Question 1

The price of a good rises by 12 percent and the price elasticity of demand for the good is 0.85. Which of the following is a correct interpretation of these facts?

Accepted Answer

A)  When the price rises by 12 percent, the quantity demanded decreased by 0.85 percent. 
B)  For each 1 percent that the price rose, the quantity demanded decreased by 10.2 percent. 
C)  For each 0.85 percent that the price rose, the quantity demanded decreased by 1 percent. 
D)  For each 1 percent that the price rose, the quantity demanded decreased by 0.85 percent. 
A)  When the price rises by 12 percent, the quantity demanded decreased by 0.85 percent. 
B)  For each 1 percent that the price rose, the quantity demanded decreased by 10.2 percent. 
C)  For each 0.85 percent that the price rose, the quantity demanded decreased by 1 percent. 
D)  For each 1 percent that the price rose, the quantity demanded decreased by 0.85 percent.

Question 2

If the elasticity of supply is 4, a 10 percent increase in the price of a good leads to a

Accepted Answer

A)  40 percent increase in the quantity of supply. 
B)  4 percent decrease in the quantity demanded. 
C)  2.5 percent increase in the quantity supplied. 
D)  2.5 percent decrease in the quantity demanded. 
A)  40 percent increase in the quantity of supply. 
B)  4 percent decrease in the quantity demanded. 
C)  2.5 percent increase in the quantity supplied. 
D)  2.5 percent decrease in the quantity demanded.

Question 3

The closer the substitutes for a good, the

Accepted Answer

A)  more elastic is the demand for the good. 
B)  less elastic is the demand for the good. 
C)  smaller the degree of substitutability between the goods. 
D)  larger the proportion of income that is spent on the good. 
A)  more elastic is the demand for the good. 
B)  less elastic is the demand for the good. 
C)  smaller the degree of substitutability between the goods. 
D)  larger the proportion of income that is spent on the good.

Question 4

Goods and services that can be produced by using commonly available resources that could be allocated to a wide variety of alternative tasks have a supply that is

Accepted Answer

A)  elastic. 
B)  inelastic. 
C)  unit elastic. 
D)  perfectly inelastic. 
A)  elastic. 
B)  inelastic. 
C)  unit elastic. 
D)  perfectly inelastic.

Question 5

If a consumer is relatively insensitive to changes in the price of a good, then the consumer's demand for the good is

Accepted Answer

A)  elastic. 
B)  unit elastic. 
C)  inelastic. 
D)  perfectly elastic. 
A)  elastic. 
B)  unit elastic. 
C)  inelastic. 
D)  perfectly elastic.

Question 6

-In the above figure, at point b on the demand curve, a price cut of one dollar will

Accepted Answer

A)  increase total revenue. 
B)  decrease total revenue. 
C)  leave total revenue unchanged. 
D)  have an indeterminate effect on total revenue. 
A)  increase total revenue. 
B)  decrease total revenue. 
C)  leave total revenue unchanged. 
D)  have an indeterminate effect on total revenue.

Question 7

If the cross elasticity of demand is -5 between french fries and orange drink, then french fries

Accepted Answer

A)  and orange drink are complements. 
B)  and orange drink are substitutes. 
C)  are a normal good and orange drink is an inferior good. 
D)  are an inferior good and orange drink is a normal good. 
A)  and orange drink are complements. 
B)  and orange drink are substitutes. 
C)  are a normal good and orange drink is an inferior good. 
D)  are an inferior good and orange drink is a normal good.

Question 8

Of the following items, which has the most inelastic demand?

