Question 1

If the government imposes an excise tax on a good, it will collect the most tax revenues from it if the demand for the good is

Accepted Answer

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

Question 2

Suppose the price elasticity of supply for crude oil is 0.6. How much would price have to rise to increase production by 12 percent?

Accepted Answer

A) 20 percent 
B) 7.2 percent 
C) 12 percent 
D) 15 percent 
A) 20 percent 
B) 7.2 percent 
C) 12 percent 
D) 15 percent

Question 3

The price elasticity of demand is a measure of the

Accepted Answer

A) effect of changes in demand on the price. 
B) relationship between price and profitability. 
C) responsiveness of buyers of a good to changes in its price. 
D) sensitivity of a good's price to changes in demand. 
A) effect of changes in demand on the price. 
B) relationship between price and profitability. 
C) responsiveness of buyers of a good to changes in its price. 
D) sensitivity of a good's price to changes in demand.

Question 4

Refer to the diagram. The decline in price from P₁ to P₂ will

Accepted Answer

A) increase total revenue by D. 
B) increase total revenue by B + D. 
C) decrease total revenue by A. 
D) increase total revenue by D − A. 
A) increase total revenue by D. 
B) increase total revenue by B + D. 
C) decrease total revenue by A. 
D) increase total revenue by D − A.

Question 5

Which of the following is not characteristic of the demand for a commodity that is elastic?

Accepted Answer

A) The relative change in quantity demanded is greater than the relative change in price. 
B) Buyers are relatively sensitive to price changes. 
C) Total revenue increases if price is increased. 
D) The elasticity coefficient is greater than one. 
A) The relative change in quantity demanded is greater than the relative change in price. 
B) Buyers are relatively sensitive to price changes. 
C) Total revenue increases if price is increased. 
D) The elasticity coefficient is greater than one.

Question 6

Airlines charge business travelers more than leisure travelers because there is a more

Accepted Answer

A) elastic supply of business travel. 
B) inelastic supply of business travel. 
C) elastic demand for business travel. 
D) inelastic demand for business travel. 
A) elastic supply of business travel. 
B) inelastic supply of business travel. 
C) elastic demand for business travel. 
D) inelastic demand for business travel.

Question 7

A negative income elasticity of demand coefficient indicates that

Accepted Answer

A) the product is an inferior good. 
B) the product follows the law of demand. 
C) the product is a complementary good. 
D) the product is a substitute good. 
A) the product is an inferior good. 
B) the product follows the law of demand. 
C) the product is a complementary good. 
D) the product is a substitute good.

Question 8

A perfectly inelastic demand schedule

Accepted Answer

A) rises upward and to the right but has a constant slope. 
B) can be represented by a line parallel to the vertical axis. 
C) cannot be shown on a two-dimensional graph. 
D) can be represented by a line parallel to the horizontal axis. 
A) rises upward and to the right but has a constant slope. 
B) can be represented by a line parallel to the vertical axis. 
C) cannot be shown on a two-dimensional graph. 
D) can be represented by a line parallel to the horizontal axis.

Question 9

Price elasticity of demand is generally

Accepted Answer

A) greater in the long run than in the short run. 
B) greater in the short run than in the long run. 
C) the same in both the short run and the long run. 
D) greater for "necessities" than it is for "luxuries." 
A) greater in the long run than in the short run. 
B) greater in the short run than in the long run. 
C) the same in both the short run and the long run. 
D) greater for "necessities" than it is for "luxuries."

Question 10

Answer the question on the basis of the following demand schedule.   The price elasticity of demand is relatively inelastic

Accepted Answer

A) in the $6-$4 price range. 
B) over the entire $6-$1 price range. 
C) in the $3-$1 price range. 
D) in the $6-$5 price range only. 
A) in the $6-$4 price range. 
B) over the entire $6-$1 price range. 
C) in the $3-$1 price range. 
D) in the $6-$5 price range only.

Question 11

Refer to the graph above. Which demand curve is relatively most elastic between P₁ and P₂?

Accepted Answer

A) D₁ 
B) D₂ 
C) D₃ 
D) D₄ 
A) D₁ 
B) D₂ 
C) D₃ 
D) D₄

Question 12

The supply curve of a one-of-a-kind original painting is

Accepted Answer

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

Question 13

The price of product X is reduced from $100 to $90 and, as a result, the quantity demanded increases from 50 to 60 units. Therefore, demand for X in this price range

Accepted Answer

A) has declined. 
B) is of unit elasticity. 
C) is inelastic. 
D) is elastic. 
A) has declined. 
B) is of unit elasticity. 
C) is inelastic. 
D) is elastic.

Question 14

Refer to the above graph. Which of the following statements is correct?

Accepted Answer

A) Demand is perfectly elastic. 
B) Demand is perfectly inelastic. 
C) Supply is perfectly elastic. 
D) Supply is perfectly inelastic. 
A) Demand is perfectly elastic. 
B) Demand is perfectly inelastic. 
C) Supply is perfectly elastic. 
D) Supply is perfectly inelastic.

Question 15

A state government wants to increase the taxes on cigarettes to increase tax revenue. Because cigarettes are addictive, we would expect its demand to be

Accepted Answer

A) elastic. Thus, the government's cigarette-tax revenues would rise with a tax increase. 
B) elastic. Thus, the government's cigarette-tax revenues would fall with a tax increase. 
C) inelastic. Thus, the government's cigarette-tax revenues would fall with a tax increase. 
D) inelastic. Thus, the government's cigarette-tax revenues would rise with a tax increase. 
A) elastic. Thus, the government's cigarette-tax revenues would rise with a tax increase. 
B) elastic. Thus, the government's cigarette-tax revenues would fall with a tax increase. 
C) inelastic. Thus, the government's cigarette-tax revenues would fall with a tax increase. 
D) inelastic. Thus, the government's cigarette-tax revenues would rise with a tax increase.

Question 16

The concept of price elasticity of demand measures

Accepted Answer

A) the slope of the demand curve. 
B) the number of buyers in a market. 
C) the extent to which the demand curve shifts as the result of a price decline. 
D) the sensitivity of consumer purchases to price changes. 
A) the slope of the demand curve. 
B) the number of buyers in a market. 
C) the extent to which the demand curve shifts as the result of a price decline. 
D) the sensitivity of consumer purchases to price changes.

Question 17

Which of the following goods (with their respective income elasticity coefficients in parentheses)will most likely suffer a decline in demand during a recession?

Accepted Answer

A) dinner at a nice restaurant (+1.8) 
B) chicken purchased at the grocery store for preparation at home (+0.25) 
C) second-hand clothing (-0.6) 
D) plasma screen and LCD TVs (+4.2) 
A) dinner at a nice restaurant (+1.8) 
B) chicken purchased at the grocery store for preparation at home (+0.25) 
C) second-hand clothing (-0.6) 
D) plasma screen and LCD TVs (+4.2)

Question 18

If an increase in the supply of a product in the market results in a decrease in price, but no change in the quantity traded, then

Accepted Answer

A) the price elasticity of supply is zero. 
B) the price elasticity of supply is infinite. 
C) the price elasticity of demand is unitary. 
D) the price elasticity of demand is zero. 
A) the price elasticity of supply is zero. 
B) the price elasticity of supply is infinite. 
C) the price elasticity of demand is unitary. 
D) the price elasticity of demand is zero.

Question 19

The demand for a necessity whose cost is a small portion of one's total income is

Accepted Answer

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

Question 20

A linear demand curve has a constant elasticity over the full range of the curve.

Accepted Answer

A) True 
 B)False

Exam 6: Elasticity

If the government imposes an excise tax on a good, it will collect the most tax revenues from it if the demand for the good is

Suppose the price elasticity of supply for crude oil is 0.6. How much would price have to rise to increase production by 12 percent?

The price elasticity of demand is a measure of the

Refer to the diagram. The decline in price from P₁ to P₂ will

Which of the following is not characteristic of the demand for a commodity that is elastic?

Airlines charge business travelers more than leisure travelers because there is a more

A negative income elasticity of demand coefficient indicates that

A perfectly inelastic demand schedule

Price elasticity of demand is generally

Answer the question on the basis of the following demand schedule. The price elasticity of demand is relatively inelastic

Refer to the graph above. Which demand curve is relatively most elastic between P₁ and P₂?

The supply curve of a one-of-a-kind original painting is

The price of product X is reduced from $100 to $90 and, as a result, the quantity demanded increases from 50 to 60 units. Therefore, demand for X in this price range

Refer to the above graph. Which of the following statements is correct?

A state government wants to increase the taxes on cigarettes to increase tax revenue. Because cigarettes are addictive, we would expect its demand to be

The concept of price elasticity of demand measures

Which of the following goods (with their respective income elasticity coefficients in parentheses)will most likely suffer a decline in demand during a recession?

If an increase in the supply of a product in the market results in a decrease in price, but no change in the quantity traded, then

The demand for a necessity whose cost is a small portion of one's total income is

A linear demand curve has a constant elasticity over the full range of the curve.

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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