Question 1

Figure 6-1  
-Refer to Figure 6-1. The demand curve on which elasticity changes at every point is given in

Accepted Answer

A)  Panel A. 
B)  Panel B. 
C)  Panel C. 
D)  none of the above graphs. 
A)  Panel A. 
B)  Panel B. 
C)  Panel C. 
D)  none of the above graphs.

Question 2

According to an article in the Wall Street Journal, unlike airlines, even elite hotels don't have sophisticated systems that can react quickly to changes in demand. Even if they could, many hoteliers say people don't respond that much to lower rates. "We've tested this, cutting our rates by $50 [per night], and we didn't see an appreciable response in occupancy," says Jim Schultenover, a vice president for Ritz-Carlton. Source: Jesse Drucker, "In Times of Belt-Tightening, We Seek Reasonable Rates," Wall Street Journal, April 6, 2001.
Based on the information above, the demand for hotel rooms is

Accepted Answer

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

Question 3

A convenience store owner in Philadelphia was worried that the implementation of the 1.5 cents per ounce tax on sweetened beverages would cause the quantity demanded to fall by so much that he would be in a worse situation if he passed the tax on to customers by raising prices than if he did not raise prices. If raising the price of sweetened beverages would cause the owner to receive less total revenue from the sale of sweetened beverages, the demand for sweetened beverages is

Accepted Answer

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

Question 4

Suppose the cross-price elasticity of demand between grapefruit juice and orange juice is approximately 6. What does this mean?

Accepted Answer

A)  A 1 percent decrease in the price of grapefruit juice leads to a 6 percent increase in orange juice consumption. 
B)  A 6 percent increase in the price of grapefruit juice leads to a 1 percent increase in orange juice consumption. 
C)  If the price of grapefruit juice rises by $1, 6 more cartons of orange juice will be purchased. 
D)  The demand for orange juice is 6 times greater than the demand for grapefruit juice. 
A)  A 1 percent decrease in the price of grapefruit juice leads to a 6 percent increase in orange juice consumption. 
B)  A 6 percent increase in the price of grapefruit juice leads to a 1 percent increase in orange juice consumption. 
C)  If the price of grapefruit juice rises by $1, 6 more cartons of orange juice will be purchased. 
D)  The demand for orange juice is 6 times greater than the demand for grapefruit juice.

Question 5

If a good has a negative income elasticity of demand, this indicates that the good is

Accepted Answer

A)  a substitute with another good. 
B)  a complement with another good. 
C)  inferior. 
D)  normal. 
A)  a substitute with another good. 
B)  a complement with another good. 
C)  inferior. 
D)  normal.

Question 6

The slope of a demand curve is not used to measure the price elasticity of demand because

Accepted Answer

A)  the slope of a linear demand curve is not constant. 
B)  the slope of a line cannot have a negative value. 
C)  the measurement of slope is sensitive to the units chosen for price and quantity. 
D)  the slope of the demand curve does not tell us how much quantity changes as price changes. 
A)  the slope of a linear demand curve is not constant. 
B)  the slope of a line cannot have a negative value. 
C)  the measurement of slope is sensitive to the units chosen for price and quantity. 
D)  the slope of the demand curve does not tell us how much quantity changes as price changes.

Question 7

Table 6-6
  
-Refer to Table 6-6. Based on the data in the table, between a price of $9.99 and $14.99, the demand for books is

Accepted Answer

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

Question 8

Which of the following statements about the price elasticity of demand along a downward-sloping linear demand curve is true?

Accepted Answer

A)  It is inelastic at high prices and elastic at low prices. 
B)  It is unit elastic throughout the demand curve. 
C)  It is elastic at the highest prices and inelastic at the lowest prices. 
D)  It is perfectly elastic at very high prices and perfectly inelastic at very low prices. 
A)  It is inelastic at high prices and elastic at low prices. 
B)  It is unit elastic throughout the demand curve. 
C)  It is elastic at the highest prices and inelastic at the lowest prices. 
D)  It is perfectly elastic at very high prices and perfectly inelastic at very low prices.

Question 9

Suppose at the going wage rate of $20 per hour, firms can hire as many hours of janitorial services as they desire. If any firm tries to lower the wage rate to $19, it will not be able to hire any janitor. What does this indicate about the supply curve for janitorial services?

