Question 1

A study of mass-transit systems in American cities revealed that in the long run, revenues generally decline after substantial fare increases. This would suggest that

Accepted Answer

A) the demand for mass transit is price-elastic in the long run. 
B) the demand for mass transit is price-inelastic in the long run. 
C) mass-transit service deteriorates in the long run as price rises. 
D) there are few good substitutes for such systems in urban areas. 
A) the demand for mass transit is price-elastic in the long run. 
B) the demand for mass transit is price-inelastic in the long run. 
C) mass-transit service deteriorates in the long run as price rises. 
D) there are few good substitutes for such systems in urban areas.

Question 2

The price of season tickets to a performing arts theater decreases by 4 percent. As a result, the quantity demanded increases by 6 percent. The price elasticity of demand for season tickets is

Accepted Answer

A) 0.67. 
B) 6.7. 
C) 1.5. 
D) 0.15. 
A) 0.67. 
B) 6.7. 
C) 1.5. 
D) 0.15.

Question 3

The law of supply suggests that the price-elasticity of supply is

Accepted Answer

A) positive. 
B) negative. 
C) always greater than 1. 
D) always less than 1. 
A) positive. 
B) negative. 
C) always greater than 1. 
D) always less than 1.

Question 4

When demand is price-elastic, an increase in price will lead to increased total consumer spending for the product.

Accepted Answer

A) True 
 B)False

Question 5

Refer to the above graph. If the price decreases from P₃ to P₂, then the total revenue will lose area

Accepted Answer

A) B + E, but it will gain area H + I. 
B) H + I, but it will gain area A + B + C. 
C) E + F + G, but it will gain area H + I + J. 
D) A + B + C + D, but it will gain area E + F + G. 
A) B + E, but it will gain area H + I. 
B) H + I, but it will gain area A + B + C. 
C) E + F + G, but it will gain area H + I + J. 
D) A + B + C + D, but it will gain area E + F + G.

Question 6

Income elasticity measures the effect of a change in income on the purchases of some good or service.

Accepted Answer

A) True 
 B)False

Question 7

If a firm finds that it can sell $13,000 worth of a product when its price is $5 per unit and $11,000 worth of it when its price is $6, then

Accepted Answer

A) the demand for the product is elastic in the $6-$5 price range. 
B) the demand for the product must have increased. 
C) elasticity of demand is 0.74. 
D) the demand for the product is inelastic in the $6-$5 price range. 
A) the demand for the product is elastic in the $6-$5 price range. 
B) the demand for the product must have increased. 
C) elasticity of demand is 0.74. 
D) the demand for the product is inelastic in the $6-$5 price range.

Question 8

Refer to the data. Suppose quantity demanded increased by 12 units at each price, changing the equilibrium price in a direction and an amount for you to determine. Over that price range, supply is

Accepted Answer

A) perfectly elastic. 
B) perfectly inelastic. 
C) elastic. 
D) inelastic. 
A) perfectly elastic. 
B) perfectly inelastic. 
C) elastic. 
D) inelastic.

Question 9

The price elasticity of demand of a straight-line demand curve is

Accepted Answer

A) elastic in high-price ranges and inelastic in low-price ranges. 
B) elastic but does not change at various points on the curve. 
C) inelastic but does not change at various points on the curve. 
D) 1 at all points on the curve. 
A) elastic in high-price ranges and inelastic in low-price ranges. 
B) elastic but does not change at various points on the curve. 
C) inelastic but does not change at various points on the curve. 
D) 1 at all points on the curve.

Question 10

The formula for cross elasticity of demand is percentage change in

Accepted Answer

A) quantity demanded of X/percentage change in price of X. 
B) quantity demanded of X/percentage change in income. 
C) quantity demanded of X/percentage change in price of Y. 
D) price of X/percentage change in quantity demanded of Y. 
A) quantity demanded of X/percentage change in price of X. 
B) quantity demanded of X/percentage change in income. 
C) quantity demanded of X/percentage change in price of Y. 
D) price of X/percentage change in quantity demanded of Y.

Question 11

Generally speaking, the demand for luxury goods is more price elastic than is the demand for necessities.

Accepted Answer

A) True 
 B)False

Question 12

A positive cross-elasticity of demand between two goods indicates that the two goods are both normal goods.

Accepted Answer

A) True 
 B)False

Question 13

If a firm can sell3,000 units of product A at $10 per unit and5,000 at $8, then

Accepted Answer

A) the price elasticity of demand is approximately 0.44. 
B) A is a complementary good. 
C) the price elasticity of demand is approximately 2.25. 
D) A is an inferior good. 
A) the price elasticity of demand is approximately 0.44. 
B) A is a complementary good. 
C) the price elasticity of demand is approximately 2.25. 
D) A is an inferior good.

