Chapter 5 example #85372

31 October 2022
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True or False: Elasticity measures how responsive quantity is to changes in price.
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True
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True or False: The demand for bread is likely to be more elastic than the demand for solid-gold bread plates.
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False
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True or False: Necessities tend to have inelastic demands, whereas luxuries have elastic demands.
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True
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True or False: Goods with close substitutes tend to have more elastic demands than do goods without close substitutes.
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True
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True or False: Even the demand for a necessity such as gasoline will respond to a change in price, especially over a longer time horizon.
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True
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True or False: The price elasticity of demand is defined as the percentage change in price divided by the percentage change in quantity demanded.
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False
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True or False: Suppose that when the price rises by 20% for a particular good, the quantity demanded of that good falls by 10%. The price elasticity of demand for this good is equal to 2.0.
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False
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True or False: Demand is inelastic if the price elasticity of demand is greater than 1.
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False
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True or False: If the price elasticity of demand is equal to 0, then demand is unit elastic.
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False
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True or False: The flatter the demand curve that passes through a given point, the more inelastic the demand.
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False
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True or False: The income elasticity of demand is defined as the percentage change in quantity demanded divided by the percentage change in income.
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True
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True or False: Cross-price elasticity of demand measures how the quantity demanded of one good changes as the price of another good changes.
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True
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True or False: Cross-price elasticity is used to determine whether goods are inferior or normal goods.
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False
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True or False: Along the elastic portion of a linear demand curve, total revenue rises as price rises.
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False
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True or False: When demand is inelastic, a decrease in price increases total revenue.
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False
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True or False: Price elasticity of supply measures how much the quantity supplied responds to changes in the price.
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True
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True or False: Supply and demand both tend to be more elastic in the long run and more inelastic in the short run.
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True
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True or False: 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.
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False
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True or False: If a supply curve is horizontal, then supply is said to be perfectly elastic, and the price elasticity of supply approaches infinity.
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True
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In general, elasticity is a measure of a. the extent to which advances in technology are adopted by producers. b. the extent to which a market is competitive. c. how firms' profits respond to changes in market prices. d. how much buyers and sellers respond to changes in market conditions.
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d. how much buyers and sellers respond to changes in market conditions.
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When studying how some event or policy affects a market, elasticity provides information on the a. equity effects on the market by identifying the winners and losers. b. magnitude of the effect on the market. c. speed of adjustment of the market in response to the event or policy. d. number of market participants who are directly affected by the event or policy.
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b. magnitude of the effect of the on the market.
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When consumers face rising gasoline prices, they typically a. reduce their quantity demanded more in the long run than in the short run. b. reduce their quantity demanded more in the short run than in the long run. c. do not reduce their quantity demanded in the short run or the long run. d. increase their quantity demanded in the short run but reduce their quantity demanded in the long run.
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a. reduce their quantity demanded more in the long run than in the short run.
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The price elasticity of demand measures a. buyers' responsiveness to a change in the price of a good. b. the extent to which demand increases as additional buyers enter the market. c. how much more of a good consumers will demand when incomes rise. d. the movement along a supply curve when there is a change in demand.
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a. buyers' responsiveness to a change in the price of a good.
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For a good that is a necessity, a. quantity demanded tends to respond substantially to a change in price. b. demand tends to be inelastic. c. the law of demand does not apply. d. All of the above are correct.
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b. demand tends to be inelastic.
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For a good that is a luxury, demand a. tends to be inelastic. b. tends to be elastic. c. has unit elasticity. d. cannot be represented by a demand curve in the usual way.
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b. tends to be elastic.
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For a good that is a necessity, demand a. tends to be inelastic. b. tends to be elastic. c. has unit elasticity. d. cannot be represented by a demand curve in the usual way.
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a. tends to be inelastic
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A good will have a more inelastic demand, a. the greater the availability of close substitutes. b. the broader the definition of the market. c. the longer the period of time. d. the more it is regarded as a luxury.
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b. the broader the definition of the market.
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A good will have a more elastic demand, a. the greater the availability of close substitutes. b. the more narrow the definition of the market. c. the shorter the period of time. d. the more it is regarded as a necessity.
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a. the greater the availability of close substitutes
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Other things equal, the demand for a good tends to be more inelastic, the a. fewer the available substitutes. b. longer the time period considered. c. more the good is considered a luxury good. d. more narrowly defined is the market for the good.
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a. fewer the available substitutes
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Economists compute the price elasticity of demand as the a. percentage change in price divided by the percentage change in quantity demanded. b. change in quantity demanded divided by the change in the price. c. percentage change in quantity demanded divided by the percentage change in price. d. percentage change in quantity demanded divided by the percentage change in income.
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c. percentage change in quantity demanded divided by the percentage change in price.
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Demand is said to have unit elasticity if elasticity is a. less than 1. b. greater than 1. c. equal to 1. d. equal to 0.
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c. equal to 1.
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The smaller the price elasticity of demand, the a. steeper the demand curve will be through a given point. b. flatter the demand curve will be through a given point. c. more strongly buyers respond to a change in price between any two prices P1 and P2. d. smaller the decrease in equilibrium price when the supply curve shifts rightward from S1 to S2.
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a. steeper the demand curve will be through a given point.
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When quantity moves proportionately the same amount as price, demand is 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.
