Question 1

The elasticity of supply is calculated by
A)determining the slope of the supply curve.
B)dividing the absolute change in quantity supplied by the absolute change in price.
C)dividing the percentage change in quantity supplied by the percentage change in price.
D)dividing the percentage change in price by the percentage change in quantity demanded.

Accepted Answer

The elasticity of supply is calculated by dividing the percentage change in quantity supplied by the percentage change in price. This formula shows the responsiveness of the quantity supplied of a good to changes in its price. The result is a measure of the degree of elasticity of supply, which can be elastic, inelastic or unit elastic.

Question 2

The demand for potatoes at current prices is likely to be
A)elastic.
B)inelastic.
C)unit elastic.
D)perfectly elastic.

Accepted Answer

The demand for potatoes is likely to be inelastic because potatoes are considered a necessity in many households and there are few close substitutes available. Even if the price of potatoes increases, consumers may still continue to purchase them, albeit in slightly smaller quantities. Therefore, a change in price will not have a significant impact on the quantity demanded.

Question 3

The price elasticity of demand for widgets at any particular price is determined by
A)whether widgets are luxuries or necessities.
B)how much of their budgets do consumers spend on widgets.
C)whether there are any good substitutes for widgets.
D)All of the responses are correct.

Accepted Answer

All of the responses are correct. The price elasticity of demand for widgets is affected by whether they are luxuries or necessities, the percentage of the consumer's budget spent on widgets, and the availability of substitutes for widgets. All of these factors will impact how consumers respond to changes in the price of widgets, making choice D the most accurate answer.

Question 4

When OPEC raises the price of petroleum, American expenditures on oil imports increase, suggesting that
A)the United States' elasticity of demand for imported oil is greater than one.
B)the United States' elasticity of demand for imported oil is less than one.
C)imported oil and domestically produced oil are complementary goods.
D)the short-run elasticity of demand for oil is greater than the long-run elasticity.

Accepted Answer

When OPEC raises the price of petroleum, it means that the supply of oil is reduced, resulting in higher prices. The United States has a high dependency on oil imports, which makes the demand for oil inelastic. This means that even if the price of oil goes up, the United States will continue to import oil without reducing its consumption, leading to an increase in expenditures on oil imports. Therefore, the United States' elasticity of demand for imported oil is less than one.

Question 5

The relationship between a change in consumer income and a resulting change in demand for a good is
A)demand elasticity.
B)income elasticity of demand.
C)cross elasticity of income demand.
D)supply elasticity.

Accepted Answer

The best choice is "income elasticity of demand," as it specifically addresses the relationship between changes in consumer income and resulting changes in demand for a good. Demand elasticity and supply elasticity, while related to changes in demand, do not specifically address changes in consumer income. Cross elasticity of income demand is not a recognized economic term.

Question 6

In 1975, New York City increased regulated taxi fares by 17.5 percent and expected taxi revenue to increase a like amount. The taxi commission believed taxi demand was
A)unit elastic.
B)inelastic.
C)elastic.
D)perfectly inelastic.

Accepted Answer

The answer of In 1975, New York City increased regulated...

Question 7

A relatively large increase in the cost of electricity would likely
A)result in a large increase in the use of gas for home use immediately.
B)cause an immediate large decline in the use of electricity.
C)increase the use of gas and decrease the use of electricity after a time lapse.
D)cause an equal reduction in the use of electricity immediately.

Accepted Answer

A significant increase in electricity cost would drive consumers to seek alternative sources of energy. While there may be an initial decline in electricity usage, over time consumers would likely shift towards gas or other forms of energy for their home use, resulting in a decrease in electricity usage and an increase in gas usage. This shift may not happen immediately, but over time as consumers adapt and adjust to the new cost of electricity.

Question 8

A good will tend to be more price elastic if it
A)is a luxury good.
B)has no close substitutes.
C)is a small part of the household budget.
D)is a necessity.

Accepted Answer

Luxury goods are non-essential goods that are not a necessity for survival, so they tend to have more price elasticity. Consumers are less likely to buy them if the price increases, as they have substitutes or can do without them. In contrast, necessities like food or medicine tend to be less price elastic as consumers are more willing to pay higher prices for them.

