Question 1

Price elasticity can be computed for demand but not for supply.

Accepted Answer

Price elasticity can be computed for both demand and supply, reflecting how quantity demanded or supplied responds to price changes.

Question 2

If a 1 percent change in price leads to 5 percent change in quantity demanded, then the price elasticity of demand is 5.

Accepted Answer

The price elasticity of demand is calculated as the percentage change in quantity demanded divided by the percentage change in price, so a 1 percent change in price leading to a 5 percent change in quantity demanded results in an elasticity of 5.

Question 3

Demand is relatively elastic when the percentage change in price exceeds the percentage change in quantity demanded.

Accepted Answer

Demand is relatively elastic when the percentage change in quantity demanded exceeds the percentage change in price.

Question 4

Demand is relatively inelastic when the percentage change in quantity demanded is less than the percentage change in price.

Accepted Answer

When demand is relatively inelastic, it means that consumers are not very responsive to price changes, so the percentage change in quantity demanded is smaller than the percentage change in price.

Question 5

If two demand curves intersect, the flatter demand curve will be more inelastic and the steeper demand curve will be more elastic.

Accepted Answer

The flatter demand curve is more elastic because it shows a greater sensitivity to price changes, while the steeper demand curve is more inelastic, indicating less sensitivity to price changes.

Question 6

If motorists decrease their gasoline consumption by 2 percent when the price increases by 10 percent, the demand for gasoline is relatively inelastic.

Accepted Answer

The demand for gasoline is considered relatively inelastic because the percentage decrease in quantity demanded (2%) is smaller than the percentage increase in price (10%), indicating that consumers' demand for gasoline does not change much with price changes.

Question 7

If there is a rightward shift in the wheat supply curve, total revenue will increase only if wheat demand is inelastic.

Accepted Answer

A rightward shift in the wheat supply curve indicates an increase in supply. Whether total revenue increases, decreases, or remains unchanged depends on the elasticity of demand. If demand is elastic, total revenue could decrease; if it is inelastic, total revenue could increase; and if it is unit elastic, total revenue might remain unchanged. The statement incorrectly simplifies the relationship by focusing solely on inelastic demand.

Question 8

A freeze would result in higher total revenue for Florida orange producers when the demand for oranges is inelastic.

Accepted Answer

When demand is inelastic, a decrease in supply (like from a freeze) leads to higher prices and total revenue increases because consumers are not very responsive to price changes.

Question 9

The demand for a product is more elastic if the product has many close substitutes in consumption.

Accepted Answer

The presence of many close substitutes means consumers can easily switch to other products if the price of one product increases, making the demand for that product more elastic.

Question 10

The demand for a product tends to be less elastic if buyers consider the product to be a luxury rather than a necessity.

Accepted Answer

The demand for a product tends to be more elastic if buyers consider the product to be a luxury because they are more likely to reduce consumption when the price increases, compared to necessities where consumption remains relatively constant regardless of price changes.

Question 11

When the price of gasoline rises, the decrease in quantity demanded will be greater in the short run than the long run.

Accepted Answer

In the short run, consumers have less flexibility to change their gasoline consumption habits due to existing commitments and the lack of immediate alternatives. In the long run, consumers can adjust by adopting more fuel-efficient technologies or changing behaviors, leading to a greater decrease in quantity demanded.

Question 12

When the price of corn increases, the increase in quantity supplied will be greater in the long run than the short run.

Accepted Answer

In the long run, producers have more time to adjust their production processes, acquire more resources, and increase capacity, leading to a greater increase in quantity supplied in response to a price increase compared to the short run.

Question 13

Over time, supply becomes more elastic and demand becomes less elastic.

Accepted Answer

Supply tends to become more elastic over time as producers adjust and find more efficient ways to produce goods. However, demand elasticity varies depending on the nature of the good, consumer preferences, and availability of substitutes, and does not inherently become less elastic over time.

Question 14

A usury law is a law that stipulates the maximum interest rate on loans.

Accepted Answer

Usury laws are regulations governing the amount of interest that can be charged on a loan, specifically setting the maximum interest rate to prevent excessive charges.

Question 15

For a price floor to be effective, the price must be set above the market equilibrium price.

Accepted Answer

A price floor is effective in creating a surplus or reducing consumption only if it is set above the market equilibrium price, where the quantity supplied becomes greater than the quantity demanded.

Question 16

If the government imposes a ceiling on the rent of residential housing at a below-market equilibrium level, the quantity of housing supplied will exceed the quantity demanded.

Accepted Answer

When the government imposes a rent ceiling below the market equilibrium, it typically results in a shortage, meaning the quantity demanded exceeds the quantity supplied, not the other way around.

Question 17

Most people spend a small part of their income on birthday candles. This would suggest the demand for birthday candles is elastic.

Accepted Answer

The demand for birthday candles is likely inelastic because they are a small, inexpensive part of a larger celebration, and people are less sensitive to price changes for such items.

Question 18

For a given supply curve of gasoline, the less elastic the demand, the larger the fraction of an excise tax that is borne by consumers.

Accepted Answer

When demand is less elastic, consumers are less responsive to price changes, meaning they will continue to buy gasoline even as prices rise due to an excise tax. As a result, consumers end up bearing a larger fraction of the tax burden.

Question 19

If airlines find they cannot raise ticket prices very much when the government imposes new, much higher excise taxes, this means the demand for airline tickets is probably fairly inelastic.

Accepted Answer

The answer of If airlines find they cannot raise ticket...

Question 20

Placing an excise tax on gasoline would better promote conservation if the demand for gasoline is relatively elastic, rather than relatively inelastic.

Accepted Answer

When demand is elastic, consumers are more responsive to price changes, so an excise tax would lead to a larger reduction in quantity demanded, promoting conservation.

Quiz 3: Demand and Supply Applications