Question 1

What would you expect the cross price elasticity of iPods and online music downloads? Explain your answer.

Accepted Answer

The cross price elasticity of iPods and

Question 2

-Refer to the above table. Suppose the price of X increases from $10 to $12. What is the cross price elasticity of demand between X and Z?

Accepted Answer

A) +0.292 
B) +7.06 
C) -7.06 
D) -0.292 
A) +0.292 
B) +7.06 
C) -7.06 
D) -0.292

Question 3

Why is elasticity of demand greater for goods that are a large share of a consumer's budget?

Accepted Answer

The greater the share of a consumer's bu

Question 4

-Refer to the above figure. Demand will be unit-elastic when quantity is between

Accepted Answer

A) 0 and A. 
B) 0 and B. 
C) A and B. 
D) B and C. 
A) 0 and A. 
B) 0 and B. 
C) A and B. 
D) B and C.

Question 5

A 10 percent increase in the price of neckties leads to a 5 percent decrease in the quantity demanded of neckties. The absolute price elasticity of demand is

Accepted Answer

A) 3. 
B) 0.33. 
C) 0.5. 
D) 2. 
A) 3. 
B) 0.33. 
C) 0.5. 
D) 2.

Question 6

The cross price elasticity between X and Y is -1.8. We can conclude that

Accepted Answer

A) goods X and Y are substitutes. 
B) goods X and Y are complements. 
C) goods X and Y are unrelated. 
D) perfect substitutes 
A) goods X and Y are substitutes. 
B) goods X and Y are complements. 
C) goods X and Y are unrelated. 
D) perfect substitutes

Question 7

When John earned $65,000 he purchased 10 DVDs a year. His income has just increased to $68,000 and he plans to purchase 15 DVDs this year. John's income elasticity of demand equals

Accepted Answer

A) 0 
B) 0.11 
C) 1.67 
D) 8.87 
A) 0 
B) 0.11 
C) 1.67 
D) 8.87

Question 8

When demand is elastic,

Accepted Answer

A) changes in price and changes in total revenue move in the same direction. 
B) there is no relationship between changes in price and changes in total revenue. 
C) changes in price and changes in total revenue move in opposite directions. 
D) for any change in price, total revenue will not change. 
A) changes in price and changes in total revenue move in the same direction. 
B) there is no relationship between changes in price and changes in total revenue. 
C) changes in price and changes in total revenue move in opposite directions. 
D) for any change in price, total revenue will not change.

Question 9

A 10 percent increase in the price of smartphones leads to a 10 percent decrease in the quantity demanded of smartphones. The absolute price elasticity of demand is

Accepted Answer

A) 3. 
B) 0.3. 
C) 1.0. 
D) 0.01. 
A) 3. 
B) 0.3. 
C) 1.0. 
D) 0.01.

Question 10

A decrease in total revenue will result if

Accepted Answer

A) demand is inelastic and price decreases. 
B) demand is elastic and price increases. 
C) demand is elastic and price decreases. 
D) demand is unitary elastic and price decreases. 
A) demand is inelastic and price decreases. 
B) demand is elastic and price increases. 
C) demand is elastic and price decreases. 
D) demand is unitary elastic and price decreases.

Question 11

If the cross price elasticity of demand between two goods is positive, then the two goods are

Accepted Answer

A) substitutes. 
B) complements. 
C) independent. 
D) unrelated. 
A) substitutes. 
B) complements. 
C) independent. 
D) unrelated.

Question 12

Which of the following is FALSE regarding inelastic demand?

Accepted Answer

A) Price elasticity of demand is less than 1 (    1). 
D) If a firm lowers price, total revenues will fall. 
A) Price elasticity of demand is less than 1 (    1). 
D) If a firm lowers price, total revenues will fall.

Question 13

A perfectly elastic supply curve is

Accepted Answer

A) a straight line that crosses the horizontal axis. 
B) a straight line coming out of the origin. 
C) a horizontal straight line. 
D) a vertical straight line. 
A) a straight line that crosses the horizontal axis. 
B) a straight line coming out of the origin. 
C) a horizontal straight line. 
D) a vertical straight line.

