Question 1

Price elasticity of demand is calculated by dividing the _____ by the _____.

Accepted Answer

A) percent change in price; percent change in quantity demanded 
B) percent change in price; percent change in quantity supplied 
C) percent change in quantity demanded; percent change in income 
D) percent change in quantity demanded; percent change in price 
A) percent change in price; percent change in quantity demanded 
B) percent change in price; percent change in quantity supplied 
C) percent change in quantity demanded; percent change in income 
D) percent change in quantity demanded; percent change in price

Question 2

North Carolina State University recently raised its tuition by 12%. A survey was then conducted to determine how many students would transfer to another university as a result. It was found that only about 1 in 300 responses indicated they would transfer. Based on this information, the price elasticity of demand for education at this university is:

Accepted Answer

A) 1. 
B) highly elastic. 
C) highly inelastic. 
D) 0. 
A) 1. 
B) highly elastic. 
C) highly inelastic. 
D) 0.

Question 3

Suppose you manage a Seven Eleven and are in charge of ordering products, while the home office sets the prices. In your area, the income elasticity of demand for beef jerky is -0.5. Because of local factory closings, you expect local incomes to decrease by 20% on average in the next month. As a result, you should stock _____ beef jerky.

Accepted Answer

A) 20% less 
B) 5% more 
C) 10% more 
D) 10% less 
A) 20% less 
B) 5% more 
C) 10% more 
D) 10% less

Question 4

Suppose the cross-price elasticity of demand for apple sauce and avocados is 0.96, but the cross-price elasticity for soda and oranges is -0.80. This means that apple sauce and avocados are _____, while soda and oranges are _____.

Accepted Answer

A) complements; substitutes 
B) substitutes; complements 
C) inelastic goods; elastic goods 
D) elastic goods; complements 
A) complements; substitutes 
B) substitutes; complements 
C) inelastic goods; elastic goods 
D) elastic goods; complements

Question 5

Suppose the price of gasoline rises. As time passes, people adjust to the higher price, and the demand for gasoline becomes:

Accepted Answer

A) more elastic. 
B) more inelastic. 
C) steeper. 
D) higher. 
A) more elastic. 
B) more inelastic. 
C) steeper. 
D) higher.

Question 6

Telefon, a wireless communications company, tested the effect of a reduction in the price of its monthly service. Telefon lowered its rate from $36 to $30 per month and found that the number of users tripled. This means that the:

Accepted Answer

A) demand for cell phone service is inelastic in this price range. 
B) demand curve for cell phone service shifted to the right. 
C) supply curve for cell phone service shifted to the left. 
D) demand for cell phone service is elastic in this price range. 
A) demand for cell phone service is inelastic in this price range. 
B) demand curve for cell phone service shifted to the right. 
C) supply curve for cell phone service shifted to the left. 
D) demand for cell phone service is elastic in this price range.

Question 7

If your income decreases, and your consumption of hot cross buns increases, hot cross buns are considered a(n) _____ good.

Accepted Answer

A) negative 
B) positive 
C) inferior 
D) normal 
A) negative 
B) positive 
C) inferior 
D) normal

Question 8

Using the midpoint formula, calculate the price elasticity of supply for the following three products.
 $$\begin{array} { | l | l | l | l | } 
\hline & \text { Corn } & \text { Squash } & \text { Onions } \
\hline \text { P1 } & 0.4 & 0.2 & 0.8 \
\hline \text { P2 } & 0.5 & 0.3 & 1 \
\hline \text { Q1 } & 350 & 750 & 650 \
\hline \text { Q2 } & 300 & 300 & 500 \
\hline
\end{array}$$

Accepted Answer

The answer of Using the midpoint formula, calculate the price...

Question 9

Suppose the price of real estate increases by 37.11% in New York City next year. If the quantity of new homes supplied does not change, the price elasticity of _____ will be perfectly _____ in New York City next year.

Accepted Answer

A) demand; elastic 
B) supply; inelastic 
C) demand; inelastic 
D) supply; elastic 
A) demand; elastic 
B) supply; inelastic 
C) demand; inelastic 
D) supply; elastic

Question 10

(Table: Martinez Family Household Income and Expenditures) Use Table: Martinez Family Household Income and Expenditures. The Martinez's income elasticity of demand for falafels, computed using the midpoint method, is:

Accepted Answer

A) -1.4. 
B) approximately -0.7. 
C) 0. 
D) approximately 0.7. 
A) -1.4. 
B) approximately -0.7. 
C) 0. 
D) approximately 0.7.

