Question 1

If the total revenue of producers rises for an initial cut in the price of their product but falls for further reductions in price, the price elasticity of demand for the product

Accepted Answer

A)  declines as price falls. 
B)  is zero. 
C)  is unity. 
D)  rises as price falls. 
E)  rises and then falls. 
A)  declines as price falls. 
B)  is zero. 
C)  is unity. 
D)  rises as price falls. 
E)  rises and then falls.

Question 2

Which of the following statements would you expect to be true about the demand elasticities for cornflakes and food?

Accepted Answer

A)  Compared with food, cornflakes have a lower price elasticity of demand because it is specifically defined. 
B)  Because cornflakes is food, but not all food is cornflakes, cornflakes would have a lower price elasticity of demand. 
C)  Food has a higher price elasticity of demand because it is a necessity. 
D)  Because cornflakes is food, cornflakes would have the same price elasticity of demand as food. 
E)  Food has a lower price elasticity of demand than cornflakes because it is more broadly defined. 
A)  Compared with food, cornflakes have a lower price elasticity of demand because it is specifically defined. 
B)  Because cornflakes is food, but not all food is cornflakes, cornflakes would have a lower price elasticity of demand. 
C)  Food has a higher price elasticity of demand because it is a necessity. 
D)  Because cornflakes is food, cornflakes would have the same price elasticity of demand as food. 
E)  Food has a lower price elasticity of demand than cornflakes because it is more broadly defined.

Question 3

Elasticity of demand for prescription drugs is estimated to be much lower than elasticity of demand for one particular brand of over-the-counter cough medicine. One reason for this is

Accepted Answer

A)  there are many substitutes for prescription drugs in the short run. 
B)  there are many substitutes for prescription drugs in the long run. 
C)  there are no substitutes for one brand of cough medicine in the short run. 
D)  there are no substitutes for one brand of cough medicine in the long run. 
E)  there are few substitutes for the broad category of prescription drugs while there are many substitutes for one brand of cough medicine. 
A)  there are many substitutes for prescription drugs in the short run. 
B)  there are many substitutes for prescription drugs in the long run. 
C)  there are no substitutes for one brand of cough medicine in the short run. 
D)  there are no substitutes for one brand of cough medicine in the long run. 
E)  there are few substitutes for the broad category of prescription drugs while there are many substitutes for one brand of cough medicine.

Question 4

Suppose that the quantity of lemonade demanded falls from 103 000 litres per week to 97 000 litres per week as a result of a 10% increase in its price. The price elasticity of demand for lemonade is therefore

Accepted Answer

A)  0.6. 
B)  6.0. 
C)  1.97. 
D)  1.03. 
E)  impossible to compute unless we know the before and after prices. 
A)  0.6. 
B)  6.0. 
C)  1.97. 
D)  1.03. 
E)  impossible to compute unless we know the before and after prices.

Question 5

FIGURE 4-2
-Refer to Figure 4-2. The price elasticity of demand is constant as price changes in diagrams)

Accepted Answer

A)  1. 
B)  2. 
C)  1, 2, and 3. 
D)  2, 3, and 4. 
E)  none of the above 
A)  1. 
B)  2. 
C)  1, 2, and 3. 
D)  2, 3, and 4. 
E)  none of the above

Question 6

If the income elasticity of demand for some good is 2.4, a 10% increase in income results in

Accepted Answer

A)  a 24% increase in the quantity demanded. 
B)  a 2.4% increase in the quantity demanded. 
C)  a 240% increase in the quantity demanded. 
D)  a 24% decrease in quantity demanded. 
E)  a 240% decrease in quantity demanded. 
A)  a 24% increase in the quantity demanded. 
B)  a 2.4% increase in the quantity demanded. 
C)  a 240% increase in the quantity demanded. 
D)  a 24% decrease in quantity demanded. 
E)  a 240% decrease in quantity demanded.

Question 7

We can expect that the income elasticity of demand for gourmet catered meals would be the income elasticity of demand for basic groceries.

Accepted Answer

A)  equivalent to 
B)  not comparable to 
C)  less than 
D)  higher than 
E)  lower than 
A)  equivalent to 
B)  not comparable to 
C)  less than 
D)  higher than 
E)  lower than

Question 8

FIGURE 4-3
-Producers will bear a larger burden of a sales tax if

Accepted Answer

A)  demand is relatively elastic and supply is relatively inelastic. 
B)  demand is relatively inelastic and supply is relatively elastic. 
C)  both demand and supply are relatively inelastic. 
D)  both demand and supply are relatively elastic. 
E)  the tax is collected by firms rather than remitted directly to the government by consumers. 
A)  demand is relatively elastic and supply is relatively inelastic. 
B)  demand is relatively inelastic and supply is relatively elastic. 
C)  both demand and supply are relatively inelastic. 
D)  both demand and supply are relatively elastic. 
E)  the tax is collected by firms rather than remitted directly to the government by consumers.

