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Elasticity and Its Application 1317
89.
If the price elasticity of supply is zero, then
a.
supply is more elastic than it is in any other case.
b.
the supply curve is horizontal.
c.
the quantity supplied is the same, regardless of price.
d.
a change in demand will cause a relatively small change in the equilibrium price.
90.
Which of the following is an illustration of the market for original paintings by deceased artist
Vincent Van Gogh?
a.
b.
c.
d.
a.
A
b.
B
c.
C
d.
D
91.
Refer to Figure 5-19. Which of the following statements is not correct?
a.
Supply curve A is perfectly inelastic.
b.
Supply curve B is perfectly elastic.
c.
Supply curve C is unit elastic.
d.
Supply curve D is more elastic than supply curve C.
92.
Refer to Figure 5-19. Which of the following statements is correct?
a.
Supply curve A is perfectly elastic.
b.
Supply curve B is perfectly inelastic.
c.
Supply curve C is more inelastic than supply curve D.
d.
Supply curve D is unit elastic.
1320 Elasticity and Its Application
Figure 5-20
93.
Refer to Figure 5-20. Which supply curve is most likely relevant over a very long period of
time?
a.
S1
b.
S2
c.
S3
d.
All of the above are equally likely to be relevant over a very long period of time.
94.
Refer to Figure 5-20. Which supply curve represents perfectly inelastic supply?
a.
S1
b.
S2
c.
S3
d.
None of the supply curves is perfectly inelastic.
Multiple Choice – Section 03 Three Applications of Supply, Demand, and Elasticity
1. 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.
2.
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.
3.
The discovery of a new hybrid wheat would increase the supply of wheat. As a result, wheat
farmers would realize
an increase in total revenue if the
a.
supply of wheat is elastic.
b.
supply of wheat is inelastic.
c.
demand for wheat is inelastic.
d.
demand for wheat is elastic.
4.
Because the demand for wheat tends to be inelastic, the development of a new, more productive
hybrid wheat would
tend to
a.
increase the total revenue of wheat farmers.
b.
decrease the total revenue of wheat farmers.
c.
decrease the demand for wheat.
d.
decrease the supply of wheat.
5.
Knowing that the demand for wheat is inelastic, if all farmers voluntarily did not plant wheat on 10
percent of their
land, then
a.
consumers of wheat would buy more wheat.
b.
wheat farmers would suffer a reduction in their total revenue.
c.
wheat farmers would experience an increase in their total revenue.
d.
the demand for wheat would decrease.
6.
Suppose researchers at the University of Wisconsin discover a new vitamin that increases the milk
production of
dairy cows. If the demand for milk is relatively inelastic, the discovery will
a.
raise both price and total revenues.
b.
lower both price and total revenues.
c.
raise price and lower total revenues.
d.
lower price and raise total revenues.
7.
Suppose that corn farmers want to increase their total revenue. Knowing that the demand for corn
is inelastic, corn
farmers should
a.
plant more corn so that they would be able to sell more each year.
b.
increase spending on fertilizer in an attempt to produce more corn on the acres they farm.
c.
reduce the number of acres on which they plant corn.
d.
contribute to a fund that promotes technological advances in corn production.
8.
Good news for farming can be bad news for farmers because the
a.
supply curve for an individual farmer is usually perfectly elastic.
b.
supply curve for an individual farmer is usually perfectly inelastic.
c.
demand for basic foodstuffs is usually inelastic, meaning that factors that shift supply to the right
decrease
total revenues to sellers.
d.
demand for basic foodstuffs is usually elastic, meaning that factors that shift supply to the right
increase total
revenues to sellers.
9.
If soybean farmers know that the demand for soybeans is inelastic, in order to increase their total
revenues they
should
a.
use more fertilizers and weed killers to increase their yields.
b.
plant additional acres to increase their output.
c.
reduce the number of acres they plant to decrease their output.
d.
Both a and b are correct.
10.
Farm programs that pay farmers not to plant crops on all their land
a.
hurt farmers by lowering their total revenue and hurt consumers by causing shortages of some
food items.
b.
help farmers by cutting costs, which helps consumers by lowering food prices.
c.
help farmers by increasing total revenue in the market but hurt consumers by raising food
prices.
d.
help farmers directly since they receive government payments but have no real effects on
consumers.
11.
There are fewer farmers in the United States today than 200 years ago because of
a.
improvements in farm technology.
b.
increased government regulations in farming.
c.
an elastic demand for food.
d.
environmental programs designed to reduce soil erosion.
12.
How did the farm population in the United States change between 1950 and today?
a.
It dropped from 10 million to fewer than 3 million people.
b.
It dropped from 20 million to fewer than 5 million people.
c.
It dropped from 30 million to just over 6 million people.
d.
It increased from 10 million to almost 13 million people.
13.
Between 1950 and today there was a
a.
20 percent drop in the number of farmers, but farm output more than tripled.
b.
30 percent drop in the number of farmers, but farm output more than tripled.
c.
50 percent drop in the number of farmers, but farm output more than doubled.
d.
70 percent drop in the number of farmers, but farm output more than doubled.
14.
An advance in farm technology that results in an increased market supply is
a.
good for farmers because it raises prices for their products but bad for consumers because it
raises prices
consumers pay for food.
b.
bad for farmers because total revenue will fall but good for consumers because prices for food
will fall.
c.
good for farmers because it raises prices for their products and also good for consumers
because more output
is available for consumption.
d.
bad for farmers because total revenue will fall and bad for consumers because farmers will
raise the price of
food to increase their total revenue.
15.
A recent news report lamented the plight of corn farmers in Wisconsin due to a severe drought.
