Question 1

The demand for gasoline will be most elastic

Accepted Answer

A)  1 day after the price change. 
B)  1 week after the price change. 
C)  1 month after the price change. 
D)  1 year after the price change. 
A)  1 day after the price change. 
B)  1 week after the price change. 
C)  1 month after the price change. 
D)  1 year after the price change. D

Question 2

For which of the following goods are consumers likely to have the most elastic demand?

Accepted Answer

A)  clothing 
B)  sweaters 
C)  wool sweaters 
D)  purple wool sweaters 
A)  clothing 
B)  sweaters 
C)  wool sweaters 
D)  purple wool sweaters D

Question 3

In the country of Bora Bora, consumers buy large quantities of alcohol, tobacco, and coffee. Last year, the prices of these goods each increased by 10 percent. The quantities demanded for these goods fell by 10, 3, and 8 percent, respectively. If the government is thinking about imposing a unit tax on one of these goods, which good should they choose to tax to raise the most tax revenue, and why?

Accepted Answer

A)  Alcohol; because the price elasticity is highest. 
B)  Tobacco; because the price elasticity is lowest. 
C)  Coffee; because it will have the lowest tax elasticity. 
D)  Tobacco; because it will have the highest tax elasticity. 
A)  Alcohol; because the price elasticity is highest. 
B)  Tobacco; because the price elasticity is lowest. 
C)  Coffee; because it will have the lowest tax elasticity. 
D)  Tobacco; because it will have the highest tax elasticity. B

Question 4

As one moves down a straight-line, down-sloping demand curve, price elasticity will:

Accepted Answer

A)  change from elastic, to unit elastic, then to inelastic. 
B)  remain the same between any two points. 
C)  change from inelastic, to elastic, then to unit elastic. 
D)  change from unit elastic, to elastic, then to inelastic. 
A)  change from elastic, to unit elastic, then to inelastic. 
B)  remain the same between any two points. 
C)  change from inelastic, to elastic, then to unit elastic. 
D)  change from unit elastic, to elastic, then to inelastic.

Question 5

If Stimpson University increases tuition in order to increase its revenue, it will:

Accepted Answer

A)  not be successful if the demand curve slopes downward. 
B)  be successful if demand is elastic. 
C)  be successful if demand is inelastic. 
D)  be successful if supply is elastic. 
A)  not be successful if the demand curve slopes downward. 
B)  be successful if demand is elastic. 
C)  be successful if demand is inelastic. 
D)  be successful if supply is elastic.

Question 6

If the percentage change in the quantity demanded of a good is greater than the percentage change in price, price elasticity of demand is:

Accepted Answer

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

Question 7

The elastic portion of the downward-sloping straight-line demand curve lies:

Accepted Answer

A)  at the intersection with the supply curve. 
B)  above the point of unit elasticity. 
C)  anywhere to the right of the current market price. 
D)  below the point where total revenue is maximized. 
A)  at the intersection with the supply curve. 
B)  above the point of unit elasticity. 
C)  anywhere to the right of the current market price. 
D)  below the point where total revenue is maximized.

Question 8

If demand for a good is elastic, then the price elasticity will be:

Accepted Answer

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

Question 9

The short-run price elasticity of demand for airline travel is 0.05, while the long-run elasticity is 2.36. This means that a significant increase in airline ticket prices will cause airline companies to:

Accepted Answer

A)  collect less revenue from short-notice travelers. 
B)  collect more revenue from travelers who book well in advance. 
C)  lose money on short-notice travelers. 
D)  collect less revenue from travelers who book well in advance. 
A)  collect less revenue from short-notice travelers. 
B)  collect more revenue from travelers who book well in advance. 
C)  lose money on short-notice travelers. 
D)  collect less revenue from travelers who book well in advance.

Question 10

Exhibit 5-2 Price and quantity demanded data $$\begin{array} { | c | c | } 
\hline \text { Price } & \text { Quantity Demanded } \
\hline 5 & 20 \
4 & 25 \
3 & 30 \
2 & 35 \
1 & 40 \
\hline
\end{array}$$ Using Exhibit 5-2, what is the price elasticity of demand when the price falls from five dollars to four?

Accepted Answer

A)  1. 
B)  1.25. 
C)  0.8. 
D)  2.0. 
A)  1. 
B)  1.25. 
C)  0.8. 
D)  2.0.

Question 11

If the percentage change in the quantity demanded of a good is less than the percentage change in price, price elasticity of demand is:

Accepted Answer

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

Question 12

If the value of the price elasticity of demand is 0.2, this means that:

Accepted Answer

A)  a 20 percent decrease in price causes a 1 percent increase in quantity demanded. 
B)  a 0.2 percent decrease in price causes a 1 percent increase in quantity demanded. 
C)  a 5 percent decrease in price causes a 1 percent increase in quantity demanded. 
D)  a 0.2 percent decrease in price causes a 0.2 percent increase in quantity demanded. 
A)  a 20 percent decrease in price causes a 1 percent increase in quantity demanded. 
B)  a 0.2 percent decrease in price causes a 1 percent increase in quantity demanded. 
C)  a 5 percent decrease in price causes a 1 percent increase in quantity demanded. 
D)  a 0.2 percent decrease in price causes a 0.2 percent increase in quantity demanded.

