Question 1

What factors would make you more sensitive or less sensitive to price when purchasing gasoline?

Accepted Answer

The answer of What factors would make you more sensitive...

Question 2

Suppose a frost destroys the tomato crop in California but farmers see an increase in their revenues.Which of the following best explains this?
A) The decrease in supply led to huge price increases.
B) Tomatoes are necessities.
C) The demand for tomatoes is price inelastic.
D) The cross-price elasticity between tomatoes and most other substitute vegetables is very low.

Accepted Answer

The answer of Suppose a frost destroys the tomato crop...

Question 3

The demand for most farm products is relatively inelastic.All else constant,what is the effect on farm revenues as a result of the introduction of new and better farm equipment which increases in productivity?
A) Farm revenues increase.
B) Farm revenues decrease.
C) Farm revenues remain constant because consumers will not increase their consumption of farm products by much.
D) Farm revenues could increase or decrease depending on the cost of this new equipment.

Accepted Answer

The answer of The demand for most farm products is...

Question 4

Demand for staples such as dairy products and bread is likely to be both income and price inelastic.

Accepted Answer

Dairy products and bread are considered necessities and therefore people are likely to continue purchasing them even if their income decreases or the price increases, making their demand income and price inelastic.

Question 5

Figure 6-5 
-Refer to Figure 6-5.Identify the two goods which are complements.
A) Good X and Good Y
B) Good Y and Good Z
C) Good X and Good Z
D) It is not possible to distinguish any relationship among the goods.

Accepted Answer

The answer of Figure 6-5 
-Refer to Figure 6-5.Identify the...

Question 6

In the alcohol industry,both wine and spirits are considered to be substitutes for beer.

Accepted Answer

The answer of In the alcohol industry,both wine and spirits...

Question 7

Suppose the price of gasoline is $3.50 per gallon,the quantity of gasoline demanded is 150 billion gallons per year,the price elasticity of demand for gasoline is -0.06,and the federal government decides to increase the excise tax on gasoline by $1.00 per gallon,which increases the price of gasoline by $0.75 per gallon.What is the new equilibrium quantity of gasoline demanded after the tax is imposed?
A) 109.72 billion gallons per year
B) 127.25 billion gallons per year
C) 148.27 billion gallons per year
D) 161.61 billion gallons per year

Accepted Answer

First, we need to calculate the price elasticity of demand using the initial values:

Price elasticity of demand = (% Change in Quantity Demanded)/(% Change in Price)
-0.06 = (% Change in Quantity Demanded)/(-0.75/$3.50)
-0.06 = (% Change in Quantity Demanded)/-0.2143
% Change in Quantity Demanded = (-0.06)*(-0.2143) = 0.0129 or 1.29%

This means that a 1% increase in the price of gasoline will cause a 1.29% decrease in the quantity of gasoline demanded.

Next, we need to calculate the new price of gasoline:

New price = $3.50 + $0.75 + $1.00 = $5.25 per gallon

Using the midpoint formula, we can calculate the new equilibrium quantity of gasoline demanded:

% Change in Quantity Demanded = (% Change in Price)/(Price Elasticity of Demand)
% Change in Quantity Demanded = (0.75/$3.50)/(0.06)
% Change in Quantity Demanded = 0.3571 or 35.71%
New equilibrium quantity = (1 + % Change in Quantity Demanded)*Initial Quantity
New equilibrium quantity = (1 + 0.3571)*150 billion gallons per year
New equilibrium quantity = 148.27 billion gallons per year

Therefore, the new equilibrium quantity of gasoline demanded after the tax is imposed is C) 148.27 billion gallons per year.

Question 8

Suppose a 4 percent increase in income results in a 2 percent decrease in the quantity demanded of a good.Calculate the income elasticity of demand for the good and determine what type of good it is.

Accepted Answer

The answer of Suppose a 4 percent increase in income...

