Question 1

In general, a firm will be able to generate the greatest response to a price increase:
A) instantly
B) in one month
C) in six months
D) in two years

Accepted Answer

In the long run, such as in two years, consumers and firms have more time to adjust to price changes, leading to a greater response.

Question 2

Suppose a producer is able to separate customers into two groups, one having a price inelastic demand and the other having a price elastic demand. If the producer's objective is to increase total revenue, she should:
A) increase the price charged to customers with the price elastic demand and decrease the price charged to customers with the price inelastic demand
B) decrease the price charged to customers with the price elastic demand and increase the price charged to customers with the price inelastic demand
C) charge the same price to both groups of customers
D) increase the price for both groups of customers

Accepted Answer

If the producer wants to increase total revenue, she should decrease the price charged to customers with price elastic demand because a small decrease in price will result in a large increase in quantity demanded. This will increase the producer's total revenue. Similarly, she should increase the price charged to customers with price inelastic demand because they are less sensitive to price changes, hence a small price increase will not result in a large decrease in quantity demanded. Therefore, the producer will increase total revenue by charging different prices to each group of customers.

Question 3

A perfectly inelastic demand curve:
A) rises upward and to the right but has a constant slope
B) can be drawn as a line parallel to the vertical axis
C) cannot be shown on a two-dimensional graph
D) can be represented by a line parallel to the horizontal axis

Accepted Answer

A perfectly inelastic demand curve means that no matter the price, the quantity demanded will not change. This can be represented on a two-dimensional graph as a straight line parallel to the vertical axis, as the price may change but the quantity demanded remains constant.

Question 4

Suppose that you are in charge of pricing at a local surf rental shop. The business needs to increase revenue and your job is on the line. If the supply of surf boards is elastic, you:
A) should increase the rental price of surf boards
B) should decrease the rental price of surf boards
C) should not change the rental price of surf boards
D) cannot determine what to do with rental price until you determine whether demand is elastic or inelastic

Accepted Answer

The answer of Suppose that you are in charge of...

Question 5

Consider the following pairs of goods. Which would you expect to have the more elastic demand? Why?
a. water or diamonds
b. insulin or nasal decongestant spray
c. food in general or breakfast cereal
d. gasoline over the course of a week or gasoline over the course of a year
e. personal computers or IBM personal computers

Accepted Answer

The answer of Consider the following pairs of goods. Which...

Question 6

The price of product X is reduced from $100 to $90 and, as a result, the quantity demanded increases from 50 to 60 units. From this we can conclude that the demand for X in this price range:
A) has declined
B) is of unit elasticity
C) is inelastic
D) is elastic

Accepted Answer

When the price of X is reduced, the quantity demanded increases. This indicates that the demand for X is responsive to changes in price and therefore, is elastic. If the demand were inelastic, the change in price would have resulted in a smaller change in the quantity demanded. Unit elasticity would also imply that the percentage change in the quantity demanded is equal to the percentage change in price, which is not the case here.

Question 7

If the cross-price elasticity of demand between goods X and Y is 2.4 this means:
A) the two goods are complements and demand is elastic
B) the two goods are complements and the demand is inelastic
C) the two goods are substitutes and the demand is elastic
D) the two goods are substitutes and the demand is inelastic

Accepted Answer

The answer of If the cross-price elasticity of demand between...

Question 8

Suppose a demand function yields an equilibrium price of $5.00 and an equilibrium quantity of 50 000 individual units. The equilibrium quantity could also be expressed in units of 1000, yielding an equilibrium of $5.00 and 50 units. How would expressing the quantity in units of 1000 affect the value of the slope and the elasticity?

Accepted Answer

The answer of Suppose a demand function yields an equilibrium...

Question 9

A given leftward shift in the supply curve of product X will increase equilibrium price to a greater extent, the:
A) more elastic the supply curve
B) larger the elasticity of demand
C) more elastic the demand for the product
D) more inelastic the demand for the product

Accepted Answer

When the demand is more inelastic, a leftward shift in the supply curve results in a greater increase in equilibrium price. This is because inelastic demand means that changes in price have a relatively small effect on the quantity demanded. Therefore, even if the price increases due to the leftward shift in the supply curve, the quantity demanded will not decrease much, leading to a higher equilibrium price.

Question 10

Supply curves tend to be:
A) perfectly elastic in the long run, because consumer demand will have sufficient time to adjust fully to changes in supply
B) more elastic in the long run, because there is time for firms to enter or leave the industry and to change the size of factories
C) perfectly inelastic in the long run, because the law of scarcity imposes absolute limits upon production
D) less elastic in the long run, because there is time for firms to enter or leave an industry

Accepted Answer

In the long run, firms have more flexibility to adjust their production capacity and can enter or exit the industry, which results in a more elastic supply curve. This is because firms have more time to make changes to their production processes, such as building larger factories or introducing new technology. Thus, choice B is the best answer.

Question 11

What is elasticity and why do economists use the concept?

Accepted Answer

The answer of What is elasticity and why do economists...

