Question 1

Nobel prize-winning economist Gary Becker suggests that a tax could be set so that it raised drug seller costs without prohibition, and in turn would:

Accepted Answer

If a tax is set to raise drug seller costs, it would increase the price of drugs for consumers, which could lead to decreased demand. This could result in decreased seller revenues, but the tax itself would generate revenue for the government. Therefore, the best choice is C - increase government revenues.

Question 2

If the demand for a good is elastic, then firms producing the good should ________ price in order to increase revenue.

Accepted Answer

If the demand for a good is elastic, then firms producing the good should decrease price in order to increase revenue. This is because when the price decreases, the quantity demanded will increase by a greater percentage, resulting in a larger total revenue.

Question 3

(Figure: Price Decrease and Elasticity) Refer to the figure. If price decreases from $20 to $10, total revenue will: Figure: Price Decrease and Elasticity

Accepted Answer

The answer of (Figure: Price Decrease and Elasticity) Refer to...

Question 4

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

Accepted Answer

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

Question 5

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

Accepted Answer

When demand is elastic, a decrease in price leads to a proportionally larger increase in quantity demanded, resulting in higher total revenues.

Question 6

What happens to revenues when the demand curve is unit elastic and the price changes?

Accepted Answer

When a demand curve is unit elastic, a change in price results in an equal percentage change in quantity demanded, resulting in no change in total revenue.

Question 7

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

Accepted Answer

The demand for illegal drugs is quite inelastic, meaning that changes in price have little effect on the quantity demanded. Therefore, an increase in price would lead to an increase in seller revenues, as they can continue to sell the same quantity at a higher price.

Question 8

(Figure: Price Increase and Elasticity) Refer to the figure. If price increases from $10 to $20, total revenue will:

Accepted Answer

The answer of (Figure: Price Increase and Elasticity) Refer to...

Question 9

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

Accepted Answer

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

Question 10

Which of the following statements is FALSE?

Accepted Answer

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

Question 11

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:

Accepted Answer

The fact that farmers are able to produce more milk at a lower cost suggests that the supply of milk has increased, which would typically result in a decrease in price in order to clear the market. However, the statement also notes that Americans only want to drink a certain amount of milk, implying that the quantity demanded of milk is relatively fixed. This combination of an increase in supply and relatively fixed quantity demanded would result in a price change that is proportionally larger than the change in quantity, meaning that the demand for milk is inelastic.

Question 12

The manager of a company notices that the company's total revenue would increase if the manager raises the price of the company's product. Accordingly, the manager can assert that the demand for the company's product is:

Accepted Answer

If raising the price of the product leads to an increase in total revenue, it indicates that the demand for the product is inelastic. This means that even with an increase in price, consumers are still willing to purchase the product, resulting in a higher total revenue for the company.

Question 13

Which of the following statements is TRUE? I. The War on Drugs has increased revenues in the illegal drug industry. II. The War Drugs has increased the costs of selling drugs, causing a decrease in the supply of drugs. III. The War on Drugs has caused the price of drugs to increase. IV. The quantity demanded of illicit drugs is elastic.

Accepted Answer

Statement I is true as the War on Drugs has led to an increase in profits for drug traffickers as the costs to produce and distribute drugs have increased. 
Statement II is true as the War on Drugs has made it more difficult and expensive for drug dealers to operate, leading to a decreased supply of drugs. 
Statement III is true as the decreased supply of drugs due to the War on Drugs has caused the price to increase. 
Statement IV is false as the quantity demanded of illicit drugs is generally considered to be inelastic, meaning that changes in price have little effect on demand.

Question 14

In general, the flatter the demand curve the:

Accepted Answer

The flatter the demand curve, the greater the demand elasticity. This means that a small change in price will lead to a relatively larger change in quantity demanded, indicating that consumers are more responsive to price changes. Therefore, the demand curve is more elastic.

Question 15

Since the demand curve for computer chips is elastic, a decrease in the price of computer chips caused by an increase in productivity will:

Accepted Answer

An increase in productivity will lead to a decrease in the price of computer chips. As the demand for computer chips is elastic, this price decrease will result in an increase in the quantity demanded of computer chips. This increase in quantity demanded will more than offset the decrease in price, leading to an increase in revenue for the computer chip industry. This increase in revenue will contribute to making computers a larger share of the American economy.

Question 16

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

Accepted Answer

When demand is inelastic, a decrease in price leads to a proportionally smaller increase in quantity demanded, resulting in lower total revenue.

Question 17

Gary Becker suggested:

Accepted Answer

Gary Becker was a proponent of economic analysis to policy decisions. In the context of the war on drugs, Becker advocated for the legalization of drugs in order to control their usage through taxation. He believed that this approach would decrease the incentive for drug dealers to engage in violent crime and would also generate government revenue from the taxation of legal drugs. Therefore, the best choice is B.

Question 18

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

Accepted Answer

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

Question 19

If the demand curve is inelastic then an increase in price would cause:

Accepted Answer

When demand is inelastic, consumers are less sensitive to price changes, so an increase in price leads to an increase in total revenue.

Question 20

Why is the war on drugs hard to win?

Accepted Answer

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

Quiz 5: Elasticity and Its Applications