Question 1

Suppose that Nisshodo's Mochi shop raises the price of its mochi by 10% and its total revenue increased. This would mean that the demand for mochi is

Accepted Answer

When the price of a good increases and total revenue also increases, it indicates that the demand for the good is inelastic. This means that the percentage change in quantity demanded is less than the percentage change in price, leading to an increase in total revenue despite the higher price.

Question 2

The local convenience store advertises 50% off frozen slushies. As a result of the sale, the store sells 80% more slushies, but 20% fewer fountain drinks. The cross elasticity between slushies and fountain drinks is _____.

Accepted Answer

The answer of The local convenience store advertises 50% off...

Question 3

If the cross elasticity of demand between fly rods and reels is -0.8, a decrease in the price of rods would _____ sales of reels because the two goods are _____.

Accepted Answer

The negative cross elasticity of demand indicates that fly rods and reels are complements, meaning that a decrease in the price of rods leads to an increase in sales of reels.

Question 4

In the town of Skateville, average income falls by 20% due to a recession. As a result, sales of skateboards fall by 15%. The income elasticity of demand is _____, and skateboards are a(n) _____ good.

Accepted Answer

The income elasticity of demand is calculated as the percentage change in quantity demanded divided by the percentage change in income. Here, it is -15% / -20% = 0.75. A positive elasticity indicates a normal good, as demand decreases when income decreases.

Question 5

A negative cross elasticity of demand means that two goods are _____, while a negative income elasticity of demand means that a good is a(n) _____ good.

Accepted Answer

A negative cross elasticity of demand indicates that the two goods are complements, meaning that an increase in the price of one good leads to a decrease in the demand for the other. A negative income elasticity of demand suggests that the good is an inferior good, meaning that its demand decreases as consumer income increases.

Question 6

Because of poor snowfall, a ski village reduces the prices of chalet rentals by 20%, and this subsequently increases the sale of ski lift tickets by 15%. The cross elasticity of demand is _____ and chalet rentals and lift tickets are _____.

Accepted Answer

The cross elasticity of demand is calculated as the percentage change in quantity demanded of one good divided by the percentage change in price of another good. Here, it is 15% / -20% = -0.75. A negative cross elasticity indicates that the goods are complements.

Question 7

Average income in the town of Growthville increased by 8% last year, and as a result, sales of pedicures increased by 12%. The income elasticity of demand is _____, and pedicures would be classified as a(n) _____ good.

Accepted Answer

The income elasticity of demand is calculated as the percentage change in quantity demanded divided by the percentage change in income. Here, it is 12% / 8% = 1.5. A good is classified as normal if its demand increases with an increase in income, which is the case here.

Question 8

If the average price of new homes increased by 15% last year, and, as a result, home builders increased the quantity supplied of new homes by 10%, the price elasticity of supply is _____, and the supply of new homes is _____.

Accepted Answer

The price elasticity of supply is calculated as the percentage change in quantity supplied divided by the percentage change in price. Here, it is 10% / 15% = 0.67, indicating inelastic supply because the value is less than 1.

Question 9

Suppose that the price of African safaris fell from $4,000 to $3,200 per person, and, as a result, tour operators reduced the number of trips offered by 25%. Using the midpoint method, the price elasticity of supply for African safaris is

Accepted Answer

The price elasticity of supply is calculated using the midpoint method as follows: [(Q2 - Q1) / ((Q2 + Q1) / 2)] / [(P2 - P1) / ((P2 + P1) / 2)], where Q1 and Q2 are the initial and final quantities, and P1 and P2 are the initial and final prices. Here, the quantity supplied decreases by 25%, so if Q1 is 100 (for simplicity), Q2 is 75. The price decreases from $4,000 to $3,200. Plugging these values into the formula gives an elasticity of 1.13.

Question 10

Which statement is NOT true about the elasticity of supply?

Accepted Answer

Elasticity of supply tends to increase, not fall, as companies have more time to adjust their production methods. This allows them to be more responsive to price changes.

Question 11

When a ride-sharing service implements "surge" pricing, raising all fares by 30%, drivers choose to work longer hours and this results in an increase of 40% more rides available. The price elasticity of supply for ride-sharing is _____, and the supply is _____.

