Question 1

If the demand curve for a good is elastic, consumers will spend more on that good when its price increases.

Accepted Answer

A) True 
 B)False

Question 2

Price elasticity of demand refers to the:

Accepted Answer

A)  percentage increase in price in response to a percentage increase in quantity demanded. 
B)  percentage decrease in price in response to a percentage increase in income. 
C)  minimum amount that consumers will pay for a percentage change in quantity demanded or supplied. 
D)  responsiveness of quantity demanded to a change in the price of a good. 
A)  percentage increase in price in response to a percentage increase in quantity demanded. 
B)  percentage decrease in price in response to a percentage increase in income. 
C)  minimum amount that consumers will pay for a percentage change in quantity demanded or supplied. 
D)  responsiveness of quantity demanded to a change in the price of a good.

Question 3

If the quantity of tickets to the fair sold decreases by 10 percent when the price increases by 5 percent, the price elasticity of demand over this range of the demand curve is:

Accepted Answer

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

Question 4

Suppose the Pleasant Corporation cuts the price of its American Girl dolls by 10 percent, and as a result, the quantity of the dolls sold increases by 25 percent. This indicates that the price elasticity of demand for the dolls over this range is:

Accepted Answer

A)  2.5. 
B)  0.4. 
C)  0.5. 
D)  5.0. 
A)  2.5. 
B)  0.4. 
C)  0.5. 
D)  5.0.

Question 5

If demand is price elastic, then when price decreases, total revenue:

Accepted Answer

A)  decreases. 
B)  increases. 
C)  does not change. 
D)  is less than one. 
E)  is negative. 
A)  decreases. 
B)  increases. 
C)  does not change. 
D)  is less than one. 
E)  is negative.

Question 6

If demand price elasticity measures 2, this implies that consumers would:

Accepted Answer

A)  buy twice as much of the product if the price drops 10 percent. 
B)  require a 2 percent drop in price to increase their purchases by 1 percent. 
C)  buy 2 percent more of the product in response to a 1 percent drop in price. 
D)  require at least a $2 increase in price before showing any response to the price increase. 
E)  buy twice as much of the product if the price drops 1 percent. 
A)  buy twice as much of the product if the price drops 10 percent. 
B)  require a 2 percent drop in price to increase their purchases by 1 percent. 
C)  buy 2 percent more of the product in response to a 1 percent drop in price. 
D)  require at least a $2 increase in price before showing any response to the price increase. 
E)  buy twice as much of the product if the price drops 1 percent.

Question 7

Avital and Joshua each have their own business selling lemonade in front of their houses. When they each charge 25 cents per glass, their total revenues are equal. However, when they each charge 40 cents per glass, Avital's revenues are bigger than Joshua's revenues. This is because:

Accepted Answer

A)  Joshua faces a more inelastic demand curve. 
B)  Avital faces a more elastic demand curve. 
C)  Joshua faces a more elastic demand curve. 
D)  Avital faces a less inelastic demand curve. 
E)  there is a market failure. 
A)  Joshua faces a more inelastic demand curve. 
B)  Avital faces a more elastic demand curve. 
C)  Joshua faces a more elastic demand curve. 
D)  Avital faces a less inelastic demand curve. 
E)  there is a market failure.

Question 8

If a good has a price elasticity of demand coefficient greater than 1, total revenue can be increased by raising the price.

Accepted Answer

A) True 
 B)False

Question 9

The price elasticity of demand for a vertical demand curve is:

Accepted Answer

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

Question 10

You are part of a local community theater group. It is the goal of the group to increase the amount of revenue earned through ticket sales. Mary says the obvious solution is to increase ticket prices. Is Mary correct?

Accepted Answer

A)  Mary is correct if the demand for tickets is price inelastic. 
B)  Mary is incorrect if the demand for tickets is price inelastic. 
C)  Mary is correct. The increase in ticket prices will always increase revenue. 
D)  Mary is incorrect. The increase in ticket prices will never increase revenue. 
E)  Mary is incorrect. The way to increase revenue is to decrease ticket prices. 
A)  Mary is correct if the demand for tickets is price inelastic. 
B)  Mary is incorrect if the demand for tickets is price inelastic. 
C)  Mary is correct. The increase in ticket prices will always increase revenue. 
D)  Mary is incorrect. The increase in ticket prices will never increase revenue. 
E)  Mary is incorrect. The way to increase revenue is to decrease ticket prices.

Question 11

Demand price elasticity is measured by the:

Accepted Answer

A)  percentage change in income / percentage change in price. 
B)  percentage change in quantity demanded / percentage change in income. 
C)  percentage change in price / percentage change in quantity demanded. 
D)  percentage change in quantity demanded / percent change in price. 
E)  percentage change in total revenue / percentage change in price. 
A)  percentage change in income / percentage change in price. 
B)  percentage change in quantity demanded / percentage change in income. 
C)  percentage change in price / percentage change in quantity demanded. 
D)  percentage change in quantity demanded / percent change in price. 
E)  percentage change in total revenue / percentage change in price.

Question 12

The price elasticity of demand coefficient for a good will be lower:

Accepted Answer

A)  if there are few substitutes for the good. 
B)  if expenditure on it is a small part of one's budget. 
C)  both a and b are true. 
D)  neither a nor b are true. 
A)  if there are few substitutes for the good. 
B)  if expenditure on it is a small part of one's budget. 
C)  both a and b are true. 
D)  neither a nor b are true.

