Question 1

Which of the following would most likely exhibit the highest price elasticity of demand?

Accepted Answer

A) Gasoline 
B) One particular brand of toothpaste 
C) Motor oil 
D) Salt 
A) Gasoline 
B) One particular brand of toothpaste 
C) Motor oil 
D) Salt B

Question 2

If demand is inelastic and the price of a product decreases by 10 percent, then

Accepted Answer

A) the change in quantity demanded is less than 10 percent. 
B) the change in quantity demanded is equal to 10 percent. 
C) the change in quantity demanded is greater than 10 percent. 
D) the decrease in quantity demanded is greater than 0 percent. 
A) the change in quantity demanded is less than 10 percent. 
B) the change in quantity demanded is equal to 10 percent. 
C) the change in quantity demanded is greater than 10 percent. 
D) the decrease in quantity demanded is greater than 0 percent. A

Question 3

A product that has an elastic demand curve has all of the following characteristics EXCEPT

Accepted Answer

A) it has many substitutes. 
B) a consumer can wait to buy the product. 
C) it has few or no substitutes. 
D) it is a large part of a consumer's income. 
A) it has many substitutes. 
B) a consumer can wait to buy the product. 
C) it has few or no substitutes. 
D) it is a large part of a consumer's income. C

Question 4

When two goods are complements,

Accepted Answer

A) the demands for both goods will be elastic. 
B) cross price elasticity of demand will be 0. 
C) cross price elasticity of demand will be negative. 
D) cross price elasticity of demand will be positive. 
A) the demands for both goods will be elastic. 
B) cross price elasticity of demand will be 0. 
C) cross price elasticity of demand will be negative. 
D) cross price elasticity of demand will be positive.

Question 5

An absolute price elasticity of demand equal to 0.4 indicates that a

Accepted Answer

A) 4 percent increase in price leads to a 10 percent decrease in quantity demanded. 
B) 1 percent increase in price leads to a 4 percent decrease in quantity demanded. 
C) 0.4 percent decrease in price leads to a 1 percent increase in quantity demanded. 
D) 10 percent decrease in price leads to a 4 percent increase in quantity demanded. 
A) 4 percent increase in price leads to a 10 percent decrease in quantity demanded. 
B) 1 percent increase in price leads to a 4 percent decrease in quantity demanded. 
C) 0.4 percent decrease in price leads to a 1 percent increase in quantity demanded. 
D) 10 percent decrease in price leads to a 4 percent increase in quantity demanded.

Question 6

Vincent Van Gogh paintings have a price elasticity of supply

Accepted Answer

A) equal to 2.0. 
B) equal to 1.0. 
C) close to 0.0. 
D) approaching infinity. 
A) equal to 2.0. 
B) equal to 1.0. 
C) close to 0.0. 
D) approaching infinity.

Question 7

If the bus fare of a city increases from $1.00 to $1.25 per ride and as a result total revenue increases, then we know that

Accepted Answer

A) percentage change in fare is less than percentage change in number of rides. 
B) percentage change in fare is greater than percentage change in number of rides. 
C) percentage change in fare is equal to the percentage change in number of rides. 
D) it is impossible to tell. 
A) percentage change in fare is less than percentage change in number of rides. 
B) percentage change in fare is greater than percentage change in number of rides. 
C) percentage change in fare is equal to the percentage change in number of rides. 
D) it is impossible to tell.

Question 8

The price elasticity of demand is the

Accepted Answer

A) percentage change in quantity demanded divided by the percentage change in price. 
B) change in quantity demanded divided by the change in price. 
C) percentage change in price divided by the percentage change in quantity demanded. 
D) change in price divided by the change in quantity demanded. 
A) percentage change in quantity demanded divided by the percentage change in price. 
B) change in quantity demanded divided by the change in price. 
C) percentage change in price divided by the percentage change in quantity demanded. 
D) change in price divided by the change in quantity demanded.

Question 9

Suppose the quantity demanded of ice cream cones increases from 400 to 425 cones a day when the price is reduced from $1.50 to $1.25. In this situation, the elasticity of demand, calculated using the average method, is

Accepted Answer

A) 3. 
B) 1. 
C) 0.33. 
D) 1.33. 
A) 3. 
B) 1. 
C) 0.33. 
D) 1.33.

Question 10

If the price elasticity of demand (Ep)equals one in the short run, then, other things being equal, in the long run Ep will be

Accepted Answer

A) one. 
B) less than one. 
C) greater than one. 
D) indeterminate without more information. 
A) one. 
B) less than one. 
C) greater than one. 
D) indeterminate without more information.

Question 11

If the price of one good increases, and as a result the demand for another related good falls, the goods are

Accepted Answer

A) substitutes. 
B) normal goods. 
C) complements. 
D) inferior goods. 
A) substitutes. 
B) normal goods. 
C) complements. 
D) inferior goods.

Question 12

-In the above figure, over the price range P1P2, demand is

Accepted Answer

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

Question 13

The price elasticity of demand measures

Accepted Answer

A) changes in demand. 
B) how responsive producers are to a change in demand. 
C) how responsive consumers are to a change in price. 
D) how responsive consumers are to a change in income. 
A) changes in demand. 
B) how responsive producers are to a change in demand. 
C) how responsive consumers are to a change in price. 
D) how responsive consumers are to a change in income.

