Question 1

If the income elasticity of demand for a good is .59, then it is what type of good?

Accepted Answer

A)  Price elastic. 
B)  Price inelastic. 
C)  Income inelastic. 
D)  Income elastic. 
E)  Inferior. 
A)  Price elastic. 
B)  Price inelastic. 
C)  Income inelastic. 
D)  Income elastic. 
E)  Inferior.

Question 2

If we measure the income elasticity of a good as −1.8, this means this good is a(n):

Accepted Answer

A)  luxury good. 
B)  substitute good. 
C)  complementary good. 
D)  inferior good. 
E)  good from the food group. 
A)  luxury good. 
B)  substitute good. 
C)  complementary good. 
D)  inferior good. 
E)  good from the food group.

Question 3

An excise tax levied on a product will impose a smaller relative burden on consumers (and a larger relative burden on sellers) when:

Accepted Answer

A)  the supply of the product is relatively inelastic. 
B)  the supply of the product is relatively elastic. 
C)  the demand for the product is relatively elastic. 
D)  either a or c is true. 
A)  the supply of the product is relatively inelastic. 
B)  the supply of the product is relatively elastic. 
C)  the demand for the product is relatively elastic. 
D)  either a or c is true.

Question 4

If goods X and Y are such that the cross price elasticity between them is negative, and if the income elasticity of X is negative, then these goods are:

Accepted Answer

A)  inferior complements. 
B)  luxury complements. 
C)  income elastic substitutes. 
D)  normal substitutes. 
E)  income elastic complements. 
A)  inferior complements. 
B)  luxury complements. 
C)  income elastic substitutes. 
D)  normal substitutes. 
E)  income elastic complements.

Question 5

In the country of Bora Bora, consumers buy large quantities of alcohol, tobacco, and coffee. Last year, the prices of these goods each increased by 10 percent. The quantities demanded for these goods fell by 10, 3, and 8 percent, respectively. If the government is thinking about imposing a unit tax on one of these goods, which good should they choose to tax to raise the most tax revenue, and why?

Accepted Answer

A)  Alcohol; because the price elasticity is highest. 
B)  Tobacco; because the price elasticity is lowest. 
C)  Coffee; because it will have the lowest tax elasticity. 
D)  Tobacco; because it will have the highest tax elasticity. 
E)  Alcohol; because the burden of taxation would be more even. 
A)  Alcohol; because the price elasticity is highest. 
B)  Tobacco; because the price elasticity is lowest. 
C)  Coffee; because it will have the lowest tax elasticity. 
D)  Tobacco; because it will have the highest tax elasticity. 
E)  Alcohol; because the burden of taxation would be more even.

Question 6

If demand is price elastic, then when price decreases, total revenue:

Accepted Answer

A)  decreases. 
B)  increases. 
C)  does not change. 
D)  is less than one. 
E)  is negative. 
A)  decreases. 
B)  increases. 
C)  does not change. 
D)  is less than one. 
E)  is negative.

Question 7

Suppose an increase in symphony tickets prices reduces the total revenue. This is evidence that demand is:

Accepted Answer

A)  price elastic. 
B)  price inelastic. 
C)  unitary elastic. 
D)  perfectly elastic. 
A)  price elastic. 
B)  price inelastic. 
C)  unitary elastic. 
D)  perfectly elastic.

Question 8

Elasticity is a measure of:

Accepted Answer

A)  the slope of a linear demand curve. 
B)  the slope of a supply curve. 
C)  relative responsiveness. 
D)  economic welfare. 
E)  consumer tastes. 
A)  the slope of a linear demand curve. 
B)  the slope of a supply curve. 
C)  relative responsiveness. 
D)  economic welfare. 
E)  consumer tastes.

Question 9

Which of the following statements is true?

Accepted Answer

A)  If the income elasticity of demand is less than zero, the good is an inferior good. 
B)  Only if the demand curve is vertical will sellers raise the price by the full amount of a tax. 
C)  Two goods are substitutes if the cross-elasticity of demand coefficient is positive. 
D)  A price elasticity of supply coefficient equal to 1.5 means the product exhibits an elastic supply and a 10 percent increase in the price will increase the quantity supplied by 15 percent. 
E)  All of these. 
A)  If the income elasticity of demand is less than zero, the good is an inferior good. 
B)  Only if the demand curve is vertical will sellers raise the price by the full amount of a tax. 
C)  Two goods are substitutes if the cross-elasticity of demand coefficient is positive. 
D)  A price elasticity of supply coefficient equal to 1.5 means the product exhibits an elastic supply and a 10 percent increase in the price will increase the quantity supplied by 15 percent. 
E)  All of these.

