic.

A. demand for marijuana is inelastic.

When a supply curve is relatively flat, the A. supply is relatively elastic. B. sellers are not at all responsive to a change in price. C. equilibrium price changes substantially when the demand for the good changes. D. supply is relatively inelastic.

A. supply is relatively elastic.

D. GH

Along which of these segments of the supply curve is supply least elastic? A. AB B. CD C. AC D. GH

B. D3

As price falls from Pa to Pb, we could use the three demand curves to calculate three different values of the price elasticity of demand. Which of the three demand curves would produce the smallest elasticity? A. D2 B. D3 C. D1 D. All of the above are equally elastic.

B. 0.65.

As price rises from $7 to $8, the price elasticity of demand using the midpoint method is approximately A. 0.58. B. 0.65. C. 1.53. D. 0.09.

Get Smart University is contemplating an increase in tuition to enhance revenue. If GSU feels that raising tuition would enhance revenue, it is A. assuming that the supply of university education is elastic. B. assuming that the demand for university education is inelastic. C. ignoring the law of demand. D. assuming that the demand for university education is elastic.

B. assuming that the demand for university education is inelastic.

Holding all other factors constant and using the midpoint method, if a candy manufacturer increases production by 20 percent when the market price of candy increases from $0.50 to $0.60, then supply is A. inelastic, since the price elasticity of supply is equal to 1.1. B. elastic, since the price elasticity of supply is equal to 1.1. C. inelastic, since the price elasticity of supply is equal to .91. D. elastic, since the price elasticity of supply is equal to 0.91.

B. elastic, since the price elasticity of supply is equal to 1.1.

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. The equilibrium price will A. decrease in both the milk and beef markets. B. increase in both the milk and beef markets. C. decrease in the milk market and increase in the beef market. D. increase in the milk market and decrease in the beef market.

B. increase in both the milk and beef markets

In the early 1970s, OPEC's goal was to A. decrease the world-wide price of oil so that quantity demanded increased. B. increase the world-wide price of oil by reducing the quantity of oil supplied. C. increase the world-wide price of oil by increasing the quantity of oil supplied, thus raising total revenues for OPEC members. D. decrease the world-wide price of oil so that the quantity demanded increased, thus raising total revenues for OPEC members.

B. increase the world-wide price of oil by reducing the quantity of oil supplied.

Last year, Joan bought 50 pounds of hamburger when her household's income was $40,000. This year, her household income was only $30,000 and Joan bought 60 pounds of hamburger. All else constant, Joan's income elasticity of demand for hamburger is A. negative, so Joan considers hamburger to be a normal good but not a necessity. B. negative, so Joan considers hamburger to be an inferior good. C. positive, so Joan considers hamburger to be an inferior good. D. positive, so Joan considers hamburger to be a normal good and a necessity.

B. negative, so Joan considers hamburger to be an inferior good.

For which pairs of goods is the cross-price elasticity most likely to be positive? A. bicycle frames and bicycle tires B. pens and pencils C. college textbooks and iPods D. peanut butter and jelly

B. pens and pencils

If a 10% decrease in price for a good results in a 20% increase in quantity demanded, the price elasticity of demand is A. 0.50. B. 1.5. C. 2. D. 1.

C. 2.

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

C. demand for basic foodstuffs is usually inelastic, meaning that factors that shift supply to the right decrease total revenues to sellers.

Suppose that quantity demand falls by 30% as a result of a 5% increase in price. The price elasticity of demand for this good is A. inelastic and equal to 6. B. inelastic and equal to 0.17. C. elastic and equal to 6. D. elastic and equal to 0.17.

C. elastic and equal to 6.

Which of the following is likely to have the most price inelastic demand? A. diamond earrings B. box seats at a major league baseball game C. gasoline in the short run D. strawberry-banana milk shakes

C. gasoline in the short run

Holding all other forces constant, if increasing the price of a good leads to an increase in total revenue, then the demand for the good must be A. elastic. B. unit elastic. C. inelastic. D. None of the above is correct because a price increase always leads to an increase in total revenue.

C. inelastic.

If two goods are complements, their cross-price elasticity will be A. zero. B. equal to the difference between the income elasticities of demand for the two goods. C. negative. D. positive.

C. negative.

Cross-price elasticity of demand measures how A. strongly normal or inferior a good is. B. the price of one good changes in response to a change in the price of another good. C. the quantity demanded of one good changes in response to a change in the price of another good. D. the quantity demanded of one good changes in response to a change in the quantity demanded of another good.

C. the quantity demanded of one good changes in response to a change in the price of another good.

Suppose good X has a positive income elasticity of demand. This implies that good X could be (i) a normal good. (ii) a necessity. (iii) an inferior good. (iv) a luxury. A. (i) only B. (i) and (ii) only C. (iii) only D. (i), (ii), and (iv) only

D. (i), (ii), and (iv) only

If a 15% increase in price for a good results in a 20% decrease in quantity demanded, the price elasticity of demand is A. 1.60. B. 0.75. C. 1.25. D. 1.33.