Accepted Answer

A)  Supply is unit-elastic. 
B)  Supply is perfectly elastic. 
C)  Supply is perfectly inelastic. 
D)  Supply is relatively inelastic. 
A)  Supply is unit-elastic. 
B)  Supply is perfectly elastic. 
C)  Supply is perfectly inelastic. 
D)  Supply is relatively inelastic.

Question 10

Suppose the price elasticity of demand for methamphetamine is -0.35. If decriminalization caused the price of methamphetamine to fall by 75 percent, what will be the percentage increase in the quantity of methamphetamine demanded? If the price elasticity is -3.5, what will be the percentage increase in quantity demanded?

Accepted Answer

If price elasticity of demand is -0.35,

Question 11

Which of the following is a key determinant of the price elasticity of supply?

Accepted Answer

A)  the slope of the supply curve 
B)  the availability of substitutes in production 
C)  the available technology 
D)  the time it takes to change output in response to a change in price 
A)  the slope of the supply curve 
B)  the availability of substitutes in production 
C)  the available technology 
D)  the time it takes to change output in response to a change in price

Question 12

The price elasticity of demand is equal to

Accepted Answer

A)  the value of the slope of the demand curve. 
B)  the change in quantity demanded divided by the change in price. 
C)  the percentage change in price divided by the percentage change in quantity demanded. 
D)  the percentage change in quantity demanded divided by the percentage change in price. 
A)  the value of the slope of the demand curve. 
B)  the change in quantity demanded divided by the change in price. 
C)  the percentage change in price divided by the percentage change in quantity demanded. 
D)  the percentage change in quantity demanded divided by the percentage change in price.

Question 13

The price elasticity of supply of hot dog buns is estimated to be 1.5. Holding everything else constant, this means that a 10 percent decrease in the price of hot dog buns will cause the quantity of hot dog buns supplied to decrease by

Accepted Answer

A)  1.5 percent. 
B)  15 percent. 
C)  approximately 25 percent. 
D)  approximately 5 percent. 
A)  1.5 percent. 
B)  15 percent. 
C)  approximately 25 percent. 
D)  approximately 5 percent.

Question 14

Suppose the demand curve for a product is represented by a typical downward-sloping curve. Now suppose the demand for this product increases. Which of the following statements accurately predicts the resulting increase in price?

Accepted Answer

A)  The more elastic the supply curve, the greater the price increase. 
B)  The more elastic the supply curve, the smaller the price increase. 
C)  The increase in price is not affected by the elasticity of the supply curve. 
D)  There will be no increase in price if the supply curve is perfectly inelastic. 
A)  The more elastic the supply curve, the greater the price increase. 
B)  The more elastic the supply curve, the smaller the price increase. 
C)  The increase in price is not affected by the elasticity of the supply curve. 
D)  There will be no increase in price if the supply curve is perfectly inelastic.

Question 15

Rank these three items in terms of the elasticity of the demand for them at any given price, from most elastic to least elastic: hot beverages, coffee and Peet's Coffee.

Accepted Answer

A)  hot beverages, coffee, Peet's Coffee 
B)  Peet's Coffee, coffee, hot beverages 
C)  coffee, Peet's Coffee, hot beverages 
D)  coffee, hot beverages, Peet's Coffee 
A)  hot beverages, coffee, Peet's Coffee 
B)  Peet's Coffee, coffee, hot beverages 
C)  coffee, Peet's Coffee, hot beverages 
D)  coffee, hot beverages, Peet's Coffee

Question 16

If, for a given percentage decrease in price, quantity supplied decreases by a proportionately smaller percentage, then supply is

Accepted Answer

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

Question 17

If a 6 percent increase in income leads to a 4 percent increase in quantity demanded for audio books, the income elasticity of demand is

Accepted Answer

A)  -0.67. 
B)  0.67. 
C)  1.5. 
D)  2. 
A)  -0.67. 
B)  0.67. 
C)  1.5. 
D)  2.

