Question 1

How is a firm's total revenue calculated?

Accepted Answer

A)  Price times average revenue. 
B)  Price times quantity sold. 
C)  Average revenue times quantity produced. 
D)  Quantity demanded times quantity supplied. 
A)  Price times average revenue. 
B)  Price times quantity sold. 
C)  Average revenue times quantity produced. 
D)  Quantity demanded times quantity supplied.

Question 2

The price elasticity of demand coefficient is, technically, always negative, but for convenience economists ignore the minus sign.

Accepted Answer

A) True 
 B)False

Question 3

$\begin{array}{c}
\begin{array}{c}
 \text {Price}\
14\
16\
18\
20\
22 
\end{array}
\begin{array}{c}
\text {Quantity Demanded}\
220 \
200 \
180 \
160 \
140 
\end{array}
\end{array}$

-Refer to the information above to answer this question. What is the elasticity of demand in the $16 to $20 range?

Accepted Answer

A)  0.02. 
B)  0.7. 
C)  1.4. 
D)  1. 
E)  2.1. 
A)  0.02. 
B)  0.7. 
C)  1.4. 
D)  1. 
E)  2.1.

Question 4

Table 4.3 shows the market demand for video rentals. $$\begin{array}{l}
\text { Table } 4.3\
\begin{array} { l l } 
\hline \mathrm { P } & \mathrm { Q_D } \
\hline 1 & 21 \
3 & 13 \
5 & 7 \
7 & 3 \
9 & 1 \
\hline
\end{array}
\end{array}$$ a) Calculate the price elasticity of demand between $1 and $3
b) Calculate the price elasticity of demand between $3 and $5
c) Calculate the price elasticity of demand between $5 and $7
d) Calculate the price elasticity of demand between $7 and $9

Accepted Answer

a) 0.47
b)

Question 5

Below are some data on price, income and demand for five different time periods.
 $$\begin{array} { l l c c c c } 
\text { Year } & \text { Income } & \text { Price of X } & \begin{array} { l } 
\text { Quantity } \
\text { Demanded } \
\text { of } \mathbf { X}
\end{array} & \text { Price of Y } & \begin{array} { l } 
\text { Quantity } \
\text { Demanded } \
\text { of Y }
\end{array} \
1 & \$ 40000 & \$ 140 & 50 & \$ 40 & 200 \
2 & 40000 & 150 & 40 & 40 & 160 \
3 & 40000 & 150 & 30 & 70 & 140 \
4 & 50000 & 150 & 40 & 70 & 160 \
5 & 50000 & 160 & 50 & 90 & 200
\end{array}$$
-Refer to the information above to answer this question. Between years 4 and 5, both the price and the quantity demanded of X increased. What is the best possible explanation of this?

Accepted Answer

A)  Graphically, the demand curve for X must be upward sloping. 
B)  Product Y is a complement of product X. 
C)  Product X is a substitute for product Y. 
D)  Graphically, the demand curve for product X must have shifted leftwards. 
E)  None of the choices are correct. 
A)  Graphically, the demand curve for X must be upward sloping. 
B)  Product Y is a complement of product X. 
C)  Product X is a substitute for product Y. 
D)  Graphically, the demand curve for product X must have shifted leftwards. 
E)  None of the choices are correct.

Question 6

What is meant by the term supply elasticity?

Accepted Answer

A)  The responsiveness of the change in the quantity demanded to a change in price of a product. 
B)  The change in quantity supplied as a percentage of the change in the quantity demanded. 
C)  The change in the price of a product as a result of a change in the quantity supplied. 
D)  The responsiveness of a change in the quantity supplied of a product as a result of a change in price. 
A)  The responsiveness of the change in the quantity demanded to a change in price of a product. 
B)  The change in quantity supplied as a percentage of the change in the quantity demanded. 
C)  The change in the price of a product as a result of a change in the quantity supplied. 
D)  The responsiveness of a change in the quantity supplied of a product as a result of a change in price.