Question 12

Use the graph below to answer the following questions. Put the correct letter in the blank.
  a. The elastic section of the graph is represented by section _____.
b. The inelastic section of the graph is represented by section _____.
c. The unit elastic section of the graph is represented by section _____.
d. The portion of the graph in which a decrease in price would cause total revenue to fall is _____.
e. The portion of the graph in which a decrease in price would cause total revenue to rise is _____.
f. The portion of the graph in which a decrease in price would not cause a change in total revenue is _____.
g. The section of the graph in which total revenue would be at a maximum is _____.
h. The section of the graph in which elasticity is greater than one is _____.
i. The section of the graph in which elasticity is equal to one is _____.
j. The section of the graph in which elasticity is less than one is _____.

Accepted Answer

The answer of Use the graph below to answer the...

Question 13

List the following goods in order of increasing price elasticity of demand: cameras, digital cameras, digital SLR cameras, Sony digital SLR cameras.

Accepted Answer

The answer of List the following goods in order of...

Question 14

Graph 5-5 -In Graph 5-5, which supply curve is perfectly inelastic? A) S₁ B) S₂ C) S₃ D) it is impossible to tell without more information

Accepted Answer

The answer of Graph 5-5
 
-In Graph 5-5, which supply...

Question 15

In which of the following cases will total revenue increase?
A) price falls and demand is inelastic
B) price falls and supply is elastic
C) price rises and demand is inelastic
D) price rises and demand is elastic

Accepted Answer

When the price rises and demand is inelastic, the increase in price is not significant enough to cause a decrease in quantity demanded. Therefore, total revenue will increase as a result of the price increase.

Question 16

Graph 5-5 -In Graph 5-5, which supply curve is most likely the long-run supply curve? A) S₁ B) S₂ C) S₃ D) all of the above are equally likely to be the long-run supply curve

Accepted Answer

The long-run supply curve represents the company's ability to adjust to changes in market conditions over time. It is generally flatter than the short-run supply curve because firms have more time to adjust their production process and enter or exit the industry. In Graph 5-5, curve S₃ is the flattest and most elastic, indicating that firms have the most flexibility to adjust to market changes over the long run. Therefore, it is most likely to be the long-run supply curve.

Question 17

Use the graphs below to answer the following questions.
  a. Determine equilibrium price and quantity for each graph.
b. Given demand and supply, what would total revenue be for each graph?
c. Assume that supply shifts to the left on both graphs by 100, raising price. Given the new equilibrium price and equilibrium quantity, what would total revenue be for each graph?
d. What do your answers to part c tell you about the relationship between elasticity of demand and total revenue?

Accepted Answer

The answer of Use the graphs below to answer the...

Question 18

If the supply of Monet paintings is perfectly inelastic, an increase in the demand for them will increase:
A) equilibrium quantity but reduce equilibrium price
B) equilibrium quantity but equilibrium price will be unchanged
C) equilibrium price but equilibrium quantity will be unchanged
D) equilibrium price but reduce equilibrium quantity

Accepted Answer

If the supply is perfectly inelastic, the quantity supplied cannot change in response to a change in demand. Therefore, an increase in demand will lead to an increase in the equilibrium price, but the equilibrium quantity will remain the same.

Question 19

If two demand curves with different slopes pass through the same point, which demand curve will have the greater price elasticity of demand if the price falls from that point?

Accepted Answer

The answer of If two demand curves with different slopes...

Question 20

What are the determinants of price elasticity of demand and how does each affect elasticity?

Accepted Answer

The answer of What are the determinants of price elasticity...

Quiz 5: Elasticity and Its Application

In general, a firm will be able to generate the greatest response to a price increase:

Suppose a producer is able to separate customers into two groups, one having a price inelastic demand and the other having a price elastic demand. If the producer's objective is to increase total revenue, she should:

A perfectly inelastic demand curve:

Suppose that you are in charge of pricing at a local surf rental shop. The business needs to increase revenue and your job is on the line. If the supply of surf boards is elastic, you:

The price of product X is reduced from $100 to $90 and, as a result, the quantity demanded increases from 50 to 60 units. From this we can conclude that the demand for X in this price range:

If the cross-price elasticity of demand between goods X and Y is 2.4 this means:

A given leftward shift in the supply curve of product X will increase equilibrium price to a greater extent, the:

Supply curves tend to be:

What is elasticity and why do economists use the concept?

List the following goods in order of increasing price elasticity of demand: cameras, digital cameras, digital SLR cameras, Sony digital SLR cameras.

Graph 5-5 -In Graph 5-5, which supply curve is perfectly inelastic?

In which of the following cases will total revenue increase?

Graph 5-5 -In Graph 5-5, which supply curve is most likely the long-run supply curve?

If the supply of Monet paintings is perfectly inelastic, an increase in the demand for them will increase:

If two demand curves with different slopes pass through the same point, which demand curve will have the greater price elasticity of demand if the price falls from that point?

What are the determinants of price elasticity of demand and how does each affect elasticity?