Question 1

If the Turnpike Commission is correct in its estimate of the price elasticity of demand,turnpike revenue will

Accepted Answer

A)  rise initially, then fall. 
B)  fall initially, then rise. 
C)  not change. 
D)  rise. 
E)  fall. 
A)  rise initially, then fall. 
B)  fall initially, then rise. 
C)  not change. 
D)  rise. 
E)  fall. D

Question 2

The distinction between substitutes and complements can be made on the basis of computing the ________ elasticity of demand.

Accepted Answer

A)  price 
B)  relative 
C)  income 
D)  absolute 
E)  cross 
A)  price 
B)  relative 
C)  income 
D)  absolute 
E)  cross E

Question 3

The major reason why the Iowa Dairy Farmers strike (and other similar protests)against Sioux City Milk dealers failed was that

Accepted Answer

A)  the market demand for milk is highly price elastic so that consumers substitute other beverages when its price rises. 
B)  the strike raised costs of production because milk was destroyed, forcing dairy farmers into bankruptcy. 
C)  there were so many dairy farmers that milk dealers could find enough milk elsewhere to offset their losses from the striking farmers. 
D)  the U.S. government stepped in and forced the dairy farmers to go back to work. 
E)  Congress passed the Benson Brannan law, which raised farm prices and eliminated the need for the dairy farmers' protest. 
A)  the market demand for milk is highly price elastic so that consumers substitute other beverages when its price rises. 
B)  the strike raised costs of production because milk was destroyed, forcing dairy farmers into bankruptcy. 
C)  there were so many dairy farmers that milk dealers could find enough milk elsewhere to offset their losses from the striking farmers. 
D)  the U.S. government stepped in and forced the dairy farmers to go back to work. 
E)  Congress passed the Benson Brannan law, which raised farm prices and eliminated the need for the dairy farmers' protest. C

Question 4

One way to define luxuries (as opposed to necessities)is to say that luxuries are those goods

Accepted Answer

A)  purchased by consumers with high incomes. 
B)  with high prices. 
C)  with high income elasticities of demand. 
D)  that are perfectly price inelastic. 
E)  for which substitutes are not readily available. 
A)  purchased by consumers with high incomes. 
B)  with high prices. 
C)  with high income elasticities of demand. 
D)  that are perfectly price inelastic. 
E)  for which substitutes are not readily available.

Question 5

The percentage change in the quantity demanded of one commodity resulting from a 1 percent change in the price of a complementary commodity is called the ________ elasticity of demand.

Accepted Answer

A)  income 
B)  price 
C)  cross 
D)  equilibrium 
E)  arc 
A)  income 
B)  price 
C)  cross 
D)  equilibrium 
E)  arc

Question 6

The following question are based on the following graph. The curves D and S represent the market demand and supply curves for farm products in 1960. The curves D₁ and S₁ represent the market demand and supply curves for farm products in 2000. It is supposed that there were no support programs in either year.
  
-The relatively large shift in the supply curve over the 40 years illustrates that

Accepted Answer

A)  the quantity of food demanded does not vary much with the price of food because food is a necessity. 
B)  consumption of food per capita faces natural limits and hence responds by only a small amount to changes in per capita income. 
C)  farmers have only limited control over their outputs. 
D)  there has been rapid technological change in agriculture. 
E)  poor climatological conditions led to decreasing harvests. 
A)  the quantity of food demanded does not vary much with the price of food because food is a necessity. 
B)  consumption of food per capita faces natural limits and hence responds by only a small amount to changes in per capita income. 
C)  farmers have only limited control over their outputs. 
D)  there has been rapid technological change in agriculture. 
E)  poor climatological conditions led to decreasing harvests.

Question 7

The idea behind the direct market experiment to measure demand is to

Accepted Answer

A)  see the effects on the quantity demanded of actual variations in the price of a product. 
B)  use statistical methods to estimate demand curves from historical data. 
C)  measure demand by interviewing consumers about their buying habits and intentions. 
D)  measure the effect of changes in variables, such as income or taste, on price. 
E)  measure the effect of changes in price on quantities supplied. 
A)  see the effects on the quantity demanded of actual variations in the price of a product. 
B)  use statistical methods to estimate demand curves from historical data. 
C)  measure demand by interviewing consumers about their buying habits and intentions. 
D)  measure the effect of changes in variables, such as income or taste, on price. 
E)  measure the effect of changes in price on quantities supplied.

