Question 1

A decrease in supply will cause the largest increase in price when

Accepted Answer

A)  both supply and demand are inelastic. 
B)  both supply and demand are elastic. 
C)  demand is elastic and supply is inelastic. 
D)  demand is inelastic and supply is elastic. 
A)  both supply and demand are inelastic. 
B)  both supply and demand are elastic. 
C)  demand is elastic and supply is inelastic. 
D)  demand is inelastic and supply is elastic.

Question 2

Using the midpoint method, compute the elasticity of demand between points A and B. Is demand along this portion of the curve elastic or inelastic? Interpret your answer with regard to price and quantity demanded. Now compute the elasticity of demand between points B and C. Is demand along this portion of the curve elastic or inelastic?

Accepted Answer

In the section of the demand curve from

Question 3

The price elasticity of supply tends to be more inelastic as the firm's production facility reaches maximum capacity.

Accepted Answer

A) True 
 B)False

Question 4

Pharmaceutical drugs have an inelastic demand, and computers have an elastic demand. Assume technological advances lead to the doubling of supply of both products.
a. What happens to the equilibrium price and quantity in each market?
b. Which product experiences a larger change in price?
c. Which product experiences a larger change in quantity?
d. What happens to total consumer spending on each product?

Accepted Answer

a. In both markets, the increase in supp

Question 5

The price elasticity of demand is defined as

Accepted Answer

A)  the percentage change in the quantity demanded divided by the percentage change in income. 
B)  the percentage change in income divided by the percentage change in the quantity demanded. 
C)  the percentage change in the quantity demanded of a good divided by the percentage change in the price of that good. 
D)  the percentage change in the price of a good multiplied by the inverse of the percentage change in demand 
E)  the percentage change in price of a good divided by the percentage change in the quantity demanded of that good. 
A)  the percentage change in the quantity demanded divided by the percentage change in income. 
B)  the percentage change in income divided by the percentage change in the quantity demanded. 
C)  the percentage change in the quantity demanded of a good divided by the percentage change in the price of that good. 
D)  the percentage change in the price of a good multiplied by the inverse of the percentage change in demand 
E)  the percentage change in price of a good divided by the percentage change in the quantity demanded of that good.

Question 6

You own a small performance theatre. You currently charge R5 per ticket for everyone who comes. Your friend, who took an economics course at University, tells you that there may be a way to increase your total revenue. Given the demand curves shown, answer the following questions.     
a. What is your current total revenue for both children and adults?
b. The elasticity of demand is more elastic in which market?
c. Which market has the more inelastic demand?
d. What is the elasticity of demand between the prices of R5 and R2 in the adult market? Is this elastic or inelastic?
e. What is the elasticity of demand between R5 and R2 in the children's market? Is this elastic or inelastic?
f. Given the graphs and what your friend knows about economics, he recommends you increase the price of adult tickets to R8 each and lower the price of a child's ticket to R3. How much could you increase total revenue if you take his advice?

Accepted Answer

a. Total revenue from children's tickets

Question 7

If SA T-Shirt Co. lowers its price from R60 to R50 and finds that students increase their quantity demanded from 400 to 600 T-shirts per month, then the demand for SA T-shirts within this price range is

Accepted Answer

A)  price inelastic. 
B)  price elastic. 
C)  unit elastic. 
D)  cross elastic. 
A)  price inelastic. 
B)  price elastic. 
C)  unit elastic. 
D)  cross elastic.

Question 8

An advance in technology that shifts the market supply curve to the right always increases total revenue received by producers.

Accepted Answer

A) True 
 B)False

Question 9

The demand for Rice Krispies is less elastic than the demand for cereal in general.

Accepted Answer

A) True 
 B)False

Question 10

If a supply curve for a good is price elastic, then

Accepted Answer

A)  the quantity supplied is sensitive to changes in the price of that good. 
B)  the quantity demanded is insensitive to changes in the price of that good. 
C)  the quantity demanded is sensitive to changes in the price of that good. 
D)  the quantity supplied is insensitive to changes in the price of that good. 
A)  the quantity supplied is sensitive to changes in the price of that good. 
B)  the quantity demanded is insensitive to changes in the price of that good. 
C)  the quantity demanded is sensitive to changes in the price of that good. 
D)  the quantity supplied is insensitive to changes in the price of that good.

