Question 1

Cross elasticity measures the consumer's change in demand brought about by a change in income.

Accepted Answer

A) True 
 B)False

Question 2

Suppose the short-run price elasticity of demand for airline travel is 0.50, while its long- run elasticity is 2.50. This means that for 100 short-notice travelers compared to 100travelers who book well in advance, a significant increase in airline fares now will causeairlines to

Accepted Answer

A)  collect less revenue from the short-notice travelers than from the travelers who book well in advance 
B)  gain travelers who book well in advance but lose short-notice travelers 
C)  lose more revenue from short-notice travelers than from travelers who book well in advance 
D)  collect less revenue from the travelers who book well in advance than from the short- notice travelers 
E)  lose more short-notice travelers than travelers who book well in advance 
A)  collect less revenue from the short-notice travelers than from the travelers who book well in advance 
B)  gain travelers who book well in advance but lose short-notice travelers 
C)  lose more revenue from short-notice travelers than from travelers who book well in advance 
D)  collect less revenue from the travelers who book well in advance than from the short- notice travelers 
E)  lose more short-notice travelers than travelers who book well in advance

Question 3

Elasticity is a useful tool in learning more about the character of demand. It depicts

Accepted Answer

A)  the way to find market equilibrium 
B)  a ratio of percentage changes 
C)  how easily prices adjust to changing market (supply and demand) conditions 
D)  how price changes as quantity demanded changes 
E)  how consumers react to shifts in demand 
A)  the way to find market equilibrium 
B)  a ratio of percentage changes 
C)  how easily prices adjust to changing market (supply and demand) conditions 
D)  how price changes as quantity demanded changes 
E)  how consumers react to shifts in demand

Question 4

If two goods are complementary,

Accepted Answer

A)  a decrease in the price of one good will lead to a decrease in the demand for the other 
B)  the cross elasticity of demand is zero 
C)  an increase in the price of one good will lead to an increase in the demand for the other 
D)  the cross elasticity of demand is positive 
E)  a decrease in the price of one good will lead to an increase in the demand for the other 
A)  a decrease in the price of one good will lead to a decrease in the demand for the other 
B)  the cross elasticity of demand is zero 
C)  an increase in the price of one good will lead to an increase in the demand for the other 
D)  the cross elasticity of demand is positive 
E)  a decrease in the price of one good will lead to an increase in the demand for the other

Question 5

When a 2 percent increase in the price of automobiles generates a greater than 2 percent decrease in quantity demanded, then

Accepted Answer

A)  price elasticity of demand for automobiles is less than one 
B)  total revenue increases 
C)  demand is price inelastic 
D)  demand is unit elastic 
E)  total revenue decreases 
A)  price elasticity of demand for automobiles is less than one 
B)  total revenue increases 
C)  demand is price inelastic 
D)  demand is unit elastic 
E)  total revenue decreases

Question 6

When demand curves shift to the left, buyers become less sensitive to price increases because they consume fewer of these goods.

Accepted Answer

A) True 
 B)False

Question 7

Imagine the government would like to increase revenues by taxing the people. If they place a unit tax on certain goods, this is equivalent to

Accepted Answer

A)  c and e 
B)  shifting the demand curve to the right 
C)  reducing everyone's income by the amount of the unit tax 
D)  raising the fixed costs of producers 
E)  shifting the supply curve to the left 
A)  c and e 
B)  shifting the demand curve to the right 
C)  reducing everyone's income by the amount of the unit tax 
D)  raising the fixed costs of producers 
E)  shifting the supply curve to the left

Question 8

Market-day supply elasticities can vary between 0 and 1.

Accepted Answer

A) True 
 B)False

Question 9

If the income elasticity for a particular good is 0.8, we would expect to see that good

Accepted Answer

A)  taxed more often 
B)  consumed in wealthier countries 
C)  on supermarket shelves 
D)  consumed in high-income neighborhoods 
E)  consumed in low-income communities 
A)  taxed more often 
B)  consumed in wealthier countries 
C)  on supermarket shelves 
D)  consumed in high-income neighborhoods 
E)  consumed in low-income communities

Question 10

Price elasticities of supply are always

Accepted Answer

A)  equal to price elasticities of demand when the market is in equilibrium 
B)  negative 
C)  positive 
D)  greater than one 
E)  less than one 
A)  equal to price elasticities of demand when the market is in equilibrium 
B)  negative 
C)  positive 
D)  greater than one 
E)  less than one

Question 11

Governments seeking to maximize total tax revenue will place unit taxes on goods with the

Accepted Answer

A)  b and c 
B)  lowest income elasticity 
C)  highest cross elasticity 
D)  lowest price elasticity 
E)  fewest complements 
A)  b and c 
B)  lowest income elasticity 
C)  highest cross elasticity 
D)  lowest price elasticity 
E)  fewest complements

Question 12

a. What effect will a tax on cigarettes have on the consumption of cigarettes and on the wallets of smokers who are addicted to cigarettes?
 b. What effect will a tax on cigarettes have on the decision of teenagers to smoke?
 c. Describe the cross elasticity between cigarettes and the price of a Nicoderm patch, which is used to fight the craving for nicotine.

