Question 1

A perfectly inelastic demand curve is

Accepted Answer

A) a horizontal straight line. 
B) a vertical straight line. 
C) a downward sloping straight line that intersects the horizontal axis at the origin. 
D) an upward sloping straight line that crosses the vertical axis. 
A) a horizontal straight line. 
B) a vertical straight line. 
C) a downward sloping straight line that intersects the horizontal axis at the origin. 
D) an upward sloping straight line that crosses the vertical axis.

Question 2

When two goods are unrelated,

Accepted Answer

A) the demands for both goods will be inelastic. 
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 inelastic. 
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 3

Suppose that the cross price elasticity of demand between good X and good Y is -1.55. This indicates that the two goods are

Accepted Answer

A) substitutes. 
B) complements. 
C) both inferior. 
D) completely unrelated in the minds of consumers. 
A) substitutes. 
B) complements. 
C) both inferior. 
D) completely unrelated in the minds of consumers.

Question 4

If the absolute price elasticity of demand for a product is less than 1, then

Accepted Answer

A) consumers are relatively insensitive to price changes. 
B) consumers are relatively sensitive to price changes. 
C) there is a positive relationship between price changes and total revenue. 
D) producers are relatively insensitive to price changes. 
A) consumers are relatively insensitive to price changes. 
B) consumers are relatively sensitive to price changes. 
C) there is a positive relationship between price changes and total revenue. 
D) producers are relatively insensitive to price changes.

Question 5

At a price of $10, quantity demanded is 30 units. When the price rises to $11, quantity demanded is 24 units. What is the absolute price elasticity of demand?

Accepted Answer

A) 0.5 
B) 0.43 
C) 2.33 
D) 6.0 
A) 0.5 
B) 0.43 
C) 2.33 
D) 6.0

Question 6

Compared to the long-run absolute elasticity of demand, the short-run absolute elasticity of demand is

Accepted Answer

A) smaller. 
B) the same. 
C) larger. 
D) either smaller or larger, depending on other factors. 
A) smaller. 
B) the same. 
C) larger. 
D) either smaller or larger, depending on other factors.

Question 7

Suppose that when the price of root beer rises 10%, the quantity of pizza demanded falls 20%. This would mean that pizza and root beer are

Accepted Answer

A) substitutes, with a cross price elasticity of 0.5. 
B) complements, with a cross price elasticity of -0.5. 
C) substitutes, with a cross price elasticity of -2.0. 
D) complements, with a cross price elasticity of -2.0. 
A) substitutes, with a cross price elasticity of 0.5. 
B) complements, with a cross price elasticity of -0.5. 
C) substitutes, with a cross price elasticity of -2.0. 
D) complements, with a cross price elasticity of -2.0.

Question 8

When many substitutes exist for a good, demand will be

Accepted Answer

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

Question 9

The actual value of the price elasticity of demand is always

Accepted Answer

A) positive because of the law of demand. 
B) negative because of the law of demand. 
C) positive because of diminishing marginal utility. 
D) negative because percentages can only be negative. 
A) positive because of the law of demand. 
B) negative because of the law of demand. 
C) positive because of diminishing marginal utility. 
D) negative because percentages can only be negative.

Question 10

Which of the following is NOT a determinant of the price elasticity of demand?

Accepted Answer

A) the availability of potential substitutes 
B) the share of the budget spent on the item 
C) the time the consumer has to adjust to the price change 
D) the cost to produce the product 
A) the availability of potential substitutes 
B) the share of the budget spent on the item 
C) the time the consumer has to adjust to the price change 
D) the cost to produce the product

Question 11

The longer any price change persists, the

Accepted Answer

A) more difficult it is to alter quantity demanded. 
B) greater is the price elasticity of demand. 
C) lower is the price elasticity of demand. 
D) more likely price will return to its original level. 
A) more difficult it is to alter quantity demanded. 
B) greater is the price elasticity of demand. 
C) lower is the price elasticity of demand. 
D) more likely price will return to its original level.

Question 12

If the price of wireless phone service decreases and the demand for wired phone services decreases, then wired and wireless phone services are

Accepted Answer

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

Question 13

How does the cross elasticity of demand differ from the price elasticity of demand? How are they related?

Accepted Answer

The cross elasticity of demand is the re

Question 14

-In the above figure, along which range would the demand for this good be most elastic?

