Question 1

Scenario 5-4
The supply of aged cheddar cheese is inelastic, and the supply of bread is elastic. Both goods are considered to be normal goods by a majority of consumers. Suppose that a large income tax increase decreases the demand for both goods by 10%.
-Refer to Scenario 5-4. The change in equilibrium quantity will be
A) greater in the aged cheddar cheese market than in the bread market.
B) greater in the bread market than in the aged cheddar cheese market.
C) the same in the aged cheddar cheese and bread markets.
D) Any of the above could be correct.

Accepted Answer

Since bread has an elastic supply, the decrease in demand will result in a relatively larger decrease in equilibrium quantity compared to aged cheddar cheese, which has an inelastic supply. Therefore, the change in equilibrium quantity will be greater in the bread market than in the aged cheddar cheese market.

Question 2

Scenario 5-5
Milk has an inelastic demand, and beef has an elastic demand. Suppose that a mysterious increase in bovine infertility decreases both the population of dairy cows and the population of beef cattle by 50 percent.
-Refer to Scenario 5-5. The change in equilibrium price will be
A) greater in the milk market than in the beef market.
B) greater in the beef market than in the milk market.
C) the same in the milk and beef markets.
D) Any of the above could be correct.

Accepted Answer

The answer of Scenario 5-5
Milk has an inelastic demand, and...

Question 3

Which of the following statements does not help to explain why government drug interdiction increases drug-related crime?
A) The demand for illegal drugs is inelastic.
B) Interdiction results in drug addicts having a greater need for quick cash.
C) Interdiction results in an increase in the amount of money needed to buy the same amount of drugs.
D) Government drug programs are more lenient now with drug offenders than they were in the 1980s.

Accepted Answer

This statement does not provide any explanation for why government drug interdiction increases drug-related crime. It discusses government drug programs being more lenient now, but this is not directly related to drug interdiction. The other statements all provide potential reasons for why drug interdiction can lead to an increase in drug-related crime.

Question 4

OPEC successfully raised the world price of oil in the 1970s and early 1980s, primarily due to
A) an inelastic demand for oil and a reduction in the amount of oil supplied.
B) a reduction in the amount of oil supplied and a world-wide oil embargo.
C) a world-wide oil embargo and an elastic demand for oil.
D) a reduction in the amount of oil supplied and an elastic demand for oil.

Accepted Answer

The answer of OPEC successfully raised the world price of...

Question 5

Under which of the following conditions would the interdiction of illegal drugs result in a decrease in the quantity of drugs sold and in a decrease in total spending on illegal drugs by drug users?
A) The interdiction has the effect of shifting the demand curve for illegal drugs to the right.
B) The price elasticity of demand for illegal drugs is 1.3.
C) The price elasticity of supply for illegal drugs is 0.8.
D) As a result of the interdiction, the price of illegal drugs increases by 20 percent and the quantity of illegal drugs sold decreases by 16 percent.

Accepted Answer

The answer of Under which of the following conditions would...

Question 6

Table 5-11 
-Refer to Table 5-11. Which scenario describes the market for oil in the short run in comparison to the long run?
A) Scenario A describes both the short run and the long run.
B) Scenario D describes both the short run and the long run.
C) Scenario D describes the short run, whereas scenario A describes the long run.
D) Scenario C describes the short run, whereas scenario B describes the long run.

Accepted Answer

In the short run, market supply is relatively fixed due to limited current production capacity and therefore supply is relatively inelastic. This is depicted in scenario D where a decrease in demand only leads to a small decrease in price. In the long run, however, firms have enough time to adjust production capacity and therefore market supply becomes more elastic. This is depicted in scenario A where a decrease in demand leads to a larger decrease in price. Therefore, scenario D describes the short run and scenario A describes the long run.

Question 7

The supply of oil is likely to be
A) inelastic in both the short run and long run.
B) elastic in both the short run and long run.
C) elastic in the short run and inelastic in the long run.
D) inelastic in the short run and elastic in the long run.

Accepted Answer

In the short run, producers cannot easily adjust their supply of oil, as the production capacity is fixed. Therefore, the supply of oil is inelastic in the short run. In the long run, producers can adjust their production capacity, invest in new exploration, and develop alternative sources of energy, making the supply of oil more elastic.

Question 8

Scenario 5-6
Suppose the government is concerned about firms in the United States importing illegal caviar. As a result, the government increases border patrols to catch illegal shipments. U.S. Customs agents perform DNA testing on the caviar to determine if it comes from endangered species of fish. If so, the government destroys the caviar.
-Refer to Scenario 5-6. What would we expect to observe in the caviar market?
A) Equilibrium prices and quantities will increase.
B) Equilibrium prices will increase by more if the demand for caviar is elastic than if demand is inelastic.
C) Total revenues to caviar firms will increase if the demand for caviar is inelastic.
D) All of the above are correct.