Question 14

At a price of $10 per unit, Gadgets Inc. is willing to supply 14,000 gadgets, while United Gadgets is willing to supply 11,000 gadgets. If the price were to rise to $14 per unit, their respective quantities supplied would rise to 16,000 and 15,000. If these are the only two firms supplying gadgets, what is the elasticity of supply in the market for gadgets?

Accepted Answer

A) 0.64 
B) 0.8 
C) 1.12 
D) 1.56 
A) 0.64 
B) 0.8 
C) 1.12 
D) 1.56

Question 15

The cross elasticity of demand for product X with respect to the price of product Y is −1.2. It can be inferred that X and Y are

Accepted Answer

A) substitute products. 
B) complementary products. 
C) luxury products. 
D) unrelated products. 
A) substitute products. 
B) complementary products. 
C) luxury products. 
D) unrelated products.

Question 16

Cross elasticity of demand is

Accepted Answer

A) negative for complementary goods. 
B) negative for substitute goods. 
C) unitary for inferior goods. 
D) positive for inferior goods. 
A) negative for complementary goods. 
B) negative for substitute goods. 
C) unitary for inferior goods. 
D) positive for inferior goods.

Question 17

Answer the question based on the following data.   What is the price elasticity of demand over the range of $18 to $20?

Accepted Answer

A) 0.31 
B) 3.28 
C) 1.38 
D) 0.73 
A) 0.31 
B) 3.28 
C) 1.38 
D) 0.73

Question 18

If the coefficient of cross elasticity of demand is positive, the two products are complementary goods.

Accepted Answer

A) True 
 B)False

Question 19

If changes in demand cause significant changes in equilibrium price, then supply must be relatively inelastic.

Accepted Answer

A) True 
 B)False

Question 20

Ford Motor Company announced a major rebate program for its cars and trucks. The rebate program amounts to a simple reduction in price. The company executives hope to increase revenue as a result of this rebate program. What economic explanation would justify this decision?

Accepted Answer

The company believes its cars and trucks

Exam 6: Elasticity

A study of mass-transit systems in American cities revealed that in the long run, revenues generally decline after substantial fare increases. This would suggest that

The price of season tickets to a performing arts theater decreases by 4 percent. As a result, the quantity demanded increases by 6 percent. The price elasticity of demand for season tickets is

The law of supply suggests that the price-elasticity of supply is

When demand is price-elastic, an increase in price will lead to increased total consumer spending for the product.

Refer to the above graph. If the price decreases from P₃ to P₂, then the total revenue will lose area

Income elasticity measures the effect of a change in income on the purchases of some good or service.

If a firm finds that it can sell $13,000 worth of a product when its price is $5 per unit and $11,000 worth of it when its price is $6, then

Refer to the data. Suppose quantity demanded increased by 12 units at each price, changing the equilibrium price in a direction and an amount for you to determine. Over that price range, supply is

The price elasticity of demand of a straight-line demand curve is

The formula for cross elasticity of demand is percentage change in

Generally speaking, the demand for luxury goods is more price elastic than is the demand for necessities.

A positive cross-elasticity of demand between two goods indicates that the two goods are both normal goods.

If a firm can sell3,000 units of product A at $10 per unit and5,000 at $8, then

The cross elasticity of demand for product X with respect to the price of product Y is −1.2. It can be inferred that X and Y are

Cross elasticity of demand is

Answer the question based on the following data. What is the price elasticity of demand over the range of $18 to $20?

If the coefficient of cross elasticity of demand is positive, the two products are complementary goods.

If changes in demand cause significant changes in equilibrium price, then supply must be relatively inelastic.

Ford Motor Company announced a major rebate program for its cars and trucks. The rebate program amounts to a simple reduction in price. The company executives hope to increase revenue as a result of this rebate program. What economic explanation would justify this decision?

Limits, Alternatives, and Choices

The Market System and the Circular Flow

Demand, Supply, and Market Equilibrium

Market Failures Caused by Externalities Asymmetric Information

Public Goods, Public Choice, and Government Failure

Utility Maximization

Behavioral Economics

Businesses and the Costs of Production

Pure Competition in the Short Run

Pure Competition in the Long Run

Pure Monopoly

Monopolistic Competition

Oligopoly and Strategic Behavior

Technology, RD, and Efficiency

The Demand for Resources

Wage Determination

Rent, Interest, and Profit

Natural Resource and Energy Economics

Public Finance: Expenditures and Taxes

Antitrust Policy and Regulation

Agriculture: Economics and Policy

Income Inequality, Poverty, and Discrimination

Health Care

Immigration

International Trade

The Balance of Payments, Exchange Rates, and Trade Deficits

The Economics of Developing Countries

Filters