Question 1

In the long run, the price elasticity of demand is than in the short run because .

Accepted Answer

A)  less; consumers have more time in which to make adjustments to price changes 
B)  less; the percentage change is measured over a larger amount of time 
C)  greater; consumers have more time in which to make adjustments to price changes 
D)  greater; firms have more time to shift the burden of the tax forward to consumers 
A)  less; consumers have more time in which to make adjustments to price changes 
B)  less; the percentage change is measured over a larger amount of time 
C)  greater; consumers have more time in which to make adjustments to price changes 
D)  greater; firms have more time to shift the burden of the tax forward to consumers C

Question 2

In which of the following cases would the price elasticity of demand be expected to increase?

Accepted Answer

A)  The number of close substitutes for the good increases. 
B)  The time period under consideration decreases. 
C)  The cost of the good relative to total income decreases. 
D)  The supply of the good increases. 
A)  The number of close substitutes for the good increases. 
B)  The time period under consideration decreases. 
C)  The cost of the good relative to total income decreases. 
D)  The supply of the good increases. A

Question 3

If the consumer has a great deal of time to adjust to an increase in the price of gasoline, which of the following is correct?

Accepted Answer

A)  Quantity demanded will be relatively sensitive to the change in price. 
B)  The percentage change in quantity demanded will be quite small relative to the percentage change in price. 
C)  The percentage change in price will be quite large relative to the percentage change in quantity demanded. 
D)  Demand will tend to be unitary elastic as it is for most goods in the long run. 
A)  Quantity demanded will be relatively sensitive to the change in price. 
B)  The percentage change in quantity demanded will be quite small relative to the percentage change in price. 
C)  The percentage change in price will be quite large relative to the percentage change in quantity demanded. 
D)  Demand will tend to be unitary elastic as it is for most goods in the long run. A

Question 4

Illustrate graphically the effect the credit market crisis in the United States in 2008 had in the market for existing single-family homes. Assuming the demand for existing single-family homes is relatively inelastic, what is likely to happen to the total revenues of home sellers as a result of the credit market crisis?

Accepted Answer

The credit market crisis resulted in a l

Question 5

Summarize the relationship between elasticity, price changes, and changes in total revenue.

Accepted Answer

When demand is inelastic, total revenue

Question 6

Studies strongly suggest that advertising strategies are generally much more effective than pricing strategies as a means to increase market share.

Accepted Answer

A) True 
 B)False

Question 7

As we move down a linear demand curve, the absolute value of the price elasticity of demand:

Accepted Answer

A)  increases. 
B)  stays the same. 
C)  decreases. 
D)  cannot be determined without more information. 
A)  increases. 
B)  stays the same. 
C)  decreases. 
D)  cannot be determined without more information.

Question 8

At a price of $5, consumers buy 200 units of good X. When the price falls to $4, quantity demanded increases to 250 units. We can conclude that over this range, demand is:

Accepted Answer

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

Question 9

The price elasticity of demand is measured as the percentage change in price divided by the percentage change in quantity demanded.

Accepted Answer

A) True 
 B)False

Question 10

When calculating the price elasticity of demand, which of the following conditions must be satisfied?

Accepted Answer

A)  All other factors that influence demand must be held constant. 
B)  Prices of related goods must be held constant but all other factors must be allowed to vary. 
C)  Prices of related goods must be allowed to vary but all other factors must be held constant. 
D)  All other factors than influence demand must be allowed to vary. 
A)  All other factors that influence demand must be held constant. 
B)  Prices of related goods must be held constant but all other factors must be allowed to vary. 
C)  Prices of related goods must be allowed to vary but all other factors must be held constant. 
D)  All other factors than influence demand must be allowed to vary.

Question 11

Assume the marginal revenue from each additional unit of a good sold is 0. In this case, we can conclude that demand for the good is:

Accepted Answer

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

Question 12

Assuming we are considering a normal good, the calculated price elasticity of demand is:

Accepted Answer

A)  always positive. 
B)  always negative. 
C)  positive if demand is elastic and negative if demand is inelastic. 
D)  positive if demand is inelastic and negative if demand is elastic. 
A)  always positive. 
B)  always negative. 
C)  positive if demand is elastic and negative if demand is inelastic. 
D)  positive if demand is inelastic and negative if demand is elastic.

Question 13

When demand is perfectly inelastic with respect to price, the demand curve is horizontal.

Accepted Answer

A) True 
 B)False

Question 14

If an increase in price causes total revenue to decrease, we can conclude that demand is price elastic.

