Econ 101 - Chapter 5 Quiz

As the price elasticity of supply approaches infinity, very small changes in price lead to

Very large changes in quantity supplied

Suppose that when the price of good X falls from $10 to $8, the quantity demanded of good Y rises from 20 units to 25 units. Using the midpoint method, the cross-price elasticity of demand is

-1.0, X and Y are compliments

Between point A and point B, price elasticity of demand using the midpoint method is equal to

0.85

Using the midpoint method, at a price of $12, what is the income elasticity of demand when income rises from $5,000 to $10,000?

1.00

Demand is inelastic if the price elasticity of demand is _____ than 1.

less

If quantity demanded of an object is 40 at $2 and 30 at $4, what is the price elasticity of demand between those two points?

0.43

At price of $1.30 per pound, a local apple orchard is willing to supply 150 pounds of apples per day. At a price of $1.50 per pound, the orchard is willing to supply 170 pounds of apples per day. Using the midpoint method, the price elasticity of supply is about

0.875

When the price of a bracelet was $28 each, the jewelry shop sold 128 per month. When it raised the price to $32 each, it sold 112 per month. Using the midpoint method, the price elasticity of demand for bracelets is

1

Suppose the price of a bag of frozen chicken nuggets decreases from $6.50 to $5.75 and, as a result, the quantity of bags demanded increases from 600 to 800. Using the midpoint method, the price elasticity of demand for frozen chicken nuggets in the given price range is

2.33: ((800-600)/((800+600)/2))/((5.75-6.50)/((5.75+6.50)/2))

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

2.6 (any number over 1)

If the price elasticity of demand for aluminum foil is 1.45, then a 2.4% decrease in the price of aluminum foil will increase the quantity demanded of aluminum foil by

3.48%, and aluminum foil sellers' total revenue will increase as a result. (1.45 * 2.8) (1.45>1)

If the price elasticity of demand for a good is 1.2, then a 3 percent decrease in price results in a

3.6% increase in the quantity demanded (1.2 * 3)

Studies indicate that the price elasticity of demand for beer is about 0.9. A government policy aimed at reducing beer consumption changed the price of a case of beer from $10 to $20. According to the midpoint method, the government policy should have reduced beer consumption by

60%: Percent Change in Beer Consumption = 0.9 * Percent Change in Price

When demand is elastic, an increase in price will cause

A decrease in total revenue

Which of the following statements about agriculture in the U.S. is not correct?

Because technological improvements increase the supply of a product for which demand is inelastic, an individual farmer would be better off not adopting the new technology.

The art in scientific thinking is

Deciding which assumptions to make

You have just been hired as a business consultant to determine what pricing policy would be appropriate to increase the total revenue of a bakery. The first step you would take would be to

Determine the price elasticity of demand for the bakery's products

When studying how some event or policy affects a market, elasticity provides information on the

Direction and magnitude of the effect

Along the elastic portion of a linear demand curve, total revenue rises as price

Falls

If the price elasticity of supply is 0.5 and the quantity supplied decreases by 6%, then the price must have decreased by 3%.

False

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 is likely to have the most price elastic demand?

Fountain ink pens

A government program that reduces land under cultivation can

Help farmers by raising prices but hurts consumers

If the price increases in the region of the demand curve between points B and C, we can expect total revenue to

Increase

While in college, John and Bethany each buy five packages of mac-n-cheese per week. After they graduate and have full-time jobs, John buys six packages per week, but Bethany buys only two packages per week. When looking at income elasticity of demand for mac-n-cheese

John's is positive and Bethany's is negative

The supply of a good will be more elastic, the

Longer the time period being considered

Demand is said to be inelastic if the

Quantity demanded changes proportionately less than price

The price elasticity of demand measures how much

Quantity demanded responds to a change in price

In the case of perfectly inelastic demand,

Quantity demanded stays the same whenever price changes

Demand is elastic between prices P1 and P2, a decrease in price from P2 to P1 will cause an increase in total revenue, and the magnitude of the percent change in price between P1 and P2 is smaller than the magnitude of the corresponding percent change in quantity demanded if

Rectangle D is larger than Rectangle A

The price elasticity of supply measures how responsive

Sellers are to a change in price

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

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

Suppose that when the price of ginger ale is $2 per bottle, firms can sell 4 million bottles. When the price of ginger ale is $3 per bottle, firms can sell 2 million bottles. Which of the following statements is true?

The demand for ginger ale is price elastic, so an increase in the price of ginger ale will decrease the total revenue of ginger ale producers.

For a particular good, a 3 percent increase in price causes a 10 percent decrease in quantity demanded. Which of the following statements is most likely applicable to this good?

There are many close substitutes for this good

Suppose the government is concerned about firms in the United States importing illegal caviar. As a result, the government increases border patrols to catch illegal shipments. U.S. Customs agents perform DNA testing on the caviar to determine if it comes from endangered species of fish. If so, the government destroys the caviar. What would we expect to observe in the legal caviar market?

Total revenue for caviar firms will increase if demand is inelastic

If soybean farmers know that the demand for soybeans is inelastic, in order to increase their total revenues they should

Use more fertilizers and weedkillers to increase their yield and plant additional acres to increase their output

Cross-price elasticity is used to determine

Whether goods are compliments or substitutes

Which of the following is likely to have the most price inelastic demand?

lightbulbs

The price elasticity of demand changes as we move along a

linear, downward-sloping demand curve

Suppose that Juan Carlos is filling out a survey that he received in the mail. The survey asks him what he would do if the price of his favorite toothpaste increased. Juan Carlos reports that he would switch to a different brand. The survey asks what he would do if the price of all toothpastes increased. Juan Carlos reports that he must use toothpaste, so he would have to adjust his spending elsewhere. These examples illustrate the importance of

the definition of a market in determining the price elasticity of demand