Question 1

If a 10 percent cut in the price of video rentals at "That's Rentertainment" causes a 15 percent increase in the quantity of rentals demanded, then

Accepted Answer

A)  total revenue will decrease 
B)  demand is price inelastic within that price range 
C)  demand is price elastic within that range 
D)  demand is unit elastic within that range 
E)  total revenue will remain the same 
A)  total revenue will decrease 
B)  demand is price inelastic within that price range 
C)  demand is price elastic within that range 
D)  demand is unit elastic within that range 
E)  total revenue will remain the same

Question 2

If economists estimate the price elasticity of demand to be 0.75 for good X and 1.25 for good Y, then the government can raise the most revenue by taxing good Y.

Accepted Answer

A) True 
 B)False

Question 3

Which of the five goods, A to E, whose price elasticities of demand are shown in the choices below, is the best candidate to tax if the goal is to acquire maximum tax revenue?

Accepted Answer

A)  good A, with price elasticity of 0.90 
B)  good B, with price elasticity of 3.40 
C)  good C, with price elasticity of 1.25 
D)  good D, with price elasticity of 0.50 
E)  good E, with price elasticity of 1.00 
A)  good A, with price elasticity of 0.90 
B)  good B, with price elasticity of 3.40 
C)  good C, with price elasticity of 1.25 
D)  good D, with price elasticity of 0.50 
E)  good E, with price elasticity of 1.00

Question 4

In 1997 the price of a local telephone call from most pay phones rose from 15 cents to 25 cents. What effect do you think this will have on phone company revenues? Explain.

Accepted Answer

Since a local phone call is still a low-

Question 5

Which of the following is not an inferior good?

Accepted Answer

A)  navy beans 
B)  black and white television 
C)  cheap wine 
D)  used textbook 
E)  butter 
A)  navy beans 
B)  black and white television 
C)  cheap wine 
D)  used textbook 
E)  butter

Question 6

If the demand for videotapes tends to be elastic, then a decrease in videotape prices means that people spend more on video tapes than before.

Accepted Answer

A) True 
 B)False

Question 7

The best guess is that the cross elasticity between Rolaids and Tums, the two leading antacids in the country, is

Accepted Answer

A)  negative 
B)  positive 
C)  zero 
D)  one 
E)  infinite 
A)  negative 
B)  positive 
C)  zero 
D)  one 
E)  infinite

Question 8

The price elasticity of supply of tomatoes on the market day is zero.

Accepted Answer

A) True 
 B)False

Question 9

The text shows that income elasticity for books is 1.44. This means that

Accepted Answer

A)  books are income inelastic 
B)  books are price inelastic 
C)  there's a 144 percent increase in book sales when income rises 10 percent 
D)  there's a 44 percent increase in book sales when income rises 10 percent 
E)  there's a 1.44 percent increase in book sales when income rises 1 percent 
A)  books are income inelastic 
B)  books are price inelastic 
C)  there's a 144 percent increase in book sales when income rises 10 percent 
D)  there's a 44 percent increase in book sales when income rises 10 percent 
E)  there's a 1.44 percent increase in book sales when income rises 1 percent

Question 10

Suppose the value of income elasticity of demand for a private college education is equal to 1.5. This means that

Accepted Answer

A)  every $1 increase in income provides an incentive for a $1.50 increase in expenditures on private college education 
B)  every $1.50 increase in income provides an incentive for a $1 increase in expenditures on private college education 
C)  a 10 percent increase in income causes a 15 percent increase in the quantity of private college education purchased 
D)  a 15 percent increase in income causes a 10 percent increase in the quantity of private college education purchased 
E)  a 10 percent decrease in private college tuition will have a large enough income effect to increase spending on private college education by 15 percent 
A)  every $1 increase in income provides an incentive for a $1.50 increase in expenditures on private college education 
B)  every $1.50 increase in income provides an incentive for a $1 increase in expenditures on private college education 
C)  a 10 percent increase in income causes a 15 percent increase in the quantity of private college education purchased 
D)  a 15 percent increase in income causes a 10 percent increase in the quantity of private college education purchased 
E)  a 10 percent decrease in private college tuition will have a large enough income effect to increase spending on private college education by 15 percent

Question 11

The price elasticity of supply for toys is 0.36, so that a 1 percent increase in price would generate a

Accepted Answer

A)  0.36 percent increase in quantity supplied 
B)  3.60 percent increase in quantity supplied 
C)  0.36 percent decrease in quantity supplied 
D)  3.60 percent decrease in quantity supplied 
E)  1.36 percent increase in quantity supplied 
A)  0.36 percent increase in quantity supplied 
B)  3.60 percent increase in quantity supplied 
C)  0.36 percent decrease in quantity supplied 
D)  3.60 percent decrease in quantity supplied 
E)  1.36 percent increase in quantity supplied

Question 12

Consider the linear downward-sloping demand curve and the concept of elasticity. Which of the following statements is true?

Accepted Answer

A)  As quantity demanded increases, so does buyers' sensitivity to price. 
B)  When the price elasticity of demand is 1, consumers are indifferent to price changes. 
C)  The ratio of price to quantity demanded measures the price elasticity of demand. 
D)  As the price of a good increases, the price elasticity of demand increases. 
E)  When an individual buys more of a good, his or her price elasticity of demand for the good increases. 
A)  As quantity demanded increases, so does buyers' sensitivity to price. 
B)  When the price elasticity of demand is 1, consumers are indifferent to price changes. 
C)  The ratio of price to quantity demanded measures the price elasticity of demand. 
D)  As the price of a good increases, the price elasticity of demand increases. 
E)  When an individual buys more of a good, his or her price elasticity of demand for the good increases.

Question 13

In terms of economic elasticities, why would farmers be upset to see a bumper crop?

Accepted Answer

Because they know that the dem

Question 14

The more essential the good, the more price inelastic will be the demand for a good.

Accepted Answer

A) True 
 B)False

Question 15

The calculated value of a normal good's price elasticity is less than zero.

Accepted Answer

A) True 
 B)False

Question 16

In the long run, supply curves tend to be relatively elastic. This is because

Accepted Answer

A)  demand is also elastic in the long run 
B)  in the short run, fixed costs are fixed 
C)  in the long run, suppliers can adjust the quantities of all resources used in production 
D)  in the long run, suppliers can eliminate inefficient resources 
E)  in the long run, suppliers will enter and exit other industries 
A)  demand is also elastic in the long run 
B)  in the short run, fixed costs are fixed 
C)  in the long run, suppliers can adjust the quantities of all resources used in production 
D)  in the long run, suppliers can eliminate inefficient resources 
E)  in the long run, suppliers will enter and exit other industries

Question 17

If the income elasticity of demand for a Snickers bar is 0.59, then we know that within the relevant price range for Snickers bars, it is

Accepted Answer

A)  price elastic 
B)  price inelastic 
C)  income inelastic 
D)  income elastic 
E)  according to the economist's definition of inferior, an inferior good 
A)  price elastic 
B)  price inelastic 
C)  income inelastic 
D)  income elastic 
E)  according to the economist's definition of inferior, an inferior good

Question 18

Because suppliers can more readily adjust their output in the long run than in the short run, we expect price elasticity of supply to be

Accepted Answer

A)  negative in the long run and positive in the short run 
B)  positive in the long run and negative in the short run 
C)  greater than one in the short run and less than one in the long run 
D)  higher in the long run than in the short run 
E)  higher in the short run than in the long run 
A)  negative in the long run and positive in the short run 
B)  positive in the long run and negative in the short run 
C)  greater than one in the short run and less than one in the long run 
D)  higher in the long run than in the short run 
E)  higher in the short run than in the long run

Question 19

Brandon Wallace tutors economics students. He finds that when he charges $5 per hour, students demand atotal of 30 hours of tutoring per week; however, when he raises his rate to $8 per hour, they demand only26 hours of tutoring.
a. Calculate the price elasticity of demand for Brandon's tutoring.
 b. Is demand for Brandon's tutoring price elastic, unit elastic, or price inelastic? Which rate should he charge to maximize his revenue?
 c. Brandon finds that he can raise his rate to $10 per hour during the week before final exams and students will continue to demand 26 hours of tutoring. Explain why this is so.

Accepted Answer

a. E_d = (26 - 30) / [(26 + 30) / 2] ÷ ($8

Question 20

The averaging equation of elasticity solves the problem of

Accepted Answer

A)  whether price or quantity is in the numerator 
B)  which price or quantity to use as a base for calculating percentage changes 
C)  whether to use quantity supplied or demanded 
D)  removing the negative sign 
E)  whether to use income or price in the denominator 
A)  whether price or quantity is in the numerator 
B)  which price or quantity to use as a base for calculating percentage changes 
C)  whether to use quantity supplied or demanded 
D)  removing the negative sign 
E)  whether to use income or price in the denominator

If a 10 percent cut in the price of video rentals at "That's Rentertainment" causes a 15 percent increase in the quantity of rentals demanded, then

If economists estimate the price elasticity of demand to be 0.75 for good X and 1.25 for good Y, then the government can raise the most revenue by taxing good Y.

