Question 1

The size of the price elasticity of demand is important to determine how much market price will change in response to a shift in the supply.

Accepted Answer

A) True 
 B)False

Question 2

Explain why economists care about the price elasticity of demand. What does it tell us?

Accepted Answer

The price elasticity of demand tells us

Question 3

If 12 candy bars are demanded at $.30 each and 4 candy bars are demanded at $.50 each, what is the price elasticity of demand using the midpoint formula?

Accepted Answer

A) 2 
B) 0.5 
C) 7.5 
D) 0.4 
E) 1.67 
A) 2 
B) 0.5 
C) 7.5 
D) 0.4 
E) 1.67

Question 4

When supply shifts, supply elasticity affects the changes in equilibrium price and quantity.

Accepted Answer

A) True 
 B)False

Question 5

If the price elasticity of demand for computers is greater than 1, then an increase in computer prices will

Accepted Answer

A) lower total revenue. 
B) raise total revenue. 
C) not change total revenue. 
D) either raise or lower total revenue, depending on the starting price. 
E) lead to a higher percentage change in total revenue than the percentage change in price. 
A) lower total revenue. 
B) raise total revenue. 
C) not change total revenue. 
D) either raise or lower total revenue, depending on the starting price. 
E) lead to a higher percentage change in total revenue than the percentage change in price.

Question 6

If a consumer is spending a large portion of his or her income on a good, then the demand for the good is inelastic.

Accepted Answer

A) True 
 B)False

Question 7

The price elasticity of demand is expressed in dollar changes in price and quantity demanded.

Accepted Answer

A) True 
 B)False

Question 8

The price elasticity of demand is the same as the slope of the demand curve.

Accepted Answer

A) True 
 B)False

Question 9

The price elasticity of supply is the percentage change in quantity supplied divided by the percentage change in price.

Accepted Answer

A) True 
 B)False

Question 10

If price gouging is prohibited by the government so that sellers cannot suddenly raise prices, then a sudden drop in gasoline supply due to bad weather will most likely result in

Accepted Answer

A) an equilibrium in the gasoline market. 
B) a surplus in the gasoline market. 
C) a shortage in the gasoline market. 
D) a sudden increase in the quantity demanded of gaslone. 
E) a sudden decrease in gasoline prices. 
A) an equilibrium in the gasoline market. 
B) a surplus in the gasoline market. 
C) a shortage in the gasoline market. 
D) a sudden increase in the quantity demanded of gaslone. 
E) a sudden decrease in gasoline prices.

Question 11

Suppose the government decides to impose a binding price ceiling on milk below the equilibrium price.

Accepted Answer

The answer of Suppose the government decides to impose a...

Question 12

Price elasticity of supply is 1 minus the price elasticity of demand.

Accepted Answer

A) True 
 B)False

Question 13

The concept that explains to what degree price changes when there is a shift in demand, other things being equal, is

Accepted Answer

A) income elasticity of demand. 
B) price elasticity of demand. 
C) price elasticity of supply. 
D) cost elasticity of supply. 
E) cross-price elasticity of demand. 
A) income elasticity of demand. 
B) price elasticity of demand. 
C) price elasticity of supply. 
D) cost elasticity of supply. 
E) cross-price elasticity of demand.

Question 14

If supply is perfectly inelastic, then the price elasticity of supply is infinity.

Accepted Answer

A) True 
 B)False

Question 15

The elasticity of demand is lower for European vehicles than for U.S. vehicles. Why do auto dealers offer substantially fewer discounts for European vehicles than for U.S. vehicles?

Accepted Answer

When the elasticity of demand is higher,

Question 16

For one to accurately say that the demand for good X is more elastic than the demand for good Y, the price elasticity of demand for good X must be greater than the price elasticity of demand for good Y.