Question 11

Which of the following would cause a demand curve for a good to be price inelastic?

Accepted Answer

A)  The good is a luxury. 
B)  There are a great number of substitutes for the good. 
C)  The good is a necessity. 
D)  The good is an inferior good. 
A)  The good is a luxury. 
B)  There are a great number of substitutes for the good. 
C)  The good is a necessity. 
D)  The good is an inferior good.

Question 12

If a small percentage increase in the price of a good greatly reduces the quantity demanded for that good, the demand for that good is

Accepted Answer

A)  income inelastic. 
B)  price inelastic. 
C)  price elastic. 
D)  unit price elastic. 
E)  income elastic. 
A)  income inelastic. 
B)  price inelastic. 
C)  price elastic. 
D)  unit price elastic. 
E)  income elastic.

Question 13

When studying how some event or policy affects a market, elasticity provides information on the

Accepted Answer

A)  government expenditures associated with the policy. 
B)  costs and benefits of the effect. 
C)  allocative efficiency of the effect. 
D)  direction and magnitude of the effect. 
A)  government expenditures associated with the policy. 
B)  costs and benefits of the effect. 
C)  allocative efficiency of the effect. 
D)  direction and magnitude of the effect.

Question 14

Price elasticity of supply for the long run is

Accepted Answer

A)  always greater than the long-run price elasticity of demand. 
B)  always zero. 
C)  perfectly inelastic. 
D)  always greater than the short-run price elasticity of supply. 
A)  always greater than the long-run price elasticity of demand. 
B)  always zero. 
C)  perfectly inelastic. 
D)  always greater than the short-run price elasticity of supply.

Question 15

If consumers think that there are very few substitutes for a good, then

Accepted Answer

A)  supply would tend to be price elastic. 
B)  none of these answers are correct. 
C)  demand would tend to be price inelastic. 
D)  demand would tend to be price elastic. 
E)  supply would tend to be price inelastic. 
A)  supply would tend to be price elastic. 
B)  none of these answers are correct. 
C)  demand would tend to be price inelastic. 
D)  demand would tend to be price elastic. 
E)  supply would tend to be price inelastic.

Question 16

In general, a flatter demand curve is more likely to be

Accepted Answer

A)  price elastic. 
B)  unit price elastic. 
C)  income elastic. 
D)  price inelastic. 
A)  price elastic. 
B)  unit price elastic. 
C)  income elastic. 
D)  price inelastic.

Question 17

A perfectly inelastic supply curve represents a

Accepted Answer

A)  product supply that is extremely responsive to a price change. 
B)  product with a constant price, regardless of the quantity offered for sale. 
C)  product in abundant supply. 
D)  fixed supply of a good. 
A)  product supply that is extremely responsive to a price change. 
B)  product with a constant price, regardless of the quantity offered for sale. 
C)  product in abundant supply. 
D)  fixed supply of a good.

Question 18

For which of the following goods is the income elasticity of demand likely lowest?

Accepted Answer

A)  Water. 
B)  Diamond necklaces. 
C)  Fillet steaks. 
D)  Fresh fruit. 
A)  Water. 
B)  Diamond necklaces. 
C)  Fillet steaks. 
D)  Fresh fruit.

Question 19

Suppose a producer is able to separate customers into two groups, one having an inelastic demand and the other having an elastic demand. If the producer's objective is to increase total revenue, she should

Accepted Answer

A)  increase the price charged to customers with the elastic demand and decrease the price charged to customers with the inelastic demand. 
B)  decrease the price charged to customers with the elastic demand and increase the price charged to customers with the inelastic demand. 
C)  decrease the price to both groups of customers. 
D)  increase the price for both groups of customers. 
A)  increase the price charged to customers with the elastic demand and decrease the price charged to customers with the inelastic demand. 
B)  decrease the price charged to customers with the elastic demand and increase the price charged to customers with the inelastic demand. 
C)  decrease the price to both groups of customers. 
D)  increase the price for both groups of customers.

