Elasticity and Its Application 1337
32.
In the early 1970s, OPEC’s goal was to
a.
decrease the world-wide price of oil so that the quantity demanded increased, thus raising total
revenues for
OPEC members.
b.
increase the world–wide price of oil by reducing the quantity of oil supplied.
c.
increase the world-wide price of oil by increasing the quantity of oil supplied, thus raising total
revenues for
OPEC members.
d.
decrease the world-wide price of oil so that quantity demanded increased.
33.
Which of the following was not a reason OPEC failed to keep the price of oil high?
a.
Over the long run, producers of oil outside of OPEC responded to higher prices by increasing oil
exploration
and by building new extraction capacity.
b.
Consumers responded to higher prices with greater conservation.
c.
Consumers replaced old inefficient cars with newer efficient ones.
d.
The agreement OPEC members signed allowed each country to produce as much oil as each
wanted.
34.
OPEC successfully raised the world price of oil in the 1970s and early 1980s, primarily due to
a.
an inelastic demand for oil and a reduction in the amount of oil supplied.
b.
a reduction in the amount of oil supplied and a world-wide oil embargo.
c.
a world-wide oil embargo and an elastic demand for oil.
d.
a reduction in the amount of oil supplied and an elastic demand for oil.
35.
Why was OPEC unable to maintain high oil prices in the long run?
a.
Demand and supply are both elastic in the long run compared to the short run.
b.
Demand and supply are both inelastic in the long run compared to the short run.
c.
Demand is elastic and supply is inelastic in the long run compared to the short run.
d.
Demand is inelastic and supply is elastic in the long run compared to the short run.
36.
If marijuana were legalized, it is likely that there would be an increase in the supply of marijuana.
Advocates of
marijuana legalization argue that this would significantly reduce the amount of
revenue going to the criminal
organizations that currently supply marijuana. These advocates
believe that the
a.
supply for marijuana is elastic.
b.
demand for marijuana is elastic.
c.
supply for marijuana is inelastic.
d.
demand for marijuana is inelastic.
37.
Under which of the following conditions would the interdiction of illegal drugs result in a decrease
in the quantity of
drugs sold and in a decrease in total spending on illegal drugs by drug users?
a.
The interdiction has the effect of shifting the demand curve for illegal drugs to the right.
b.
The price elasticity of demand for illegal drugs is 1.3.
c.
The price elasticity of supply for illegal drugs is 0.8.
d.
As a result of the interdiction, the price of illegal drugs increases by 20 percent and the quantity
of illegal
drugs sold decreases by 16 percent.
38.
Which of the following statements does not help to explain why government drug interdiction
increases drug-related
crime?
a.
The demand for illegal drugs is inelastic.
b.
Interdiction results in drug addicts having a greater need for quick cash.
c.
Interdiction results in an increase in the amount of money needed to buy the same amount of
drugs.
d.
Government drug programs are more lenient now with drug offenders than they were in the
1980s.
39.
Which of the following statements helps to explain why government drug interdiction increases
drug-related crime?
a.
The direct impact is on buyers, not sellers.
b.
Successful drug interdiction policies reduce the demand for illegal drugs.
c.
Drug addicts will have an even greater need for quick cash to support their habits.
d.
In the short run, both equilibrium quantities and prices will fall in the markets for illegal drugs.
40.
Which of the following statements is not correct concerning government attempts to reduce the
flow of illegal drugs
into the country? Drug interdiction
a.
raises prices and total revenue in the drug market.
b.
can increase drug-related crime.
c.
shifts the demand curve for drugs to the left.
d.
shifts the supply curve of drugs to the left.
41.
Given the market for illegal drugs, when the government is successful in reducing the flow of
drugs into the United
States,
a.
supply decreases, demand is unaffected, and price increases.
b.
demand decreases, supply is unaffected, and price decreases.
c.
demand and supply both decrease, leaving price essentially unchanged.
d.
supply decreases, demand increases, and price increases substantially.
42.
