Question 1

Suppose the price of e-books is initially $20 but decreases to $15. The absolute value of the percentage change in price (by the midpoint method) is approximately:

Accepted Answer

A)  28%. 
B)  10%. 
C)  5%. 
D)  15%. 
A)  28%. 
B)  10%. 
C)  5%. 
D)  15%. A

Question 2

Use the following to answer questions:
Figure: Estimating Price Elasticity  
-(Figure: Estimating Price Elasticity) Look at the figure Estimating Price Elasticity. Between the two prices, P1 and P2, which demand curve has the highest price elasticity?

Accepted Answer

A)  D1 
B)  D2 
C)  D3 
D)  D4 
A)  D1 
B)  D2 
C)  D3 
D)  D4 C

Question 3

A price ceiling below equilibrium will cause a larger shortage when demand is _____ and supply is _____.

Accepted Answer

A)  elastic; inelastic 
B)  inelastic; inelastic 
C)  elastic; elastic 
D)  perfectly inelastic; elastic 
A)  elastic; inelastic 
B)  inelastic; inelastic 
C)  elastic; elastic 
D)  perfectly inelastic; elastic C

Question 4

Use the following to answer questions:
Figure: Estimating Price Elasticity  
-(Figure: Estimating Price Elasticity) Look at the figure Estimating Price Elasticity. Between the two prices, P1 and P2, which demand curve has the lowest price elasticity?

Accepted Answer

A)  D1 
B)  D2 
C)  D3 
D)  D4 
A)  D1 
B)  D2 
C)  D3 
D)  D4

Question 5

Suppose the price elasticity of demand for oranges is 1.8. If a fall frost destroys one-third of the nation's orange crop, how will that affect total revenue from oranges, all other things unchanged?

Accepted Answer

A)  Total revenue will rise. 
B)  Total revenue will fall. 
C)  Total revenue will remain unchanged. 
D)  The information is insufficient to answer the question. 
A)  Total revenue will rise. 
B)  Total revenue will fall. 
C)  Total revenue will remain unchanged. 
D)  The information is insufficient to answer the question.

Question 6

Use the following to answer questions:
Figure: The Demand for e-Books  
-(Figure: The Demand for e-Books) If the price of e-Books decreases from $6 to $4, total revenue _____, which means that demand is _____.

Accepted Answer

A)  changes from $60 to $90; elastic 
B)  remains constant; unit-elastic 
C)  changes from $240 to $360; elastic 
D)  changes from $40 to $50; inelastic 
A)  changes from $60 to $90; elastic 
B)  remains constant; unit-elastic 
C)  changes from $240 to $360; elastic 
D)  changes from $40 to $50; inelastic

Question 7

Use the following to answer questions:
Figure: The Demand for e-Books  
-(Figure: The Demand for e-Books) If the price of e-Books increases from $6 to $8, total revenue _____, which means that demand is _____.

Accepted Answer

A)  increases; elastic 
B)  decreases; inelastic 
C)  remains constant; elastic 
D)  decreases; elastic 
A)  increases; elastic 
B)  decreases; inelastic 
C)  remains constant; elastic 
D)  decreases; elastic

Question 8

If your income increases and your consumption of bagels increases, other things equal, bagels are considered:

Accepted Answer

A)  a negative good. 
B)  a positive good. 
C)  an inferior good. 
D)  a normal good. 
A)  a negative good. 
B)  a positive good. 
C)  an inferior good. 
D)  a normal good.

Question 9

The price elasticity of demand for soft drinks has been estimated to be 0.55. If the government enacts a major increase in the tax on imported sugar (a major ingredient in soft drink manufacturing), how will that affect total expenditures on soft drinks, all other things equal?

Accepted Answer

A)  Total expenditures will remain unchanged. 
B)  Total expenditures will fall. 
C)  Total expenditures will rise. 
D)  People will buy Pepsi instead of Coke. 
A)  Total expenditures will remain unchanged. 
B)  Total expenditures will fall. 
C)  Total expenditures will rise. 
D)  People will buy Pepsi instead of Coke.

