Question 1

-(Exhibit: Demand and Price Elasticity 2) Price elasticity of demand for small changes in price in the neighborhood of point C:

Accepted Answer

A)  is 4. 
B)  is -4. 
C)  is -1. 
D)  cannot be determined. 
A)  is 4. 
B)  is -4. 
C)  is -1. 
D)  cannot be determined.

Question 2

Suppose the demand curve has a slope equal to negative 1. The price elasticity of demand at any point on this demand curve is:

Accepted Answer

A)  infinite. 
B)  equal to zero. 
C)  greater than 1, but less than infinite. 
D)  not described by any of the above. 
A)  infinite. 
B)  equal to zero. 
C)  greater than 1, but less than infinite. 
D)  not described by any of the above.

Question 3

If your purchases of shoes increase from 9 pairs per year to 11 pairs per year when the price of shirts increases from $8 to $12, then, for you, shoes and shirts are considered:

Accepted Answer

A)  inferior goods. 
B)  superior goods. 
C)  substitute goods. 
D)  complementary goods. 
A)  inferior goods. 
B)  superior goods. 
C)  substitute goods. 
D)  complementary goods.

Question 4

The cross price elasticity of demand for Coke with respect to the price of Pepsi has been estimated to be 0.61. If the price of Pepsi falls by 10 percent in a period, how will that affect the demand for Coke in that period, all other things unchanged?

Accepted Answer

A)  The demand for Coke will increase but by less than 6.1 percent. 
B)  The demand for Coke will increase by 6.1 percent. 
C)  The demand for Coke will not change because many people prefer Coke over Pepsi. 
D)  The demand for Coke will fall. 
A)  The demand for Coke will increase but by less than 6.1 percent. 
B)  The demand for Coke will increase by 6.1 percent. 
C)  The demand for Coke will not change because many people prefer Coke over Pepsi. 
D)  The demand for Coke will fall.

Question 5

To say that two goods are substitutes, their cross price elasticities of demand should be:

Accepted Answer

A)  less than zero. 
B)  negative, yet almost equal to zero. 
C)  equal to zero. 
D)  greater than zero. 
A)  less than zero. 
B)  negative, yet almost equal to zero. 
C)  equal to zero. 
D)  greater than zero.

Question 6

In examining the concept of price elasticity of demand, it is seen that if:

Accepted Answer

A)  price and quantity change in the opposite direction, then demand is price elastic. 
B)  price and total revenue change in the opposite direction, then demand is price inelastic. 
C)  price and total revenue change in the opposite direction, then demand is price elastic. 
D)  price and total revenue change in the same direction, then demand is price elastic. 
A)  price and quantity change in the opposite direction, then demand is price elastic. 
B)  price and total revenue change in the opposite direction, then demand is price inelastic. 
C)  price and total revenue change in the opposite direction, then demand is price elastic. 
D)  price and total revenue change in the same direction, then demand is price elastic.

Question 7

Elasticity is:

Accepted Answer

A)  the change in a dependent variable divided by the change in an independent variable. 
B)  the ratio of the percentage change in a dependent variable to the percentage change in an independent variable. 
C)  the price of a good divided by its quantity. 
D)  the quantity of a good divided by its price. 
A)  the change in a dependent variable divided by the change in an independent variable. 
B)  the ratio of the percentage change in a dependent variable to the percentage change in an independent variable. 
C)  the price of a good divided by its quantity. 
D)  the quantity of a good divided by its price.

Question 8

Other things being equal, the price elasticity of demand for a product will be less:

Accepted Answer

A)  if there are many substitutes available. 
B)  if it is a large part of the consumer's budget. 
C)  in the long run as compared to the short run. 
D)  if there are few or no substitutes available. 
A)  if there are many substitutes available. 
B)  if it is a large part of the consumer's budget. 
C)  in the long run as compared to the short run. 
D)  if there are few or no substitutes available.

Question 9

The price elasticity of supply for a good is 3 if:

Accepted Answer

A)  a 1 percent increase in price leads to a 3 percent decrease in quantity supplied. 
B)  a 1 percent decrease in price leads to a 3 percent decrease in quantity supplied. 
C)  a 9 percent decrease in price leads to a 3 percent decrease in quantity supplied. 
D)  None of the above are true. 
A)  a 1 percent increase in price leads to a 3 percent decrease in quantity supplied. 
B)  a 1 percent decrease in price leads to a 3 percent decrease in quantity supplied. 
C)  a 9 percent decrease in price leads to a 3 percent decrease in quantity supplied. 
D)  None of the above are true.

Question 10

If the total revenue received by a firm increases 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 11

When the percentage change in quantity demanded is larger than the percentage change in price, demand is said to be:

Accepted Answer

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

Question 12

The demand for strawberry ice cream tends to be relatively price elastic because:

Accepted Answer

A)  for most people there are many close substitutes for strawberry ice cream. 
B)  there are few substitutes for it. 
C)  it has to be consumed very quickly. 
D)  it costs so little. 
A)  for most people there are many close substitutes for strawberry ice cream. 
B)  there are few substitutes for it. 
C)  it has to be consumed very quickly. 
D)  it costs so little.