Accepted Answer

A)  food 
B)  fruit 
C)  apples 
D)  Gala apples 
A)  food 
B)  fruit 
C)  apples 
D)  Gala apples

Question 9

If the elasticity of demand for peaches is 1.76 and the elasticity of demand for apples is 1.59, then consumers are

Accepted Answer

A)  more sensitive to a change in the price of peaches than they are to a change in the price of apples. 
B)  less sensitive to a change in the price of peaches than they are to a change in the price of apples. 
C)  more sensitive to a change in the quantity of peaches than they are to a change in the quantity of apples. 
D)  less sensitive to a change in the quantity of peaches than they are to a change in the quantity of apples. 
A)  more sensitive to a change in the price of peaches than they are to a change in the price of apples. 
B)  less sensitive to a change in the price of peaches than they are to a change in the price of apples. 
C)  more sensitive to a change in the quantity of peaches than they are to a change in the quantity of apples. 
D)  less sensitive to a change in the quantity of peaches than they are to a change in the quantity of apples.

Question 10

-In the above figure, at which point on the demand curve is the price elasticity of demand equal to 1?

Accepted Answer

A)  a 
B)  b 
C)  c 
D)  It is impossible to say at which point the elasticity equals one. 
A)  a 
B)  b 
C)  c 
D)  It is impossible to say at which point the elasticity equals one.

Question 11

If the quantity demanded of hamburgers increases by 20 percent when the price decreases by 5 percent, then the price elasticity of demand is

Accepted Answer

A)  0.25. 
B)  4.0. 
C)  20.0. 
D)  5.0. 
A)  0.25. 
B)  4.0. 
C)  20.0. 
D)  5.0.

Question 12

A necessity (such as food and shelter) generally has an inelastic demand.

Accepted Answer

A) True 
 B)False

Question 13

The income elasticity of demand is

Accepted Answer

A)  always positive. 
B)  always negative. 
C)  negative for a normal good and positive for an inferior good. 
D)  positive for a normal good and negative for an inferior good. 
A)  always positive. 
B)  always negative. 
C)  negative for a normal good and positive for an inferior good. 
D)  positive for a normal good and negative for an inferior good.

Question 14

Netflix is the largest online DVD rental service offering flat rate online streaming to customers in the United States. Currently, there are approximately 8 million subscribers. Suppose Netflix increases their average flat rate by 10 percent and observe their total revenues increase. Based on this information, the

Accepted Answer

A)  price elasticity of demand for Netflix subscription is inelastic. 
B)  price elasticity of demand for Netflix subscription is elastic. 
C)  price elasticity of demand for Netflix subscription is unit elastic. 
D)  income elasticity of demand for Netflix subscription is elastic. 
A)  price elasticity of demand for Netflix subscription is inelastic. 
B)  price elasticity of demand for Netflix subscription is elastic. 
C)  price elasticity of demand for Netflix subscription is unit elastic. 
D)  income elasticity of demand for Netflix subscription is elastic.

Question 15

Suppose that the cross elasticity of demand for Dell computers with respect to Hewlett Packard computers is 2.1. If Hewlett-Packard lowers its price by 5 percent, other things being equal, what will be the percentage change in the quantity of Dell computers demanded?

Accepted Answer

A)  2.4 percent 
B)  -10.5 percent 
C)  10.5 percent 
D)  -42 percent 
A)  2.4 percent 
B)  -10.5 percent 
C)  10.5 percent 
D)  -42 percent

Question 16

If tea and coffee are substitutes, the cross elasticity of coffee with respect to the price of tea will be ________ and an increase in the price of tea will ________ the demand for coffee.

Accepted Answer

A)  positive; increase 
B)  negative; decrease 
C)  negative; increase 
D)  positive; decrease 
A)  positive; increase 
B)  negative; decrease 
C)  negative; increase 
D)  positive; decrease

Question 17

The price of a bus ride decreases, and the total revenue of the bus company decreases. The demand for bus rides is ________.

Accepted Answer

A)  perfectly elastic 
B)  inelastic 
C)  unit elastic 
D)  elastic but not necessarily perfectly elastic 
A)  perfectly elastic 
B)  inelastic 
C)  unit elastic 
D)  elastic but not necessarily perfectly elastic

Question 18

If there is an increase in the price of broccoli because of disastrous weather that destroys about half of this year's spinach crop, which of the following could be true?