Question 10

You have hired a student intern to calculate some elasticity measures so that you can present the findings at a prestigious economics conference. For the measures that follow, provide a quick interpretation, and then determine whether you should trust the intern's work or not. After all, it will be you in front of that critical audience of professionals, not the intern.
A) "The income elasticity of demand for movie theatre tickets is -1.5."
B) "The price elasticity of demand for milk is 0.4 in the short run and 0.9 in the long run."
C) "The cross-price elasticity of demand for Cheerios with respect to the price of Wheaties is -2."

Accepted Answer

A) This finding states that if income ri

Question 11

If the estimated price elasticity of demand for foreign travel is 4:

Accepted Answer

A)  a 20% decrease in the price of foreign travel will increase quantity demanded by 80%. 
B)  the demand for foreign travel is inelastic. 
C)  a 10% increase in the price of foreign travel will increase quantity demanded by 40%. 
D)  a 20% increase in the price of foreign travel will increase quantity demanded by 80%. 
A)  a 20% decrease in the price of foreign travel will increase quantity demanded by 80%. 
B)  the demand for foreign travel is inelastic. 
C)  a 10% increase in the price of foreign travel will increase quantity demanded by 40%. 
D)  a 20% increase in the price of foreign travel will increase quantity demanded by 80%.

Question 12

Use the following to answer questions:
Figure: The Linear Demand Curve II  
-(Figure: The Linear Demand Curve II) Look at the figure Linear Demand Curve II. At prices greater than $7, demand is _____; at prices below $7 demand is _____; and at $7 demand is _____.

Accepted Answer

A)  elastic; inelastic; unit-elastic 
B)  inelastic; elastic; unit-elastic 
C)  unit-elastic; inelastic; elastic 
D)  equal to 0; elastic; inelastic 
A)  elastic; inelastic; unit-elastic 
B)  inelastic; elastic; unit-elastic 
C)  unit-elastic; inelastic; elastic 
D)  equal to 0; elastic; inelastic

Question 13

Use the following to answer questions:
Figure: The Demand for Notebook Computers  
-(Figure: Demand for Notebook Computers) Look at the figure The Demand for Notebook Computers. The change in total revenue resulting from a change in price from P to T suggests that demand is:

Accepted Answer

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

Question 14

If the price elasticity of supply is greater than 1:

Accepted Answer

A)  supply is price-elastic. 
B)  supply is price-inelastic. 
C)  supply is price unit-elastic. 
D)  the quantity supplied is relatively unresponsive to price changes. 
A)  supply is price-elastic. 
B)  supply is price-inelastic. 
C)  supply is price unit-elastic. 
D)  the quantity supplied is relatively unresponsive to price changes.

Question 15

If two goods are substitutes, their cross-price elasticity of demand is:

Accepted Answer

A)  less than 0. 
B)  negative but almost equal to 0. 
C)  equal to 0. 
D)  greater than 0. 
A)  less than 0. 
B)  negative but almost equal to 0. 
C)  equal to 0. 
D)  greater than 0.

Question 16

Suppose the price of university sweatshirts increases from $10 to $20 and the quantity supplied increases from 20 to 30. The price elasticity of supply, using the midpoint formula, is:

Accepted Answer

A)  0.66. 
B)  1.50. 
C)  0.60. 
D)  1.66. 
A)  0.66. 
B)  1.50. 
C)  0.60. 
D)  1.66.

Question 17

The price elasticity of demand for a good such as water is likely to be very low because:

Accepted Answer

A)  the price is a small percentage of most budgets. 
B)  water has some good substitutes. 
C)  water is considered a luxury. 
D)  the share of income spent on water is large. 
A)  the price is a small percentage of most budgets. 
B)  water has some good substitutes. 
C)  water is considered a luxury. 
D)  the share of income spent on water is large.

Question 18

If demand is perfectly inelastic, changes in price leave total revenue unchanged.

Accepted Answer

A) True 
 B)False

Question 19

Use the following to answer questions:
Figure: The Demand Curve  
-(Figure: The Demand Curve) Look at the figure The Demand Curve. By the midpoint method, the price elasticity of demand between $1 and $2 is approximately:

Accepted Answer

A)  0.16. 
B)  0.56. 
C)  1.80. 
D)  5.67. 
A)  0.16. 
B)  0.56. 
C)  1.80. 
D)  5.67.

