Question 1

Drug interdiction, which reduces the supply of drugs, may increase drug-related crime because the demand for drugs is inelastic.

Accepted Answer

When the supply of drugs is reduced, the cost of drugs increases. However, since the demand for drugs is inelastic, drug users may resort to committing crimes such as theft or prostitution to finance their addiction, leading to an increase in drug-related crime.

Question 2

The elasticity of demand for toasted muesli would increase if:

Accepted Answer

The elasticity of demand for toasted muesli would increase if the effect of a price rise was measured over a long period of time. This is because consumers have more time to adjust their consumption habits and find substitutes for toasted muesli if the price increases.

Question 3

The elasticity of demand for a good tends to increase if:

Accepted Answer

The elasticity of demand for a good tends to increase if the market is considered over a longer period of time. This is because consumers have more time to adjust their consumption in response to changes in price.

Question 4

The price elasticity of demand measures how responsive:

Accepted Answer

The price elasticity of demand specifically measures the responsiveness of the quantity demanded to a change in price. It does not measure responsiveness to changes in advertising, changes in seller behavior, or changes in buyer preferences.

Question 5

In general, elasticity is:

Accepted Answer

Elasticity measures the responsiveness of buyers and sellers to changes in market conditions such as price, income, or availability of goods. It is a measure of how much buyers and sellers adjust their behavior in response to these changes.

Question 6

Demand is said to be elastic if:

Accepted Answer

Elastic demand means that consumers are very sensitive to changes in the price of the good, resulting in a substantial change in the quantity demanded. This can be seen in situations where a small change in price leads to a large change in quantity demanded, such as when consumers switch from a name-brand product to a cheaper generic version. Therefore, option D is the correct choice.

Question 7

A person who likes to be on the sea in a boat would tend to have what type of demand for boats?

Accepted Answer

A person who likes to be on the sea in a boat would most likely have an inelastic demand for boats because their desire for being on the sea is not easily replaceable by other activities or goods. This means that even if the price of boats were to increase, they would still be willing to pay the higher price to fulfill their desire to be on the sea.

Question 8

A policy reducing the supply of drugs will be less effective for reducing drug-use and drug-related crime than a policy which reduces the quantity demanded of drugs.

Accepted Answer

Reducing the supply of drugs may lead to an increase in the price of drugs and the involvement of more violent and dangerous individuals in the drug trade. This may not necessarily reduce drug-use and drug-related crime. On the other hand, reducing the quantity demanded of drugs focuses on the root cause of drug-related problems, which is the demand for drugs. Therefore, a policy that reduces the quantity demanded of drugs would be more effective in reducing drug-use and drug-related crime.

Question 9

Demand is said to be inelastic if:

Accepted Answer

Inelastic demand means that the quantity demanded changes only slightly when the price of the good changes. This could be due to consumers having few alternatives to this good, or the good being a necessity that consumers are willing to pay a higher price for.

Question 10

If a good is a necessity, demand for the good would tend to be:

Accepted Answer

If a good is a necessity, the demand for it would tend to be inelastic, meaning that changes in price would have little effect on the quantity demanded because consumers need the good regardless of price.

Question 11

If a supply curve is horizontal, it is said to be perfectly elastic, and the price elasticity of supply approaches infinity.

Accepted Answer

A horizontal supply curve means that the quantity supplied can change infinitely without affecting the price, resulting in an infinite price elasticity of supply.

Question 12

Suppose a coffee plantation in Colombia increases the quantity of coffee beans it supplies by 5% when it learns that the price of a coffee at cafes in Melbourne has risen by 25%.The Colombian producer's price elasticity of supply of coffee beans is 0.2.

Accepted Answer

The price elasticity of supply (PES) measures the responsiveness of quantity supplied to changes in price. In this case, the PES is given as 0.2. When the price of coffee in Melbourne increases by 25%, the Colombian producer increases its quantity supplied by 5%.

We can use the formula: PES = %Δquantity supplied / %Δprice

0.2 = 5% / 25%

0.2 = 0.2

Therefore, the statement is true, and the Colombian producer is relatively inelastic because its PES is less than 1.

Question 13

If a person has very little concern for her health, her demand for healthcare would tend to be:

Accepted Answer

The answer of If a person has very little concern...

Question 14

Economists use the concept of price elasticity of demand to measure how much:

Accepted Answer

Price elasticity of demand measures how much buyers respond to changes in the price of a good. It measures the percentage change in quantity demanded in response to a percentage change in price. This concept helps economists understand the sensitivity of consumers to changes in price and helps businesses make pricing decisions.

Question 15

In the 1970s OPEC generated high prices for oil but could not sustain this in the mid-80s and 90s.The reason was that both the supply and demand elasticity for oil is less elastic in the short run than in the long run.

Accepted Answer

This statement is true. In the short run, both the supply and demand for oil are relatively inelastic, meaning that changes in price have a relatively small impact on the quantity supplied or demanded. However, in the long run, there are more opportunities for substitution and technological change, which make both supply and demand more elastic. This is why OPEC's attempts to keep oil prices high in the 1970s were successful in the short run but ultimately unsustainable.

Question 16

Price elasticity of supply is defined as the percentage change in quantity supplied divided by the percentage change in price.

Accepted Answer

This definition correctly describes the calculation for price elasticity of supply.

Question 17

The concept of elasticity is used to:

Accepted Answer

The concept of elasticity is used to analyse the responsiveness of supply and demand to changes in price or other factors. It helps to understand how much the quantity demanded or supplied will change with changes in price or income, and thus helps to make decisions related to production and pricing strategies.

Question 18

While an increase in total agricultural production may benefit farmers as a group, it will not benefit an individual farmer to increase his production.

Accepted Answer

Increasing individual production can result in higher profits for the farmer, as long as the cost of production does not outweigh the additional revenue. Increased production can lead to economies of scale, improved bargaining power with buyers, and overall efficiency gains that benefit individual farmers.

Question 19

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

Accepted Answer

Reducing land under cultivation typically decreases the supply of agricultural products, which can lead to higher prices for consumers. This can hurt consumers by making food and other agricultural products more expensive, while it may benefit farmers through potentially higher prices for their reduced outputs.

Question 20

If you think good wine is a necessity but cheese is a luxury, then your demand for wine will be more ______ than your demand for cheese:

Accepted Answer

Inelastic demand means that consumers are less sensitive to price changes, implying they will continue to buy the product even if the price increases. If you consider good wine a necessity, you're likely to continue purchasing it regardless of price changes, indicating inelastic demand. Conversely, viewing cheese as a luxury suggests a more elastic demand, where purchases might decrease if prices rise.

Quiz 5: Elasticity and Its Application