Exam #3: Mod 11, 12, & 13

Suppose there is a 6 percent increase in the price of good X and a resulting 6 percent decrease in the quantity of X demanded. Price elasticity of demand for X is --0. --1. --6. --36.

1

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

1.60, and supply is elastic.

If the cross-price elasticity of two goods is negative, then the two goods are --necessities. --complements. --normal goods. --inferior goods

complements

If the cross-price elasticity of two goods is negative, then the two goods are --necessities. --complements. --normal goods. --inferior goods.

complements.

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

elastic

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%.Refer to Scenario 5-2. The change in equilibrium quantity will be --greater in the aged cheddar cheese market than in the bread market. --greater in the bread market than in the aged cheddar cheese market. --the same in the aged cheddar cheese and bread markets. --Any of the above could be correct.

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

A good will have a more elastic demand, the --greater the availability of close substitutes. --more broad the definition of the market. --shorter the period of time. --more it is regarded as a necessity.

greater the availability of close substitutes.

Suppose the price elasticity of supply for soccer balls is 0.3 in the short run and 1.2 in the long run. If an increase in the demand for soccer balls causes the price of soccer balls to increase by 20%, then the quantity supplied of soccer balls will increase by about --0.67% in the short run and 0.17% in the long run. --3% in the short run and 1.2% in the long run. --6% in the short run and 24% in the long run. --66.7% in the short run and 16.7% in the long run.

6% in the short run and 24% in the long run.

The production of methamphetamine (meth) is a social problem in the Midwest. Iowa is considering two potential programs: Operation Methbust would increase the number of sheriffs' deputies to search out and destroy methamphetamine labs. Operation Say No to Meth would increase the training required of public school teachers so that they could better educate students about the health risks of using meth. Assuming that each program were successful, which of the following statements is correct? --Both Operation Methbust and Say No would reduce the equilibrium quantity and increase the equilibrium price of meth. --Both Operation Methbust and Say No would increase the equilibrium quantity and reduce the equilibrium price of meth. --Both Operation Methbust and Say No would reduce the equilibrium quantity of meth; Operation Methbust would increase the equilibrium price, whereas Say No would reduce the equilibrium price of meth. --Both Operation Methbust and Say No would reduce the equilibrium price of meth; Operation Methbust would reduce the equilibrium quantity, whereas Say No would increase the equilibrium quantity of meth.

Both Operation Methbust and Say No would reduce the equilibrium quantity of meth; Operation Methbust would increase the equilibrium price, whereas Say No would reduce the equilibrium price of meth.

The production of methamphetamine (meth) is a social problem in the Midwest. Iowa is considering two potential programs: Operation Methbust would increase the number of sheriffs' deputies to search out and destroy methamphetamine labs. Operation Say No to Meth would increase the training required of public school teachers so that they could better educate students about the health risks of using meth. Assuming that each program were successful, which of the following statements is correct? --Both Operation Methbust and Say No would reduce the demand for meth. --Both Operation Methbust and Say No would reduce the supply of meth. --Operation Methbust would reduce the demand for meth; Operation Say No would reduce the supply of meth. --Operation Methbust would reduce the supply of meth; Operation Say No would reduce the demand for meth.

Operation Methbust would reduce the supply of meth; Operation Say No would reduce the demand for meth.

For a particular good, a 10 percent increase in price causes a 15 percent decrease in quantity demanded. Which of the following statements is most likely applicable to this good? --There are no close substitutes for this good. --The good is a necessity. --The market for the good is broadly defined. --The relevant time horizon is long.

The relevant time horizon is long.

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.Refer to Scenario 5-4. What would we expect to observe in the caviar market? --Equilibrium prices and quantities will increase. --Equilibrium prices will increase by more if the demand for caviar is elastic than if demand is inelastic. --Total revenues to caviar firms will increase if the demand for caviar is inelastic. --All of the above are correct.

Total revenues to caviar firms will increase if the demand for caviar is inelastic.