Accepted Answer

a. Addicted smokers have an inelastic de

Question 13

Picture a linear downward-sloping demand curve. If the price continues to fall, price elasticity will

Accepted Answer

A)  decrease 
B)  increase 
C)  remain unchanged 
D)  approach infinity 
E)  increase or decrease, depending on the character of the good 
A)  decrease 
B)  increase 
C)  remain unchanged 
D)  approach infinity 
E)  increase or decrease, depending on the character of the good

Question 14

Engel's law states that income elasticities are

Accepted Answer

A)  negative for normal goods 
B)  positive for inferior goods 
C)  higher for food in industrialized nations than in nonindustrialized nations 
D)  less than one for food 
E)  usually about equal to one 
A)  negative for normal goods 
B)  positive for inferior goods 
C)  higher for food in industrialized nations than in nonindustrialized nations 
D)  less than one for food 
E)  usually about equal to one

Question 15

A person's sensitivity to a price change for a good, such as breakfast cereal, depends on all of the following except the

Accepted Answer

A)  price of the good 
B)  cost of producing the good 
C)  person's income 
D)  availability and closeness of substitutes 
E)  time the person has to adjust to the price change 
A)  price of the good 
B)  cost of producing the good 
C)  person's income 
D)  availability and closeness of substitutes 
E)  time the person has to adjust to the price change

Question 16

If the demand for bus transportation in a city is inelastic, then the city should lower the price to increase revenue.

Accepted Answer

A) True 
 B)False

Question 17

Goods that are income elastic are often referred to as luxury goods.

Accepted Answer

A) True 
 B)False

Question 18

Tax revenue is greater the more price elastic the demand curve.

Accepted Answer

A) True 
 B)False

Question 19

Remember the fish market? On the market day, the supply curve is ____________ but over the long run the supply curve is quite __________.

Accepted Answer

A)  income inelastic; elastic 
B)  elastic; inelastic 
C)  inelastic; elastic 
D)  fixed; variable 
E)  variable; fixed 
A)  income inelastic; elastic 
B)  elastic; inelastic 
C)  inelastic; elastic 
D)  fixed; variable 
E)  variable; fixed

Question 20

If two goods are complementary, the cross elasticity will be negative.

Accepted Answer

A) True 
 B)False

Cross elasticity measures the consumer's change in demand brought about by a change in income.

Suppose the short-run price elasticity of demand for airline travel is 0.50, while its long- run elasticity is 2.50. This means that for 100 short-notice travelers compared to 100travelers who book well in advance, a significant increase in airline fares now will causeairlines to

Elasticity is a useful tool in learning more about the character of demand. It depicts

If two goods are complementary,

When a 2 percent increase in the price of automobiles generates a greater than 2 percent decrease in quantity demanded, then

When demand curves shift to the left, buyers become less sensitive to price increases because they consume fewer of these goods.

Imagine the government would like to increase revenues by taxing the people. If they place a unit tax on certain goods, this is equivalent to

Market-day supply elasticities can vary between 0 and 1.

If the income elasticity for a particular good is 0.8, we would expect to see that good

Price elasticities of supply are always

Governments seeking to maximize total tax revenue will place unit taxes on goods with the

Picture a linear downward-sloping demand curve. If the price continues to fall, price elasticity will

Engel's law states that income elasticities are

A person's sensitivity to a price change for a good, such as breakfast cereal, depends on all of the following except the

If the demand for bus transportation in a city is inelastic, then the city should lower the price to increase revenue.

Goods that are income elastic are often referred to as luxury goods.

Tax revenue is greater the more price elastic the demand curve.

Remember the fish market? On the market day, the supply curve is __ but over the long run the supply curve is quite .

If two goods are complementary, the cross elasticity will be negative.

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

Cross elasticity measures the consumer's change in demand brought about by a change in income.

Suppose the short-run price elasticity of demand for airline travel is 0.50, while its long- run elasticity is 2.50. This means that for 100 short-notice travelers compared to 100travelers who book well in advance, a significant increase in airline fares now will causeairlines to

Elasticity is a useful tool in learning more about the character of demand. It depicts

If two goods are complementary,

When a 2 percent increase in the price of automobiles generates a greater than 2 percent decrease in quantity demanded, then

When demand curves shift to the left, buyers become less sensitive to price increases because they consume fewer of these goods.

Imagine the government would like to increase revenues by taxing the people. If they place a unit tax on certain goods, this is equivalent to

Market-day supply elasticities can vary between 0 and 1.

If the income elasticity for a particular good is 0.8, we would expect to see that good

Price elasticities of supply are always

Governments seeking to maximize total tax revenue will place unit taxes on goods with the

Picture a linear downward-sloping demand curve. If the price continues to fall, price elasticity will

Engel's law states that income elasticities are

A person's sensitivity to a price change for a good, such as breakfast cereal, depends on all of the following except the

If the demand for bus transportation in a city is inelastic, then the city should lower the price to increase revenue.

Goods that are income elastic are often referred to as luxury goods.

Tax revenue is greater the more price elastic the demand curve.

Remember the fish market? On the market day, the supply curve is ____________ but over the long run the supply curve is quite __________.

If two goods are complementary, the cross elasticity will be negative.

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

Remember the fish market? On the market day, the supply curve is __ but over the long run the supply curve is quite .