Question 20

Technological improvements in agriculture that shift the supply of agricultural commodities to the right tend to

Accepted Answer

A)  increase total revenue to farmers as a whole because the demand for food is elastic. 
B)  increase total revenue to farmers as a whole because the demand for food is inelastic. 
C)  reduce total revenue to farmers as a whole because the demand for food is elastic. 
D)  reduce total revenue to farmers as a whole because the demand for food is inelastic. 
A)  increase total revenue to farmers as a whole because the demand for food is elastic. 
B)  increase total revenue to farmers as a whole because the demand for food is inelastic. 
C)  reduce total revenue to farmers as a whole because the demand for food is elastic. 
D)  reduce total revenue to farmers as a whole because the demand for food is inelastic.

A decrease in supply will cause the largest increase in price when

The price elasticity of supply tends to be more inelastic as the firm's production facility reaches maximum capacity.

The price elasticity of demand is defined as

If SA T-Shirt Co. lowers its price from R60 to R50 and finds that students increase their quantity demanded from 400 to 600 T-shirts per month, then the demand for SA T-shirts within this price range is

An advance in technology that shifts the market supply curve to the right always increases total revenue received by producers.

The demand for Rice Krispies is less elastic than the demand for cereal in general.

If a supply curve for a good is price elastic, then

Which of the following would cause a demand curve for a good to be price inelastic?

If a small percentage increase in the price of a good greatly reduces the quantity demanded for that good, the demand for that good is

When studying how some event or policy affects a market, elasticity provides information on the

Price elasticity of supply for the long run is

If consumers think that there are very few substitutes for a good, then

In general, a flatter demand curve is more likely to be

A perfectly inelastic supply curve represents a

For which of the following goods is the income elasticity of demand likely lowest?

Suppose a producer is able to separate customers into two groups, one having an inelastic demand and the other having an elastic demand. If the producer's objective is to increase total revenue, she should

Technological improvements in agriculture that shift the supply of agricultural commodities to the right tend to

What Is Economics

Thinking Like an Economist

The Market Forces of Supply and Demand

Background to Demand: Consumer Choices

Background to Supply: Firms in Competitive Markets

Consumers, Producers and the Efficiency of Markets

Supply, Demand and Government Policies

The Tax System

Public Goods, Common Resources and Merit Goods

Market Failure and Externalities

Information and Behavioural Economics

Firms Production Decisions

Market Structures I: Monopoly

Market Structures Ii: Monopolistic Competition

Market Structures Iii: Oligopoly

The Economics of Factor Markets

Income Inequality and Poverty

Interdependence and the Gains From Trade

Filters

Exam 4: Elasticity and Its Applications

A decrease in supply will cause the largest increase in price when

The price elasticity of supply tends to be more inelastic as the firm's production facility reaches maximum capacity.

The price elasticity of demand is defined as

If SA T-Shirt Co. lowers its price from R60 to R50 and finds that students increase their quantity demanded from 400 to 600 T-shirts per month, then the demand for SA T-shirts within this price range is

An advance in technology that shifts the market supply curve to the right always increases total revenue received by producers.

The demand for Rice Krispies is less elastic than the demand for cereal in general.

If a supply curve for a good is price elastic, then

Which of the following would cause a demand curve for a good to be price inelastic?

If a small percentage increase in the price of a good greatly reduces the quantity demanded for that good, the demand for that good is

When studying how some event or policy affects a market, elasticity provides information on the

Price elasticity of supply for the long run is

If consumers think that there are very few substitutes for a good, then

In general, a flatter demand curve is more likely to be

A perfectly inelastic supply curve represents a

For which of the following goods is the income elasticity of demand likely lowest?

Suppose a producer is able to separate customers into two groups, one having an inelastic demand and the other having an elastic demand. If the producer's objective is to increase total revenue, she should

Technological improvements in agriculture that shift the supply of agricultural commodities to the right tend to

What Is Economics

Thinking Like an Economist

The Market Forces of Supply and Demand

Background to Demand: Consumer Choices

Background to Supply: Firms in Competitive Markets

Consumers, Producers and the Efficiency of Markets

Supply, Demand and Government Policies

The Tax System

Public Goods, Common Resources and Merit Goods

Market Failure and Externalities

Information and Behavioural Economics

Firms Production Decisions

Market Structures I: Monopoly

Market Structures Ii: Monopolistic Competition

Market Structures Iii: Oligopoly

The Economics of Factor Markets

Income Inequality and Poverty

Interdependence and the Gains From Trade

Filters