Question 1

In 1975, New York City increased regulated taxi fares by 17.5 percent and expected taxi revenue to increase a like amount.The taxi commission believed taxi demand was

Accepted Answer

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

Question 2

Necessities such as food and shelter have inelastic demand.

Accepted Answer

A) True 
 B)False  True

Question 3

Explain what happens to the magnitude of price elasticity of demand as price increases along a straight-line demand curve.

Accepted Answer

Price elasticity is the ratio of percentage change in quantity to the percentage change in price.One form of the formula is [(change in Q)/(change in P)] [P/Q].Since slope of a straight line is constant, only P/Q changes.As P increases, Q decreases, so P/Q increases.Thus, elasticity increases (in absolute value).

Question 4

Would a profit-maximizing firm sell where demand is inelastic?

Accepted Answer

A)  No, this would not follow the rule of MC = MR. 
B)  No, the firm could not profitably raise price. 
C)  Yes, the firm could profitably lower price to attract sales. 
D)  Yes, in this case there are few substitutes for the good. 
A)  No, this would not follow the rule of MC = MR. 
B)  No, the firm could not profitably raise price. 
C)  Yes, the firm could profitably lower price to attract sales. 
D)  Yes, in this case there are few substitutes for the good.

Question 5

The demand for a new effective drug for the cure of AIDS would most likely be

Accepted Answer

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

Question 6

The term "unit elasticity" is used to describe a situation in which a rise in price is accompanied by

Accepted Answer

A)  a fall in total expenditure. 
B)  a rise in total expenditure. 
C)  constant total expenditure. 
D)  a unit decrease in total expenditure. 
A)  a fall in total expenditure. 
B)  a rise in total expenditure. 
C)  constant total expenditure. 
D)  a unit decrease in total expenditure.

Question 7

Figure 6-6
  
-The purchase of premium cable channels is an "all or nothing" choice.Which graph in Figure 6-6 best illustrates the cable market demand curve?

Accepted Answer

A)  1 
B)  2 
C)  3 
D)  4 
A)  1 
B)  2 
C)  3 
D)  4

Question 8

As a price change persists over a long period of time, we should expect the demand elasticity to fall.

Accepted Answer

A) True 
 B)False

Question 9

According to the estimates of a Harvard economist, the demand for cocaine is unit elastic.This means if the price of cocaine were to rise by 10 percent, (i) quantity consumed would fall 10 percent and (ii) dealer income from the sale of cocaine would fall 10 percent.Which of these two statements are correct?

Accepted Answer

A)  i and ii 
B)  i not ii 
C)  ii not i 
D)  neither i nor ii 
A)  i and ii 
B)  i not ii 
C)  ii not i 
D)  neither i nor ii

Question 10

A rightward shift in the demand curve for a product will ordinarily result from

Accepted Answer

A)  a decrease in the advertising budget. 
B)  a decrease in the price of a competing product. 
C)  an increase in consumer income. 
D)  an increase in the price of a complementary good. 
A)  a decrease in the advertising budget. 
B)  a decrease in the price of a competing product. 
C)  an increase in consumer income. 
D)  an increase in the price of a complementary good.

Question 11

Total expenditure equals price times quantity.

Accepted Answer

A) True 
 B)False

Question 12

Hot dogs and hot dog buns are found to be related by the cross elasticity of demand.If they are complementary goods, the cross elasticity will be

Accepted Answer

A)  positive. 
B)  equal to zero. 
C)  negative. 
D)  unknown. 
A)  positive. 
B)  equal to zero. 
C)  negative. 
D)  unknown.

Question 13

Figure 6-2
  
-In Figure 6-2, the price elasticity of demand (dropping all minus signs) is ____ between P = 4 and P = 6 than between P = 10 and P = 12 because between the lower set of prices the percentage change in price is ____.

Accepted Answer

A)  smaller; smaller 
B)  smaller; greater 
C)  greater; smaller 
D)  greater; greater 
A)  smaller; smaller 
B)  smaller; greater 
C)  greater; smaller 
D)  greater; greater

Question 14

Demand elasticity equals quantity times price.

Accepted Answer

A) True 
 B)False

Question 15

Elasticity of demand equals the ratio of the percentage change in the price of a good to the percentage change in the quantity demanded.

Accepted Answer

A) True 
 B)False

Question 16

Elasticity of demand is calculated using percentage changes in both price and quantity.