Question 14

If the government places a $0.50 tax on an item for which demand is perfectly elastic

Accepted Answer

A) the entire tax will be paid by the consumer. 
B) the tax will be split equally between the consumer and producer, with each paying exactly $0.25. 
C) most of the tax will be paid by the consumer. 
D) the entire tax will be paid by the producer. 
A) the entire tax will be paid by the consumer. 
B) the tax will be split equally between the consumer and producer, with each paying exactly $0.25. 
C) most of the tax will be paid by the consumer. 
D) the entire tax will be paid by the producer.

Question 15

If the price of good A increases from $15 to $20 per unit and quantity demanded falls from 1500 to 1000 units, then by using the method of average values, we can calculate the absolute price elasticity of demand to be

Accepted Answer

A) 2.6. 
B) 0.75. 
C) 1.4. 
D) 2.4. 
A) 2.6. 
B) 0.75. 
C) 1.4. 
D) 2.4.

Question 16

-Refer to the above figure. The supply curve is

Accepted Answer

A) elastic at high prices and inelastic at low prices. 
B) unitary for all prices. 
C) perfectly elastic. 
D) perfectly inelastic. 
A) elastic at high prices and inelastic at low prices. 
B) unitary for all prices. 
C) perfectly elastic. 
D) perfectly inelastic.

Question 17

"The price elasticity of demand for a particular good is smaller in the long run because consumers adapt to higher prices over time." Do you agree or disagree? Explain.

Accepted Answer

Disagree. Price elasticity of demand is

Question 18

If the absolute price elasticity of demand is 0.2, a 10 percent increase in the price will cause

Accepted Answer

A) the quantity demanded to decrease by 2 percent. 
B) the quantity demanded to decrease by 20 percent. 
C) the quantity demanded to decrease by 5 percent. 
D) the quantity demanded to decrease by 0.2 percent. 
A) the quantity demanded to decrease by 2 percent. 
B) the quantity demanded to decrease by 20 percent. 
C) the quantity demanded to decrease by 5 percent. 
D) the quantity demanded to decrease by 0.2 percent.

Question 19

After full adjustment to a price change has occurred, the absolute price elasticity of demand for an item is equal to 1. In the short run, the absolute price elasticity of demand for the item was probably

Accepted Answer

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

Question 20

If the absolute price elasticity of demand for concert tickets is 0.75, an increase in ticket prices will

Accepted Answer

A) increase total revenue. 
B) decrease total revenue. 
C) not change the elasticity of demand. 
D) not change total revenue. 
A) increase total revenue. 
B) decrease total revenue. 
C) not change the elasticity of demand. 
D) not change total revenue.

Exam 19: Demand and Supply Elasticity

What would you expect the cross price elasticity of iPods and online music downloads? Explain your answer.

-Refer to the above table. Suppose the price of X increases from $10 to $12. What is the cross price elasticity of demand between X and Z?

Why is elasticity of demand greater for goods that are a large share of a consumer's budget?

-Refer to the above figure. Demand will be unit-elastic when quantity is between

A 10 percent increase in the price of neckties leads to a 5 percent decrease in the quantity demanded of neckties. The absolute price elasticity of demand is

The cross price elasticity between X and Y is -1.8. We can conclude that

When John earned $65,000 he purchased 10 DVDs a year. His income has just increased to $68,000 and he plans to purchase 15 DVDs this year. John's income elasticity of demand equals

When demand is elastic,

A 10 percent increase in the price of smartphones leads to a 10 percent decrease in the quantity demanded of smartphones. The absolute price elasticity of demand is

A decrease in total revenue will result if

If the cross price elasticity of demand between two goods is positive, then the two goods are

Which of the following is FALSE regarding inelastic demand?

A perfectly elastic supply curve is

If the government places a $0.50 tax on an item for which demand is perfectly elastic

If the price of good A increases from $15 to $20 per unit and quantity demanded falls from 1500 to 1000 units, then by using the method of average values, we can calculate the absolute price elasticity of demand to be

-Refer to the above figure. The supply curve is

"The price elasticity of demand for a particular good is smaller in the long run because consumers adapt to higher prices over time." Do you agree or disagree? Explain.

If the absolute price elasticity of demand is 0.2, a 10 percent increase in the price will cause

After full adjustment to a price change has occurred, the absolute price elasticity of demand for an item is equal to 1. In the short run, the absolute price elasticity of demand for the item was probably

If the absolute price elasticity of demand for concert tickets is 0.75, an increase in ticket prices will

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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