Question 1

Which of the following goods will have the most elastic demand at any time?

Accepted Answer

A) Coffee 
B) Gasoline 
C) Restaurant meals 
D) Insulin 
A) Coffee 
B) Gasoline 
C) Restaurant meals 
D) Insulin

Question 2

The cross elasticity between two goods has been measured at −1.2.How are the goods related? Explain.Give an example of goods for which this might be a reasonable measure of cross elasticity.

Accepted Answer

The goods are complements.An increase in

Question 3

The price elasticity of a horizontal 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 4

If seller increases the price of the good and the total revenue increases, this implies that the demand for the product is inelastic.

Accepted Answer

A) True 
 B)False

Question 5

The local symphony recently raised its price for tickets to their summer concerts in the park.At the end of the summer season, the symphony was surprised to see that total revenue had actually decreased.The reason was that the elasticity of demand for tickets was

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 6

The demand curve depicts quantities demanded that have been gathered as prices have changed over time.

Accepted Answer

A) True 
 B)False

Question 7

A horizontal demand curve is perfectly elastic because a change in price will not induce a change in quantity demanded.

Accepted Answer

A) True 
 B)False

Question 8

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 9

An article in the Wall Street Journal reports that "most cable TV operators are aware that cable is price sensitive, and there comes a point where people won't pay the price." Which demand curve in Figure 6-6 best illustrates this situation?

Accepted Answer

A) 1 
B) 2 
C) 3 
D) 4 
A) 1 
B) 2 
C) 3 
D) 4

Question 10

Figure 6-5  
-If a demand curve for a good is perfectly inelastic, then the seller could

Accepted Answer

A) increase price and not change the number of units purchased. 
B) ignore the effects of costs on its profits. 
C) rely on buyers to look for other products if it increases price. 
D) sell more units by advertising. 
A) increase price and not change the number of units purchased. 
B) ignore the effects of costs on its profits. 
C) rely on buyers to look for other products if it increases price. 
D) sell more units by advertising.

Question 11

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 12

Demand elasticity equals quantity times price.

Accepted Answer

A) True 
 B)False

Question 13

A decrease in the price of rice from 50 cents to 40 cents a pound increases consumption from 16 to 20 tons a week in Gainesville and from 160 to 200 tons in the larger city of Miami.The elasticity of demand for rice is

Accepted Answer

A) greater in Miami than in Gainesville, even taking into account the population difference. 
B) greater in Gainesville than in Miami in spite of the population difference. 
C) equal in Gainesville and Miami regardless of the population difference. 
D) impossible to compare because of the population difference. 
A) greater in Miami than in Gainesville, even taking into account the population difference. 
B) greater in Gainesville than in Miami in spite of the population difference. 
C) equal in Gainesville and Miami regardless of the population difference. 
D) impossible to compare because of the population difference.

Question 14

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 15

An accurate demand curve can be derived by examining the quantities of a good that are sold over time as the price varies.

Accepted Answer

A) True 
 B)False

Question 16

A demand curve with an elasticity of 1.0 is a unit-elastic demand curve.

Accepted Answer

A) True 
 B)False

Question 17

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 18

A recent study on enrollment at a liberal arts college concluded that demand elasticity is 0.91.The administration is considering a tuition increase to help balance the budget.The revenue-maximizing decision is to

Accepted Answer

A) decrease tuition, which should boost enrollment enough to balance the budget. 
B) decrease tuition, which would bring in more revenue. 
C) leave tuition as is-an increase would not help balance the budget. 
D) increase tuition, which would bring in more revenue. 
A) decrease tuition, which should boost enrollment enough to balance the budget. 
B) decrease tuition, which would bring in more revenue. 
C) leave tuition as is-an increase would not help balance the budget. 
D) increase tuition, which would bring in more revenue.

Question 19

Cross elasticity of demand for

Accepted Answer

A) substitutes will normally be positive. 
B) complements will normally be positive. 
C) substitutes will normally be negative. 
D) complements will normally be infinite. 
A) substitutes will normally be positive. 
B) complements will normally be positive. 
C) substitutes will normally be negative. 
D) complements will normally be infinite.

Question 20

Along a straight-line demand curve (dropping all minus signs), the price elasticity of demand

Accepted Answer

A) gets larger as quantity demanded gets larger. 
B) gets smaller as quantity demanded gets larger. 
C) always equals one. 
D) is constant (though not necessarily equal to one). 
A) gets larger as quantity demanded gets larger. 
B) gets smaller as quantity demanded gets larger. 
C) always equals one. 
D) is constant (though not necessarily equal to one).

Exam 6: Demand and Elasticity

Which of the following goods will have the most elastic demand at any time?

The cross elasticity between two goods has been measured at −1.2.How are the goods related? Explain.Give an example of goods for which this might be a reasonable measure of cross elasticity.

The price elasticity of a horizontal demand curve is always

If seller increases the price of the good and the total revenue increases, this implies that the demand for the product is inelastic.

The local symphony recently raised its price for tickets to their summer concerts in the park.At the end of the summer season, the symphony was surprised to see that total revenue had actually decreased.The reason was that the elasticity of demand for tickets was

The demand curve depicts quantities demanded that have been gathered as prices have changed over time.

A horizontal demand curve is perfectly elastic because a change in price will not induce a change in quantity demanded.

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

An article in the Wall Street Journal reports that "most cable TV operators are aware that cable is price sensitive, and there comes a point where people won't pay the price." Which demand curve in Figure 6-6 best illustrates this situation?

Figure 6-5 -If a demand curve for a good is perfectly inelastic, then the seller could

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

Demand elasticity equals quantity times price.

A decrease in the price of rice from 50 cents to 40 cents a pound increases consumption from 16 to 20 tons a week in Gainesville and from 160 to 200 tons in the larger city of Miami.The elasticity of demand for rice is

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?

An accurate demand curve can be derived by examining the quantities of a good that are sold over time as the price varies.

A demand curve with an elasticity of 1.0 is a unit-elastic demand curve.

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

A recent study on enrollment at a liberal arts college concluded that demand elasticity is 0.91.The administration is considering a tuition increase to help balance the budget.The revenue-maximizing decision is to

Cross elasticity of demand for

Along a straight-line demand curve (dropping all minus signs), the price elasticity of demand

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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