Question 1

Elasticity computations related to demand carry a minus sign to show that the demand curve is negatively sloped.

Accepted Answer

A) True 
 B)False

Question 2

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 3

Suppose that the supply of insulin is perfectly elastic and the demand for insulin perfectly inelastic. Then the result of an excise tax would be

Accepted Answer

A) a significant increase in government revenue and a significant decrease in the quantity consumed. 
B) a significant decrease in the quantity consumed with no change in government revenue. 
C) a significant increase in government revenue and no change in the quantity consumed. 
D) no increase in government revenue and no change in the quantity consumed. 
A) a significant increase in government revenue and a significant decrease in the quantity consumed. 
B) a significant decrease in the quantity consumed with no change in government revenue. 
C) a significant increase in government revenue and no change in the quantity consumed. 
D) no increase in government revenue and no change in the quantity consumed.

Question 4

If demand for a seller's product is elastic, a price increase will decrease total revenue.

Accepted Answer

A) True 
 B)False

Question 5

If the price elasticity of supply of doodads equals 0.50 and the price rises by 3 percent, then the quantity supplied of doodads will rise by ____.

Accepted Answer

A) 0.50 percent. 
B) 1.50 percent. 
C) 6.00 percent. 
D) 15 percent. 
A) 0.50 percent. 
B) 1.50 percent. 
C) 6.00 percent. 
D) 15 percent.

Question 6

If the price of gasoline rises by 20 percent and consumption of gasoline falls 5 percent,

Accepted Answer

A) demand is elastic. 
B) demand is unit elastic. 
C) demand is inelastic. 
D) elasticity of demand cannot be calculated. 
A) demand is elastic. 
B) demand is unit elastic. 
C) demand is inelastic. 
D) elasticity of demand cannot be calculated.

Question 7

Would a profit-maximizing firm sell where demand is inelastic?

Accepted Answer

A) No, this would not follow the rule of MC = MR. 
B) No, the firm could not profitably raise price. 
C) Yes, the firm could profitably lower price to attract sales. 
D) Yes, in this case there are few substitutes for the good. 
A) No, this would not follow the rule of MC = MR. 
B) No, the firm could not profitably raise price. 
C) Yes, the firm could profitably lower price to attract sales. 
D) Yes, in this case there are few substitutes for the good.

Question 8

Why do economists measure responsiveness of demand to price in percentage changes rather than in absolute changes?

Accepted Answer

Different units of measurement will give

Question 9

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

Accepted Answer

A) True 
 B)False

Question 10

If the reciprocal of the slope of a demand curve is calculated, this value is equal to the price elasticity of demand for that good.

Accepted Answer

A) True 
 B)False

Question 11

The ratio of the percentage change in quantity demanded to the percentage change in income is known as the cross elasticity of demand.

Accepted Answer

A) True 
 B)False

Question 12

Why is it customary to report price elasticity of demand in absolute value terms while cross elasticities and income elasticities are reported with their sign attached?

Accepted Answer

Price elasticity of demand is always neg

Question 13

A buyer's response to a change in income is an example of a "change in demand."

Accepted Answer

A) True 
 B)False

Question 14

If the price of apples decreases by 2 percent and causes apple consumption to increase by 4 percent, the price elasticity of demand is ____, indicating the demand is ____.

Accepted Answer

A) 2; elastic 
B) 2; inelastic 
C) 0.5; elastic 
D) 0.5; inelastic 
A) 2; elastic 
B) 2; inelastic 
C) 0.5; elastic 
D) 0.5; inelastic

Question 15

What are the main determinants of demand elasticity? Explain their importance.

Accepted Answer

First is the nature of the good. Necessi

Question 16

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 i

Question 17

Figure 6-4
 
In Figure 6-4, total expenditure ____ as price falls from P = 12 to P = 10.

Accepted Answer

A) falls 
B) remains constant 
C) rises 
D) rises by more than $12 
A) falls 
B) remains constant 
C) rises 
D) rises by more than $12

Question 18

If soft drink brands are close substitutes for each other, this implies that the price elasticity for individual brands would be low.

Accepted Answer

A) True 
 B)False

Question 19

The price of coffee rose 50 percent and coffee sales fell 25 percent. Doughnut sales also fell 25 percent. From this information, we can conclude that

Accepted Answer

A) demand for coffee is inelastic. 
B) coffee and doughnuts are complements. 
C) the cross elasticity of demand is minus 0.5 percent. 
D) All of the responses are correct. 
A) demand for coffee is inelastic. 
B) coffee and doughnuts are complements. 
C) the cross elasticity of demand is minus 0.5 percent. 
D) All of the responses are correct.

Question 20

A straight-line demand curve has the same elasticity throughout its length.

Accepted Answer

A) True 
 B)False

Exam 6: Demand and Elasticity

Elasticity computations related to demand carry a minus sign to show that the demand curve is negatively sloped.

Cross elasticity of demand for

Suppose that the supply of insulin is perfectly elastic and the demand for insulin perfectly inelastic. Then the result of an excise tax would be

If demand for a seller's product is elastic, a price increase will decrease total revenue.

If the price elasticity of supply of doodads equals 0.50 and the price rises by 3 percent, then the quantity supplied of doodads will rise by ____.

If the price of gasoline rises by 20 percent and consumption of gasoline falls 5 percent,

Would a profit-maximizing firm sell where demand is inelastic?

Why do economists measure responsiveness of demand to price in percentage changes rather than in absolute changes?

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

If the reciprocal of the slope of a demand curve is calculated, this value is equal to the price elasticity of demand for that good.

The ratio of the percentage change in quantity demanded to the percentage change in income is known as the cross elasticity of demand.

Why is it customary to report price elasticity of demand in absolute value terms while cross elasticities and income elasticities are reported with their sign attached?

A buyer's response to a change in income is an example of a "change in demand."

If the price of apples decreases by 2 percent and causes apple consumption to increase by 4 percent, the price elasticity of demand is ____, indicating the demand is ____.

What are the main determinants of demand elasticity? Explain their importance.

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.

Figure 6-4 In Figure 6-4, total expenditure ____ as price falls from P = 12 to P = 10.

If soft drink brands are close substitutes for each other, this implies that the price elasticity for individual brands would be low.

The price of coffee rose 50 percent and coffee sales fell 25 percent. Doughnut sales also fell 25 percent. From this information, we can conclude that

A straight-line demand curve has the same elasticity throughout its length.

What Is Economics

The Economy: 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

Externalities, Externaliteis, the Environment, and Natural Resources

Taxation and Resource Allocation

Pricing the Factors of Production

Labor and Entrepreneurship: the Human Inputs

Poverty, Inequality, and Discrimination

International Trade and Comparative Advantage

Contemporary Issues in the Us Economy

Filters

If the price of apples decreases by 2 percent and causes apple consumption to increase by 4 percent, the price elasticity of demand is , indicating the demand is .