Economic Exam 1 Chapte 3

Refer to Figure 5-7 . Using the midpoint method, what is the price elasticity of supply between point B and point C? a. 1.44 b. 1.29 c. 0.69 d. 0.96

a. 1.44

1. If scientists discover that steamed milk, which is used to make lattés, prevents heart attacks, what would happen to the equilibrium price and quantity of lattés? A. Both the equilibrium price and quantity would increase. B. Both the equilibrium price and quantity would decrease. C. The equilibrium price would increase, and the equilibrium quantity would decrease. D. The equilibrium price would decrease, and the equilibrium quantity would increase.

A. Both the equilibrium price and quantity would increase.

Refer to Table 4-6. The equilibrium price and quantity, respectively, are A. $2 and 50 units. B. $6 and 30 units. C. $6 and 60 units. D. $12 and 30 units.

B. $6 and 30 units.

1. Which of the following would shift the supply of Green Bay Packers football jerseys to the left? A. The Green Bay Packers make it to the Super Bowl. B. The price of the jerseys increases by $15. C. The technology of sewing machines used to make the jerseys improves. D. The cost of the fabric used to make the jerseys increases.

D. The cost of the fabric used to make the jerseys increases.

If a 25 percent change in price results in a 40 percent change in quantity supplied, then the price elasticity of supply is about a. 1.60, and supply is elastic. b. 0.63, and supply is elastic. c. 0.63, and supply is inelastic. d. 1.60, and supply is inelastic.

a. 1.60, and supply is elastic.

If the price elasticity of demand for a good is 2.0, then a 10 percent increase in price results in a a. 20 percent decrease in the quantity demanded. b. 40 percent decrease in the quantity demanded. c. 0.2 percent decrease in the quantity demanded. d. 5 percent decrease in the quantity demanded.

a. 20 percent decrease in the quantity demanded.

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

a. both supply and demand are inelastic.

The supply of aged cheddar cheese is inelastic, and the supply of bread is elastic. Both goods are considered to be normal goods by a majority of consumers. Suppose that a large income tax increase decreases the demand for both goods by 10 percent. a. greater in the aged cheddar cheese market than in the bread market. b. greater in the bread market than in the aged cheddar cheese market. c. the same in the aged cheddar cheese and bread markets. d. unknown without more information.

a. greater in the aged cheddar cheese market than in the bread market.

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

a. tends to be elastic.

Refer to Figure 5-7 . If, holding the supply curve fixed, there were an increase in demand that caused the equilibrium price to increase from $6 to $7, then sellers' total revenue would

a. increase. b. decrease. c. remain unchanged. d. The effect on total revenue cannot be determined from the given information.

If the price elasticity of supply is 1.5, and a price increase led to a 1.8 percent increase in quantity supplied, then the price increase is about a. 0.83 percent. b. 1.20 percent. c. 2.70 percent. d. 0.67 percent.

b. 1.20 percent.

If a 15% increase in price for a good results in a 20 percent decrease in quantity demanded, the price elasticity of demand is a. 1.25. b. 1.33. c. 1.60. d. 0.75.

b. 1.33.

Refer to Figure 5-6 . Using the midpoint method, what is the price elasticity of supply between points A and B? a. 0.43 b. 2.33 c. 0.1 d. 1.0

b. 2.33

Refer to Figure 5-6 . Along which of these segments of the supply curve is supply least elastic? a. AB b. GH c. AC d. CD

b. GH

The supply of aged cheddar cheese is inelastic, and the supply of bread is elastic. Both goods are considered to be normal goods by a majority of consumers. Suppose that a large income tax increase decreases the demand for both goods by 10 percent. Refer to Scenario 5-2. The change in equilibrium quantity will be a. greater in the aged cheddar cheese market than in the bread market. b. greater in the bread market than in the aged cheddar cheese market. c. the same in the aged cheddar cheese and bread markets. d. unknown without more information.

b. greater in the bread market than in the aged cheddar cheese market.

Goods with many close substitutes tend to have a. price elasticities of demand that are unit elastic. b. more elastic demands. c. less elastic demands. d. income elasticities of demand that are negative.

b. more elastic demands.

If the price of walnuts rises, many people would switch from consuming walnuts to consuming pecans. But if the price of salt rises, people would have difficulty purchasing something to use in its place. These examples illustrate the importance of a. the definition of a market in determining the price elasticity of demand. b. the availability of close substitutes in determining the price elasticity of demand. c. the time horizon in determining the price elasticity of demand. d. a necessity versus a luxury in determining the price elasticity of demand.

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

Cross-price elasticity of demand measures how: a. strongly normal or inferior a good is. b. the quantity demanded of one good changes in response to a change in the price of another good. c. the price 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.

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

For which pairs of goods is the cross-price elasticity most likely to be positive? a. Peanut butter and jelly b. Pens and pencils c. Bicycle frames and bicycle tires d. Digital college textbooks and iPhones

b. Pens and pencils

Refer to Figure 5-2. The section of the demand curve from A to B represents the: a. unit elastic section of the demand curve. b. perfectly elastic section of the demand curve. c. inelastic section of the demand curve. d. elastic section of the demand curve.

d. elastic section of the demand curve.

The supply of aged cheddar cheese is inelastic, and the supply of bread is elastic. Both goods are considered to be normal goods by a majority of consumers. Suppose that a large income tax increase decreases the demand for both goods by 10 percent. Refer to Scenario 5-2. Total consumer spending on aged cheddar cheese will: a. decrease, and total consumer spending on bread will increase. b. increase, and total consumer spending on bread will decrease. c. decrease, and total consumer spending on bread will decrease. d. increase, and total consumer spending on bread will increase

c. decrease, and total consumer spending on bread will decrease.

Assume that a 4 percent increase in income results in a 2 percent increase in the quantity demanded of a good. The income elasticity of demand for the good is a. positive, and the good is an inferior good. b. negative, and the good is a normal good. c. positive, and the good is a normal good. d. negative, and the good is an inferior good.

c. positive, and the good is a normal good.

Demand is said to be inelastic if a. demand shifts only slightly when the price of the good changes. b. the price of the good responds only slightly to changes in demand. c. the quantity demanded changes only slightly when the price of the good changes. d. buyers respond substantially to changes in the price of the good.

c. the quantity demanded changes only slightly when the price of the good changes.

A key determinant of the price elasticity of supply is the: a. price elasticity of demand. b. income of consumers. c. time horizon. d. importance of the good in a consumer's budget.

c. time horizon.

If the price of natural gas rises, when is the price elasticity of demand likely to be the highest? a. One month after the price increase b. Immediately after the price increase c. One year after the price increase d. Three months after the price increase

c. One year after the price increase

Refer to Figure 5-3. The maximum value of total revenue corresponds to a price of a. $100. b. $20. c. $70. d. $50.

d. $50.

A manufacturer produces 400 units when the market price is $10 per unit and produces 600 units when the market price is $12 per unit. Using the midpoint method, for this range of prices, the price elasticity of supply is about: a. 0.45. b. 200. c. 2.0. d. 2.2.

d. 2.2.

For which of the following goods is the income elasticity of demand likely highest? a. Hamburgers b. Housing c. Water d. Diamonds

d. Diamonds