Economics Exam 2: Chapter 5

When the price of a good is $5, the quantity demanded is 120 units per month; when the price is $7, the quantity demanded is 100 units per month. Using the midpoint method, the price elasticity of demand is about A. 0.55. B. 1.83. C. 2. D. 10.

A. 0.55.

Refer to Table 5-5. Using the midpoint method, when income equals $5,000, what is the price elasticity of demand between $8 and $12? A. 0.56 B. 0.75 C. 1.33 D. 1.80

A. 0.56

Refer to Figure 5-2. As price falls from Pa to Pb, which demand curve represents the most elastic demand? A. D1 B. D2 C. D3 D. All of the above are equally elastic.

A. D1

Elasticity is A. a measure of how much buyers and sellers respond to changes in market conditions. B. the study of how the allocation of resources affects economic well-being. C. the maximum amount that a buyer will pay for a good. D. the value of everything a seller must give up to produce a good.

A. a measure of how much buyers and sellers respond to changes in market conditions.

Ryan says that he would buy one cup of tea every day regardless of the price. If he is telling the truth, Ryan's A. demand for tea is perfectly inelastic. B. price elasticity of demand for tea is 1. C. income elasticity of demand for tea is 0. D. None of the above answers is correct.

A. demand for tea is perfectly inelastic.

If the demand for textbooks is inelastic, then an increase in the price of textbooks will A. increase total revenue of textbook sellers. B. decrease total revenue of textbook sellers. C. not change total revenue of textbook sellers. D. There is not enough information to answer this question.

A. increase total revenue of textbook sellers.

Suppose that two supply curves pass through the same point. One is steep, and the other is flat. Which of the following statements is correct? A. The flatter supply curve represents a supply that is inelastic relative to the supply represented by the steeper supply curve. B. The steeper supply curve represents a supply that is inelastic relative to the supply represented by the flatter supply curve. C. Given two prices with which to calculate the price elasticity of supply, that elasticity would be the same for both curves. D. A decrease in demand will increase total revenue if the steeper supply curve is relevant, while a decrease in demand will decrease total revenue if the flatter supply cure is relevant.

B. The steeper supply curve represents a supply that is inelastic relative to the supply represented by the flatter supply curve.

The case of perfectly elastic demand is illustrated by a demand curve that is A. vertical. B. horizontal. C. downward-sloping but relatively steep. D. downward-sloping but relatively flat.

B. horizontal.

If the price elasticity of supply is 1.2, and price increased by 5%, quantity supplied would A. increase by 4.2%. B. increase by 6%. C. decrease by 4.2%. D. decrease by 6%.

B. increase by 6%.

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 A. raise both price and total revenues. B. lower both price and total revenues. C. raise price and lower total revenues. D. lower price and raise total revenues.

B. lower both price and total revenues.

If the price elasticity of supply for a good is equal to infinity, then the A. supply curve is vertical. B. supply curve is horizontal. C. supply curve also has a slope equal to infinity. D. quantity supplied is constant regardless of the price.

B. supply curve is horizontal.

The price elasticity of demand measures A. buyers' responsiveness to a change in the price of a good. B. the extent to which demand increases as additional buyers enter the market. C. how much more of a good consumers will demand when incomes rise. D. the movement along a supply curve when there is a change in demand.

B. the extent to which demand increases as additional buyers enter the market.

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

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

If demand is price inelastic, then when price rises, total revenue A. will fall. B. will rise. C. will remain unchanged. D. may rise, fall, or remain unchanged. More information is need to determine the change in total revenue with certainty.

B. will rise.

At price of $1.25, a paper manufacturer is willing to supply 150 spiral notebooks per day. At a price of $1.50, the paper manufacturer is willing to supply 175 spiral notebooks per day. Using the midpoint method, the price elasticity of supply is about A. 1.18 B. 1.00 C. 0.85 D. 0.25

C. 0.85

Refer to Table 5-5. Using the midpoint method, at a price of $16, what is the income elasticity of demand when income rises from $5,000 to $10,000? A. 0.00 B. 0.50 C. 1.00 D. 1.50

C. 1.00

Refer to Figure 5-1. Between point A and point B, price elasticity of demand is equal to A. 0.33. B. 0.67. C. 1.5 D. 2.67.

C. 1.5

Refer to Table 5-2. Using the midpoint method, if the price falls from $80 to $60, the absolute value of the price elasticity of demand is A. 20. B. 10. C. 2.33. D. 0.43.

C. 2.33.

Refer to Table 5-1. Which of the following is consistent with the elasticities given in Table 5-1? A. A is root beer, and B is carbonated beverages. B. A is bicycles, and B is mopeds. C. A is airline tickets in the short run, and B is airline tickets in the long run. D. A is gourmet coffee, and B is dentist's visits.