D. 1.33.

In which of the following situations will total revenue increase? A. Price elasticity of demand is 3.0, and the price of the good decreases. B. Price elasticity of demand is 1.2, and the price of the good decreases. C. Price elasticity of demand is 0.5, and the price of the good increases. D. All of the above are correct

D. All of the above are correct

Suppose an airline determines that its customers traveling for business have inelastic demand and its customers traveling for vacations have an elastic demand. If the airline's objective is to increase total revenue, it should A. increase the price for both groups of customers. B. decrease the price to both groups of customers. C. increase the price charged to vacationers and decrease the price charged to business travelers. D. decrease the price charged to vacationers and increase the price charged to business travelers.

D. decrease the price charged to vacationers and increase the price charged to business travelers.

Farm programs that pay farmers not to plant crops on all their land A. hurt farmers by lowering their total revenue and hurt consumers by causing shortages of some food items. B. help farmers by cutting costs, which helps consumers by lowering food prices. C. help farmers directly since they receive government payments but have no real effects on consumers. D. help farmers by increasing total revenue in the market but hurt consumers by raising food prices.

D. help farmers by increasing total revenue in the market but hurt consumers by raising food prices.

When demand is inelastic, the price elasticity of demand is A. greater than 1, and price and total revenue will move in opposite directions. B. greater than 1, and price and total revenue will move in the same direction. C. less than 1, and price and total revenue will move in opposite directions. D. less than 1, and price and total revenue will move in the same direction.

D. less than 1, and price and total revenue will move in the same direction.

Suppose demand is perfectly elastic, and the supply of the good in question decreases. As a result, A. the equilibrium quantity and the equilibrium price both are unchanged. B. buyers' total expenditure on the good is unchanged. C. the equilibrium price increases, and the equilibrium quantity is unchanged. D. the equilibrium quantity decreases, and the equilibrium price is unchanged

D. the equilibrium quantity decreases, and the equilibrium price is unchanged

B. increase.

If the price increases in the region of the demand curve between points B and C, we can expect total revenue to A. stay the same. B. increase. C. first decrease, then increase until total revenue is maximized. D. decrease.

B. increases, and demand is price inelastic.

If the price rises from point D to point C, total revenue A. increases, and demand is price elastic. B. increases, and demand is price inelastic. C. decreases, and demand is price inelastic. D. decreases, and demand is price elastic.

D. 0.33.

Using the midpoint method, between prices of $20 and $30, price elasticity of demand is about A. 1.33. B. 0.4. C. 3. D. 0.33.

D. 2.8.

Using the midpoint method, if the price falls from $200 to $150, the absolute value of the price elasticity of demand is A. 5.3. B. 0.36. C. 0.8. D. 2.8.

B.

Which of the following expressions is valid for the price elasticity of demand?

B. supply curve C

Which of the three supply curves represents the most elastic supply? A. supply curve A B. supply curve C C. supply curve B D. There is no difference in the elasticity of the three supply curves.

A. Scenario D describes the short run, whereas scenario A describes the long run.

Which scenario describes the market for oil in the short run in comparison to the long run? A. Scenario D describes the short run, whereas scenario A describes the long run. B. Scenario A describes both the short run and the long run. C. Scenario D describes both the short run and the long run. D. Scenario C describes the short run, whereas scenario B describes the long run.

A government program that pays farmers not to plant corn on part of their land can help farmers not only through the subsidy payments to farmers who participate in the program but also by raising the market price of corn. a. TRUE b. FALSE

a. TRUE

Cross-price elasticity of demand measures how the quantity demanded of one good changes as the price of another good changes. a. TRUE b. FALSE

a. TRUE

Demand for a good is said to be inelastic if the quantity demanded increases slightly when the price falls by a large amount. a. TRUE b. FALSE

a. TRUE

Necessities tend to have inelastic demands, whereas luxuries tend to have elastic demands. a. TRUE b. FALSE

a. TRUE

Price elasticity of demand along a linear, downward-sloping demand curve decreases as price falls. a. TRUE b. FALSE

a. TRUE

Supply and demand both tend to be more elastic in the long run and more inelastic in the short run. a. TRUE b. FALSE

a. TRUE

The income elasticity of demand is defined as the percentage change in quantity demanded divided by the percentage change in income. a. TRUE b. FALSE

a. TRUE

Along the elastic portion of a linear demand curve, total revenue rises as price rises. a. TRUE b. FALSE

b. FALSE

Demand is inelastic if the price elasticity of demand is greater than 1. a. TRUE b. FALSE

b. FALSE

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. FALSE

If the price elasticity of demand is equal to 0, then demand is unit elastic. a. TRUE b. FALSE

b. FALSE

The income elasticity of demand is defined as the percentage change in quantity demanded divided by the percentage change in price. a. TRUE b. FALSE

b. FALSE

The price elasticity of demand is defined as the percentage change in price divided by the percentage change in quantity demanded. a. TRUE b. FALSE

b. FALSE

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

b. FALSE