Question 13

A local doughnut shop reduced the price of its doughnuts from $4 per dozen to $3.50 per dozen, and as a result, the daily sales increased from 300 to 400 dozen. This indicates that the price elasticity of demand for the doughnuts was:

Accepted Answer

A)  elastic. 
B)  inelastic. 
C)  unitary elastic. 
D)  indeterminate; more information is needed to determine the price elasticity of demand. 
A)  elastic. 
B)  inelastic. 
C)  unitary elastic. 
D)  indeterminate; more information is needed to determine the price elasticity of demand.

Question 14

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 15

If a good has a price elasticity of demand coefficient less than one, then:

Accepted Answer

A)  this good has an elastic demand. 
B)  this good has an inelastic demand. 
C)  a 10 percent increase in the price will result in a greater than 10 percent decrease in the quantity demanded. 
D)  the demand curve will be vertical. 
A)  this good has an elastic demand. 
B)  this good has an inelastic demand. 
C)  a 10 percent increase in the price will result in a greater than 10 percent decrease in the quantity demanded. 
D)  the demand curve will be vertical.

Question 16

If the demand for cigarettes is highly inelastic, this indicates that:

Accepted Answer

A)  higher cigarette prices will increase the demand for cigarettes. 
B)  the price elasticity coefficient of cigarettes exceeds 1. 
C)  the price elasticity coefficient of cigarettes equals 1. 
D)  the quantity of cigarettes purchased by consumers is not very responsive to a change in the price of cigarettes. 
A)  higher cigarette prices will increase the demand for cigarettes. 
B)  the price elasticity coefficient of cigarettes exceeds 1. 
C)  the price elasticity coefficient of cigarettes equals 1. 
D)  the quantity of cigarettes purchased by consumers is not very responsive to a change in the price of cigarettes.

Question 17

In the long run, price elasticities of demand are usually

Accepted Answer

A)  greater than they are in the short run because consumers have time to adjust. 
B)  the same as they are in the short run because tastes don't change. 
C)  less than they are in the short run because prices rise over time. 
D)  less than they are in the short run because real prices fall over time. 
A)  greater than they are in the short run because consumers have time to adjust. 
B)  the same as they are in the short run because tastes don't change. 
C)  less than they are in the short run because prices rise over time. 
D)  less than they are in the short run because real prices fall over time.

Question 18

The longer the time period under study,

Accepted Answer

A)  the more elastic is the price elasticity of demand. 
B)  the less sensitive consumers will be to price changes. 
C)  the more likely any given price cut will result in a smaller reaction by the consumer. 
D)  the more inelastic is the price elasticity of demand. 
A)  the more elastic is the price elasticity of demand. 
B)  the less sensitive consumers will be to price changes. 
C)  the more likely any given price cut will result in a smaller reaction by the consumer. 
D)  the more inelastic is the price elasticity of demand.

Question 19

If an increase in the price of a product from $1 to $2 per unit leads to a decrease in the quantity demanded from 100 to 80 units, then demand is:

Accepted Answer

A)  elastic. 
B)  inelastic. 
C)  unitary elastic. 
D)  horizontal. 
A)  elastic. 
B)  inelastic. 
C)  unitary elastic. 
D)  horizontal.

Question 20

If an excise tax is placed on a product that has a perfectly inelastic demand, then:

Accepted Answer

A)  the entire tax will be paid by the consumer. 
B)  the entire tax will be paid by the producer. 
C)  the consumer and producer will each pay a share of the tax. 
D)  the incidence of the tax cannot be determined unless we know the coefficient of price elasticity of supply. 
A)  the entire tax will be paid by the consumer. 
B)  the entire tax will be paid by the producer. 
C)  the consumer and producer will each pay a share of the tax. 
D)  the incidence of the tax cannot be determined unless we know the coefficient of price elasticity of supply.

Exam 5: Price Elasticity of Demand and Supply

The demand for gasoline will be most elastic

For which of the following goods are consumers likely to have the most elastic demand?

As one moves down a straight-line, down-sloping demand curve, price elasticity will:

If Stimpson University increases tuition in order to increase its revenue, it will:

If the percentage change in the quantity demanded of a good is greater than the percentage change in price, price elasticity of demand is:

The elastic portion of the downward-sloping straight-line demand curve lies:

If demand for a good is elastic, then the price elasticity will be:

The short-run price elasticity of demand for airline travel is 0.05, while the long-run elasticity is 2.36. This means that a significant increase in airline ticket prices will cause airline companies to:

Exhibit 5-2 Price and quantity demanded data Price Quantity Demanded 5 20 4 25 3 30 2 35 1 40 Using Exhibit 5-2, what is the price elasticity of demand when the price falls from five dollars to four?

If the percentage change in the quantity demanded of a good is less than the percentage change in price, price elasticity of demand is:

If the value of the price elasticity of demand is 0.2, this means that:

A local doughnut shop reduced the price of its doughnuts from $4 per dozen to $3.50 per dozen, and as a result, the daily sales increased from 300 to 400 dozen. This indicates that the price elasticity of demand for the doughnuts was:

A lower price elasticity of demand coefficient occurs when:

If a good has a price elasticity of demand coefficient less than one, then:

If the demand for cigarettes is highly inelastic, this indicates that:

In the long run, price elasticities of demand are usually

The longer the time period under study,

If an increase in the price of a product from $1 to $2 per unit leads to a decrease in the quantity demanded from 100 to 80 units, then demand is:

If an excise tax is placed on a product that has a perfectly inelastic demand, then:

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

Monetary Policy

International Trade and Finance

Economies in Transition

Growth and the Less Developed Countries

Filters