Question 1

The price elasticity of demand would most likely be the lowest for

Accepted Answer

A) a McDonald's hamburger. 
B) salt. 
C) a Toyota sport utility vehicle. 
D) Shell gasoline. 
A) a McDonald's hamburger. 
B) salt. 
C) a Toyota sport utility vehicle. 
D) Shell gasoline.

Question 2

The percentage change in the demand for one good divided by the percentage change in the price of a related good is the

Accepted Answer

A) price elasticity of demand. 
B) price elasticity of supply. 
C) cross price elasticity of demand. 
D) income elasticity. 
A) price elasticity of demand. 
B) price elasticity of supply. 
C) cross price elasticity of demand. 
D) income elasticity.

Question 3

What does a perfectly elastic demand curve look like? A perfectly inelastic demand curve? Explain.

Accepted Answer

A perfectly elastic demand curve is hori

Question 4

A situation in which there is a reduction in quantity supplied to zero when there is the slightest decrease in price is

Accepted Answer

A) perfectly elastic supply. 
B) perfectly elastic demand. 
C) perfectly inelastic supply. 
D) perfectly inelastic demand. 
A) perfectly elastic supply. 
B) perfectly elastic demand. 
C) perfectly inelastic supply. 
D) perfectly inelastic demand.

Question 5

If the absolute value of the price elasticity of demand for a product is 1.5, and the price of a product increased 30 percent, then the quantity demanded will decline by

Accepted Answer

A) 45 percent. 
B) 20 percent. 
C) 5 percent. 
D) 10 percent. 
A) 45 percent. 
B) 20 percent. 
C) 5 percent. 
D) 10 percent.

Question 6

Suppose the demand for rental apartments decreased substantially. We would expect to observe

Accepted Answer

A) no change in rent and a sharp reduction in quantity supplied in the short run, and an even larger decrease in quantity supplied in the long run. 
B) a large decrease in quantity supplied in the short run, followed by a counter-reaction and an increase in quantity supplied in the long run. 
C) a small decrease in quantity supplied and significantly lower rents in the short run, and quantity supplied to decrease much more in the long run. 
D) a large decrease in quantity supplied in the short run and the long run, but much larger reductions in rent in the long run. 
A) no change in rent and a sharp reduction in quantity supplied in the short run, and an even larger decrease in quantity supplied in the long run. 
B) a large decrease in quantity supplied in the short run, followed by a counter-reaction and an increase in quantity supplied in the long run. 
C) a small decrease in quantity supplied and significantly lower rents in the short run, and quantity supplied to decrease much more in the long run. 
D) a large decrease in quantity supplied in the short run and the long run, but much larger reductions in rent in the long run.

Question 7

If the price of apples went up by 25 percent, which of the following values of the cross price elasticity for cars would be most reasonable to anticipate?

Accepted Answer

A) 0.0 
B) 1.2 
C) -2.5 
D) -1.0 
A) 0.0 
B) 1.2 
C) -2.5 
D) -1.0

Question 8

One of the most important determinants of a good's price elasticity of demand is

Accepted Answer

A) the profits of suppliers. 
B) the numbers of buyers in the market. 
C) the ease with which consumers can substitute other goods for that product. 
D) the cost of producing the good. 
A) the profits of suppliers. 
B) the numbers of buyers in the market. 
C) the ease with which consumers can substitute other goods for that product. 
D) the cost of producing the good.

Question 9

A perfectly elastic demand curve is

Accepted Answer

A) vertical. 
B) horizontal. 
C) a rectangular hyperbola. 
D) a downward sloping straight line. 
A) vertical. 
B) horizontal. 
C) a rectangular hyperbola. 
D) a downward sloping straight line.

Question 10

-"Higher prices always yield higher revenues." Do you agree or disagree? Why?

Accepted Answer

Disagree. Higher prices generate higher

Question 11

-Consider the above figure. Which of the following statements is correct?

Accepted Answer

A) In any range of prices encompassing the crossing point of the two demand curves, the price elasticity of demand associated with demand curve D1 is equal to the price elasticity of demand associated with demand curve D2. 
B) In any range of prices encompassing the crossing point of the two demand curves, the price elasticity of demand associated with demand curve D1 is less than the price elasticity of demand associated with demand curve D2. 
C) In any range of prices encompassing the crossing point of the two demand curves, the price elasticity of demand associated with demand curve D1 is greater than the price elasticity of demand associated with demand curve D2. 
D) In any range of prices encompassing the crossing point of the two demand curves, the price elasticity of demand is infinite. 
A) In any range of prices encompassing the crossing point of the two demand curves, the price elasticity of demand associated with demand curve D1 is equal to the price elasticity of demand associated with demand curve D2. 
B) In any range of prices encompassing the crossing point of the two demand curves, the price elasticity of demand associated with demand curve D1 is less than the price elasticity of demand associated with demand curve D2. 
C) In any range of prices encompassing the crossing point of the two demand curves, the price elasticity of demand associated with demand curve D1 is greater than the price elasticity of demand associated with demand curve D2. 
D) In any range of prices encompassing the crossing point of the two demand curves, the price elasticity of demand is infinite.