Question 20

When the price goes down, the quantity demanded goes up. The price elasticity of demand measures:

Accepted Answer

A)  how much the price goes down. 
B)  how much the equilibrium price goes up. 
C)  the responsiveness of the price change to an income change. 
D)  the responsiveness of the quantity change to the price change. 
A)  how much the price goes down. 
B)  how much the equilibrium price goes up. 
C)  the responsiveness of the price change to an income change. 
D)  the responsiveness of the quantity change to the price change.

Suppose the price of e-books is initially $20 but decreases to $15. The absolute value of the percentage change in price (by the midpoint method) is approximately:

Use the following to answer questions: Figure: Estimating Price Elasticity -(Figure: Estimating Price Elasticity) Look at the figure Estimating Price Elasticity. Between the two prices, P₁ and P₂, which demand curve has the highest price elasticity?

A price ceiling below equilibrium will cause a larger shortage when demand is _ and supply is _.

Use the following to answer questions: Figure: Estimating Price Elasticity -(Figure: Estimating Price Elasticity) Look at the figure Estimating Price Elasticity. Between the two prices, P₁ and P₂, which demand curve has the lowest price elasticity?

Suppose the price elasticity of demand for oranges is 1.8. If a fall frost destroys one-third of the nation's orange crop, how will that affect total revenue from oranges, all other things unchanged?

Use the following to answer questions: Figure: The Demand for e-Books -(Figure: The Demand for e-Books) If the price of e-Books decreases from $6 to $4, total revenue _, which means that demand is _.

Use the following to answer questions: Figure: The Demand for e-Books -(Figure: The Demand for e-Books) If the price of e-Books increases from $6 to $8, total revenue _, which means that demand is _.

If your income increases and your consumption of bagels increases, other things equal, bagels are considered:

The price elasticity of demand for soft drinks has been estimated to be 0.55. If the government enacts a major increase in the tax on imported sugar (a major ingredient in soft drink manufacturing), how will that affect total expenditures on soft drinks, all other things equal?

If the estimated price elasticity of demand for foreign travel is 4:

Use the following to answer questions: Figure: The Linear Demand Curve II -(Figure: The Linear Demand Curve II) Look at the figure Linear Demand Curve II. At prices greater than $7, demand is ___; at prices below $7 demand is _; and at $7 demand is ___.

Use the following to answer questions: Figure: The Demand for Notebook Computers -(Figure: Demand for Notebook Computers) Look at the figure The Demand for Notebook Computers. The change in total revenue resulting from a change in price from P to T suggests that demand is:

If the price elasticity of supply is greater than 1:

If two goods are substitutes, their cross-price elasticity of demand is:

Suppose the price of university sweatshirts increases from $10 to $20 and the quantity supplied increases from 20 to 30. The price elasticity of supply, using the midpoint formula, is:

The price elasticity of demand for a good such as water is likely to be very low because:

If demand is perfectly inelastic, changes in price leave total revenue unchanged.

Use the following to answer questions: Figure: The Demand Curve -(Figure: The Demand Curve) Look at the figure The Demand Curve. By the midpoint method, the price elasticity of demand between $1 and $2 is approximately:

When the price goes down, the quantity demanded goes up. The price elasticity of demand measures:

First Principles

Economic Models: Trade-Offs and Trade 25

Supply and Demand

Consumer and Producer Surplus

Price Controls and Quotas: Meddling With Markets

Taxes

International Trade

Decision Making by Individuals Firms

The Rational Consumer

Behind the Supply Curve: Inputs and Costs

Perfect Competition and the Supply Curve

Monopoly

Oligopoly

Monopolistic Competition and Product Differentiation

Externalities

Public Goods Common Resources

The Economics of the Welfare

Factor Markets and the Distribution of Income

Uncertainty, Risk, and Private Information

Filters

Exam 6: Elasticity

Suppose the price of e-books is initially $20 but decreases to $15. The absolute value of the percentage change in price (by the midpoint method) is approximately:

Use the following to answer questions: Figure: Estimating Price Elasticity -(Figure: Estimating Price Elasticity) Look at the figure Estimating Price Elasticity. Between the two prices, P1 and P2, which demand curve has the highest price elasticity?