Question 10

If a 10 percent cut in price causes a 15 percent increase in sales, then:

Accepted Answer

A)  total revenue will decrease. 
B)  demand is price inelastic in this range. 
C)  demand is price elastic in this range. 
D)  demand is unit elastic in this range. 
E)  total revenue will remain the same. 
A)  total revenue will decrease. 
B)  demand is price inelastic in this range. 
C)  demand is price elastic in this range. 
D)  demand is unit elastic in this range. 
E)  total revenue will remain the same.

Question 11

If the price elasticity of demand for a product measures .45,

Accepted Answer

A)  this good has many available substitutes. 
B)  this good must be a nonessential good. 
C)  this good is a high-priced good. 
D)  a decrease in price will increase total revenue. 
E)  this good is demand price inelastic. 
A)  this good has many available substitutes. 
B)  this good must be a nonessential good. 
C)  this good is a high-priced good. 
D)  a decrease in price will increase total revenue. 
E)  this good is demand price inelastic.

Question 12

​Suppose you are on a committee seeking to increase revenue from your city's bus system. If demand is _______, you would recommend raising the fare.

Accepted Answer

A)  ​perfectly elastic 
B)  ​elastic 
C)  ​unitary elastic 
D)  ​inelastic 
A)  ​perfectly elastic 
B)  ​elastic 
C)  ​unitary elastic 
D)  ​inelastic

Question 13

If the income elasticity of demand for a good is negative, this means that:

Accepted Answer

A)  only the poor will buy the good. 
B)  as incomes fall, less will be spent on the good. 
C)  as incomes rise, the demand for the good will fall. 
D)  the good does not obey the law of demand. 
A)  only the poor will buy the good. 
B)  as incomes fall, less will be spent on the good. 
C)  as incomes rise, the demand for the good will fall. 
D)  the good does not obey the law of demand.

Question 14

If Coke and Pepsi are close substitutes, then if:

Accepted Answer

A)  Coke raises its price, so will Pepsi. 
B)  Coke raises its price, it will not lose customers to Pepsi. 
C)  Pepsi lowers its price, it will not hurt Coke. 
D)  Pepsi lowers its price, so will Coke. 
E)  Coke raises its price, some customers will switch to Pepsi. 
A)  Coke raises its price, so will Pepsi. 
B)  Coke raises its price, it will not lose customers to Pepsi. 
C)  Pepsi lowers its price, it will not hurt Coke. 
D)  Pepsi lowers its price, so will Coke. 
E)  Coke raises its price, some customers will switch to Pepsi.

Question 15

​ A _______ demand curve has a price elasticity of demand that is perfectly inelastic.

Accepted Answer

A)  ​circular 
B)  ​horizontal 
C)  ​rectangular hyperbola 
D)  ​vertical 
A)  ​circular 
B)  ​horizontal 
C)  ​rectangular hyperbola 
D)  ​vertical

Question 16

If a demand curve for a good were completely vertical, it would be considered:

Accepted Answer

A)  perfectly elastic. 
B)  perfectly inelastic. 
C)  of unitary elasticity. 
D)  relatively inelastic. 
A)  perfectly elastic. 
B)  perfectly inelastic. 
C)  of unitary elasticity. 
D)  relatively inelastic.

Question 17

If Pete raises his price of muffins from $2 to $3 and his sales revenue increases from $35,000 to $38,000, then:

Accepted Answer

A)  the demand for Pete's muffins in this range is price elastic. 
B)  the demand for Pete's muffins in this range is price inelastic. 
C)  the demand for Pete's muffins in this range is unit elastic. 
D)  the percentage change in quantity demanded must exceed the percentage change in product price. 
E)  this is impossible since this would violate the law of demand. 
A)  the demand for Pete's muffins in this range is price elastic. 
B)  the demand for Pete's muffins in this range is price inelastic. 
C)  the demand for Pete's muffins in this range is unit elastic. 
D)  the percentage change in quantity demanded must exceed the percentage change in product price. 
E)  this is impossible since this would violate the law of demand.

Question 18

Which of the following describes a situation in which demand must be elastic?

Accepted Answer

A)  Total revenue increases by 15 percent when the price of corn dogs rises by 15 percent. 
B)  Total revenue increases by less than 15 percent when the price of corn dogs rises by 15 percent. 
C)  Total revenue decreases by more than 15 percent when the price of corn dogs rises by 15 percent. 
D)  Total revenue increases by $15 when the price of corn dogs rises by $15. 
E)  Total revenue increases by more than $15 when the price of corn dogs rises by $15. 
A)  Total revenue increases by 15 percent when the price of corn dogs rises by 15 percent. 
B)  Total revenue increases by less than 15 percent when the price of corn dogs rises by 15 percent. 
C)  Total revenue decreases by more than 15 percent when the price of corn dogs rises by 15 percent. 
D)  Total revenue increases by $15 when the price of corn dogs rises by $15. 
E)  Total revenue increases by more than $15 when the price of corn dogs rises by $15.

