Question 1

Assume the marginal revenue from each additional unit of a good sold is 0.In this case,we can conclude that demand for the good is:

Accepted Answer

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

Question 2

The total revenue from the sale of a good or service is calculated by multiplying the price paid by the number of units sold.

Accepted Answer

A) True 
 B)False

Question 3

If electricity demand is inelastic,and electric rates increase,which of the following is likely to occur?

Accepted Answer

A) Quantity demanded will fall by a relatively large amount. 
B) Quantity demanded will fall by a relatively small amount. 
C) Quantity demanded will rise in the short run, but fall in the long run. 
D) Quantity demanded will fall in the short run, but rise in the long run. 
A) Quantity demanded will fall by a relatively large amount. 
B) Quantity demanded will fall by a relatively small amount. 
C) Quantity demanded will rise in the short run, but fall in the long run. 
D) Quantity demanded will fall in the short run, but rise in the long run.

Question 4

As we move down a particular indifference curve,if the "marginal rate of substitution" between the two goods does not change we can conclude that the two goods are:

Accepted Answer

A) perfect substitutes. 
B) perfect complements. 
C) totally unrelated. 
D) both inferior goods. 
A) perfect substitutes. 
B) perfect complements. 
C) totally unrelated. 
D) both inferior goods.

Question 5

When calculating the arc elasticity of demand,the percentage change in price (quantity)should be based on the average of the starting and ending prices (quantities).

Accepted Answer

A) True 
 B)False

Question 6

As the percentage of the consumer's income accounted for by a particular good decreases,demand for the good will:

Accepted Answer

A) tend to become more price elastic. 
B) tend to become more price inelastic. 
C) tend to become closer to unit elastic. 
D) tend toward being perfectly elastic. 
A) tend to become more price elastic. 
B) tend to become more price inelastic. 
C) tend to become closer to unit elastic. 
D) tend toward being perfectly elastic.

Question 7

When demand is unit elastic,an increase in price will cause total revenue to increase,stay the same,or decrease,depending on the corresponding change in quantity demanded.

Accepted Answer

A) True 
 B)False

Question 8

When calculating the price elasticity of demand,which of the following conditions must be satisfied?

Accepted Answer

A) All other factors that influence demand must be held constant. 
B) Prices of related goods must be held constant but all other factors must be allowed to vary. 
C) Prices of related goods must be allowed to vary but all other factors must be held constant. 
D) All other factors than influence demand must be allowed to vary. 
A) All other factors that influence demand must be held constant. 
B) Prices of related goods must be held constant but all other factors must be allowed to vary. 
C) Prices of related goods must be allowed to vary but all other factors must be held constant. 
D) All other factors than influence demand must be allowed to vary.

Question 9

Over time,the price of personal computers has fallen dramatically.All else constant,this would lead us to expect that demand for personal computers has become more price elastic.

Accepted Answer

A) True 
 B)False

Question 10

If the local pizzeria raises the price of a medium pizza from $6 to $10 and quantity demanded falls from 700 pizzas a night to 100 pizzas a night,the arc price elasticity of demand for pizzas is:

Accepted Answer

A) 0.67. 
B) 1.5. 
C) 2.0. 
D) 3.0. 
A) 0.67. 
B) 1.5. 
C) 2.0. 
D) 3.0.

Question 11

In order to ensure consistency across goods and services,elasticities should always be calculated based on absolute changes in quantity demanded.

Accepted Answer

A) True 
 B)False

Question 12

The price elasticity of demand is calculated as:

Accepted Answer

A) the change in price divided by the change in quantity demanded. 
B) the change in quantity demanded divided by the change in price. 
C) the percentage change in price divided by the percentage change in quantity demanded. 
D) the percentage change in quantity demanded divided by the percentage change in price. 
A) the change in price divided by the change in quantity demanded. 
B) the change in quantity demanded divided by the change in price. 
C) the percentage change in price divided by the percentage change in quantity demanded. 
D) the percentage change in quantity demanded divided by the percentage change in price.