Question 13

If a revenue-maximizing firm is told that the price elasticity of demand is equal to one, it should:

Accepted Answer

A)  raise prices 1 percent. 
B)  lower prices 1 percent. 
C)  raise prices until the elasticity becomes very high. 
D)  keep the price where it is. 
E)  lower prices until the elasticity becomes very high. 
A)  raise prices 1 percent. 
B)  lower prices 1 percent. 
C)  raise prices until the elasticity becomes very high. 
D)  keep the price where it is. 
E)  lower prices until the elasticity becomes very high.

Question 14

If a 5 percent decrease in the price of a good produces a 5 percent increase in the quantity demanded, the price elasticity of demand is:

Accepted Answer

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

Question 15

If a 10 percent price increase causes the quantity demanded for a good to decrease by 5 percent, demand is elastic.

Accepted Answer

A) True 
 B)False

Question 16

Suppose Good Food's supermarket raises the price of its steak and finds its total revenue from steak sales does not change. This is evidence that price elasticity of demand for steak is:

Accepted Answer

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

Question 17

On a part of the demand curve where the price elasticity of demand is less than 1, a decrease in price:

Accepted Answer

A)  is impossible. 
B)  will increase total revenue. 
C)  will decrease total revenue. 
D)  raises the price elasticity of demand. 
E)  decreases quantity demanded. 
A)  is impossible. 
B)  will increase total revenue. 
C)  will decrease total revenue. 
D)  raises the price elasticity of demand. 
E)  decreases quantity demanded.

Question 18

If the price elasticity of demand for football tickets is estimated to be 4.5, then a 10 percent increase in football ticket prices would be expected to cause a:

Accepted Answer

A)  4.5 percent decrease in quantity demanded. 
B)  4.5 percent increase in quantity demanded. 
C)  45 percent decrease in quantity demanded. 
D)  45 percent increase in quantity demanded. 
E)  450 percent increase in quantity demanded 
A)  4.5 percent decrease in quantity demanded. 
B)  4.5 percent increase in quantity demanded. 
C)  45 percent decrease in quantity demanded. 
D)  45 percent increase in quantity demanded. 
E)  450 percent increase in quantity demanded

Question 19

A lower price elasticity of demand coefficient occurs when:

Accepted Answer

A)  many substitutes exist. 
B)  the quantity demanded is more responsive. 
C)  few substitutes exist. 
D)  the market is broadly defined. 
A)  many substitutes exist. 
B)  the quantity demanded is more responsive. 
C)  few substitutes exist. 
D)  the market is broadly defined.

Question 20

In differentiating between the short- and long-run elasticities, when economists talk about short-run elasticities,

Accepted Answer

A)  b and c. 
B)  there is no need to mention short versus long run. 
C)  the only issues are price and quantity. 
D)  short-run elasticities are usually higher. 
E)  short-run elasticities are usually lower. 
A)  b and c. 
B)  there is no need to mention short versus long run. 
C)  the only issues are price and quantity. 
D)  short-run elasticities are usually higher. 
E)  short-run elasticities are usually lower.

Exam 5: Price Elasticity of Demand

If the demand curve for a good is elastic, consumers will spend more on that good when its price increases.

Price elasticity of demand refers to the:

If the quantity of tickets to the fair sold decreases by 10 percent when the price increases by 5 percent, the price elasticity of demand over this range of the demand curve is:

Suppose the Pleasant Corporation cuts the price of its American Girl dolls by 10 percent, and as a result, the quantity of the dolls sold increases by 25 percent. This indicates that the price elasticity of demand for the dolls over this range is:

If demand is price elastic, then when price decreases, total revenue:

If demand price elasticity measures 2, this implies that consumers would:

Avital and Joshua each have their own business selling lemonade in front of their houses. When they each charge 25 cents per glass, their total revenues are equal. However, when they each charge 40 cents per glass, Avital's revenues are bigger than Joshua's revenues. This is because:

If a good has a price elasticity of demand coefficient greater than 1, total revenue can be increased by raising the price.

The price elasticity of demand for a vertical demand curve is:

You are part of a local community theater group. It is the goal of the group to increase the amount of revenue earned through ticket sales. Mary says the obvious solution is to increase ticket prices. Is Mary correct?

Demand price elasticity is measured by the:

The price elasticity of demand coefficient for a good will be lower:

If a revenue-maximizing firm is told that the price elasticity of demand is equal to one, it should:

If a 5 percent decrease in the price of a good produces a 5 percent increase in the quantity demanded, the price elasticity of demand is:

If a 10 percent price increase causes the quantity demanded for a good to decrease by 5 percent, demand is elastic.

Suppose Good Food's supermarket raises the price of its steak and finds its total revenue from steak sales does not change. This is evidence that price elasticity of demand for steak is:

On a part of the demand curve where the price elasticity of demand is less than 1, a decrease in price:

If the price elasticity of demand for football tickets is estimated to be 4.5, then a 10 percent increase in football ticket prices would be expected to cause a:

A lower price elasticity of demand coefficient occurs when:

In differentiating between the short- and long-run elasticities, when economists talk about short-run elasticities,

Introducing the Economic Way of Thinking

Production Possibilities, Opportunity Cost, and Economic Growth

Market Demand and Supply

Markets in Action

Production Costs

Perfect Competition

Monopoly

Monopolistic Competition and Oligopoly

Labor Markets and Income Distribution

Gross Domestic Product

Business Cycles and Unemployment

Inflation

Aggregate Demand and Supply

Fiscal Policy

The Public Sector

Federal Deficits, Surpluses, and the National Debt

Money and the Federal Reserve System

Money Creation

Policy Disputes Using the Self-Correcting Aggregate Demand and Supply Model

International Trade and Finance

Economies in Transition

Growth and the Less-Developed Countries

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