Question 1

Nobel prize-winning economist Gary Becker suggested prohibited drugs should be legalized and then taxed. This would _____ the seller's cost and _____ government revenue.
A) decrease; decrease
B) decrease; increase
C) increase; increase
D) increase; decrease

Accepted Answer

Legalizing prohibited drugs would increase government revenue through taxation and regulating the market would decrease the seller's cost due to the elimination of the risk associated with selling illegal drugs. Therefore, the correct answer is C) increase; increase.

Question 2

Extensive flooding in the Midwest decreases the world supply of corn. If corn is inelastically demanded, what will happen to total revenues from corn production?
A) They will rise.
B) They will fall.
C) They will remain the same.
D) They will change in an indeterminate direction.

Accepted Answer

Since the demand for corn is inelastic, a decrease in supply will cause a relatively larger increase in price. This means that total revenues from corn production will increase.

Question 3

The per-unit cost of producing Tic Tac candy does not change with increases in production, which means the:
A) demand for Tic Tac candy is elastic.
B) demand for Tic Tac candy is inelastic.
C) supply of Tic Tac candy is elastic.
D) supply of Tic Tac candy is inelastic.

Accepted Answer

The answer of The per-unit cost of producing Tic Tac...

Question 4

If the demand for currently illegal recreational drugs is highly inelastic and these drugs became legal, prices would fall. An economist would expect which of the following to happen in response to the lower price?
A) Total spending on drugs would rise.
B) No one would follow the laws of economics anymore.
C) Many more people would become drug users.
D) Not many more people would become drug users.

Accepted Answer

The answer of If the demand for currently illegal recreational...

Question 5

Farmers can produce more milk at lower cost, but Americans want to drink only so much milk. This suggests that the demand curve for milk is:
A) elastic.
B) inelastic.
C) unit elastic.
D) unaffected by elasticity.

Accepted Answer

Since Americans only want to drink a certain amount of milk, even if the price were to decrease significantly, the quantity demanded would not increase by a large amount. Therefore, the demand for milk is relatively inelastic.

Question 6

A new per unit subsidy for hybrid car production increases the supply of hybrid cars. If hybrid cars are elastically demanded, what will happen to total revenues from hybrid car production?
A) They will rise.
B) They will fall.
C) They will remain the same.
D) They will change in an indeterminate direction.

Accepted Answer

The answer of A new per unit subsidy for hybrid...

Question 7

Which statement about the computer chip market is TRUE?
A) An increase in productivity shifted the supply curve to the left, driving up the price.
B) Computer chip demand is estimated to be unit elastic, which explains why the market has not expanded as production technology has improved.
C) Productivity increases in computer chips caused revenues to increase over time because the demand for computer chips is elastic.
D) There are limited uses for computer chips so demand is inelastic.

Accepted Answer

According to the statement, productivity increases in the computer chip industry caused revenues to increase over time. This suggests that demand for computer chips is elastic, meaning that consumers respond to changes in price. Therefore, as the supply of computer chips increased due to productivity improvements, demand also increased, leading to higher revenues for the industry. Option A is incorrect because a shift to the left in the supply curve would cause prices to decrease, not increase. Option B is also incorrect because if demand was unit elastic, improvements in production technology would lead to an expansion of the market, not a lack of expansion. Option D is also incorrect because computer chips have a wide range of uses, from personal computers to smartphones, so demand is not limited.

Question 8

A new per unit subsidy for almond production in the United States increases the world supply of almonds. If almonds are inelastically demanded, what will happen to total revenues from almond production?
A) They will rise.
B) They will fall.
C) They will remain the same.
D) They will change in an indeterminate direction.

Accepted Answer

The answer of A new per unit subsidy for almond...

Question 9

In regards to the criminalization of drugs, Nobel prize-winning economist Gary Becker suggested:
A) raising the capital gains tax to help provide more government resources for the war on drugs.
B) that the government should make drugs legal and then place a tax on drugs to control their usage.
C) subsidizing the consumption of illegal drugs in an effort to avoid deadweight losses.
D) All of the answers are correct.

Accepted Answer

Becker argues that the war on drugs has been ineffective and that legalizing drugs and placing a tax on them would be a more efficient solution. This would allow the government to control the sale of drugs and generate revenue from their taxation. Additionally, it would eliminate the costs associated with enforcing drug laws and incarcerating drug offenders.

Question 10

Compared to the 1980s, the price of computer chips is much lower today and revenues from computer chips are _____ because demand is _____.
A) higher; elastic
B) lower; inelastic
C) approximately unchanged; unit elastic
D) higher; inelastic

Accepted Answer

The answer of Compared to the 1980s, the price of...

Question 11

Which of the following statements is FALSE?
A) A perfectly inelastic supply curve is vertical.
B) The supply curve is more elastic in the long run than in the short run.
C) Products that take a long time to produce, such as decades-aged Scotch whiskey, have supply curves that are less responsive to price changes.
D) The supply curve of oil is more inelastic in Texas than it is globally.

Accepted Answer

The answer of Which of the following statements is FALSE?
A)...

Question 12

Figure: Demand 2 In the figure where S₁ is the supply of drugs with no prohibition and S₂ is the supply of drugs with prohibition, the area that represents total revenue with drug prohibition is ______, and the area that represents total revenue with no prohibition is ______. A) A + C + D; B + D B) C + D; A + C C) A + C; C + D D) B + D; A + C

Accepted Answer

The area that represents total revenue with drug prohibition is A + C, which is represented as the shaded area under the demand curve (D) and above the supply curve with prohibition (S₂). The area that represents total revenue with no prohibition is C + D, which is represented as the shaded area under the demand curve (D) and above the supply curve with no prohibition (S₁).

