Question 1

If an increase in income leads to an increase in the demand for a good, then the good is said to be:

Accepted Answer

A)  normal. 
B)  a luxury. 
C)  inferior. 
D)  a staple or necessity. 
A)  normal. 
B)  a luxury. 
C)  inferior. 
D)  a staple or necessity.

Question 2

The price elasticity of demand is measured by:

Accepted Answer

A)  dividing the percentage change in price by the percentage change in quantity demanded. 
B)  dividing the percentage change in quantity demanded by the percentage change in price. 
C)  subtracting the percentage change in price from the percentage in quantity demanded. 
D)  adding the percentage change in price to the percentage change in quantity demanded. 
A)  dividing the percentage change in price by the percentage change in quantity demanded. 
B)  dividing the percentage change in quantity demanded by the percentage change in price. 
C)  subtracting the percentage change in price from the percentage in quantity demanded. 
D)  adding the percentage change in price to the percentage change in quantity demanded.

Question 3

For a normal 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 4

The price elasticity of a good will tend to be greater:

Accepted Answer

A)  the longer the relevant time period. 
B)  the fewer number of substitute goods available. 
C)  if it is a staple or necessity with few substitutes. 
D)  All of the above are true. 
A)  the longer the relevant time period. 
B)  the fewer number of substitute goods available. 
C)  if it is a staple or necessity with few substitutes. 
D)  All of the above are true.

Question 5

If price increases, quantity demanded decreases and, therefore, total revenue must fall.

Accepted Answer

A) True 
 B)False

Question 6

The income elasticity of demand for peaches has been estimated to be 1.43. If income grows by 15 percent in a period, how will that affect demand for peaches in that period, all other things unchanged?

Accepted Answer

A)  demand will increase by less than 15 percent 
B)  demand will increase by 21.5 percent 
C)  demand will decrease by 21.5 percent 
D)  demand will decrease by 15 percent 
A)  demand will increase by less than 15 percent 
B)  demand will increase by 21.5 percent 
C)  demand will decrease by 21.5 percent 
D)  demand will decrease by 15 percent

Question 7

If the price of chocolate-covered peanuts increases and the demand for strawberry-flavored soft drinks decreases, this indicates that these two goods are:

Accepted Answer

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

Question 8

If a demand curve has a constant slope, price elasticity will also be constant.

Accepted Answer

A) True 
 B)False

Question 9

If the demand for a good is price elastic in comparison to one that is price inelastic, then :

Accepted Answer

A)  a higher per-unit sales tax will generate more tax revenue. 
B)  a higher per-unit sales tax will generate less tax revenue. 
C)  changes in total per-unit sales tax revenue brought about by a price change go in the same direction as the price change. 
D)  none of the above is true. 
A)  a higher per-unit sales tax will generate more tax revenue. 
B)  a higher per-unit sales tax will generate less tax revenue. 
C)  changes in total per-unit sales tax revenue brought about by a price change go in the same direction as the price change. 
D)  none of the above is true.

Question 10

If a 5 percent reduction in the price of a commodity results in a 3 percent increase in the quantity demanded, demand is said to be:

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

If changes in price and total revenue move in the same direction, demand is price elastic in that portion of the demand curve.

Accepted Answer

A) True 
 B)False

Question 12

If the percentage change in quantity is less than the percentage change in price, demand is said to be price inelastic.

Accepted Answer

A) True 
 B)False

Question 13

Demand is price inelastic if:

Accepted Answer

A)  the price of the good responds slightly to a quantity change. 
B)  the demand curve shifts very little when a demand shifter changes. 
C)  the percentage change in quantity demanded is relatively small in response to a relatively large percentage change in price. 
D)  all of the above are true. 
A)  the price of the good responds slightly to a quantity change. 
B)  the demand curve shifts very little when a demand shifter changes. 
C)  the percentage change in quantity demanded is relatively small in response to a relatively large percentage change in price. 
D)  all of the above are true.

Question 14

-(Exhibit: Estimating Price Elasticity) Between the two prices, P1 and P2, which demand curve has the highest price elasticity (absolute value)?

Accepted Answer

A)  D1  
B)  D2  
C)  D3  
D)  D4  
A)  D1  
B)  D2  
C)  D3  
D)  D4

Question 15

The price elasticity of demand can be found by:

Accepted Answer

A)  examining only the slope of the demand curve. 
B)  measuring absolute changes in price and quantity demanded. 
C)  examining the relative percentage change in quantity demanded to the relative percentage change in price. 
D)  knowing that when price changes, the quantity demanded goes in the opposite direction. 
A)  examining only the slope of the demand curve. 
B)  measuring absolute changes in price and quantity demanded. 
C)  examining the relative percentage change in quantity demanded to the relative percentage change in price. 
D)  knowing that when price changes, the quantity demanded goes in the opposite direction.