Question 14

Income elasticity of demand is defined as

Accepted Answer

A) the change in quantity demanded divided by the change in income. 
B) the change in quantity demanded divided by the change in market price. 
C) the percentage change in income divided by the percentage change in quantity demanded. 
D) the percentage change in demand divided by the percentage change in income. 
A) the change in quantity demanded divided by the change in income. 
B) the change in quantity demanded divided by the change in market price. 
C) the percentage change in income divided by the percentage change in quantity demanded. 
D) the percentage change in demand divided by the percentage change in income.

Question 15

The price elasticity of demand shows

Accepted Answer

A) the relationship between market price and household income. 
B) the proportionate amount by which the quantity demanded changes in response to a proportionate change in price. 
C) the quantity demanded at a given price. 
D) the proportionate amount by which the price changes in response to a proportionate change in quantity demanded. 
A) the relationship between market price and household income. 
B) the proportionate amount by which the quantity demanded changes in response to a proportionate change in price. 
C) the quantity demanded at a given price. 
D) the proportionate amount by which the price changes in response to a proportionate change in quantity demanded.

Question 16

If the value of the cross elasticity of demand is negative, the two goods are

Accepted Answer

A) complementary goods. 
B) substitute goods. 
C) normal goods. 
D) inferior goods. 
A) complementary goods. 
B) substitute goods. 
C) normal goods. 
D) inferior goods.

Question 17

-Use the above figure. When the price increases from $2 to $10, the absolute price elasticity of demand is

Accepted Answer

A) 0.67. 
B) 1.50. 
C) 0.25. 
D) 1.00. 
A) 0.67. 
B) 1.50. 
C) 0.25. 
D) 1.00.

Question 18

Moving upward along a downward sloping straight-line demand curve, as the price of the product goes up,

Accepted Answer

A) the price elasticity of demand does not change. 
B) the price elasticity of demand goes from being inelastic to being elastic. 
C) the price elasticity of demand goes from being elastic to being inelastic. 
D) the price elasticity of demand goes from negative to positive. 
A) the price elasticity of demand does not change. 
B) the price elasticity of demand goes from being inelastic to being elastic. 
C) the price elasticity of demand goes from being elastic to being inelastic. 
D) the price elasticity of demand goes from negative to positive.

Question 19

When the absolute price elasticity of demand is less than 1, demand is

Accepted Answer

A) elastic. 
B) unit-elastic. 
C) inelastic. 
D) undetermined without more information. 
A) elastic. 
B) unit-elastic. 
C) inelastic. 
D) undetermined without more information.

Question 20

The government raises gasoline taxes as part of the price of gasoline and receives more tax revenues. However, after five years, the government discovers that revenues from the gasoline tax have declined. This situation would be most likely to occur if

Accepted Answer

A) the long-run elasticity of supply was much greater than the long-run elasticity of demand. 
B) the demand for gasoline was inelastic in the short run, but elastic in the long run. 
C) the long-run elasticity of demand was greater than the long-run elasticity of supply. 
D) the demand for gasoline was perfectly inelastic in both the short run and the long run. 
A) the long-run elasticity of supply was much greater than the long-run elasticity of demand. 
B) the demand for gasoline was inelastic in the short run, but elastic in the long run. 
C) the long-run elasticity of demand was greater than the long-run elasticity of supply. 
D) the demand for gasoline was perfectly inelastic in both the short run and the long run.

Exam 19: Demand and Supply Elasticity

Which of the following would most likely exhibit the highest price elasticity of demand?

If demand is inelastic and the price of a product decreases by 10 percent, then

A product that has an elastic demand curve has all of the following characteristics EXCEPT

When two goods are complements,

An absolute price elasticity of demand equal to 0.4 indicates that a

Vincent Van Gogh paintings have a price elasticity of supply

If the bus fare of a city increases from $1.00 to $1.25 per ride and as a result total revenue increases, then we know that

The price elasticity of demand is the

Suppose the quantity demanded of ice cream cones increases from 400 to 425 cones a day when the price is reduced from $1.50 to $1.25. In this situation, the elasticity of demand, calculated using the average method, is

If the price elasticity of demand (Ep)equals one in the short run, then, other things being equal, in the long run Ep will be

If the price of one good increases, and as a result the demand for another related good falls, the goods are

-In the above figure, over the price range P1P2, demand is

The price elasticity of demand measures

Income elasticity of demand is defined as

The price elasticity of demand shows

If the value of the cross elasticity of demand is negative, the two goods are

-Use the above figure. When the price increases from $2 to $10, the absolute price elasticity of demand is

Moving upward along a downward sloping straight-line demand curve, as the price of the product goes up,

When the absolute price elasticity of demand is less than 1, demand is

The government raises gasoline taxes as part of the price of gasoline and receives more tax revenues. However, after five years, the government discovers that revenues from the gasoline tax have declined. This situation would be most likely to occur if

The Nature of Economics

Scarcity and the World of Trade-Offs

Demand and Supply

Extensions of Demand and Supply Analysis

Public Spending and Public Choice

Funding the Public Sector

Consumer Choice

Rents, Profits, and the Financial Environment of Business

The Firm: Cost and Output Determination

Perfect Competition

Monopoly

Monopolistic Competition

Oligopoly and Strategic Behavior

Regulation and Antitrust Policy in a Globalized Economy

The Labor Market: Demand, Supply and Outsourcing

Unions and Labor Market Monopoly Power

Income, Poverty, and Health Care

Environmental Economics

Comparative Advantage and the Open Economy

Exchange Rates and the Balance of Payments

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