ECON Ch 5

If the supply curve for a product is vertical, then the elasticity of supply is: a.equal to zero. b.equal to infinity. c.greater than 1 but less than infinity. d.equal to 1.

a.equal to zero.

If the supply curve for housing is perfectly inelastic, then a reduction in demand will cause the equilibrium price to: a.fall and the equilibrium quantity to stay the same. b.rise and the equilibrium quantity to fall. c.rise and the equilibrium quantity to stay the same. d.fall and the equilibrium quantity to fall.

a.fall and the equilibrium quantity to stay the same.

A perfectly elastic supply curve is: a.horizontal. b.vertical. c.upward sloping to the right. d.downward sloping to the left.

a.horizontal.

A 25 percent decrease in the price of breakfast cereal leads to a 20 percent increase in the quantity of cereal demanded. As a result: a.total revenue will decrease. b.total revenue will remain constant. c.the elasticity of demand will increase. d.total revenue will increase.

a.total revenue will decrease.

Billy Bob's Barber Shop knows that a 5 percent increase in the price of their haircuts results in a 15 percent decrease in the number of haircuts purchased. What is the elasticity of demand facing Billy Bob's Barber Shop? a.0.05 b.3.0 c.0.15 d.0.10

b.3.0

Taxes on goods with __________ demand curves will tend to raise more tax revenue for the government than taxes on goods with __________ demand curves. a.unit elastic; inelastic b.inelastic; elastic c.elastic; inelastic d.elastic; unit elastic

b.inelastic; elastic

Price elasticity of demand is defined as: a.the percentage change in price divided by the percentage change in quantity demanded. b.the percentage change in quantity demanded divided by the percentage change in price. c.the slope of the demand curve divided by the price. d.the slope of the demand curve.

b.the percentage change in quantity demanded divided by the percentage change in price.

If cola and iced tea are good substitutes for consumers, then it is likely that: a.their price elasticities of supply are less than one . b.their cross price elasticities are greater than zero. c.their price elasticities of demand are less than one. d.their income elasticities are less than zero.

b.their cross price elasticities are greater than zero.

Demand is said to be ___________ when the quantity demanded is very responsive to changes in price. a.unit elastic b.inelastic c.elastic d.independent

c.elastic

When economists are sketching examples of a demand or supply curve that is close to horizontal, they refer to that demand or supply curve as ____________. a.price inelasticity b.having zero elasticity c.elastic d.inelastic

c.elastic

A price cut will increase the total revenue a firm receives if the demand for its product is: a.unit elastic. b.inelastic. c.elastic. d.unit inelastic.

c.elastic.

If the supply curve for housing is perfectly inelastic, then a reduction in demand will cause the equilibrium price to: a.fall and the equilibrium quantity to fall. b.rise and the equilibrium quantity to stay the same. c.fall and the equilibrium quantity to stay the same. d.rise and the equilibrium quantity to fall.

c.fall and the equilibrium quantity to stay the same.

The price elasticity of demand for tickets to local baseball games is estimated to be equal to 0.89. In order to boost ticket revenues, an economist would advise: a.decreasing the price of game tickets because demand is elastic. b.not changing the price of game tickets because demand is unit elastic. c.increasing the price of game tickets because demand is inelastic. d.increasing the price of game tickets because demand is elastic.

c.increasing the price of game tickets because demand is inelastic.

When economists are sketching examples of demand and supply, it is common to sketch a demand or supply curve that is close to vertical, and then to refer to that curve as _________. a.elastic b.income elasticity c.inelastic d.unitary elasticity

c.inelastic

A demand or supply curve with ______________ would be horizontal in appearance. a.zero elasticity b.unitary elasticity c.infinite elasticity d.infinite cost elasticity

c.infinite elasticity

Demand is said to be __________ when the quantity demanded changes at the same proportion as the price. a.independent b.elastic c.unit elastic d.inelastic

c.unit elastic

Supply is said to be ____________ when the quantity supplied is very responsive to changes in price. a.inelastic b.independent c.unit elastic d.elastic

d.elastic

If the demand curve is perfectly elastic, then an increase in supply will: a.increase both the price and the quantity exchanged. b.increase the price but result in no change in the quantity exchanged. c.decrease the price but result in no change in the quantity exchanged. d.increase the quantity exchanged but result in no change in the price.

d.increase the quantity exchanged but result in no change in the price.

The evidence on the supply curve of financial capital is controversial, but at least in the short run, the elasticity of savings with respect to the interest rate appears to be __________. a.perfectly elastic b.elastic c.negative d.inelastic

d.inelastic

If the demand curve for a life-saving medicine is perfectly inelastic, then a reduction in supply will cause the equilibrium price to: a.stay the same and the equilibrium quantity to fall. b.rise and the equilibrium quantity to rise. c.rise and the equilibrium quantity to fall. d.rise and the equilibrium quantity to stay the same.

d.rise and the equilibrium quantity to stay the same.