Question 1

The formula for the price elasticity of demand

Accepted Answer

A) relies on statistical data. 
B) is based fully on knowledge of the slope of the demand curve. 
C) in practice drops the sign and focuses on the magnitude. 
D) is valid only when the price of product increases. 
A) relies on statistical data. 
B) is based fully on knowledge of the slope of the demand curve. 
C) in practice drops the sign and focuses on the magnitude. 
D) is valid only when the price of product increases.

Question 2

Demand curves often do not remain stationary; they shift because of changes in other variables.

Accepted Answer

A) True 
 B)False

Question 3

A vertical demand curve has an elasticity of demand equal to zero.

Accepted Answer

A) True 
 B)False

Question 4

Cross elasticity of demand could be used to measure the responsiveness of the quantity demanded of swimming pools to a change in the price of picnic tables.

Accepted Answer

A) True 
 B)False

Question 5

If demand is unit elastic, then a 10 percent increase in price will lead to a 10 percent drop in quantity demanded.

Accepted Answer

A) True 
 B)False

Question 6

Figure 6-7
 
In Figure 6-7, which total expenditure curve belongs to a demand curve that is unit elastic throughout?

Accepted Answer

A) 1 
B) 2 
C) 3 
D) 4 
A) 1 
B) 2 
C) 3 
D) 4

Question 7

Figure 6-3
 
-In Figure 6-3(a), at any price above $6, quantity demanded

Accepted Answer

A) falls to zero. 
B) becomes infinitely large. 
C) equals price. 
D) equals the elasticity of demand. 
A) falls to zero. 
B) becomes infinitely large. 
C) equals price. 
D) equals the elasticity of demand.

Question 8

If the demand curve is perfectly elastic, and if the price of the good is increased by 10 percent by the seller, then revenue from the sale of the good would

Accepted Answer

A) remain constant. 
B) fall to zero. 
C) increase by 10 percent. 
D) decrease by 10 percent. 
A) remain constant. 
B) fall to zero. 
C) increase by 10 percent. 
D) decrease by 10 percent.

Question 9

A negative cross elasticity indicates that two goods are complements.

Accepted Answer

A) True 
 B)False

Question 10

When the price of penicillin tablets increases by $5 per dozen, the drug company's revenue increases by $6 million. Its elasticity of demand (in absolute terms)must be

Accepted Answer

A) zero. 
B) greater than one. 
C) less than one. 
D) infinitely large. 
A) zero. 
B) greater than one. 
C) less than one. 
D) infinitely large.

Question 11

The price of an airline ticket rises as the amount of time between purchase and flight departure gets smaller. The airlines base the policy on the assumption that

Accepted Answer

A) consumers are not aware of airline prices. 
B) consumer demand is unrelated to prices. 
C) consumer demand becomes more elastic as departure time approaches. 
D) consumer demand becomes less elastic as departure time approaches. 
A) consumers are not aware of airline prices. 
B) consumer demand is unrelated to prices. 
C) consumer demand becomes more elastic as departure time approaches. 
D) consumer demand becomes less elastic as departure time approaches.

Question 12

Why are time series data unlikely to give an accurate estimate of demand?

Accepted Answer

Demand may have shifted over time, so th

Question 13

All of the following observations concerning the elasticity formula are true except

Accepted Answer

A) the changes with which it deals is measured as a percentage change. 
B) each of the percentage changes is calculated in terms of the average values. 
C) the calculation considers both positive and negative signs. 
D) each percentage change is taken as an "absolute value." 
A) the changes with which it deals is measured as a percentage change. 
B) each of the percentage changes is calculated in terms of the average values. 
C) the calculation considers both positive and negative signs. 
D) each percentage change is taken as an "absolute value."

Question 14

Figure 6-1
 
-Other things equal, it can be concluded that in Figure 6-1, that

Accepted Answer

A) D1 is the more elastic demand curve than D2, but only below P2. 
B) D1 is the more elastic demand curve than D2. 
C) D1 is the less elastic demand curve than D2. 
D) D1 is the more elastic demand curve than D2, but only above P2. 
A) D1 is the more elastic demand curve than D2, but only below P2. 
B) D1 is the more elastic demand curve than D2. 
C) D1 is the less elastic demand curve than D2. 
D) D1 is the more elastic demand curve than D2, but only above P2.