Accepted Answer

With the increase in border patrols and the destruction of illegal caviar, the supply of caviar will decrease. If demand for caviar is inelastic, then firms can raise prices without affecting total revenue. Therefore, total revenues to caviar firms will increase if demand for caviar is inelastic. However, it is not necessarily true that equilibrium prices and quantities will increase, or that equilibrium prices will increase more if demand is elastic than if demand is inelastic.

Question 9

Which of the following was not a reason OPEC failed to keep the price of oil high?
A) Over the long run, producers of oil outside of OPEC responded to higher prices by increasing oil exploration and by building new extraction capacity.
B) Consumers responded to higher prices with greater conservation.
C) Consumers replaced old inefficient cars with newer efficient ones.
D) The agreement OPEC members signed allowed each country to produce as much oil as each wanted.

Accepted Answer

The agreement OPEC members signed allowed each country to produce as much oil as each wanted was not a reason OPEC failed to keep the price of oil high. The other options A, B, and C all contributed to the failure of OPEC to maintain high oil prices.

Question 10

In the early 1970s, OPEC's goal was to
A) decrease the world-wide price of oil so that the quantity demanded increased, thus raising total revenues for OPEC members.
B) increase the world-wide price of oil by reducing the quantity of oil supplied.
C) increase the world-wide price of oil by increasing the quantity of oil supplied, thus raising total revenues for OPEC members.
D) decrease the world-wide price of oil so that quantity demanded increased.

Accepted Answer

OPEC's main goal in the early 1970s was to increase the price of oil by reducing the quantity supplied. This was achieved through a series of production cuts and embargoes, ultimately leading to a significant increase in the price of oil. OPEC's objective was to gain greater control over the global oil market and to maximize profits for its member countries.

Question 11

Scenario 5-5
Milk has an inelastic demand, and beef has an elastic demand. Suppose that a mysterious increase in bovine infertility decreases both the population of dairy cows and the population of beef cattle by 50 percent.
-Refer to Scenario 5-5. The equilibrium price will
A) increase in both the milk and beef markets.
B) increase in the milk market and decrease in the beef market.
C) decrease in the milk market and increase in the beef market.
D) decrease in both the milk and beef markets.

Accepted Answer

The answer of Scenario 5-5
Milk has an inelastic demand, and...

Question 12

In the market for oil in the short run, demand
A) and supply are both elastic.
B) and supply are both inelastic.
C) is elastic and supply is inelastic.
D) is inelastic and supply is elastic.

Accepted Answer

The answer of In the market for oil in the...

Question 13

If marijuana were legalized, it is likely that there would be an increase in the supply of marijuana. Advocates of marijuana legalization argue that this would significantly reduce the amount of revenue going to the criminal organizations that currently supply marijuana. These advocates believe that the
A) supply for marijuana is elastic.
B) demand for marijuana is elastic.
C) supply for marijuana is inelastic.
D) demand for marijuana is inelastic.

Accepted Answer

The answer of If marijuana were legalized, it is likely...

Question 14

Scenario 5-4
The supply of aged cheddar cheese is inelastic, and the supply of bread is elastic. Both goods are considered to be normal goods by a majority of consumers. Suppose that a large income tax increase decreases the demand for both goods by 10%.
-Refer to Scenario 5-4. Total consumer spending on aged cheddar cheese will
A) increase, and total consumer spending on bread will increase.
B) increase, and total consumer spending on bread will decrease.
C) decrease, and total consumer spending on bread will increase.
D) decrease, and total consumer spending on bread will decrease.

Accepted Answer

The demand for both goods has decreased by 10% due to the income tax increase. Since the supply of aged cheddar cheese is inelastic, the reduction in demand will result in a larger decrease in quantity demanded compared to the decrease in price, leading to a decrease in total consumer spending on aged cheddar cheese. On the other hand, since the supply of bread is elastic, the reduction in demand will result in a larger decrease in price compared to the decrease in quantity demanded, leading to a decrease in total consumer spending on bread as well. Therefore, total consumer spending on both goods will decrease.

Question 15

Why was OPEC unable to maintain high oil prices in the long run?
A) Demand and supply are both elastic in the long run compared to the short run.
B) Demand and supply are both inelastic in the long run compared to the short run.
C) Demand is elastic and supply is inelastic in the long run compared to the short run.
D) Demand is inelastic and supply is elastic in the long run compared to the short run.

Accepted Answer

In the long run, both demand and supply become more elastic as consumers and producers adjust to changes in prices. This means that OPEC cannot maintain high oil prices in the long run because as prices rise, consumers will look for alternative energy sources or reduce their overall consumption, while producers outside of OPEC will be incentivized to increase their own production to take advantage of higher prices. This creates a market environment where there is more competition and less market power for OPEC to control prices.