Question 9

The cross-price elasticity of demand between an unlimited texting option and an unlimited call minutes option offered from a cell phone provider would be
A) positive if subscribers consider the services substitutes for each other.
B) positive if subscribers consider the services complements to each other.
C) negative if subscribers consider the services substitutes for each other.
D) negative no matter if subscribers consider the services substitutes or complements for each other.

Accepted Answer

The cross-price elasticity of demand measures how the quantity demanded of one good changes when the price of another good changes. In this case, if subscribers consider the unlimited texting and unlimited call minutes options as substitutes (i.e. if the price of one option increases, then subscribers may switch to the other option), then the cross-price elasticity of demand would be positive.

Question 10

For people who live near a bus route,a subway station,or a commuter rail line,public transportation provides a substitute to driving their own cars.So,for these people,the cross-price elasticity of demand between gasoline and public transportation is
A) positive.
B) negative.
C) zero.
D) infinity.

Accepted Answer

The answer of For people who live near a bus...

Question 11

The price of wheat has fallen since 1950.Which of the following explains this price decline?
A) The price elasticity of demand is less than 1 (in absolute value) and the income elasticity of demand for wheat is low.
B) The price elasticity of demand is greater than 1 (in absolute value) and the income elasticity of demand for wheat is low.
C) The price elasticity of demand is less than 1 (in absolute value) and wheat is an inferior good.
D) The price elasticity of demand is greater than 1 (in absolute value) and the income elasticity of demand for wheat is greater than 1.

Accepted Answer

The answer of The price of wheat has fallen since...

Question 12

Figure 6-5 
-Refer to Figure 6-5.Identify the two goods which are substitutes.
A) Good X and Good Y
B) Good Y and Good Z
C) Good X and Good Z
D) It is not possible to distinguish any relationship among the goods.

Accepted Answer

The answer of Figure 6-5 
-Refer to Figure 6-5.Identify the...

Question 13

Suppose the California Nurses Union successfully secured a 12 percent increase in the wages of registered nurses.If a hospital responds by reducing the quantity of registered nurses hired and increasing the quantity of physician's assistants hired,what conclusion can you draw?
A) Physician's assistants are more valuable in terms of their productivity.
B) The price elasticity of demand for registered nurses is negative while the price elasticity of demand for physician's assistants is positive.
C) The cross-price elasticity of demand between registered nurses and physician's assistants is positive.
D) The cross-price elasticity of demand between registered nurses and physician's assistants is negative.

Accepted Answer

The answer of Suppose the California Nurses Union successfully secured...

Question 14

Which of the following is one reason why the income of small family farms has decreased over time?
A) Technology has increase farm productivity and market supply.
B) The demand for farm products is price elastic.
C) The demand for farm products is income inelastic.
D) The U.S. population has increased greatly since 1950.

Accepted Answer

The answer of Which of the following is one reason...

Question 15

If the cross-price elasticity of demand between Breeze Detergent and Faber Detergent is a relatively large positive number,then it indicates that
A) the two brands are probably made by the same company.
B) the two brands of detergent are close substitutes.
C) consumers have a distinct preference for one brand versus the other.
D) detergents are necessities.

Accepted Answer

A large positive cross-price elasticity of demand suggests that the two products are close substitutes. This means that if the price of one product goes up, there is a strong likelihood that consumers will switch to the other product, leading to a relatively large change in the quantity demanded of the other product.

Question 16

Suppose the price of gasoline is $3.50 per gallon,the quantity of gasoline demanded is 150 billion gallons per year,the price elasticity of demand for gasoline is -0.06,and the federal government decides to increase the excise tax on gasoline by $1.00 per gallon,which increases the price of gasoline by $0.75 per gallon.How much revenue does the federal government receive from the tax?
A) $95.44 billion
B) $111.20 billion
C) $148.27 billion
D) $161.61 billion

Accepted Answer

The answer of Suppose the price of gasoline is $3.50...