Question 11

If an increase in the price of coconut oil brings about an increase in total revenue, then the percent rise in price is _____ in magnitude than the percent decline in quantity demanded.

Accepted Answer

A) equal 
B) larger 
C) smaller 
D) not comparable 
A) equal 
B) larger 
C) smaller 
D) not comparable

Question 12

A straight-line demand curve with a constant price elasticity of demand:

Accepted Answer

A) forms a 45-degree angle with the horizontal axis. 
B) does not exist. 
C) is vertical. 
D) forms a 60-degree angle with the vertical axis. 
A) forms a 45-degree angle with the horizontal axis. 
B) does not exist. 
C) is vertical. 
D) forms a 60-degree angle with the vertical axis.

Question 13

Because demand curves are usually downward sloping, the price elasticity of demand is:

Accepted Answer

A) usually positive. 
B) usually greater than 1. 
C) positive or negative. 
D) usually negative. 
A) usually positive. 
B) usually greater than 1. 
C) positive or negative. 
D) usually negative.

Question 14

The price of milk at the local grocery store rises by 25%, and the quantity of milk demanded falls by 10%. The absolute value of the price elasticity of demand for milk is _____, and demand is _____.

Accepted Answer

A) 2.5; elastic 
B) 2.5; inelastic 
C) 0.4; elastic 
D) 0.4; inelastic 
A) 2.5; elastic 
B) 2.5; inelastic 
C) 0.4; elastic 
D) 0.4; inelastic

Question 15

Suppose the price of Cheerios rises by 25%, and the quantity of milk sold decreases by 50%. We know that the:

Accepted Answer

A) cross-price elasticity of demand between Cheerios and milk is -2. 
B) cross-price elasticity of demand between Cheerios and milk is -0.5. 
C) price elasticity of demand for milk is 2. 
D) cross-price elasticity of demand between Cheerios and milk is 2. 
A) cross-price elasticity of demand between Cheerios and milk is -2. 
B) cross-price elasticity of demand between Cheerios and milk is -0.5. 
C) price elasticity of demand for milk is 2. 
D) cross-price elasticity of demand between Cheerios and milk is 2.

Question 16

The price of chicken breast rises from $3.30 per pound to $3.63 per pound. In response to this price change, the quantity demanded for chicken breast falls by 40%. The absolute value of the price elasticity of demand for chicken breast is _____, and the price elasticity of demand is _____.

Accepted Answer

A) 0.25; elastic 
B) 0.25; inelastic 
C) 4; elastic 
D) 4; inelastic 
A) 0.25; elastic 
B) 0.25; inelastic 
C) 4; elastic 
D) 4; inelastic

Question 17

Which statement is TRUE?

Accepted Answer

A) If the income elasticity of demand is greater than zero, a good is inferior. 
B) If the income elasticity of demand is less than zero, the good is normal. 
C) The income elasticity of demand measures the responsiveness of quantity demanded to changes in consumers' incomes. 
D) The income elasticity of demand measures the responsiveness of consumers' incomes to changes in quantity demanded. 
A) If the income elasticity of demand is greater than zero, a good is inferior. 
B) If the income elasticity of demand is less than zero, the good is normal. 
C) The income elasticity of demand measures the responsiveness of quantity demanded to changes in consumers' incomes. 
D) The income elasticity of demand measures the responsiveness of consumers' incomes to changes in quantity demanded.

Question 18

The price of product C is cut by 10%. As a result, the quantity demanded of product D rises by 20%. The cross-price elasticity of demand between product C and product D is _____, and they are _____.

Accepted Answer

A) -0.75; complements 
B) -1.25; complements 
C) -2; complements 
D) 1.25; complements 
A) -0.75; complements 
B) -1.25; complements 
C) -2; complements 
D) 1.25; complements

Question 19

(Figure: Market for Avocados) The figure shows the market for avocados. Which of the following is correct about this market between points A and B?

