Question 1

If a decrease in the price of movie tickets increases the total revenue of movie theaters, this is evidence that demand is:

Accepted Answer

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

Question 2

If the federal government placed a 50 cent per pack excise tax on cigarette manufacturers, and if as a result, the price to consumers of a pack of cigarettes went up by 40 cents, the:

Accepted Answer

A)  actual burden of this tax falls mostly on consumers. 
B)  actual burden of this tax falls mostly on manufacturers. 
C)  actual burden of the tax would be shared equally by producers and consumers. 
D)  tax would clearly be a progressive tax. 
A)  actual burden of this tax falls mostly on consumers. 
B)  actual burden of this tax falls mostly on manufacturers. 
C)  actual burden of the tax would be shared equally by producers and consumers. 
D)  tax would clearly be a progressive tax.

Question 3

Suppose you are the manager of a local water company, and you are instructed to get consumers to reduce their water consumption by 10 percent. If the price elasticity of demand for water is 0.25, by how much would you have to raise the price of water?

Accepted Answer

A)  10 percent 
B)  25 percent 
C)  40 percent 
D)  100 percent 
A)  10 percent 
B)  25 percent 
C)  40 percent 
D)  100 percent

Question 4

If the price elasticity of demand coefficient equals 2 then:

Accepted Answer

A)  a 7 percent decrease in the price will result in a 14 percent decrease in the quantity demanded. 
B)  a price decrease will increase total revenue. 
C)  the good has an inelastic demand. 
D)  there is likely few substitutes, a short time period under consideration, or this good accounts for a relatively small percentage of consumers' budgets. 
A)  a 7 percent decrease in the price will result in a 14 percent decrease in the quantity demanded. 
B)  a price decrease will increase total revenue. 
C)  the good has an inelastic demand. 
D)  there is likely few substitutes, a short time period under consideration, or this good accounts for a relatively small percentage of consumers' budgets.

Question 5

Suppose that a jewelry store found that when it increased prices by 10 percent, sales revenue increased by 3 percent. Which of the following is true about the price elasticity of demand for the store's goods?

Accepted Answer

A)  Demand is perfectly inelastic. 
B)  Demand is inelastic, but not perfectly. 
C)  Demand is perfectly elastic 
D)  Demand is elastic, but not perfectly. 
A)  Demand is perfectly inelastic. 
B)  Demand is inelastic, but not perfectly. 
C)  Demand is perfectly elastic 
D)  Demand is elastic, but not perfectly.

Question 6

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

Accepted Answer

A)  if close substitutes exist. 
B)  if minor complements exist. 
C)  in the short-run. 
D)  if a small portion of the budget will be spent on it. 
A)  if close substitutes exist. 
B)  if minor complements exist. 
C)  in the short-run. 
D)  if a small portion of the budget will be spent on it.

Question 7

In a market with a downward-sloping demand curve and an upward-sloping supply curve, a law requiring sellers to pay the government a tax of $1.00 per pack on cigarettes has the effect of:

Accepted Answer

A)  shifting the supply curve to the right and increasing the price buyers pay by $1.00. 
B)  shifting the demand curve to the right and increasing the price buyers pay by $1.00. 
C)  shifting the supply curve to the left and increasing the price buyers pay by less than $1.00. 
D)  shifting the demand curve to the left and increasing the price buyers pay by less than $1.00. 
A)  shifting the supply curve to the right and increasing the price buyers pay by $1.00. 
B)  shifting the demand curve to the right and increasing the price buyers pay by $1.00. 
C)  shifting the supply curve to the left and increasing the price buyers pay by less than $1.00. 
D)  shifting the demand curve to the left and increasing the price buyers pay by less than $1.00.

Question 8

Exhibit 5-1 Demand curve
 
In Exhibit 5-1, between points a and b, the price elasticity of demand is:

Accepted Answer

A)  0.67. 
B)  1.5. 
C)  2.0. 
D)  1.0. 
A)  0.67. 
B)  1.5. 
C)  2.0. 
D)  1.0.

Question 9

Price elasticity of demand refers to the ratio of the:

Accepted Answer

A)  percentage change in price of a good in response to a percentage change in quantity demanded. 
B)  percentage change in price of a good to a percentage increase in income. 
C)  percentage change in the quantity demanded of a good to a percentage change in its price. 
D)  percentage change in the quantity demanded of a good to a percentage change in income. 
A)  percentage change in price of a good in response to a percentage change in quantity demanded. 
B)  percentage change in price of a good to a percentage increase in income. 
C)  percentage change in the quantity demanded of a good to a percentage change in its price. 
D)  percentage change in the quantity demanded of a good to a percentage change in income.

Question 10

If a government tax has as its purpose the raising of revenue, it would be best to place the tax on a product which:

Accepted Answer

A)  is a non-essential. 
B)  has a highly elastic demand. 
C)  has many good substitutes. 
D)  has a highly inelastic demand. 
A)  is a non-essential. 
B)  has a highly elastic demand. 
C)  has many good substitutes. 
D)  has a highly inelastic demand.

Question 11

Suppose the president of a college argues that a 25 percent tuition increase will raise revenues for the college. It can be concluded that the president thinks that demand to attend this college is:

Accepted Answer

A)  elastic. 
B)  inelastic, but not perfectly inelastic. 
C)  unitary elastic. 
D)  perfectly elastic. 
A)  elastic. 
B)  inelastic, but not perfectly inelastic. 
C)  unitary elastic. 
D)  perfectly elastic.