A decrease in supply will cause the smallest increase in price when --both supply and demand are inelastic. --demand is elastic and supply is inelastic. --both supply and demand are elastic. --demand is inelastic and supply is elastic.

both supply and demand are elastic.

Holding all other forces constant, when the price of gasoline rises, the number of gallons of gasoline demanded would fall substantially over a ten-year period because --buyers tend to be much less sensitive to a change in price when given more time to react. --buyers tend to be much more sensitive to a change in price when given more time to react. --buyers will have substantially more real income over a ten-year period. --the quantity supplied of gasoline increases very little in response to an increase in the price of gasoline.

buyers tend to be much more sensitive to a change in price when given more time to react.

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%.Refer to Scenario 5-2. The equilibrium quantity will --increase in both the aged cheddar cheese and bread markets. --increase in the aged cheddar cheese market and decrease in the bread market. --decrease in the aged cheddar cheese market and increase in the bread market. --decrease in both the aged cheddar cheese and bread markets.

decrease in both the aged cheddar cheese and bread markets.

Because the demand for wheat tends to be inelastic, the development of a new, more productive hybrid wheat would tend to --increase the total revenue of wheat farmers. --decrease the total revenue of wheat farmers. --decrease the demand for wheat. --decrease the supply of wheat.

decrease the total revenue of wheat farmers.

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%.Refer to Scenario 5-2. Total consumer spending on aged cheddar cheese will --increase, and total consumer spending on bread will increase. --increase, and total consumer spending on bread will decrease. --decrease, and total consumer spending on bread will increase. --decrease, and total consumer spending on bread will decrease.

decrease, and total consumer spending on bread will decrease.

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

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

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 --supply for marijuana is elastic. --demand for marijuana is elastic. --supply for marijuana is inelastic. --demand for marijuana is inelastic.

demand for marijuana is inelastic.

There are very few, if any, good substitutes for motor oil. Therefore, the --demand for motor oil would tend to be inelastic. --demand for motor oil would tend to be elastic. --demand for motor oil would tend to respond strongly to changes in prices of other goods. --supply of motor oil would tend to respond strongly to changes in people's tastes for large cars relative to their tastes for small cars.

demand for motor oil would tend to be inelastic

The discovery of a new hybrid wheat would increase the supply of wheat. As a result, wheat farmers would realize an increase in total revenue if the --supply of wheat is elastic. --supply of wheat is inelastic. --demand for wheat is inelastic. --demand for wheat is elastic.

demand for wheat is elastic

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

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

If the price of milk rises, when is the price elasticity of demand likely to be the lowest? --immediately after the price increase --one month after the price increase --three months after the price increase --one year after the price increase

immediately after the price increase

If the demand for donuts is elastic, then a decrease in the price of donuts will --increase total revenue of donut sellers. --decrease total revenue of donut sellers. --not change total revenue of donut sellers. --There is not enough information to answer this question.

increase total revenue of donut sellers.

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.Refer to Scenario 5-3. Total consumer spending on milk will --increase, and total consumer spending on beef will increase. --increase, and total consumer spending on beef will decrease. --decrease, and total consumer spending on beef will increase. --decrease, and total consumer spending on beef will decrease.

increase, and total consumer spending on beef will decrease.

Scenario 5-3Milk 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.Refer to Scenario 5-3. Total consumer spending on milk will --increase, and total consumer spending on beef will increase. --increase, and total consumer spending on beef will decrease. --decrease, and total consumer spending on beef will increase. --decrease, and total consumer spending on beef will decrease.

increase, and total consumer spending on beef will decrease.

The price elasticity of demand for eggs --is computed as the percentage change in quantity demanded of ----eggs divided by the percentage change in price of eggs. will be lower if there is a new invention that is a close substitute for eggs. --will be higher if consumers consider eggs to be a necessity. --All of the above are correct.

is computed as the percentage change in quantity demanded of eggs divided by the percentage change in price of eggs.

The price elasticity of demand for eggs --is computed as the percentage change in quantity demanded of eggs divided by the percentage change in price of eggs. --will be lower if there is a new invention that is a close substitute for eggs. --will be higher if consumers consider eggs to be a necessity. --All of the above are correct.

is computed as the percentage change in quantity demanded of eggs divided by the percentage change in price of eggs.

