Question 1

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 2

Along a perfectly elastic demand curve,

Accepted Answer

A) the slope is always zero. 
B) the price elasticity of demand is 1. 
C) consumer purchases will not respond at all to a change in price. 
D) All of the responses are correct.. 
A) the slope is always zero. 
B) the price elasticity of demand is 1. 
C) consumer purchases will not respond at all to a change in price. 
D) All of the responses are correct..

Question 3

Using historical statistics is likely to produce accurate estimates of demand curves since such studies have large amounts of data to draw on.

Accepted Answer

A) True 
 B)False

Question 4

Figure 6-2  
-Using Figure 6-2, calculate the price elasticity of demand (dropping all minus signs) between P = 4 and P = 6.

Accepted Answer

A) 3.0 
B) 0.33 
C) 0.40 
D) 1.25 
A) 3.0 
B) 0.33 
C) 0.40 
D) 1.25

Question 5

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

Accepted Answer

A) True 
 B)False

Question 6

When Johanna cut prices in her jewelry store by 20 percent, the dollar value of her sales fell by 20 percent.This indicates that

Accepted Answer

A) demand was elastic. 
B) demand was inelastic. 
C) demand was unit elastic. 
D) the demand curve was vertical. 
A) demand was elastic. 
B) demand was inelastic. 
C) demand was unit elastic. 
D) the demand curve was vertical.

Question 7

Whenever the elasticity value for a demand curve is greater than zero, then the demand is labeled as "elastic."

Accepted Answer

A) True 
 B)False

Question 8

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

Question 9

John's Bait Shop was surprised to learn that when it raised prices by 10 percent, total revenue was unaffected.This is because the elasticity for bait is

Accepted Answer

A) unit elastic. 
B) inelastic. 
C) elastic. 
D) Not enough information is given. 
A) unit elastic. 
B) inelastic. 
C) elastic. 
D) Not enough information is given.

Question 10

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 11

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 12

Elasticity

Accepted Answer

A) deals with percentage changes in price and quantity demanded. 
B) employs percentage changes calculated in terms of average values of the prices and quantities at issue. 
C) is generally stated in absolute value. 
D) All of the responses are correct. 
A) deals with percentage changes in price and quantity demanded. 
B) employs percentage changes calculated in terms of average values of the prices and quantities at issue. 
C) is generally stated in absolute value. 
D) All of the responses are correct.

Question 13

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 14

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 15

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 16

A good will tend to be more price elastic if it

Accepted Answer

A) is a luxury good. 
B) has no close substitutes. 
C) is a small part of the household budget. 
D) is a necessity. 
A) is a luxury good. 
B) has no close substitutes. 
C) is a small part of the household budget. 
D) is a necessity.

Question 17

The price elasticity of a vertical demand curve is always

Accepted Answer

A) infinitely large. 
B) zero. 
C) one. 
D) increasing as price increases. 
A) infinitely large. 
B) zero. 
C) one. 
D) increasing as price increases.

Question 18

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 19

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

Accepted Answer

A) True 
 B)False

Question 20

Figure 6-4  
-Based on Figure 6-4, it can be determined that total expenditure ____ as price falls from P = 6 to P = 4.

Accepted Answer

A) falls 
B) remains constant 
C) rises 
D) rises by more than $12 
A) falls 
B) remains constant 
C) rises 
D) rises by more than $12

Exam 6: Demand and Elasticity

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

Along a perfectly elastic demand curve,

Using historical statistics is likely to produce accurate estimates of demand curves since such studies have large amounts of data to draw on.

Figure 6-2 -Using Figure 6-2, calculate the price elasticity of demand (dropping all minus signs) between P = 4 and P = 6.

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

When Johanna cut prices in her jewelry store by 20 percent, the dollar value of her sales fell by 20 percent.This indicates that

Whenever the elasticity value for a demand curve is greater than zero, then the demand is labeled as "elastic."

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

John's Bait Shop was surprised to learn that when it raised prices by 10 percent, total revenue was unaffected.This is because the elasticity for bait is

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

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

Elasticity

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

The demand for potatoes at current prices is likely to be

A good will tend to be more price elastic if it

The price elasticity of a vertical demand curve is always

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

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

Figure 6-4 -Based on Figure 6-4, it can be determined that total expenditure ____ as price falls from P = 6 to P = 4.

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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