Question 8

Suppose the short-run price elasticity of demand for gasoline is 0.4.Acting on this information,one gasoline station at an intersection where there are three additional gasoline stations raises its price by 10 percent.If the other three stations keep their original prices,the first gasoline station will probably see its gasoline sales

Accepted Answer

A)  increase by 0.4 percent. 
B)  remain unchanged. 
C)  fall by 0.4 percent. 
D)  fall by 4 percent. 
E)  fall by more than 4 percent. 
A)  increase by 0.4 percent. 
B)  remain unchanged. 
C)  fall by 0.4 percent. 
D)  fall by 4 percent. 
E)  fall by more than 4 percent.

Question 9

If the income elasticity of demand for a good is negative

Accepted Answer

A)  changes in income have no effect on consumption of the good. 
B)  a decrease in income causes consumption of the good to fall. 
C)  an increase in income causes consumption of the good to fall. 
D)  consumption of the good may increase or decrease without any change in income. 
E)  and if the good's price falls, income also falls. 
A)  changes in income have no effect on consumption of the good. 
B)  a decrease in income causes consumption of the good to fall. 
C)  an increase in income causes consumption of the good to fall. 
D)  consumption of the good may increase or decrease without any change in income. 
E)  and if the good's price falls, income also falls.

Question 10

If a firm faces a horizontal demand curve

Accepted Answer

A)  when it increases its price, its revenues will rise. 
B)  increases in revenues are possible if it increases its price. 
C)  increases in revenues are possible without reductions in its price. 
D)  it is the only seller of the product in a given market. 
E)  industry and product demand curves are identical. 
A)  when it increases its price, its revenues will rise. 
B)  increases in revenues are possible if it increases its price. 
C)  increases in revenues are possible without reductions in its price. 
D)  it is the only seller of the product in a given market. 
E)  industry and product demand curves are identical.

Question 11

The demand curve for the output of an individual firm is highly price elastic when it

Accepted Answer

A)  shifts to the left. 
B)  is horizontal. 
C) slopes upward to the right. 
D)  has a value of 0.15. 
E)  decreases as price falls. 
A)  shifts to the left. 
B)  is horizontal. 
C) slopes upward to the right. 
D)  has a value of 0.15. 
E)  decreases as price falls.

Question 12

Cross elasticity of demand measures the

Accepted Answer

A)  percentage change in the price of one good when the price of a complement increases by 1 percent. 
B)  dependence of the quantity demanded of one commodity on the quantity demanded of another. 
C)  dependence of the quantity demanded of one commodity on changes in the prices of that commodity. 
D)  sensitivity of the quantity demanded of one commodity to changes in the price of another. 
E)  relative importance of the price elasticity of demand to the income elasticity of demand. 
A)  percentage change in the price of one good when the price of a complement increases by 1 percent. 
B)  dependence of the quantity demanded of one commodity on the quantity demanded of another. 
C)  dependence of the quantity demanded of one commodity on changes in the prices of that commodity. 
D)  sensitivity of the quantity demanded of one commodity to changes in the price of another. 
E)  relative importance of the price elasticity of demand to the income elasticity of demand.

Question 13

When an increase in price produces a decline in the total amount spent on a commodity,demand is said to be

Accepted Answer

A)  of absolute elasticity. 
B)  income inelastic. 
C)  of unitary elasticity. 
D)  price inelastic. 
E)  price elastic. 
A)  of absolute elasticity. 
B)  income inelastic. 
C)  of unitary elasticity. 
D)  price inelastic. 
E)  price elastic.

Question 14

If price elasticity of demand is 1.7,the demand for the commodity is

Accepted Answer

A)  of unitary elasticity. 
B)  price postelastic. 
C)  price elastic. 
D)  price inelastic. 
E)  price preelastic. 
A)  of unitary elasticity. 
B)  price postelastic. 
C)  price elastic. 
D)  price inelastic. 
E)  price preelastic.

Question 15

If price elasticity of demand is 1.0,demand for the commodity is

Accepted Answer

A)  of unitary elasticity. 
B)  price postelastic. 
C)  price elastic. 
D)  price inelastic. 
E)  price preelastic. 
A)  of unitary elasticity. 
B)  price postelastic. 
C)  price elastic. 
D)  price inelastic. 
E)  price preelastic.