Accepted Answer

A) True 
 B)False

Question 15

As we move down a particular indifference curve, if the "marginal rate of substitution" between the two goods does not change we can conclude that the two goods are:

Accepted Answer

A)  perfect substitutes. 
B)  perfect complements. 
C)  totally unrelated. 
D)  both inferior goods. 
A)  perfect substitutes. 
B)  perfect complements. 
C)  totally unrelated. 
D)  both inferior goods.

Question 16

Suppose the demand for meals at a medium-priced restaurant is elastic. If the management of the restaurant is considering raising prices, it can expect the total revenues the restaurant earns to:

Accepted Answer

A)  increase. 
B)  stay the same. 
C)  decrease. 
D)  cannot be determined with the information given. 
A)  increase. 
B)  stay the same. 
C)  decrease. 
D)  cannot be determined with the information given.

Question 17

Which of the following statements is correct?

Accepted Answer

A)  In the case of a linear demand curve, the slope and the price elasticity of demand are equal at each point on the demand curve. 
B)  The slope of the demand curve is some constant value, but the value of the price elasticity coefficient decreases as we move down the demand curve. 
C)  The slope of the demand curve is some constant value, but the value of the price elasticity coefficient increases as we move down the demand curve. 
D)  There is no connection between the slope of the demand curve and the value of the price elasticity coefficient. 
A)  In the case of a linear demand curve, the slope and the price elasticity of demand are equal at each point on the demand curve. 
B)  The slope of the demand curve is some constant value, but the value of the price elasticity coefficient decreases as we move down the demand curve. 
C)  The slope of the demand curve is some constant value, but the value of the price elasticity coefficient increases as we move down the demand curve. 
D)  There is no connection between the slope of the demand curve and the value of the price elasticity coefficient.

Question 18

Suppose a consumer's income increases from $30,000 to $36,000. As a result, the consumer increases her purchases of compact disks CDs) from 25 CDs to 30 CDs. What is the consumer's income elasticity of demand for CDs?

Accepted Answer

A)  0.5 
B)  1.0 
C)  1.5 
D)  2.0 
A)  0.5 
B)  1.0 
C)  1.5 
D)  2.0

Question 19

When demand is inelastic and price is decreased:

Accepted Answer

A)  the effect of the decrease in price on total revenue dominates the effect of the increase in quantity demanded on total revenue; overall total revenue declines. 
B)  the effect of the increase in quantity demanded on total revenue dominates the effect of the decrease in price on total revenue; overall total revenue increases. 
C)  the effects of the decrease in price on total revenue and the corresponding increase in quantity demanded on total revenue perfectly offset one another; overall total revenue remains unchanged. 
D)  quantity demanded and total revenue fall to zero. 
A)  the effect of the decrease in price on total revenue dominates the effect of the increase in quantity demanded on total revenue; overall total revenue declines. 
B)  the effect of the increase in quantity demanded on total revenue dominates the effect of the decrease in price on total revenue; overall total revenue increases. 
C)  the effects of the decrease in price on total revenue and the corresponding increase in quantity demanded on total revenue perfectly offset one another; overall total revenue remains unchanged. 
D)  quantity demanded and total revenue fall to zero.

Question 20

Why is the price elasticity of demand a relative measure? That is, why is elasticity measured in percentage terms rather than in absolute terms?

Accepted Answer

A)  So the coefficient of elasticity will not be dependent on the physical units of the good. 
B)  Because absolute measures do not account for the direction of the change in quantity. 
C)  So that the coefficient of elasticity will not be negative. 
D)  Because the absolute price or quantity demanded of a product is irrelevant to the elasticity measure. 
A)  So the coefficient of elasticity will not be dependent on the physical units of the good. 
B)  Because absolute measures do not account for the direction of the change in quantity. 
C)  So that the coefficient of elasticity will not be negative. 
D)  Because the absolute price or quantity demanded of a product is irrelevant to the elasticity measure.

In the long run, the price elasticity of demand is than in the short run because .

In which of the following cases would the price elasticity of demand be expected to increase?

If the consumer has a great deal of time to adjust to an increase in the price of gasoline, which of the following is correct?

Summarize the relationship between elasticity, price changes, and changes in total revenue.

Studies strongly suggest that advertising strategies are generally much more effective than pricing strategies as a means to increase market share.