A price ceiling below equilibrium will cause a larger shortage when demand is _____ and supply is _____.

Use the following to answer questions: Figure: Estimating Price Elasticity -(Figure: Estimating Price Elasticity) Look at the figure Estimating Price Elasticity. Between the two prices, P1 and P2, which demand curve has the lowest price elasticity?

Suppose the price elasticity of demand for oranges is 1.8. If a fall frost destroys one-third of the nation's orange crop, how will that affect total revenue from oranges, all other things unchanged?

Use the following to answer questions: Figure: The Demand for e-Books -(Figure: The Demand for e-Books) If the price of e-Books decreases from $6 to $4, total revenue _____, which means that demand is _____.

Use the following to answer questions: Figure: The Demand for e-Books -(Figure: The Demand for e-Books) If the price of e-Books increases from $6 to $8, total revenue _____, which means that demand is _____.

If your income increases and your consumption of bagels increases, other things equal, bagels are considered:

The price elasticity of demand for soft drinks has been estimated to be 0.55. If the government enacts a major increase in the tax on imported sugar (a major ingredient in soft drink manufacturing), how will that affect total expenditures on soft drinks, all other things equal?

If the estimated price elasticity of demand for foreign travel is 4:

Use the following to answer questions: Figure: The Linear Demand Curve II -(Figure: The Linear Demand Curve II) Look at the figure Linear Demand Curve II. At prices greater than $7, demand is _____; at prices below $7 demand is _____; and at $7 demand is _____.

Use the following to answer questions: Figure: The Demand for Notebook Computers -(Figure: Demand for Notebook Computers) Look at the figure The Demand for Notebook Computers. The change in total revenue resulting from a change in price from P to T suggests that demand is:

If the price elasticity of supply is greater than 1:

If two goods are substitutes, their cross-price elasticity of demand is:

Suppose the price of university sweatshirts increases from $10 to $20 and the quantity supplied increases from 20 to 30. The price elasticity of supply, using the midpoint formula, is:

The price elasticity of demand for a good such as water is likely to be very low because:

If demand is perfectly inelastic, changes in price leave total revenue unchanged.

Use the following to answer questions: Figure: The Demand Curve -(Figure: The Demand Curve) Look at the figure The Demand Curve. By the midpoint method, the price elasticity of demand between $1 and $2 is approximately:

When the price goes down, the quantity demanded goes up. The price elasticity of demand measures:

First Principles

Economic Models: Trade-Offs and Trade 25

Supply and Demand

Consumer and Producer Surplus

Price Controls and Quotas: Meddling With Markets

Taxes

International Trade

Decision Making by Individuals Firms

The Rational Consumer

Behind the Supply Curve: Inputs and Costs

Perfect Competition and the Supply Curve

Monopoly

Oligopoly

Monopolistic Competition and Product Differentiation

Externalities

Public Goods Common Resources

The Economics of the Welfare

Factor Markets and the Distribution of Income

Uncertainty, Risk, and Private Information

Filters

Use the following to answer questions: Figure: Estimating Price Elasticity -(Figure: Estimating Price Elasticity) Look at the figure Estimating Price Elasticity. Between the two prices, P₁ and P₂, which demand curve has the highest price elasticity?

A price ceiling below equilibrium will cause a larger shortage when demand is _ and supply is _.

Use the following to answer questions: Figure: Estimating Price Elasticity -(Figure: Estimating Price Elasticity) Look at the figure Estimating Price Elasticity. Between the two prices, P₁ and P₂, which demand curve has the lowest price elasticity?

Use the following to answer questions: Figure: The Demand for e-Books -(Figure: The Demand for e-Books) If the price of e-Books decreases from $6 to $4, total revenue _, which means that demand is _.

Use the following to answer questions: Figure: The Demand for e-Books -(Figure: The Demand for e-Books) If the price of e-Books increases from $6 to $8, total revenue _, which means that demand is _.

Use the following to answer questions: Figure: The Linear Demand Curve II -(Figure: The Linear Demand Curve II) Look at the figure Linear Demand Curve II. At prices greater than $7, demand is ___; at prices below $7 demand is _; and at $7 demand is ___.