Question 1

Taking the absolute value of the income elasticity of demand is incorrect because it would:

Accepted Answer

A) remove the ability to tell whether the two products have inelastic demand or elastic demand. 
B) cause the value of the cross-price elasticity of demand to become smaller. 
C) remove the ability to tell whether the product is an inferior good or a normal good. 
D) cause the value of the cross-price elasticity of demand to become zero. 
A) remove the ability to tell whether the two products have inelastic demand or elastic demand. 
B) cause the value of the cross-price elasticity of demand to become smaller. 
C) remove the ability to tell whether the product is an inferior good or a normal good. 
D) cause the value of the cross-price elasticity of demand to become zero.

Question 2

Milk is an inexpensive good that most would consider a necessity. You would therefore expect its demand to be:

Accepted Answer

A) elastic. 
B) inelastic. 
C) unit-elastic. 
D) driven by the supply price. 
A) elastic. 
B) inelastic. 
C) unit-elastic. 
D) driven by the supply price.

Question 3

The price of milk at the local grocery store is cut by 10%. The quantity of milk demanded increases by 5% in response to this price cut. What is the absolute value of the price elasticity of demand for milk?

Accepted Answer

A) 2 
B) -2 
C) 0.5 
D) -0.5 
A) 2 
B) -2 
C) 0.5 
D) -0.5

Question 4

When the percentage change in price is greater than the percentage change in quantity demanded, demand is said to be:

Accepted Answer

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

Question 5

A measure of how responsive buyers are to price changes is the:

Accepted Answer

A) price elasticity of demand. 
B) price elasticity of supply. 
C) cross-price elasticity of demand. 
D) income elasticity of demand. 
A) price elasticity of demand. 
B) price elasticity of supply. 
C) cross-price elasticity of demand. 
D) income elasticity of demand.

Question 6

If a good is a necessity with few substitutes, demand will tend to be:

Accepted Answer

A) elastic. 
B) inelastic. 
C) perfectly inelastic. 
D) the same as that of an inferior good. 
A) elastic. 
B) inelastic. 
C) perfectly inelastic. 
D) the same as that of an inferior good.

Question 7

Mary loves avocados and must consume avocados every week, regardless of the price. Which of the following must be true?

Accepted Answer

A) Mary has an inelastic demand for avocados. 
B) Avocados are in large supply in the market. 
C) Mary has an elastic demand for avocados. 
D) All consumers in the market have a high demand for avocados. 
A) Mary has an inelastic demand for avocados. 
B) Avocados are in large supply in the market. 
C) Mary has an elastic demand for avocados. 
D) All consumers in the market have a high demand for avocados.

Question 8

The demand curve for one particular brand of cough syrup will _____ the demand curve for cough syrup as a general category.

Accepted Answer

A) be more elastic than 
B) have the same elasticity as 
C) be more inelastic than 
D) have perfectly elastic demand when compared to 
A) be more elastic than 
B) have the same elasticity as 
C) be more inelastic than 
D) have perfectly elastic demand when compared to

Question 9

The price of cakes rises by 15%. In response, the quantity supplied of cakes rises by 30%. The price elasticity of supply for cakes is:

Accepted Answer

A) 2. 
B) 0.5. 
C) -0.5. 
D) 0.33. 
A) 2. 
B) 0.5. 
C) -0.5. 
D) 0.33.

Question 10

(Figure: Estimating Price Elasticity in the Market for Garden Gnomes) Use Figure: Estimating Price Elasticity in the Market for Garden Gnomes. Between the two prices, P1 and P2, which demand curve has the highest price elasticity?

Accepted Answer

A) D1 
B) D2 
C) D3 
D) D4 
A) D1 
B) D2 
C) D3 
D) D4

Question 11

If the price of a good increases by 2%, and the quantity demanded changes by 1%, then the price elasticity of demand is equal to:

Accepted Answer

A) 0.5. 
B) approximately 0.5. 
C) approximately 2. 
D) 1. 
A) 0.5. 
B) approximately 0.5. 
C) approximately 2. 
D) 1.

Question 12

(Figure: Demand Curves) The figure shows four different demand curves for four products: A, B, C and D. Which of the products has a perfectly elastic demand curve?

Accepted Answer

A) product A 
B) product B 
C) product C 
D) product D 
A) product A 
B) product B 
C) product C 
D) product D

Question 13

Suppose the price of cupcakes decreases by 5%, and the quantity of cupcakes demanded increases by 15%. Demand for cupcakes is:

Accepted Answer

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

Question 14

The price of cheddar cheese increases from $2.50 per pound and is now $3.50 per pound. In response to this price change, the quantity demanded for cheddar cheese falls by 50%. What is the absolute value of the price elasticity of demand for cheddar cheese?

Accepted Answer

A) 0.8 
B) -0.8 
C) 1.25 
D) -1.25 
A) 0.8 
B) -0.8 
C) 1.25 
D) -1.25

Question 15

When the absolute value of the price elasticity of demand is zero, demand is:

Accepted Answer

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

Question 16

The price of gasoline rises by 1%, and the quantity of gasoline purchased falls by 5%. The price elasticity of demand is equal to _____, and demand is described as _____.

Accepted Answer

A) 0.2; inelastic 
B) 5; inelastic 
C) 0.2; elastic 
D) 5; elastic 
A) 0.2; inelastic 
B) 5; inelastic 
C) 0.2; elastic 
D) 5; elastic

Question 17

Ron needs your help in calculating the price elasticity of demand for eggs, salt, and oranges. Calculate the price elasticity of demand for each of these products (using the midpoint formula).
 $$\begin{array} { | l | l | l | l | } 
\hline & \text { Eggs } & \text { Salt } & \text { Oranges } \
\hline \text { P1 } & 3 & 1 & 5 \
\hline \text { P2 } & 2 & 0.5 & 3.5 \
\hline \text { Q1 } & 1,000 & 5,000 & 300 \
\hline \text { Q2 } & 1,700 & 10,000 & 400 \
\hline
\end{array}$$

Accepted Answer

The answer of Ron needs your help in calculating the...

