Question 1

If the cross elasticity of demand for potato chips and pretzels equals 1.5,

Accepted Answer

A) potato chips and pretzels must both be luxury goods. 
B) either potato chips or pretzels must be a luxury good, and both may be luxury goods. 
C) potato chips and pretzels must be substitutes. 
D) potato chips and pretzels must be complements. 
A) potato chips and pretzels must both be luxury goods. 
B) either potato chips or pretzels must be a luxury good, and both may be luxury goods. 
C) potato chips and pretzels must be substitutes. 
D) potato chips and pretzels must be complements.

Question 2

If demand is elastic, an increase in price will increase total revenue.

Accepted Answer

A) True 
 B)False

Question 3

Figure 6-2  
-Using Figure 6-2, calculate the price elasticity of demand (dropping all minus signs) between P = 10 and P = 12.

Accepted Answer

A) 2.20 
B) 0.45 
C) 0.80 
D) 1.25 
A) 2.20 
B) 0.45 
C) 0.80 
D) 1.25

Question 4

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 5

The sign of the elasticity computation is important because the value of the price elasticity can be negative or positive.

Accepted Answer

A) True 
 B)False

Question 6

The elasticity of supply is calculated by

Accepted Answer

A) determining the slope of the supply curve. 
B) dividing the absolute change in quantity supplied by the absolute change in price. 
C) dividing the percentage change in quantity supplied by the percentage change in price. 
D) dividing the percentage change in price by the percentage change in quantity demanded. 
A) determining the slope of the supply curve. 
B) dividing the absolute change in quantity supplied by the absolute change in price. 
C) dividing the percentage change in quantity supplied by the percentage change in price. 
D) dividing the percentage change in price by the percentage change in quantity demanded.

Question 7

Chicken and fish are substitutes.Therefore, the cross elasticity of demand between chicken and fish is

Accepted Answer

A) negative. 
B) positive. 
C) zero. 
D) Any of the above is possible. 
A) negative. 
B) positive. 
C) zero. 
D) Any of the above is possible.

Question 8

The value of the price elasticity of demand for a straight-line demand curve starts with low elasticity values at high prices and has high elasticity values at low prices.

Accepted Answer

A) True 
 B)False

Question 9

As a result of a decline in interest rates and a rise in household income, the demand curve for housing has shifted to the right, but has retained the same slope.Consequently, the elasticity of demand for housing

Accepted Answer

A) has declined. 
B) has increased. 
C) has remained unchanged. 
D) cannot be compared. 
A) has declined. 
B) has increased. 
C) has remained unchanged. 
D) cannot be compared.

Question 10

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 11

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

Accepted Answer

A) True 
 B)False

Question 12

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 13

A decrease in the price of a good will cause a movement along the demand schedule to a higher quantity demanded.

Accepted Answer

A) True 
 B)False

Question 14

Total expenditure by a buyer is equal to the

Accepted Answer

A) slope at any point along the demand curve. 
B) price times quantity demanded at any point along the demand curve. 
C) elasticity times price at any point along the demand curve. 
D) elasticity times quantity demanded at any point along the demand curve. 
A) slope at any point along the demand curve. 
B) price times quantity demanded at any point along the demand curve. 
C) elasticity times price at any point along the demand curve. 
D) elasticity times quantity demanded at any point along the demand curve.

Question 15

Elasticity provides a guide to both

Accepted Answer

A) market stability and change in revenue as price changes. 
B) responsiveness of quantity demanded to a change in price and market stability. 
C) responsiveness of quantity demanded to a change in price and change in revenue as price changes. 
D) technological change and change in revenue as price changes. 
A) market stability and change in revenue as price changes. 
B) responsiveness of quantity demanded to a change in price and market stability. 
C) responsiveness of quantity demanded to a change in price and change in revenue as price changes. 
D) technological change and change in revenue as price changes.

Question 16

Which of the following is more likely to be the price elasticity of demand for the snake bite treatment antivenom?

Accepted Answer

A) Highly inelastic 
B) Unit elastic 
C) Elastic 
D) Perfectly elastic 
A) Highly inelastic 
B) Unit elastic 
C) Elastic 
D) Perfectly elastic

Question 17

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 18

Since housing generally represents a large part of most household budget, the elasticity of demand for housing is likely to be large.

Accepted Answer

A) True 
 B)False

Question 19

A positive value for the cross elasticity of demand between two good implies that these two goods are substitutes.

Accepted Answer

A) True 
 B)False

Question 20

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.

Exam 6: Demand and Elasticity

If the cross elasticity of demand for potato chips and pretzels equals 1.5,

If demand is elastic, an increase in price will increase total revenue.

Figure 6-2 -Using Figure 6-2, calculate the price elasticity of demand (dropping all minus signs) between P = 10 and P = 12.

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

The sign of the elasticity computation is important because the value of the price elasticity can be negative or positive.

The elasticity of supply is calculated by

Chicken and fish are substitutes.Therefore, the cross elasticity of demand between chicken and fish is

The value of the price elasticity of demand for a straight-line demand curve starts with low elasticity values at high prices and has high elasticity values at low prices.

As a result of a decline in interest rates and a rise in household income, the demand curve for housing has shifted to the right, but has retained the same slope.Consequently, the elasticity of demand for housing

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

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

A relatively large increase in the cost of electricity would likely

A decrease in the price of a good will cause a movement along the demand schedule to a higher quantity demanded.

Total expenditure by a buyer is equal to the

Elasticity provides a guide to both

Which of the following is more likely to be the price elasticity of demand for the snake bite treatment antivenom?

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

Since housing generally represents a large part of most household budget, the elasticity of demand for housing is likely to be large.

A positive value for the cross elasticity of demand between two good implies that these two goods are substitutes.

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

What Is Economics

The Economony: 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

The Financial Markets and the Economy: the Tail That Wags the Dog

The Firm and the Industry Under Perfect Competition

The Case for Free Markets: the Price System

Monopoly

Between Competition and Monopoly

Limiting Market Power: Antitrust and Regulation

The Shortcomings of Free Markets

The Economics of 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

Contemporary Issues in the Useconomy

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