Question 1

What does the following statement imply about price elasticity of demand? ʺConsumers unfazed by 400 percent increase in price of table salt grocers see no change in sales!ʺ

Accepted Answer

A)  elasticity of demand for salt is equal to one 
B)  demand for salt is elastic 
C)  salt is too narrowly defined to determine price elasticity of demand 
D)  demand for salt is almost perfectly inelastic in the relevant price range 
E)  salt is too broadly defined to determine price elasticity of demand 
A)  elasticity of demand for salt is equal to one 
B)  demand for salt is elastic 
C)  salt is too narrowly defined to determine price elasticity of demand 
D)  demand for salt is almost perfectly inelastic in the relevant price range 
E)  salt is too broadly defined to determine price elasticity of demand

Question 2

Normal goods

Accepted Answer

A)  have positive income elasticity of demand. 
B)  have negative income elasticity of demand. 
C)  have negative elasticity of supply. 
D)  do not have elasticity of demand. 
E)  are sometimes also inferior goods. 
A)  have positive income elasticity of demand. 
B)  have negative income elasticity of demand. 
C)  have negative elasticity of supply. 
D)  do not have elasticity of demand. 
E)  are sometimes also inferior goods.

Question 3

The table below shows the demand schedule for museum admissions in a small city.   TABLE 4-1
-Refer to Table 4-1. Between the prices of $4 and $6 the price elasticity of demand is

Accepted Answer

A)  0.50. 
B)  0.71. 
C)  1.00. 
D)  1.40. 
E)  0.40. 
A)  0.50. 
B)  0.71. 
C)  1.00. 
D)  1.40. 
E)  0.40.

Question 4

FIGURE 4-3
-The imposition of an excise tax usually causes the price paid by consumers to , while the price received by sellers .

Accepted Answer

A)  rise; remains unchanged 
B)  rise; falls 
C)  rise; rises 
D)  fall; remains unchanged 
E)  fall; falls 
A)  rise; remains unchanged 
B)  rise; falls 
C)  rise; rises 
D)  fall; remains unchanged 
E)  fall; falls

Question 5

Given that elasticity of supply changes over time, in the short run an increase in demand will generally cause

Accepted Answer

A)  the price to rise above its long-run equilibrium value. 
B)  the price to rise to a level below its long-run equilibrium value. 
C)  the quantity exchanged to rise above its long -run equilibrium value. 
D)  both price and quantity exchanged to rise above their long -run equilibrium values. 
E)  supply to change. 
A)  the price to rise above its long-run equilibrium value. 
B)  the price to rise to a level below its long-run equilibrium value. 
C)  the quantity exchanged to rise above its long -run equilibrium value. 
D)  both price and quantity exchanged to rise above their long -run equilibrium values. 
E)  supply to change.

Question 6

When the percentage change in quantity demanded is less than the percentage change in price that brought it about, demand is said to be

Accepted Answer

A)  zero elastic. 
B)  unelastic. 
C)  inelastic. 
D)  unit elastic. 
E)  elastic. 
A)  zero elastic. 
B)  unelastic. 
C)  inelastic. 
D)  unit elastic. 
E)  elastic.

Question 7

Which of the following tends to be true of the income elasticity of demand for food?

Accepted Answer

A)  It tends to be well below unity only at low levels of income. 
B)  It tends to be well above unity only at high levels of income. 
C)  At low levels of income, it tends to be fairly high; but as the level of income rises, it tends to fall. 
D)  It tends to remain fairly constant at all levels of income. 
E)  It is usually zero, since we can only eat so much. 
A)  It tends to be well below unity only at low levels of income. 
B)  It tends to be well above unity only at high levels of income. 
C)  At low levels of income, it tends to be fairly high; but as the level of income rises, it tends to fall. 
D)  It tends to remain fairly constant at all levels of income. 
E)  It is usually zero, since we can only eat so much.

Question 8

FIGURE 4-2
-Refer to Figure 4-2. The price elasticity of demand is continuously decreasing as the price falls in diagrams)

Accepted Answer

A)  1. 
B)  2. 
C)  1, 2, and 3. 
D)  2, 3, and 4. 
E)  1 and 2. 
A)  1. 
B)  2. 
C)  1, 2, and 3. 
D)  2, 3, and 4. 
E)  1 and 2.

Question 9

FIGURE 4-3
-The ʺeconomic incidenceʺ of an excise tax illustrates

Accepted Answer

A)  who is legally responsible for paying it to the government. 
B)  the legislative process through which it must be passed. 
C)  the economic costs associated with avoiding the tax. 
D)  who bears the burden of the tax. 
E)  the political process for implementing a tax. 
A)  who is legally responsible for paying it to the government. 
B)  the legislative process through which it must be passed. 
C)  the economic costs associated with avoiding the tax. 
D)  who bears the burden of the tax. 
E)  the political process for implementing a tax.

