Question 1

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 2

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 3

Consider the following pairs of goods. For which of the two goods would you expect the demand to be more price elastic? Why?
a. water or diamonds
b. insulin or nasal decongestant spray
c. food in general or breakfast cereal
d. gasoline over the course of a week or gasoline over the course of a year
e. personal computers or IBM personal computers

Accepted Answer

The answer of Consider the following pairs of goods. For...

Question 4

Using the midpoint method, compute the elasticity of demand between points A and B. Is demand along this portion of the curve elastic or inelastic? Interpret your answer with regard to price and quantity demanded. Now compute the elasticity of demand between points B and C. Is demand along this portion of the curve elastic or inelastic?

Accepted Answer

The answer of Using the midpoint method, compute the elasticity...

Question 5

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.

Accepted Answer

This statement is incorrect. Inelastic supply means that the quantity supplied remains largely unchanged even when there are changes in price, while elastic supply means that the quantity supplied changes significantly in response to changes in price.

Question 6

When the Shaffers had a monthly income of $4,000, they usually ate out 8 times a month. Now that the couple makes $4,500 a month, they eat out 10 times a month. Compute the couple's income elasticity of demand using the midpoint method. Explain your answer. Is a restaurant meal a normal or inferior good to the couple?

Accepted Answer

The answer of When the Shaffers had a monthly income...

Question 7

If the price elasticity of supply is 2 and the quantity supplied decreases by 6%, then the price must have decreased by 3%.

Accepted Answer

The answer of If the price elasticity of supply is...

Question 8

If we observe that when the price of ice cream rises by 10%, ice cream manufacturers increase the quantity supplied of ice cream by 20%, then the price elasticity of supply is 2.

Accepted Answer

The formula for price elasticity of supply is percentage change in quantity supplied divided by percentage change in price. Here, we have a 10% increase in price and 20% increase in quantity supplied, which gives us a price elasticity of supply of 20%/10% = 2. Therefore, the statement is true.

Question 9

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. Drug interdiction may not necessarily decrease drug-related crime as the demand for drugs can be elastic, meaning that even if the supply is reduced, the demand may remain high, leading to higher prices and increased crime to obtain the drugs. Additionally, drug interdiction may lead to the development of more dangerous and potent drugs as drug traffickers alter their products to evade detection, which can increase drug-related harm and crime.

Question 10

If a t-shirt manufacturer supplies 1,000 t-shirts per week when the price of t-shirts is $10 and supplies 1,200 t-shirts per week when the price of t-shirts is $12, the price elasticity of supply is 2.

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 from 1,000 to 1,200 (a 20% increase) when the price increases from $10 to $12 (a 20% increase), resulting in a price elasticity of supply of 1 (20%/20%).

Question 11

A government program that reduces land under cultivation hurts farmers but helps consumers.

Accepted Answer

Reducing land under cultivation typically decreases the supply of agricultural products, which can lead to higher prices for consumers. Farmers might benefit from higher prices for their products, but consumers face increased costs.

Question 12

When the price of knee braces increased by 25 percent, the Brace Yourself Company increased its quantity supplied of knee braces per week by 75 percent. BYC's price elasticity of supply of knee braces is 0.33.

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, it would be 75% / 25% = 3.

Question 13

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

When farmers reduce the supply of corn, the market price of corn can increase. As a result, farmers who do plant corn can benefit from the higher prices, even if they do not participate in the program.

Question 14

Supply tends to be more elastic in the short run and more inelastic in the long run.

Accepted Answer

Supply tends to be more inelastic in the short run because producers need time to adjust their production levels, whereas in the long run, they can adjust their production capacity, making supply more elastic.

Question 15

Price elasticity of supply measures how much the quantity supplied responds to changes in the price.

Accepted Answer

Price elasticity of supply is a measure of how responsive the quantity of a good or service supplied is to a change in its price. A high price elasticity of supply means that a small change in price results in a large change in the quantity supplied, while a low price elasticity of supply means that a change in price results in a relatively small change in the quantity supplied.

Question 16

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 through production quotas have not been consistently successful in the long run, due in part to the fact that both the supply of oil (i.e. the ability of producers to bring new sources of oil to market) and the demand for oil (i.e. the ability of consumers to find substitutes for oil or reduce overall consumption) become more elastic over time. This means that changes in price have a greater impact on long-term behavior and decision-making than in the short run.

Question 17

If a supply curve is horizontal, then supply is said to be perfectly elastic, and the price elasticity of supply approaches infinity.

Accepted Answer

When a supply curve is horizontal, it means that any increase or decrease in price will not affect the quantity supplied, meaning that supply is perfectly elastic. As a result, the price elasticity of supply will approach infinity, indicating an infinite percentage change in quantity supplied for any percentage change in price.

Question 18

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 19

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

Accepted Answer