Question 13

Using the method of arc elasticity to calculate price elasticity of demand eliminates the problem of:

Accepted Answer

A)  different elasticities, depending on whether price decreases or increases. 
B)  different elasticities, because price and quantity are inversely related on the demand curve. 
C)  total revenue falling when price falls and demand is inelastic. 
D)  total revenue increasing when price falls and demand is elastic. 
A)  different elasticities, depending on whether price decreases or increases. 
B)  different elasticities, because price and quantity are inversely related on the demand curve. 
C)  total revenue falling when price falls and demand is inelastic. 
D)  total revenue increasing when price falls and demand is elastic.

Question 14

According to the Case in Point on Stop Lights, Professors Bar-Ilan and Sacerdote found that the absolute value of the elasticity of citations with respect to fines was:

Accepted Answer

A)  greater than 1 indicated inelastic demand. 
B)  greater than 1 indicated elastic demand. 
C)  less than 1 indicated inelastic demand. 
D)  less than 1 indicated elastic demand. 
A)  greater than 1 indicated inelastic demand. 
B)  greater than 1 indicated elastic demand. 
C)  less than 1 indicated inelastic demand. 
D)  less than 1 indicated elastic demand.

Question 15

The concept of price elasticity of demand is most closely related to:

Accepted Answer

A)  the law of demand. 
B)  the equilibrium price. 
C)  the equilibrium quantity. 
D)  a shift in the demand curve. 
A)  the law of demand. 
B)  the equilibrium price. 
C)  the equilibrium quantity. 
D)  a shift in the demand curve.

Question 16

According to the Case in Point on Conventional and Organic Milk, the demand for organic milk is price _____ and the demand for conventional milk is price _____.:

Accepted Answer

A)  elastic; elastic 
B)  inelastic; elastic 
C)  elastic; inelastic 
D)  inelastic; inelastic 
A)  elastic; elastic 
B)  inelastic; elastic 
C)  elastic; inelastic 
D)  inelastic; inelastic

Question 17

If your purchases of shoes decrease from 11 pairs per year to 9 pairs per year when your income increases from $19,000 to $21,000 a year, then, for you, shoes are considered a(n):

Accepted Answer

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

Question 18

Discuss and explain what happens to total revenue when price rises and demand is price elastic, price inelastic, and unit price elastic. Do the same for a price decrease.

Accepted Answer

When the price rises and demand is price

Question 19

Johnson's Income and Expenditures
Quantity Purchased per Month
  
-(Exhibit: Johnson's Income and Expenditures) Johnson's income elasticity of demand for pizzas is:

Accepted Answer

A)  -1.4. 
B)  approximately -0.7. 
C)  0. 
D)  approximately 0.7. 
A)  -1.4. 
B)  approximately -0.7. 
C)  0. 
D)  approximately 0.7.

Question 20

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 falls by 10 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 4.8 percent. 
B)  The demand for fuel will increase by 10 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 4.8 percent. 
B)  The demand for fuel will increase by 10 percent. 
C)  The demand for fuel will not change because many people prefer to ride the subway. 
D)  The demand for fuel will fall.

Exam 5: Elasticity

-(Exhibit: Demand and Price Elasticity 2) Price elasticity of demand for small changes in price in the neighborhood of point C:

Suppose the demand curve has a slope equal to negative 1. The price elasticity of demand at any point on this demand curve is:

If your purchases of shoes increase from 9 pairs per year to 11 pairs per year when the price of shirts increases from $8 to $12, then, for you, shoes and shirts are considered:

The cross price elasticity of demand for Coke with respect to the price of Pepsi has been estimated to be 0.61. If the price of Pepsi falls by 10 percent in a period, how will that affect the demand for Coke in that period, all other things unchanged?

To say that two goods are substitutes, their cross price elasticities of demand should be:

In examining the concept of price elasticity of demand, it is seen that if:

Elasticity is:

Other things being equal, the price elasticity of demand for a product will be less:

The price elasticity of supply for a good is 3 if:

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

When the percentage change in quantity demanded is larger than the percentage change in price, demand is said to be:

The demand for strawberry ice cream tends to be relatively price elastic because:

Using the method of arc elasticity to calculate price elasticity of demand eliminates the problem of:

According to the Case in Point on Stop Lights, Professors Bar-Ilan and Sacerdote found that the absolute value of the elasticity of citations with respect to fines was:

The concept of price elasticity of demand is most closely related to:

According to the Case in Point on Conventional and Organic Milk, the demand for organic milk is price _____ and the demand for conventional milk is price _____.:

If your purchases of shoes decrease from 11 pairs per year to 9 pairs per year when your income increases from $19,000 to $21,000 a year, then, for you, shoes are considered a(n):

Discuss and explain what happens to total revenue when price rises and demand is price elastic, price inelastic, and unit price elastic. Do the same for a price decrease.

Johnson's Income and Expenditures Quantity Purchased per Month -(Exhibit: Johnson's Income and Expenditures) Johnson's income elasticity of demand for pizzas is:

Welcome to Economics

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According to the Case in Point on Conventional and Organic Milk, the demand for organic milk is price _ and the demand for conventional milk is price _.: