Question 1

Get Smart University is contemplating an increase in tuition to enhance revenue. If GSU feels that raising tuition would enhance revenue, it is

Accepted Answer

A)   ignoring the law of demand.
B)   assuming that the demand for university education is elastic.
C)   assuming that the demand for university education is inelastic.
D)   assuming that the supply of university education is elastic.

Question 2

The price elasticity of demand measures the

Accepted Answer

A)   magnitude of the response in quantity demanded to a change in price.
B)   direction of the shift in the demand curve in response to a market event.
C)   size of the shortage created by the increase in demand.
D)   responsiveness of quantity demanded to a change in income.

Question 3

Figure 5-1 
-Refer to Figure 5-1. Between point A and point B, price elasticity of demand is equal to

Accepted Answer

A)   0.33.
B)   0.67.
C)   1.5
D)   2.67. C

Question 4

The income elasticity of demand for caviar tends to be

Accepted Answer

A)   high because caviar is relatively expensive.
B)   low because caviar is packaged in small containers.
C)   high because buyers generally feel that they can do without it.
D)   low because it is almost always in short supply.

Question 5

Table 5-1
 
-Refer to Table 5-1. Which of the following is consistent with the elasticities given in Table 5-1?

Accepted Answer

A)   A is laundry detergent and B is Tide.
B)   A is Diet Pepsi and B is soda.
C)   A is food and B is a yacht.
D)   A is toilet paper and B is candles.

Question 6

The supply of oil is likely to be

Accepted Answer

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.

Question 7

Suppose demand is perfectly elastic, and the supply of the good in question decreases. As a result,

Accepted Answer

A)   the equilibrium quantity decreases, and the equilibrium price is unchanged.
B)   the equilibrium price increases, and the equilibrium quantity is unchanged.
C)   the equilibrium quantity and the equilibrium price both are unchanged.
D)   buyers' total expenditure on the good is unchanged.

Question 8

If the quantity demanded of a certain good responds only slightly to a change in the price of the good, then the

Accepted Answer

A)   demand for the good is said to be elastic.
B)   demand for the good is said to be inelastic.
C)   law of demand does not apply to the good.
D)   demand curve for the good shifts only slightly in response to a change in price.

Question 9

Table 5-7
The following table shows a portion of the demand schedule for a particular good at various levels of income.
 
-Refer to Table 5-7. Using the midpoint method, when income equals $5,000, what is the price elasticity of demand between $8 and $12?

Accepted Answer

A)   0.56
B)   0.75
C)   1.33
D)   1.80

Question 10

When demand is inelastic, a decrease in price increases total revenue.

Accepted Answer

A) True 
 B)False

Question 11

Food and clothing tend to have

Accepted Answer

A)   small income elasticities because consumers, regardless of their incomes, choose to buy relatively constant quantities of these goods.
B)   small income elasticities because consumers buy proportionately more of both goods at higher income levels than they buy at low income levels.
C)   large income elasticities because they are necessities.
D)   large income elasticities because they are relatively inexpensive.

Question 12

Jerome says that he will spend exactly $25 each month on new apps for his mobile device, regardless of the price of apps. Jerome's demand for apps is

Accepted Answer

A)   perfectly elastic.
B)   unit elastic.
C)   perfectly inelastic.
D)   somewhat inelastic, but not perfectly inelastic. B

Question 13

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

Accepted Answer

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. A

Question 14

There are fewer farmers in the United States today than 200 years ago because of

Accepted Answer

A)   improvements in farm technology.
B)   increased government regulations in farming.
C)   an elastic demand for food.
D)   environmental programs designed to reduce soil erosion.

Question 15

If the price of natural gas rises, when is the price elasticity of demand likely to be the highest?

Accepted Answer

A)   immediately after the price increase
B)   one month after the price increase
C)   three months after the price increase
D)   one year after the price increase

Question 16

Josh mows lawns. If the demand for lawn-mowing service is elastic and Josh wants to increase his total revenue, he should

Accepted Answer

A)   increase the price of his lawn-mowing service.
B)   decrease the price of his lawn-mowing service.
C)   reduce the costs of operating his lawn-mowing service.
D)   More than one of the above is correct.

Question 17

When quantity moves proportionately the same amount as price, demand is

Accepted Answer

A)   elastic, and the price elasticity of demand is 1.
B)   perfectly elastic, and the price elasticity of demand is infinitely large.
C)   perfectly inelastic, and the price elasticity of demand is 0.
D)   unit elastic, and the price elasticity of demand is 1.

Question 18

Assume that a 4 percent increase in income results in a 2 percent increase in the quantity demanded of a good. The income elasticity of demand for the good is

Accepted Answer

A)   negative, and the good is an inferior good.
B)   negative, and the good is a normal good.
C)   positive, and the good is a normal good.
D)   positive, and the good is an inferior good.

Question 19

A perfectly elastic demand implies that

Accepted Answer

A)   buyers will not respond to any change in price.
B)   any rise in price above that represented by the demand curve will result in a quantity demanded of zero.
C)   quantity demanded and price change by the same percent as we move along the demand curve.
D)   price will rise by an infinite amount when there is a change in quantity demanded.

Question 20

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

Accepted Answer

A) True 
 B)False

Exam 5: Elasticity and Its Application

Get Smart University is contemplating an increase in tuition to enhance revenue. If GSU feels that raising tuition would enhance revenue, it is

Correct AnswerverifiedShow Answer

The price elasticity of demand measures the

Correct AnswerverifiedShow Answer

Figure 5-1 -Refer to Figure 5-1. Between point A and point B, price elasticity of demand is equal to

Correct AnswerverifiedC

The income elasticity of demand for caviar tends to be

Correct AnswerverifiedShow Answer

Table 5-1 -Refer to Table 5-1. Which of the following is consistent with the elasticities given in Table 5-1?

Correct AnswerverifiedShow Answer

The supply of oil is likely to be

Correct AnswerverifiedShow Answer

Suppose demand is perfectly elastic, and the supply of the good in question decreases. As a result,

Correct AnswerverifiedShow Answer

If the quantity demanded of a certain good responds only slightly to a change in the price of the good, then the

Correct AnswerverifiedShow Answer

Table 5-7 The following table shows a portion of the demand schedule for a particular good at various levels of income. -Refer to Table 5-7. Using the midpoint method, when income equals $5,000, what is the price elasticity of demand between $8 and $12?

Correct AnswerverifiedShow Answer

When demand is inelastic, a decrease in price increases total revenue.

Correct AnswerverifiedShow Answer

Food and clothing tend to have

Correct AnswerverifiedShow Answer

Jerome says that he will spend exactly $25 each month on new apps for his mobile device, regardless of the price of apps. Jerome's demand for apps is

Correct AnswerverifiedB

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

Correct AnswerverifiedA

There are fewer farmers in the United States today than 200 years ago because of

Correct AnswerverifiedShow Answer

If the price of natural gas rises, when is the price elasticity of demand likely to be the highest?

Correct AnswerverifiedShow Answer

Josh mows lawns. If the demand for lawn-mowing service is elastic and Josh wants to increase his total revenue, he should

Correct AnswerverifiedShow Answer

When quantity moves proportionately the same amount as price, demand is

Correct AnswerverifiedShow Answer

Assume that a 4 percent increase in income results in a 2 percent increase in the quantity demanded of a good. The income elasticity of demand for the good is

Correct AnswerverifiedShow Answer

A perfectly elastic demand implies that

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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B

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A

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