Question 12

Price elasticity of demand depends on all of the following except:

Accepted Answer

A)  the amount of time a consumer has to adjust to price changes. 
B)  the sensitivity of firms' output to changes in the product's price. 
C)  the consumer's income. 
D)  the availability and closeness of substitutes. 
A)  the amount of time a consumer has to adjust to price changes. 
B)  the sensitivity of firms' output to changes in the product's price. 
C)  the consumer's income. 
D)  the availability and closeness of substitutes.

Question 13

The long-run price elasticity of demand is usually larger than the short-run price elasticity of demand because:

Accepted Answer

A)  demand curves tend to become steeper over time. 
B)  economists take the absolute value of long-run price elasticities but not of short-run elasticities. 
C)  people have more time to find substitute goods. 
D)  incomes tend to rise over time. 
A)  demand curves tend to become steeper over time. 
B)  economists take the absolute value of long-run price elasticities but not of short-run elasticities. 
C)  people have more time to find substitute goods. 
D)  incomes tend to rise over time.

Question 14

Exhibit 5-9 Supply and Demand Curves for Good X
 
As shown in Exhibit 5-9, the price elasticity of demand for good X between points E and B is:

Accepted Answer

A)  3/7 = 0.43. 
B)  7/3 = 2.33. 
C)  1/2 = 0.50. 
D)  1. 
A)  3/7 = 0.43. 
B)  7/3 = 2.33. 
C)  1/2 = 0.50. 
D)  1.

Question 15

A perfectly inelastic demand curve has an elasticity coefficient of:

Accepted Answer

A)  0. 
B)  1. 
C)  less than 1. 
D)  infinity. 
A)  0. 
B)  1. 
C)  less than 1. 
D)  infinity.

Question 16

Suppose the Good Food supermarket increases the price of a pound of bananas from $.75 to $1.25 and finds that the quantity of bananas it sells per month drops from 1,500 to 1,000. The price elasticity of demand coefficient for bananas in this price range is:

Accepted Answer

A)  0.80. 
B)  3.00. 
C)  2.00. 
D)  0.50. 
A)  0.80. 
B)  3.00. 
C)  2.00. 
D)  0.50.

Question 17

The demand for a product is likely to be more elastic

Accepted Answer

A)  the shorter the time the consumer has to adjust to price changes. 
B)  the lower the price of the good. 
C)  the fewer the number of good substitutes. 
D)  the less the essential nature of the good. 
A)  the shorter the time the consumer has to adjust to price changes. 
B)  the lower the price of the good. 
C)  the fewer the number of good substitutes. 
D)  the less the essential nature of the good.

Question 18

If Sam, the Pizza Man, lowers the price of his pizzas from $6 to $5 and finds that sales increase from 400 to 600 pizzas per week, then the demand for Sam's pizzas in this range is:

Accepted Answer

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

Question 19

If the price elasticity of demand is computed for two products, and product A measures .79, and product B measures 1.6, then:

Accepted Answer

A)  product A is more elastic than product B. 
B)  product B is more elastic than product A. 
C)  consumers are more responsive to price changes in product A than in product B. 
D)  products A and B must be substitutes. 
A)  product A is more elastic than product B. 
B)  product B is more elastic than product A. 
C)  consumers are more responsive to price changes in product A than in product B. 
D)  products A and B must be substitutes.

Question 20

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. 
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.

Exam 5: Price Elasticity of Demand and Supply

If a decrease in the price of movie tickets increases the total revenue of movie theaters, this is evidence that demand is:

If the federal government placed a 50 cent per pack excise tax on cigarette manufacturers, and if as a result, the price to consumers of a pack of cigarettes went up by 40 cents, the:

Suppose you are the manager of a local water company, and you are instructed to get consumers to reduce their water consumption by 10 percent. If the price elasticity of demand for water is 0.25, by how much would you have to raise the price of water?

If the price elasticity of demand coefficient equals 2 then:

Suppose that a jewelry store found that when it increased prices by 10 percent, sales revenue increased by 3 percent. Which of the following is true about the price elasticity of demand for the store's goods?

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

In a market with a downward-sloping demand curve and an upward-sloping supply curve, a law requiring sellers to pay the government a tax of $1.00 per pack on cigarettes has the effect of:

Exhibit 5-1 Demand curve In Exhibit 5-1, between points a and b, the price elasticity of demand is:

Price elasticity of demand refers to the ratio of the:

If a government tax has as its purpose the raising of revenue, it would be best to place the tax on a product which:

Suppose the president of a college argues that a 25 percent tuition increase will raise revenues for the college. It can be concluded that the president thinks that demand to attend this college is:

Price elasticity of demand depends on all of the following except:

The long-run price elasticity of demand is usually larger than the short-run price elasticity of demand because:

Exhibit 5-9 Supply and Demand Curves for Good X As shown in Exhibit 5-9, the price elasticity of demand for good X between points E and B is:

A perfectly inelastic demand curve has an elasticity coefficient of:

Suppose the Good Food supermarket increases the price of a pound of bananas from $.75 to $1.25 and finds that the quantity of bananas it sells per month drops from 1,500 to 1,000. The price elasticity of demand coefficient for bananas in this price range is:

The demand for a product is likely to be more elastic

If Sam, the Pizza Man, lowers the price of his pizzas from $6 to $5 and finds that sales increase from 400 to 600 pizzas per week, then the demand for Sam's pizzas in this range is:

If the price elasticity of demand is computed for two products, and product A measures .79, and product B measures 1.6, then:

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:

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