Question 1

If we observe that when the price of ice cream rises by 10%, ice cream manufacturers increase the quantity supplied of ice cream by 20%, then the price elasticity of supply is 2.

Accepted Answer

The price elasticity of supply can be calculated by dividing the percentage change in quantity supplied by the percentage change in price. In this case, the percentage change in quantity supplied is 20% and the percentage change in price is 10%, so the calculation is 20%/10% = 2. Therefore, the price elasticity of supply is 2.

Question 2

When the price of knee braces increased by 25 percent, the Brace Yourself Company increased its quantity supplied of knee braces per week by 75 percent. BYC's price elasticity of supply of knee braces is 0.33.

Accepted Answer

The price elasticity of supply is calculated as the percentage change in quantity supplied divided by the percentage change in price. In this case, it would be 75% / 25% = 3.

Question 3

A government program that reduces land under cultivation hurts farmers but helps consumers.

Accepted Answer

Reducing land under cultivation typically decreases the supply of agricultural products, which can lead to higher prices for consumers. Farmers might benefit from higher prices for their products, but consumers face increased costs.

Question 4

A government program that pays farmers not to plant corn on part of their land can help farmers not only through the subsidy payments to farmers who participate in the program but also by raising the market price of corn.

Accepted Answer

By reducing the overall supply of corn, the program can help to increase the market price of corn, benefiting participating farmers who decide to plant corn on the remaining portion of their land.

Question 5

If the price elasticity of supply is 2 and the quantity supplied decreases by 6%, then the price must have decreased by 3%.

Accepted Answer

The answer of If the price elasticity of supply is...

Question 6

If a t-shirt manufacturer supplies 1,000 t-shirts per week when the price of t-shirts is $10 and supplies 1,200 t-shirts per week when the price of t-shirts is $12, the price elasticity of supply is 2.

Accepted Answer

The price elasticity of supply is calculated as the percentage change in quantity supplied divided by the percentage change in price. In this case, the quantity supplied increases from 1,000 to 1,200 (a 20% increase) when the price increases from $10 to $12 (a 20% increase), resulting in a price elasticity of supply of 1 (20%/20%).

Question 7

The OPEC oil cartel has difficulty maintaining high prices in the long run because the supply of oil is more inelastic in the long run than in the short run.

Accepted Answer

In the long run, the supply of oil becomes more elastic as producers have more time to adjust to price changes, making it harder for OPEC to maintain high prices.

Question 8

OPEC failed to maintain a high price of oil in the long run, partly because both the supply of oil and the demand for oil are more elastic in the long run than in the short run.

Accepted Answer

OPEC's attempts to maintain high oil prices through production cuts and quotas were successful in the short run, but over time the market responded with increased investment in alternative sources of energy, increased efficiency, and decreased demand for oil. These factors made both the supply and demand of oil more elastic in the long run, meaning that even if OPEC tried to restrict supply, the market would eventually adjust and find ways to meet demand with alternative sources and technologies.

Question 9

Price elasticity of supply measures how much the quantity supplied responds to changes in the price.

Accepted Answer

Price elasticity of supply is the measure of the responsiveness of the quantity supplied to changes in price.

Question 10

If a supply curve is horizontal, then supply is said to be perfectly elastic, and the price elasticity of supply approaches infinity.

Accepted Answer

A horizontal supply curve indicates that suppliers are willing to supply any quantity at a given price. This means that even a small change in price will result in a large change in the quantity supplied, approaching infinity in the case of perfect elasticity.

Question 11

A discovery that increases wheat yields per acre helps farmers by increasing both supply and total revenues.

Accepted Answer

The answer of A discovery that increases wheat yields per...

Question 12

A discovery that increases wheat yields per acre hurts farmers by increasing supply and lowering their total revenues.

Accepted Answer

The answer of A discovery that increases wheat yields per...

Question 13

Drug interdiction, which reduces the supply of drugs, may decrease drug-related crime because the demand for drugs is inelastic.

Accepted Answer

The statement is not entirely true. While drug interdiction may decrease the supply of drugs, the demand for drugs is not necessarily inelastic. In some cases, drug users may turn to other, potentially more dangerous drugs if their drug of choice becomes unavailable, or they may seek out different dealers who may be more likely to resort to violence or other criminal activities. Additionally, reducing the supply of drugs can lead to higher prices, which may incentivize drug users to commit crimes to obtain the funds necessary to purchase drugs. Therefore, the relationship between drug interdiction and drug-related crime is complex and cannot be simplified to a simple cause-and-effect relationship.

Question 14

Recently, in Smalltown, the price of Twinkies fell from $0.80 to $0.70. As a result, the quantity demanded of Ho- Ho's decreased from 120 to 100. What would be the appropriate elasticity to compute? Using the midpoint method, compute this elasticity. What does your answer tell you?

Accepted Answer

The answer of Recently, in Smalltown, the price of Twinkies...

Question 15

Drug interdiction, which reduces the supply of drugs, will likely be a less effective policy than educating consumers to reduce their demand for drugs because the drug interdiction policy will lower drug prices and reduce the quantity of drugs demanded.

Accepted Answer

Drug interdiction, aimed at reducing the supply of drugs, typically increases drug prices due to the reduced availability, making them less accessible to consumers, which can reduce the quantity demanded. However, the effectiveness of education in reducing demand can vary and is not directly related to the effects of interdiction on prices.

Question 16

Supply is said to be inelastic if the quantity supplied responds substantially to changes in the price and elastic if the quantity supplied responds only slightly to price.

Accepted Answer

This statement is incorrect. Supply is said to be inelastic if the quantity supplied does not respond substantially to changes in the price, and elastic if the quantity supplied responds significantly to changes in price.

Question 17

Supply tends to be more elastic in the short run and more inelastic in the long run.

Accepted Answer

Supply tends to be more inelastic in the short run because producers need time to adjust their production levels, whereas in the long run, they can adjust their production capacity, making supply more elastic.

Question 18

A "Just Say No" drug education policy that successfully educates consumers to reduce their demand for drugs will lower drug prices and reduce the quantity of drugs demanded.

Accepted Answer

The answer of A "Just Say No" drug education policy...

Question 19

When the Shaffers had a monthly income of $4,000, they usually ate out 8 times a month. Now that the couple makes $4,500 a month, they eat out 10 times a month. Compute the couple's income elasticity of demand using the midpoint method. Explain your answer. Is a restaurant meal a normal or inferior good to the couple?

Accepted Answer

The answer of When the Shaffers had a monthly income...

Question 20

Consider the following pairs of goods. For which of the two goods would you expect the demand to be more price elastic? 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. For...

Quiz 5: Elasticity and Its Application