question

1 (The discovery will result in the supply curve shifting to the right. The demand curve for cranberries will not shift. When supply shifts to the right and demand remains constant, the equilibrium price of cranberries decreases and the equilibrium quantity increases. When the price decreases for a good with inelastic demand, total revenue decreases.)

answer

Suppose researchers discover a new shape for cranberry bogs that allow cranberry growers to harvest more cranberries than with the old shape. If the demand for cranberries is relatively inelastic, the discovery will

1)lower both price and total revenues.

2)raise price and lower total revenues.

3)raise both price and total revenues.

4)lower price and raise total revenues.

1)lower both price and total revenues.

2)raise price and lower total revenues.

3)raise both price and total revenues.

4)lower price and raise total revenues.

question

4 ((750-600) / [(750 +600/2] =022.)

answer

Holding all other factors constant and using the midpoint method, if a manufacturer increases production from 600 to 750 units when price increases by 15%, then supply is

1)inelastic, since the price elasticity of supply is equal to 148.

2)elastic, since the price elasticity of supply is equal to 068.

3)inelastic, since the price elasticity of supply is equal to 068.

4)elastic, since the price elasticity of supply is equal to 148.

1)inelastic, since the price elasticity of supply is equal to 148.

2)elastic, since the price elasticity of supply is equal to 068.

3)inelastic, since the price elasticity of supply is equal to 068.

4)elastic, since the price elasticity of supply is equal to 148.

question

3

answer

Compared to 1950 there has been

1)a 50 percent drop in farm output.

2)only a slight improvement in farm technology.

3)a 70 percent drop in the number of farmers, but farm output more than doubled.

4)a 70 percent drop in both the number of farmers and farm output.

1)a 50 percent drop in farm output.

2)only a slight improvement in farm technology.

3)a 70 percent drop in the number of farmers, but farm output more than doubled.

4)a 70 percent drop in both the number of farmers and farm output.

question

2 (The price elasticity of demand is computed by dividing the percent change in quantity by the percent change in price. For this good, the price elasticity of demand equals 10/15 = 0.67, which is inelastic. Goods with no close substitutes tend to have less elastic demand because it is more difficult for consumers to switch from that good to another.)

answer

For a particular good, a 15 percent increase in price causes a 10 percent decrease in quantity demanded. Which of the following statements is most likely applicable to this good?

1)There are many close substitutes for this good.

2)There are no close substitutes for this good.

3)The relevant time horizon is long.

4)This good is a luxury.

1)There are many close substitutes for this good.

2)There are no close substitutes for this good.

3)The relevant time horizon is long.

4)This good is a luxury.

question

midpoint method

answer

a technique for calculating the percent change in which changes in a variable are compared with the average, or midpoint, of the starting and final values.

question

midpoint method

answer

(Q2-Q1)/[(Q2+Q1)/2] / (P2-P1)/[(P2+P1)/2]

question

3

answer

Suppose that when the price of good X falls from $60 to $48, the quantity demanded of good Y falls from 10 units to 8 units. Using the midpoint method, the cross-price elasticity of demand is

1)-1.0, and X and Y are complements.

2)1.0, and X and Y are complements.

3)1.0, and X and Y are substitutes.

4)-1.0, and X and Y are substitutes.

1)-1.0, and X and Y are complements.

2)1.0, and X and Y are complements.

3)1.0, and X and Y are substitutes.

4)-1.0, and X and Y are substitutes.

question

elastic

answer

The Demand Curve that is most likely to represent the demand for a necessity with few close substitutes because it is the steepest, and therefore least ___________, of the three curve.

question

1 ((75-100) / [(75 +100)/2] = -0.286.)

answer

Suppose the price of memory foam pillows decreases from $100 to $75 and, as a result, the quantity of memory foam pillows demanded increases from 500 to 800 Using the midpoint method, the price elasticity of demand for memory foam pillows in the given price range is about

1)1.62.

2)0.62.

3)0.46.

4)1.00.

1)1.62.

2)0.62.

3)0.46.

4)1.00.

question

1 (It is almost impossible to produce more beachfront land, so it has the least elastic supply of the goods listed.)

answer

Which of the following would likely have the least elastic supply?

