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Exam 5: Elasticity and Its Application

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Question 301

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There are very few, if any, good substitutes for motor oil. Therefore, the

A) demand for motor oil would tend to be inelastic.
B) demand for motor oil would tend to be elastic.
C) demand for motor oil would tend to respond strongly to changes in prices of other goods.
D) supply of motor oil would tend to respond strongly to changes in people's tastes for large cars relative to their tastes for small cars.

E) A) and B)
F) A) and C)

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Question 302

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If the demand for bananas is elastic, then an increase in the price of bananas will

A) increase total revenue of banana sellers.
B) decrease total revenue of banana sellers.
C) not change total revenue of banana sellers.
D) There is not enough information to answer this question.

E) A) and B)
F) None of the above

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Question 303

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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

If the price elasticity of demand is equal to 1, then demand is unit elastic.

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

Suppose a freeze in Florida significantly reduces the supply of oranges this year. As a result, would you expect the total revenue from the sale of orange juice to rise or fall? Explain.

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

Elasticity measures how responsive quantity is to changes in price.

If the cross-price elasticity of two goods is negative, then the two goods are

When demand is unit elastic, price elasticity of demand equals

Figure 5-4 -Refer to Figure 5-4. Suppose the point labeled B is the "halfway point" on the demand curve and it corresponds to a price of $5.00. Then, between prices of $4.99 and $5.01, the price elasticity of demand is

Price elasticity of demand along a linear, downward-sloping demand curve increases as price falls.

Table 5-12 -Refer to Table 5-12. Between which two quantities listed is demand most inelastic?

If a 15% increase in price for a good results in a 20% decrease in quantity demanded, the price elasticity of demand is

A recent news report lamented the plight of corn farmers in Wisconsin due to a severe drought. Which of the following best describes the effect on corn farmers in Minnesota, where sufficient rainfall occurred?