Question 17

In September 2006,the Food and Drug Administration recommended that Americans avoid eating bagged raw spinach in the wake of an outbreak of E.coli bacteria.Following this recommendation,the food industry looked at alternatives and many turned to arugula.One Chicago distributor claimed,"The sale of the stuff has gone through the roof." Based on this information,
A) arugula is a normal good while raw spinach is an inferior good.
B) the cross-price elasticity between arugula and spinach is negative.
C) the cross-price elasticity between arugula and spinach is positive
D) the price elasticity of arugula is positive while the price elasticity of spinach falls to zero.

Accepted Answer

The increase in demand for arugula following the FDA's recommendation to avoid raw spinach suggests that arugula and spinach are substitutes, meaning that an increase in the price or decrease in availability of one product will lead to an increase in demand for the other product. This means that the cross-price elasticity of arugula and spinach is positive, as a change in the price of spinach will affect the demand for arugula in a positive direction.

Question 18

In recent years,the prices of new domestically produced cars have been falling.Suppose consumers respond by reducing their demand for used cars and mass transport services such as bus travel.This information suggests that the cross-price elasticity between new cars and used cars,and the cross-price elasticity between new cars and bus travel are negative.

Accepted Answer

The answer of In recent years,the prices of new domestically...

Question 19

If a firm is in an antitrust court case being accused of monopolizing a product,the firm would hire an economist to show
A) the cross-price elasticity of demand between the firm's good and another is negative.
B) the cross-price elasticity of demand between the firm's good and another is positive.
C) the price elasticity of demand for the firm's good is highly inelastic.
D) the income elasticity of the firm's good is inferior.

Accepted Answer

The answer of If a firm is in an antitrust...

Question 20

Between 1950 and 2011 the number of acres devoted to wheat production in the United States ________ and the price of wheat ________.
A) declined; decreased
B) more than doubled; increased by about 50 percent
C) declined; more than doubled
D) increased; more than doubled

Accepted Answer

The number of acres devoted to wheat production in the United States declined between 1950 and 2011, and the price of wheat increased.

Quiz 6: Elasticity: The Responsiveness of Demand and Supply

What factors would make you more sensitive or less sensitive to price when purchasing gasoline?

Suppose a frost destroys the tomato crop in California but farmers see an increase in their revenues.Which of the following best explains this?

The demand for most farm products is relatively inelastic.All else constant,what is the effect on farm revenues as a result of the introduction of new and better farm equipment which increases in productivity?

Demand for staples such as dairy products and bread is likely to be both income and price inelastic.

Figure 6-5 -Refer to Figure 6-5.Identify the two goods which are complements.

In the alcohol industry,both wine and spirits are considered to be substitutes for beer.

Suppose a 4 percent increase in income results in a 2 percent decrease in the quantity demanded of a good.Calculate the income elasticity of demand for the good and determine what type of good it is.

The cross-price elasticity of demand between an unlimited texting option and an unlimited call minutes option offered from a cell phone provider would be

For people who live near a bus route,a subway station,or a commuter rail line,public transportation provides a substitute to driving their own cars.So,for these people,the cross-price elasticity of demand between gasoline and public transportation is

The price of wheat has fallen since 1950.Which of the following explains this price decline?

Figure 6-5 -Refer to Figure 6-5.Identify the two goods which are substitutes.

Suppose the California Nurses Union successfully secured a 12 percent increase in the wages of registered nurses.If a hospital responds by reducing the quantity of registered nurses hired and increasing the quantity of physician's assistants hired,what conclusion can you draw?

Which of the following is one reason why the income of small family farms has decreased over time?

If the cross-price elasticity of demand between Breeze Detergent and Faber Detergent is a relatively large positive number,then it indicates that

If a firm is in an antitrust court case being accused of monopolizing a product,the firm would hire an economist to show

Between 1950 and 2011 the number of acres devoted to wheat production in the United States and the price of wheat .