Question 1

The demand for which of the following is likely to be the most price inelastic?

Accepted Answer

A)  transportation 
B)  taxi rides 
C)  bus tickets 
D)  airline tickets 
A)  transportation 
B)  taxi rides 
C)  bus tickets 
D)  airline tickets A

Question 2

A decrease in supply will cause the largest increase in price when

Accepted Answer

A)  both supply and demand are inelastic. 
B)  both supply and demand are elastic. 
C)  demand is elastic and supply is inelastic. 
D)  demand is inelastic and supply is elastic. 
A)  both supply and demand are inelastic. 
B)  both supply and demand are elastic. 
C)  demand is elastic and supply is inelastic. 
D)  demand is inelastic and supply is elastic. A

Question 3

The price elasticity of demand measures the

Accepted Answer

A)  magnitude of the response in quantity demanded to a change in price. 
B)  direction of the shift in the demand curve in response to a market event. 
C)  size of the shortage created by the increase in demand. 
D)  responsiveness of quantity demanded to a change in income. 
A)  magnitude of the response in quantity demanded to a change in price. 
B)  direction of the shift in the demand curve in response to a market event. 
C)  size of the shortage created by the increase in demand. 
D)  responsiveness of quantity demanded to a change in income. A

Question 4

When studying how some event or policy affects a market, elasticity provides information on the

Accepted Answer

A)  government expenditures associated with the policy. 
B)  costs and benefits of the effect. 
C)  allocative efficiency of the effect. 
D)  direction and magnitude of the effect. 
A)  government expenditures associated with the policy. 
B)  costs and benefits of the effect. 
C)  allocative efficiency of the effect. 
D)  direction and magnitude of the effect.

Question 5

Suppose a producer is able to separate customers into two groups, one having an inelastic demand and the other having an elastic demand. If the producer's objective is to increase total revenue, she should

Accepted Answer

A)  increase the price charged to customers with the elastic demand and decrease the price charged to customers with the inelastic demand. 
B)  decrease the price charged to customers with the elastic demand and increase the price charged to customers with the inelastic demand. 
C)  decrease the price to both groups of customers. 
D)  increase the price for both groups of customers. 
A)  increase the price charged to customers with the elastic demand and decrease the price charged to customers with the inelastic demand. 
B)  decrease the price charged to customers with the elastic demand and increase the price charged to customers with the inelastic demand. 
C)  decrease the price to both groups of customers. 
D)  increase the price for both groups of customers.

Question 6

Why is supply more likely to be inelastic in the short run especially during strong periods of economic growth?

Accepted Answer

Most businesses, in the short run, will

Question 7

If price elasticity of demand for a good is 2.0, this implies that consumers would

Accepted Answer

A)  buy twice as much of the good if price falls by 10 per cent. 
B)  require a 2 per cent cut in price to raise quantity demanded of the good by 1 per cent. 
C)  buy 2 per cent more of the good in response to a 1 per cent cut in price. 
D)  require at least a €2 increase in price before showing any response to the price increase. 
A)  buy twice as much of the good if price falls by 10 per cent. 
B)  require a 2 per cent cut in price to raise quantity demanded of the good by 1 per cent. 
C)  buy 2 per cent more of the good in response to a 1 per cent cut in price. 
D)  require at least a €2 increase in price before showing any response to the price increase.

Question 8

If the price elasticity of demand within the price range from €1 to €1.25 per kilogram for carrots is 0.79 and for radishes is 1.6, then within that price range

Accepted Answer

A)  demand for carrots is more price elastic than that for radishes. 
B)  demand for radishes is more price elastic than that for carrots. 
C)  carrots and radishes must be substitute goods. 
D)  carrots and radishes must be complementary goods. 
A)  demand for carrots is more price elastic than that for radishes. 
B)  demand for radishes is more price elastic than that for carrots. 
C)  carrots and radishes must be substitute goods. 
D)  carrots and radishes must be complementary goods.

Question 9

A perfectly inelastic supply curve represents a

Accepted Answer

A)  product supply that is extremely responsive to a price change. 
B)  product with a constant price, regardless of the quantity offered for sale. 
C)  product in abundant supply. 
D)  fixed supply of a good. 
A)  product supply that is extremely responsive to a price change. 
B)  product with a constant price, regardless of the quantity offered for sale. 
C)  product in abundant supply. 
D)  fixed supply of a good.

Question 10

A government seeking to raise revenue would be most likely to tax a good with a

Accepted Answer

A)  high income elasticity of demand. 
B)  low cross-price demand elasticity. 
C)  high price elasticity of demand. 
D)  low price elasticity of demand. 
A)  high income elasticity of demand. 
B)  low cross-price demand elasticity. 
C)  high price elasticity of demand. 
D)  low price elasticity of demand.

Question 11

If a demand curve is linear, the price elasticity of demand is constant along it.

Accepted Answer

A) True 
 B)False

Question 12

The income elasticity of demand for luxury items, such as diamonds, tends to be large (greater than 1).

Accepted Answer

A) True 
 B)False

Question 13

Which of the following statements about the price elasticity of demand is correct?

