The Statement Or Answers Of The Principles Of Microeconomics

Indicate the answer choice that best completes the statement or answers the question. 1. Suppose goods A and B are substitutes for each other. We would expect the cross-price elasticity between these two goods to be a. positive. b. negative. c. either positive or negative. It depends whether A and B are normal goods or inferior goods. d. either positive or negative. It depends whether the current price level is on the elastic or inelastic portion of the demand curve. 2. A key determinant of the price elasticity of supply is the a. time horizon. b. income of consumers. c. importanceofthegoodinaconsumer’s budget. d. price elasticity of demand. 3. Which of the following is likely to have the most price inelastic demand? a. milk chocolate chip cookies b. Mrs.Field’schocolatechipcookies c. white chocolate chip with macadamia nut cookies d. cookies 4. For a particular good, a 3 percent increase in price causes a 10 percent decrease in quantity demanded. Which of the following statements is most likely applicable to this good? a. There are many close substitutes for this good. b. The relevant time horizon is short. c. The good is a necessity. d. The market for the good is broadly defined. Scenario 5-4 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. 5. Refer to Scenario 5-4. The change in equilibrium price will be a. the same in the milk and beef markets. b. greater in the beef market than in the milk market. c. greater in the milk market than in the beef market. d. Any of the above could be correct. 6. For a particular good, a 5 percent increase in price causes a 15 percent decrease in quantity demanded. Which of the following statements is most likely applicable to this good? a. The relevant time horizon is short. b. The market for the good is broadly defined. c. There are many substitutes for this good. d. The good is a necessity. 7. When the price of a good is $5, the quantity demanded is 100 units per month; when the price is $7, the quantity demanded is 80 units per month. Using the midpoint method, the price elasticity of demand is about a. 0.22. b. 0.67. c. 1.33. d. 1.50. 8. Suppose that 300 bottles of soda are demanded at a particular price. If the price of a bottle of soda rises from that price by 6 percent, the number of bottles of soda demanded falls to 275. Using the midpoint approach to calculate the price elasticity of demand, it follows that the a. price increase will increase the total revenue of soda sellers. b. price elasticity of demand for bottles of soda in this price range is about 0.69. c. demand for bottles of soda in this price range is perfectly elastic. d. price elasticity of demand for bottles of soda in this price range is about 1.45. 9. If a 30 percent change in price causes a 15 percent change in quantity supplied, then the price elasticity of supply is about a. 0.5, and supply is inelastic. b. 2, and supply is inelastic. c. 2, and supply is elastic. d. 0.5, and supply is elastic. 10. The demand for Godiva mint chocolates is likely quite elastic because a. the market is narrowly defined. b. this particular type of chocolate is viewed as a luxury by many chocolate lovers. c. there are many close substitutes. d. All of the above are correct. 11. Given the market for illegal drugs, when the government is successful in reducing the flow of drugs into the United States, a. demand decreases, supply is unaffected, and price decreases. b. supply decreases, demand is unaffected, and price increases. c. demand and supply both decrease, leaving price essentially unchanged. d. supply decreases, demand increases, and price increases substantially. 12. Knowing that the demand for wheat is inelastic, if all farmers voluntarily did not plant wheat on 10 percent of their land, then a. wheat farmers would experience an increase in their total revenue. b. the demand for wheat would decrease. c. consumers of wheat would buy more wheat. d. wheat farmers would suffer a reduction in their total revenue. 13. If the price elasticity of demand for a good is 0.8, then a 12 percent increase in the quantity demanded must be the result of a. a 15 percent decrease in the price. b. a 9.6 percent decrease in the price. c. a 0.06 percent decrease in the price. d. a 1.5 percent decrease in the price. 14. When studying how some event or policy affects a market, elasticity provides information on the a. change in the costs of production. b. tradeoff between equality and efficiency. c. direction and magnitude of the effect. d. effect on the budget deficit or surplus. 15. Income elasticity of demand measures how a. many units of a good a consumer can buy given a certain income level. b. the price of a good is affected when there is a change in consumer income. c. consumer purchasing power is affected by a change in the price of a good. d. the quantity demanded changes as consumer income changes. 16. Suppose the cross-price elasticity of demand between hot dogs and mustard is -2.00. This implies that a 20 percent increase in the price of hot dogs will cause the quantity of mustard purchased to a. fall by 200 percent. b. rise by 40 percent. c. rise by 200 percent. d. fall by 40 percent. 17. A drug interdiction program that successfully reduces the supply of illegal drugs in the United States likely will a. raise the price, reduce the quantity, decrease total revenues, and decrease crime. Figure 5-4 b. lower the price, increase the quantity, increase total revenues, and increase crime. c. raise the price, increase the quantity, decrease total revenues, and increase crime. d. raise the price, reduce the quantity, increase total revenues, and increase crime. 18. If the price elasticity of supply is 1.2, and price increased by 5%, quantity supplied would a. decrease by 6%. 20. Refer to Figure 5-4. The section of the demand curve at point B represents the a. inelastic section of the demand curve. b. increase by 6%. c. increase by 4.2%. b. perfectly elastic section of the demand curve. c. elastic section of the demand curve. d. decrease by 4.2%. d. unit elastic section of the demand curve. Scenario 5-3 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%. 19. Refer to Scenario 5-3. The change in equilibrium price will be a. the same in the aged cheddar cheese and bread markets. b. greater in the aged cheddar cheese market than in the bread market. c. greater in the bread market than in the aged cheddar cheese market. d. Any of the above could be correct. 