Question 1

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 2

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 3

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 4

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 on the market, the price of corn can increase. This means that even farmers who are not participating in the program can benefit from higher prices for their corn crops.

Question 5

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 6

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 7

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 8

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

The statement is actually the opposite of the true definition of elasticity. Supply is considered inelastic if the quantity supplied changes only slightly in response to changes in price, and elastic if the quantity supplied changes substantially in response to price changes.

Question 9

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 10

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 of...

Question 11

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 12

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 13

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 the supply curve is horizontal, any increase or decrease in demand will result in a proportional change in quantity supplied without affecting the price. This means that supply is perfectly elastic and the price elasticity of supply approaches infinity.

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

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 price elasticity of supply is calculated as the percentage change in quantity supplied divided by the percentage change in price. Therefore, in this case, the price elasticity of supply is 20%/10% = 2.

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

In the long run, both the supply of oil and the demand for oil are more responsive to changes in price. This means that if OPEC tries to maintain a high price of oil, it may lead to an increase in non-OPEC production, decrease in consumption of oil, or adoption of alternative energy sources. All of these factors contribute to a more elastic market for oil in the long run, making it difficult for OPEC to maintain high prices.

Question 17

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 which...

Question 18

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

Accepted Answer

Price elasticity of supply quantifies the extent to which the quantity supplied responds to changes in the price. If a small change in the price causes a significant change in the quantity supplied, then the supply is said to be elastic. If, on the other hand, a large change in the price only results in a small change in the quantity supplied, then supply is inelastic.

Question 19

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 completely inelastic and can be affected by factors such as price, availability, and social and cultural attitudes towards drug use. Additionally, drug interdiction efforts may lead to the displacement of drug markets and an increase in drug-related crime as dealers compete for a smaller supply.

Question 20

Supply and demand both tend to be more elastic in the long run and more inelastic in the short run.

Accepted Answer

In the long run, consumers have more time to adjust their behavior and find substitutes, and firms have more time to adjust their production capacities. This makes both supply and demand more elastic. In the short run, however, consumers and firms may not have as many options to adjust, making both supply and demand more inelastic.

Quiz 5: Elasticity and Its Application