Question 13

Assume the demand for a good is price inelastic,i.e.,ed < 1 (in absolute value).This means that if price decreases by 50 percent,quantity demanded will:

Accepted Answer

A) increase by more than 50 percent. 
B) decrease by more than 50 percent. 
C) increase by less than 50 percent. 
D) decrease by less than 50 percent. 
A) increase by more than 50 percent. 
B) decrease by more than 50 percent. 
C) increase by less than 50 percent. 
D) decrease by less than 50 percent.

Question 14

Why is the price elasticity of demand a relative measure? That is,why is elasticity measured in percentage terms rather than in absolute terms?

Accepted Answer

A) So the coefficient of elasticity will not be dependent on the physical units of the good. 
B) Because absolute measures do not account for the direction of the change in quantity. 
C) So that the coefficient of elasticity will not be negative. 
D) Because the absolute price or quantity demanded of a product is irrelevant to the elasticity measure. 
A) So the coefficient of elasticity will not be dependent on the physical units of the good. 
B) Because absolute measures do not account for the direction of the change in quantity. 
C) So that the coefficient of elasticity will not be negative. 
D) Because the absolute price or quantity demanded of a product is irrelevant to the elasticity measure.

Question 15

When calculating the price elasticity of demand,it is assumed that all of the other determinants of demand are to be held constant.

Accepted Answer

A) True 
 B)False

Question 16

When demand is inelastic and price decreases:

Accepted Answer

A) the effect of the decrease in price on total revenue dominates the effect of the increase in quantity demanded on total revenue; overall total revenue declines. 
B) the effect of the increase in quantity demanded on total revenue dominates the effect of the decrease in price on total revenue; overall total revenue increases. 
C) the effects of the decrease in price on total revenue and the corresponding increase in quantity demanded on total revenue perfectly offset one another; overall total revenue remains unchanged. 
D) quantity demanded and total revenue fall to zero. 
A) the effect of the decrease in price on total revenue dominates the effect of the increase in quantity demanded on total revenue; overall total revenue declines. 
B) the effect of the increase in quantity demanded on total revenue dominates the effect of the decrease in price on total revenue; overall total revenue increases. 
C) the effects of the decrease in price on total revenue and the corresponding increase in quantity demanded on total revenue perfectly offset one another; overall total revenue remains unchanged. 
D) quantity demanded and total revenue fall to zero.

Question 17

The price elasticity of demand is measured as the percentage change in price divided by the percentage change in quantity demanded.

Accepted Answer

A) True 
 B)False

Question 18

Assume the income elasticity of a good has been calculated to be +0.83.Based on this information,we can infer that the good is:

Accepted Answer

A) a normal good and a luxury. 
B) an inferior good and a necessity. 
C) a normal good and a necessity. 
D) an inferior good and a luxury. 
A) a normal good and a luxury. 
B) an inferior good and a necessity. 
C) a normal good and a necessity. 
D) an inferior good and a luxury.

Question 19

Assume that when the price of good Z is increased from $5 to $6,the total revenue earned increases from $600 to $690.Based on this information,we can conclude that over this range,demand for Z is:

Accepted Answer

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

Question 20

When the government decides to impose a tax on sellers of a good or service,sellers try to pass the tax on to consumers by raising the price of the good being sold.Assume the government decides to place a $1 tax on each unit of a good sold,e.g.,tires.Using the simple model of supply and demand,illustrate what would happen to the price and quantity of tires sold.Would the amount of tax paid by the consumer (as opposed to the producer)be greater when demand is elastic or inelastic? Why?

Accepted Answer

The imposition of the tax would cause th

Assume the marginal revenue from each additional unit of a good sold is 0.In this case,we can conclude that demand for the good is:

The total revenue from the sale of a good or service is calculated by multiplying the price paid by the number of units sold.

If electricity demand is inelastic,and electric rates increase,which of the following is likely to occur?

As we move down a particular indifference curve,if the "marginal rate of substitution" between the two goods does not change we can conclude that the two goods are:

When calculating the arc elasticity of demand,the percentage change in price (quantity)should be based on the average of the starting and ending prices (quantities).

As the percentage of the consumer's income accounted for by a particular good decreases,demand for the good will:

When demand is unit elastic,an increase in price will cause total revenue to increase,stay the same,or decrease,depending on the corresponding change in quantity demanded.