21. The price elasticity of demand changes as we move along a a. vertical demand curve. b. horizontal demand curve. c. linear, downward-sloping demand curve. d. All of the above are correct. 22. When her income increased from $10,000 to $20,000, Heather's consumption of macaroni decreased from 10 pounds to 5 pounds and her consumption of soyburgers increased from 2 pounds to 4 pounds. We can conclude that for Heather, macaroni a. is an inferior good and soy-burgers are normal goods; both have income elasticities of 1. b. and soy-burgers are both normal goods with income elasticities equal to 1. c. is an inferior good with an income elasticity of -1 and soy-burgers are normal goods with an income elasticity of 1. d. and soy-burgers are both inferior goods with income elasticities equal to -1. Figure 5-5 26. If the price elasticity of supply for wheat is less than 1, then the supply of wheat is a. unit elastic. b. inelastic. c. elastic. d. quite sensitive to changes in income. 27. The case of perfectly elastic demand is illustrated by a demand curve that is a. downward-sloping but relatively flat. b. vertical. 23. Refer to Figure 5-5. At a price of $10 per unit, sellers' total revenue equals a. $450. b. $500. c. $1250. d. $100. Table 5-1 Good Price Elasticity of Demand A 1.9 B 0.8 24. Refer to Table 5-1. Which of the following is consistent with the elasticities given in Table 5-1? a. A is toilet paper and B is candles. b. A is Diet Pepsi and B is soda. c. A is laundry detergent and B is Tide. d. A is food and B is a yacht. 25. Suppose a market has the demand function Qd=200.5P. At which of the following prices will total revenue be maximized? a. $30 b. $20 c. $40 d. $10 c. horizontal. d. downward-sloping but relatively steep. 28. If the cross-price elasticity of demand for two goods is 1.25, then a. the two goods are substitutes. b. one of the goods is normal and the other good is inferior. c. the demand for one of the goods conforms to the law of demand, but the demand for the other good violates the law of demand. d. the two goods are luxuries. Figure 5-11 29. Refer to Figure 5-11. Suppose this demand curve is a straight, downward-sloping line all the way from the horizontal intercept to the vertical intercept. We choose two prices, P1 and P2, and the corresponding quantities demanded, Q1 and Q2, for the purpose of calculating the price elasticity of demand. Also suppose P2 > P1. In which of the following cases could we possibly find that (i) demand is elastic and (ii) a decrease in price from P1 to P2 causes an decrease in total revenue? a. 0 < P1 < P2 < $10. b. $10 < P1 < P2 < $20. c. P1 > $20. d. None of the above is correct. 30. How does total revenue change as one moves downward and to the right along a linear demand curve? a. It always decreases. b. It first increases, then decreases. c. It always increases. d. It is unaffected by a movement along the demand curve. Figure 5-3 31. Refer to Figure 5-3. Jenna says she would buy 10 gallons of gas per week regardless of the price. If this is true, then Jenna's demand for gas is represented by demand curve a. A. b. B. c. C. d. D. 32. Why was OPEC unable to maintain high oil prices in the long run? a. Demand is inelastic and supply is elastic in the long run compared to the short run. b. Demand and supply are both elastic 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 and supply are both inelastic in the long run compared to the short run. 33. A t-shirt maker would be willing to supply 75 t-shirts per day at a price of $18.00 each. At a price of $20.00, the t-shirt maker would be willing to supply 100 t-shirts. Using the midpoint method, the price elasticity of supply for t-shirts is about a. 2.71, and supply is elastic. b. 0.37, and supply is inelastic. c. 2.71, and supply is inelastic. d. 0.37, and supply is elastic. 34. Using the midpoint method, the price elasticity of demand for a good is computed to be approximately 2. Which of the following events is consistent with a 0.1 percent increase in the price of the good? a. The quantity of the good demanded decreases by 0.05 percent. b. The quantity of the good demanded decreases from 200 to 100. c. The quantity of the good demanded decreases by 0.2 percent. d. The quantity of the good demanded decreases from 250 to 150. 35. At price of $1.20, a local pencil manufacturer is willing to supply 150 boxes per day. At a price of $1.40, the manufacturer is willing to supply 170 boxes per day. Using the midpoint method, the price elasticity of supply is about a. 2.0. b. 0.81. c. 1.23. d. 1.00. Figure 5-10 36. Refer to Figure 5-10. If rectangle D is larger than rectangle A, then a. demand is elastic between prices P1 and P2. b. a decrease in price from P2 to P1 will cause an increase in total revenue. c. the magnitude of the percent change in price between P1 and P2 is smaller than the magnitude of the corresponding percent change in quantity demanded. d. All of the above are correct. 37. A decrease in supply will cause the largest increase in price when a. demand is elastic and supply is inelastic. b. both supply and demand are inelastic. c. both supply and demand are elastic. d. demand is inelastic and supply is elastic. 38. In which of these instances is demand said to be perfectly inelastic? a. A decrease in price of 2% causes a decrease in total revenue of 0%. b. An increase in price of 2% causes a decrease in quantity demanded of 2%. c. A decrease in price of 2% causes an increase in quantity demanded of 0%. d. An increase in price of 2% causes a decrease in quantity demanded of 1/2%. Scenario 5-3 Suppose that 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%. 39. Refer to Scenario 5-3. The price elasticity of supply for aged cheddar cheese could be a. 1.5. b. 0. c. 0.5. d. -1. 40. For which pairs of goods is the cross-price elasticity most likely to be positive? a. bicycle frames and bicycle tires b. college textbooks and iPods c. pens and pencils d. peanut butter and jelly Answer Key 28. a 1. a 29. d 2. a 30. b 3. d 31. a 4. a 32. b 5. c 33. a 6. c 34. c 7. b 35. b 8. d 36. d 9. a 37. b 10. d 38. c 11. b 39. c 12. a 13. a 14. c 15. d 16. d 17. d 18. b 19. b 20. d 21. c 22. c 23. a 24. b 25. b 26. b 27. c 40. c