C. A is airline tickets in the short run, and B is airline tickets in the long run.

The production of methamphetamine (meth) is a social problem in the Midwest. Iowa is considering two po-tential programs: Operation Methbust would increase the number of sheriffs' deputies to search out and de-stroy 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? A. Both Operation Methbust and Say No would reduce the equilibrium quantity and increase the equilibrium price of meth. B. Both Operation Methbust and Say No would increase the equilibrium quantity and reduce the equilibrium price of meth. C. 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. D. 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.

C. 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.

Which of the following is an illustration of the market for original paintings by deceased artist Vincent Van Gogh? A. A B. B C. C D. D

C. C

Refer to Figure 5-2. As price falls from Pa to Pb, we could use the three demand curves to calculate three different values of the price elasticity of demand. Which of the three demand curves would produce the smallest elasticity? A. D1 B. D2 C. D3 D. All of the above are equally elastic.

C. D3

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

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

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

C. elastic.

When a supply curve is relatively flat, the A. sellers are not at all responsive to a change in price. B. equilibrium price changes substantially when the demand for the good changes. C. supply is relatively elastic. D. supply is relatively inelastic.

C. supply is relatively elastic.

Refer to Table 5-2. Using the midpoint method, if the price falls from $60 to $40, the price elasticity of demand is A. zero. B. inelastic. C. unit elastic. D. elastic.

C. unit elastic

Refer to Figure 5-15. Using the midpoint method, what is the price elasticity of supply between $4 and $6? A. 0.75 B. 1.00 C. 1.20 D. 1.25

D. 1.25

Refer to Table 5-5. Using the midpoint method, when income equals $7,500, what is the price elasticity of demand between $16 and $20? A. 0.56 B. 0.75 C. 1.33 D. 1.80

D. 1.80

At a price of $1.00, a local coffee shop is willing to supply 100 cinnamon rolls per day. At a price of $1.20, the coffee shop would be willing to supply 150 cinnamon rolls per day. Using the midpoint method, the price elasticity of supply is about A. 0.45 B. 0.90 C. 1.11 D. 2.20

D. 2.20

If the price elasticity of demand for a good is 4.0, then a 10 percent increase in price results in a A. 0.4 percent decrease in the quantity demanded. B. 2.5 percent decrease in the quantity demanded. C. 4 percent decrease in the quantity demanded. D. 40 percent decrease in the quantity demanded.

D. 40 percent decrease in the quantity demanded.

Refer to Table 5-1. Which of the following is consistent with the elasticities given in Table 5-1? A. A is a luxury, and B is a necessity. B. A is a good several years after a price increase, and B is that same good several days after the price increase. C. A is a Kit Kat bar, and B is candy. D. A has fewer substitutes than B.

D. A has fewer substitutes than B.

Using the midpoint method, the price elasticity of demand for a good is computed to be approximately 2. Which of the following events is consistent with a 0.1 percent increase in the price of the good? A. The quantity of the good demanded decreases from 250 to 150. B. The quantity of the good demanded decreases from 200 to 100. C. The quantity of the good demanded decreases by 0.05 percent. D. The quantity of the good demanded decreases by 0.2 percent.

D. The quantity of the good demanded decreases by 0.2 percent.

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? A. There are no close substitutes for this good. B. The good is a necessity. C. The market for the good is broadly defined. D. The relevant time horizon is long.

D. The relevant time horizon is long.

Refer to Figure 5-1. Between point A and point B on the graph, demand is A. perfectly elastic. B. inelastic. C. unit elastic. D. elastic, but not perfectly elastic.

D. elastic, but not perfectly elastic.

The greater the price elasticity of demand, the A. more likely the product is a necessity. B. smaller the responsiveness of quantity demanded to a change in price. C. greater the percentage change in price over the percentage change in quantity demanded. D. greater the responsiveness of quantity demanded to a change in price.

D. greater the responsiveness of quantity demanded to a change in price.

In general, elasticity is a measure of A. the extent to which advances in technology are adopted by producers. B. the extent to which a market is competitive. C. how firms' profits respond to changes in market prices. D. how much buyers and sellers respond to changes in market conditions.

D. how much buyers and sellers respond to changes in market conditions.

In the case of perfectly inelastic demand, A. the change in quantity demanded equals the change in price. B. the percentage change in quantity demanded equals the percentage change in price. C. infinitely-large changes in quantity demanded result from very small changes in the price. D. quantity demanded stays the same whenever price changes.

D. quantity demanded stays the same whenever price changes.