Question 7

Graphically, what is the effect of imposing an excise tax on a product?

Accepted Answer

A)  It will shift both the supply and the demand curve for the product to the left. 
B)  It will shift the supply curve for the product to the left. 
C)  It will shift the supply curve for the product to the right. 
D)  It will shift both the supply and the demand curve for the product to the right. 
E)  It will shift the supply curve for the product to the left and the demand curve to the right. 
A)  It will shift both the supply and the demand curve for the product to the left. 
B)  It will shift the supply curve for the product to the left. 
C)  It will shift the supply curve for the product to the right. 
D)  It will shift both the supply and the demand curve for the product to the right. 
E)  It will shift the supply curve for the product to the left and the demand curve to the right.

Question 8

Table 4.1 shows the demand and supply schedules for bottles of wine (in thousands) for the economy of Newtown. $$\begin{array}{l}
\text { Table } 4.1\
\begin{array} { l l l l } 
\hline \mathrm { P } & \mathrm { Q } _ { \mathrm { D } } & \mathrm { P } & \mathrm { Q } _ { \mathrm { S } } \
\hline 34 & 8 & 34 & 28 \
32 & 13 & 32 & 23 \
30 & 18 & 30 & 18 \
28 & 23 & 28 & 13 \
\hline
\end{array}
\end{array}$$ a) If the government impose $4 per unit tax, what will be the new price and quantity?
b) What will be the total tax revenue?
c) What portion of the tax revenue is paid by the consumers?

Accepted Answer

a) The new equilibrium price i

Question 9

Define each of the following: a) elastic demand b) unitary demand c) inelastic demand.

Accepted Answer

a) elastic demand: quantity demanded tha

Question 10

What is the elasticity of supply of seats for a one-night concert in an auditorium?

Accepted Answer

A)  It is elastic. 
B)  It is inelastic. 
C)  It is perfectly inelastic. 
D)  It is perfectly elastic. 
A)  It is elastic. 
B)  It is inelastic. 
C)  It is perfectly inelastic. 
D)  It is perfectly elastic.

Question 11

-Refer to the graphs above to answer this question. Suppose that the price of nuts decreases from P1 to P2 and the demand curve for chocolates shifts to the right from D1 to D2. What is the relationship between nuts and chocolates?

Accepted Answer

A)  The demand for nuts and chocolates must be unit elastic. 
B)  Nut and chocolates must be substitutes. 
C)  The cross-elasticity coefficient of demand for both nuts and chocolates must be positive. 
D)  Nuts and chocolates must be complements. 
E)  There is no relationship between nuts and chocolates. 
A)  The demand for nuts and chocolates must be unit elastic. 
B)  Nut and chocolates must be substitutes. 
C)  The cross-elasticity coefficient of demand for both nuts and chocolates must be positive. 
D)  Nuts and chocolates must be complements. 
E)  There is no relationship between nuts and chocolates.

Question 12

The graph below illustrates three demand curves.
  
-Refer to the graph above to answer this question. In the $50 to $60 price range, which of the following statements is correct?

Accepted Answer

A)  D1 and D2 are both elastic. 
B)  D1 and D2 are both perfectly inelastic. 
C)  D2 is the most inelastic. 
D)  D3 is the most inelastic. 
E)  D1 is the most inelastic. 
A)  D1 and D2 are both elastic. 
B)  D1 and D2 are both perfectly inelastic. 
C)  D2 is the most inelastic. 
D)  D3 is the most inelastic. 
E)  D1 is the most inelastic.

Question 13

What is true about the price elasticity of demand for products such as sugar, salt and household electricity?

Accepted Answer

A)  It is perfectly elastic. 
B)  It is perfectly inelastic. 
C)  It is relatively elastic. 
D)  It is relatively inelastic. 
A)  It is perfectly elastic. 
B)  It is perfectly inelastic. 
C)  It is relatively elastic. 
D)  It is relatively inelastic.