Accepted Answer

A) True 
 B)False

Question 17

Income elasticity of demand is the percentage change in

Accepted Answer

A) demand divided by the percentage change in the price of the product. 
B) demand divided by the percentage change in the price of different products. 
C) quantity demanded divided by the absolute price of the product. 
D) quantity demanded of a product divided by the percentage change in income. 
E) income divided by the percentage change in quantity demanded. 
A) demand divided by the percentage change in the price of the product. 
B) demand divided by the percentage change in the price of different products. 
C) quantity demanded divided by the absolute price of the product. 
D) quantity demanded of a product divided by the percentage change in income. 
E) income divided by the percentage change in quantity demanded.

Question 18

If a 2 percent increase in price results in a 1 percent increase in the quantity supplied, the price elasticity of supply is 2.

Accepted Answer

A) True 
 B)False

Question 19

If a firm lowers the price of a product when demand is elastic, then the firm should expect total revenue to

Accepted Answer

A) fall. 
B) rise. 
C) remain the same. 
D) become zero. 
E) rise and then fall. 
A) fall. 
B) rise. 
C) remain the same. 
D) become zero. 
E) rise and then fall.

Question 20

The price elasticity of demand is measured by the percentage change in quantity demanded divided by the percentage change in price.

Accepted Answer

A) True 
 B)False

Exam 4: Subtleties of the Supply and Demand Model

The size of the price elasticity of demand is important to determine how much market price will change in response to a shift in the supply.

Explain why economists care about the price elasticity of demand. What does it tell us?

If 12 candy bars are demanded at $.30 each and 4 candy bars are demanded at $.50 each, what is the price elasticity of demand using the midpoint formula?

When supply shifts, supply elasticity affects the changes in equilibrium price and quantity.

If the price elasticity of demand for computers is greater than 1, then an increase in computer prices will

If a consumer is spending a large portion of his or her income on a good, then the demand for the good is inelastic.

The price elasticity of demand is expressed in dollar changes in price and quantity demanded.

The price elasticity of demand is the same as the slope of the demand curve.

The price elasticity of supply is the percentage change in quantity supplied divided by the percentage change in price.

If price gouging is prohibited by the government so that sellers cannot suddenly raise prices, then a sudden drop in gasoline supply due to bad weather will most likely result in

Suppose the government decides to impose a binding price ceiling on milk below the equilibrium price.

Price elasticity of supply is 1 minus the price elasticity of demand.

The concept that explains to what degree price changes when there is a shift in demand, other things being equal, is

If supply is perfectly inelastic, then the price elasticity of supply is infinity.

The elasticity of demand is lower for European vehicles than for U.S. vehicles. Why do auto dealers offer substantially fewer discounts for European vehicles than for U.S. vehicles?

For one to accurately say that the demand for good X is more elastic than the demand for good Y, the price elasticity of demand for good X must be greater than the price elasticity of demand for good Y.

Income elasticity of demand is the percentage change in

If a 2 percent increase in price results in a 1 percent increase in the quantity supplied, the price elasticity of supply is 2.

If a firm lowers the price of a product when demand is elastic, then the firm should expect total revenue to

The price elasticity of demand is measured by the percentage change in quantity demanded divided by the percentage change in price.

The Central Idea

Observing and Explaining the Economy

The Supply and Demand Model

The Demand Curve and the Behavior of Consumers

The Supply Curve and the Behavior of Firms

The Efficiency of Markets

Costs and the Changes at Firms Over Time

The Rise and Fall of Industries

Monopoly

Product Differentiation, Monopolistic Competition, and Oligopoly

Antitrust Policy and Regulation

Labor Markets

Taxes, Transfers, and Income Distribution

Public Goods, Externalities, and Government Behavior

Capital and Financial Markets

Macroeconomics: the Big Picture

Measuring the Production, Income, and Spending of Nations

The Spending Allocation Model

Unemployment and Employment

Productivity and Economic Growth

Money and Inflation

The Nature and Causes of Economic Fluctuations

The Economic Fluctuations Model

Using the Economic Fluctuations Model

Fiscal Policy

Monetary Policy

Economic Growth Around the World

International Trade

International Finance

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