1)beachfront land

2)computers

3)candles

4)furniture

1)beachfront land

2)computers

3)candles

4)furniture

question

elastic

answer

The supply curve is most ____________ at low levels of output where the curve is relatively flat. Using the midpoint method, you can calculate the price elasticities of supply.

question

4 (

answer

Joseph's income elasticity of demand for fried chicken meals is -2. All else equal, this means that if his income increases by 5 percent, he will buy

1)2.5 percent fewer fried chicken meals.

2)10 percent more fried chicken meals.

3)5 percent more fried chicken meals.

4)10 percent fewer fried chicken meals.

1)2.5 percent fewer fried chicken meals.

2)10 percent more fried chicken meals.

3)5 percent more fried chicken meals.

4)10 percent fewer fried chicken meals.

question

1 (24-16) / [(24 +16)/2] =0.4

answer

Between point A (16) and point B(24) , price elasticity of demand is equal to

1)0.4.

2)1.5.

3)2.5.

4)0.6.

1)0.4.

2)1.5.

3)2.5.

4)0.6.

question

3 (The authorities should educate the public about the dangers of using heroin, which will reduce the demand for heroin and reduce the price of heroin. Because the demand is inelastic, a reduction in price causes a decrease in revenue to the sellers.)

answer

Authorities are considering two policies targeted at the market for heroin. The first policy would target the distribution and sale of heroin. The second policy would attempt to educate the public about the dangers of using heroin. If the authorities' primary goal were to reduce the revenue to heroin sellers, so as to make participating in the market less enticing, and assuming both policies would be effective, which of the following statements is correct?

1)The authorities should pursue the first policy because reducing the supply of heroin will increase the price of heroin, thereby reducing revenue to heroin sellers.

2)The authorities should pursue the second policy because reducing the demand for heroin will increase the price of heroin, thereby reducing revenue to heroin sellers.

3)The authorities should pursue the second policy because reducing the demand for heroin will decrease the price of heroin, thereby reducing revenue to heroin sellers.

4)The authorities should pursue the first policy because reducing the supply of heroin will decrease the price of heroin, thereby reducing revenue to heroin sellers.

1)The authorities should pursue the first policy because reducing the supply of heroin will increase the price of heroin, thereby reducing revenue to heroin sellers.

2)The authorities should pursue the second policy because reducing the demand for heroin will increase the price of heroin, thereby reducing revenue to heroin sellers.

3)The authorities should pursue the second policy because reducing the demand for heroin will decrease the price of heroin, thereby reducing revenue to heroin sellers.

4)The authorities should pursue the first policy because reducing the supply of heroin will decrease the price of heroin, thereby reducing revenue to heroin sellers.

question

3 (Narrowly defined markets tend to have more elastic demand than broadly defined markets because it is easier to find close substitutes for narrowly defined goods.)

answer

Which of the following is likely to have the most price elastic demand?

1)Soap

2)Moisturizing body wash

3)Dove® moisturizing body wash

4)body wash

1)Soap

2)Moisturizing body wash

3)Dove® moisturizing body wash

4)body wash

question

1 (both demand and supply are inelastic in the short run, suppliers of oil are likely to be able to cause a large change in price in the short run. However, because both demand and supply are elastic in the long run, suppliers of oil are likely to be able to cause only a small change in price in the long run.)

answer

Due to the relative elasticities of demand and supply, the suppliers of oil are likely to be able to cause a

1)large change in price in the short run, but only a small change in price in the long run.

2)large change in price in both the short run and the long run.

3)small change in price in both the short run and the long run.

4)small change in price in the short run, but a large change in price in the long run.

1)large change in price in the short run, but only a small change in price in the long run.

2)large change in price in both the short run and the long run.

3)small change in price in both the short run and the long run.

4)small change in price in the short run, but a large change in price in the long run.

question

Inferior

answer

the income elasticity is less than zero for good Y (-0.44 to be exact), so is good Y is a normal or inferior good?

question

inferior good

answer

a good that consumers demand less of when their incomes increase

question

normal good

answer

a good that consumers demand more of when their incomes increase

question

1 (In the market for oil in the long run, demand and supply are elastic, so a shift in supply leads to a small change in price.)

answer

In the market for oil in the long run, demand and supply are

1)elastic, so a shift in supply leads to a small change in price.

2)inelastic, so a shift in supply leads to a small change in price.

3)inelastic, so a shift in supply leads to a large change in price.

4)elastic, so a shift in supply leads to a large change in price.

1)elastic, so a shift in supply leads to a small change in price.