Question 10

If a productʹs income elasticity of demand is 1.7, we can conclude that

Accepted Answer

A)  an increase in income will lead to an increase in demand for the product. 
B)  the product is certainly a necessity. 
C)  the product is an inferior good. 
D)  a decrease in income will lead to an increase in demand for the product. 
E)  an increase in income will lead to an increase in quantity demanded of this product by 1.7%. 
A)  an increase in income will lead to an increase in demand for the product. 
B)  the product is certainly a necessity. 
C)  the product is an inferior good. 
D)  a decrease in income will lead to an increase in demand for the product. 
E)  an increase in income will lead to an increase in quantity demanded of this product by 1.7%.

Question 11

During the 1970s, OPECʹs output restrictions caused gasoline prices to increase sharply. Coincidentally, demand for gas-guzzling cars fell. A likely explanation for these observations is that gasoline and cars had a
Elasticity of demand that was .

Accepted Answer

A)  cross; negative 
B)  cross; positive 
C)  income; negative 
D)  income; positive 
E)  price; negative 
A)  cross; negative 
B)  cross; positive 
C)  income; negative 
D)  income; positive 
E)  price; negative

Question 12

Suppose a decrease in world demand for potash used in the production of fertilizer) decreases the price from
$400 per tonne to $240 per tonne. Annual Canadian production decreases from 12 million tonnes to 8 million tonnes. What is the elasticity of supply of Canadian potash?

Accepted Answer

A)  0.4 
B)  0.8 
C)  0.75 
D)  1.0 
E)  1.25 
A)  0.4 
B)  0.8 
C)  0.75 
D)  1.0 
E)  1.25

Question 13

The table below shows the demand schedule for museum admissions in a small city.   TABLE 4-1
-Refer to Table 4-1. Between the prices of $8 and $10, the elasticity of demand is

Accepted Answer

A)  1/3. 
B)  2/3. 
C)  1. 
D)  2. 
E)  3. 
A)  1/3. 
B)  2/3. 
C)  1. 
D)  2. 
E)  3.

Question 14

If the price elasticity of demand for some good is 2.7, a 10% increase in the price results in

Accepted Answer

A)  a 2.7% decrease in the quantity demanded. 
B)  a 2.7% increase in the quantity demanded. 
C)  a 27% increase in the quantity demanded. 
D)  a 27% decrease in the quantity demanded. 
E)  There is not enough information to answer this question. 
A)  a 2.7% decrease in the quantity demanded. 
B)  a 2.7% increase in the quantity demanded. 
C)  a 27% increase in the quantity demanded. 
D)  a 27% decrease in the quantity demanded. 
E)  There is not enough information to answer this question.

Question 15

Suppose the price elasticity of demand for good X is 1.5. If household income increases by 25%, ceteris paribus, what is the change in quantity demanded for good X?

Accepted Answer

A)  a 37.5% increase in quantity demanded 
B)  a 3.75% increase in quantity demanded 
C)  a 0.375% increase in quantity demanded 
D)  no change in quantity demanded 
E)  There is not enough information to answer this question. 
A)  a 37.5% increase in quantity demanded 
B)  a 3.75% increase in quantity demanded 
C)  a 0.375% increase in quantity demanded 
D)  no change in quantity demanded 
E)  There is not enough information to answer this question.

Question 16

Suppose a fast-food chain determines that the price elasticity of demand for its hamburgers is 0.75, and the price of the hamburger is currently $4.00. What will be the effect on quantity demanded and total expenditure on this chainʹs hamburgers if the price is increased to $6.00?

Accepted Answer

A)  Quantity demanded will fall by 30%, and total expenditure will increase. 
B)  Quantity demanded will fall by 40%, and total expenditure will increase. 
C)  Quantity demanded will fall by 75%, and total expenditure will increase. 
D)  Quantity demanded will fall by 0.3%, and total expenditure will decrease. 
E)  Quantity demanded will fall by 0.4%, and total expenditure will decrease. 
A)  Quantity demanded will fall by 30%, and total expenditure will increase. 
B)  Quantity demanded will fall by 40%, and total expenditure will increase. 
C)  Quantity demanded will fall by 75%, and total expenditure will increase. 
D)  Quantity demanded will fall by 0.3%, and total expenditure will decrease. 
E)  Quantity demanded will fall by 0.4%, and total expenditure will decrease.

