Question 1

The cross-price elasticity of demand for bacon and eggs likely would be negative because bacon and eggs are complements for many people.

Accepted Answer

A) True 
 B)False

Question 2

Suppose good X has a positive income elasticity of demand.This implies that good X could be (i)
A normal good.
(ii)
A necessity.
(iii)
An inferior good.
(iv)
A luxury.

Accepted Answer

A)  (i)only 
B)  (i)and (ii)only 
C)  (i), (ii),and (iv)only 
D)  (iii)only 
A)  (i)only 
B)  (i)and (ii)only 
C)  (i), (ii),and (iv)only 
D)  (iii)only

Question 3

Sandra purchases 5 pounds of coffee and 10 gallons of milk per month when the price of coffee is $10 per pound.She purchases 6 pounds of coffee and 12 gallons of milk per month when the price of coffee is $8 per pound.Sandra's cross-price elasticity of demand for coffee and milk is

Accepted Answer

A)  0.82,and they are substitutes. 
B)  -0.82,and they are complements. 
C)  1.22,and they are substitutes. 
D)  -1.22,and they are complements. 
A)  0.82,and they are substitutes. 
B)  -0.82,and they are complements. 
C)  1.22,and they are substitutes. 
D)  -1.22,and they are complements.

Question 4

Figure 5-18  
-Refer to Figure 5-18.Which supply curve is most likely relevant over a very long period of time?

Accepted Answer

A)  S1 
B)  S2 
C)  S3 
D)  All of the above are equally likely to be relevant over a very long period of time. 
A)  S1 
B)  S2 
C)  S3 
D)  All of the above are equally likely to be relevant over a very long period of time.

Question 5

For a particular good,a 5 percent increase in price causes a 15 percent decrease in quantity demanded.Which of the following statements is most likely applicable to this good?

Accepted Answer

A)  There are many substitutes for this good. 
B)  The good is a necessity. 
C)  The market for the good is broadly defined. 
D)  The relevant time horizon is short. 
A)  There are many substitutes for this good. 
B)  The good is a necessity. 
C)  The market for the good is broadly defined. 
D)  The relevant time horizon is short.

Question 6

How does total revenue change as one moves downward and to the right along a linear demand curve?

Accepted Answer

A)  It always increases. 
B)  It always decreases. 
C)  It first increases,then decreases. 
D)  It is unaffected by a movement along the demand curve. 
A)  It always increases. 
B)  It always decreases. 
C)  It first increases,then decreases. 
D)  It is unaffected by a movement along the demand curve.

Question 7

Assume that a 4 percent decrease in income results in a 6 percent increase in the quantity demanded of a good.The income elasticity of demand for the good is

Accepted Answer

A)  negative,and the good is an inferior good. 
B)  negative,and the good is a normal good. 
C)  positive,and the good is an inferior good. 
D)  positive,and the good is a normal good. 
A)  negative,and the good is an inferior good. 
B)  negative,and the good is a normal good. 
C)  positive,and the good is an inferior good. 
D)  positive,and the good is a normal good.

Question 8

For which of the following goods is the income elasticity of demand likely lowest?

Accepted Answer

A)  subscriptions to premium movie channels through the local cable television provider 
B)  hi-definition DVD players 
C)  champagne 
D)  housing 
A)  subscriptions to premium movie channels through the local cable television provider 
B)  hi-definition DVD players 
C)  champagne 
D)  housing

Question 9

The flatter the demand curve through a given point,the

Accepted Answer

A)  greater the price elasticity of demand at that point. 
B)  smaller the price elasticity of demand at that point. 
C)  closer the price elasticity of demand will be to the slope of the curve. 
D)  greater the absolute value of the change in total revenue when there is a movement from that point upward and to the left along the demand curve. 
A)  greater the price elasticity of demand at that point. 
B)  smaller the price elasticity of demand at that point. 
C)  closer the price elasticity of demand will be to the slope of the curve. 
D)  greater the absolute value of the change in total revenue when there is a movement from that point upward and to the left along the demand curve.

Question 10

Figure 5-14  
-Refer to Figure 5-14.Using the midpoint method,what is the price elasticity of supply between points B and C?

Accepted Answer

A)  1.67 
B)  1.19 
C)  0.84 
D)  0.61 
A)  1.67 
B)  1.19 
C)  0.84 
D)  0.61

Question 11

If two goods are substitutes,their cross-price elasticity will be

Accepted Answer

A)  positive. 
B)  negative. 
C)  zero. 
D)  equal to the difference between the income elasticities of demand for the two goods. 
A)  positive. 
B)  negative. 
C)  zero. 
D)  equal to the difference between the income elasticities of demand for the two goods.

Question 12

Suppose that quantity demand rises by 10% as a result of a 15% decrease in price.The price elasticity of demand for this good is

Accepted Answer

A)  inelastic and equal to 0.67. 
B)  elastic and equal to 0.67. 
C)  inelastic and equal to 1.50. 
D)  elastic and equal to 1.50. 
A)  inelastic and equal to 0.67. 
B)  elastic and equal to 0.67. 
C)  inelastic and equal to 1.50. 
D)  elastic and equal to 1.50.

Question 13

If we observe that when the price of ice cream rises by 10%,ice cream manufacturers increase the quantity supplied of ice cream by 20%,then the price elasticity of supply is 2.

Accepted Answer

A) True 
 B)False

Question 14

A manufacturer produces 1,000 units,regardless of the market price.For this firm,the price elasticity of supply is

Accepted Answer

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

Question 15

If two goods are complements,their cross-price elasticity will be

Accepted Answer

A)  positive. 
B)  negative. 
C)  zero. 
D)  equal to the difference between the income elasticities of demand for the two goods. 
A)  positive. 
B)  negative. 
C)  zero. 
D)  equal to the difference between the income elasticities of demand for the two goods.