2)inelastic, so a shift in supply leads to a small change in price.

3)inelastic, so a shift in supply leads to a large change in price.

4)elastic, so a shift in supply leads to a large change in price.

question

3 (Using the midpoint method, the cross-price elasticity of demand is -1.25 and spinach and tomatoes are complements. To compute the percent change in quantity of good tomatoes, (5-3) / [(5 + 3)/2] = 0.5. To compute the percent change in price of spinach, (1.00-1.50) / [(1.00+1.50)/2] = -0.4. Dividing the percent change in quantity of tomatoes by the percent change in price of spinach yields a cross-price elasticity of demand of -1.25. When two goods have a negative cross-price elasticity, they are complements.)

answer

Matt purchases 4 boxes of spinach and 3 pounds of tomatoes per month when the price of spinach is $1.50 per box. He purchases 5 boxes of spinach and5pounds of tomatoes per month when the price of spinach is $1.00 per pound. Using the midpoint method, Matt's cross-price elasticity of demand for spinach and tomatoes is

1)0.80, and they are substitutes.

2)1.25, and they are substitutes.

3)-1.25, and they are complements.

4)-0.80, and they are complements.

1)0.80, and they are substitutes.

2)1.25, and they are substitutes.

3)-1.25, and they are complements.

4)-0.80, and they are complements.

question

3 (The price elasticity of demand measures the responsiveness of buyers to a change in the price of a good.)

answer

The percentage change in quantity demanded divided by the percentage change in price computes the

1)cross-price elasticity of demand.

2)income elasticity of demand.

3)price elasticity of demand.

4)price elasticity of supply.

1)cross-price elasticity of demand.

2)income elasticity of demand.

3)price elasticity of demand.

4)price elasticity of supply.

question

price elasticity

answer

The __________ _______________ of demand measures the responsiveness of buyers to a change in the price of a good.

question

2 (The price elasticity of demand is the absolute value of the percent change in the quantity demanded divided by the percent change in the price. A 10 percent decrease in the quantity demanded divided by a 5 percent increase in price leads to an absolute value of elasticity equal to 2)

answer

If the price elasticity of demand for a good is 2.0, then a 5 percent increase in price results in a

1)0.4 percent decrease in the quantity demanded.

2)10 percent decrease in the quantity demanded.

3)10 percent increase in the quantity demanded.

4)2.5 percent decrease in the quantity demanded.

1)0.4 percent decrease in the quantity demanded.

2)10 percent decrease in the quantity demanded.

3)10 percent increase in the quantity demanded.

4)2.5 percent decrease in the quantity demanded.

question

4 (Using the midpoint method, the price elasticity of demand is 1.00, which indicates unit elasticity. To compute the percent change in quantity, (120-150) / [(120 +150)/2] = -0.22. To compute the percent change in price, (50-40) / [(50 +40)/2] =0.22. Dividing the percent change in quantity by the percent change in price and taking the absolute value yields a price elasticity of demand of 1.00.)

answer

When the price of a sweater was $40, the store sold 150 sweaters per month. When it raised the price to $50 each, it sold 120 sweaters per month. Using the midpoint method, the price elasticity of demand for sweaters is

1) 0.22.

2) 3.00.

3) 4.50.

4) 1.00.

1) 0.22.

2) 3.00.

3) 4.50.

4) 1.00.

question

4 (-1.50 X 10% =-0.15 ; The negative in front of 0.15 indicates it's a fall in price)

answer

Suppose the cross-price elasticity of demand between pencils and paper is -1.50. This implies that a 10 percent increase in the price of pencils will cause the quantity of paper purchased to

1) fall by 667 percent.

2) rise by 667 percent.

3) rise by 15 percent.

4) fall by 15 percent.

1) fall by 667 percent.

2) rise by 667 percent.

3) rise by 15 percent.

4) fall by 15 percent.

question

cross price elasticity

answer

the percentage change in demand for product A that occurs in response to a percentage change in price of product B.

question

3 (If the price increases by 8 percent and the quantity supplied increases by 20 percent, the price elasticity of supply is (20/8 = 2.5). Because the quantity supplied changes proportionately 2.5 times as much as the price, producers are very responsive to the price change.)

answer

Suppose the price of tablets increases by 8 percent and producers respond by increasing the quantity supplied by 20 percent. The price elasticity of supply for tablets is

1) 0.4 and producers are very responsive to the price change.

