Question 1

Which of the following statements about the price elasticity of demand is correct?

Accepted Answer

A) The price elasticity of demand for a good measures the willingness of buyers of the good to move away from the good as its price increases. 
B) Price elasticity of demand reflects the many economic, psychological, and social forces that shape consumer tastes. 
C) Other things equal, if good x has close substitutes and good y does not have close substitutes, then the demand for good x will be more elastic than the demand for good y. 
D) All of the above are correct. 
A) The price elasticity of demand for a good measures the willingness of buyers of the good to move away from the good as its price increases. 
B) Price elasticity of demand reflects the many economic, psychological, and social forces that shape consumer tastes. 
C) Other things equal, if good x has close substitutes and good y does not have close substitutes, then the demand for good x will be more elastic than the demand for good y. 
D) All of the above are correct.

Question 2

When demand is inelastic,a decrease in price increases total revenue.

Accepted Answer

A) True 
 B)False

Question 3

The greater the price elasticity of demand,the

Accepted Answer

A) more likely the product is a necessity. 
B) smaller the responsiveness of quantity demanded to a change in price. 
C) greater the percentage change in price over the percentage change in quantity demanded. 
D) greater the responsiveness of quantity demanded to a change in price. 
A) more likely the product is a necessity. 
B) smaller the responsiveness of quantity demanded to a change in price. 
C) greater the percentage change in price over the percentage change in quantity demanded. 
D) greater the responsiveness of quantity demanded to a change in price.

Question 4

Which of the following expressions represents a cross-price elasticity of demand?

Accepted Answer

A) percentage change in quantity demanded of apples divided by percentage change in quantity supplied of apples 
B) percentage change in quantity demanded of apples divided by percentage change in price of pears 
C) percentage change in price of apples divided by percentage change in quantity demanded of apples 
D) percentage change in quantity demanded of apples divided by percentage change in income 
A) percentage change in quantity demanded of apples divided by percentage change in quantity supplied of apples 
B) percentage change in quantity demanded of apples divided by percentage change in price of pears 
C) percentage change in price of apples divided by percentage change in quantity demanded of apples 
D) percentage change in quantity demanded of apples divided by percentage change in income

Question 5

When the local used bookstore prices economics books at $15.00 each,they generally sell 70 books per month.If they lower the price to $7.00,sales increase to 90 books per month.Given this information,we know that the price elasticity of demand for economics books is about

Accepted Answer

A) 2.91, and an increase in price from $7.00 to $15.00 results in an increase in total revenue. 
B) 2.91, and an increase in price from $7.00 to $15.00 results in a decrease in total revenue. 
C) 0.34, and an increase in price from $7.00 to $15.00 results in an increase in total revenue. 
D) 0.34, and an increase in price from $7.00 to $15.00 results in a decrease in total revenue. 
A) 2.91, and an increase in price from $7.00 to $15.00 results in an increase in total revenue. 
B) 2.91, and an increase in price from $7.00 to $15.00 results in a decrease in total revenue. 
C) 0.34, and an increase in price from $7.00 to $15.00 results in an increase in total revenue. 
D) 0.34, and an increase in price from $7.00 to $15.00 results in a decrease in total revenue.

Question 6

An increase in price causes an increase in total revenue when

Accepted Answer

A) demand is elastic. 
B) demand is inelastic. 
C) demand is unit elastic. 
D) All of the above are possible. 
A) demand is elastic. 
B) demand is inelastic. 
C) demand is unit elastic. 
D) All of the above are possible.

Question 7

Figure 5-8. A demand curve is shown on the graph below. On the graph, Q represents quantity demanded and P represents price.
  
-Refer to Figure 5-8.Using the midpoint method,between prices of $48 and $54,price elasticity of demand is about

Accepted Answer

A) 0.92. 
B) 3.89. 
C) 4.33. 
D) 5.67. 
A) 0.92. 
B) 3.89. 
C) 4.33. 
D) 5.67.

Question 8

Demand is inelastic if elasticity is

Accepted Answer

A) less than 1. 
B) equal to 1. 
C) greater than 1. 
D) equal to 0. 
A) less than 1. 
B) equal to 1. 
C) greater than 1. 
D) equal to 0.

Question 9

According to a Los Angeles Times article published in May 2005,John Felmy,chief economist at the American Petroleum Institute,asserts that the short-run price elasticity of demand for gasoline is about

Accepted Answer

A) 0.10. 
B) 0.25. 
C) 0.50. 
D) 1.00. 
A) 0.10. 
B) 0.25. 
C) 0.50. 
D) 1.00.

Question 10

Demand for a good is said to be inelastic if the quantity demanded increases substantially when the price falls by a small amount.

Accepted Answer

A) True 
 B)False

Question 11

Figure 5-1
  
-Refer to Figure 5-1.The section of the demand curve labeled A represents the

Accepted Answer

A) elastic section of the demand curve. 
B) inelastic section of the demand curve. 
C) unit elastic section of the demand curve. 
D) perfectly elastic section of the demand curve. 
A) elastic section of the demand curve. 
B) inelastic section of the demand curve. 
C) unit elastic section of the demand curve. 
D) perfectly elastic section of the demand curve.

Question 12

Assume that a 4 percent increase in income results in a 2 percent increase in the quantity demanded of a good.The income elasticity of demand for the good is

Accepted Answer

A) negative and therefore the good is an inferior good. 
B) negative and therefore the good is a normal good. 
C) positive and therefore the good is a normal good. 
D) positive and therefore the good is an inferior good. 
A) negative and therefore the good is an inferior good. 
B) negative and therefore the good is a normal good. 
C) positive and therefore the good is a normal good. 
D) positive and therefore the good is an inferior good.

Question 13

The income elasticity of demand is defined as the percentage change in quantity demanded divided by the percentage change in income.

