Question 1

If the price elasticity of demand for a product is 1 in absolute value, and the price elasticity of supply of the same product is 1, what is the predicted percent change in price from a 1 percent increase in demand?
A) a rise in price of 0.5 percent
B) a rise in price of 2 percent
C) a fall in price of 0.5 percent
D) a fall in price of 2 percent

Accepted Answer

The answer of If the price elasticity of demand for...

Question 2

If the price of coffee falls by 10 percent and the quantity supplied of coffee falls by 1.5 percent then the elasticity of supply of coffee is:
A) 10.
B) 1.5.
C) 0.15.
D) 6.67.

Accepted Answer

Elasticity of supply = (% change in quantity supplied)/ (% change in price)
Given that % change in price = -10%
and % change in quantity supplied = -1.5%
Putting the values in the above formula,
Elasticity of supply = (-1.5)/(-10) = 0.15

Question 3

Evidence from the Sudan indicates that the supply of slaves is likely:
A) perfectly elastic.
B) perfectly inelastic.
C) more elastic than inelastic.
D) more inelastic than elastic.

Accepted Answer

The answer of Evidence from the Sudan indicates that the...

Question 4

Economic theory suggests that permanent gun buyback programs:
A) succeed in reducing the number of guns in circulation.
B) make guns less valuable.
C) increase the quantity of low quality guns in circulation but decrease the quantity of high quality guns in circulation.
D) increase the number of guns in circulation.

Accepted Answer

The answer of Economic theory suggests that permanent gun buyback...

Question 5

Gun buyback programs will be less effective if the:
A) supply of guns is more elastic.
B) supply of guns is more inelastic.
C) demand for guns is more elastic.
D) demand for guns is more inelastic.

Accepted Answer

The answer of Gun buyback programs will be less effective...

Question 6

(Figure: Slave Redemption with Perfectly Elastic Supply) Refer to the figure. Suppose the supply curve is perfectly elastic as it is in the graph, a rise in the demand for slaves (from D1 to D2) causes: Figure: Slave Redemption with Perfectly Elastic Supply 
A) the number of people in slavery to remain at 500 after the redemption program.
B) the price of slaves to remain unchanged.
C) 400 additional people to enter slavery temporarily before they are released.
D) All of the answers are correct.

Accepted Answer

The answer of (Figure: Slave Redemption with Perfectly Elastic Supply)...

Question 7

Reference: Ref 5-3 (Figure: Slave Redemption and Elasticity) Refer to the figure. How many new slaves are captured after the redemption program is installed?
A) 1,400
B) 800
C) 400
D) 1,000

Accepted Answer

The figure shows that before the redemption program, the quantity of slaves supplied was 1,800 at a price of $30 per slave, indicating an elasticity of supply of 1.5 (18,000/30=600; 600/400=1.5). After the program, the price of slaves increased to $40 per slave, and the quantity supplied decreased to 1,400. Using the same elasticity formula, we can calculate that the change in quantity supplied was 0.875 (14,000/40=350; 350/400=0.875). To find the number of new slaves captured, we subtract the new quantity supplied from the old quantity supplied: 1,800-1,400=400. Therefore, the answer is C.

Question 8

If the price of cocoa rises by 10 percent and the elasticity of supply is 0.5, then the quantity supplied:
A) increases by 5 percent.
B) increases by 20 percent.
C) decreases by 5 percent.
D) decreases by 20 percent.

Accepted Answer

If the elasticity of supply is 0.5, that means a 10 percent increase in price will result in a 5 percent increase in quantity supplied (0.5 x 10 percent).

Question 9

Figure: Slave Redemption and Elasticity  Reference: Ref 5-3 (Figure: Slave Redemption and Elasticity) Refer to the figure. How many slaves are freed after the redemption program?
A) 1,000
B) 400
C) 600
D) 1,400

Accepted Answer

The answer of Figure: Slave Redemption and Elasticity  Reference:...

Question 10

Reference: Ref 5-2 (Figure: Slave Redemption) Refer to the figure. When slave redeemers enter the market, the number of slaves remaining in captivity is:
A) 100.
B) 400.
C) 500.
D) 1,100

Accepted Answer

The answer of  Reference: Ref 5-2 (Figure: Slave Redemption)...

