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

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 3

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

Accepted Answer

The answer of A discovery that increases wheat yields per...

Question 4

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

A normal good is a good for which demand increases as income increases. In this case, we observe that when income increases, the quantity demanded of chocolate candy bars also increases, indicating that chocolate candy bars are a normal good for that consumer.

Question 5

A decrease in supply will cause the smallest increase in price when
A)both supply and demand are inelastic.
B)demand is elastic and supply is inelastic.
C)both supply and demand are elastic.
D)demand is inelastic and supply is elastic.

Accepted Answer

The answer of A decrease in supply will cause the...

Question 6

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 7

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 short run, the supply and demand for oil are relatively inelastic, meaning that changes in price have little effect on the quantity of oil supplied or demanded. However, in the long run, producers can increase production and consumers can switch to alternative sources of energy, making both the supply and demand for oil more elastic. This makes it difficult for OPEC to maintain a high price of oil in the long run.

Question 8

A decrease in supply will cause the largest increase in price when
A)both supply and demand are inelastic.
B)both supply and demand are elastic.
C)demand is elastic and supply is inelastic.
D)demand is inelastic and supply is elastic.

Accepted Answer

When both supply and demand are inelastic, a decrease in supply will not be met with a significant change in quantity demanded, leading to a larger increase in price compared to other scenarios. Elasticity measures how much the quantity demanded or supplied responds to changes in price. Inelastic demand or supply means that the quantity demanded or supplied changes very little with price changes. Therefore, if supply decreases and neither consumers nor producers are responsive to price changes (inelastic), the price has to increase significantly to reach a new equilibrium.

Question 9

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, the government program can increase the market price of corn, benefiting participating farmers who do plant corn on their remaining land. Additionally, the subsidy payments can provide financial support to farmers who may be struggling with low crop yields or other challenges.

Question 10

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

Accepted Answer

If there is less land under cultivation, supply decreases which can increase prices. This may benefit farmers who are able to sell their crops at a higher price. However, consumers may face higher prices for the crops they need, which can be burdensome especially for those with limited resources.

Question 11

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

Accepted Answer

If the demand for drugs were truly inelastic, then reducing the supply would not decrease the demand, and drug-related crime would not decrease. However, in reality, the demand for drugs is not entirely inelastic, and reductions in supply can lead to some decrease in drug-related crime.

Question 12

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

Accepted Answer

The statement is incorrect. If the cross-price elasticity of demand for two goods is negative, then the two goods are complements, not substitutes.

Question 13

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

Accepted Answer

This statement is true. Normal goods are those for which demand increases as income increases, resulting in a positive income elasticity of demand. Inferior goods, on the other hand, are goods for which demand decreases as income increases, resulting in a negative income elasticity of demand.

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

The answer of A "Just Say No" drug education policy...

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. Using the midpoint method, we get:

Percentage change in quantity supplied = ((30-20)/((30+20)/2)) * 100% = 25%

Percentage change in price = ((8-6)/((8+6)/2)) * 100% = 33.33%

Price elasticity of supply = 25% / 33.33% = 0.75

Since the calculated price elasticity of supply (0.75) is less than 1, it is considered inelastic. However, the statement in the question says that the price elasticity of supply is 1.4, which is not consistent with the calculated value. Therefore, the answer is false.

Question 16

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

Accepted Answer

If the price elasticity of demand is greater than 1, it means that a small change in price leads to a relatively larger change in quantity demanded, indicating a highly responsive or elastic demand.

Question 17

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 formula for price elasticity of supply is % change in quantity supplied / % change in price. If the price elasticity of supply is 0.5 and the quantity supplied decreases by 6%, it means that there was a 12% decrease in price (0.5 x 6%). Therefore, the correct statement would be: If the price elasticity of supply is 0.5 and the quantity supplied decreases by 6%, then the price must have decreased by 12%.

Question 18

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 19

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 20

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

Accepted Answer