Accepted Answer

A) True 
 B)False

Question 14

On a certain supply curve,one point is (quantity supplied = 200,price = $4.00)and another point is (quantity supplied = 250,price = $4.50).Using the midpoint method,the price elasticity of supply is about

Accepted Answer

A) 0.22. 
B) 0.53. 
C) 1.89. 
D) 2.22. 
A) 0.22. 
B) 0.53. 
C) 1.89. 
D) 2.22.

Question 15

Cross-price elasticity of demand measures how the quantity demanded of one good changes as the price of another good changes.

Accepted Answer

A) True 
 B)False

Question 16

Demand is elastic if elasticity is

Accepted Answer

A) less than 1. 
B) equal to 1. 
C) equal to 0. 
D) greater than 1. 
A) less than 1. 
B) equal to 1. 
C) equal to 0. 
D) greater than 1.

Question 17

The midpoint method for calculating elasticities is convenient in that it allows us to

Accepted Answer

A) ignore the percentage change in quantity demanded and instead focus entirely on the percentage change in price. 
B) calculate the same value for the elasticity, regardless of whether the price increases or decreases. 
C) assume that sellers' total revenue stays constant when the price changes. 
D) restrict all elasticity values to between 0 and 1. 
A) ignore the percentage change in quantity demanded and instead focus entirely on the percentage change in price. 
B) calculate the same value for the elasticity, regardless of whether the price increases or decreases. 
C) assume that sellers' total revenue stays constant when the price changes. 
D) restrict all elasticity values to between 0 and 1.

Question 18

Holding all other forces constant,if raising the price of a good leads to a fall in total revenue,then the demand for the good must be

Accepted Answer

A) unit elastic. 
B) inelastic. 
C) elastic. 
D) None of the above is correct, since a price increase always leads to an increase in total revenue. 
A) unit elastic. 
B) inelastic. 
C) elastic. 
D) None of the above is correct, since a price increase always leads to an increase in total revenue.

Question 19

Total revenue

Accepted Answer

A) always increases as price increases. 
B) increases as price increases, as long as demand is elastic. 
C) decreases as price increases, as long as demand is inelastic. 
D) remains unchanged as price increases when demand is unit elastic. 
A) always increases as price increases. 
B) increases as price increases, as long as demand is elastic. 
C) decreases as price increases, as long as demand is inelastic. 
D) remains unchanged as price increases when demand is unit elastic.

Question 20

If the price elasticity of supply for wheat is less than 1,then the supply of wheat is

Accepted Answer

A) inelastic. 
B) elastic. 
C) unit elastic. 
D) quite sensitive to change in price. 
A) inelastic. 
B) elastic. 
C) unit elastic. 
D) quite sensitive to change in price.

Exam 5: Elasticity and Its Applications

Which of the following statements about the price elasticity of demand is correct?

When demand is inelastic,a decrease in price increases total revenue.

The greater the price elasticity of demand,the

Which of the following expressions represents a cross-price elasticity of demand?

When the local used bookstore prices economics books at $15.00 each,they generally sell 70 books per month.If they lower the price to $7.00,sales increase to 90 books per month.Given this information,we know that the price elasticity of demand for economics books is about

An increase in price causes an increase in total revenue when

Figure 5-8. A demand curve is shown on the graph below. On the graph, Q represents quantity demanded and P represents price. -Refer to Figure 5-8.Using the midpoint method,between prices of $48 and $54,price elasticity of demand is about

Demand is inelastic if elasticity is

According to a Los Angeles Times article published in May 2005,John Felmy,chief economist at the American Petroleum Institute,asserts that the short-run price elasticity of demand for gasoline is about

Demand for a good is said to be inelastic if the quantity demanded increases substantially when the price falls by a small amount.

Figure 5-1 -Refer to Figure 5-1.The section of the demand curve labeled A represents the

Assume that a 4 percent increase in income results in a 2 percent increase in the quantity demanded of a good.The income elasticity of demand for the good is

The income elasticity of demand is defined as the percentage change in quantity demanded divided by the percentage change in income.

On a certain supply curve,one point is (quantity supplied = 200,price = $4.00)and another point is (quantity supplied = 250,price = $4.50).Using the midpoint method,the price elasticity of supply is about

Cross-price elasticity of demand measures how the quantity demanded of one good changes as the price of another good changes.

Demand is elastic if elasticity is

The midpoint method for calculating elasticities is convenient in that it allows us to

Holding all other forces constant,if raising the price of a good leads to a fall in total revenue,then the demand for the good must be

Total revenue

If the price elasticity of supply for wheat is less than 1,then the supply of wheat is

Ten Principles of Economics

Thinking Like an Economist

Interdependence and the Gains From Trade

The Market Forces of Supply and Demand

Supply, demand, and Government Policies

Consumers, producers, and the Efficiency of Markets

Application: the Costs of Taxation

Application: International Trade

Externalities

Public Goods and Common Resources

The Design of the Tax System

The Costs of Production

Firms in Competitive Markets

Monopoly

Oligopoly

Monopolistic Competition

The Markets for the Factors of Production

Earnings and Discrimination

Income Inequality and Poverty

The Theory of Consumer Choice

Frontiers of Microeconomics

Measuring a Nations Income

Measuring the Cost of Living

Production and Growth

Saving, investment, and the Financial System

The Basic Tools of Finance

Unemployment

The Monetary System

Money Growth and Inflation

Open-Economy Macroeconomics: Basic Concepts

A Macroeconomic Theory of the Open Economy

Aggregate Demand and Aggregate Supply

The Influence of Monetary and Fiscal Policy on Aggregate Demand

The Short Run Trade Off Between Inflation and Unemployment

Five Debates Over Macroeconomic Policy

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