Question 1

Discuss and explain normal and inferior goods using the concept of income elasticity of demand.

Accepted Answer

Normal goods and inferior goods are two

Question 2

For an inferior good, income elasticity of demand will be:

Accepted Answer

A)  negative. 
B)  positive. 
C)  zero. 
D)  determined by the direction of the change in income. 
A)  negative. 
B)  positive. 
C)  zero. 
D)  determined by the direction of the change in income.

Question 3

-(Exhibit: Demand for Shirts) The price elasticity of demand for the segment BC is:

Accepted Answer

A)  greater than 3.33 (absolute value). 
B)  -3.33. 
C)  -3. 
D)  -0.33. 
A)  greater than 3.33 (absolute value). 
B)  -3.33. 
C)  -3. 
D)  -0.33.

Question 4

A shirt manufacturer sold 10 dozen shirts per day when the price was $4 per shirt but sold 15 dozen shirts per day when the price was $3 per shirt. Hence, the absolute value of the price elasticity of demand is:

Accepted Answer

A)  greater than zero but less than 1. 
B)  equal to 1. 
C)  greater than 1 but less than 3. 
D)  greater than 3. 
A)  greater than zero but less than 1. 
B)  equal to 1. 
C)  greater than 1 but less than 3. 
D)  greater than 3.

Question 5

The cross price elasticity of demand for fuel with respect to the price of transport (e.g., automobile travel including insurance, etc.) has been estimated to be -0.48. If the price of transport increases by 5 percent in a period, how will that affect the demand for fuel in that period, all other things unchanged?

Accepted Answer

A)  The demand for fuel will increase by 2.4 percent. 
B)  The demand for fuel will increase by 5 percent. 
C)  The demand for fuel will not change because many people prefer to ride the subway. 
D)  The demand for fuel will fall. 
A)  The demand for fuel will increase by 2.4 percent. 
B)  The demand for fuel will increase by 5 percent. 
C)  The demand for fuel will not change because many people prefer to ride the subway. 
D)  The demand for fuel will fall.

Question 6

-(Exhibit: Demand for Macintosh Computers) The change in the firm's total revenue resulting from a change in price from T to P suggests that demand is:

Accepted Answer

A)  nonelastic. 
B)  price elastic. 
C)  price inelastic. 
D)  unit price elastic. 
A)  nonelastic. 
B)  price elastic. 
C)  price inelastic. 
D)  unit price elastic.

Question 7

A linear demand curve:

Accepted Answer

A)  has a constant price elasticity of demand. 
B)  has price elasticity of demand equal to one. 
C)  has price elasticity of demand that is positive. 
D)  can have both elastic and inelastic price elasticity of demand. 
A)  has a constant price elasticity of demand. 
B)  has price elasticity of demand equal to one. 
C)  has price elasticity of demand that is positive. 
D)  can have both elastic and inelastic price elasticity of demand.

Question 8

-(Exhibit: Demand and Price Elasticity 1) What is the price elasticity of demand between $1.50 and $1.25?

Accepted Answer

A)  -1.00 
B)  -1.22 
C)  -1.50 
D)  -1.75 
A)  -1.00 
B)  -1.22 
C)  -1.50 
D)  -1.75

Question 9

When price goes down, the quantity demanded goes up. Price elasticity measures:

Accepted Answer

A)  how much the price goes down. 
B)  how much the quantity goes up. 
C)  how responsive the price change is in relation to the quantity change. 
D)  how responsive the quantity change is in relation to the price change. 
A)  how much the price goes down. 
B)  how much the quantity goes up. 
C)  how responsive the price change is in relation to the quantity change. 
D)  how responsive the quantity change is in relation to the price change.

Question 10

-(Exhibit: Demand and Price Elasticity 2) The price elasticity of demand between points B and C is:

Accepted Answer

A)  -1.0. 
B)  -1.67. 
C)  -3.0. 
D)  none of the above. 
A)  -1.0. 
B)  -1.67. 
C)  -3.0. 
D)  none of the above.

Question 11

Suppose that the cross price elasticity of demand for Mountain Dew with respect to the price of Coke is 0.7. This implies that the two goods are:

Accepted Answer

A)  substitutes. 
B)  complements. 
C)  inferior. 
D)  normal. 
A)  substitutes. 
B)  complements. 
C)  inferior. 
D)  normal.

Question 12

If the total revenue received by a firm decreases when it raises its price, this indicates that the demand for the firm's product is:

Accepted Answer

A)  unstable. 
B)  price inelastic. 
C)  price elastic. 
D)  unit price elastic. 
A)  unstable. 
B)  price inelastic. 
C)  price elastic. 
D)  unit price elastic.

Question 13

-(Exhibit: Demand and Price Elasticity 2) The price elasticity of demand between points A and B is:

Accepted Answer

A)  elastic, since total revenue falls when price falls from $8 to $6. 
B)  elastic, since total revenue increases when price falls from $8 to $6. 
C)  inelastic, since the percentage change in quantity is less than the percentage change in price when price falls from $8 to $6. 
D)  positive, because the slope is negative. 
A)  elastic, since total revenue falls when price falls from $8 to $6. 
B)  elastic, since total revenue increases when price falls from $8 to $6. 
C)  inelastic, since the percentage change in quantity is less than the percentage change in price when price falls from $8 to $6. 
D)  positive, because the slope is negative.

Question 14

If a good is a luxury item that looms large in the household budget, then the price elasticity of demand will tend to be:

Accepted Answer

A)  more price elastic. 
B)  less price elastic. 
C)  equal to -1. 
D)  the same as that of a good that is a necessity. 
A)  more price elastic. 
B)  less price elastic. 
C)  equal to -1. 
D)  the same as that of a good that is a necessity.

