Question 1

As we move down a straight-line demand curve, the price elasticity becomes

Accepted Answer

A)  larger. 
B)  smaller. 
C)  larger, then smaller. 
D)  smaller, then larger. 
A)  larger. 
B)  smaller. 
C)  larger, then smaller. 
D)  smaller, then larger.

Question 2

The price elasticity of demand measure is generally stated as an absolute value.

Accepted Answer

A) True 
 B)False

Question 3

If a 10 percent rise in price leads to a reduction in quantity demanded of more than 10 percent,

Accepted Answer

A)  demand is elastic. 
B)  demand is inelastic. 
C)  elasticity of demand is unitary. 
D)  None of the above is correct. 
A)  demand is elastic. 
B)  demand is inelastic. 
C)  elasticity of demand is unitary. 
D)  None of the above is correct.

Question 4

Figure 6-1
  
-In Figure 6-1,

Accepted Answer

A)  D₁ is more elastic than D₂ below P₂ and less elastic above P₂. 
B)  D₁ is less elastic than D₂ at all prices. 
C)  D₂ is less elastic than D₁ at all prices. 
D)  D₂ is more elastic than D₂ above P₂ but less elastic below P₂. 
A)  D₁ is more elastic than D₂ below P₂ and less elastic above P₂. 
B)  D₁ is less elastic than D₂ at all prices. 
C)  D₂ is less elastic than D₁ at all prices. 
D)  D₂ is more elastic than D₂ above P₂ but less elastic below P₂.

Question 5

Figure 6-3
  
-In Figure 6-3(a), demand is

Accepted Answer

A)  perfectly elastic. 
B)  perfectly inelastic. 
C)  unit elastic. 
D)  fixed at one particular quantity. 
A)  perfectly elastic. 
B)  perfectly inelastic. 
C)  unit elastic. 
D)  fixed at one particular quantity.

Question 6

Using the general concept of elasticity, would you expect the elasticity of demand for advertising to be positive or negative? Explain.

Accepted Answer

Firms would advertise only if they belie

Question 7

If the marginal cost of producing vanity license plates is virtually zero (by prison inmates with little else to do), then states would maximize their profits on plate sales at the point on a linear demand curve where

Accepted Answer

A)  demand is inelastic. 
B)  demand is elastic. 
C)  demand is unit elastic. 
D)  the demand curve crosses the horizontal axis. 
A)  demand is inelastic. 
B)  demand is elastic. 
C)  demand is unit elastic. 
D)  the demand curve crosses the horizontal axis.

Question 8

Along a straight-line demand curve the

Accepted Answer

A)  slope is constant. 
B)  ratio P/Q constantly changes. 
C)  elasticity grows much smaller toward the right-hand end. 
D)  All of the above are correct. 
A)  slope is constant. 
B)  ratio P/Q constantly changes. 
C)  elasticity grows much smaller toward the right-hand end. 
D)  All of the above are correct.

Question 9

Tele-Com, Inc., the nation's largest cable TV company, tested the effect of a price reduction for the Disney Channel.It lowered prices from $10.75 to $7.95 and found that the number of customers more than doubled.This means the

Accepted Answer

A)  demand curve for the Disney Channel shifted to the right. 
B)  supply curve of the Disney Channel shifted to the left. 
C)  demand for the Disney Channel is elastic in this price range. 
D)  demand for the Disney Channel is inelastic in this price range. 
A)  demand curve for the Disney Channel shifted to the right. 
B)  supply curve of the Disney Channel shifted to the left. 
C)  demand for the Disney Channel is elastic in this price range. 
D)  demand for the Disney Channel is inelastic in this price range.

Question 10

Along the inelastic portion of a demand curve, the

Accepted Answer

A)  change in price will always be less than the change in quantity demanded. 
B)  percentage change in price will be less than the percentage change in quantity demanded. 
C)  change in price will always be more than the change in quantity demanded. 
D)  percentage change in price will be more than the percentage change in quantity demanded. 
A)  change in price will always be less than the change in quantity demanded. 
B)  percentage change in price will be less than the percentage change in quantity demanded. 
C)  change in price will always be more than the change in quantity demanded. 
D)  percentage change in price will be more than the percentage change in quantity demanded.

Question 11

A demand curve is described as perfectly elastic if

Accepted Answer

A)  any quantity can be sold at a given price. 
B)  the same quantity is sold regardless of price. 
C)  neither price nor quantity demanded ever change. 
D)  only price can change. 
A)  any quantity can be sold at a given price. 
B)  the same quantity is sold regardless of price. 
C)  neither price nor quantity demanded ever change. 
D)  only price can change.

