Question 1

You have just been hired as a business consultant to determine what pricing policy would be appropriate in order to increase the total revenue of a bakery. The first step you would take would be to

Accepted Answer

A)  increase the price of every loaf of bread in the store.
B)  look for ways to cut costs and increase profit for the bakery.
C)  determine the price elasticity of demand for the bakery's products.
D)  determine the price elasticity of supply for the bakery's products.E) B) and D)
F) B) and C)

Question 2

A decrease in supply will cause the smallest increase in price when

Accepted Answer

A)  both supply and demand are inelastic.
B)  demand is elastic and supply is inelastic.
C)  both supply and demand are elastic.
D)  demand is inelastic and supply is elastic.E) B) and D)
F) A) and C)

Question 3

Figure 5-17 
-Refer to Figure 5-17. 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) B) and C)
F) None of the above

Question 4

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

Accepted Answer

A)  clothing
B)  blue jeans
C)  Tommy Hilfiger jeans
D)  All three would have the same elasticity of demand because they are all related.E) None of the above
F) All of the above

Question 5

The federal government is concerned about obesity in the United States. Congress is considering two plans. One will ban the production and sale of "junk food." The other will increase nutrition-education programs and include substantial advertising campaigns to encourage healthy eating habits. The junk-food ban program

Accepted Answer

A)  and the education program will reduce the quantity of junk food sold and raise the price.
B)  and the education program will reduce the quantity of junk food sold and lower the price.
C)  will reduce the quantity of junk food sold and raise the price. The education program will reduce the quantity of junk food sold and lower the price.
D)  will reduce the quantity of junk food sold and lower the price. The education program will reduce the quantity of junk food sold and raise the price.E) B) and C)
F) None of the above

Question 6

For a good that is a necessity, demand

Accepted Answer

A)  tends to be inelastic.
B)  tends to be elastic.
C)  has unit elasticity.
D)  cannot be represented by a demand curve in the usual way.E) A) and D)
F) C) and D)

Question 7

If a 25% change in price results in a 40% change in quantity supplied, then the price elasticity of supply is about

Accepted Answer

A)  0.63, and supply is elastic.
B)  0.63, and supply is inelastic.
C)  1.60, and supply is elastic.
D)  1.60, and supply is inelastic.E) A) and B)
F) B) and C)

Question 8

OPEC failed to maintain a high price of oil in the long run, partly because both the supply of oil and the demand for oil are more elastic in the long run than in the short run.

Accepted Answer

A) True 
 B)False

Question 9

The midpoint method is used to compute elasticity because it

Accepted Answer

A)  automatically computes a positive number instead of a negative number.
B)  results in an elasticity that is the same as the slope of the demand curve.
C)  gives the same answer regardless of the direction of change.
D)  automatically rounds quantities to the nearest whole unit.E) B) and C)
F) All of the above

Question 10

For which of the following goods is the income elasticity of demand likely highest?

Accepted Answer

A)  water
B)  diamonds
C)  hamburgers
D)  housingE) B) and D)
F) C) and D)

Question 11

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

Accepted Answer

A) True 
 B)False

Question 12

If a 30 percent change in price causes a 15 percent change in quantity supplied, then the price elasticity of supply is about

Accepted Answer

A)  0.5, and supply is elastic.
B)  0.5, and supply is inelastic.
C)  2, and supply is inelastic.
D)  2, and supply is elastic.E) A) and B)
F) A) and C)

Question 13

Last year, Shelley bought 6 pairs of designer jeans when her income was $40,000. This year, her income is $50,000, and she purchased 10 pairs of designer jeans. Holding other factors constant, it follows that Shelley

Accepted Answer

A)  considers designer jeans to be a necessity.
B)  considers designer jeans to be an inferior good.
C)  considers designer jeans to be a normal good.
D)  has a low price elasticity of demand for jeans.E) None of the above
F) A) and B)

Question 14

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 D)
F) C) and D)

Question 15

Scenario 5-2
The supply of aged cheddar cheese is inelastic, and the supply of bread is elastic. Both goods are considered to be normal goods by a majority of consumers. Suppose that a large income tax increase decreases the demand for both goods by 10%.
-Refer to Scenario 5-2. The equilibrium price will

Accepted Answer

A)  increase in both the aged cheddar cheese and bread markets.
B)  increase in the aged cheddar cheese market and decrease in the bread market.
C)  decrease in the aged cheddar cheese market and increase in the bread market.
D)  decrease in both the aged cheddar cheese and bread markets.E) A) and B)
F) All of the above