2) 0.4 and producers are not responsive to the price change.

3) 2.5 and producers are very responsive to the price change.

4) 2.5 and producers are not responsive to the price change.

1) 0.4 and producers are very responsive to the price change.

2) 0.4 and producers are not responsive to the price change.

3) 2.5 and producers are very responsive to the price change.

4) 2.5 and producers are not responsive to the price change.

question

price elasticity of supply

answer

a measure of how much the quantity supplied of a good responds to a change in the price of that good, computed as the percentage change in quantity supplied divided by the percentage change in price.

question

3 (The price elasticity of demand is the absolute value of the percent change in the quantity demanded divided by the percent change in the price. A 9 percent decrease in the quantity demanded divided by a 20 percent increase in price leads to an absolute value of elasticity equal to 0.45.)

answer

If the price elasticity of demand for a good is 0.45, then which of the following events is consistent with a 9 percent decrease in the quantity of the good demanded?

1) a 0.05 percent increase in the price of the good

2) a 4.05 percent increase in the price of the good

3) a 20 percent increase in the price of the good

4) a 0.5 percent increase in the price of the good

1) a 0.05 percent increase in the price of the good

2) a 4.05 percent increase in the price of the good

3) a 20 percent increase in the price of the good

4) a 0.5 percent increase in the price of the good

question

1 (The price elasticity of supply depends on the flexibility of the sellers to change the amount of the good they produce. The longer firms have to adjust to a price change, the more responsive they can be. Over short periods of time, firms cannot easily change the size of their factories or enter industries.)

answer

Supply is usually more elastic in the long run than in the short run because

1) firms cannot easily change the size of their factories over short periods of time.

2) new firms can enter the industry in the short run but not in the long run.

3) consumers are less responsive to price changes in the long run.

4) price changes tend to be more dramatic in the long run.

1) firms cannot easily change the size of their factories over short periods of time.

2) new firms can enter the industry in the short run but not in the long run.

3) consumers are less responsive to price changes in the long run.

4) price changes tend to be more dramatic in the long run.

question

1 (The cross-price elasticity is positive for substitutes, like quilts and comforters.)

answer

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

1) quilts and comforters

2) pillows and blankets

3) bed frames and mattresses

4) sheets and towels

1) quilts and comforters

2) pillows and blankets

3) bed frames and mattresses

4) sheets and towels

question

3 (Without performing any calculations, we know that the price elasticity of demand for Tricia's tea must be elastic because total revenue and price moved in opposite directions. Using the midpoint approach, the price elasticity of demand is about 147 between $3 and $2.50. To determine the relevant quantities, divide the total revenue by the price. When price is $3 and total revenue is $2,520, quantity is 840 When price is $2.50 and total revenue is $2,750, quantity is 1100. To compute the percent change in quantity, (1100-840) / [(1100 +840/2] =027. To compute the percent change in price, (2.50-3) / [(2.50+3)/2] = -0.18. Dividing the percent change in quantity by the percent change in price and taking the absolute value yields a price elasticity of demand of about 1.47.)

answer

Tricia's Tea Shop increased its total monthly revenue from $2,520 to $2,750 when it reduced the price of a cup of tea from $3 to $2.50. The price elasticity of demand for Tricia's Tea Shop is

1) 0.18.

2) 1.00.

3) 1.47.

4) 0.68.

1) 0.18.

2) 1.00.

3) 1.47.

4) 0.68.

question

3 (A 72 percent increase in the quantity demanded divided by an 18 percent decrease in price leads to an absolute value of elasticity equal to 4)

answer

Suppose there is an 18 percent decrease in the price of a good that has a price elasticity of demand of 4. The percent increase in the quantity demanded must be

1) 0.22 percent.

2) 4.5 percent.

3) 72 percent.

4) 22 percent.

1) 0.22 percent.

2) 4.5 percent.

3) 72 percent.

4) 22 percent.

question

1 (If the price elasticity of supply is 0.6, a price increase of 15 percent leads to a 9 percent increase in quantity supplied (9%/15% = 0.6).)

answer

If the price elasticity of supply is 0.6 and price increases by 15 percent, the quantity supplied will increase by

1) 9 percent.

2) 4 percent.

3) 25 percent.

4) 0.04 percent.

1) 9 percent.

2) 4 percent.

3) 25 percent.

