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.
b.
c.
d.
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 increased by more than ten times.
b.
30 percent drop in the number of farmers, but farm output more than tripled.
c.
40 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 increased by about five times.
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.
Scenario 5-3
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 5-3. 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 5-3. 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 5-3. 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 5-3. 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 5-3. 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 5-4
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 5-4. 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 5-4. 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 5-4. 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 5-4. 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 5-4. 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.
Scenario 5-5
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 5-5. 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.
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.
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.
48. Which of the following statements about agriculture in the U.S. is correct?
a.
Technological improvements typically increase both supply and revenue for individual farmers.
b.
Technological improvements that increased supply, coupled with inelastic demand for foodstuffs, explain why
the number of farmers has decreased dramatically over the last century.
c.
Because technological improvements increase the supply of a product for which demand is inelastic, an
individual farmer would be better off not adopting the new technology.
d.
All of the above are correct.
49. Which of the following statements about agriculture in the U.S. is correct?
a.
From the 1950s to today, agricultural output has approximately doubled.
b.
Because technological improvements increase the supply of a product for which demand is inelastic, an
individual farmer would be better off not adopting the new technology.
c.
Increasing the supply of agricultural products typically benefits consumers but harms farmers.
d.
Technological improvements typically increase both supply and revenue for individual farmers.
50. Which of the following statements about agriculture in the U.S. is not correct?
a.
From the 1950s to today, agricultural output has increased about five times.
b.
Because technological improvements increase the supply of a product for which demand is inelastic, an
individual farmer would be better off not adopting the new technology.
c.
Increasing the supply of agricultural products typically benefits consumers but harms farmers.
d.
Technological improvements typically increase supply and decrease revenue for farmers.
51. OPEC has coordinated a reduction in supply that was
a.
effective in insulating the members from the decrease in demand in the late 2000s.
b.
more profitable in the long run than in the short run.
c.
profitable in both the short run and the long run.
d.
more profitable in the short run than in the long run.
52. Which of the following statements is correct?
a.
Advocates for drug-interdiction policies that reduce the supply of illegal drugs argue that the demand for
illegal drugs may be more responsive in the long run than in the short run.
b.
The demand for illegal drugs is price inelastic.
c.
Drug interdiction efforts that reduce the supply of illegal drugs may increase drug-related crimes.
d.
All of the above are correct.
53. Drug-interdiction policies that reduce the supply of illegal drugs may
a.
be more effective in the long run than in the short run.
b.
be best coupled with drug-education programs designed to reduce demand.
c.
increase drug-related crimes.
d.
All of the above are correct.
54. Drug-interdiction policies that reduce the supply of illegal drugs
a.
are likely to be more effective in the short run than in the long run.
b.
are proven to reduce illegal drug use faster than drug-education programs designed to reduce demand.
c.
may increase drug-related crimes.
d.
All of the above are correct.