Question 16

The demand for agricultural output is price inelastic. This means that if farmers, taken collectively, have a bumper crop, they will experience:

Accepted Answer

A)  lower prices, greater quantities sold, and lower incomes. 
B)  higher prices, greater quantities sold, and higher incomes. 
C)  lower prices, quantities sold, and incomes. 
D)  higher prices, quantities sold, and incomes. 
A)  lower prices, greater quantities sold, and lower incomes. 
B)  higher prices, greater quantities sold, and higher incomes. 
C)  lower prices, quantities sold, and incomes. 
D)  higher prices, quantities sold, and incomes.

Question 17

The income elasticity of demand for ground beef has been estimated to be -0.197. If income drops by 10 percent in a period, how will that affect demand for ground beef in that period, all other things unchanged?

Accepted Answer

A)  demand will increase by less than 1.97 percent 
B)  demand will increase by 1.97 percent 
C)  demand will decrease 
D)  demand won't change, but quantity demanded will decrease by 1.97 percent 
A)  demand will increase by less than 1.97 percent 
B)  demand will increase by 1.97 percent 
C)  demand will decrease 
D)  demand won't change, but quantity demanded will decrease by 1.97 percent

Question 18

Suppose that the cross price elasticity of demand for Mountain Dew with respect to the price of Coke is 0.7. A 10 percent increase in the price of Coke would:

Accepted Answer

A)  reduce the demand for Mountain Dew by 10 percent. 
B)  reduce the demand for Mountain Dew by 7 percent. 
C)  increase the demand for Mountain Dew by 7 percent. 
D)  increase the demand for Mountain Dew by 10 percent. 
A)  reduce the demand for Mountain Dew by 10 percent. 
B)  reduce the demand for Mountain Dew by 7 percent. 
C)  increase the demand for Mountain Dew by 7 percent. 
D)  increase the demand for Mountain Dew by 10 percent.

Question 19

-(Exhibit: Demand and Price Elasticity 1) What is the price elasticity of demand between $2.50 and $2.25?

Accepted Answer

A)  -9 
B)  -19 
C)  indeterminate 
D)  none of the above 
A)  -9 
B)  -19 
C)  indeterminate 
D)  none of the above

Question 20

If demand is price elastic, it is certain that:

Accepted Answer

A)  any change in price will decrease total revenue. 
B)  a decrease in price will lower total revenue. 
C)  an increase in price will lower total revenue. 
D)  total revenue is at a maximum. 
A)  any change in price will decrease total revenue. 
B)  a decrease in price will lower total revenue. 
C)  an increase in price will lower total revenue. 
D)  total revenue is at a maximum.

Exam 5: Elasticity

If an increase in income leads to an increase in the demand for a good, then the good is said to be:

The price elasticity of demand is measured by:

For a normal good, income elasticity of demand will be:

The price elasticity of a good will tend to be greater:

If price increases, quantity demanded decreases and, therefore, total revenue must fall.

The income elasticity of demand for peaches has been estimated to be 1.43. If income grows by 15 percent in a period, how will that affect demand for peaches in that period, all other things unchanged?

If the price of chocolate-covered peanuts increases and the demand for strawberry-flavored soft drinks decreases, this indicates that these two goods are:

If a demand curve has a constant slope, price elasticity will also be constant.

If the demand for a good is price elastic in comparison to one that is price inelastic, then :

If a 5 percent reduction in the price of a commodity results in a 3 percent increase in the quantity demanded, demand is said to be:

If changes in price and total revenue move in the same direction, demand is price elastic in that portion of the demand curve.

If the percentage change in quantity is less than the percentage change in price, demand is said to be price inelastic.

Demand is price inelastic if:

-(Exhibit: Estimating Price Elasticity) Between the two prices, P1 and P2, which demand curve has the highest price elasticity (absolute value)?

The price elasticity of demand can be found by:

The demand for agricultural output is price inelastic. This means that if farmers, taken collectively, have a bumper crop, they will experience:

The income elasticity of demand for ground beef has been estimated to be -0.197. If income drops by 10 percent in a period, how will that affect demand for ground beef in that period, all other things unchanged?

Suppose that the cross price elasticity of demand for Mountain Dew with respect to the price of Coke is 0.7. A 10 percent increase in the price of Coke would:

-(Exhibit: Demand and Price Elasticity 1) What is the price elasticity of demand between $2.50 and $2.25?

If demand is price elastic, it is certain that:

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

-(Exhibit: Estimating Price Elasticity) Between the two prices, P₁ and P₂, which demand curve has the highest price elasticity (absolute value)?