Question 9

If the income elasticity of demand for a good is - 3.4, a 25% increase in income results in

Accepted Answer

A)  a 4% increase in quantity demanded. 
B)  a 0.85% increase in quantity demanded. 
C)  an 8.5% decrease in quantity demanded. 
D)  an 85% decrease in the quantity demanded. 
E)  There is not enough information to answer this question. 
A)  a 4% increase in quantity demanded. 
B)  a 0.85% increase in quantity demanded. 
C)  an 8.5% decrease in quantity demanded. 
D)  an 85% decrease in the quantity demanded. 
E)  There is not enough information to answer this question.

Question 10

FIGURE 4-3
-Refer to Figure 4-3. The diagram shows a rightward shift in the demand curve for some good, and the
Short-run and long-run supply curves SS and SL, respectively). In the new short-run equilibrium after the increase in demand, producersʹ revenue

Accepted Answer

A)  is unambiguously lower than in the long-run equilibrium at EL. 
B)  could be higher or lower than at E0, depending on the short-run elasticity of supply. 
C)  is unambiguously higher than at E0. 
D)  is unambiguously lower than at E0. 
E)  is unambiguously higher than at EL. 
A)  is unambiguously lower than in the long-run equilibrium at EL. 
B)  could be higher or lower than at E0, depending on the short-run elasticity of supply. 
C)  is unambiguously higher than at E0. 
D)  is unambiguously lower than at E0. 
E)  is unambiguously higher than at EL.

Question 11

A value of infinity for the elasticity of supply of some product implies that

Accepted Answer

A)  the supply curve is horizontal. 
B)  supply is very unresponsive to price. 
C)  the supply curve is vertical. 
D)  the product will be supplied at any price. 
E)  no product will be supplied at any price. 
A)  the supply curve is horizontal. 
B)  supply is very unresponsive to price. 
C)  the supply curve is vertical. 
D)  the product will be supplied at any price. 
E)  no product will be supplied at any price.

Question 12

Which of the following situations could explain why product X has a relatively high price elasticity of demand in the short run?

Accepted Answer

A)  the price of product X is too low 
B)  the price of product X is too high 
C)  the prices of substitute products are constant 
D)  there are many substitutes for product X and consumers have an ability to switch quickly to those substitutes 
E)  there are few substitutes for product X in the short run 
A)  the price of product X is too low 
B)  the price of product X is too high 
C)  the prices of substitute products are constant 
D)  there are many substitutes for product X and consumers have an ability to switch quickly to those substitutes 
E)  there are few substitutes for product X in the short run

Question 13

The price elasticity of demand for a product tends to be greater the

Accepted Answer

A)  lower its price. 
B)  more broadly the product is defined. 
C)  fewer close substitutes for it there are. 
D)  more close substitutes for it there are. 
E)  shorter the time span being considered. 
A)  lower its price. 
B)  more broadly the product is defined. 
C)  fewer close substitutes for it there are. 
D)  more close substitutes for it there are. 
E)  shorter the time span being considered.

Question 14

The president of a major nickel-producing company says that an increase in the price of nickel would have no effect on the total amount spent on nickel. If this is true, the price elasticity of demand for nickel is

Accepted Answer

A)  more than one. 
B)  exactly one. 
C)  less than zero. 
D)  infinitely elastic. 
E)  not calculable from the information given. 
A)  more than one. 
B)  exactly one. 
C)  less than zero. 
D)  infinitely elastic. 
E)  not calculable from the information given.

Question 15

There have been proposals that a tax be imposed on sugar-laden soft drinks in an attempt to reduce their consumption. Assume for simplicity that all bottled soft drinks are the same size. Suppose the initial market equilibrium is P = $2.00 and Q = 1000.
   FIGURE 4-4
-Refer to Figure 4-4. Suppose the government imposes a tax of $0.60 per soft drink purchased. The change in total expenditure on soft drinks is

Accepted Answer

A)  a decrease of $80. 
B)  a decrease of $160. 
C)  an increase of $320. 
D)  an increase of $480. 
E)  No change in total expenditure. 
A)  a decrease of $80. 
B)  a decrease of $160. 
C)  an increase of $320. 
D)  an increase of $480. 
E)  No change in total expenditure.

Question 16

If Vickyʹs income increases by 8% and she increases her consumption of music downloads by 4%, then her income elasticity of demand for music downloads is

Accepted Answer

A)  4.0. 
B)  -0.5. 
C)  -2.0. 
D)  2.0. 
E)  0.5. 
A)  4.0. 
B)  -0.5. 
C)  -2.0. 
D)  2.0. 
E)  0.5.

