Question 1

If demand is inelastic, a drop in price will raise total expenditure.

Accepted Answer

A) True 
 B)False

Question 2

Would a profit-maximizing firm sell at a price where demand is inelastic? Explain.

Accepted Answer

No.If demand is inelastic, the

Question 3

Figure 6-3
  
-In Figure 6-3(a), at any price above $6, quantity demanded

Accepted Answer

A)  falls to zero. 
B)  becomes infinitely large. 
C)  is equal to price. 
D)  is equal to the elasticity of demand. 
A)  falls to zero. 
B)  becomes infinitely large. 
C)  is equal to price. 
D)  is equal to the elasticity of demand.

Question 4

A study of New York City (NYC) tax rates concluded that taxes on the nonmanufacturing sector should be higher since that sector has fewer alternatives.Manufacturers are more mobile and may move to avoid higher taxes.This means that

Accepted Answer

A)  nonmanufacturing firms have a more elastic demand for NYC locations. 
B)  manufacturing firms have an inelastic demand for the NYC locations. 
C)  nonmanufacturing firms have relatively inelastic demand for the NYC locations. 
D)  nonmanufacturing demand for NYC locations is perfectly elastic. 
A)  nonmanufacturing firms have a more elastic demand for NYC locations. 
B)  manufacturing firms have an inelastic demand for the NYC locations. 
C)  nonmanufacturing firms have relatively inelastic demand for the NYC locations. 
D)  nonmanufacturing demand for NYC locations is perfectly elastic.

Question 5

What is an optimal decision?

Accepted Answer

An optimal decision is one that best ser

Question 6

When the goods of competing companies are identical, consumers have no reason to prefer one product over the other so the demand curve for each manufacturer will be perfectly elastic.

Accepted Answer

A) True 
 B)False

Question 7

A buyer's response to a change in income is an example of a "change in demand."

Accepted Answer

A) True 
 B)False

Question 8

The price of coffee rose 50 percent and coffee sales fell 25 percent.Doughnut sales also fell 25 percent.From this information we can conclude that

Accepted Answer

A)  demand for coffee is inelastic. 
B)  coffee and doughnuts are complements. 
C)  the cross elasticity of demand is minus 0.5 percent. 
D)  All of the above are correct. 
A)  demand for coffee is inelastic. 
B)  coffee and doughnuts are complements. 
C)  the cross elasticity of demand is minus 0.5 percent. 
D)  All of the above are correct.

Question 9

Price elasticity of demand is defined as

Accepted Answer

A)  slope divided by price. 
B)  percentage change in price divided by percentage change in quantity demanded. 
C)  percentage change in quantity demanded divided by percentage change in price. 
D)  the inverse of the price elasticity of supply. 
A)  slope divided by price. 
B)  percentage change in price divided by percentage change in quantity demanded. 
C)  percentage change in quantity demanded divided by percentage change in price. 
D)  the inverse of the price elasticity of supply.

Question 10

If demand is unit elastic, then a 10 percent increase in the price will lead to a 10 percent increase in quantity demanded.

Accepted Answer

A) True 
 B)False

Question 11

As one moves down a straight-line demand curve away from the vertical axis, demand becomes less elastic and then inelastic.

Accepted Answer

A) True 
 B)False

Question 12

Figure 6-2
  
-From Figure 6-2, we can infer that demand is ____ between P = 12 and P = 10 and ____ between P = 6 and P = 4.

Accepted Answer

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

Question 13

If the demand for gasoline becomes more elastic over time,

Accepted Answer

A)  the demand curve will shift out. 
B)  the demand curve will become flatter. 
C)  other things being equal, the equilibrium price of gasoline must fall. 
D)  other things being equal, the equilibrium quantity of gasoline must fall. 
A)  the demand curve will shift out. 
B)  the demand curve will become flatter. 
C)  other things being equal, the equilibrium price of gasoline must fall. 
D)  other things being equal, the equilibrium quantity of gasoline must fall.