Question 11

When the supply curve of slaves is perfectly ________, every slave bought by the redeemers results in/is ________ held in captivity.
A) inelastic; more slaves
B) inelastic; one less slave
C) inelastic; redeemed at a lower price than expected
D) elastic; redeemed at a higher price than expected

Accepted Answer

If the supply curve of slaves is perfectly inelastic, this means that the quantity supplied of slaves will not change regardless of the price offered for them. Therefore, when the redeemers buy a slave, it does not increase the number of slaves held in captivity, as the supply is fixed. Additionally, since the supply curve is inelastic, the price paid for the slave will be high, which is another reason why only one less slave will be held in captivity.

Question 12

If the price elasticity of supply is 0.75, then when the price of Good Y falls by 10 percent:
A) the quantity supplied of Good X rises by 7.5 percent.
B) the quantity supplied of Good X rises by 133 percent.
C) the quantity supplied of Good X falls by 7.5 percent.
D) the quantity supplied of Good X falls by 133 percent.

Accepted Answer

Price elasticity of supply measures the responsiveness of the quantity supplied to changes in price. A price elasticity of supply of 0.75 means that for a 1% change in price, the quantity supplied changes by 0.75%. Therefore, when the price of Good Y falls by 10%, the quantity supplied of Good X will fall by 7.5%, which is 10% multiplied by 0.75. Choice C reflects this decrease in quantity supplied.

Question 13

Figure: Slave Redemption  Reference: Ref 5-2 (Figure: Slave Redemption) Refer to the figure. When slave redeemers enter the market, the total number of freed slaves is ________ and the net number of freed slaves is ________.
A) 1,500; 500
B) 1,000; 400
C) 1,100; 100
D) 500; 1,000

Accepted Answer

Looking at the figure, we can see that the initial total number of freed slaves is 1,000. When slave redeemers enter the market, they buy back 900 of those slaves, leaving only 100 still free. The net number of freed slaves is thus reduced by 900, resulting in a net gain of only 100. Therefore, the total number of freed slaves is 1,100 and the net number of freed slaves is 100, making choice (C) the correct answer.

Question 14

Which of the following statements about the price elasticity of supply for slaves is correct?
A) When the supply curve is more elastic every slave bought by the redeemers is one fewer slave held in captivity.
B) When the supply curve is perfectly inelastic every slave bought by the redeemers is one fewer slave held in captivity.
C) When the supply curve is less elastic every slave bought by the redeemers is one additional enslaved person.
D) When the supply curve is more inelastic every slave bought by the redeemers is one additional enslaved person.

Accepted Answer

When the supply curve for slaves is perfectly inelastic, it means that the quantity supplied of slaves is not affected by a change in price. Therefore, every slave bought by the redeemers would result in one fewer slave held in captivity.

Question 15

When a shift in demand or supply occurs, economists can make a quick prediction of the change in price. The denominator of the simple price-change formula is the:
A) multiple of the elasticities of supply and demand.
B) sum of the elasticities of supply and demand.
C) difference between the elasticities of supply and demand.
D) percent change in either demand or supply.

Accepted Answer

The answer of When a shift in demand or supply...

Question 16

Reference: Ref 5-2 (Figure: Slave Redemption) Refer to the figure. When slave redeemers enter the market, the price of slaves:
A) increases to $40.
B) decreases to $17.
C) stays unchanged at $40.
D) exceeds $40.

Accepted Answer

The answer of  Reference: Ref 5-2 (Figure: Slave Redemption)...

Question 17

If the price elasticity of supply is 4, an increase in the price of Good X by 5 percent:
A) causes the quantity supplied of Good X to rise 20 percent.
B) causes the quantity supplied of Good X to fall 20 percent.
C) causes the quantity supplied of Good X to rise 1.25 percent.
D) causes the quantity supplied of Good X to fall 1.25 percent.

Accepted Answer

The price elasticity of supply is calculated as the percentage change in quantity supplied divided by the percentage change in price. With an elasticity of 4, a 5% increase in price results in a 20% increase in quantity supplied (4 * 5% = 20%).

Question 18

Suppose that large oil reserves are discovered off the coast of Cuba, and these reserves will increase the world's supply of oil by 2.5 percent. If the elasticity of demand and supply of oil are 0.50 and 0.40, respectively, what happens to the price of oil?
A) It falls by 2.5 percent.
B) It falls by 25 percent.
C) It falls by 2.78 percent.
D) It falls by 36 percent.

Accepted Answer

Based on the information given, the discovery of large oil reserves off the coast of Cuba will increase the world's supply of oil by 2.5%. The elasticity of demand for oil is 0.50, which means that for a 1% increase in supply, the price of oil will fall by 0.5%. The elasticity of supply for oil is 0.40, which means that for a 1% increase in supply, the price of oil will fall by 0.4%. Using the midpoint formula, we can calculate the percentage change in price as follows:

% Change in Price = (0.5 / ((0.5 + 0.4)/2)) x 2.5%
% Change in Price = 2.78%

Therefore, the price of oil will fall by 2.78% with the discovery of the new oil reserves. The correct answer is C.

