Question 1

Suppose you are in charge of setting prices at a local ice cream shop. The business needs to increase its total revenue, and your job is on the line. You evaluate the data and determine that the price elasticity of demand for ice cream at your shop is 1.8. You should

Accepted Answer

A)  increase the price of ice cream.
B)  decrease the price of ice cream.
C)  decrease the cost of operating the ice cream shop.
D)  increase the price of bottled water also sold at the ice cream shop because its price elasticity of demand is 1.2.E) All of the above
F) A) and C)

Question 2

In the long run, the quantity supplied of most goods

Accepted Answer

A)  will increase in almost all cases, regardless of what happens to price.
B)  cannot respond at all to a change in price.
C)  can respond to a change in price, but the change is almost always inconsequential.
D)  can respond substantially to a change in price.E) B) and D)
F) B) and C)

Question 3

The case of perfectly elastic demand is illustrated by a demand curve that is

Accepted Answer

A)  vertical.
B)  horizontal.
C)  downward-sloping but relatively steep.
D)  downward-sloping but relatively flat.E) All of the above
F) None of the above

Question 4

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

Accepted Answer

A)  0.35.
B)  0.43.
C)  2.33.
D)  2.89.E) A) and B)
F) All of the above

Question 5

If the price elasticity of demand for a good is 5, then a 10 percent increase in price results in a

Accepted Answer

A)  0.5 percent decrease in the quantity demanded.
B)  2 percent decrease in the quantity demanded.
C)  5 percent decrease in the quantity demanded.
D)  50 percent decrease in the quantity demanded.E) B) and D)
F) A) and C)

Question 6

Table 5-10
​
​  ​
-Refer to Table 5-10. Using the midpoint method, which of the three supply curves has the most elastic price elasticity of supply?

Accepted Answer

A)  Supply curve X
B)  Supply curve Y
C)  Supply curve Z
D)  There is no difference in the elasticity of the three supply curves.E) A) and B)
F) B) and D)

Question 7

Helen's Honey Hut supplies 20 jars of honey per week when the price of honey is $6 per jar and supplies 30 jars per week when the price of is $8 per jar, so the price elasticity of supply over this price range is 1.4.

Accepted Answer

A) True 
 B)False

Question 8

How did the farm population in the United States change between 1950 and today?

Accepted Answer

A)  It dropped from 10 million to fewer than 3 million people.
B)  It dropped from 20 million to fewer than 5 million people.
C)  It dropped from 30 million to just over 6 million people.
D)  It increased from 10 million to almost 13 million people.E) A) and B)
F) A) and C)

Question 9

Whether a good is a luxury or necessity depends on the

Accepted Answer

A)  price of the good.
B)  preferences of the buyer.
C)  intrinsic properties of the good.
D)  scarcity of the good.E) B) and C)
F) A) and D)

Question 10

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

Accepted Answer

A)  0.45.
B)  2.0.
C)  2.2.
D)  200.E) A) and C)
F) A) and D)

Question 11

If the price elasticity of supply is 2 and the quantity supplied decreases by 6%, then the price must have decreased by 3%.

Accepted Answer

A) True 
 B)False

Question 12

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

Accepted Answer

A)  scissors
B)  fruit
C)  music downloads
D)  toothpasteE) All of the above
F) A) and B)

Question 13

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 14

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) B) and C)
F) All of the above

Question 15

Elasticity of demand is closely related to the slope of the demand curve. The more 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) None of the above

Question 16

Table 5-5 
-Refer to Table 5-5. As price rises from $5 to $6, the price elasticity of demand using the midpoint method is approximately

Accepted Answer

A)  0.07.
B)  0.18.
C)  0.41.
D)  2.45.E) C) and D)
F) All of the above

Question 17

Which of the following statements about agriculture in the U.S. is not correct?

Accepted Answer

A)  From the 1950s to today, agricultural output has increased about five times.
B)  Because technological improvements increase the supply of a product for which demand is inelastic, an individual farmer would be better off not adopting the new technology.
C)  Increasing the supply of agricultural products typically benefits consumers but harms farmers.
D)  Technological improvements typically increase supply and decrease revenue for farmers.E) B) and C)
F) None of the above

Question 18

Figure 5-15 
-Refer to Figure 5-15. Using the midpoint method, what is the price elasticity of supply between points A and B?

Accepted Answer

A)  2.33
B)  1.0
C)  0.43
D)  0.1E) A) and D)
F) None of the above

Question 19

If a 6% decrease in price for a good results in a 2% increase in quantity demanded, the price elasticity of demand is

Accepted Answer

A)  0.02.
B)  0.33.
C)  3.
D)  4.E) None of the above
F) A) and B)

Question 20

The income elasticity of demand for caviar tends to be

Accepted Answer

A)  high because caviar is relatively expensive.
B)  low because caviar is packaged in small containers.
C)  high because buyers generally feel that they can do without it.
D)  low because it is almost always in short supply.E) All of the above
F) A) and B)

Exam 5: Elasticity and Its Application

When demand is perfectly inelastic, the price elasticity of demand

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How did the farm population in the United States change between 1950 and today?

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Helen's Honey Hut supplies 20 jars of honey per week when the price of honey is $6 per jar and supplies 30 jars per week when the price of is $8 per jar, so the price elasticity of supply over this price range is 1.4.

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Whether a good is a luxury or necessity depends on the

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

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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

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Suppose you are in charge of setting prices at a local ice cream shop. The business needs to increase its total revenue, and your job is on the line. You evaluate the data and determine that the price elasticity of demand for ice cream at your shop is 1.8. You should

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

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Figure 5-15 -Refer to Figure 5-15. Using the midpoint method, what is the price elasticity of supply between points A and B?

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Table 5-10 ​ ​ ​ -Refer to Table 5-10. Using the midpoint method, which of the three supply curves has the most elastic price elasticity of supply?

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Which of the following statements about agriculture in the U.S. is not correct?

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Table 5-5 -Refer to Table 5-5. As price rises from $5 to $6, the price elasticity of demand using the midpoint method is approximately

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The income elasticity of demand for caviar tends to be

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If a 6% decrease in price for a good results in a 2% increase in quantity demanded, the price elasticity of demand is

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If the price elasticity of demand for a good is 5, then a 10 percent increase in price results in a

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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

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In the long run, the quantity supplied of most goods

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If the price elasticity of supply is 2 and the quantity supplied decreases by 6%, then the price must have decreased by 3%.

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The case of perfectly elastic demand is illustrated by a demand curve that is

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Table 5-10 -Refer to Table 5-10. Using the midpoint method, which of the three supply curves has the most elastic price elasticity of supply?

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