Question 1

If the quantity supplied responds substantially to a relatively small change in price, supply would be:
A) price elastic.
B) price inelastic.
C) negatively sloped.
D) insensitive to changes in price.

Accepted Answer

When the quantity supplied responds substantially to a relatively small change in price, supply is said to be price elastic. This means that a change in price causes a relatively larger change in the quantity supplied.

Question 2

If a 20 percent increase in the price of one good leads to a decrease of 10 percent in the demand for another good, the goods are:
A) substitutes.
B) normal.
C) inferior.
D) complements.

Accepted Answer

When the price of one good increases and the demand for another good decreases as a result, it indicates that the two goods are complements. This is because consumers use them together, so an increase in the price of one reduces the demand for the other.

Question 3

Although in most cases the price elasticity of labor supply is ________ , for some individuals it may be ________ .
A) negative; zero
B) negative; positive
C) positive; negative
D) zero; negative

Accepted Answer

The price elasticity of labor supply is typically positive, meaning that as wages increase, individuals are willing to supply more labor. However, for some individuals, it may be negative, indicating that an increase in wages could lead them to work less, perhaps because they value leisure more at higher income levels.

Question 4

The terms elastic and inelastic apply to and are used to describe:
A) price elasticity of demand.
B) income elasticity of demand.
C) cross price elasticity of demand.
D) all of the above.

Accepted Answer

The terms elastic and inelastic are most commonly used to describe price elasticity of demand, which measures the responsiveness of quantity demanded to a change in price. If demand is elastic, a small change in price will lead to a proportionally larger change in quantity demanded (i.e. demand is sensitive to price changes). If demand is inelastic, a change in price will lead to a proportionally smaller change in quantity demanded (i.e. demand is relatively insensitive to price changes). While the terms elastic and inelastic can also apply to income elasticity of demand and cross price elasticity of demand, they are most commonly associated with price elasticity of demand.

Question 5

According to the Case in Point on Conventional and Organic Milk, the demand for organic milk is price _____ and the demand for conventional milk is price _____.
A) elastic; elastic
B) inelastic; elastic
C) elastic; inelastic
D) inelastic; inelastic

Accepted Answer

The Case in Point states that the demand for organic milk is price elastic, meaning that consumers are sensitive to changes in the price of organic milk and will switch to another product (such as conventional milk) if the price of organic milk increases. On the other hand, the demand for conventional milk is price inelastic, meaning that consumers are not as sensitive to changes in the price of conventional milk and will continue to purchase it even if the price increases.

Question 6

If a 20 percent increase in the price of one good leads to a 10 percent increase in the quantity demanded of another good at a specific price, the goods are:
A) substitutes.
B) normal.
C) inferior.
D) complements.

Accepted Answer

When the price of one good increases and as a result, the demand for another good also increases, the two goods are said to be substitutes. This is because consumers will switch to the substitute good as it becomes relatively cheaper compared to the initial good.

Question 7

According to the Case in Point on Conventional and Organic Milk: ?
A) neither organic milk nor conventional milk is an inferior good.
B) organic milk is an inferior good.
C) conventional milk is an inferior good.
D) both organic milk and conventional milk are inferior goods.

Accepted Answer

The answer of According to the Case in Point on...

Question 8

Suppose that the cross price elasticity of demand for beer with respect to the price of wine is 1.2.This tells us that beer and wine are:
A) substitutes.
B) complements.
C) elastic.
D) inelastic.

Accepted Answer

A cross price elasticity of demand greater than zero indicates that the two goods are substitutes. If the price of wine increases, people will likely switch to buying more beer instead since they are considered to be similar goods. The elasticity value of 1.2 is moderate, meaning that the degree to which people substitute beer for wine when wine becomes more expensive is relatively high but not extreme.

Question 9

If the price elasticity of supply is greater than 1, then:
A) supply is price elastic.
B) supply is price inelastic.
C) supply is unit price elastic.
D) quantity supplied is relatively unresponsive to price changes.

Accepted Answer

A price elasticity of supply greater than 1 indicates that the quantity supplied is highly responsive to changes in price, making supply price elastic.

Question 10

The price elasticity of supply for milk in the short run has been estimated to be 0.36, while the price elasticity of supply for milk in the long run is estimated to be 0.51.That means the supply of milk is:
A) less elastic in the short run than in the long run.
B) elastic in both the short run and the long run.
C) relatively more elastic (that is, less inelastic) in the long run than in the short run.
D) relatively less elastic (that is, more inelastic) in the long run than in the short run.

Accepted Answer

The price elasticity of supply measures the responsiveness of quantity supplied to changes in price. A higher elasticity means that quantity supplied is more responsive to changes in price. In this case, the price elasticity of supply for milk is higher in the long run (0.51) than in the short run (0.36). This means that the supply of milk is more elastic in the long run than in the short run.

Question 11

The price elasticity of supply for milk in the short run has been estimated to be 0.36 while the price elasticity of supply for milk in the long run is estimated to be 0.51.That means that:
A) the supply of milk reflects the fact that the longer the time period the more price elastic is the supply.
B) the supply of milk reflects the fact that the longer the time period the less price elastic is the supply.
C) the supply of milk reflects the fact that the shorter the time period the more price elastic is supply.
D) both B and C are true.

Accepted Answer

The increase in the price elasticity of supply from 0.36 in the short run to 0.51 in the long run indicates that suppliers are more responsive to price changes over a longer time period, making the supply more price elastic as time increases.