Question 18

A linear demand curve has:

Accepted Answer

A) a uniform elasticity of demand. 
B) a elasticity of demand equal to the inverse of the slope at all prices. 
C) a positive elasticity of demand. 
D) elastic, inelastic, and unit-elastic segments. 
A) a uniform elasticity of demand. 
B) a elasticity of demand equal to the inverse of the slope at all prices. 
C) a positive elasticity of demand. 
D) elastic, inelastic, and unit-elastic segments.

Question 19

The price of a dozen eggs falls from $2.50 to $1.50. In response to this price change, the quantity demanded for eggs increases by 10%. What is the absolute value of the price elasticity of demand for eggs?

Accepted Answer

A) 4 
B) -4 
C) 0.25 
D) -0.25 
A) 4 
B) -4 
C) 0.25 
D) -0.25

Question 20

(Figure: Supply Curves) The figure shows four different supply curves for four products: A, B, C and D. Which of the products has an elastic, but not perfectly elastic, supply curve?

Accepted Answer

A) product A 
B) product B 
C) product C 
D) product D 
A) product A 
B) product B 
C) product C 
D) product D

Exam 5: Elasticity: Measuring Responsiveness

Taking the absolute value of the income elasticity of demand is incorrect because it would:

Milk is an inexpensive good that most would consider a necessity. You would therefore expect its demand to be:

The price of milk at the local grocery store is cut by 10%. The quantity of milk demanded increases by 5% in response to this price cut. What is the absolute value of the price elasticity of demand for milk?

When the percentage change in price is greater than the percentage change in quantity demanded, demand is said to be:

A measure of how responsive buyers are to price changes is the:

If a good is a necessity with few substitutes, demand will tend to be:

Mary loves avocados and must consume avocados every week, regardless of the price. Which of the following must be true?

The demand curve for one particular brand of cough syrup will _____ the demand curve for cough syrup as a general category.

The price of cakes rises by 15%. In response, the quantity supplied of cakes rises by 30%. The price elasticity of supply for cakes is:

(Figure: Estimating Price Elasticity in the Market for Garden Gnomes) Use Figure: Estimating Price Elasticity in the Market for Garden Gnomes. Between the two prices, P1 and P2, which demand curve has the highest price elasticity?

If the price of a good increases by 2%, and the quantity demanded changes by 1%, then the price elasticity of demand is equal to:

(Figure: Demand Curves) The figure shows four different demand curves for four products: A, B, C and D. Which of the products has a perfectly elastic demand curve?

Suppose the price of cupcakes decreases by 5%, and the quantity of cupcakes demanded increases by 15%. Demand for cupcakes is:

The price of cheddar cheese increases from $2.50 per pound and is now $3.50 per pound. In response to this price change, the quantity demanded for cheddar cheese falls by 50%. What is the absolute value of the price elasticity of demand for cheddar cheese?

When the absolute value of the price elasticity of demand is zero, demand is:

The price of gasoline rises by 1%, and the quantity of gasoline purchased falls by 5%. The price elasticity of demand is equal to _____, and demand is described as _____.

Ron needs your help in calculating the price elasticity of demand for eggs, salt, and oranges. Calculate the price elasticity of demand for each of these products (using the midpoint formula). Eggs Salt Oranges P1 3 1 5 P2 2 0.5 3.5 Q1 1,000 5,000 300 Q2 1,700 10,000 400

A linear demand curve has:

The price of a dozen eggs falls from $2.50 to $1.50. In response to this price change, the quantity demanded for eggs increases by 10%. What is the absolute value of the price elasticity of demand for eggs?

(Figure: Supply Curves) The figure shows four different supply curves for four products: A, B, C and D. Which of the products has an elastic, but not perfectly elastic, supply curve?

The Core Principles of Economics

Demand: Thinking Like a Buyer

Supply: Thinking Like a Seller

Equilibrium: Where Supply Meets Demand

When Governments Intervene in Markets

Welfare and Efficiency

Gains From Trade

International Trade

Externalities and Public Goods

Labor Demand and Supply

Wages, Workers, and Management

Inequality, Social Insurance, and Redistribution

Market Structure and Market Power

Entry, Exit, and Long-Run Profitability

Business Strategy

Sophisticated Pricing Strategies

Game Theory and Strategic Choices

Decisions Involving Uncertainty

Decisions With Private Information

Sizing up the Economy Using Gdp

Economic Growth

Unemployment

Inflation and Money

Consumption and Saving

Investment

The Financial Sector

International Finance and the Exchange Rate

Business Cycles

IS-MP Analysis: Interest Rates and Output

Phillips Curve

The Fed Model: Linking Interest Rates, Output, and Inflation

Aggregate Demand and Aggregate Supply

Monetary Policy

Government Spending, Taxes, and Fiscal Policy

Appendix: Aggregate Expenditure and the Multiplier

Filters

(Figure: Estimating Price Elasticity in the Market for Garden Gnomes) Use Figure: Estimating Price Elasticity in the Market for Garden Gnomes. Between the two prices, P₁ and P₂, which demand curve has the highest price elasticity?

The price of gasoline rises by 1%, and the quantity of gasoline purchased falls by 5%. The price elasticity of demand is equal to _, and demand is described as _.