Accepted Answer

A) True 
 B)False

Question 17

All of the following observations concerning the elasticity formula are true except

Accepted Answer

A)  the changes with which it deals is measured as a percentage change. 
B)  each of the percentage changes is calculated in terms of the average values. 
C)  the calculation considers both positive and negative signs. 
D)  each percentage change is taken as an "absolute value." 
A)  the changes with which it deals is measured as a percentage change. 
B)  each of the percentage changes is calculated in terms of the average values. 
C)  the calculation considers both positive and negative signs. 
D)  each percentage change is taken as an "absolute value."

Question 18

If the price elasticity of demand for radios is 2.5 (dropping the minus sign), then a 50 percent reduction in the price of radios will lead to

Accepted Answer

A)  the sale of 200 additional radios. 
B)  the sale of 125 percent more radios than before. 
C)  the sale of 150 percent more radios than before. 
D)  the sale of 25 percent more radios than before. 
A)  the sale of 200 additional radios. 
B)  the sale of 125 percent more radios than before. 
C)  the sale of 150 percent more radios than before. 
D)  the sale of 25 percent more radios than before.

Question 19

If a product constitutes a large portion of a consumer's income, demand will be more inelastic.

Accepted Answer

A) True 
 B)False

Question 20

Specifically, what might cause the quantity demanded of a particular good to double at a particular price?

Accepted Answer

This results from a rightward shift in t

Exam 6: Demand and Elasticity

In 1975, New York City increased regulated taxi fares by 17.5 percent and expected taxi revenue to increase a like amount.The taxi commission believed taxi demand was

Necessities such as food and shelter have inelastic demand.

Explain what happens to the magnitude of price elasticity of demand as price increases along a straight-line demand curve.

Would a profit-maximizing firm sell where demand is inelastic?

The demand for a new effective drug for the cure of AIDS would most likely be

The term "unit elasticity" is used to describe a situation in which a rise in price is accompanied by

Figure 6-6 -The purchase of premium cable channels is an "all or nothing" choice.Which graph in Figure 6-6 best illustrates the cable market demand curve?

As a price change persists over a long period of time, we should expect the demand elasticity to fall.

A rightward shift in the demand curve for a product will ordinarily result from

Total expenditure equals price times quantity.

Hot dogs and hot dog buns are found to be related by the cross elasticity of demand.If they are complementary goods, the cross elasticity will be

Figure 6-2 -In Figure 6-2, the price elasticity of demand (dropping all minus signs) is ____ between P = 4 and P = 6 than between P = 10 and P = 12 because between the lower set of prices the percentage change in price is ____.

Demand elasticity equals quantity times price.

Elasticity of demand equals the ratio of the percentage change in the price of a good to the percentage change in the quantity demanded.

Elasticity of demand is calculated using percentage changes in both price and quantity.

All of the following observations concerning the elasticity formula are true except

If the price elasticity of demand for radios is 2.5 (dropping the minus sign), then a 50 percent reduction in the price of radios will lead to

If a product constitutes a large portion of a consumer's income, demand will be more inelastic.

Specifically, what might cause the quantity demanded of a particular good to double at a particular price?

What Is Economics?

The Economy: Myth and Reality

The Fundamental Economic Problem: Scarcity and Choice

Supply and Demand: An Initial Look

Consumer Choice: Individual and Market Demand

Production, Inputs, and Cost: Building Blocks for Supply Analysis

Output, Price, and Profit: The Importance of Marginal Analysis

Securities: Business Finance, and the Economy: The Tail that Wags the Dog?

The Firm and the Industry under Perfect Competition

Monopoly

Between Competition and Monopoly

Limiting Market Power: Regulation and Antitrust

The Case for Free Markets I: The Price System

The Shortcomings of Free Markets

The Market's Prime Achievement: Innovation and Growth

Externalities, the Environment, and Natural Resources

Taxation and Resource Allocation

Pricing the Factors of Production

Labor and Entrepreneurship: The Human Inputs

Poverty, Inequality, and Discrimination

An Introduction to Macroeconomics

The Goals of Macroeconomic Policy

Economic Growth: Theory and Policy

Aggregate Demand and the Powerful Consumer

Demand-Side Equilibrium: Unemployment or Inflation?

Bringing in the Supply Side: Unemployment and Inflation?

Managing Aggregate Demand: Fiscal Policy

Money and the Banking System

Monetary Policy: Conventional and Unconventional

The Financial Crisis and the Great Recession

The Debate over Monetary and Fiscal Policy

Budget Deficits in the Short and Long Run

The Trade-Off between Inflation and Unemployment

International Trade and Comparative Advantage

The International Monetary System: Order or Disorder?

Exchange Rates and the Macroeconomy

Filters

Figure 6-2 -In Figure 6-2, the price elasticity of demand (dropping all minus signs) is between P = 4 and P = 6 than between P = 10 and P = 12 because between the lower set of prices the percentage change in price is .