Question 16

A market demand curve shows

Accepted Answer

A)  what price will prevail in the marketplace. 
B)  how much of a commodity will be purchased in a given period of time at various prices. 
C)  the rate at which consumption of a commodity will increase as income goes up. 
D)  the minimum price consumers will have to pay to get a certain quantity. 
E)  that as price goes up, consumers will spend more money on a commodity. 
A)  what price will prevail in the marketplace. 
B)  how much of a commodity will be purchased in a given period of time at various prices. 
C)  the rate at which consumption of a commodity will increase as income goes up. 
D)  the minimum price consumers will have to pay to get a certain quantity. 
E)  that as price goes up, consumers will spend more money on a commodity.

Question 17

Price elasticity of demand is defined as the

Accepted Answer

A)  percentage increase in price induced by a decrease in demand. 
B)  absolute change in quantity demanded divided by the absolute change in price. 
C)  maximum amount consumers will pay for increased quantity. 
D)  percentage amount by which price can change without affecting the quantity demanded. 
E)  percentage change in quantity demanded induced by a 1 percent change in price. 
A)  percentage increase in price induced by a decrease in demand. 
B)  absolute change in quantity demanded divided by the absolute change in price. 
C)  maximum amount consumers will pay for increased quantity. 
D)  percentage amount by which price can change without affecting the quantity demanded. 
E)  percentage change in quantity demanded induced by a 1 percent change in price.

Question 18

The important determinants of the price elasticity of demand are the

Accepted Answer

A)  number and closeness of available substitutes, importance in consumers' budgets, and length of the time period. 
B)  number of markets, size of buyers' incomes, and empirical validity. 
C)  number of firms, number of variables that must be held constant, and degree to which markets are separable. 
D)  scope and method of measurement and calculation and transitivity of preferences. 
E)  state of technology, size of the firm's plants, and size of the absolute change in input prices and quantity. 
A)  number and closeness of available substitutes, importance in consumers' budgets, and length of the time period. 
B)  number of markets, size of buyers' incomes, and empirical validity. 
C)  number of firms, number of variables that must be held constant, and degree to which markets are separable. 
D)  scope and method of measurement and calculation and transitivity of preferences. 
E)  state of technology, size of the firm's plants, and size of the absolute change in input prices and quantity.

Question 19

The average income of farm families in the United States is ________ the average family income in the nation as a whole.

Accepted Answer

A)  less than 
B)  approximately equal to 
C)  slightly more than 
D)  well above 
E)  more than triple 
A)  less than 
B)  approximately equal to 
C)  slightly more than 
D)  well above 
E)  more than triple

Question 20

From the event depicted in the graph,one can conclude that,over the period in question,farm

Accepted Answer

A)  prices and output fell. 
B)  prices and output rose. 
C)  prices and income rose. 
D)  output and income fell. 
E)  prices fell and output rose. 
A)  prices and output fell. 
B)  prices and output rose. 
C)  prices and income rose. 
D)  output and income fell. 
E)  prices fell and output rose.

Exam 5: Market Demand and Price Elasticity

If the Turnpike Commission is correct in its estimate of the price elasticity of demand,turnpike revenue will

The distinction between substitutes and complements can be made on the basis of computing the ________ elasticity of demand.

The major reason why the Iowa Dairy Farmers strike (and other similar protests)against Sioux City Milk dealers failed was that

One way to define luxuries (as opposed to necessities)is to say that luxuries are those goods

The percentage change in the quantity demanded of one commodity resulting from a 1 percent change in the price of a complementary commodity is called the ________ elasticity of demand.

The idea behind the direct market experiment to measure demand is to

If the income elasticity of demand for a good is negative

If a firm faces a horizontal demand curve

The demand curve for the output of an individual firm is highly price elastic when it

Cross elasticity of demand measures the

When an increase in price produces a decline in the total amount spent on a commodity,demand is said to be

If price elasticity of demand is 1.7,the demand for the commodity is

If price elasticity of demand is 1.0,demand for the commodity is

A market demand curve shows

Price elasticity of demand is defined as the

The important determinants of the price elasticity of demand are the

The average income of farm families in the United States is ________ the average family income in the nation as a whole.

From the event depicted in the graph,one can conclude that,over the period in question,farm

What is Economics

Markets and Prices

The Business Firm: Organization,motivation,and Optimal Input Decisions

Getting Behind the Demand and Supply Curves

Economic Efficiency,market Supply,and Perfect Competition

Monopoly and Its Regulation

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Pollution and the Environment

The Supply and Demand for Labor

Interest,rent,and Profit

Poverty,income Inequality,and Discrimination

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National Income and Product

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The Determination of National Output and the Keynesian Multiplier

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Inflation

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Supply Shocks and Inflation

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Surpluses,deficits,public Debt,and the Federal Budget

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Controversies Over Stabilization Policy

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