Question 14

According to reports, the supply of rose hip tea has doubled in the last five years yet the price has not changed. This suggests that the demand for this type of tea must be perfectly elastic. Comment on this statement.

Accepted Answer

It is very unlikely (and probably imposs

Question 15

The table below gives data for a particular market. $$\begin{array} { c c c c c c } 
\hline \text { Year } & \begin{array} { c } 
\text { Average } \
\text { Income }
\end{array} & \text { Price of A } & \text { Qu. of A } & \text { Price of B } & \text { Qu. Of B } \
\hline 1 & \$ 40000 & \$ 2 & 800 & \$ 10 & 16 \
2 & 40000 & 3 & 600 & 10 & 18 \
3 & 40000 & 3 & 400 & 8 & 20 \
4 & 48000 & 3 & 600 & 8 & 22 \
\hline
\end{array}$$ a) What is the price elasticity of demand for the product A?
b) What is the price elasticity of demand for the product B?
c) What is the income elasticity of demand for the product A?
d) What is the income elasticity of demand for the product B?
e) What is the cross-elasticity of demand of product A for a change in the price of product B?

Accepted Answer

a) 0.71
b)

Question 16

What is the most likely effect of a government reducing the supply of illegal drugs?

Accepted Answer

A)  The total amount spent on illegal drugs will decrease. 
B)  The total amount spent on illegal drugs will increase. 
C)  The quantity of illegal drugs consumed will remain unchanged. 
D)  The demand for illegal drugs will fall. 
E)  The demand for illegal drugs will increase. 
A)  The total amount spent on illegal drugs will decrease. 
B)  The total amount spent on illegal drugs will increase. 
C)  The quantity of illegal drugs consumed will remain unchanged. 
D)  The demand for illegal drugs will fall. 
E)  The demand for illegal drugs will increase.

Question 17

If a product has many substitutes, which of the following statements is correct?

Accepted Answer

A)  Its income elasticity is high. 
B)  It is likely that it is an inferior product. 
C)  Its supply elasticity is high. 
D)  Its price elasticity of demand is high. 
A)  Its income elasticity is high. 
B)  It is likely that it is an inferior product. 
C)  Its supply elasticity is high. 
D)  Its price elasticity of demand is high.

Question 18

Which of the following is the most likely explanation for the fact that the price elasticity of demand for celery is high?

Accepted Answer

A)  The average household spends a large percentage of its income on celery. 
B)  There are a large number of substitute products available. 
C)  The time needed to produce this product is short. 
D)  The typical price of this product is low. 
A)  The average household spends a large percentage of its income on celery. 
B)  There are a large number of substitute products available. 
C)  The time needed to produce this product is short. 
D)  The typical price of this product is low.

Question 19

If the government increases the excise tax on cigarettes by 10%, which of the following statements is correct?

Accepted Answer

A)  The government's tax revenue will fall since the demand for cigarettes is inelastic. 
B)  The quantity demanded of cigarettes will fall by more than 10% because the demand is inelastic. 
C)  Both the quantity demanded and supplied of cigarettes will fall by more than 10% because the demand is inelastic. 
D)  Since the demand for cigarettes is highly inelastic, the subsequent increase in price will be greater than the decrease in quantity demanded. 
A)  The government's tax revenue will fall since the demand for cigarettes is inelastic. 
B)  The quantity demanded of cigarettes will fall by more than 10% because the demand is inelastic. 
C)  Both the quantity demanded and supplied of cigarettes will fall by more than 10% because the demand is inelastic. 
D)  Since the demand for cigarettes is highly inelastic, the subsequent increase in price will be greater than the decrease in quantity demanded.

Question 20

What is the term for the responsiveness of quantity demanded to a change in price?

Accepted Answer

A)  Elastic demand. 
B)  The elasticity coefficient. 
C)  Unitary elasticity. 
D)  Price elasticity of demand. 
A)  Elastic demand. 
B)  The elasticity coefficient. 
C)  Unitary elasticity. 
D)  Price elasticity of demand.

