Question 1

Suppose that demand is inelastic within a certain price range. For that price range,

Accepted Answer

A)  an increase in price would increase total revenue because the decrease in quantity demanded is proportionately less than the increase in price.
B)  an increase in price would decrease total revenue because the decrease in quantity demanded is proportionately greater than the increase in price.
C)  a decrease in price would increase total revenue because the increase in quantity demanded is proportionately smaller than the decrease in price.
D)  a decrease in price would not affect total revenue.E) A) and D)
F) B) and C)

Question 2

For which pairs of goods is the cross-price elasticity most likely to be negative?

Accepted Answer

A)  peanut butter and jelly
B)  automobile tires and coffee
C)  pens and pencils
D)  paperback novels and electronic books for e-readersE) A) and B)
F) None of the above

Question 3

-Refer to Table 5-2. Using the midpoint method, if the price falls from $200 to $150, the price elasticity of demand is

Accepted Answer

A)  zero.
B)  unit elastic.
C)  inelastic.
D)  elastic.E) B) and D)
F) None of the above

Question 4

Suppose demand is perfectly elastic, and the supply of the good in question decreases. As a result,

Accepted Answer

A)  the equilibrium quantity decreases, and the equilibrium price is unchanged.
B)  the equilibrium price increases, and the equilibrium quantity is unchanged.
C)  the equilibrium quantity and the equilibrium price both are unchanged.
D)  buyers' total expenditure on the good is unchanged.E) A) and B)
F) C) and D)

Question 5

If a firm is facing elastic demand, then the firm should decrease price to increase revenue.

Accepted Answer

A) True 
 B)False

Question 6

If we observe that when the price of ice cream rises by 10%, ice cream manufacturers increase the quantity supplied of ice cream by 20%, then the price elasticity of supply is 2.

Accepted Answer

A) True 
 B)False

Question 7

Suppose that corn farmers want to increase their total revenue. Knowing that the demand for corn is inelastic, corn farmers should

Accepted Answer

A)  plant more corn so that they would be able to sell more each year.
B)  increase spending on fertilizer in an attempt to produce more corn on the acres they farm.
C)  reduce the number of acres on which they plant corn.
D)  contribute to a fund that promotes technological advances in corn production.E) A) and D)
F) A) and C)

Question 8

Demand for a good is said to be inelastic if the quantity demanded increases substantially when the price falls by a small amount.

Accepted Answer

A) True 
 B)False

Question 9

Which of the following should be held constant when calculating an income elasticity of demand?

Accepted Answer

A)  the quantity of the good demanded
B)  the price of the good
C)  income
D)  All of the above should be held constant.E) A) and C)
F) None of the above

Question 10

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) B) and C)
F) None of the above

Question 11

When the price of knee braces increased by 25 percent, the Brace Yourself Company increased its quantity supplied of knee braces per week by 75 percent. BYC's price elasticity of supply of knee braces is 0.33.

Accepted Answer

A) True 
 B)False

Question 12

Figure 5-19    
-Refer to Figure 5-19. Which of the following statements is not correct?

Accepted Answer

A)  Supply curve A is perfectly inelastic.
B)  Supply curve B is perfectly elastic.
C)  Supply curve C is unit elastic.
D)  Supply curve D is more elastic than supply curve C.E) C) and D)
F) A) and B)

Question 13

Table 5-5 
-Refer to Table 5-5. Demand is unit elastic when quantity demanded changes from

Accepted Answer

A)  9 to 8.
B)  10 to 9.
C)  10 to 11.
D)  There is not enough information given to determine the correct answer.E) A) and B)
F) All of the above

Question 14

The price elasticity of demand is defined as the percentage change in quantity demanded divided by the percentage change in price.

Accepted Answer

A) True 
 B)False

Question 15

Figure 5-17 
-Refer to Figure 5-17. Using the midpoint method, what is the price elasticity of supply between point B and point C?

Accepted Answer

A)  1.44
B)  1.29
C)  0.96
D)  0.69E) B) and C)
F) A) and C)

Question 16

The demand for Rice Krispies is more elastic than the demand for cereal in general.

Accepted Answer

A) True 
 B)False

Question 17

Holding all other factors constant and using the midpoint method, if a tractor manufacturer increases production from 80 to 100 units when price increases by 15 percent, then supply is

Accepted Answer

A)  inelastic, since the price elasticity of supply is equal to 0.68.
B)  inelastic, since the price elasticity of supply is equal to 1.48.
C)  elastic, since the price elasticity of supply is equal to 0.68.
D)  elastic, since the price elasticity of supply is equal to 1.48.E) None of the above
F) A) and B)

Question 18

When demand is perfectly inelastic, the price elasticity of demand

Accepted Answer

A)  is zero, and the demand curve is vertical.
B)  is zero, and the demand curve is horizontal.
C)  approaches infinity, and the demand curve is vertical.
D)  approaches infinity, and the demand curve is horizontal.E) A) and B)
F) All of the above

Question 19

A government program that reduces land under cultivation hurts farmers but helps consumers.

Accepted Answer

A) True 
 B)False

Question 20

Elasticity of demand is closely related to the slope of the demand curve. The less responsive buyers are to a change in price, the

Accepted Answer

A)  steeper the demand curve will be.
B)  flatter the demand curve will be.
C)  further to the right the demand curve will sit.
D)  closer to the vertical axis the demand curve will sit.E) A) and D)
F) A) and C)

Exam 5: Elasticity and Its Application

Which of the following should be held constant when calculating an income elasticity of demand?

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If a firm is facing elastic demand, then the firm should decrease price to increase revenue.

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The demand for Rice Krispies is more elastic than the demand for cereal in general.

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When the price of knee braces increased by 25 percent, the Brace Yourself Company increased its quantity supplied of knee braces per week by 75 percent. BYC's price elasticity of supply of knee braces is 0.33.

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A government program that reduces land under cultivation hurts farmers but helps consumers.

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If we observe that when the price of ice cream rises by 10%, ice cream manufacturers increase the quantity supplied of ice cream by 20%, then the price elasticity of supply is 2.

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When demand is perfectly inelastic, the price elasticity of demand

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Suppose that corn farmers want to increase their total revenue. Knowing that the demand for corn is inelastic, corn farmers should

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For which pairs of goods is the cross-price elasticity most likely to be negative?

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The price elasticity of demand is defined as the percentage change in quantity demanded divided by the percentage change in price.

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-Refer to Table 5-2. Using the midpoint method, if the price falls from $200 to $150, the price elasticity of demand is

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Figure 5-19 -Refer to Figure 5-19. Which of the following statements is not correct?

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Holding all other factors constant and using the midpoint method, if a tractor manufacturer increases production from 80 to 100 units when price increases by 15 percent, then supply is

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Table 5-5 -Refer to Table 5-5. Demand is unit elastic when quantity demanded changes from

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Suppose that demand is inelastic within a certain price range. For that price range,

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Elasticity of demand is closely related to the slope of the demand curve. The less responsive buyers are to a change in price, the

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Demand for a good is said to be inelastic if the quantity demanded increases substantially when the price falls by a small amount.

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Suppose demand is perfectly elastic, and the supply of the good in question decreases. As a result,

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Figure 5-17 -Refer to Figure 5-17. Using the midpoint method, what is the price elasticity of supply between point B and point C?

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When a supply curve is relatively flat,

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