Question 1

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

Accepted Answer

A) True 
 B)False

Question 2

The flatter the demand curve through a given point, the

Accepted Answer

A)   greater the price elasticity of demand at that point.
B)   smaller the price elasticity of demand at that point.
C)   closer the price elasticity of demand will be to the slope of the curve.
D)   greater the absolute value of the change in total revenue when there is a movement from that point upward and to the left along the demand curve.E) A) and D)
F) B) and C)

Question 3

Figure 5-6 
-Refer to Figure 5-6. For prices below $8, demand is price

Accepted Answer

A)   elastic, and total revenue will rise as price rises.
B)   inelastic, and total revenue will rise as price rises.
C)   elastic, and total revenue will fall as price rises.
D)   inelastic, and total revenue will fall as price rises.E) None of the above
F) A) and D)

Question 4

Holding all other factors constant and using the midpoint method, if a candy manufacturer increases production by 20 percent when the market price of candy increases from $0.50 to $0.60, then supply is

Accepted Answer

A)   inelastic, since the price elasticity of supply is equal to .91.
B)   inelastic, since the price elasticity of supply is equal to 1.1.
C)   elastic, since the price elasticity of supply is equal to 0.91.
D)   elastic, since the price elasticity of supply is equal to 1.1.E) B) and C)
F) A) and D)

Question 5

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

Accepted Answer

A)   0.
B)   1.
C)   6.
D)   36.E) None of the above
F) All of the above

Question 6

Normal goods have negative income elasticities of demand, while inferior goods have positive income elasticities of demand.

Accepted Answer

A) True 
 B)False

Question 7

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?

Accepted Answer

A)   The demand for ginger ale is income inelastic, so an increase in the price of ginger ale will increase the total revenue of ginger ale producers.
B)   The demand for ginger ale is income elastic, so an increase in the price of ginger ale will increase the total revenue of ginger ale producers.
C)   The demand for ginger ale is price inelastic, so an increase in the price of ginger ale will increase the total revenue of ginger ale producers.
D)   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.E) None of the above
F) A) and B)

Question 8

The price elasticity of demand for bread

Accepted Answer

A)   is computed as the percentage change in quantity demanded of bread divided by the percentage change in price of bread.
B)   depends, in part, on the availability of close substitutes for bread.
C)   reflects the many economic, social, and psychological forces that influence consumers' tastes for bread.
D)   All of the above are correct.E) A) and B)
F) A) and C)

Question 9

Suppose that 50 ice cream cones are demanded at a particular price. If the price of ice cream cones rises from that price by 4 percent, the number of ice cream cones demanded falls to 46. Using the midpoint approach to calculate the price elasticity of demand, it follows that the

Accepted Answer

A)   demand for ice cream cones in this price range is elastic.
B)   demand for ice cream cones in this price range is inelastic.
C)   demand for ice cream cones in this price range is unit elastic.
D)   price elasticity of demand for ice cream cones in this price range is 0.E) A) and C)
F) C) and D)

Question 10

Suppose that when the price of wheat is $2 per bushel, farmers can sell 10 million bushels. When the price of wheat is $3 per bushel, farmers can sell 8 million bushels. Which of the following statements is true? The demand for wheat is

Accepted Answer

A)   income inelastic, so an increase in the price of wheat will increase the total revenue of wheat farmers.
B)   income elastic, so an increase in the price of wheat will increase the total revenue of wheat farmers.
C)   price inelastic, so an increase in the price of wheat will increase the total revenue of wheat farmers.
D)   price elastic, so an increase in the price of wheat will increase the total revenue of wheat farmers.E) B) and C)
F) A) and D)

Question 11

Figure 5-4 
-Refer to Figure 5-4. The section of the demand curve from B to C represents the

Accepted Answer

A)   elastic section of the demand curve.
B)   perfectly elastic section of the demand curve.
C)   unit elastic section of the demand curve.
D)   inelastic section of the demand curve.E) A) and D)
F) A) and B)

Question 12

Figure 5-13 
-Refer to Figure 5-13. Between point A and point B, price elasticity of demand using the midpoint method is equal to

Accepted Answer

A)   0.71.
B)   0.85.
C)   1.18.
D)   1.40.E) None of the above
F) A) and B)

Question 13

If we observe that when consumers' incomes rise by 10%, the quantity demanded of ice cream increases by 5%,
then ice cream is an inferior good.