4) 0.04 percent.

question

least

answer

The supply curve is ___________ elastic at high levels of output where the curve is relatively steep.

question

4 (With perfectly elastic demand, any increase in price above that represented by the demand curve will result in a quantity demanded of zero.)

answer

A perfectly elastic demand implies that buyers of wheat would

1) buy 5% more wheat when the price of wheat decreases by 10%.

2) buy infinitely more wheat when the price of wheat increases by 1%.

3) buy 100% more wheat when the price of wheat decreases by 10%.

4) not buy any wheat, at all, with any increase in price above the demand curve.

1) buy 5% more wheat when the price of wheat decreases by 10%.

2) buy infinitely more wheat when the price of wheat increases by 1%.

3) buy 100% more wheat when the price of wheat decreases by 10%.

4) not buy any wheat, at all, with any increase in price above the demand curve.

question

inelastic

answer

When demand is ___________, total revenue rises as price rises.

question

elastic

answer

When demand is ____________, total revenue falls as price rises.

question

1 (n the market for oil in the short run, both demand and supply are inelastic, so a shift in supply leads to a large change in price.)

answer

In the market for oil in the short run, demand and supply are

1) inelastic, so a shift in supply leads to a large change in price.

2) elastic, so a shift in supply leads to a large change in price.

3) elastic, so a shift in supply leads to a small change in price.

4) inelastic, so a shift in supply leads to a small change in price.

1) inelastic, so a shift in supply leads to a large change in price.

2) elastic, so a shift in supply leads to a large change in price.

3) elastic, so a shift in supply leads to a small change in price.

4) inelastic, so a shift in supply leads to a small change in price.

question

4 (Total revenue equals price x quantity, so $16 x16= $256.)

answer

At a price of $16 per unit and quantity of 16, sellers' total revenue equals?

1) $160.

2) $288.

3) $384.

4) $256.

1) $160.

2) $288.

3) $384.

4) $256.

question

1 (Goods tend to have less elastic demand over shorter time horizons.)

answer

If the price of airline tickets falls, when is the price elasticity of demand likely to be the lowest?

1) immediately after the price increase

2) three months after the price increase

3) one year after the price increase

4) one month after the price increase

1) immediately after the price increase

2) three months after the price increase

3) one year after the price increase

4) one month after the price increase

question

1 (When demand is inelastic, higher prices result in higher revenue.)

answer

You are in charge of increasing revenue for the city's bus service. The mayor advises you to reduce the price of a bus ticket to get more riders, but you think a more prudent approach would be to increase the price of a bus ticket. Your approach is based on the assumption that

1) the demand for bus tickets is inelastic, and the mayor believes the demand for bus tickets is elastic.

2) the elasticity for bus tickets is irrelevant, and the mayor believes the demand for bus tickets is relevant.

3) there are many substitutes for the bus, and the mayor believes there are few substitutes for the bus.

4) the demand for bus tickets is elastic, and the mayor believes the demand for bus tickets is inelastic.

1) the demand for bus tickets is inelastic, and the mayor believes the demand for bus tickets is elastic.

2) the elasticity for bus tickets is irrelevant, and the mayor believes the demand for bus tickets is relevant.

3) there are many substitutes for the bus, and the mayor believes there are few substitutes for the bus.

4) the demand for bus tickets is elastic, and the mayor believes the demand for bus tickets is inelastic.

question

4 (If Marco spends exactly $100 on restaurant meals, regardless of the price of restaurant meals, the percent change in his quantity demanded will match exactly any percent change in the price, indicating unit elastic demand.)

answer

Marco says that he will spend exactly $100 per month on restaurant meals, regardless of the price of restaurant meals. Marco's demand for restaurant meals is

1) perfectly elastic.

2) perfectly inelastic.

3) independent of the price of restaurant meals.

4) unit elastic.

1) perfectly elastic.

2) perfectly inelastic.

3) independent of the price of restaurant meals.

4) unit elastic.

question

infinity

answer

Perfectly elastic supply has an elasticity value that equals _______________.

question

2 (One of the reasons why government drug interdiction increases drug-related crime is that by decreasing the supply and driving up the price of drugs, interdiction results in an increase in the amount of money needed to buy the same amount of drugs.)

answer

Which of the following statements helps to explain why government drug interdiction increases drug-related crime?

1) The demand for illegal drugs is elastic.

2) Interdiction results in an increase in the amount of money needed to buy the same amount of drugs.