Accepted Answer

A)  The cross elasticity of demand between spinach and broccoli is negative 1.25. 
B)  The demand curve for broccoli has shifted rightward and the cross elasticity of demand between spinach and broccoli is positive. 
C)  The demand curve for spinach has shifted to the leftward and the cross elasticity of demand between spinach and broccoli is positive. 
D)  The demand curves for spinach and broccoli have become more cross inelastic. 
A)  The cross elasticity of demand between spinach and broccoli is negative 1.25. 
B)  The demand curve for broccoli has shifted rightward and the cross elasticity of demand between spinach and broccoli is positive. 
C)  The demand curve for spinach has shifted to the leftward and the cross elasticity of demand between spinach and broccoli is positive. 
D)  The demand curves for spinach and broccoli have become more cross inelastic.

Question 19

Total revenue for skis is at a maximum when the price elasticity of demand is

Accepted Answer

A)  between 0 and 1. 
B)  1. 
C)  greater than 1. 
D)  0. 
A)  between 0 and 1. 
B)  1. 
C)  greater than 1. 
D)  0.

Question 20

-The increase in the demand for widgets, shown in the figure above, is the result of a decrease in the price of McBoover devices from $11 to $9. Therefore, the cross-price elasticity for these two products is

Accepted Answer

A)  -2.0. 
B)  -0.5. 
C)  0.5. 
D)  2.0. 
A)  -2.0. 
B)  -0.5. 
C)  0.5. 
D)  2.0.

Exam 4: Elasticity

The price of a good rises by 12 percent and the price elasticity of demand for the good is 0.85. Which of the following is a correct interpretation of these facts?

If the elasticity of supply is 4, a 10 percent increase in the price of a good leads to a

The closer the substitutes for a good, the

Goods and services that can be produced by using commonly available resources that could be allocated to a wide variety of alternative tasks have a supply that is

If a consumer is relatively insensitive to changes in the price of a good, then the consumer's demand for the good is

-In the above figure, at point b on the demand curve, a price cut of one dollar will

If the cross elasticity of demand is -5 between french fries and orange drink, then french fries

Of the following items, which has the most inelastic demand?

If the elasticity of demand for peaches is 1.76 and the elasticity of demand for apples is 1.59, then consumers are

-In the above figure, at which point on the demand curve is the price elasticity of demand equal to 1?

If the quantity demanded of hamburgers increases by 20 percent when the price decreases by 5 percent, then the price elasticity of demand is

A necessity (such as food and shelter) generally has an inelastic demand.

The income elasticity of demand is

Suppose that the cross elasticity of demand for Dell computers with respect to Hewlett Packard computers is 2.1. If Hewlett-Packard lowers its price by 5 percent, other things being equal, what will be the percentage change in the quantity of Dell computers demanded?

If tea and coffee are substitutes, the cross elasticity of coffee with respect to the price of tea will be ________ and an increase in the price of tea will ________ the demand for coffee.

The price of a bus ride decreases, and the total revenue of the bus company decreases. The demand for bus rides is ________.

If there is an increase in the price of broccoli because of disastrous weather that destroys about half of this year's spinach crop, which of the following could be true?

Total revenue for skis is at a maximum when the price elasticity of demand is

-The increase in the demand for widgets, shown in the figure above, is the result of a decrease in the price of McBoover devices from $11 to $9. Therefore, the cross-price elasticity for these two products is

What Is Economics

The Economic Problem

Demand and Supply

Efficiency and Equity

Government Actions in Markets

Global Markets in Action

Utility and Demand

Possibilities, Preferences, and Choices

Organizing Production

Output and Costs

Perfect Competition

Monopoly

Monopolistic Competition

Oligopoly

Public Choices and Public Goods

Externalities and the Environment

Markets for Factors of Production

Economic Inequality

Uncertainty and Information

Extension A: Review

Extension B: Review

Extension C: Review

Extension D: Review

Extension E: Review

Extension F: Review

Filters

If tea and coffee are substitutes, the cross elasticity of coffee with respect to the price of tea will be and an increase in the price of tea will the demand for coffee.