Question 19

Suppose an economist found that total revenues increase for the bus system when fares were raised, the conclusion is that the price elasticity demand for subway services over the range of fare increase is inelastic.

Accepted Answer

A) True 
 B)False

Question 20

One of the reasons that price elasticities of demand are always stated as positive numbers is because:

Accepted Answer

A)  the numerators and denominators of the formula are both negative. 
B)  the numerators and denominators of the formula are both positive. 
C)  price increases always lead to increases in quantity demanded. 
D)  price decreases always lead to decreases in quantity demanded. 
E)  price elasticities are always negative, so we ignore the sign. 
A)  the numerators and denominators of the formula are both negative. 
B)  the numerators and denominators of the formula are both positive. 
C)  price increases always lead to increases in quantity demanded. 
D)  price decreases always lead to decreases in quantity demanded. 
E)  price elasticities are always negative, so we ignore the sign.

If the income elasticity of demand for a good is .59, then it is what type of good?

If we measure the income elasticity of a good as −1.8, this means this good is a(n):

An excise tax levied on a product will impose a smaller relative burden on consumers (and a larger relative burden on sellers) when:

If goods X and Y are such that the cross price elasticity between them is negative, and if the income elasticity of X is negative, then these goods are:

If demand is price elastic, then when price decreases, total revenue:

Suppose an increase in symphony tickets prices reduces the total revenue. This is evidence that demand is:

Elasticity is a measure of:

Which of the following statements is true?

If a 10 percent cut in price causes a 15 percent increase in sales, then:

If the price elasticity of demand for a product measures .45,

Suppose you are on a committee seeking to increase revenue from your city's bus system. If demand is _______, you would recommend raising the fare.

If the income elasticity of demand for a good is negative, this means that:

If Coke and Pepsi are close substitutes, then if:

A _______ demand curve has a price elasticity of demand that is perfectly inelastic.

If a demand curve for a good were completely vertical, it would be considered:

If Pete raises his price of muffins from $2 to $3 and his sales revenue increases from $35,000 to $38,000, then:

Which of the following describes a situation in which demand must be elastic?

Suppose an economist found that total revenues increase for the bus system when fares were raised, the conclusion is that the price elasticity demand for subway services over the range of fare increase is inelastic.

One of the reasons that price elasticities of demand are always stated as positive numbers is because:

Introducing the Economic Way of Thinking

Production Possibilities, Opportunity Cost, and Economic Growth

Market Demand and Supply

Markets in Action

Consumer Choice Theory

Production Costs

Perfect Competition

Monopoly

Monopolistic Competition and Oligopoly

Labor Markets

Income Distribution, Poverty, and Discrimination

Antitrust and Regulation

Environmental Economics

International Trade and Finance

Economies in Transition

Growth and the

Filters

Exam 5: Price Elasticity of Demand and Supply

If the income elasticity of demand for a good is .59, then it is what type of good?

If we measure the income elasticity of a good as −1.8, this means this good is a(n):

An excise tax levied on a product will impose a smaller relative burden on consumers (and a larger relative burden on sellers) when:

If goods X and Y are such that the cross price elasticity between them is negative, and if the income elasticity of X is negative, then these goods are:

If demand is price elastic, then when price decreases, total revenue:

Suppose an increase in symphony tickets prices reduces the total revenue. This is evidence that demand is:

Elasticity is a measure of:

Which of the following statements is true?

If a 10 percent cut in price causes a 15 percent increase in sales, then:

If the price elasticity of demand for a product measures .45,

​Suppose you are on a committee seeking to increase revenue from your city's bus system. If demand is _______, you would recommend raising the fare.

If the income elasticity of demand for a good is negative, this means that:

If Coke and Pepsi are close substitutes, then if:

​ A _______ demand curve has a price elasticity of demand that is perfectly inelastic.

If a demand curve for a good were completely vertical, it would be considered:

If Pete raises his price of muffins from $2 to $3 and his sales revenue increases from $35,000 to $38,000, then:

Which of the following describes a situation in which demand must be elastic?

Suppose an economist found that total revenues increase for the bus system when fares were raised, the conclusion is that the price elasticity demand for subway services over the range of fare increase is inelastic.

One of the reasons that price elasticities of demand are always stated as positive numbers is because:

Introducing the Economic Way of Thinking

Production Possibilities, Opportunity Cost, and Economic Growth

Market Demand and Supply

Markets in Action

Consumer Choice Theory

Production Costs

Perfect Competition

Monopoly

Monopolistic Competition and Oligopoly

Labor Markets

Income Distribution, Poverty, and Discrimination

Antitrust and Regulation

Environmental Economics

International Trade and Finance

Economies in Transition

Growth and the

Filters

Suppose you are on a committee seeking to increase revenue from your city's bus system. If demand is _______, you would recommend raising the fare.

A _______ demand curve has a price elasticity of demand that is perfectly inelastic.