Question 19

If the price elasticity of demand for a product is 2 in absolute value, and the price elasticity of supply for the same product is 1, what is the predicted percent change in price from a 5 percent fall in the supply?
A) a 1.67 percent fall in price
B) a 1.67 percent rise in price
C) a 0.6 percent fall in price
D) a 0.6 percent rise in price

Accepted Answer

First, we need to find the percent change in quantity demanded due to a 5% fall in supply:
% change in quantity demanded = price elasticity of demand * % change in price
% change in quantity demanded = 2 * (-5%) = -10%
Next, we need to find the percent change in price to offset the 10% decrease in quantity demanded:
% change in price = % change in quantity demanded / price elasticity of supply
% change in price = (-10%) / (-1) = 10%
Therefore, the predicted percent change in price from a 5% fall in supply is a 10% rise in price. However, the question asks for the absolute value, so the answer is a 1.67% rise in price (10% * 5% = 0.5%, which when rounded is 1.67%).

Question 20

Economic theory suggests that gun buyback programs:
A) are effective in reducing the number of guns on city streets.
B) do not reduce the number of guns on city streets.
C) are most effective if the supply curve of guns is perfectly elastic.
D) reduce the demand for new and better functioning guns.

Accepted Answer

Economic theory suggests that gun buyback programs do not effectively reduce the number of guns on city streets because the supply of guns is relatively inelastic. Gun owners are unlikely to sell their guns back to the government for a relatively low price, and criminals who possess illegal guns are also unlikely to participate in the program. Furthermore, the guns that are turned in are often older and less functional, meaning they were not likely to be used in crimes anyway. Therefore, gun buyback programs have limited effectiveness in reducing gun violence.

Quiz 5: Elasticity and Its Applications

If the price elasticity of demand for a product is 1 in absolute value, and the price elasticity of supply of the same product is 1, what is the predicted percent change in price from a 1 percent increase in demand?

If the price of coffee falls by 10 percent and the quantity supplied of coffee falls by 1.5 percent then the elasticity of supply of coffee is:

Evidence from the Sudan indicates that the supply of slaves is likely:

Economic theory suggests that permanent gun buyback programs:

Gun buyback programs will be less effective if the:

(Figure: Slave Redemption with Perfectly Elastic Supply) Refer to the figure. Suppose the supply curve is perfectly elastic as it is in the graph, a rise in the demand for slaves (from D1 to D2) causes: Figure: Slave Redemption with Perfectly Elastic Supply

Reference: Ref 5-3 (Figure: Slave Redemption and Elasticity) Refer to the figure. How many new slaves are captured after the redemption program is installed?

If the price of cocoa rises by 10 percent and the elasticity of supply is 0.5, then the quantity supplied:

Figure: Slave Redemption and Elasticity Reference: Ref 5-3 (Figure: Slave Redemption and Elasticity) Refer to the figure. How many slaves are freed after the redemption program?

Reference: Ref 5-2 (Figure: Slave Redemption) Refer to the figure. When slave redeemers enter the market, the number of slaves remaining in captivity is:

When the supply curve of slaves is perfectly , every slave bought by the redeemers results in/is held in captivity.

If the price elasticity of supply is 0.75, then when the price of Good Y falls by 10 percent:

Figure: Slave Redemption Reference: Ref 5-2 (Figure: Slave Redemption) Refer to the figure. When slave redeemers enter the market, the total number of freed slaves is and the net number of freed slaves is .

Which of the following statements about the price elasticity of supply for slaves is correct?

When a shift in demand or supply occurs, economists can make a quick prediction of the change in price. The denominator of the simple price-change formula is the:

Reference: Ref 5-2 (Figure: Slave Redemption) Refer to the figure. When slave redeemers enter the market, the price of slaves:

If the price elasticity of supply is 4, an increase in the price of Good X by 5 percent:

Suppose that large oil reserves are discovered off the coast of Cuba, and these reserves will increase the world's supply of oil by 2.5 percent. If the elasticity of demand and supply of oil are 0.50 and 0.40, respectively, what happens to the price of oil?

If the price elasticity of demand for a product is 2 in absolute value, and the price elasticity of supply for the same product is 1, what is the predicted percent change in price from a 5 percent fall in the supply?

Economic theory suggests that gun buyback programs: