Question 1

An income elasticity coefficient of −1.8 means the product is a normal good.

Accepted Answer

A) True 
 B)False

Question 2

If 100 shirts are sold when the unit price is $10, while 75 shirts are sold when the unit price is $15, one can conclude that in this price range,

Accepted Answer

A) demand for the shirts is elastic. 
B) demand for the shirts is inelastic. 
C) demand for the shirts has shifted to the right. 
D) consumers are quite sensitive to changes in the price of the shirt. 
A) demand for the shirts is elastic. 
B) demand for the shirts is inelastic. 
C) demand for the shirts has shifted to the right. 
D) consumers are quite sensitive to changes in the price of the shirt.

Question 3

The cross elasticity of demand between digital cameras and memory cards is likely to be

Accepted Answer

A) zero. 
B) a negative number. 
C) a positive number greater than 1. 
D) a positive number between zero and 1. 
A) zero. 
B) a negative number. 
C) a positive number greater than 1. 
D) a positive number between zero and 1.

Question 4

Suppose that the price of product X rises by 12 percent and the quantity supplied of X increases by 8 percent. The coefficient of price elasticity of supply for good X is

Accepted Answer

A) negative, and therefore X is an inferior good. 
B) positive, and therefore X is a normal good. 
C) less than 1, and therefore supply is inelastic. 
D) more than 1, and therefore supply is elastic. 
A) negative, and therefore X is an inferior good. 
B) positive, and therefore X is a normal good. 
C) less than 1, and therefore supply is inelastic. 
D) more than 1, and therefore supply is elastic.

Question 5

To economists, the main differences between "the short run" and "the long run" are that

Accepted Answer

A) the law of diminishing returns applies in the long run, but not in the short run. 
B) in the short run all resources are fixed, while in the long run all resources are variable. 
C) fixed inputs are more important to decision making in the long run than they are in the short run. 
D) in the long run all resources are variable, while in the short run at least one resource is fixed. 
A) the law of diminishing returns applies in the long run, but not in the short run. 
B) in the short run all resources are fixed, while in the long run all resources are variable. 
C) fixed inputs are more important to decision making in the long run than they are in the short run. 
D) in the long run all resources are variable, while in the short run at least one resource is fixed.

Question 6

If the income elasticity of demand for store brand macaroni and cheese is −3.00, this means that

Accepted Answer

A) store brand macaroni and cheese is a substitute for name brand macaroni and cheese. 
B) store brand macaroni and cheese is a normal good. 
C) store brand macaroni and cheese is an inferior good. 
D) more store brand macaroni and cheese will be purchased when its price falls. 
A) store brand macaroni and cheese is a substitute for name brand macaroni and cheese. 
B) store brand macaroni and cheese is a normal good. 
C) store brand macaroni and cheese is an inferior good. 
D) more store brand macaroni and cheese will be purchased when its price falls.

Question 7

Refer to the table above. If the price starts falling from $5, at what price range does demand first become inelastic?

Accepted Answer

A) from $2 to $1 
B) from $3 to $2 
C) from $4 to $3 
D) from $5 to $4 
A) from $2 to $1 
B) from $3 to $2 
C) from $4 to $3 
D) from $5 to $4

Question 8

Which of the following is correct?

Accepted Answer

A) If demand is elastic, an increase in price will increase total revenue. 
B) If demand is elastic, a decrease in price will decrease total revenue. 
C) If demand is elastic, a decrease in price will increase total revenue. 
D) If demand is inelastic, an increase in price will decrease total revenue. 
A) If demand is elastic, an increase in price will increase total revenue. 
B) If demand is elastic, a decrease in price will decrease total revenue. 
C) If demand is elastic, a decrease in price will increase total revenue. 
D) If demand is inelastic, an increase in price will decrease total revenue.

Question 9

The supply of known Monet paintings is

Accepted Answer

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

Question 10

Refer to the graph above. Which demand curve is perfectly inelastic?

Accepted Answer

A) D₂ 
B) D₃ 
C) D₄ 
D) D₅ 
A) D₂ 
B) D₃ 
C) D₄ 
D) D₅

Question 11

We would expect the cross elasticity of demand between Pepsi and Coke to be

Accepted Answer

A) positive, indicating normal goods. 
B) positive, indicating inferior goods. 
C) positive, indicating substitute goods. 
D) negative, indicating substitute goods. 
A) positive, indicating normal goods. 
B) positive, indicating inferior goods. 
C) positive, indicating substitute goods. 
D) negative, indicating substitute goods.