Which of the five goods, A to E, whose price elasticities of demand are shown in the choices below, is the best candidate to tax if the goal is to acquire maximum tax revenue?

In 1997 the price of a local telephone call from most pay phones rose from 15 cents to 25 cents. What effect do you think this will have on phone company revenues? Explain.

Which of the following is not an inferior good?

If the demand for videotapes tends to be elastic, then a decrease in videotape prices means that people spend more on video tapes than before.

The best guess is that the cross elasticity between Rolaids and Tums, the two leading antacids in the country, is

The price elasticity of supply of tomatoes on the market day is zero.

The text shows that income elasticity for books is 1.44. This means that

Suppose the value of income elasticity of demand for a private college education is equal to 1.5. This means that

The price elasticity of supply for toys is 0.36, so that a 1 percent increase in price would generate a

Consider the linear downward-sloping demand curve and the concept of elasticity. Which of the following statements is true?

In terms of economic elasticities, why would farmers be upset to see a bumper crop?

The more essential the good, the more price inelastic will be the demand for a good.

The calculated value of a normal good's price elasticity is less than zero.

In the long run, supply curves tend to be relatively elastic. This is because

If the income elasticity of demand for a Snickers bar is 0.59, then we know that within the relevant price range for Snickers bars, it is

Because suppliers can more readily adjust their output in the long run than in the short run, we expect price elasticity of supply to be

The averaging equation of elasticity solves the problem of

Introduction

Production Possibilities and Opportunity Costs

Demand and Supply

Happiness, Utility, and Consumer Choice

Price Ceilings and Price Floors

Entrepreneurship and Business Ownership

Costs of Production

Maximizing Profit

Identifying Markets and Market Structures

Price and Output in Monopoly, Monopolistic Competition, and Perfect Competition

Price and Output Determination Under Oligopoly

Antitrust and Regulation

Externalities, Market Failure, and Public Choice

Wage Rates in Competitive Labor Markets

Wages and Employment: Monopsony and Labor Unions

Interest, Rent, and Profit

Income Distribution and Poverty

International Trade

Exchange Rates, Balance of Payments, and International Debt

The Economic Problems of Less-Developed Economies

Filters

Exam 4: Elasticity

If a 10 percent cut in the price of video rentals at "That's Rentertainment" causes a 15 percent increase in the quantity of rentals demanded, then

If economists estimate the price elasticity of demand to be 0.75 for good X and 1.25 for good Y, then the government can raise the most revenue by taxing good Y.

Which of the five goods, A to E, whose price elasticities of demand are shown in the choices below, is the best candidate to tax if the goal is to acquire maximum tax revenue?

In 1997 the price of a local telephone call from most pay phones rose from 15 cents to 25 cents. What effect do you think this will have on phone company revenues? Explain.

Which of the following is not an inferior good?

If the demand for videotapes tends to be elastic, then a decrease in videotape prices means that people spend more on video tapes than before.

The best guess is that the cross elasticity between Rolaids and Tums, the two leading antacids in the country, is

The price elasticity of supply of tomatoes on the market day is zero.

The text shows that income elasticity for books is 1.44. This means that

Suppose the value of income elasticity of demand for a private college education is equal to 1.5. This means that

The price elasticity of supply for toys is 0.36, so that a 1 percent increase in price would generate a

Consider the linear downward-sloping demand curve and the concept of elasticity. Which of the following statements is true?

In terms of economic elasticities, why would farmers be upset to see a bumper crop?

The more essential the good, the more price inelastic will be the demand for a good.

The calculated value of a normal good's price elasticity is less than zero.

In the long run, supply curves tend to be relatively elastic. This is because

If the income elasticity of demand for a Snickers bar is 0.59, then we know that within the relevant price range for Snickers bars, it is

Because suppliers can more readily adjust their output in the long run than in the short run, we expect price elasticity of supply to be

The averaging equation of elasticity solves the problem of

Introduction

Production Possibilities and Opportunity Costs

Demand and Supply

Happiness, Utility, and Consumer Choice

Price Ceilings and Price Floors

Entrepreneurship and Business Ownership

Costs of Production

Maximizing Profit

Identifying Markets and Market Structures

Price and Output in Monopoly, Monopolistic Competition, and Perfect Competition

Price and Output Determination Under Oligopoly

Antitrust and Regulation

Externalities, Market Failure, and Public Choice

Wage Rates in Competitive Labor Markets

Wages and Employment: Monopsony and Labor Unions

Interest, Rent, and Profit

Income Distribution and Poverty

International Trade

Exchange Rates, Balance of Payments, and International Debt

The Economic Problems of Less-Developed Economies

Filters