Question 9

The demand for a new effective drug for the cure of AIDS would most likely be
A)elastic.
B)unit elastic.
C)perfectly elastic.
D)highly inelastic.

Accepted Answer

The demand for a new effective drug for the cure of AIDS is likely to be highly inelastic because it is a life-saving treatment and there are no close substitutes available in the market. People who need this drug would be willing to pay a high price for it, regardless of the price increase.

Question 10

Which of the following is more likely to be the price elasticity of demand for the snake bite treatment antivenom?
A)Highly inelastic
B)Unit elastic
C)Elastic
D)Perfectly elastic

Accepted Answer

The price elasticity of demand for snake bite treatment antivenom is likely to be highly inelastic because when someone needs an antivenom, it is usually a life-threatening situation, making them less sensitive to the price. They are likely to pay whatever is necessary to obtain the treatment, indicating a low responsiveness to price changes.

Question 11

A decrease in the price of rice from 50 cents to 40 cents a pound increases consumption from 16 to 20 tons a week in Gainesville and from 160 to 200 tons in the larger city of Miami. The elasticity of demand for rice is
A)greater in Miami than in Gainesville, even taking into account the population difference.
B)greater in Gainesville than in Miami in spite of the population difference.
C)equal in Gainesville and Miami regardless of the population difference.
D)impossible to compare because of the population difference.

Accepted Answer

The percentage change in quantity demanded is the same in both cities (25%), and the percentage change in price is also the same (20%). Therefore, the elasticity of demand, which is the percentage change in quantity demanded divided by the percentage change in price, is equal in both cities regardless of the population difference.

Question 12

Which of the following goods will have the most inelastic demand at any time?
A)Jewelry
B)Big Macs
C)Electricity
D)Pork chops

Accepted Answer

Electricity is a necessity for most households and has very few substitutes. Therefore, a change in its price will not significantly affect the quantity demanded by consumers, making its demand highly inelastic.

Question 13

Which of the following goods will have the most elastic demand at any time?
A)Coffee
B)Gasoline
C)Restaurant meals
D)Insulin

Accepted Answer

Restaurant meals are a discretionary item for most people, meaning they are not necessary for survival. As such, consumers are likely to cut back on restaurant meals if the price increases. This makes the demand for restaurant meals elastic. On the other hand, coffee and gasoline are both more necessary for daily life, and insulin is essential for those who need it to manage their health, so the demand for these goods is less elastic.

Question 14

The price of an airline ticket rises as the amount of time between purchase and flight departure gets smaller. The airlines base the policy on the assumption that
A)consumers are not aware of airline prices.
B)consumer demand is unrelated to prices.
C)consumer demand becomes more elastic as departure time approaches.
D)consumer demand becomes less elastic as departure time approaches.

Accepted Answer

This is based on the economic principle of elasticity, which states that the more time people have to adjust their plans, the more responsive they will be to changes in price. As departure time approaches, consumers become less flexible in their plans and therefore less sensitive to changes in price. Therefore, airlines can charge higher prices as the departure date looms because demand becomes less elastic.

Question 15

Figure 6-9

In 1983, government price supports raised the price of sugar above its equilibrium value. Which graph in Figure 6-9 illustrates the impact of sugar price supports on the sugar substitute fructose?
A)1
B)2
C)3
D)4

Accepted Answer

Graph 3 shows an increase in the price of sugar which would lead to an increase in the price of its substitutes, such as fructose. The increase in price of fructose is shown by the shift from S1 to S2.

Question 16

If both matches and automobile prices increase by 10 percent, consumers will likely buy
A)fewer matches and approximately the same quantity of automobiles.
B)approximately the same quantity of matches and fewer automobiles.
C)fewer matches and fewer automobiles.
D)approximately the same quantity of both matches and automobiles.

Accepted Answer

Matches are generally considered a necessity with a low price elasticity of demand, meaning consumers will buy about the same quantity even if the price increases. Automobiles, being more expensive and not an immediate necessity, have a higher price elasticity of demand, so consumers are likely to buy fewer when prices increase.