Accepted Answer

A) The demand curve is elastic, and thus the seller loses revenue by raising price from $1.50 to $1.75. 
B) The demand curve is elastic, and thus the seller gains revenue by raising price from $1.50 to $1.75. 
C) The demand curve is inelastic, and thus the seller loses revenue by raising price from $1.50 to $1.75. 
D) The demand curve is inelastic, and thus the seller gains revenue by raising price from $1.50 to $1.75. 
A) The demand curve is elastic, and thus the seller loses revenue by raising price from $1.50 to $1.75. 
B) The demand curve is elastic, and thus the seller gains revenue by raising price from $1.50 to $1.75. 
C) The demand curve is inelastic, and thus the seller loses revenue by raising price from $1.50 to $1.75. 
D) The demand curve is inelastic, and thus the seller gains revenue by raising price from $1.50 to $1.75.

Question 20

(Figure: Supply Curves) The figure shows four different supply curves for four products: A, B, C and D. Which one of the supply curves probably belongs to an automobile producer who has a large inventory of cars?

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

Price elasticity of demand is calculated by dividing the _____ by the _____.

Suppose the cross-price elasticity of demand for apple sauce and avocados is 0.96, but the cross-price elasticity for soda and oranges is -0.80. This means that apple sauce and avocados are _____, while soda and oranges are _____.

Suppose the price of gasoline rises. As time passes, people adjust to the higher price, and the demand for gasoline becomes:

Telefon, a wireless communications company, tested the effect of a reduction in the price of its monthly service. Telefon lowered its rate from $36 to $30 per month and found that the number of users tripled. This means that the:

If your income decreases, and your consumption of hot cross buns increases, hot cross buns are considered a(n) _____ good.

Using the midpoint formula, calculate the price elasticity of supply for the following three products. Corn Squash Onions P1 0.4 0.2 0.8 P2 0.5 0.3 1 Q1 350 750 650 Q2 300 300 500

Suppose the price of real estate increases by 37.11% in New York City next year. If the quantity of new homes supplied does not change, the price elasticity of _____ will be perfectly _____ in New York City next year.

(Table: Martinez Family Household Income and Expenditures) Use Table: Martinez Family Household Income and Expenditures. The Martinez's income elasticity of demand for falafels, computed using the midpoint method, is:

If an increase in the price of coconut oil brings about an increase in total revenue, then the percent rise in price is _____ in magnitude than the percent decline in quantity demanded.

A straight-line demand curve with a constant price elasticity of demand:

Because demand curves are usually downward sloping, the price elasticity of demand is:

The price of milk at the local grocery store rises by 25%, and the quantity of milk demanded falls by 10%. The absolute value of the price elasticity of demand for milk is _____, and demand is _____.

Suppose the price of Cheerios rises by 25%, and the quantity of milk sold decreases by 50%. We know that the:

The price of chicken breast rises from $3.30 per pound to $3.63 per pound. In response to this price change, the quantity demanded for chicken breast falls by 40%. The absolute value of the price elasticity of demand for chicken breast is _____, and the price elasticity of demand is _____.

Which statement is TRUE?

The price of product C is cut by 10%. As a result, the quantity demanded of product D rises by 20%. The cross-price elasticity of demand between product C and product D is _____, and they are _____.

(Figure: Market for Avocados) The figure shows the market for avocados. Which of the following is correct about this market between points A and B?

(Figure: Supply Curves) The figure shows four different supply curves for four products: A, B, C and D. Which one of the supply curves probably belongs to an automobile producer who has a large inventory of cars?

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

Price elasticity of demand is calculated by dividing the _ by the _.

Suppose the cross-price elasticity of demand for apple sauce and avocados is 0.96, but the cross-price elasticity for soda and oranges is -0.80. This means that apple sauce and avocados are _, while soda and oranges are _.

Suppose the price of real estate increases by 37.11% in New York City next year. If the quantity of new homes supplied does not change, the price elasticity of _ will be perfectly _ in New York City next year.

The price of milk at the local grocery store rises by 25%, and the quantity of milk demanded falls by 10%. The absolute value of the price elasticity of demand for milk is _, and demand is _.

The price of chicken breast rises from $3.30 per pound to $3.63 per pound. In response to this price change, the quantity demanded for chicken breast falls by 40%. The absolute value of the price elasticity of demand for chicken breast is _, and the price elasticity of demand is _.

The price of product C is cut by 10%. As a result, the quantity demanded of product D rises by 20%. The cross-price elasticity of demand between product C and product D is _, and they are _.