Homework #4 Chapter 5

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. 0.67 percent. B. 0.83 percent. C. 1.20 percent. D. 2.70 percent.

C. 1.20 percent.

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.

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. 2.0. C. 2.2. D. 200.

C. 2.2.

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 A. 0.35. B. 0.43. C. 2.33. D. 2.89.

C. 2.33.

Which of the following statements is valid when the market supply curve is vertical? A. Market quantity supplied does not change when the price changes. B. Supply is perfectly elastic. C. An increase in market demand will increase the equilibrium quantity. D. An increase in market demand will not increase the equilibrium price.

A. Market quantity supplied does not change when the price changes.

When small changes in price lead to infinite changes in quantity demanded, demand is perfectly A. elastic, and the demand curve will be horizontal. B. inelastic, and the demand curve will be horizontal. C. elastic, and the demand curve will be vertical. D. inelastic, and the demand curve will be vertical.

A. elastic, and the demand curve will be horizontal.

Goods with many close substitutes tend to have A. more elastic demands. B. less elastic demands. C. price elasticities of demand that are unit elastic. D. income elasticities of demand that are negative.

A. more elastic demands.

Refer to Figure 5-3. At a price of $70 per unit, sellers' total revenue equals A. $700. B. $1,050. C. $1,250. D. $1,400.

B. $1,050.

Refer to Table 5-2. Using the midpoint method, if the price falls from $200 to $150, the absolute value of the price elasticity of demand is A. 5.3. B. 2.8. C. 0.8. D. 0.36.

B. 2.8.

A good will have a more inelastic demand, the A. greater the availability of close substitutes. B. broader the definition of the market. C. longer the period of time. D. more it is regarded as a luxury.

B. broader the definition of the market.

If the price elasticity of demand for a good is 2.0, then a 10 percent increase in price results in a A. 0.2 percent decrease in the quantity demanded. B. 5 percent decrease in the quantity demanded. C. 20 percent decrease in the quantity demanded. D. 40 percent decrease in the quantity demanded.

C. 20 percent decrease in the quantity demanded.

Demand is said to be inelastic if A. buyers respond substantially to changes in the price of the good. B. demand shifts only slightly when the price of the good changes. C. the quantity demanded changes only slightly when the price of the good changes. D. 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.

Which of the following statements is not correct? A. Advocates for drug-interdiction policies that reduce the supply of illegal drugs argue that the demand for illegal drugs may be more responsive in the long run than in the short run. B. The demand for illegal drugs is price inelastic. C. Drug interdiction efforts that reduce the supply of illegal drugs may increase drug-related crimes. D. The quantity of illegal drugs demanded is very responsive to changes in price.

D. The quantity of illegal drugs demanded is very responsive to changes in price.

Demand is said to be price elastic if A. the price of the good responds substantially to changes in demand. B. demand shifts substantially when income or the expected future price of the good changes. C. buyers do not respond much to changes in the price of the good. D. buyers respond substantially to changes in the price of the good.

D. buyers respond substantially to changes in the price of the good.

Refer to Table 5-2. Using the midpoint method, if the price falls from $200 to $150, the price elasticity of demand is A. zero. B. unit elastic. C. inelastic. D. elastic.

D. elastic.