Question 15

The relationships between elasticity and total revenue hold because

Accepted Answer

A) total revenue equals price divided by quantity demanded. 
B) total revenue equals price times quantity demanded. 
C) a drop in price has two opposing effects on the two components of the formula. 
D) both b and c are true. 
A) total revenue equals price divided by quantity demanded. 
B) total revenue equals price times quantity demanded. 
C) a drop in price has two opposing effects on the two components of the formula. 
D) both b and c are true.

Question 16

A relatively large increase in the cost of electricity would likely

Accepted Answer

A) result in a large increase in the use of gas for home use immediately. 
B) cause an immediate large decline in the use of electricity. 
C) increase the use of gas and decrease the use of electricity after a time lapse. 
D) cause an equal reduction in the use of electricity immediately. 
A) result in a large increase in the use of gas for home use immediately. 
B) cause an immediate large decline in the use of electricity. 
C) increase the use of gas and decrease the use of electricity after a time lapse. 
D) cause an equal reduction in the use of electricity immediately.

Question 17

Explain what happens to the magnitude of price elasticity of demand as price increases along a straight-line demand curve.

Accepted Answer

Price elasticity is the ratio of percent

Question 18

A decrease in the price of a good will cause a movement along the demand schedule to a higher quantity demanded.

Accepted Answer

A) True 
 B)False

Question 19

If the marginal cost of producing vanity license plates is virtually zero (by prison inmates with little else to do), then states would maximize their profits on plate sales at the point on a linear demand curve where

Accepted Answer

A) demand is inelastic. 
B) demand is elastic. 
C) demand is unit elastic. 
D) the demand curve crosses the horizontal axis. 
A) demand is inelastic. 
B) demand is elastic. 
C) demand is unit elastic. 
D) the demand curve crosses the horizontal axis.

Question 20

Arrange the following goods from least to most elastic, explaining your ordering: gasoline, Exxon gas, Exxon gas at a particular gas station.

Accepted Answer

Gasoline is least elastic since there ar

Exam 6: Demand and Elasticity

The formula for the price elasticity of demand

Demand curves often do not remain stationary; they shift because of changes in other variables.

A vertical demand curve has an elasticity of demand equal to zero.

Cross elasticity of demand could be used to measure the responsiveness of the quantity demanded of swimming pools to a change in the price of picnic tables.

If demand is unit elastic, then a 10 percent increase in price will lead to a 10 percent drop in quantity demanded.

Figure 6-7 In Figure 6-7, which total expenditure curve belongs to a demand curve that is unit elastic throughout?

Figure 6-3 -In Figure 6-3(a), at any price above $6, quantity demanded

If the demand curve is perfectly elastic, and if the price of the good is increased by 10 percent by the seller, then revenue from the sale of the good would

A negative cross elasticity indicates that two goods are complements.

When the price of penicillin tablets increases by $5 per dozen, the drug company's revenue increases by $6 million. Its elasticity of demand (in absolute terms)must be

The price of an airline ticket rises as the amount of time between purchase and flight departure gets smaller. The airlines base the policy on the assumption that

Why are time series data unlikely to give an accurate estimate of demand?

All of the following observations concerning the elasticity formula are true except

Figure 6-1 -Other things equal, it can be concluded that in Figure 6-1, that

The relationships between elasticity and total revenue hold because

A relatively large increase in the cost of electricity would likely

Explain what happens to the magnitude of price elasticity of demand as price increases along a straight-line demand curve.

A decrease in the price of a good will cause a movement along the demand schedule to a higher quantity demanded.

If the marginal cost of producing vanity license plates is virtually zero (by prison inmates with little else to do), then states would maximize their profits on plate sales at the point on a linear demand curve where

Arrange the following goods from least to most elastic, explaining your ordering: gasoline, Exxon gas, Exxon gas at a particular gas station.

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

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