Accepted Answer

A) True 
 B)False

Question 14

Table 5-5 
-Refer to Table 5-5. As price rises from $7 to $8, the price elasticity of demand using the midpoint method is approximately

Accepted Answer

A)   0.09.
B)   0.58.
C)   0.65.
D)   1.53.E) B) and C)
F) C) and D)

Question 15

Table 5-11 
-Refer to Table 5-11. Which scenario describes the market for oil in the long run?

Accepted Answer

A)   A
B)   B
C)   C
D)   DE) C) and D)
F) A) and B)

Question 16

Table 5-2 
-Refer to Table 5-2. Using the midpoint method, if the price falls from $150 to $100, the absolute value of the price elasticity of demand is

Accepted Answer

A)   0.4.
B)   0.9.
C)   1.1.
D)   2.E) None of the above
F) A) and B)

Question 17

When a supply curve is relatively flat,

Accepted Answer

A)   sellers are not very responsive to changes in price.
B)   supply is relatively inelastic.
C)   supply is relatively elastic.
D)   Both a and b are correct.E) A) and B)
F) A) and C)

Question 18

Holding all other forces constant, if decreasing the price of a good leads to a decrease in total revenue, then the demand for the good must be

Accepted Answer

A)   unit elastic.
B)   inelastic.
C)   elastic.
D)   None of the above is correct because a price decrease never leads to an decrease in total revenue.E) A) and B)
F) A) and D)

Question 19

If the cross-price elasticity of two goods is positive, then the two goods are

Accepted Answer

A)   substitutes.
B)   complements.
C)   normal goods.
D)   inferior goods.E) A) and B)
F) A) and C)

Question 20

Supply and demand both tend to be more elastic in the long run and more inelastic in the short run.

Accepted Answer

A) True 
 B)False

Exam 5: Elasticity and Its Application

Holding all other factors constant and using the midpoint method, if a candy manufacturer increases production by 20 percent when the market price of candy increases from $0.50 to $0.60, then supply is

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The price elasticity of demand for bread

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

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Figure 5-4 -Refer to Figure 5-4. The section of the demand curve from B to C represents the

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Normal goods have negative income elasticities of demand, while inferior goods have positive income elasticities of demand.

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Figure 5-13 -Refer to Figure 5-13. Between point A and point B, price elasticity of demand using the midpoint method is equal to

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Table 5-2 -Refer to Table 5-2. Using the midpoint method, if the price falls from $150 to $100, the absolute value of the price elasticity of demand is

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Table 5-5 -Refer to Table 5-5. As price rises from $7 to $8, the price elasticity of demand using the midpoint method is approximately

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Table 5-11 -Refer to Table 5-11. Which scenario describes the market for oil in the long run?

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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?

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Suppose that 50 ice cream cones are demanded at a particular price. If the price of ice cream cones rises from that price by 4 percent, the number of ice cream cones demanded falls to 46. Using the midpoint approach to calculate the price elasticity of demand, it follows that the

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If the cross-price elasticity of two goods is positive, then the two goods are

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Suppose that when the price of wheat is $2 per bushel, farmers can sell 10 million bushels. When the price of wheat is $3 per bushel, farmers can sell 8 million bushels. Which of the following statements is true? The demand for wheat is

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The flatter the demand curve through a given point, the

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If we observe that when consumers' incomes rise by 10%, the quantity demanded of ice cream increases by 5%, then ice cream is an inferior good.

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Supply and demand both tend to be more elastic in the long run and more inelastic in the short run.

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When a supply curve is relatively flat,

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Holding all other forces constant, if decreasing the price of a good leads to a decrease in total revenue, then the demand for the good must be

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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

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Figure 5-6 -Refer to Figure 5-6. For prices below $8, demand is price

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