Question 14

If an increase in quantity demanded of a product reduces the quantity demanded of another, then the two goods are said to be substitutes.

Accepted Answer

A) True 
 B)False

Question 15

The quantity demanded in a market depends on many things, but the concept of elasticity focuses on the effect of changes in the price of the good.

Accepted Answer

A) True 
 B)False

Question 16

The price elasticity of demand for widgets at any particular price is determined by

Accepted Answer

A)  whether widgets are luxuries or necessities. 
B)  how much of their budgets consumers spend on widgets. 
C)  whether there are any good substitutes for widgets. 
D)  All of the above are correct. 
A)  whether widgets are luxuries or necessities. 
B)  how much of their budgets consumers spend on widgets. 
C)  whether there are any good substitutes for widgets. 
D)  All of the above are correct.

Question 17

Sun City's public bus line has been operating at a deficit.The city decides to raise the fare from 50 cents to 75 cents, anticipating enough additional revenue to cover the deficit.What assumption is the city making about price elasticity?

Accepted Answer

Sun City is assuming demand is

Question 18

How can one tell from cross elasticity what kind of relationship exists between any two goods?

Accepted Answer

If the price of X increases and the quan

Question 19

Suppose that elasticity has been reliably measured as 1.55 and the unit price decreases from $20 to $17.50.How much will quantity demanded increase?

Accepted Answer

The percentage change in price

Question 20

Figure 6-5
  
-If the demand curve in Figure 6-5 is unit elastic, then total expenditure at A is ____ total expenditure at B.

Accepted Answer

A)  greater than 
B)  less than 
C)  equal to 
D)  less elastic than 
A)  greater than 
B)  less than 
C)  equal to 
D)  less elastic than

Exam 6: Demand and Elasticity

If demand is inelastic, a drop in price will raise total expenditure.

Would a profit-maximizing firm sell at a price where demand is inelastic? Explain.

Figure 6-3 -In Figure 6-3(a), at any price above $6, quantity demanded

A study of New York City (NYC) tax rates concluded that taxes on the nonmanufacturing sector should be higher since that sector has fewer alternatives.Manufacturers are more mobile and may move to avoid higher taxes.This means that

What is an optimal decision?

When the goods of competing companies are identical, consumers have no reason to prefer one product over the other so the demand curve for each manufacturer will be perfectly elastic.

A buyer's response to a change in income is an example of a "change in demand."

The price of coffee rose 50 percent and coffee sales fell 25 percent.Doughnut sales also fell 25 percent.From this information we can conclude that

Price elasticity of demand is defined as

If demand is unit elastic, then a 10 percent increase in the price will lead to a 10 percent increase in quantity demanded.

As one moves down a straight-line demand curve away from the vertical axis, demand becomes less elastic and then inelastic.

Figure 6-2 -From Figure 6-2, we can infer that demand is ____ between P = 12 and P = 10 and ____ between P = 6 and P = 4.

If the demand for gasoline becomes more elastic over time,

If an increase in quantity demanded of a product reduces the quantity demanded of another, then the two goods are said to be substitutes.

The quantity demanded in a market depends on many things, but the concept of elasticity focuses on the effect of changes in the price of the good.

The price elasticity of demand for widgets at any particular price is determined by

Sun City's public bus line has been operating at a deficit.The city decides to raise the fare from 50 cents to 75 cents, anticipating enough additional revenue to cover the deficit.What assumption is the city making about price elasticity?

How can one tell from cross elasticity what kind of relationship exists between any two goods?

Suppose that elasticity has been reliably measured as 1.55 and the unit price decreases from $20 to $17.50.How much will quantity demanded increase?

Figure 6-5 -If the demand curve in Figure 6-5 is unit elastic, then total expenditure at A is ____ total expenditure at B.

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 -From Figure 6-2, we can infer that demand is between P = 12 and P = 10 and between P = 6 and P = 4.