3) Interdiction changes the market for drugs such that the equilibrium quantity increases.

4) Interdiction reduces the demand for drugs.

1) The demand for illegal drugs is elastic.

2) Interdiction results in an increase in the amount of money needed to buy the same amount of drugs.

3) Interdiction changes the market for drugs such that the equilibrium quantity increases.

4) Interdiction reduces the demand for drugs.

question

interdiction

answer

something authoritatively forbidden

question

4 (A new, pest-resistant strain of corn increases the amount of corn that can be produced, so the supply curve shifts to the right. The demand curve does not shift. When supply shifts to the right and demand remains constant, the equilibrium price of corn decreases and the equilibrium quantity increases. When the price decreases for a good with inelastic demand, total revenue decreases.)

answer

Because the demand for corn tends to be inelastic, the development of a new, pest-resistant strain of corn would tend to

1) increase the total revenue of corn farmers.

2) increase the demand for corn.

3) decrease the supply of corn.

4) decrease the total revenue of corn farmers.

1) increase the total revenue of corn farmers.

2) increase the demand for corn.

3) decrease the supply of corn.

4) decrease the total revenue of corn farmers.

question

2 (The price elasticity of supply measures how responsive sellers are to a change in price.)

answer

The price elasticity of supply measures how responsive

1) consumers are to a change in sellers' prices.

2) sellers are to a change in price.

3) consumers are to a change in input prices.

4) sellers are to a change in the number of luxuries.

1) consumers are to a change in sellers' prices.

2) sellers are to a change in price.

3) consumers are to a change in input prices.

4) sellers are to a change in the number of luxuries.

question

2 (The price elasticity of supply measures how much the quantity supplied of a good responds to a change in the price of that good and is computed as the percentage change in quantity supplied divided by the percentage change in price.)

answer

The price elasticity of supply is computed as the percentage change in

1) price divided by the percentage change in quantity supplied.

2) quantity supplied divided by the percentage change in price.

3) quantity supplied divided by the percentage change in cost.

4) price divided by the percentage change in income.

1) price divided by the percentage change in quantity supplied.

2) quantity supplied divided by the percentage change in price.

3) quantity supplied divided by the percentage change in cost.

4) price divided by the percentage change in income.

question

1 (Perfectly inelastic demand implies that consumers will purchase the same amount regardless of the price.)

answer

Ed says that he would buy 12 gallons of gas every week regardless of the price. If he is telling the truth, Ed's

1) demand for gas is perfectly inelastic.

2) income elasticity of demand for gas is 0

3) demand for gas is perfectly elastic.

4) price elasticity of demand for gas is 1

1) demand for gas is perfectly inelastic.

2) income elasticity of demand for gas is 0

3) demand for gas is perfectly elastic.

4) price elasticity of demand for gas is 1

question

2 (The Law of Demand states that as the price decreases, the quantity demanded increases. The price elasticity of demand is the absolute value of the percent change in the quantity demanded divided by the percent change in the price. A 7 percent increase in the quantity demanded divided by a 5.4 percent decrease in price leads to an absolute value of elasticity equal to about 1.3.)

answer

If the price elasticity of demand for a good is about 1.3, then which of the following is consistent with a 7 percent increase in the quantity demanded of the good?

1) a 5.4 percent increase in the price of the good

2) a 5.4 percent decrease in the price of the good

3) an 18.6 percent decrease in the price of the good

4) a 9.1 percent increase in the price of the good

1) a 5.4 percent increase in the price of the good

2) a 5.4 percent decrease in the price of the good

3) an 18.6 percent decrease in the price of the good

4) a 9.1 percent increase in the price of the good

question

2 ((240-180) / [(240 +180/2] =029. To compute the percent change in price, (20-16) / [(20+16)/2] =022. Dividing the percent change in quantity by the percent change in price yields a price elasticity of demand of about 129)

answer

At a price of $16.00 per gallon, a hardware store is willing to supply 180 gallons of paint per week. At a price of $20.00, the hardware store is willing to supply 240 gallons per day. Using the midpoint method, the price elasticity of supply is about

1) 0.29

2) 1.29

3) 2.20

4) 0.78

1) 0.29

2) 1.29

3) 2.20

4) 0.78

question

2 (Necessities tend to have inelastic demands, whereas luxuries have elastic demands.)

answer

Which of the following is likely to have the most price elastic demand?