How is a firm's total revenue calculated?

The price elasticity of demand coefficient is, technically, always negative, but for convenience economists ignore the minus sign.

Price 14 16 18 20 22 Quantity Demanded 220 200 180 160 140 -Refer to the information above to answer this question. What is the elasticity of demand in the $16 to $20 range?

What is meant by the term supply elasticity?

Graphically, what is the effect of imposing an excise tax on a product?

Define each of the following: a) elastic demand b) unitary demand c) inelastic demand.

What is the elasticity of supply of seats for a one-night concert in an auditorium?

-Refer to the graphs above to answer this question. Suppose that the price of nuts decreases from P₁ to P₂ and the demand curve for chocolates shifts to the right from D₁ to D₂. What is the relationship between nuts and chocolates?

The graph below illustrates three demand curves. -Refer to the graph above to answer this question. In the $50 to $60 price range, which of the following statements is correct?

What is true about the price elasticity of demand for products such as sugar, salt and household electricity?

According to reports, the supply of rose hip tea has doubled in the last five years yet the price has not changed. This suggests that the demand for this type of tea must be perfectly elastic. Comment on this statement.

What is the most likely effect of a government reducing the supply of illegal drugs?

If a product has many substitutes, which of the following statements is correct?

Which of the following is the most likely explanation for the fact that the price elasticity of demand for celery is high?

If the government increases the excise tax on cigarettes by 10%, which of the following statements is correct?

What is the term for the responsiveness of quantity demanded to a change in price?

The Economic Problem

Demand and Supply: an Introduction

Demand and Supply: an Elaboration

Consumer Choice

A Firms Production Decisions and Costs in the Short Run

Costs in the Long Run

An Evaluation of Competitive Markets

Monopoly

Imperfect Competition

The Factors of Production

International Trade

Filters

Exam 4: Elasticity

How is a firm's total revenue calculated?

The price elasticity of demand coefficient is, technically, always negative, but for convenience economists ignore the minus sign.

Price 14 16 18 20 22 Quantity Demanded 220 200 180 160 140 -Refer to the information above to answer this question. What is the elasticity of demand in the $16 to $20 range?

What is meant by the term supply elasticity?

Graphically, what is the effect of imposing an excise tax on a product?

Define each of the following: a) elastic demand b) unitary demand c) inelastic demand.

What is the elasticity of supply of seats for a one-night concert in an auditorium?

-Refer to the graphs above to answer this question. Suppose that the price of nuts decreases from P1 to P2 and the demand curve for chocolates shifts to the right from D1 to D2. What is the relationship between nuts and chocolates?

The graph below illustrates three demand curves. -Refer to the graph above to answer this question. In the $50 to $60 price range, which of the following statements is correct?

What is true about the price elasticity of demand for products such as sugar, salt and household electricity?

According to reports, the supply of rose hip tea has doubled in the last five years yet the price has not changed. This suggests that the demand for this type of tea must be perfectly elastic. Comment on this statement.

What is the most likely effect of a government reducing the supply of illegal drugs?

If a product has many substitutes, which of the following statements is correct?

Which of the following is the most likely explanation for the fact that the price elasticity of demand for celery is high?

If the government increases the excise tax on cigarettes by 10%, which of the following statements is correct?

What is the term for the responsiveness of quantity demanded to a change in price?

The Economic Problem

Demand and Supply: an Introduction

Demand and Supply: an Elaboration

Consumer Choice

A Firms Production Decisions and Costs in the Short Run

Costs in the Long Run

An Evaluation of Competitive Markets

Monopoly

Imperfect Competition

The Factors of Production

International Trade

Filters

-Refer to the graphs above to answer this question. Suppose that the price of nuts decreases from P₁ to P₂ and the demand curve for chocolates shifts to the right from D₁ to D₂. What is the relationship between nuts and chocolates?