Accepted Answer

A)  The price elasticity of demand for a good measures the willingness of buyers of the good to buy less of the good as its price increases. 
B)  Price elasticity of demand reflects the many economic, psychological, and social forces that shape consumer tastes. 
C)  Other things equal, if good x has close substitutes and good y does not have close substitutes, then the demand for good x will be more elastic than the demand for good y. 
D)  All of the above are correct. 
A)  The price elasticity of demand for a good measures the willingness of buyers of the good to buy less of the good as its price increases. 
B)  Price elasticity of demand reflects the many economic, psychological, and social forces that shape consumer tastes. 
C)  Other things equal, if good x has close substitutes and good y does not have close substitutes, then the demand for good x will be more elastic than the demand for good y. 
D)  All of the above are correct.

Question 14

An advance in technology that shifts the market supply curve to the right always increases total revenue received by producers.

Accepted Answer

A) True 
 B)False

Question 15

Suppose that quantity demand falls by 30% as a result of a 5% increase in price. The price elasticity of demand for this good is

Accepted Answer

A)  inelastic and equal to 6. 
B)  elastic and equal to 6. 
C)  inelastic and equal to 0.17. 
D)  elastic and equal to 0.17. 
A)  inelastic and equal to 6. 
B)  elastic and equal to 6. 
C)  inelastic and equal to 0.17. 
D)  elastic and equal to 0.17.

Question 16

If the cross-price elasticity of demand for two goods is negative, then the two goods are complements.

Accepted Answer

A) True 
 B)False

Question 17

In general, a steeper supply curve is more likely to be

Accepted Answer

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

Question 18

If supply is price inelastic, the value of the price elasticity of supply must be

Accepted Answer

A)  infinite. 
B)  zero. 
C)  less than 1. 
D)  unity 
E)  greater than 1. 
A)  infinite. 
B)  zero. 
C)  less than 1. 
D)  unity 
E)  greater than 1.

Question 19

If the cross-price elasticity between two goods is negative, the two goods are likely to be

Accepted Answer

A)  substitutes. 
B)  complements. 
C)  necessities. 
D)  luxuries. 
A)  substitutes. 
B)  complements. 
C)  necessities. 
D)  luxuries.

Question 20

The demand for Rice Krispies is less elastic than the demand for cereal in general.

Accepted Answer

A) True 
 B)False

Exam 4: Elasticity and Its Applications

The demand for which of the following is likely to be the most price inelastic?

A decrease in supply will cause the largest increase in price when

The price elasticity of demand measures the

When studying how some event or policy affects a market, elasticity provides information on the

Suppose a producer is able to separate customers into two groups, one having an inelastic demand and the other having an elastic demand. If the producer's objective is to increase total revenue, she should

Why is supply more likely to be inelastic in the short run especially during strong periods of economic growth?

If price elasticity of demand for a good is 2.0, this implies that consumers would

If the price elasticity of demand within the price range from €1 to €1.25 per kilogram for carrots is 0.79 and for radishes is 1.6, then within that price range

A perfectly inelastic supply curve represents a

A government seeking to raise revenue would be most likely to tax a good with a

If a demand curve is linear, the price elasticity of demand is constant along it.

The income elasticity of demand for luxury items, such as diamonds, tends to be large (greater than 1).

Which of the following statements about the price elasticity of demand is correct?

An advance in technology that shifts the market supply curve to the right always increases total revenue received by producers.

Suppose that quantity demand falls by 30% as a result of a 5% increase in price. The price elasticity of demand for this good is

If the cross-price elasticity of demand for two goods is negative, then the two goods are complements.

In general, a steeper supply curve is more likely to be

If supply is price inelastic, the value of the price elasticity of supply must be

If the cross-price elasticity between two goods is negative, the two goods are likely to be

The demand for Rice Krispies is less elastic than the demand for cereal in general.

What Is Economics

Thinking Like an Economist

The Market Forces of Supply and Demand

Background to Demand: Consumer Choices

Background to Supply: Firms in Competitive Markets

Consumers, Producers and the Efficiency of Markets

Supply, Demand and Government Policies

The Tax System

Public Goods, Common Resources and Merit Goods

Market Failure and Externalities

Information and Behavioural Economics

Firms Production Decisions

Market Structures I: Monopoly

Market Structures Ii: Monopolistic Competition

Market Structures Iii: Oligopoly

The Economics of Factor Markets

Income Inequality and Poverty

Interdependence and the Gains From Trade

Measuring a Nations Well-Being

Measuring the Cost of Living

Production and Growth

Unemployment

Saving, Investment and the Financial System

The Basic Tools of Finance

Issues in Financial Markets

The Monetary System

Money Growth and Inflation

Open-Economy Macroeconomics: Basic Concepts

A Macroeconomic Theory of the Open Economy

Business Cycles

Keynesian Economics and the Is-Lm Analysis

Aggregate Demand and Aggregate Supply

The Influence of Monetary and Fiscal Policy on Aggregate Demand

The Short-Run Trade-Off Between Inflation and Unemployment

Supply-Side Policies

Common Currency Areas and European Monetary Union

The Financial Crisis and Sovereign Debt

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