Accepted Answer

A) Between point a and point b 
B) Between point c and point d 
C) Between point d and point e 
D) At point e 
A) Between point a and point b 
B) Between point c and point d 
C) Between point d and point e 
D) At point e

Question 15

The less sensitive quantity demanded is to a change in price, the

Accepted Answer

A) smaller a change in price must be to induce a certain change in quantity demanded. 
B) greater the absolute price elasticity of demand. 
C) smaller the absolute price elasticity of demand. 
D) closer the absolute price elasticity of demand is to one. 
A) smaller a change in price must be to induce a certain change in quantity demanded. 
B) greater the absolute price elasticity of demand. 
C) smaller the absolute price elasticity of demand. 
D) closer the absolute price elasticity of demand is to one.

Question 16

If demand is unit-elastic throughout the demand curve, then total revenues are

Accepted Answer

A) greater the higher the price. 
B) lower the higher the price. 
C) maximized at the midpoint of the demand curve. 
D) the same for any price the firm charges. 
A) greater the higher the price. 
B) lower the higher the price. 
C) maximized at the midpoint of the demand curve. 
D) the same for any price the firm charges.

Question 17

-In the above figure, along which range would total revenue remain unchanged by raising prices?

Accepted Answer

A) Between point a and point b 
B) Between point c and point d 
C) Between point d and point e 
D) Below point e and above point a. 
A) Between point a and point b 
B) Between point c and point d 
C) Between point d and point e 
D) Below point e and above point a.

Question 18

The slope of the perfectly inelastic demand curve is ________, the slope of the perfectly elastic demand curve is ________.

Accepted Answer

A) undefined, zero 
B) one, one 
C) zero, undefined 
D) one, zero 
A) undefined, zero 
B) one, one 
C) zero, undefined 
D) one, zero

Question 19

Elastic demand implies

Accepted Answer

A) that a one percent increase in price results in a smaller than one percent decrease in quantity demanded. 
B) that a one percent increase in price results in a larger than one percent decrease in quantity demanded. 
C) that a one percent cut in price results in a larger than one percent increase in quantity demanded. 
D) that a one percent decrease or increase in price induces no change in total revenue. 
A) that a one percent increase in price results in a smaller than one percent decrease in quantity demanded. 
B) that a one percent increase in price results in a larger than one percent decrease in quantity demanded. 
C) that a one percent cut in price results in a larger than one percent increase in quantity demanded. 
D) that a one percent decrease or increase in price induces no change in total revenue.

Question 20

Which of the following goods is most likely to have the lowest price elasticity?

Accepted Answer

A) Movie tickets 
B) DVD rentals 
C) Gasoline 
D) Pasta 
A) Movie tickets 
B) DVD rentals 
C) Gasoline 
D) Pasta

Exam 19: Demand and Supply Elasticity

A perfectly inelastic demand curve is

When two goods are unrelated,

Suppose that the cross price elasticity of demand between good X and good Y is -1.55. This indicates that the two goods are

If the absolute price elasticity of demand for a product is less than 1, then

At a price of $10, quantity demanded is 30 units. When the price rises to $11, quantity demanded is 24 units. What is the absolute price elasticity of demand?

Compared to the long-run absolute elasticity of demand, the short-run absolute elasticity of demand is

Suppose that when the price of root beer rises 10%, the quantity of pizza demanded falls 20%. This would mean that pizza and root beer are

When many substitutes exist for a good, demand will be

The actual value of the price elasticity of demand is always

Which of the following is NOT a determinant of the price elasticity of demand?

The longer any price change persists, the

If the price of wireless phone service decreases and the demand for wired phone services decreases, then wired and wireless phone services are

How does the cross elasticity of demand differ from the price elasticity of demand? How are they related?

-In the above figure, along which range would the demand for this good be most elastic?

The less sensitive quantity demanded is to a change in price, the

If demand is unit-elastic throughout the demand curve, then total revenues are

-In the above figure, along which range would total revenue remain unchanged by raising prices?

The slope of the perfectly inelastic demand curve is ________, the slope of the perfectly elastic demand curve is ________.

Elastic demand implies

Which of the following goods is most likely to have the lowest price elasticity?

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

Filters

The slope of the perfectly inelastic demand curve is , the slope of the perfectly elastic demand curve is .