A drug interdiction program that successfully reduces the supply of illegal drugs in the United
States likely will
a.
raise the price, reduce the quantity, decrease total revenues, and decrease crime.
b.
lower the price, increase the quantity, increase total revenues, and increase crime.
c.
raise the price, increase the quantity, decrease total revenues, and increase crime.
d.
raise the price, reduce the quantity, increase total revenues, and increase crime.
43.
The federal government is concerned about obesity in the United States. Congress is considering
two plans. One will
ban the production and sale of “junk food.” The other will increase
nutrition-education programs and include
substantial advertising campaigns to encourage healthy
eating habits. The junk-food ban program
a.
and the education program will reduce the quantity of junk food sold and raise the price.
b.
and the education program will reduce the quantity of junk food sold and lower the price.
c.
will reduce the quantity of junk food sold and raise the price. The education program will
reduce the quantity
of junk food sold and lower the price.
d.
will reduce the quantity of junk food sold and lower the price. The education program will
reduce the quantity
of junk food sold and raise the price.
44.
The federal government is concerned about the negative effects of cigarette smoking in the
United States. Suppose
Congress is considering two plans. One plan would limit the production of
cigarettes. The other would require
manufacturers to include graphic photos on cigarette packages
of people suffering cancer’s effects. Which of the
following statements is true?
a.
Both programs would increase the price of cigarettes.
b.
Both programs would reduce the quantity of cigarettes sold.
c.
Both programs would decrease revenues for cigarette manufacturers.
d.
All of the above are correct.
45.
The production of methamphetamine (meth) is a social problem in the Midwest. Iowa is
considering two potential
programs: Operation Methbust would increase the number of sheriffs’
deputies to search out and destroy
methamphetamine labs. Operation Say No to Meth would
increase the training required of public school teachers so
that they could better educate students
about the health risks of using meth. Assuming that each program were
successful, which of the
following statements is correct?
a.
Both Operation Methbust and Say No would reduce the demand for meth.
b.
Both Operation Methbust and Say No would reduce the supply of meth.
c.
Operation Methbust would reduce the demand for meth; Operation Say No would reduce the
supply of meth.
d.
Operation Methbust would reduce the supply of meth; Operation Say No would reduce the
demand for meth.
46.
The production of methamphetamine (meth) is a social problem in the Midwest. Iowa is
considering two potential
programs: Operation Methbust would increase the number of sheriffs’
deputies to search out and destroy
methamphetamine labs. Operation Say No to Meth would
increase the training required of public school teachers so
that they could better educate students
about the health risks of using meth. Assuming that each program were
successful, which of the
following statements is correct?
a.
Both Operation Methbust and Say No would reduce the equilibrium quantity and increase the
equilibrium price
of meth.
b.
Both Operation Methbust and Say No would increase the equilibrium quantity and reduce the
equilibrium price
of meth.
c.
Both Operation Methbust and Say No would reduce the equilibrium quantity of meth; Operation
Methbust
would increase the equilibrium price, whereas Say No would reduce the equilibrium
price of meth.
d.
Both Operation Methbust and Say No would reduce the equilibrium price of meth; Operation
Methbust would
reduce the equilibrium quantity, whereas Say No would increase the
equilibrium quantity of meth.
47.
If marijuana were legalized, it is likely that there would be an increase in the demand for
marijuana. If demand for
marijuana is inelastic and the supply of marijuana is perfectly elastic, this
will result in
a.
higher prices and higher total revenue from marijuana sales.
b.
higher prices but lower total revenue from marijuana sales.
c.
the same price and higher total revenue from marijuana sales.
d.
the same price but lower total revenue from marijuana sales.
Elasticity and Its Application 1345
True/False and Short Answer
1.
Measures of elasticity enhance our ability to study the magnitudes of changes in quantities in
response to changes in
prices or income.
a.
True
b.
False
2.
Elasticity measures how responsive quantity is to changes in price.
a.
True
b.
False
3.
The price elasticity of demand is defined as the percentage change in quantity demanded divided
by the percentage
change in price.
a.