Question 16

Table 5-5
The following table shows a portion of the demand schedule for a particular good at various levels of income.   Price  Quantity Demanded  (Income =$$5,000)  Quantity Demanded  (Income =$7,500)  Quantity Demanded ( Income =$10,000) $24234$20468$166912$1281216$8101520$4121824\begin{array}{|c|c|c|c|}\hline \text { Price } & \begin{array}{c}\text { Quantity Demanded } \\text { (Income }=\$ \mathbf{\$ 5 , 0 0 0}) \end{array} & \begin{array}{c}\text { Quantity Demanded } \\text { (Income }=\mathbf{\$ 7 , 5 0 0}) \end{array} & \begin{array}{c}\text { Quantity Demanded } \(\text { Income }=\mathbf{\$ 1 0 , 0 0 0}) \end{array} \\hline \$ 24 & 2 & 3 & 4 \\hline \$ 20 & 4 & 6 & 8 \\hline \$ 16 & 6 & 9 & 12 \\hline \$ 12 & 8 & 12 & 16 \\hline \$ 8 & 10 & 15 & 20 \\hline \$ 4 & 12 & 18 & 24 \\hline\end{array} Price $24$20$16$12$8$4​ Quantity Demanded  (Income =$$5,000) ​24681012​ Quantity Demanded  (Income =$7,500) ​369121518​ Quantity Demanded ( Income =$10,000) ​4812162024​​

-Refer to Table 5-5. Using the midpoint method, when income equals $5,000, what is the price elasticity of demand between $8 and $12?

Accepted Answer

A)  0.56
B)  0.75
C)  1.33
D)  1.80 E) A) and B)
F) A) and C)

Question 17

How does the concept of elasticity allow us to improve upon our understanding of supply and demand?

Accepted Answer

A)  Elasticity allows us to analyze supply and demand with greater precision than would be the case in the absence of the elasticity concept.
B)  Elasticity provides us with a better rationale for statements such as "an increase in x will lead to a decrease in y" than we would have in the absence of the elasticity concept.
C)  Without elasticity, we would not be able to address the direction in which price is likely to move in response to a surplus or a shortage.
D)  Without elasticity, it is very difficult to assess the degree of competition within a market.E) B) and C)
F) A) and B)

Question 18

If the demand for apples is elastic, then an increase in the price of apples will

Accepted Answer

A)  increase total revenue of apple sellers.
B)  decrease total revenue of apple sellers.
C)  not change total revenue of apple sellers.
D)  There is not enough information to answer this question.E) C) and D)
F) All of the above

Question 19

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) All of the above
F) None of the above

Question 20

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

Accepted Answer

A)  athletic shoes
B)  running shoes
C)  Nike running shoes
D)  Nike Shox running shoesE) A) and C)
F) None of the above

Exam 5: Elasticity and Its Application

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

Correct Answer
verified

For a good that is a necessity, demand

Correct Answer
verified

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

Correct Answer
verified

The midpoint method is used to compute elasticity because it

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

OPEC failed to maintain a high price of oil in the long run, partly because both the supply of oil and the demand for oil are more elastic in the long run than in the short run.

Correct Answer
verified

For which of the following goods is the income elasticity of demand likely highest?

Correct Answer
verified

Correct Answer
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If the demand for apples is elastic, then an increase in the price of apples will

Correct Answer
verified

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

Correct Answer
verified

In the long run, the quantity supplied of most goods

Correct Answer
verified

If a 25% change in price results in a 40% change in quantity supplied, then the price elasticity of supply is about

Correct Answer
verified

A decrease in supply will cause the smallest increase in price when

Correct Answer
verified

If a 30 percent change in price causes a 15 percent change in quantity supplied, then the price elasticity of supply is about

Correct Answer
verified

Last year, Shelley bought 6 pairs of designer jeans when her income was $40,000. This year, her income is $50,000, and she purchased 10 pairs of designer jeans. Holding other factors constant, it follows that Shelley

Correct Answer
verified

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

Correct Answer
verified

How does the concept of elasticity allow us to improve upon our understanding of supply and demand?

Correct Answer
verified

You have just been hired as a business consultant to determine what pricing policy would be appropriate in order to increase the total revenue of a bakery. The first step you would take would be to

Correct Answer
verified

Figure 5-17 -Refer to Figure 5-17. Which of the following statements is not correct?

Correct Answer
verified

Exam 5: Elasticity and Its Application

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

Correct AnswerverifiedShow Answer

For a good that is a necessity, demand

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

The midpoint method is used to compute elasticity because it

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

OPEC failed to maintain a high price of oil in the long run, partly because both the supply of oil and the demand for oil are more elastic in the long run than in the short run.

Correct AnswerverifiedShow Answer

For which of the following goods is the income elasticity of demand likely highest?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

If the demand for apples is elastic, then an increase in the price of apples will

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

In the long run, the quantity supplied of most goods

Correct AnswerverifiedShow Answer

If a 25% change in price results in a 40% change in quantity supplied, then the price elasticity of supply is about

Correct AnswerverifiedShow Answer

A decrease in supply will cause the smallest increase in price when

Correct AnswerverifiedShow Answer

If a 30 percent change in price causes a 15 percent change in quantity supplied, then the price elasticity of supply is about

Correct AnswerverifiedShow Answer

Last year, Shelley bought 6 pairs of designer jeans when her income was $40,000. This year, her income is $50,000, and she purchased 10 pairs of designer jeans. Holding other factors constant, it follows that Shelley

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

How does the concept of elasticity allow us to improve upon our understanding of supply and demand?

Correct AnswerverifiedShow Answer

You have just been hired as a business consultant to determine what pricing policy would be appropriate in order to increase the total revenue of a bakery. The first step you would take would be to

Correct AnswerverifiedShow Answer

Figure 5-17 -Refer to Figure 5-17. Which of the following statements is not correct?

Correct AnswerverifiedShow Answer

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