Elasticity and Its Application (Ch05)

In competitive markets, farmers adopt new technologies that will eventually reduce their revenue because a. each farmer is a price taker. b. farmers are short-sighted. c. regulation requires the use of best practices. d. consumers pressure farmers to lower prices.

a. each farmer is a price taker.

An increase in the supply of grain will reduce the total revenue grain producers receive if a. the demand curve is inelastic. b. the demand curve is elastic. c. the supply curve is inelastic. d. the supply curve is elastic.

a. the demand curve is inelastic.

If the cross-price elasticity between two goods is negative, the two goods are likely to be a. complements. b. luxuries. c. substitutes. d. necessities.

a. complements.

In general, a flatter demand curve is more likely to be a. price elastic. b. price inelastic. c. unit price elastic. d. none of the above.

a. price elastic.

Technological improvements in agriculture that shift the supply of agricultural commodities to the right tend to a. reduce total revenue to farmers as a whole because the demand for food is inelastic. b. increase total revenue to farmers as a whole because the demand for food is elastic. c. increase total revenue to farmers as a whole because the demand for food is inelastic. d. reduce total revenue to farmers as a whole because the demand for food is elastic.

a. reduce total revenue to farmers as a whole because the demand for food is inelastic.

If a supply curve for a good is price elastic, then a. the quantity supplied is sensitive to changes in the price of that good. b. the quantity supplied is insensitive to changes in the price of that good. c. the quantity demanded is sensitive to changes in the price of that good. d. the quantity demanded is insensitive to changes in the price of that good. e. none of the above.

a. the quantity supplied is sensitive to changes in the price of that good.

The citizens of Lilliput spend a higher fraction of their income on food than do the citizens of Brobdingnag. The reason could be that a. Lilliput has lower food prices, and the price elasticity of demand is 0.5. b. Lilliput has lower income, and the income elasticity of demand is 0.5. c. Lilliput has lower income, and the income elasticity of demand is 1.5. d. Lilliput has lower food prices, and the price elasticity of demand is zero

b. Lilliput has lower income, and the income elasticity of demand is 0.5.

A linear, downward-sloping demand curve is a. elastic. b. inelastic at some points, and elastic at others. c. unit elastic. d. inelastic

b. inelastic at some points, and elastic at others

If consumers always spend 15 percent of their income on food, then the income elasticity of demand for food is a. 0.15. b. 1.00. c. 1.15. d. 1.50. e. none of the above.

b. 1.00.

Which of the following would cause a demand curve for a good to be price inelastic? a. The good is inferior. b. The good is a necessity. c. The good is a luxury. d. There are a great number of substitutes for the good.

b. The good is a necessity.

A decrease in supply (shift to the left) will increase total revenue in that market if a. supply is price inelastic. b. demand is price inelastic. c. demand is price elastic. d. supply is price elastic.

b. demand is price inelastic.

If demand is linear (a straight line), then price elasticity of demand is a. elastic throughout. b. elastic in the upper portion and inelastic in the lower portion. c. constant along the demand curve. d. inelastic throughout. e. inelastic in the upper portion and elastic in the lower portion

b. elastic in the upper portion and inelastic in the lower portion.

If supply is price inelastic, the value of the price elasticity of supply must be a. zero. b. less than 1. c. greater than 1. d. infinite. e. none of the above.

b. less than 1.

If a small percentage increase in the price of a good greatly reduces the quantity demanded for that good, the demand for that good is a. price inelastic. b. price elastic. c. unit price elastic. d. income elastic. e. income inelastic.

b. price elastic.

If there is excess capacity in a production facility, it is likely that the firm's supply curve is a. price inelastic. b. price elastic. c. unit price elastic. d. none of the above.

b. price elastic.

In general, a steeper supply curve is more likely to be a. price elastic. b. price inelastic. c. unit price elastic. d. none of the above.

b. price inelastic.

If a fisherman must sell all of his daily catch before it spoils for whatever price he is offered, once the fish are caught, the fisherman's price elasticity of supply for fresh fish is a. infinite. b. zero. c. unable to be determined from this information. d. one.

b. zero.

An increase in a good's price reduces the total amount consumers spend on the good if the ________ elasticity of demand is ________ than one. a. income, greater b. income, less c. price, greater d. price, less

c. price, greater

If the price elasticity of supply is zero, the supply curve is a. horizontal. b. fairly flat at low quantities but steeper at larger quantities. c. vertical. d. upward sloping

c. vertical.

Suppose that at a price of $30 per month, there are 30,000 subscribers to cable television in Small Town. If Small Town Cablevision raises its price to $40 per month, the number of subscribers will fall to 20,000. At which of the following prices does Small Town Cablevision earn the greatest total revenue? a. $40 per month b. either $30 or $40 per month because the price elasticity of demand is 1.0 c. $30 per month d. $0 per month

c. $30 per month

Suppose that at a price of $30 per month, there are 30,000 subscribers to cable television in Small Town. If Small Town Cablevision raises its price to $40 per month, the number of subscribers will fall to 20,000. Using the midpoint method for calculating the elasticity, what is the price elasticity of demand for cable television in Small Town? a. 2.0 b. 0.75 c. 1.4 d. 0.66 e. 1.0

c. 1.4

The price of a good rises from $16 to $24, and the quantity supplied rises from 90 to 110 units. Calculated with the midpoint method, the price elasticity of supply is a. 1/5. b. 2. c. 1/2. d. 5

c. 1/2.

The price elasticity of demand is defined as a. the percentage change in price of a good divided by the percentage change in the quantity demanded of that good. b. the percentage change in income divided by the percentage change in the quantity demanded. c. the percentage change in the quantity demanded of a good divided by the percentage change in the price of that good. d. the percentage change in the quantity demanded divided by the percentage change in income. e. none of the above.

c. the percentage change in the quantity demanded of a good divided by the percentage change in the price of that good.

The demand for which of the following is likely to be the most price inelastic? a. taxi rides b. bus tickets c. transportation d. airline tickets

c. transportation

If an increase in the price of a good has no impact on the total revenue in that market, demand must be a. price inelastic. b. price elastic. c. unit price elastic. d. all of the above.

c. unit price elastic.

A good tends to have a small price elasticity of demand if a. the market is narrowly defined. b. there are many close substitutes. c. the long-run response is being measured. d. the good is a necessity.

d. the good is a necessity.

The ability of firms to enter and exit a market over time means that, in the long run, a. the supply curve is less elastic. b. the demand curve is less elastic. c. the demand curve is more elastic. d. the supply curve is more elastic.

d. the supply curve is more elastic.

If the income elasticity of demand for a good is negative, it must be a. a normal good. b. an elastic good. c. a luxury good. d. an inferior good.

d. an inferior good.

If consumers think that there are very few substitutes for a good, then a. supply would tend to be price elastic. b. supply would tend to be price inelastic. c. demand would tend to be price elastic. d. demand would tend to be price inelastic. e. none of the above is true.

d. demand would tend to be price inelastic

Because the demand curve for oil is ________ elastic in the long run, OPEC's reduction in the supply of oil had a ________ impact on the price in the long run than it did in the short run. a. more, larger b. less, larger c. less, smaller d. more, smaller

d. more, smaller