1) Toilet paper

2) Flowers

3) Vegetables

4) Water

1) Toilet paper

2) Flowers

3) Vegetables

4) Water

question

necessities

answer

____________________ tend to have inelastic demands.

question

luxeries

answer

______________ have elastic demands.

question

4 (When demand is elastic, reducing the price results in higher total revenue.)

answer

Katerina teaches harp lessons. If the demand for harp lessons is elastic, Katerina could increase her total revenue by

1) increasing the price of her harp lessons.

2) leaving the price of her harp lessons unchanged.

3) restricting the days and times she offers lessons to drive up demand.

4) decreasing the price of her harp lessons.

1) increasing the price of her harp lessons.

2) leaving the price of her harp lessons unchanged.

3) restricting the days and times she offers lessons to drive up demand.

4) decreasing the price of her harp lessons.

question

2 (When consumers do not respond much to a change in price, they have inelastic demand. When demand is inelastic, price and total revenue move in the same direction so raising the price of nachos will result in higher revenue)

answer

The local restaurant makes such great nachos that consumers do not respond much at all to a change in the price. If the owner is only interested in increasing revenue, she should

1) lower the price of the nachos.

2) raise the price of the nachos.

3) start using cheaper chips in the production of her nachos.

4) leave the price of the nachos unchanged.

1) lower the price of the nachos.

2) raise the price of the nachos.

3) start using cheaper chips in the production of her nachos.

4) leave the price of the nachos unchanged.

question

4 (Using the midpoint approach, the price elasticity of demand is about 0.63, which indicates inelastic demand. To compute the percent change in quantity, (3800-4000) / [(3800 +4000)/2] = -0.05. The percent change in price is 8 percent, or 0.08. Dividing the percent change in quantity by the percent change in price and taking the absolute value yields a price elasticity of demand of 0.63.)

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Suppose that 4000 tires are demanded at a particular price. If the price of tires rises from that price by 8 percent, the number of tires demanded falls to 3800. Using the midpoint approach to calculate the price elasticity of demand, it follows that the

1) demand for tires in this price range is elastic.

2) demand for tires in this price range is unit elastic.

3) price elasticity of demand for tires in this price range is 0.

4) demand for tires in this price range is inelastic.

1) demand for tires in this price range is elastic.

2) demand for tires in this price range is unit elastic.

3) price elasticity of demand for tires in this price range is 0.

4) demand for tires in this price range is inelastic.

question

2 (Necessities tend to have inelastic demand. When price decreases for a good with inelastic demand, total revenue decreases.)

answer

Which of the following could describe a good for which a decrease in price would decrease revenue?

1) The good has many substitutes.

2) The good is a necessity.

3) The market for this good is very narrowly defined.

4) Consumers have had many months to adjust to the price change.

1) The good has many substitutes.

2) The good is a necessity.

3) The market for this good is very narrowly defined.

4) Consumers have had many months to adjust to the price change.

question

4 (If all of the tickets sell, regardless of the price, then the sellers have perfectly inelastic supply. With perfectly inelastic supply, elasticity equals zero.)

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A concert venue sells 15,000 tickets to a show, regardless of the market price. For this firm, the price elasticity of supply is

1) infinity.

2) one.

3) negative one.

4) zero.

1) infinity.

2) one.

3) negative one.

4) zero.

question

3 (A decrease in price results in an increase in revenue when demand is elastic (a price elasticity greater than 1).)

answer

Which of the following could be the price elasticity of demand for a good for which a decrease in price would increase revenue?

1) 0

2) 1

3) 1.67

4) 0.67

1) 0

2) 1

3) 1.67

4) 0.67

question

1 (To compute the percent change in quantity, (250-200) / [(250 +200)/2] =0.222. To compute the percent change in price, (0.45-0.60) / [(0.45 +060)/2] = -0.286. Dividing the percent change in quantity by the percent change in price and taking the absolute value yields a price elasticity of demand of about 0.78.)

answer

When the price of bananas is $0.60 per pound, the quantity demanded is 200 pounds per day. When the price falls to $0.45 per pound, the quantity demanded increases to 250. Given this information and using the midpoint method, we know that the demand for bananas is

1) inelastic.

2) unit elastic.

3) perfectly inelastic.

4) elastic.

1) inelastic.

2) unit elastic.

3) perfectly inelastic.

4) elastic.