Which of the
following best describes the effect on corn farmers in Minnesota, where sufficient
rainfall occurred?
a.
Their revenue increases because price increases and demand is elastic.
b.
Their revenue increases because price increases and demand is inelastic.
c.
Their revenue decreases because price decreases and demand is inelastic.
d.
Their revenue decreases because price increases and demand is elastic.
Elasticity and Its Application 1329
Scenario 5-4
The supply of aged cheddar cheese is inelastic, and the supply of bread is elastic. Both goods are
considered to be
normal goods by a majority of consumers. Suppose that a large income tax
increase decreases the demand for both
goods by 10%.
16.
Refer to Scenario 5-4. The equilibrium price will
a.
increase in both the aged cheddar cheese and bread markets.
b.
increase in the aged cheddar cheese market and decrease in the bread market.
c.
decrease in the aged cheddar cheese market and increase in the bread market.
d.
decrease in both the aged cheddar cheese and bread markets.
17.
Refer to Scenario 5-4. The equilibrium quantity will
a.
increase in both the aged cheddar cheese and bread markets.
b.
increase in the aged cheddar cheese market and decrease in the bread market.
c.
decrease in the aged cheddar cheese market and increase in the bread market.
d.
decrease in both the aged cheddar cheese and bread markets.
18.
Refer to Scenario 5-4. The change in equilibrium price will be
a.
greater in the aged cheddar cheese market than in the bread market.
b.
greater in the bread market than in the aged cheddar cheese market.
c.
the same in the aged cheddar cheese and bread markets.
d.
Any of the above could be correct.
19.
Refer to Scenario 5-4. The change in equilibrium quantity will be
a.
greater in the aged cheddar cheese market than in the bread market.
b.
greater in the bread market than in the aged cheddar cheese market.
c.
the same in the aged cheddar cheese and bread markets.
d.
Any of the above could be correct.
20.
Refer to Scenario 5-4. Total consumer spending on aged cheddar cheese will
a.
increase, and total consumer spending on bread will increase.
b.
increase, and total consumer spending on bread will decrease.
c.
decrease, and total consumer spending on bread will increase.
d.
decrease, and total consumer spending on bread will decrease.
Scenario 5-5
Milk has an inelastic demand, and beef has an elastic demand. Suppose that a mysterious increase
in bovine
infertility decreases both the population of dairy cows and the population of beef cattle
by 50 percent.
21.
Refer to Scenario 5-5. The equilibrium price will
a.
increase in both the milk and beef markets.
b.
increase in the milk market and decrease in the beef market.
c.
decrease in the milk market and increase in the beef market.
d.
decrease in both the milk and beef markets.
22.
Refer to Scenario 5-5. The equilibrium quantity will
a.
increase in both the milk and beef markets.
b.
increase in the milk market and decrease in the beef market.
c.
decrease in the milk market and increase in the beef market.
d.
decrease in both the milk and beef markets.
23.
Refer to Scenario 5-5. The change in equilibrium price will be
a.
greater in the milk market than in the beef market.
b.
greater in the beef market than in the milk market.
c.
the same in the milk and beef markets.
d.
Any of the above could be correct.
24.
Refer to Scenario 5-5. The change in equilibrium quantity will be
a.
greater in the milk market than in the beef market.
b.
greater in the beef market than in the milk market.
c.
the same in the milk and beef markets.
d.
Any of the above could be correct.
25.
Refer to Scenario 5-5. Total consumer spending on milk will
a.
increase, and total consumer spending on beef will increase.
b.
increase, and total consumer spending on beef will decrease.
c.
decrease, and total consumer spending on beef will increase.
d.
decrease, and total consumer spending on beef will decrease.
1334 Elasticity and Its Application
Scenario 5-6
Suppose the government is concerned about firms in the United States importing illegal caviar. As
a result, the
government increases border patrols to catch illegal shipments. U.S. Customs agents
perform DNA testing on the
caviar to determine if it comes from endangered species of fish. If
so, the government destroys the caviar.
26.
Refer to Scenario 5-6. What would we expect to observe in the caviar market?
a.
Equilibrium prices and quantities will increase.
b.
Equilibrium prices will increase by more if the demand for caviar is elastic than if demand is
inelastic.
c.
Total revenues to caviar firms will increase if the demand for caviar is inelastic.
d.
All of the above are correct.
Elasticity and Its Application 1335
Table 5-11
Supply is
Demand is
Scenario A
elastic
elastic
Scenario B
elastic
inelastic
Scenario C
inelastic
elastic
Scenario D
inelastic
inelastic
27.
Refer to Table 5-11. Which scenario describes the market for oil in the short run in comparison
to the long run?
a.
Scenario A describes both the short run and the long run.
b.
Scenario D describes both the short run and the long run.
c.
Scenario D describes the short run, whereas scenario A describes the long run.
d.
Scenario C describes the short run, whereas scenario B describes the long run.
28.
Refer to Table 5-11. Which scenario describes the market for oil in the short run?
a.
A
b.
B
c.
C
d.
D
29.
Refer to Table 5-11. Which scenario describes the market for oil in the long run?
a.
A
b.
B
c.
C
d.
D
30.
In the market for oil in the short run, demand
a.
and supply are both elastic.
b.
and supply are both inelastic.
c.
is elastic and supply is inelastic.
d.
is inelastic and supply is elastic.
31.
The supply of oil is likely to be
a.
inelastic in both the short run and long run.
b.
elastic in both the short run and long run.
c.
elastic in the short run and inelastic in the long run.
d.
inelastic in the short run and elastic in the long run.