Question 12

Which of the following will lead to a movement along the same demand curve?

Accepted Answer

A)  Changes in income. 
B)  Changes in the price of substitute goods. 
C)  Changes in the price of the product. 
D)  Changes in the preference of the consumer. 
A)  Changes in income. 
B)  Changes in the price of substitute goods. 
C)  Changes in the price of the product. 
D)  Changes in the preference of the consumer.

Question 13

Historical data on prices and quantities sold do not provide the basis for drawing an accurate demand curve because

Accepted Answer

A)  reporters who gather these data are often wrong. 
B)  factors other than price may change over time. 
C)  they do not include measures of price close to the quantity axis. 
D)  they sometimes tend to be clustered around one point. 
A)  reporters who gather these data are often wrong. 
B)  factors other than price may change over time. 
C)  they do not include measures of price close to the quantity axis. 
D)  they sometimes tend to be clustered around one point.

Question 14

A relatively large increase in the cost of electricity would likely

Accepted Answer

A)  result in a large increase in the use of gas for home use immediately. 
B)  cause an immediate large decline in the use of electricity. 
C)  increase the use of gas and decrease the use of electricity after a time lapse. 
D)  cause an equal reduction in the use of electricity immediately. 
A)  result in a large increase in the use of gas for home use immediately. 
B)  cause an immediate large decline in the use of electricity. 
C)  increase the use of gas and decrease the use of electricity after a time lapse. 
D)  cause an equal reduction in the use of electricity immediately.

Question 15

Two goods with a low cross elasticity of demand are competing in the same market.

Accepted Answer

A) True 
 B)False

Question 16

A horizontal demand curve is perfectly elastic because a change in price will induce an infinite change in quantity demanded.

Accepted Answer

A) True 
 B)False

Question 17

Elasticity computations related to demand carry a minus sign to show that the demand curve is negatively sloped.

Accepted Answer

A) True 
 B)False

Question 18

If there are many close substitutes available for a good, its elasticity of demand will be higher.

Accepted Answer

A) True 
 B)False

Question 19

The Sandy Deli operates near a college campus.It has been selling 325 sandwiches a day at $1.75 each and is considering a price cut.It estimates 450 sandwiches would sell per day at $1.50 each.Calculate the marginal revenue of such a price cut and the elasticity between the two points.

Accepted Answer

Revenue is currently 325 × $1.75 = $568.

Question 20

Elasticity of demand is likely to be higher for less-expensive goods, other things being equal.

Accepted Answer

A) True 
 B)False

Exam 6: Demand and Elasticity

As we move down a straight-line demand curve, the price elasticity becomes

The price elasticity of demand measure is generally stated as an absolute value.

If a 10 percent rise in price leads to a reduction in quantity demanded of more than 10 percent,

Figure 6-1 -In Figure 6-1,

Figure 6-3 -In Figure 6-3(a), demand is

Using the general concept of elasticity, would you expect the elasticity of demand for advertising to be positive or negative? Explain.

If the marginal cost of producing vanity license plates is virtually zero (by prison inmates with little else to do), then states would maximize their profits on plate sales at the point on a linear demand curve where

Along a straight-line demand curve the

Tele-Com, Inc., the nation's largest cable TV company, tested the effect of a price reduction for the Disney Channel.It lowered prices from $10.75 to $7.95 and found that the number of customers more than doubled.This means the

Along the inelastic portion of a demand curve, the

A demand curve is described as perfectly elastic if

Which of the following will lead to a movement along the same demand curve?

Historical data on prices and quantities sold do not provide the basis for drawing an accurate demand curve because

A relatively large increase in the cost of electricity would likely

Two goods with a low cross elasticity of demand are competing in the same market.

A horizontal demand curve is perfectly elastic because a change in price will induce an infinite change in quantity demanded.

Elasticity computations related to demand carry a minus sign to show that the demand curve is negatively sloped.

If there are many close substitutes available for a good, its elasticity of demand will be higher.

The Sandy Deli operates near a college campus.It has been selling 325 sandwiches a day at $1.75 each and is considering a price cut.It estimates 450 sandwiches would sell per day at $1.50 each.Calculate the marginal revenue of such a price cut and the elasticity between the two points.

Elasticity of demand is likely to be higher for less-expensive goods, other things being equal.

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

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