Question 1

A straight-line demand curve has an elasticity that becomes smaller as we move from left to right along the schedule.

Accepted Answer

A) True 
 B)False

Question 2

If demand is unit elastic, revenue

Accepted Answer

A)  and price rise and fall together. 
B)  rises as price falls. 
C)  falls as price rises. 
D)  remains constant as price rises or falls. 
A)  and price rise and fall together. 
B)  rises as price falls. 
C)  falls as price rises. 
D)  remains constant as price rises or falls.

Question 3

If goods X and Y are complements, the

Accepted Answer

A)  quantities demanded of X and Y tend to move in opposite directions. 
B)  quantities demanded of X and Y tend to move in the same direction. 
C)  prices of X and Y tend to move in the same direction. 
D)  supply curves for X and Y tend to move in the same direction. 
A)  quantities demanded of X and Y tend to move in opposite directions. 
B)  quantities demanded of X and Y tend to move in the same direction. 
C)  prices of X and Y tend to move in the same direction. 
D)  supply curves for X and Y tend to move in the same direction.

Question 4

Why are time series data unlikely to give an accurate estimate of demand?

Accepted Answer

Demand may have shifted over time, so th

Question 5

The definition of cross elasticity of demand for two products X and Y is

Accepted Answer

A)  percentage change in quantity of X demanded/percentage change in quantity of Y demanded. 
B)  percentage change in price of Y/percentage change in quantity of X demanded. 
C)  percentage change in price of Y/percentage change in price of X. 
D)  percentage change in quantity of X demanded/percentage change in price of Y. 
A)  percentage change in quantity of X demanded/percentage change in quantity of Y demanded. 
B)  percentage change in price of Y/percentage change in quantity of X demanded. 
C)  percentage change in price of Y/percentage change in price of X. 
D)  percentage change in quantity of X demanded/percentage change in price of Y.

Question 6

For each pair of goods, explain which is more elastic: toothpicks vs.cars; electricity vs.yachts; IBM computers vs.Apple computers.

Accepted Answer

The more elastic are cars, yachts, and I

Question 7

A perfectly elastic demand curve for a firm

Accepted Answer

A)  is represented by a vertical line. 
B)  means that with every unit price increase there will be a unit decrease in demand. 
C)  is formulated by P × Q = a constant, for all prices and quantities. 
D)  indicates that any increase in price will eliminate all purchases of its product. 
A)  is represented by a vertical line. 
B)  means that with every unit price increase there will be a unit decrease in demand. 
C)  is formulated by P × Q = a constant, for all prices and quantities. 
D)  indicates that any increase in price will eliminate all purchases of its product.

Question 8

A price increase will always increase a firm's revenue.

Accepted Answer

A) True 
 B)False

Question 9

If both matches and automobile prices increase by 10 percent, consumers will likely buy

Accepted Answer

A)  fewer matches and approximately the same quantity of automobiles. 
B)  approximately the same quantity of matches and fewer automobiles. 
C)  fewer matches and fewer automobiles. 
D)  approximately the same quantity of both matches and automobiles. 
A)  fewer matches and approximately the same quantity of automobiles. 
B)  approximately the same quantity of matches and fewer automobiles. 
C)  fewer matches and fewer automobiles. 
D)  approximately the same quantity of both matches and automobiles.

Question 10

If two goods are complements, their cross elasticity of demand will normally be

Accepted Answer

A)  zero. 
B)  a negative number. 
C)  a positive number. 
D)  infinity. 
A)  zero. 
B)  a negative number. 
C)  a positive number. 
D)  infinity.

Question 11

The ratio of the percentage change in quantity demanded to the percentage change in income is known as the cross elasticity of demand.

Accepted Answer

A) True 
 B)False

Question 12

The relationship between a change in consumer income and a resulting change in demand for a good is

Accepted Answer

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

Question 13

A negative cross elasticity indicates that two goods are complements.

Accepted Answer

A) True 
 B)False

Question 14

If price goes up 20 percent and quantity demanded declines by 10 percent, total revenue will rise.

Accepted Answer

A) True 
 B)False

Question 15

Cross-elasticity of demand could be used to measure the responsiveness of the quantity demanded of swimming pools to a change in the price of picnic tables.

Accepted Answer

A) True 
 B)False

Question 16

Big Alice Ice Cream Parlor reduced its price of an ice cream cone from $1 to 90 cents.Sales consequently increased from 1,000 cones per week to 1,050.The approximate price elasticity is

Accepted Answer

A)  0.20. 
B)  0.46. 
C)  2.16. 
D)  5.00. 
A)  0.20. 
B)  0.46. 
C)  2.16. 
D)  5.00.

Question 17

The demand for potatoes at current prices is likely to be

Accepted Answer

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

Question 18

Two economists from Ohio University estimated that the demand curve for kerosene in Indonesia was such that a 10 percent increase in the price reduced the quantity demanded by 2.2 percent and that a 10 percent increase in the price of electricity increased the demand for kerosene by 1.6 percent.This indicates that (i) the demand for kerosene is price inelastic and (ii) kerosene and electricity are substitutes.Which of these two statements is 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 19

The unit-elastic demand curve bends in the middle toward the origin of the graph and at either end moves closer to the axes.

Accepted Answer

A) True 
 B)False

Question 20

When the price of penicillin tablets increases by $5 per dozen, the drug company's revenue increases by $6 million.Its elasticity of demand (in absolute terms) must be

Accepted Answer

A)  zero. 
B)  greater than one. 
C)  less than one. 
D)  infinitely large. 
A)  zero. 
B)  greater than one. 
C)  less than one. 
D)  infinitely large.

Exam 6: Demand and Elasticity

A straight-line demand curve has an elasticity that becomes smaller as we move from left to right along the schedule.

If demand is unit elastic, revenue

If goods X and Y are complements, the

Why are time series data unlikely to give an accurate estimate of demand?

The definition of cross elasticity of demand for two products X and Y is

For each pair of goods, explain which is more elastic: toothpicks vs.cars; electricity vs.yachts; IBM computers vs.Apple computers.

A perfectly elastic demand curve for a firm

A price increase will always increase a firm's revenue.

If both matches and automobile prices increase by 10 percent, consumers will likely buy

If two goods are complements, their cross elasticity of demand will normally be

The ratio of the percentage change in quantity demanded to the percentage change in income is known as the cross elasticity of demand.

The relationship between a change in consumer income and a resulting change in demand for a good is

A negative cross elasticity indicates that two goods are complements.

If price goes up 20 percent and quantity demanded declines by 10 percent, total revenue will rise.

Cross-elasticity of demand could be used to measure the responsiveness of the quantity demanded of swimming pools to a change in the price of picnic tables.

Big Alice Ice Cream Parlor reduced its price of an ice cream cone from $1 to 90 cents.Sales consequently increased from 1,000 cones per week to 1,050.The approximate price elasticity is

The demand for potatoes at current prices is likely to be

The unit-elastic demand curve bends in the middle toward the origin of the graph and at either end moves closer to the axes.

When the price of penicillin tablets increases by $5 per dozen, the drug company's revenue increases by $6 million.Its elasticity of demand (in absolute terms) must be

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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