Question 12

No matter what the price of coffee is in the cafeteria, Jack spends $20 a week on coffee. We can conclude that the absolute value of the price elasticity of demand for coffee for Jack is

Accepted Answer

A) greater than 1. 
B) equal to 1. 
C) less than 1. 
D) equal to 0. 
A) greater than 1. 
B) equal to 1. 
C) less than 1. 
D) equal to 0.

Question 13

Income elasticity of demand is defined as

Accepted Answer

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

Question 14

The income elasticity of demand for all goods taken together must be

Accepted Answer

A) zero. 
B) -1. 
C) +1. 
D) between 0 and 1. 
A) zero. 
B) -1. 
C) +1. 
D) between 0 and 1.

Question 15

A value of the absolute price elasticity of demand equal to 2.5 indicates that

Accepted Answer

A) a 5% decrease in price leads to a 2% increase in quantity demanded. 
B) a 2% decrease in price leads to a 25% increase in quantity demanded. 
C) a 1% decrease in price leads to a 2.5% increase in quantity demanded. 
D) a 0.25% decrease in price leads to a 1% increase in quantity. 
A) a 5% decrease in price leads to a 2% increase in quantity demanded. 
B) a 2% decrease in price leads to a 25% increase in quantity demanded. 
C) a 1% decrease in price leads to a 2.5% increase in quantity demanded. 
D) a 0.25% decrease in price leads to a 1% increase in quantity.

Question 16

When there are very few substitutes for a good, the demand for the good will tend to be

Accepted Answer

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

Question 17

The absolute price elasticity of demand for a product for which annual expenditures make up a very small share of a typical consumer's budget is probably

Accepted Answer

A) less than 1. 
B) equal to 1. 
C) greater than 1. 
D) infinity. 
A) less than 1. 
B) equal to 1. 
C) greater than 1. 
D) infinity.

Question 18

Which of the following statements about demand and price elasticity of demand is TRUE?

Accepted Answer

A) As the demand curve has a positive slope, the price elasticity of demand is positive. 
B) As the demand curve has a negative slope, the price elasticity of demand is negative. 
C) As the demand curve has a positive slope, the price elasticity of demand is negative. 
D) As the demand curve has a negative slope, the price elasticity of demand is positive. 
A) As the demand curve has a positive slope, the price elasticity of demand is positive. 
B) As the demand curve has a negative slope, the price elasticity of demand is negative. 
C) As the demand curve has a positive slope, the price elasticity of demand is negative. 
D) As the demand curve has a negative slope, the price elasticity of demand is positive.

Question 19

If your income rises by 15 percent and, as a result, you buy more steak, then steak is a(n)

Accepted Answer

A) substitute. 
B) normal good. 
C) complement. 
D) inferior good. 
A) substitute. 
B) normal good. 
C) complement. 
D) inferior good.

Question 20

-In the above figure, along the section of the demand curve between point a and point b, demand is

Accepted Answer

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

Exam 19: Demand and Supply Elasticity

The price elasticity of demand would most likely be the lowest for

The percentage change in the demand for one good divided by the percentage change in the price of a related good is the

What does a perfectly elastic demand curve look like? A perfectly inelastic demand curve? Explain.

A situation in which there is a reduction in quantity supplied to zero when there is the slightest decrease in price is

If the absolute value of the price elasticity of demand for a product is 1.5, and the price of a product increased 30 percent, then the quantity demanded will decline by

Suppose the demand for rental apartments decreased substantially. We would expect to observe

If the price of apples went up by 25 percent, which of the following values of the cross price elasticity for cars would be most reasonable to anticipate?

One of the most important determinants of a good's price elasticity of demand is

A perfectly elastic demand curve is

-"Higher prices always yield higher revenues." Do you agree or disagree? Why?

-Consider the above figure. Which of the following statements is correct?

No matter what the price of coffee is in the cafeteria, Jack spends $20 a week on coffee. We can conclude that the absolute value of the price elasticity of demand for coffee for Jack is

Income elasticity of demand is defined as

The income elasticity of demand for all goods taken together must be

A value of the absolute price elasticity of demand equal to 2.5 indicates that

When there are very few substitutes for a good, the demand for the good will tend to be

The absolute price elasticity of demand for a product for which annual expenditures make up a very small share of a typical consumer's budget is probably

Which of the following statements about demand and price elasticity of demand is TRUE?

If your income rises by 15 percent and, as a result, you buy more steak, then steak is a(n)

-In the above figure, along the section of the demand curve between point a and point b, demand is

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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