Suppose researchers at the University of Wisconsin discover a new vitamin that increases the milk production of dairy cows. If the demand for milk is relatively inelastic, the discovery will --raise both price and total revenues. --lower both price and total revenues. --raise price and lower total revenues. --lower price and raise total revenues.

lower both price and total revenues.

Which of the following is likely to have the most price inelastic demand? --lattés --filet mignon --Grey Goose® vodka --milk

milk

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

negative

Assume that a 4 percent decrease in income results in a 6 percent increase in the quantity demanded of a good. The income elasticity of demand for the good is --negative, and the good is an inferior good. --negative, and the good is a normal good. --positive, and the good is an inferior good. --positive, and the good is a normal good.

negative, and the good is an inferior good.

A drug interdiction program that successfully reduces the supply of illegal drugs in the United States likely will --raise the price, reduce the quantity, decrease total revenues, and decrease crime. --lower the price, increase the quantity, increase total revenues, and increase crime. --raise the price, increase the quantity, decrease total revenues, and increase crime. --raise the price, reduce the quantity, increase total revenues, and increase crime.

raise the price, reduce the quantity, increase total revenues, and increase crime.

Suppose that corn farmers want to increase their total revenue. Knowing that the demand for corn is inelastic, corn farmers should --plant more corn so that they would be able to sell more each year. --increase spending on fertilizer in an attempt to produce more corn on the acres they farm. --reduce the number of acres on which they plant corn. --contribute to a fund that promotes technological advances in corn production.

reduce the number of acres on which they plant corn.

If soybean farmers know that the demand for soybeans is price inelastic, in order to increase their total revenues they should --use more fertilizers and weed killers to increase their yields. --plant additional acres to increase their output. --reduce the number of acres they plant to decrease their output. --Both a and b are correct.

reduce the number of acres they plant to decrease their output

Which of the following is likely to have the most price inelastic demand? --white chocolate chip with macadamia nut cookies --hardback novels --salt --box seats at a major league baseball game

salt

Suppose you are in charge of setting prices at a local sandwich shop. The business needs to increase its total revenue, and your job is on the line. If the demand for sandwiches is elastic, you --should increase the price of sandwiches. --should decrease the price of sandwiches. --should not change the price of sandwiches. --could not determine what to do with price until you determine whether supply is elastic or inelastic.

should decrease the price of sandwiches.

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. --a necessity versus a luxury in determining the price elasticity of demand. --the definition of a market in determining the price elasticity of demand. --the time horizon in determining the price elasticity of demand.

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

The price elasticity of supply measures how much --the quantity supplied responds to changes in input prices. --the quantity supplied responds to changes in the price of the good. --the price of the good responds to changes in supply. --sellers respond to changes in technology.

the quantity supplied responds to changes in the price of the good.

For which of the following goods is the income elasticity of demand likely lowest? --water --sapphire pendant necklaces --filet mignon steaks --fresh fruit

water

The federal government is concerned about obesity in the United States. Congress is considering two plans. One will ban the production and sale of "junk food." The other will increase nutrition-education programs and include substantial advertising campaigns to encourage healthy eating habits. The junk-food ban program --and the education program will reduce the quantity of junk food sold and raise the price. --and the education program will reduce the quantity of junk food sold and lower the price. --will reduce the quantity of junk food sold and raise the price. The education program will reduce the quantity of junk food sold and lower the price. --will reduce the quantity of junk food sold and lower the price. The education program will reduce the quantity of junk food sold and raise the price.

will reduce the quantity of junk food sold and raise the price. The education program will reduce the quantity of junk food sold and lower the price.

If sellers do not adjust their quantity supplied at all in response to a change in price, the price elasticity of supply is --zero, and the supply curve is horizontal. --zero, and the supply curve is vertical. --infinity, and the supply curve is horizontal. --infinity, and the supply curve is vertical.

zero, and the supply curve is vertical.