Question 1

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 quite inelastic, which means that changes in price do not have a significant impact on the quantity demanded by consumers. Therefore, an increase in price will lead to an increase in seller revenues as the sellers are able to charge more without suffering a significant decrease in the quantity demanded.

Question 2

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 3

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 and taxing drugs would increase the seller's cost due to taxes, while government revenue would increase from the tax income.

Question 4

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 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

The fact that farmers can produce more milk at lower cost suggests that they will try to increase their supply of milk. However, Americans only want to drink a certain amount of milk, meaning that the market demand for milk is relatively fixed. Therefore, any increase in supply will result in a greater quantity of milk being supplied than demanded, leading to a decrease in the price of milk. This indicates that the demand for milk is relatively insensitive to changes in price, making it inelastic.

Question 6

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

When farm productivity increases and prices fall, if revenues decrease, it implies that the demand is inelastic. This is because the percentage drop in price leads to a smaller percentage increase in quantity demanded, resulting in lower total revenue.

Question 7

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

Since the demand curve for computer chips is elastic, a decrease in the price of computer chips caused by an increase in productivity will lead to an increase in revenue for the computer chip industry, as more units will be sold due to the decrease in price. This increase in revenue can lead to computer chips being a larger share of the American economy.

Question 8

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 supply curve of oil is generally more elastic in a specific region like Texas compared to globally, as local producers can adjust production more easily than the global market can respond to changes.

Question 9

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 10

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

Inelastic demand means that changes in price have a relatively small effect on the quantity demanded. Since the world supply of corn has decreased due to flooding, the demand for corn is still relatively high and buyers are willing to pay a higher price. Therefore, the total revenues from corn production will rise even if the quantity of corn sold decreases.

Question 11

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

When supply is inelastic, it means that the quantity supplied does not change significantly with a change in price. Therefore, a large price increase will only result in a small increase in the quantity supplied.

Question 12

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

When demand is inelastic, quantity demanded does not change significantly with a change in price. Therefore, even if prices fall, not many more people would become drug users.

Question 13

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

This option suggests that drugs should be made legal and then taxed, as this would allow the government to control their usage while also generating revenue from their sale. This approach is seen as a more effective and economically efficient alternative to criminalizing drugs, which has been shown to be costly and often ineffective.

Question 14

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 total revenue with drug prohibition would be the area below the demand curve (D) and above the supply curve with prohibition (S₂), which is represented by area C. On the other hand, the total revenue with no prohibition would be the area below the demand curve (D) and above the supply curve with no prohibition (S₁), which is represented by the sum of areas A, C, and D. Therefore, the area that represents total revenue with no prohibition is A + C + D.

Question 15

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

When demand is elastic, a decrease in price (due to increased supply) leads to a proportionally larger increase in quantity demanded, thus increasing total revenue.

Question 16

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

Increased productivity in the computer chip market caused revenues to increase over time, which suggests that demand for computer chips is elastic. This means that as the price of computer chips decreases due to increased productivity, demand for them increases proportionally, resulting in higher revenues. Option A is incorrect because an increase in productivity would shift the supply curve to the right, resulting in a decrease in price. Option B is also incorrect because improvements in production technology should result in an increase in supply, not a decrease in demand. Option D is incorrect because computer chips have a wide range of applications and are used in various industries, suggesting that demand is not limited or inelastic.

Question 17

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 18

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 price of computer chips has decreased, but revenues are higher because the demand for computer chips is elastic, meaning that the decrease in price has led to a proportionally larger increase in quantity demanded, thus increasing total revenue.

Question 19

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, consumers are less responsive to changes in price, which means that a decrease in price will not significantly increase demand. As a result, firm revenue will decrease as price falls since the decrease in price is not offset by a significant increase in demand.

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

If yachts are elastically demanded, a decrease in supply will result in a significant increase in price. As a result, total revenues from yacht production will decrease because the increase in price will not offset the decrease in quantity demanded by consumers. Therefore, option B is the correct answer.

Quiz 5: Elasticity and Its Applications

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

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

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

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

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:

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

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.

Which of the following statements is FALSE?

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?

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?

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

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?

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

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 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?

Why is the war on drugs hard to win?

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

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

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?