Question 1

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 2

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

Accepted Answer

The statement is false. The demand for drugs is not perfectly inelastic, meaning that when the supply of drugs is reduced, the price will increase and some people will be deterred from purchasing drugs. However, it is still possible for drug interdiction to have some impact on drug-related crime by making it more difficult and risky for drug traffickers to operate.

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

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

Accepted Answer

Normal goods are typically considered to be luxury or non-essential items, such as vacations or high-end clothing, while inferior goods are typically considered to be necessities, such as generic brand food items or public transportation. As people's incomes increase, they will typically demand more of normal goods, resulting in a positive income elasticity of demand. Conversely, as people's incomes increase, they will typically demand less of inferior goods, resulting in a negative income elasticity of demand.

Question 5

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 answer of Helen's Honey Hut supplies 20 jars of...

Question 6

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 7

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 elasticity of supply only measures the responsiveness of quantity supplied to a change in price. It does not provide information on the direction of the change in price. Therefore, we cannot conclude whether the price has decreased or not based on the given information.

Question 8

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 decreasing the supply of corn, the program can lead to an increase in the market price of corn, benefiting all farmers who grow and sell corn. Additionally, the subsidy payments can provide direct financial support to participating farmers.

Question 9

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 10

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 11

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

Accepted Answer

When the government reduces land under cultivation, it decreases the overall supply of crops, leading to higher prices for those crops. This can benefit farmers who continue to cultivate land, as they can sell their crops at a higher price. However, this also means that consumers will have to pay more for their food, as the demand for crops exceeds the supply. So, while such a program may help farmers in the short-term, it can have negative effects on consumers.

Question 12

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 price is equal to the percentage change in quantity demanded, the demand is said to be unit price elastic. In this case, the 10% increase in price resulted in a 10% decrease in total quantity demanded, indicating that the demand is responsive to price changes and is therefore unit price elastic.

Question 13

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 is negative, then the two goods are complements. If the elasticity is positive, then they are substitutes.

Question 14

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 15

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

Accepted Answer

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

Question 16

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 17

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, then it means that a change in price results in a relatively larger change in quantity demanded. This indicates that demand is sensitive to price and therefore, elastic.

Question 18

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 19

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 one where the quantity demanded increases as income increases. In this scenario, we see that the quantity demanded of chocolate candy bars increases by 15% when the consumer's income rises by 10%, which indicates that chocolate candy bars are a normal good for that consumer.

Question 20

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

OPEC's attempts to maintain a high price of oil were limited by the fact that both the supply of oil (through exploration, development, and production) and the demand for oil (through substitutes, conservation efforts, and increased efficiency) can be more responsive to price changes over time. This means that efforts to restrict supply or inflate prices may be undermined by increased competition or decreased demand over the long term.

Quiz 5: Elasticity and Its Application