Question 1

Drug interdiction, which reduces the supply of drugs, will likely be a less effective policy than educating consumers to reduce their demand for drugs because the drug interdiction policy will lower drug prices and reduce the quantity of drugs demanded.

Accepted Answer

Drug interdiction, aimed at reducing the supply of drugs, typically increases drug prices due to the reduced availability, making them less accessible to consumers, which can reduce the quantity demanded. However, the effectiveness of education in reducing demand can vary and is not directly related to the effects of interdiction on prices.

Question 2

Drug interdiction, which reduces the supply of drugs, may decrease drug-related crime because the demand for drugs is inelastic.

Accepted Answer

Drug interdiction, which reduces the supply of drugs, may actually increase drug-related crime if the demand for drugs is inelastic because users are likely to pay higher prices or resort to criminal activities to obtain drugs.

Question 3

If a firm that produces honey is facing elastic demand, then the firm would decrease price to increase revenue.

Accepted Answer

When demand is elastic, a decrease in price leads to a proportionally larger increase in quantity demanded, which increases total revenue.

Question 4

If we observe that when the price of chocolate candy bars increases by 10%, quantity demanded decreases total by 10%, then the demand for chocolate candy bars is unit price elastic.

Accepted Answer

When the percentage change in quantity demanded is equal to the percentage change in price, the demand is considered unit price elastic.

Question 5

If we observe that when a consumer's income rises by 10%, the quantity demanded of chocolate candy bars increases by 15%, then chocolate candy bars are are a normal good for that consumer.

Accepted Answer

This is because the quantity demanded of chocolate candy bars increases as the consumer's income increases, which is a characteristic of a normal good.

Question 6

Necessities tend to have elastic demands, whereas luxuries tend to have inelastic demands.

Accepted Answer

Necessities tend to have inelastic demands because people need to buy them regardless of price changes, whereas luxuries tend to have elastic demands because people can more easily forego them if prices rise.

Question 7

Suppose that good X has few close substitutes and that good Y has many close substitutes. Which good would you expect to have more price elastic demand?

Accepted Answer

The answer of Suppose that good X has few close...

Question 8

The OPEC oil cartel has difficulty maintaining high prices in the long run because the supply of oil is more inelastic in the long run than in the short run.

Accepted Answer

In the long run, the supply of oil becomes more elastic as producers have more time to adjust to price changes, making it harder for OPEC to maintain high prices.

Question 9

Normal goods have positive income elasticities of demand, while inferior goods have negative income elasticities of demand.

Accepted Answer

Normal goods are those for which demand increases as consumer income increases, leading to a positive income elasticity of demand. Inferior goods, on the other hand, see a decrease in demand as consumer income increases, resulting in a negative income elasticity of demand.

Question 10

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

Accepted Answer

A discovery that increases wheat yields per acre increases supply, which lowers the price of wheat. This lowers farmers' total revenues because they are selling their wheat at a lower price.

Question 11

Demand is elastic if the price elasticity of demand is greater than 1.

Accepted Answer

When the price elasticity of demand is greater than 1, it indicates that the quantity demanded responds significantly to price changes, which is the definition of elastic demand.

Question 12

OPEC failed to maintain a high price of oil in the long run, partly because both the supply of oil and the demand for oil are more elastic in the long run than in the short run.

Accepted Answer

In the long run, both consumers and producers have more time to adjust to price changes, making the demand and supply of oil more elastic. Consumers can switch to alternative energy sources, and producers can invest in new oil fields or alternative extraction methods, reducing OPEC's ability to maintain high prices.

Question 13

If the price elasticity of supply is 0.5 and the quantity supplied decreases by 6%, then the price must have decreased by 3%.

Accepted Answer

The price must have decreased by 12%. Price elasticity of supply is calculated as the percentage change in quantity supplied divided by the percentage change in price. If the elasticity is 0.5 and the quantity supplied decreases by 6%, then the price must have decreased by 12% (6% / 0.5 = 12%).

Question 14

A "Just Say No" drug education policy that successfully educates consumers to reduce their demand for drugs will lower drug prices and reduce the quantity of drugs demanded.

Accepted Answer

If consumers are educated to reduce their demand for drugs, the demand curve shifts leftward, leading to lower equilibrium prices and a reduced quantity of drugs demanded.

Question 15

Helen's Honey Hut supplies 20 jars of honey per week when the price of honey is $6 per jar and supplies 30 jars per week when the price of is $8 per jar, so the price elasticity of supply over this price range is 1.4.

Accepted Answer

The price elasticity of supply is calculated as the percentage change in quantity supplied divided by the percentage change in price. In this case, the quantity supplied increases by 50% (from 20 to 30 jars) when the price increases by 33.3% (from $6 to $8). Therefore, the price elasticity of supply is 50% / 33.3% = 1.5.

Question 16

A government program that pays farmers not to plant corn on part of their land can help farmers not only through the subsidy payments to farmers who participate in the program but also by raising the market price of corn.

Accepted Answer

By reducing the supply of corn through such a program, the market price of corn can increase due to the lower availability, benefiting farmers through higher prices for the corn they do sell.

Question 17

The measure of how willing consumers are to buy less of a good as its price rises is called

Accepted Answer

The answer of The measure of how willing consumers are...

Question 18

A discovery that increases wheat yields per acre helps farmers by increasing both supply and total revenues.

Accepted Answer

A discovery that increases wheat yields per acre increases supply, which can lead to lower prices. If the price drop is significant, total revenues may not increase despite higher yields.

Question 19

A government program that reduces land under cultivation can help farmers by raising prices but hurts consumers.

Accepted Answer

By reducing the supply of agricultural products, prices can increase, benefiting farmers with higher income, but this can lead to higher prices for consumers, potentially hurting their purchasing power.

Question 20

If the cross-price elasticity of demand for two goods is negative, then the two goods are substitutes.

Accepted Answer

If the cross-price elasticity of demand for two goods is negative, then the two goods are complements, not substitutes. Substitutes have a positive cross-price elasticity of demand.

Quiz 5: Elasticity and Its Application