True
b.
False
4.
The price elasticity of demand is defined as the percentage change in price divided by the
percentage change in
quantity demanded.
a.
True
b.
False
5.
The demand for bread is likely to be more elastic than the demand for solid-gold bread plates.
a.
True
b.
False
6.
In general, demand curves for necessities tend to be price elastic.
a.
True
b.
False
7.
In general, demand curves for luxuries tend to be price elastic.
a.
True
b.
False
8.
Goods with close substitutes tend to have more elastic demands than do goods without close
substitutes.
a.
True
b.
False
9.
The demand for Rice Krispies is more elastic than the demand for cereal in general.
a.
True
b.
False
10.
The demand for soap is more elastic than the demand for Dove soap.
a.
True
b.
False
11.
Necessities tend to have inelastic demands, whereas luxuries tend to have elastic demands.
a.
True
b.
False
12.
The demand for desserts tends to be more inelastic than the demand for red velvet cake.
a.
True
b.
False
13.
Demand is inelastic if the price elasticity of demand is greater than 1.
a.
True
b.
False
14.
Demand for a good is said to be inelastic if the quantity demanded increases substantially when
the price falls by a
small amount.
a.
True
b.
False
15.
Demand for a good is said to be inelastic if the quantity demanded increases slightly when the
price falls by a large
amount.
a.
True
b.
False
16.
The demand for gasoline will respond more to a change in price over a period of five weeks than
over a period of
five years.
a.
True
b.
False
17.
Even the demand for a necessity such as gasoline will respond to a change in price, especially
over a longer time
horizon.
a.
True
b.
False
18.
Suppose that when the price rises by 20% for a particular good, the quantity demanded of that
good falls by 10%.
The price elasticity of demand for this good is equal to 2.0.
a.
True
b.
False
19.
Suppose that when the price rises by 10% for a particular good, the quantity demanded of that
good falls by 20%.
The price elasticity of demand for this good is equal to 2.0.
a.
True
b.
False
20.
If the price of calculators increases by 15 percent and the quantity demanded per week falls by
45 percent as a
result, then the price elasticity of demand is 3.
a.
True
b.
False
21.
If we observe that when the price of chocolate increases by 10%, quantity demanded falls by 5%,
then the demand
for chocolate is price inelastic.
a.
True
b.
False
22.
If we observe that when the price of chocolate decreases by 10%, quantity demanded increases
by 25%, then the
demand for chocolate is price elastic.
a.
True
b.
False
23.
The flatter the demand curve that passes through a given point, the more inelastic the demand.
a.
True
b.
False
24.
The flatter the demand curve that passes through a given point, the more elastic the demand.
a.
True
b.
False
25.
A linear, downward-sloping demand curve has a constant elasticity but a changing slope.
a.
True
b.
False
26.
Price elasticity of demand along a linear, downward-sloping demand curve increases as price
falls.
a.
True
b.
False
27.
Price elasticity of demand along a linear, downward-sloping demand curve decreases as price
falls.
a.
True
b.
False
28.
The midpoint method is used to calculate elasticity between two points because it gives the same
answer regardless
of the direction of the change.
a.
True
b.
False
29.
An advantage of using the midpoint method to calculate the price elasticity of demand is that it
uses the metric
system.
a.
True
b.
False
30.
If demand is perfectly elastic, the demand curve is horizontal, and the price elasticity of demand
equals 1.
a.
True
b.
False
31.
If demand is perfectly inelastic, the demand curve is vertical, and the price elasticity of demand
equals 0.
a.
True
b.
False
32.
If the price elasticity of demand is equal to 0, then demand is unit elastic.
a.
True
b.
False
33.
If the price elasticity of demand is equal to 1, then demand is unit elastic.
a.
True
b.
False
34.
If we observe that when the price of chocolate increases by 10%, total revenue increases by 10%,
then the demand
for chocolate is unit price elastic.
a.
True
b.
False
35.
Along the elastic portion of a linear demand curve, total revenue rises as price rises.
a.
True
b.
False