Question 13

Why is the war on drugs hard to win?
A) It is not a conventional war.
B) The government has not used adequate resources in the war.
C) Drug dealers get greater revenue following successful government prohibition efforts.
D) The demand for illegal drugs is too elastic.

Accepted Answer

The answer of Why is the war on drugs hard...

Question 14

Since the demand curve for computer chips is elastic, a decrease in the price of computer chips caused by an increase in productivity will _____ revenue for the computer chip industry and make computer chips a _____ share of the American economy.
A) increase; larger
B) increase; smaller
C) decrease; larger
D) decrease; smaller

Accepted Answer

When the price of computer chips decreases due to an increase in productivity, the demand for them will increase as they become more affordable. Since the demand curve is elastic, this increase in demand will offset the decrease in price, resulting in an overall increase in revenue for the computer chip industry. As a result, computer chips will make up a larger share of the American economy.

Question 15

Since roughly 1950, total revenues in the farming sector have ________, and since 1980 total revenues in computer chips have ________.
A) increased; decreased
B) decreased; decreased
C) increased; increased
D) decreased; increased

Accepted Answer

The answer of Since roughly 1950, total revenues in the...

Question 16

In the inelastic portion of a linear demand curve, firm revenue ______ when price falls.
A) increases
B) decreases
C) remains the same
D) changes in an indeterminate direction

Accepted Answer

In the inelastic portion of a linear demand curve, firm revenue decreases when price falls because the decrease in price is not enough to compensate for the decrease in quantity demanded, resulting in a decrease in total revenue.

Question 17

If the supply of a product is inelastic, a large price increase will:
A) not have an effect on the quantity supplied.
B) only bring about a small increase in quantity supplied.
C) cause the supply curve to increase by a nontrivial amount.
D) cause a modest decrease in supply.

Accepted Answer

The answer of If the supply of a product is...

Question 18

Increases in farm productivity have lowered the prices of many agricultural products. Farm revenues decreased, which implies that the:
A) demand for many agricultural products is inelastic.
B) costs of production increased.
C) demand for many agricultural products is elastic.
D) costs of production stayed the same.

Accepted Answer

The answer of Increases in farm productivity have lowered the...

Question 19

Since the demand for illegal drugs is quite inelastic, an increase in the price of illegal drugs:
A) increases seller revenues.
B) decreases seller revenues.
C) does not affect seller revenues.
D) put an end to the use of illegal drugs.

Accepted Answer

The demand for illegal drugs is inelastic, meaning that even if the price increases, the quantity demanded stays relatively the same. Therefore, an increase in price will increase seller revenues since they can still maintain their sales despite charging a higher price.

Question 20

A new per unit tax on yacht production decreases the supply of yachts. If yachts are elastically demanded, what will happen to total revenues from yacht production?
A) They will rise.
B) They will fall.
C) They will remain the same.
D) They will change in an indeterminate direction.

Accepted Answer

When the supply of yachts decreases due to a per unit tax, the price of yachts will increase. If demand for yachts is elastic, the increase in price will lead to a decrease in the quantity demanded of yachts. Therefore, total revenues from yacht production will fall.

Quiz 5: Elasticity and Its Applications

Nobel prize-winning economist Gary Becker suggested prohibited drugs should be legalized and then taxed. This would _ the seller's cost and _ government revenue.

Extensive flooding in the Midwest decreases the world supply of corn. If corn is inelastically demanded, what will happen to total revenues from corn production?

The per-unit cost of producing Tic Tac candy does not change with increases in production, which means the:

If the demand for currently illegal recreational drugs is highly inelastic and these drugs became legal, prices would fall. An economist would expect which of the following to happen in response to the lower price?

Farmers can produce more milk at lower cost, but Americans want to drink only so much milk. This suggests that the demand curve for milk is:

A new per unit subsidy for hybrid car production increases the supply of hybrid cars. If hybrid cars are elastically demanded, what will happen to total revenues from hybrid car production?

Which statement about the computer chip market is TRUE?

A new per unit subsidy for almond production in the United States increases the world supply of almonds. If almonds are inelastically demanded, what will happen to total revenues from almond production?

In regards to the criminalization of drugs, Nobel prize-winning economist Gary Becker suggested:

Compared to the 1980s, the price of computer chips is much lower today and revenues from computer chips are _ because demand is _.

Which of the following statements is FALSE?

Figure: Demand 2 In the figure where S₁ is the supply of drugs with no prohibition and S₂ is the supply of drugs with prohibition, the area that represents total revenue with drug prohibition is , and the area that represents total revenue with no prohibition is .

Why is the war on drugs hard to win?

Since the demand curve for computer chips is elastic, a decrease in the price of computer chips caused by an increase in productivity will _ revenue for the computer chip industry and make computer chips a _ share of the American economy.

Since roughly 1950, total revenues in the farming sector have , and since 1980 total revenues in computer chips have .

In the inelastic portion of a linear demand curve, firm revenue ______ when price falls.

If the supply of a product is inelastic, a large price increase will:

Increases in farm productivity have lowered the prices of many agricultural products. Farm revenues decreased, which implies that the:

Since the demand for illegal drugs is quite inelastic, an increase in the price of illegal drugs:

A new per unit tax on yacht production decreases the supply of yachts. If yachts are elastically demanded, what will happen to total revenues from yacht production?