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d. unit elastic, and the price elasticity of demand is 1.
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The price elasticity of demand changes as we move along a a. horizontal demand curve. b. vertical demand curve. c. linear, downward-sloping demand curve. d. All of the above are correct.
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c. linear, downward-sloping demand curve.
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If a 10% decrease in price for a good results in a 20% increase in quantity demanded, the price elasticity of demand is a. 0.50. b. 1. c. 1.5. d. 2.
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d. 2.
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Demand is said to be price elastic if a. the price of the good responds substantially to changes in demand. b. demand shifts substantially when income or the expected future price of the good changes. c. buyers do not respond much to changes in the price of the good. d. buyers respond substantially to changes in the price of the good.
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d. buyers respond substantially to changes in the price of the good.
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If demand is price inelastic, then a. buyers do not respond much to a change in price. b. buyers respond substantially to a change in price, but the response is very slow. c. buyers do not alter their quantities demanded much in response to advertising, fads, or general changes in tastes. d. the demand curve is very flat
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a. buyers do not respond much to a change in price.
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Suppose demand is perfectly inelastic, and the supply of the good in question decreases. As a result, 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.
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b. the equilibrium price increases, and the equilibrium quantity is unchanged.
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The case of perfectly elastic demand is illustrated by a demand curve that is a. vertical. b. horizontal. c. downward-sloping but relatively steep. d. downward-sloping but relatively flat.
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b. horizontal
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When demand is perfectly inelastic, the demand curve will be a. negatively sloped, because buyers decrease their purchases when the price rises. b. vertical, because buyers purchase the same amount as before whenever the price rises or falls. c. positively sloped, because buyers increase their purchases when price rises. d. positively sloped, because buyers increase their total expenditures when price rises.
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b. vertical, because buyers purchase the same amount as before whenever the price rises or falls.
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When demand is inelastic, a decrease in price will cause a. an increase in total revenue. b. a decrease in total revenue. c. no change in total revenue, but an increase in quantity demanded. d. no change in total revenue, but a decrease in quantity demanded.
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b. a decrease in total revenue
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When demand is elastic, a decrease in price will cause a. an increase in total revenue. b. a decrease in total revenue. c. no change in total revenue, but an increase in quantity demanded. d. no change in total revenue, but a decrease in quantity demanded.
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a. an increase in total revenue
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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.
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a. the quantity demanded changes as consumer income changes.
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To determine whether a good is considered normal or inferior, one could examine the value of the a. income elasticity of demand for that good. b. price elasticity of demand for that good. c. price elasticity of supply for that good. d. cross-price elasticity of demand for that good.
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a. income elasticity of demand for that good.
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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.
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a. positive
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Cross-price elasticity of demand measures how a. the price of one good changes in response to a change in the price of another good. b. the quantity demanded of one good changes in response to a change in the quantity demanded of another good. c. the quantity demanded of one good changes in response to a change in the price of another good. d. strongly normal or inferior a good is.
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c. the quantity demanded of one good changes in response to a change in the price of another good.
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The cross-price elasticity of demand can tell us whether goods are a. normal or inferior. b. elastic or inelastic. c. luxuries or necessities. d. complements or substitutes.
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d. complements or substitutes
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A key determinant of the price elasticity of supply is the a. time horizon. b. income of consumers. c. price elasticity of demand. d. importance of the good in a consumer's budget.
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a. time horizon
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The supply of a good will be more elastic, the a. more the good is considered a luxury. b. broader is the definition of the market for the good. c. larger the number of close substitutes for the good. d. longer the time period being considered.
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d. longer the time period being considered
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The price elasticity of supply measures how much a. the quantity supplied responds to changes in input prices. b. the quantity supplied responds to changes in the price of the good. c. the price of the good responds to changes in supply. d. sellers respond to changes in technology.
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b. the quantity supplied responds to changes in the price of the good.
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Frequently, in the short run, the quantity supplied of a good is a. impossible, or nearly impossible, to measure. b. not very responsive to price changes. c. determined by the quantity demanded of the good. d. determined by psychological forces and other non-economic forces.
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b. not very responsive to price changes.
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When a supply curve is relatively flat, a. sellers are not at all responsive to a change in price. b. the equilibrium price changes substantially when the demand for the good changes. c. the supply is relatively elastic. d. the supply is relatively inelastic.
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c. the supply is relatively elastic.
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If the price elasticity of supply for wheat is less than 1, then the supply of wheat is a. inelastic. b. elastic. c. unit elastic. d. quite sensitive to changes in income.
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a. inelastic
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As price elasticity of supply increases, the supply curve a. becomes flatter. b. becomes steeper. c. becomes downward sloping. d. shifts to the right.
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a. becomes flatter
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If the quantity supplied is the same regardless of price, then supply is a. elastic. b. perfectly elastic. c. perfectly inelastic. d. inelastic.
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c. perfectly inelastic
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Which of the following statements is valid when the market supply curve is vertical? a. Market quantity supplied does not change when the price changes. b. Supply is perfectly elastic. c. An increase in market demand will increase the equilibrium quantity. d. An increase in market demand will not increase the equilibrium price.
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a. Market quantity supplied does not change when the price changes.
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When supply is perfectly elastic, the value of the price elasticity of supply is a. 0. b. 1. c. greater than 0 and less than 1. d. infinity.
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d. infinity