Question 17

Suppose that as the price of some product increases from $4.00 to $5.00 per unit the quantity supplied rises from 500 to 1000 units per month. The price elasticity of supply for this product is

Accepted Answer

A)  0.33. 
B)  2.0. 
C)  2.5. 
D)  3.0. 
E)  1.0. 
A)  0.33. 
B)  2.0. 
C)  2.5. 
D)  3.0. 
E)  1.0.

Question 18

FIGURE 4-2
-Refer to Figure 4-2. In diagram 3, the elasticity of demand between prices $5 and $10 is

Accepted Answer

A)  0. 
B)  less than 1. 
C)  exactly 1. 
D)  greater than 1. 
E)  infinity. 
A)  0. 
B)  less than 1. 
C)  exactly 1. 
D)  greater than 1. 
E)  infinity.

Question 19

If the income elasticity of demand for a good is 1.25, a 10% increase in income results in

Accepted Answer

A)  a 12.5% increase in the quantity demanded. 
B)  a 12.5% decrease in the quantity demanded. 
C)  a 125% increase in the quantity demanded. 
D)  a decrease in quantity demanded. 
E)  There is not enough information to answer this question. 
A)  a 12.5% increase in the quantity demanded. 
B)  a 12.5% decrease in the quantity demanded. 
C)  a 125% increase in the quantity demanded. 
D)  a decrease in quantity demanded. 
E)  There is not enough information to answer this question.

Question 20

FIGURE 4-2
-Refer to Figure 4-2. Demand is inelastic

Accepted Answer

A)  over the entire demand curve in diagram 1. 
B)  over the entire demand curve in diagram 3. 
C)  over section a) of the demand curve in diagram 1. 
D)  over section b) of the demand curve in diagram 1. 
E)  at the midpoint between sections a) and b) of the demand curve in diagram 1. 
A)  over the entire demand curve in diagram 1. 
B)  over the entire demand curve in diagram 3. 
C)  over section a) of the demand curve in diagram 1. 
D)  over section b) of the demand curve in diagram 1. 
E)  at the midpoint between sections a) and b) of the demand curve in diagram 1.

Exam 4: Elasticity

What does the following statement imply about price elasticity of demand? ʺConsumers unfazed by 400 percent increase in price of table salt grocers see no change in sales!ʺ

Normal goods

The table below shows the demand schedule for museum admissions in a small city. TABLE 4-1 -Refer to Table 4-1. Between the prices of $4 and $6 the price elasticity of demand is

FIGURE 4-3 -The imposition of an excise tax usually causes the price paid by consumers to , while the price received by sellers .

Given that elasticity of supply changes over time, in the short run an increase in demand will generally cause

When the percentage change in quantity demanded is less than the percentage change in price that brought it about, demand is said to be

Which of the following tends to be true of the income elasticity of demand for food?

FIGURE 4-2 -Refer to Figure 4-2. The price elasticity of demand is continuously decreasing as the price falls in diagrams)

FIGURE 4-3 -The ʺeconomic incidenceʺ of an excise tax illustrates

If a productʹs income elasticity of demand is 1.7, we can conclude that

During the 1970s, OPECʹs output restrictions caused gasoline prices to increase sharply. Coincidentally, demand for gas-guzzling cars fell. A likely explanation for these observations is that gasoline and cars had a Elasticity of demand that was .

Suppose a decrease in world demand for potash used in the production of fertilizer) decreases the price from $400 per tonne to $240 per tonne. Annual Canadian production decreases from 12 million tonnes to 8 million tonnes. What is the elasticity of supply of Canadian potash?

The table below shows the demand schedule for museum admissions in a small city. TABLE 4-1 -Refer to Table 4-1. Between the prices of $8 and $10, the elasticity of demand is

If the price elasticity of demand for some good is 2.7, a 10% increase in the price results in

Suppose the price elasticity of demand for good X is 1.5. If household income increases by 25%, ceteris paribus, what is the change in quantity demanded for good X?

Suppose a fast-food chain determines that the price elasticity of demand for its hamburgers is 0.75, and the price of the hamburger is currently $4.00. What will be the effect on quantity demanded and total expenditure on this chainʹs hamburgers if the price is increased to $6.00?

Suppose that as the price of some product increases from $4.00 to $5.00 per unit the quantity supplied rises from 500 to 1000 units per month. The price elasticity of supply for this product is

FIGURE 4-2 -Refer to Figure 4-2. In diagram 3, the elasticity of demand between prices $5 and $10 is

If the income elasticity of demand for a good is 1.25, a 10% increase in income results in

FIGURE 4-2 -Refer to Figure 4-2. Demand is inelastic

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