Question 16

Scenario 5-5
Milk has an inelastic demand, and beef has an elastic demand. Suppose that a mysterious increase in bovine infertility decreases both the population of dairy cows and the population of beef cattle by 50 percent.
-Refer to Scenario 5-5. The equilibrium quantity will
A) increase in both the milk and beef markets.
B) increase in the milk market and decrease in the beef market.
C) decrease in the milk market and increase in the beef market.
D) decrease in both the milk and beef markets.

Accepted Answer

The answer of Scenario 5-5
Milk has an inelastic demand, and...

Question 17

Scenario 5-5
Milk has an inelastic demand, and beef has an elastic demand. Suppose that a mysterious increase in bovine infertility decreases both the population of dairy cows and the population of beef cattle by 50 percent.
-Refer to Scenario 5-5. The change in equilibrium quantity will be
A) greater in the milk market than in the beef market.
B) greater in the beef market than in the milk market.
C) the same in the milk and beef markets.
D) Any of the above could be correct.

Accepted Answer

Since milk has an inelastic demand and beef has an elastic demand, the decrease in supply due to bovine infertility will have a greater impact on the equilibrium quantity in the beef market. The decrease in quantity demanded for beef will be greater than the decrease in quantity demanded for milk. Therefore, the change in equilibrium quantity will be greater in the beef market than in the milk market.

Question 18

Table 5-11 
-Refer to Table 5-11. Which scenario describes the market for oil in the short run?
A) A
B) B
C) C
D) D

Accepted Answer

The answer of Table 5-11 
-Refer to Table 5-11. Which...

Question 19

Table 5-11 
-Refer to Table 5-11. Which scenario describes the market for oil in the long run?
A) A
B) B
C) C
D) D

Accepted Answer

The answer of Table 5-11 
-Refer to Table 5-11. Which...

Question 20

Scenario 5-5
Milk has an inelastic demand, and beef has an elastic demand. Suppose that a mysterious increase in bovine infertility decreases both the population of dairy cows and the population of beef cattle by 50 percent.
-Refer to Scenario 5-5. Total consumer spending on milk will
A) increase, and total consumer spending on beef will increase.
B) increase, and total consumer spending on beef will decrease.
C) decrease, and total consumer spending on beef will increase.
D) decrease, and total consumer spending on beef will decrease.

Accepted Answer

The answer of Scenario 5-5
Milk has an inelastic demand, and...

Quiz 5: Elasticity and Its Application

Scenario 5-5 Milk has an inelastic demand, and beef has an elastic demand. Suppose that a mysterious increase in bovine infertility decreases both the population of dairy cows and the population of beef cattle by 50 percent. -Refer to Scenario 5-5. The change in equilibrium price will be

Which of the following statements does not help to explain why government drug interdiction increases drug-related crime?

OPEC successfully raised the world price of oil in the 1970s and early 1980s, primarily due to

Under which of the following conditions would the interdiction of illegal drugs result in a decrease in the quantity of drugs sold and in a decrease in total spending on illegal drugs by drug users?

Table 5-11 -Refer to Table 5-11. Which scenario describes the market for oil in the short run in comparison to the long run?

The supply of oil is likely to be

Which of the following was not a reason OPEC failed to keep the price of oil high?

In the early 1970s, OPEC's goal was to

Scenario 5-5 Milk has an inelastic demand, and beef has an elastic demand. Suppose that a mysterious increase in bovine infertility decreases both the population of dairy cows and the population of beef cattle by 50 percent. -Refer to Scenario 5-5. The equilibrium price will

In the market for oil in the short run, demand

Why was OPEC unable to maintain high oil prices in the long run?

Scenario 5-5 Milk has an inelastic demand, and beef has an elastic demand. Suppose that a mysterious increase in bovine infertility decreases both the population of dairy cows and the population of beef cattle by 50 percent. -Refer to Scenario 5-5. The equilibrium quantity will

Scenario 5-5 Milk has an inelastic demand, and beef has an elastic demand. Suppose that a mysterious increase in bovine infertility decreases both the population of dairy cows and the population of beef cattle by 50 percent. -Refer to Scenario 5-5. The change in equilibrium quantity will be

Table 5-11 -Refer to Table 5-11. Which scenario describes the market for oil in the short run?

Table 5-11 -Refer to Table 5-11. Which scenario describes the market for oil in the long run?

Scenario 5-5 Milk has an inelastic demand, and beef has an elastic demand. Suppose that a mysterious increase in bovine infertility decreases both the population of dairy cows and the population of beef cattle by 50 percent. -Refer to Scenario 5-5. Total consumer spending on milk will