Question 1

Consider a demand curve that has a constant elasticity value of 0. What happens to quantity demanded and total revenue when price increases?

Accepted Answer

A)  The quantity demanded and total revenue remain the same. 
B)  The quantity demanded does not change but total revenue increases. 
C)  The quantity demanded and total revenue fall to zero. 
D)  The quantity demanded does not change but total revenue decreases. 
A)  The quantity demanded and total revenue remain the same. 
B)  The quantity demanded does not change but total revenue increases. 
C)  The quantity demanded and total revenue fall to zero. 
D)  The quantity demanded does not change but total revenue decreases.

Question 2

If the price elasticity of demand is unit elastic, a 10 percent increase in price will result in a 10 percent increase in revenue.

Accepted Answer

A) True 
 B)False

Question 3

For people who live near a bus route, a subway station, or a commuter rail line, public transportation provides a substitute to driving their own cars. So, for these people, the cross-price elasticity of demand between gasoline and public transportation is

Accepted Answer

A)  positive. 
B)  negative. 
C)  zero. 
D)  infinity. 
A)  positive. 
B)  negative. 
C)  zero. 
D)  infinity.

Question 4

If a soda tax is implemented and demand for soda is price elastic, the effect on discouraging soda consumption would be ________ and ________ tax revenue would be collected than if demand were inelastic.

Accepted Answer

A)  larger; more 
B)  larger; less 
C)  smaller; more 
D)  smaller; less 
A)  larger; more 
B)  larger; less 
C)  smaller; more 
D)  smaller; less

Question 5

If, for a given percentage increase in price, quantity supplied increases by a proportionately larger 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 6

A demand curve that is horizontal indicates that the commodity

Accepted Answer

A)  has few substitutes. 
B)  must be very cheap. 
C)  is a necessity. 
D)  has a large number of substitutes. 
A)  has few substitutes. 
B)  must be very cheap. 
C)  is a necessity. 
D)  has a large number of substitutes.

Question 7

Figure 6-1  
-Refer to Figure 6-1. A perfectly inelastic demand curve is shown in

Accepted Answer

A)  Panel A. 
B)  Panel B. 
C)  Panel C. 
D)  Panel D. 
A)  Panel A. 
B)  Panel B. 
C)  Panel C. 
D)  Panel D.

Question 8

Suppose the governor of California has proposed increasing toll rates on California's toll roads, and has presented two possible scenarios to implement these increases. Following are projected data for the two scenarios for the California toll roads:
Scenario 1: Toll rate in 2015: $10.00. Toll rate in 2019: $22.50
For every 100 cars using the toll roads in 2015, only 81.6 cars will use the toll roads in 2019.
Scenario 2: Toll rate in 2015: $10.00. Toll rate in 2019: $17.50
For every 100 cars using the toll roads in 2015, only 96.2 cars will use the toll roads in 2019.
a. Using the midpoint formula, calculate the price elasticity of demand for Scenario 1 and Scenario 2.
b. Assume 10,000 cars use California toll roads every day in 2015. What would be the daily total revenue received for each scenario in 2015 and in 2019?
c. Is demand under Scenario 1 and under Scenario 2 price elastic, inelastic, or unit elastic. Briefly explain.
(For above questions, assume that nothing other than the toll change occurs during the time frame listed that would affect consumer demand.)

Accepted Answer

a.
For Scenario 1:
Percentage change in

Question 9

If tolls on a toll road can be raised significantly before commuters will consider using a free alternative, demand for using the toll road must be

Accepted Answer

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

Question 10

If the demand for a product is perfectly inelastic, a decrease in the price of the product

Accepted Answer

A)  will increase total revenue. 
B)  will decrease total revenue. 
C)  will not change total revenue. 
D)  any of the above are possible. 
A)  will increase total revenue. 
B)  will decrease total revenue. 
C)  will not change total revenue. 
D)  any of the above are possible.

Question 11

Which of the following items is likely to have the highest income elasticity of demand?

Accepted Answer

A)  a luxury cruise to several European countries 
B)  water 
C)  breakfast cereal 
D)  a hamburger 
A)  a luxury cruise to several European countries 
B)  water 
C)  breakfast cereal 
D)  a hamburger

Question 12

At a price of $8 per dozen, Chuy sells 40 dozen homemade tamales per week. When he raised his price to $12 per dozen, he still sold 40 dozen per week. Based on this information, the demand for his tamales is

Accepted Answer

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

Question 13

Figure 6-7  
-Refer to Figure 6-7. Using the total revenue test to verify the price elasticity between points a and b on the demand curve, demand is

Accepted Answer

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

Question 14

Suppose Pump-U-Up lowers the price of its gym membership by 10 percent and as a result, Sweat-It-Out experienced a 16 percent decline in its gym membership. What is the value of the cross-price elasticity between the two gym memberships?

Accepted Answer

A)  -1.6 
B)  -0.625 
C)  0.625 
D)  1.6 
A)  -1.6 
B)  -0.625 
C)  0.625 
D)  1.6

Question 15

Suppose a frost destroys the tomato crop in California but farmers see an increase in their revenues. Which of the following best explains this?