Question 18

If the demand for cell phone service is inelastic, then

Accepted Answer

A)  the percentage change in quantity demanded is greater than the percentage change in price (in absolute value). 
B)  the percentage change in quantity demanded is equal to the percentage change in price. 
C)  the quantity demanded does not change in response to changes in price. 
D)  the percentage change in quantity demanded is less than the percentage change in price (in absolute value). 
A)  the percentage change in quantity demanded is greater than the percentage change in price (in absolute value). 
B)  the percentage change in quantity demanded is equal to the percentage change in price. 
C)  the quantity demanded does not change in response to changes in price. 
D)  the percentage change in quantity demanded is less than the percentage change in price (in absolute value).

Question 19

The price elasticity of supply is calculated as the change in supply divided by the change in price.

Accepted Answer

A) True 
 B)False

Question 20

Figure 6-2  
-Refer to Figure 6-2. The absolute value of the price elasticity of demand at points a and b is 1. What is the value of Pb?

Accepted Answer

A)  $50 
B)  $40 
C)  $30 
D)  $20 
A)  $50 
B)  $40 
C)  $30 
D)  $20

Exam 6: Elasticity: the Responsiveness of Demand and Supply

Figure 6-1 -Refer to Figure 6-1. The demand curve on which elasticity changes at every point is given in

Suppose the cross-price elasticity of demand between grapefruit juice and orange juice is approximately 6. What does this mean?

If a good has a negative income elasticity of demand, this indicates that the good is

The slope of a demand curve is not used to measure the price elasticity of demand because

Table 6-6 -Refer to Table 6-6. Based on the data in the table, between a price of $9.99 and $14.99, the demand for books is

Which of the following statements about the price elasticity of demand along a downward-sloping linear demand curve is true?

Suppose at the going wage rate of $20 per hour, firms can hire as many hours of janitorial services as they desire. If any firm tries to lower the wage rate to $19, it will not be able to hire any janitor. What does this indicate about the supply curve for janitorial services?

Which of the following is a key determinant of the price elasticity of supply?

The price elasticity of demand is equal to

The price elasticity of supply of hot dog buns is estimated to be 1.5. Holding everything else constant, this means that a 10 percent decrease in the price of hot dog buns will cause the quantity of hot dog buns supplied to decrease by

Suppose the demand curve for a product is represented by a typical downward-sloping curve. Now suppose the demand for this product increases. Which of the following statements accurately predicts the resulting increase in price?

Rank these three items in terms of the elasticity of the demand for them at any given price, from most elastic to least elastic: hot beverages, coffee and Peet's Coffee.

If, for a given percentage decrease in price, quantity supplied decreases by a proportionately smaller percentage, then supply is

If a 6 percent increase in income leads to a 4 percent increase in quantity demanded for audio books, the income elasticity of demand is

If the demand for cell phone service is inelastic, then

The price elasticity of supply is calculated as the change in supply divided by the change in price.

Figure 6-2 -Refer to Figure 6-2. The absolute value of the price elasticity of demand at points a and b is 1. What is the value of Pb?

Economics: Foundations and Models

Trade-Offs, Comparative Advantage, and the Market System

Where Prices Come From: the Interaction of Demand and Supply

Economic Efficiency, Government Price Setting, and Taxes

Externalities, Environmental Policy, and Public Goods

The Economics of Health Care

Firms, the Stock Market, and Corporate Governance

Comparative Advantage and the Gains From International Trade

Consumer Choice and Behavioral Economics

Technology, Production, and Costs

Firms in Perfectly Competitive Markets

Monopolistic Competition: the Competitive Model in a More Realistic Setting

Oligopoly: Firms in Less Competitive Markets

Monopoly and Antitrust Policy

Pricing Strategy

The Markets for Labor and Other Factors of Production

Public Choice, Taxes, and the Distribution of Income

Gdp: Measuring Total Production and Income

Unemployment and Inflation

Economic Growth, the Financial System, and Business Cycles

Long-Run Economic Growth: Sources and Policies

Aggregate Expenditure and Output in the Short Run

Aggregate Demand and Aggregate Supply Analysis

Money, Banks, and the Federal Reserve System

Monetary Policy

Fiscal Policy

Inflation, Unemployment, and Federal Reserve Policy

Macroeconomics in an Open Economy

The International Financial System

Filters

Figure 6-2 -Refer to Figure 6-2. The absolute value of the price elasticity of demand at points a and b is 1. What is the value of P_b?