Question 16

A bakery would be willing to supply 500 donuts per day at a price of $0.50 each.At a price of $0.80,the bakery would be willing to supply 1,100 donuts.Using the midpoint method,the price elasticity of supply for donuts is about

Accepted Answer

A)  0.62,and supply is elastic. 
B)  0.62,and supply is inelastic. 
C)  1.63,and supply is elastic. 
D)  1.63,and supply is inelastic. 
A)  0.62,and supply is elastic. 
B)  0.62,and supply is inelastic. 
C)  1.63,and supply is elastic. 
D)  1.63,and supply is inelastic.

Question 17

For a good that is a necessity,

Accepted Answer

A)  quantity demanded tends to respond substantially to a change in price. 
B)  demand tends to be inelastic. 
C)  the law of demand does not apply. 
D)  All of the above are correct. 
A)  quantity demanded tends to respond substantially to a change in price. 
B)  demand tends to be inelastic. 
C)  the law of demand does not apply. 
D)  All of the above are correct.

Question 18

You have just been hired as a business consultant to determine what pricing policy would be appropriate in order to increase the total revenue of a bakery.The first step you would take would be to

Accepted Answer

A)  increase the price of every loaf of bread in the store. 
B)  look for ways to cut costs and increase profit for the bakery. 
C)  determine the price elasticity of demand for the bakery's products. 
D)  determine the price elasticity of supply for the bakery's products. 
A)  increase the price of every loaf of bread in the store. 
B)  look for ways to cut costs and increase profit for the bakery. 
C)  determine the price elasticity of demand for the bakery's products. 
D)  determine the price elasticity of supply for the bakery's products.

Question 19

When a supply curve is relatively flat,the

Accepted Answer

A)  sellers are not at all responsive to a change in price. 
B)  equilibrium price changes substantially when the demand for the good changes. 
C)  supply is relatively elastic. 
D)  supply is relatively inelastic. 
A)  sellers are not at all responsive to a change in price. 
B)  equilibrium price changes substantially when the demand for the good changes. 
C)  supply is relatively elastic. 
D)  supply is relatively inelastic.

Question 20

If the cross-price elasticity of demand between two goods is positive,are the goods complements or substitutes?

Accepted Answer

The goods

Exam 5: Elasticity and Its Application

The cross-price elasticity of demand for bacon and eggs likely would be negative because bacon and eggs are complements for many people.

Suppose good X has a positive income elasticity of demand.This implies that good X could be (i) A normal good. (ii) A necessity. (iii) An inferior good. (iv) A luxury.

Sandra purchases 5 pounds of coffee and 10 gallons of milk per month when the price of coffee is $10 per pound.She purchases 6 pounds of coffee and 12 gallons of milk per month when the price of coffee is $8 per pound.Sandra's cross-price elasticity of demand for coffee and milk is

Figure 5-18 -Refer to Figure 5-18.Which supply curve is most likely relevant over a very long period of time?

For a particular good,a 5 percent increase in price causes a 15 percent decrease in quantity demanded.Which of the following statements is most likely applicable to this good?

How does total revenue change as one moves downward and to the right along a linear demand curve?

Assume that a 4 percent decrease in income results in a 6 percent increase in the quantity demanded of a good.The income elasticity of demand for the good is

For which of the following goods is the income elasticity of demand likely lowest?

The flatter the demand curve through a given point,the

Figure 5-14 -Refer to Figure 5-14.Using the midpoint method,what is the price elasticity of supply between points B and C?

If two goods are substitutes,their cross-price elasticity will be

Suppose that quantity demand rises by 10% as a result of a 15% decrease in price.The price elasticity of demand for this good is

If we observe that when the price of ice cream rises by 10%,ice cream manufacturers increase the quantity supplied of ice cream by 20%,then the price elasticity of supply is 2.

A manufacturer produces 1,000 units,regardless of the market price.For this firm,the price elasticity of supply is

If two goods are complements,their cross-price elasticity will be

A bakery would be willing to supply 500 donuts per day at a price of $0.50 each.At a price of $0.80,the bakery would be willing to supply 1,100 donuts.Using the midpoint method,the price elasticity of supply for donuts is about

For a good that is a necessity,

You have just been hired as a business consultant to determine what pricing policy would be appropriate in order to increase the total revenue of a bakery.The first step you would take would be to

When a supply curve is relatively flat,the

If the cross-price elasticity of demand between two goods is positive,are the goods complements or substitutes?

Ten Principles of Economics

Thinking Like an Economist

Interdependence and the Gains From Trade

The Market Forces of Supply and Demand

Supply,demand,and Government Policies

Consumers,producers,and the Efficiency of Markets

Application: The Costs of Taxation

Application: International Trade

Externalities

Public Goods and Common Resources

The Design of the Tax System

The Costs of Production

Firms in Competitive Markets

Monopoly

Monopolistic Competition

Oligopoly

The Market for the Factors of Production

Earnings and Discrimination

Income Inequality and Poverty

The Theory of Consumer Choice

Frontiers of Microeconomics

Measuring a Nations Income

Measuring the Cost of Living

Production and Growth

Saving,investment,and the Financial System

The Basic Tools of Finance

Unemployment

The Monetary System

Money Growth and Inflation

Open-Economy Macroeconomic Models

A Macroeconomic Theory of the Open Economy

Aggregate Demand and Aggregate Supply

The Influence of Monetary and Fiscal Policy on Aggregate Demand

The Short-Run Trade-Off Between Inflation and Unemployment

Six Debates Over Macroeconomic Policy

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