Accepted Answer

A)  The decrease in supply led to huge price increases. 
B)  Tomatoes are necessities. 
C)  The demand for tomatoes is price inelastic. 
D)  The cross-price elasticity between tomatoes and most other substitute vegetables is very low. 
A)  The decrease in supply led to huge price increases. 
B)  Tomatoes are necessities. 
C)  The demand for tomatoes is price inelastic. 
D)  The cross-price elasticity between tomatoes and most other substitute vegetables is very low.

Question 16

Assume that a 2 cent per ounce percent soda tax led to a large increase in its price and only a small decrease in the quantity of soda demanded. Economic analysis would lead one to conclude that

Accepted Answer

A)  soda should be taxed because the benefits of the tax would exceed the costs. 
B)  soda should not be taxed because the benefits are uncertain. 
C)  soda should not be taxed on ethical grounds since ethical benefits and costs can't be measured. 
D)  the benefits of taxing soda is a normative issue. Economic analysis can be used to contribute to discussion of this issue but cannot decide it. 
A)  soda should be taxed because the benefits of the tax would exceed the costs. 
B)  soda should not be taxed because the benefits are uncertain. 
C)  soda should not be taxed on ethical grounds since ethical benefits and costs can't be measured. 
D)  the benefits of taxing soda is a normative issue. Economic analysis can be used to contribute to discussion of this issue but cannot decide it.

Question 17

The price elasticity of an upward-sloping supply curve is always

Accepted Answer

A)  positive. 
B)  negative. 
C)  greater than one. 
D)  impossible to determine. 
A)  positive. 
B)  negative. 
C)  greater than one. 
D)  impossible to determine.

Question 18

Suppose a 4 percent increase in price results in a 2 percent increase in the quantity supplied of a good. Calculate the price elasticity of supply and characterize the product.

Accepted Answer

A)  2; The product is elastic. 
B)  0.2; The product is inelastic. 
C)  0.5; The product is inelastic. 
D)  50%; The product is inelastic. 
A)  2; The product is elastic. 
B)  0.2; The product is inelastic. 
C)  0.5; The product is inelastic. 
D)  50%; The product is inelastic.

Question 19

If a 5 percent increase in income leads to a 10 percent increase in quantity demanded for airline travel, then airline travel is

Accepted Answer

A)  a necessity. 
B)  a substitute for another good. 
C)  a luxury. 
D)  an inferior good. 
A)  a necessity. 
B)  a substitute for another good. 
C)  a luxury. 
D)  an inferior good.

Question 20

Suppose at the current price, the demand for copper is estimated at -3.14. What happens to sales revenue if the government imposes a price ceiling slightly below the free market equilibrium price in the copper market?

Accepted Answer

A)  Sales revenue falls. 
B)  Sales revenue rises. 
C)  Sales revenue remains unchanged because copper is a necessity for most industries. 
D)  It cannot be determined without information on prices. 
A)  Sales revenue falls. 
B)  Sales revenue rises. 
C)  Sales revenue remains unchanged because copper is a necessity for most industries. 
D)  It cannot be determined without information on prices.

Exam 6: Elasticity: the Responsiveness of Demand and Supply

Consider a demand curve that has a constant elasticity value of 0. What happens to quantity demanded and total revenue when price increases?

If the price elasticity of demand is unit elastic, a 10 percent increase in price will result in a 10 percent increase in revenue.

For people who live near a bus route, a subway station, or a commuter rail line, public transportation provides a substitute to driving their own cars. So, for these people, the cross-price elasticity of demand between gasoline and public transportation is

If a soda tax is implemented and demand for soda is price elastic, the effect on discouraging soda consumption would be ________ and ________ tax revenue would be collected than if demand were inelastic.

If, for a given percentage increase in price, quantity supplied increases by a proportionately larger percentage, then supply is

A demand curve that is horizontal indicates that the commodity

Figure 6-1 -Refer to Figure 6-1. A perfectly inelastic demand curve is shown in

If tolls on a toll road can be raised significantly before commuters will consider using a free alternative, demand for using the toll road must be

If the demand for a product is perfectly inelastic, a decrease in the price of the product

Which of the following items is likely to have the highest income elasticity of demand?

At a price of $8 per dozen, Chuy sells 40 dozen homemade tamales per week. When he raised his price to $12 per dozen, he still sold 40 dozen per week. Based on this information, the demand for his tamales is

Figure 6-7 -Refer to Figure 6-7. Using the total revenue test to verify the price elasticity between points a and b on the demand curve, demand is

Suppose Pump-U-Up lowers the price of its gym membership by 10 percent and as a result, Sweat-It-Out experienced a 16 percent decline in its gym membership. What is the value of the cross-price elasticity between the two gym memberships?

Suppose a frost destroys the tomato crop in California but farmers see an increase in their revenues. Which of the following best explains this?

Assume that a 2 cent per ounce percent soda tax led to a large increase in its price and only a small decrease in the quantity of soda demanded. Economic analysis would lead one to conclude that

The price elasticity of an upward-sloping supply curve is always

Suppose a 4 percent increase in price results in a 2 percent increase in the quantity supplied of a good. Calculate the price elasticity of supply and characterize the product.

If a 5 percent increase in income leads to a 10 percent increase in quantity demanded for airline travel, then airline travel is

Suppose at the current price, the demand for copper is estimated at -3.14. What happens to sales revenue if the government imposes a price ceiling slightly below the free market equilibrium price in the copper market?

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

If a soda tax is implemented and demand for soda is price elastic, the effect on discouraging soda consumption would be and tax revenue would be collected than if demand were inelastic.