Chapter 5/Elasticity and Its Application/ ❖ 81
Figure 5-17
SupplyA
Quantity
Price
Supply B
Quantity
Price
Supply C
Quantity
Price
Supply D
Quantity
Price
85. Refer to Figure 5-17. 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.
86. Refer to Figure 5-17. 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.
Figure 5-18
S1
S3
S1
S2
S3
S2
Quantity
Price
87. Refer to Figure 5-18. 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.
82 ❖ Chapter 5/Elasticity and Its Application
88. Refer to Figure 5-18. Which supply curve represents perfectly inelastic supply?
a.
S1
b.
S2
c.
S3
d.
None of the supply curves is perfectly inelastic.
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.
Chapter 5/Elasticity and Its Application/ ❖ 83
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 price inelastic, in order to increase their total reve-
nues 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.
84 ❖ Chapter 5/Elasticity and Its Application
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.
Chapter 5/Elasticity and Its Application/ ❖ 85
Scenario 5-2
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%.
15. Refer to Scenario 5-2. 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.
16. Refer to Scenario 5-2. 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.
17. Refer to Scenario 5-2. 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.
18. Refer to Scenario 5-2. 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.
19. Refer to Scenario 5-2. 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.
86 ❖ Chapter 5/Elasticity and Its Application
Scenario 5-3
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.
20. Refer to Scenario 5-3. 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.
21. Refer to Scenario 5-3. 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.
22. Refer to Scenario 5-3. 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.
23. Refer to Scenario 5-3. 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.
24. Refer to Scenario 5-3. 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.
Chapter 5/Elasticity and Its Application/ ❖ 87
Scenario 5-4
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.
25. Refer to Scenario 5-4. 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 5-6
Supply is
Demand is
elastic
elastic
elastic
inelastic
inelastic
elastic
inelastic
inelastic
26. Refer to Table 5-6. 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.
27. Refer to Table 5-6. Which scenario describes the market for oil in the short run?
a.
A
b.
B
c.
C
d.
D
28. Refer to Table 5-6. Which scenario describes the market for oil in the long run?
a.
A
b.
B
c.
C
d.
D
88 ❖ Chapter 5/Elasticity and Its Application
29. 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.
30. 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.
31. 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.
32. 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.
33. 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.
34. 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 crimi-
nal 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.
Chapter 5/Elasticity and Its Application/ ❖ 89
35. 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.
36. 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.
37. 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.
38. 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.
39. 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.
90 ❖ Chapter 5/Elasticity and Its Application
40. 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.
41. 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.
42. The production of methamphetamine (meth) is a social problem in the Midwest. Iowa is considering two po-
tential programs: Operation Methbust would increase the number of sheriffs’ deputies to search out and de-
stroy 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.
43. The production of methamphetamine (meth) is a social problem in the Midwest. Iowa is considering two po-
tential programs: Operation Methbust would increase the number of sheriffs’ deputies to search out and de-
stroy 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.
Chapter 5/Elasticity and Its Application/ ❖ 91
TRUE/FALSE
1. Measures of elasticity enhance our ability to study the magnitudes of changes in quantities in response to
changes in prices or income.
2. Elasticity measures how responsive quantity is to changes in price.
3. The price elasticity of demand is defined as the percentage change in quantity demanded divided by the per-
centage change in price.
4. The price elasticity of demand is defined as the percentage change in price divided by the percentage change
in quantity demanded.
5. The demand for bread is likely to be more elastic than the demand for solid-gold bread plates.
6. In general, demand curves for necessities tend to be price elastic.
7. In general, demand curves for luxuries tend to be price elastic.
8. Goods with close substitutes tend to have more elastic demands than do goods without close substitutes.
9. The demand for Rice Krispies is more elastic than the demand for cereal in general.
10. The demand for soap is more elastic than the demand for Dove soap.