Question 17

A 10 percent increase in the cost of restaurant meals, which are a luxury, will most likely
A)increase the purchase of meals by 10 percent.
B)increase the purchase of meals by less than 10 percent.
C)decrease the purchase of meals by more than 10 percent.
D)decrease the purchase of meals by less than 10 percent.

Accepted Answer

The answer of A 10 percent increase in the cost...

Question 18

The price elasticity of new automobile purchases is about 1.2. This implies that an increase of $1,000 on a $10,000 automobile will
A)reduce the number of autos sold by approximately 1.2 percent.
B)increase the consumer expenditures on autos by approximately 1.2 percent.
C)reduce the number of autos sold by approximately 12 percent.
D)increase consumer expenditures on autos by approximately 12 percent.

Accepted Answer

The price elasticity of 1.2 means that for every 1% increase in price, demand will decrease by 1.2%. Therefore, a $1,000 increase on a $10,000 automobile represents a 10% increase in price, which would lead to a decrease in demand of approximately 12%.

Question 19

Certain goods are related such that an increase in the price of one good decreases the quantity demanded of the other. These goods are
A)complements.
B)substitutes.
C)luxury goods.
D)competing goods.

Accepted Answer

Complementary goods are goods that are often used together, so an increase in the price of one will decrease the demand for the other. For example, if the price of coffee increases, the demand for creamer will decrease, as people may not want to pay more for both.

Question 20

A study of New York City (NYC)tax rates concluded that taxes on the nonmanufacturing sector should be higher since that sector has fewer alternatives. Manufacturers are more mobile and may move to avoid higher taxes. This means that
A)nonmanufacturing firms have a more elastic demand for the NYC locations.
B)manufacturing firms have an inelastic demand for the NYC locations.
C)nonmanufacturing firms have relatively inelastic demand for the NYC locations.
D)nonmanufacturing demand for the NYC locations is perfectly elastic.

Accepted Answer

Nonmanufacturing firms having relatively inelastic demand for NYC locations means they are less sensitive to changes in tax rates because they have fewer alternatives to relocating, unlike manufacturing firms which can more easily move to avoid higher taxes.

Quiz 6: Demand and Elasticity

The elasticity of supply is calculated by

The demand for potatoes at current prices is likely to be

The price elasticity of demand for widgets at any particular price is determined by

When OPEC raises the price of petroleum, American expenditures on oil imports increase, suggesting that

The relationship between a change in consumer income and a resulting change in demand for a good is

In 1975, New York City increased regulated taxi fares by 17.5 percent and expected taxi revenue to increase a like amount. The taxi commission believed taxi demand was

A relatively large increase in the cost of electricity would likely

A good will tend to be more price elastic if it

The demand for a new effective drug for the cure of AIDS would most likely be

Which of the following is more likely to be the price elasticity of demand for the snake bite treatment antivenom?

A decrease in the price of rice from 50 cents to 40 cents a pound increases consumption from 16 to 20 tons a week in Gainesville and from 160 to 200 tons in the larger city of Miami. The elasticity of demand for rice is

Which of the following goods will have the most inelastic demand at any time?

Which of the following goods will have the most elastic demand at any time?

The price of an airline ticket rises as the amount of time between purchase and flight departure gets smaller. The airlines base the policy on the assumption that

Figure 6-9 In 1983, government price supports raised the price of sugar above its equilibrium value. Which graph in Figure 6-9 illustrates the impact of sugar price supports on the sugar substitute fructose?

If both matches and automobile prices increase by 10 percent, consumers will likely buy

A 10 percent increase in the cost of restaurant meals, which are a luxury, will most likely

The price elasticity of new automobile purchases is about 1.2. This implies that an increase of $1,000 on a $10,000 automobile will

Certain goods are related such that an increase in the price of one good decreases the quantity demanded of the other. These goods are

A study of New York City (NYC) tax rates concluded that taxes on the nonmanufacturing sector should be higher since that sector has fewer alternatives. Manufacturers are more mobile and may move to avoid higher taxes. This means that