Question 17

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 $6 the price elasticity of demand is

Accepted Answer

A)  0.5. 
B)  0.71. 
C)  1.00. 
D)  1.40. 
E)  0.40. 
A)  0.5. 
B)  0.71. 
C)  1.00. 
D)  1.40. 
E)  0.40.

Question 18

If the demand for some good fluctuates, but supply is constant, then which of the following combinations would generally yield the greatest price fluctuations?

Accepted Answer

A)  small demand fluctuations and elastic supply 
B)  large demand fluctuations and elastic supply 
C)  small demand fluctuations and inelastic supply 
D)  large demand fluctuations and inelastic supply 
E)  small demand fluctuations and a unit elastic supply 
A)  small demand fluctuations and elastic supply 
B)  large demand fluctuations and elastic supply 
C)  small demand fluctuations and inelastic supply 
D)  large demand fluctuations and inelastic supply 
E)  small demand fluctuations and a unit elastic supply

Question 19

The elasticity of supply for some product will tend to be larger

Accepted Answer

A)  the higher is the elasticity of demand for the product. 
B)  the lower is the elasticity of demand for the product. 
C)  the harder it is for firms to shift from the production of this product to another. 
D)  the easier it is for firms to shift from the production of this product to another. 
E)  the less time firms have to adjust to price changes. 
A)  the higher is the elasticity of demand for the product. 
B)  the lower is the elasticity of demand for the product. 
C)  the harder it is for firms to shift from the production of this product to another. 
D)  the easier it is for firms to shift from the production of this product to another. 
E)  the less time firms have to adjust to price changes.

Question 20

Consider an excise tax imposed on daily parking charges in the downtown of a small city. Before the imposition of the tax, equilibrium price and quantity are $15 and 100 cars parked. P = $15, Q = 100). The city government imposes a tax of $3 per car parked per day. Market equilibrium adjusts to P = $18 and Q = 100. Which of the following statements about the burden of the tax is correct?

Accepted Answer

A)  Price elasticity of supply is 0 and therefore the entire burden of the tax falls on the consumer. 
B)  Elasticity of demand is 0 and therefore the entire burden of the tax falls on the consumer. 
C)  Elasticity of supply is 1 and therefore the entire burden of the tax falls on the seller. 
D)  Price elasticity of demand is 1 and therefore the entire burden of the tax falls on the seller 
E)  The burden of the tax is shared equally by the seller and the consumer. 
A)  Price elasticity of supply is 0 and therefore the entire burden of the tax falls on the consumer. 
B)  Elasticity of demand is 0 and therefore the entire burden of the tax falls on the consumer. 
C)  Elasticity of supply is 1 and therefore the entire burden of the tax falls on the seller. 
D)  Price elasticity of demand is 1 and therefore the entire burden of the tax falls on the seller 
E)  The burden of the tax is shared equally by the seller and the consumer.

Exam 4: Elasticity

If the total revenue of producers rises for an initial cut in the price of their product but falls for further reductions in price, the price elasticity of demand for the product

Which of the following statements would you expect to be true about the demand elasticities for cornflakes and food?

Elasticity of demand for prescription drugs is estimated to be much lower than elasticity of demand for one particular brand of over-the-counter cough medicine. One reason for this is

Suppose that the quantity of lemonade demanded falls from 103 000 litres per week to 97 000 litres per week as a result of a 10% increase in its price. The price elasticity of demand for lemonade is therefore

FIGURE 4-2 -Refer to Figure 4-2. The price elasticity of demand is constant as price changes in diagrams)

If the income elasticity of demand for some good is 2.4, a 10% increase in income results in

We can expect that the income elasticity of demand for gourmet catered meals would be the income elasticity of demand for basic groceries.

FIGURE 4-3 -Producers will bear a larger burden of a sales tax if

If the income elasticity of demand for a good is - 3.4, a 25% increase in income results in

FIGURE 4-3 -Refer to Figure 4-3. The diagram shows a rightward shift in the demand curve for some good, and the Short-run and long-run supply curves SS and SL, respectively). In the new short-run equilibrium after the increase in demand, producersʹ revenue

A value of infinity for the elasticity of supply of some product implies that

Which of the following situations could explain why product X has a relatively high price elasticity of demand in the short run?

The price elasticity of demand for a product tends to be greater the

The president of a major nickel-producing company says that an increase in the price of nickel would have no effect on the total amount spent on nickel. If this is true, the price elasticity of demand for nickel is

If Vickyʹs income increases by 8% and she increases her consumption of music downloads by 4%, then her income elasticity of demand for music downloads is

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 $6 the price elasticity of demand is

If the demand for some good fluctuates, but supply is constant, then which of the following combinations would generally yield the greatest price fluctuations?

The elasticity of supply for some product will tend to be larger

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