Question 12

If the demand for a product increases proportionately faster than the increase in consumers' incomes, then the income elasticity of demand for the product is

Accepted Answer

A) zero. 
B) greater than zero. 
C) less than zero. 
D) equal to 1. 
A) zero. 
B) greater than zero. 
C) less than zero. 
D) equal to 1.

Question 13

We would expect the cross elasticity of demand for Pepsi to be greater in relation to other soft drinks than that for soft drinks in general because

Accepted Answer

A) soft drinks are normal goods. 
B) the income effect always exceeds the substitution effect. 
C) there are fewer good substitutes for soft drinks as a whole than for Pepsi specifically. 
D) there are more good substitutes for soft drinks as a whole than for Pepsi specifically. 
A) soft drinks are normal goods. 
B) the income effect always exceeds the substitution effect. 
C) there are fewer good substitutes for soft drinks as a whole than for Pepsi specifically. 
D) there are more good substitutes for soft drinks as a whole than for Pepsi specifically.

Question 14

What is the price elasticity of supply? How is it measured?

Accepted Answer

Price elasticity of supply is a measure

Question 15

Which of the following is not an example of pricing based on group differences in elasticity of demand?

Accepted Answer

A) senior-citizen discounts at restaurants and motels 
B) cash rebates for purchases of automobiles 
C) child discounts for admission to theme parks 
D) discounted student prices for visits to museums 
A) senior-citizen discounts at restaurants and motels 
B) cash rebates for purchases of automobiles 
C) child discounts for admission to theme parks 
D) discounted student prices for visits to museums

Question 16

Refer to the diagram and assume a single good. If the price of the good increased from $5.70 to $6.30 along D1, the price elasticity of demand along this portion of the demand curve would be

Accepted Answer

A) 0.8. 
B) 1. 
C) 1.2. 
D) 2. 
A) 0.8. 
B) 1. 
C) 1.2. 
D) 2.

Question 17

What is the main determinant of the price elasticity of supply? Explain.

Accepted Answer

The main determinant of price elasticity

Question 18

The greater the ease of shifting resources from product X to product Y in the production process, the greater is the elasticity of supply of product Y.

Accepted Answer

A) True 
 B)False

Question 19

You would think that if people's income increased over time, then all industries in the economy should benefit equally, but this is not the case. Explain why.

Accepted Answer

Most products reflect a positive income

Question 20

A state government seeking to increase its excise-tax revenues is more likely to increase the tax rate on items with elastic demand.

Accepted Answer

A) True 
 B)False

Exam 6: Elasticity

An income elasticity coefficient of −1.8 means the product is a normal good.

If 100 shirts are sold when the unit price is $10, while 75 shirts are sold when the unit price is $15, one can conclude that in this price range,

The cross elasticity of demand between digital cameras and memory cards is likely to be

Suppose that the price of product X rises by 12 percent and the quantity supplied of X increases by 8 percent. The coefficient of price elasticity of supply for good X is

To economists, the main differences between "the short run" and "the long run" are that

If the income elasticity of demand for store brand macaroni and cheese is −3.00, this means that

Refer to the table above. If the price starts falling from $5, at what price range does demand first become inelastic?

Which of the following is correct?

The supply of known Monet paintings is

Refer to the graph above. Which demand curve is perfectly inelastic?

We would expect the cross elasticity of demand between Pepsi and Coke to be

If the demand for a product increases proportionately faster than the increase in consumers' incomes, then the income elasticity of demand for the product is

We would expect the cross elasticity of demand for Pepsi to be greater in relation to other soft drinks than that for soft drinks in general because

What is the price elasticity of supply? How is it measured?

Which of the following is not an example of pricing based on group differences in elasticity of demand?

Refer to the diagram and assume a single good. If the price of the good increased from $5.70 to $6.30 along D1, the price elasticity of demand along this portion of the demand curve would be

What is the main determinant of the price elasticity of supply? Explain.

The greater the ease of shifting resources from product X to product Y in the production process, the greater is the elasticity of supply of product Y.

You would think that if people's income increased over time, then all industries in the economy should benefit equally, but this is not the case. Explain why.

A state government seeking to increase its excise-tax revenues is more likely to increase the tax rate on items with elastic demand.

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

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