Question 15

The price elasticity of demand for gasoline in the short run has been estimated to be -0.1. If a war in the Middle East causes the price of oil (from which gasoline is made) to increase, how will that affect total expenditures on gasoline in the short run, all other things unchanged?

Accepted Answer

A)  demand will stay the same, but total expenditures will fall 
B)  demand will decrease, but total expenditures will rise 
C)  total expenditures will remain unchanged 
D)  demand will not change, but total expenditures will rise 
A)  demand will stay the same, but total expenditures will fall 
B)  demand will decrease, but total expenditures will rise 
C)  total expenditures will remain unchanged 
D)  demand will not change, but total expenditures will rise

Question 16

Define, identify and explain the differences among price elasticity of demand, price elasticity of supply, income elasticity of demand, and cross price elasticity of demand.

Accepted Answer

Price elasticity of demand measures the

Question 17

The Demand for Bungalow Bob's Bagels
  
-(Exhibit: The Demand for Bungalow Bob's Bagels) Total revenue decreases if the price ________ from ________.

Accepted Answer

A)  decreases; $0.40 to $0.30 
B)  decreases; $0.60 to $0.50 
C)  increases; $0.30 to $0.40 
D)  increases; $0.50 to $0.60 
A)  decreases; $0.40 to $0.30 
B)  decreases; $0.60 to $0.50 
C)  increases; $0.30 to $0.40 
D)  increases; $0.50 to $0.60

Question 18

-(Exhibit: Demand for Shirts) The price elasticity of demand for the segment EF is:

Accepted Answer

A)  -1.3. 
B)  -1. 
C)  -0.7. 
D)  -0.33. 
A)  -1.3. 
B)  -1. 
C)  -0.7. 
D)  -0.33.

Question 19

If the price of emergency visits to the doctor were to rise, we would expect:

Accepted Answer

A)  a significant decline in the number of emergency visits to the doctor. 
B)  only a slight decline is the number of emergency visits to the doctor. 
C)  the number of emergency visits to the doctor to stay the same. 
D)  the total income of doctors to fall dramatically. 
A)  a significant decline in the number of emergency visits to the doctor. 
B)  only a slight decline is the number of emergency visits to the doctor. 
C)  the number of emergency visits to the doctor to stay the same. 
D)  the total income of doctors to fall dramatically.

Question 20

If income decreases and the consumption of a certain good increases, that good is considered a(n):

Accepted Answer

A)  substitute good. 
B)  complementary good. 
C)  normal good. 
D)  inferior good. 
A)  substitute good. 
B)  complementary good. 
C)  normal good. 
D)  inferior good.

Exam 5: Elasticity

Discuss and explain normal and inferior goods using the concept of income elasticity of demand.

For an inferior good, income elasticity of demand will be:

-(Exhibit: Demand for Shirts) The price elasticity of demand for the segment BC is:

A shirt manufacturer sold 10 dozen shirts per day when the price was $4 per shirt but sold 15 dozen shirts per day when the price was $3 per shirt. Hence, the absolute value of the price elasticity of demand is:

-(Exhibit: Demand for Macintosh Computers) The change in the firm's total revenue resulting from a change in price from T to P suggests that demand is:

A linear demand curve:

-(Exhibit: Demand and Price Elasticity 1) What is the price elasticity of demand between $1.50 and $1.25?

When price goes down, the quantity demanded goes up. Price elasticity measures:

-(Exhibit: Demand and Price Elasticity 2) The price elasticity of demand between points B and C is:

Suppose that the cross price elasticity of demand for Mountain Dew with respect to the price of Coke is 0.7. This implies that the two goods are:

If the total revenue received by a firm decreases when it raises its price, this indicates that the demand for the firm's product is:

-(Exhibit: Demand and Price Elasticity 2) The price elasticity of demand between points A and B is:

If a good is a luxury item that looms large in the household budget, then the price elasticity of demand will tend to be:

The price elasticity of demand for gasoline in the short run has been estimated to be -0.1. If a war in the Middle East causes the price of oil (from which gasoline is made) to increase, how will that affect total expenditures on gasoline in the short run, all other things unchanged?

Define, identify and explain the differences among price elasticity of demand, price elasticity of supply, income elasticity of demand, and cross price elasticity of demand.

The Demand for Bungalow Bob's Bagels -(Exhibit: The Demand for Bungalow Bob's Bagels) Total revenue decreases if the price ________ from ________.

-(Exhibit: Demand for Shirts) The price elasticity of demand for the segment EF is:

If the price of emergency visits to the doctor were to rise, we would expect:

If income decreases and the consumption of a certain good increases, that good is considered a(n):

Welcome to Economics

Demand and Supply

Labor and Financial Markets

Consumer Choices

Cost and Industry Structure

Perfect Competition

Monopolistic Competition and Oligopoly

Monopoly and Antitrust Policy

Environmental Protection and Negative Externalities

Positive Externalities and Public Goods

Poverty and Economic Inequality

Issues in Labor Markets: Unions, Discrimination, Immigration

Information, Risk, and Insurance

Financial Markets

Public Economy

The Macroeconomic Perspective

Economic Growth

Unemployment

Inflation

The International Trade and Capital Flows

The Aggregate Demandaggregate Supply Model

The Keynesian Perspective

The Neoclassical Perspective

Money and Banking

Monetary Policy and Bank Regulation

Exchange Rates and International Capital Flows

Government Budgets and Fiscal Policy

The Impacts of Government Borrowing

Macroeconomic Policy Around the World

International Trade

Globalization and Protectionism

Filters

The Demand for Bungalow Bob's Bagels -(Exhibit: The Demand for Bungalow Bob's Bagels) Total revenue decreases if the price from .