Question 12

The cross price elasticity of demand for substitute goods is:
A) negative.
B) positive.
C) equal to 1.
D) positive only for normal goods.

Accepted Answer

The cross price elasticity of demand for substitute goods is positive because when the price of one good increases, the demand for its substitute increases as well.

Question 13

The price elasticity of supply measures:
A) the response of a supply shift to changes in technology.
B) how much supply changes when the prices of inputs change.
C) the responsiveness of quantity supplied to changes in prices.
D) all of the above.

Accepted Answer

The price elasticity of supply measures the responsiveness of quantity supplied to changes in prices. This means that it shows how much the quantity supplied changes when there is a change in price. Option A is incorrect because the response of a supply shift to changes in technology is not directly related to price elasticity of supply. Option B is incorrect because it describes the elasticity of input supply, not output supply.

Question 14

The cross price elasticity of demand for complements is:
A) negative.
B) positive.
C) equal to 1.
D) positive only for normal goods.

Accepted Answer

The cross price elasticity of demand for complements is negative because as the price of one complement increases, demand for the other complement decreases. For example, if the price of coffee increases, demand for creamer (a complement) will decrease, hence the negative relationship.

Question 15

There is no total revenue test for price elasticity of supply because:
A) price and quantity are inversely related.
B) price and quantity are usually directly related.
C) total revenue will usually change in the direction of a supply price change.
D) both B and C are true.

Accepted Answer

The total revenue test is not applicable for price elasticity of supply because price and quantity supplied are usually directly related (B), and total revenue typically changes in the direction of a supply price change (C), making both statements true.

Question 16

The price elasticity of supply for a good is 3 if:
A) a 1 percent increase in price leads to a 3 percent decrease in quantity supplied.
B) a 1 percent decrease in price leads to a 3 percent decrease in quantity supplied.
C) a 9 percent decrease in price leads to a 3 percent decrease in quantity supplied.
D) None of the above are true.

Accepted Answer

Price elasticity of supply is calculated as the percentage change in quantity supplied divided by the percentage change in price. A 1 percent decrease in price leading to a 3 percent decrease in quantity supplied indicates an elasticity of 3.

Question 17

Which factor is the most important in determining the price elasticity of supply?
A) the number of close substitutes
B) the time period the producer has to adjust inputs and outputs
C) the intensity of the need on behalf of consumers
D) the number of alternative uses of the good

Accepted Answer

The time period the producer has to adjust inputs and outputs is the most important factor in determining the price elasticity of supply. In the short run, production cannot easily be changed and so supply is inelastic. In the long run, it is easier to adjust production, so supply becomes more elastic. This aspect is not captured in the other options.

Question 18

Assume the supply curve shifts to the right by a given amount at each price.Price in the market will decline the most if demand is more:
A) price elastic and supply is more price inelastic.
B) price inelastic and supply is more price inelastic.
C) price elastic and supply is more price elastic.
D) price inelastic and supply is more price elastic.

Accepted Answer

The answer of Assume the supply curve shifts to the...

Question 19

If the price elasticity of supply is less than 1, then supply is:
A) price elastic.
B) price inelastic.
C) unit price elastic.
D) very responsive to price changes.

Accepted Answer

If the price elasticity of supply is less than 1, it means that the percentage change in quantity supplied is less than the percentage change in price. This indicates that supply is price inelastic, meaning that suppliers are not very responsive to a change in price.

Question 20

Supply curves tend to be more ________ the greater the time period facing the producer.
A) price inelastic
B) price elastic
C) steeply sloped
D) inflexible

Accepted Answer

Over a longer time period, producers have more flexibility to adjust their production processes and input prices, making them more responsive to changes in price. This leads to a more elastic supply curve, where a smaller change in price leads to a larger change in quantity supplied.

Quiz 5: Elasticity: a Measure of Response

If the quantity supplied responds substantially to a relatively small change in price, supply would be:

If a 20 percent increase in the price of one good leads to a decrease of 10 percent in the demand for another good, the goods are:

Although in most cases the price elasticity of labor supply is , for some individuals it may be .

The terms elastic and inelastic apply to and are used to describe:

According to the Case in Point on Conventional and Organic Milk, the demand for organic milk is price _ and the demand for conventional milk is price _.

If a 20 percent increase in the price of one good leads to a 10 percent increase in the quantity demanded of another good at a specific price, the goods are:

According to the Case in Point on Conventional and Organic Milk: ?

Suppose that the cross price elasticity of demand for beer with respect to the price of wine is 1.2.This tells us that beer and wine are:

If the price elasticity of supply is greater than 1, then:

The price elasticity of supply for milk in the short run has been estimated to be 0.36, while the price elasticity of supply for milk in the long run is estimated to be 0.51.That means the supply of milk is:

The price elasticity of supply for milk in the short run has been estimated to be 0.36 while the price elasticity of supply for milk in the long run is estimated to be 0.51.That means that:

The cross price elasticity of demand for substitute goods is:

The price elasticity of supply measures:

The cross price elasticity of demand for complements is:

There is no total revenue test for price elasticity of supply because:

The price elasticity of supply for a good is 3 if:

Which factor is the most important in determining the price elasticity of supply?

Assume the supply curve shifts to the right by a given amount at each price.Price in the market will decline the most if demand is more:

If the price elasticity of supply is less than 1, then supply is:

Supply curves tend to be more ________ the greater the time period facing the producer.