Question 1

If consumers always spend 15 percent of their income on food, then the income elasticity of demand for food is

Accepted Answer

A)  1.50. 
B)  1.15. 
C)  15 
D)  0.15. 
E)  1.00. 
A)  1.50. 
B)  1.15. 
C)  15 
D)  0.15. 
E)  1.00.

Question 2

If the price elasticity of supply equals zero, this implies that

Accepted Answer

A)  suppliers can easily change quantity supplied when price changes. 
B)  the supply curve is vertical. 
C)  the percentage change in price of the good supplied is zero. 
D)  the percentage change in quantity supplied equals the percentage change in price. 
A)  suppliers can easily change quantity supplied when price changes. 
B)  the supply curve is vertical. 
C)  the percentage change in price of the good supplied is zero. 
D)  the percentage change in quantity supplied equals the percentage change in price.

Question 3

Suppose that the price elasticity of supply of lawn mowers is 1.5. If the price of lawn mowers rises 5 per cent, the quantity supplied of lawn mowers would

Accepted Answer

A)  decline 7.5 per cent. 
B)  rise 7.5 per cent. 
C)  rise 1.5 per cent. 
D)  rise 0.3 per cent. 
A)  decline 7.5 per cent. 
B)  rise 7.5 per cent. 
C)  rise 1.5 per cent. 
D)  rise 0.3 per cent.

Question 4

If there is excess capacity in a production facility, it is likely that the firm's supply curve is

Accepted Answer

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

Question 5

In general, a flatter demand curve is more likely to be

Accepted Answer

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

Question 6

If Euro T-Shirt Co. lowers its price from €6 to €5 and finds that students increase their quantity demanded from 400 to 600 T-shirts per month, then the demand for EuroT-shirts within this price range is

Accepted Answer

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

Question 7

In general, demand curves for luxuries tend to be price elastic.

Accepted Answer

A) True 
 B)False

Question 8

If consumers think that there are very few substitutes for a good, then

Accepted Answer

A)  supply would tend to be price elastic. 
B)  none of these answers. 
C)  demand would tend to be price inelastic. 
D)  demand would tend to be price elastic. 
E)  supply would tend to be price inelastic. 
A)  supply would tend to be price elastic. 
B)  none of these answers. 
C)  demand would tend to be price inelastic. 
D)  demand would tend to be price elastic. 
E)  supply would tend to be price inelastic.

Question 9

The midpoint method is used to compute elasticity because it

Accepted Answer

A)  automatically computes a positive number instead of a negative number. 
B)  results in an elasticity that is the same as the slope of the demand curve. 
C)  gives the same answer regardless of the direction of change. 
D)  automatically rounds quantities to the nearest whole unit. 
A)  automatically computes a positive number instead of a negative number. 
B)  results in an elasticity that is the same as the slope of the demand curve. 
C)  gives the same answer regardless of the direction of change. 
D)  automatically rounds quantities to the nearest whole unit.

Question 10

The price elasticity of supply tends to be more inelastic as the firm's production facility reaches maximum capacity.

Accepted Answer

A) True 
 B)False

Question 11

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

Accepted Answer

A) True 
 B)False

Question 12

Suppose that when the price rises by 10% for a particular good, the quantity demanded of that good falls by 20%. The price elasticity of demand for this good is equal to 2.0.

Accepted Answer

A) True 
 B)False

Question 13

If demand is linear (a straight line), then price elasticity of demand is

Accepted Answer

A)  elastic in the upper portion and inelastic in the lower portion. 
B)  inelastic in the upper portion and elastic in the lower portion. 
C)  inelastic throughout. 
D)  constant along the demand curve. 
E)  elastic throughout. 
A)  elastic in the upper portion and inelastic in the lower portion. 
B)  inelastic in the upper portion and elastic in the lower portion. 
C)  inelastic throughout. 
D)  constant along the demand curve. 
E)  elastic throughout.

Question 14

Pharmaceutical drug have an inelastic demand, and computers have an elastic demand. Assume technological advances lead to the doubling of supply of both products.
​
a. What happens to the equilibrium price and quantity in each market?
b. Which product experiences a larger change in price?
c. Which product experiences a larger change in quantity?
d. What happens to total consumer spending on each product?
​

Accepted Answer

a. In both markets, the increase in supp

Question 15

Economists have observed that spending on restaurant meals declines more during economic downturns than does spending on food to be eaten at home. How might the concept of elasticities help explain this?

Accepted Answer

To explain the fact that spending on res

Question 16

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

Accepted Answer

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

Question 17

Technological improvements in agriculture that shift the supply of agricultural commodities to the right tend to

Accepted Answer

A)  increase total revenue to farmers as a whole because the demand for food is elastic. 
B)  increase total revenue to farmers as a whole because the demand for food is inelastic. 
C)  reduce total revenue to farmers as a whole because the demand for food is elastic. 
D)  reduce total revenue to farmers as a whole because the demand for food is inelastic. 
A)  increase total revenue to farmers as a whole because the demand for food is elastic. 
B)  increase total revenue to farmers as a whole because the demand for food is inelastic. 
C)  reduce total revenue to farmers as a whole because the demand for food is elastic. 
D)  reduce total revenue to farmers as a whole because the demand for food is inelastic.

Question 18

Suppose that at a price of €30 per month, there are 30,000 subscribers to cable television in Small Town. If Small Town Cablevision raises its price to €40 per month, the number of subscribers will fall to 20,000. Using the midpoint method for calculating the elasticity, what is the price elasticity of demand for cable TV in Small Town?

Accepted Answer

A)  1.4 
B)  0.66 
C)  0.75 
D)  2.0 
E)  1.0 
A)  1.4 
B)  0.66 
C)  0.75 
D)  2.0 
E)  1.0

Exam 4: Elasticity and Its Applications

If consumers always spend 15 percent of their income on food, then the income elasticity of demand for food is

If the price elasticity of supply equals zero, this implies that

Suppose that the price elasticity of supply of lawn mowers is 1.5. If the price of lawn mowers rises 5 per cent, the quantity supplied of lawn mowers would

If there is excess capacity in a production facility, it is likely that the firm's supply curve is

In general, a flatter demand curve is more likely to be

If Euro T-Shirt Co. lowers its price from €6 to €5 and finds that students increase their quantity demanded from 400 to 600 T-shirts per month, then the demand for EuroT-shirts within this price range is

In general, demand curves for luxuries tend to be price elastic.

If consumers think that there are very few substitutes for a good, then

The midpoint method is used to compute elasticity because it

The price elasticity of supply tends to be more inelastic as the firm's production facility reaches maximum capacity.

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

Suppose that when the price rises by 10% for a particular good, the quantity demanded of that good falls by 20%. The price elasticity of demand for this good is equal to 2.0.

If demand is linear (a straight line), then price elasticity of demand is

Economists have observed that spending on restaurant meals declines more during economic downturns than does spending on food to be eaten at home. How might the concept of elasticities help explain this?

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

Technological improvements in agriculture that shift the supply of agricultural commodities to the right tend to

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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