As we move down a linear demand curve, the absolute value of the price elasticity of demand:

At a price of $5, consumers buy 200 units of good X. When the price falls to $4, quantity demanded increases to 250 units. We can conclude that over this range, demand is:

The price elasticity of demand is measured as the percentage change in price divided by the percentage change in quantity demanded.

When calculating the price elasticity of demand, which of the following conditions must be satisfied?

Assume the marginal revenue from each additional unit of a good sold is 0. In this case, we can conclude that demand for the good is:

Assuming we are considering a normal good, the calculated price elasticity of demand is:

When demand is perfectly inelastic with respect to price, the demand curve is horizontal.

If an increase in price causes total revenue to decrease, we can conclude that demand is price elastic.

As we move down a particular indifference curve, if the "marginal rate of substitution" between the two goods does not change we can conclude that the two goods are:

Suppose the demand for meals at a medium-priced restaurant is elastic. If the management of the restaurant is considering raising prices, it can expect the total revenues the restaurant earns to:

Which of the following statements is correct?

Suppose a consumer's income increases from $30,000 to $36,000. As a result, the consumer increases her purchases of compact disks CDs) from 25 CDs to 30 CDs. What is the consumer's income elasticity of demand for CDs?

When demand is inelastic and price is decreased:

Why is the price elasticity of demand a relative measure? That is, why is elasticity measured in percentage terms rather than in absolute terms?

Managers and Economics

Demand, Supply, and Equilibrium Prices

Techniques for Understanding Consumer Demand and Behavior

Production and Cost Analysis in the Short Run

Production and Cost Analysis in the Long Run

Market Structure: Perfect Competition

Market Structure: Monopoly and Monopolistic Competition

Market Structure: Oligopoly

Pricing Strategies for the Firm

Measuring Macroeconomic Activity

Spending by Individuals, Firms, and Governments on Real Goods and Services

The Role of Money in the Macro Economy

The Aggregate Model of the Macro Economy

International and Balance of Payments Issues in the Macro Economy

Combining Micro and Macro Analysis for Managerial Decision Making

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Exam 3: Demand Elasticities

In the long run, the price elasticity of demand is than in the short run because .

In which of the following cases would the price elasticity of demand be expected to increase?

If the consumer has a great deal of time to adjust to an increase in the price of gasoline, which of the following is correct?

Summarize the relationship between elasticity, price changes, and changes in total revenue.

Studies strongly suggest that advertising strategies are generally much more effective than pricing strategies as a means to increase market share.

As we move down a linear demand curve, the absolute value of the price elasticity of demand:

At a price of $5, consumers buy 200 units of good X. When the price falls to $4, quantity demanded increases to 250 units. We can conclude that over this range, demand is:

The price elasticity of demand is measured as the percentage change in price divided by the percentage change in quantity demanded.

When calculating the price elasticity of demand, which of the following conditions must be satisfied?

Assume the marginal revenue from each additional unit of a good sold is 0. In this case, we can conclude that demand for the good is:

Assuming we are considering a normal good, the calculated price elasticity of demand is:

When demand is perfectly inelastic with respect to price, the demand curve is horizontal.

If an increase in price causes total revenue to decrease, we can conclude that demand is price elastic.

As we move down a particular indifference curve, if the "marginal rate of substitution" between the two goods does not change we can conclude that the two goods are:

Suppose the demand for meals at a medium-priced restaurant is elastic. If the management of the restaurant is considering raising prices, it can expect the total revenues the restaurant earns to:

Which of the following statements is correct?

Suppose a consumer's income increases from $30,000 to $36,000. As a result, the consumer increases her purchases of compact disks CDs) from 25 CDs to 30 CDs. What is the consumer's income elasticity of demand for CDs?

When demand is inelastic and price is decreased:

Why is the price elasticity of demand a relative measure? That is, why is elasticity measured in percentage terms rather than in absolute terms?

Managers and Economics

Demand, Supply, and Equilibrium Prices

Techniques for Understanding Consumer Demand and Behavior

Production and Cost Analysis in the Short Run

Production and Cost Analysis in the Long Run

Market Structure: Perfect Competition

Market Structure: Monopoly and Monopolistic Competition

Market Structure: Oligopoly

Pricing Strategies for the Firm

Measuring Macroeconomic Activity

Spending by Individuals, Firms, and Governments on Real Goods and Services

The Role of Money in the Macro Economy

The Aggregate Model of the Macro Economy

International and Balance of Payments Issues in the Macro Economy

Combining Micro and Macro Analysis for Managerial Decision Making

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