Accepted Answer

The price elasticity of supply is calculated as the percentage change in quantity supplied divided by the percentage change in price. Here, it's (40% / 30%) = 1.33, indicating that the supply is elastic since the elasticity is greater than 1.

Question 12

Suppose that the price elasticity of supply for motorized scooters is 0.5. If the quantity supplied of motorized scooters increases by 30%, what was the increase in price?

Accepted Answer

The answer of Suppose that the price elasticity of supply...

Question 13

The average price of pineapples fell from $5 to $4, and the quantity supplied decreased from 1 million to 900,000 units. Using the base method, the price elasticity of supply is

Accepted Answer

The price elasticity of supply is calculated using the formula: [(Q2 - Q1) / (Q2 + Q1) / 2] / [(P2 - P1) / (P2 + P1) / 2]. Substituting the given values: [(900,000 - 1,000,000) / (900,000 + 1,000,000) / 2] / [($4 - $5) / ($4 + $5) / 2] = (-100,000 / 950,000) / (-1 / 4.5) = -0.105 / -0.222 ≈ 0.5.

Question 14

A popular restaurant makes 2,000 of its famous soup dumplings each morning, and once it sells out, the chefs cannot make more until the next day. This restaurant is operating in the

Accepted Answer

The market period is a very short period in economics where the supply of a good is fixed and cannot be adjusted to meet changes in demand. In this scenario, the restaurant cannot adjust the supply of soup dumplings within the same day once they sell out, fitting the definition of operating in the market period.

Question 15

A supply curve in the long run is likely to be _____ than the supply curve in the short run because the price elasticity of supply in the long run is more _____.

Accepted Answer

In the long run, firms have more time to adjust their production levels in response to price changes, making the supply more elastic. Therefore, the long-run supply curve is flatter than the short-run supply curve.

Question 16

Which period describes when companies can alter their output but not their plant capacity?

Accepted Answer

In the short run, companies can adjust their output levels by changing variable inputs (like labor and raw materials) but cannot alter their fixed inputs, such as plant capacity, which requires long-term planning and investment.

Question 17

Which of these is the MOST important determinant of the elasticity of supply?

Accepted Answer

The most important determinant of the elasticity of supply is the time to adjust. This is because the ability of producers to change the quantity they supply in response to price changes largely depends on how much time they have to make those adjustments.

Question 18

If the state government charges an 8% tax rate on the first $50,000 of income earned, and then a 6% tax rate on all income above $50,000, this tax structure would be described as

Accepted Answer

The answer of If the state government charges an 8%...

Question 19

Which tax structure would be an example of a progressive tax?

Accepted Answer

The answer of Which tax structure would be an example...

Question 20

If a worker who earns $30,000 per year pays $6,000 in taxes, while a worker who earns $50,000 per year pays $9,000 in taxes, this income tax would represent a _____ tax.

Accepted Answer

A regressive tax takes a larger percentage of income from lower-income earners than from higher-income earners. Here, the lower-income worker pays 20% of their income in taxes, while the higher-income worker pays 18%, indicating a regressive tax.

Quiz 5: Elasticity

Suppose that Nisshodo's Mochi shop raises the price of its mochi by 10% and its total revenue increased. This would mean that the demand for mochi is

The local convenience store advertises 50% off frozen slushies. As a result of the sale, the store sells 80% more slushies, but 20% fewer fountain drinks. The cross elasticity between slushies and fountain drinks is _____.

If the cross elasticity of demand between fly rods and reels is -0.8, a decrease in the price of rods would _ sales of reels because the two goods are _.

In the town of Skateville, average income falls by 20% due to a recession. As a result, sales of skateboards fall by 15%. The income elasticity of demand is _, and skateboards are a(n) _ good.

A negative cross elasticity of demand means that two goods are _, while a negative income elasticity of demand means that a good is a(n) _ good.

Because of poor snowfall, a ski village reduces the prices of chalet rentals by 20%, and this subsequently increases the sale of ski lift tickets by 15%. The cross elasticity of demand is _ and chalet rentals and lift tickets are _.

Average income in the town of Growthville increased by 8% last year, and as a result, sales of pedicures increased by 12%. The income elasticity of demand is _, and pedicures would be classified as a(n) _ good.

If the average price of new homes increased by 15% last year, and, as a result, home builders increased the quantity supplied of new homes by 10%, the price elasticity of supply is _, and the supply of new homes is _.