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In which of the following situations would supply be the most elastic?


A) An auto parts manufacturer is operating at capacity.
B) A real estate developer in Boston is looking to build condos on the waterfront.
C) A furniture manufacturer is operating its factory 8 hours per day.
D) A hotel has all of its rooms booked for each night of the next 3 months.

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

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There are very few, if any, good substitutes for automotive tires. Therefore, the demand for automotive tires would tend to be


A) elastic.
B) unit elastic.
C) inelastic.
D) highly responsive to changes in income as well as changes in prices.

E) A) and B)
F) All of the above

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A key determinant of the price elasticity of supply is the


A) number of close substitutes for the good in question.
B) extent to which buyers alter their quantities demanded in response to changes in prices.
C) length of the time period.
D) extent to which buyers alter their quantities demanded in response to changes in their incomes.

E) A) and D)
F) A) and C)

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Scenario 5-2 Suppose the demand function for good X is given by: Scenario 5-2 Suppose the demand function for good X is given by: where is the quantity demanded of good X, is the price of good X, and is the price of good Y, which is related to good X. -Refer to Scenario 5-2. Using the midpoint method, if the price of good X is constant at $10 and the price of good Y decreases from $10 to $8, the cross price elasticity of demand is about A) 0.57, and X and Y are substitutes. B) -0.22, and X and Y are complements. C) -0.80, and X and Y are complements. D) -2.57, and X and Y are complements. where Scenario 5-2 Suppose the demand function for good X is given by: where is the quantity demanded of good X, is the price of good X, and is the price of good Y, which is related to good X. -Refer to Scenario 5-2. Using the midpoint method, if the price of good X is constant at $10 and the price of good Y decreases from $10 to $8, the cross price elasticity of demand is about A) 0.57, and X and Y are substitutes. B) -0.22, and X and Y are complements. C) -0.80, and X and Y are complements. D) -2.57, and X and Y are complements. is the quantity demanded of good X, Scenario 5-2 Suppose the demand function for good X is given by: where is the quantity demanded of good X, is the price of good X, and is the price of good Y, which is related to good X. -Refer to Scenario 5-2. Using the midpoint method, if the price of good X is constant at $10 and the price of good Y decreases from $10 to $8, the cross price elasticity of demand is about A) 0.57, and X and Y are substitutes. B) -0.22, and X and Y are complements. C) -0.80, and X and Y are complements. D) -2.57, and X and Y are complements. is the price of good X, and Scenario 5-2 Suppose the demand function for good X is given by: where is the quantity demanded of good X, is the price of good X, and is the price of good Y, which is related to good X. -Refer to Scenario 5-2. Using the midpoint method, if the price of good X is constant at $10 and the price of good Y decreases from $10 to $8, the cross price elasticity of demand is about A) 0.57, and X and Y are substitutes. B) -0.22, and X and Y are complements. C) -0.80, and X and Y are complements. D) -2.57, and X and Y are complements. is the price of good Y, which is related to good X. -Refer to Scenario 5-2. Using the midpoint method, if the price of good X is constant at $10 and the price of good Y decreases from $10 to $8, the cross price elasticity of demand is about


A) 0.57, and X and Y are substitutes.
B) -0.22, and X and Y are complements.
C) -0.80, and X and Y are complements.
D) -2.57, and X and Y are complements.

E) All of the above
F) A) and B)

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On a downward-sloping linear demand curve, total revenue reaches its maximum value at the


A) midpoint of the demand curve.
B) lower end of the demand curve.
C) upper end of the demand curve.
D) It is impossible to tell without knowing prices and quantities demanded.

E) C) and D)
F) B) and D)

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Studies indicate that the price elasticity of demand for beer is about 0.9. A government policy aimed at reducing beer consumption changed the price of a case of beer from $10 to $20. According to the midpoint method, the government policy should have reduced beer consumption by


A) 30%.
B) 40%.
C) 60%.
D) 74%.

E) B) and D)
F) All of the above

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Elasticity of demand is closely related to the slope of the demand curve. The less responsive buyers are to a change in price, the


A) steeper the demand curve will be.
B) flatter the demand curve will be.
C) further to the right the demand curve will sit.
D) closer to the vertical axis the demand curve will sit.

E) All of the above
F) B) and C)

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If the demand for donuts is elastic, then a decrease in the price of donuts will


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

E) None of the above
F) C) and D)

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


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.

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

Correct Answer

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Which of the following is likely to have the most price inelastic demand?


A) strawberry-banana milk shakes
B) gasoline in the short run
C) diamond earrings
D) box seats at a major league baseball game

E) A) and B)
F) All of the above

Correct Answer

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Because the demand for wheat tends to be inelastic, the development of a new, more productive hybrid wheat would tend to


A) increase the total revenue of wheat farmers.
B) decrease the total revenue of wheat farmers.
C) decrease the demand for wheat.
D) decrease the supply of wheat.

E) B) and C)
F) All of the above

Correct Answer

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Income elasticity of demand measures how


A) the quantity demanded changes as consumer income changes.
B) consumer purchasing power is affected by a change in the price of a good.
C) the price of a good is affected when there is a change in consumer income.
D) many units of a good a consumer can buy given a certain income level.

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

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Table 5-11 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. -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.

E) None of the above
F) C) and D)

Correct Answer

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Suppose a market has the demand function Qd=20-0.5P. At which of the following prices will total revenue be maximized?


A) $10
B) $20
C) $30
D) $40

E) B) and D)
F) A) and B)

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The local bakery makes such great cinnamon rolls that consumers do not respond much at all to a change in the price. If the owner is only interested in increasing revenue, she should


A) lower the price of the cinnamon rolls.
B) leave the price of the cinnamon rolls unchanged.
C) raise the price of the cinnamon rolls.
D) reduce costs.

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

Correct Answer

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Figure 5-12 Figure 5-12 -Refer to Figure 5-12. If the price decreased from $36 to $12, total revenue would A) increase by $4,800, and demand is elastic between points X and Z. B) increase by $7,200, and demand is elastic between points X and Z. C) decrease by $4,800, and demand is inelastic between points X and Z. D) decrease by $7,200, and demand is inelastic between points X and Z. -Refer to Figure 5-12. If the price decreased from $36 to $12, total revenue would


A) increase by $4,800, and demand is elastic between points X and Z.
B) increase by $7,200, and demand is elastic between points X and Z.
C) decrease by $4,800, and demand is inelastic between points X and Z.
D) decrease by $7,200, and demand is inelastic between points X and Z.

E) A) and C)
F) C) and D)

Correct Answer

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Which of the following expressions represents a cross-price elasticity of demand?


A) percentage change in quantity demanded of bread divided by percentage change in quantity supplied of bread
B) percentage change in quantity demanded of bread divided by percentage change in price of butter
C) percentage change in price of bread divided by percentage change in quantity demanded of bread
D) percentage change in quantity demanded of bread divided by percentage change in income

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

Correct Answer

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Suppose the price elasticity of demand for a product is 1. If a supplier wants to increase revenue, what change should it make to price, if any?

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No change,...

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Figure 5-15 Figure 5-15 -Refer to Figure 5-15. Using the midpoint method, what is the price elasticity of supply between points B and C? A) 1.67 B) 1.19 C) 0.84 D) 0.61 -Refer to Figure 5-15. Using the midpoint method, what is the price elasticity of supply between points B and C?


A) 1.67
B) 1.19
C) 0.84
D) 0.61

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

Correct Answer

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Suppose demand is given by the equation: Suppose demand is given by the equation: At what price will total revenue be maximized? At what price will total revenue be maximized?

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Total revenue will be maximize...

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