When calculating the price elasticity of demand,which of the following conditions must be satisfied?

Over time,the price of personal computers has fallen dramatically.All else constant,this would lead us to expect that demand for personal computers has become more price elastic.

If the local pizzeria raises the price of a medium pizza from $6 to $10 and quantity demanded falls from 700 pizzas a night to 100 pizzas a night,the arc price elasticity of demand for pizzas is:

In order to ensure consistency across goods and services,elasticities should always be calculated based on absolute changes in quantity demanded.

The price elasticity of demand is calculated as:

Assume the demand for a good is price inelastic,i.e.,ed < 1 (in absolute value).This means that if price decreases by 50 percent,quantity demanded will:

Why is the price elasticity of demand a relative measure? That is,why is elasticity measured in percentage terms rather than in absolute terms?

When calculating the price elasticity of demand,it is assumed that all of the other determinants of demand are to be held constant.

When demand is inelastic and price decreases:

The price elasticity of demand is measured as the percentage change in price divided by the percentage change in quantity demanded.

Assume the income elasticity of a good has been calculated to be +0.83.Based on this information,we can infer that the good is:

Assume that when the price of good Z is increased from $5 to $6,the total revenue earned increases from $600 to $690.Based on this information,we can conclude that over this range,demand for Z is:

Managers and Economics

Demand, supply, and Equilibrium Prices

Techniques for Understanding Consumer Demand and Behavior

Production and Cost Analysis in the Short Run

Production and Cost Analysis in the Long Run

Market Structure: Perfect Competition

Market Structure: Monopoly and Monopolistic Competition

Market Structure: Oligopoly

Pricing Strategies for the Firm

Measuring Macroeconomic Activity

Spending by Individuals, firms, and Governments on Real Goods and Services

The Role of Money in the Macro Economy

The Aggregate Model of the Macro Economy

International and Balance of Payments Issues in the Macro Economy

Combining Micro and Macro Analysis for Managerial Decision Making

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Exam 3: Demand Elasticities

Assume the marginal revenue from each additional unit of a good sold is 0.In this case,we can conclude that demand for the good is:

The total revenue from the sale of a good or service is calculated by multiplying the price paid by the number of units sold.

If electricity demand is inelastic,and electric rates increase,which of the following is likely to occur?

As we move down a particular indifference curve,if the "marginal rate of substitution" between the two goods does not change we can conclude that the two goods are:

When calculating the arc elasticity of demand,the percentage change in price (quantity)should be based on the average of the starting and ending prices (quantities).

As the percentage of the consumer's income accounted for by a particular good decreases,demand for the good will:

When demand is unit elastic,an increase in price will cause total revenue to increase,stay the same,or decrease,depending on the corresponding change in quantity demanded.

When calculating the price elasticity of demand,which of the following conditions must be satisfied?

Over time,the price of personal computers has fallen dramatically.All else constant,this would lead us to expect that demand for personal computers has become more price elastic.

If the local pizzeria raises the price of a medium pizza from $6 to $10 and quantity demanded falls from 700 pizzas a night to 100 pizzas a night,the arc price elasticity of demand for pizzas is:

In order to ensure consistency across goods and services,elasticities should always be calculated based on absolute changes in quantity demanded.

The price elasticity of demand is calculated as:

Assume the demand for a good is price inelastic,i.e.,ed < 1 (in absolute value).This means that if price decreases by 50 percent,quantity demanded will:

Why is the price elasticity of demand a relative measure? That is,why is elasticity measured in percentage terms rather than in absolute terms?

When calculating the price elasticity of demand,it is assumed that all of the other determinants of demand are to be held constant.

When demand is inelastic and price decreases:

The price elasticity of demand is measured as the percentage change in price divided by the percentage change in quantity demanded.

Assume the income elasticity of a good has been calculated to be +0.83.Based on this information,we can infer that the good is:

Assume that when the price of good Z is increased from $5 to $6,the total revenue earned increases from $600 to $690.Based on this information,we can conclude that over this range,demand for Z is:

Managers and Economics

Demand, supply, and Equilibrium Prices

Techniques for Understanding Consumer Demand and Behavior

Production and Cost Analysis in the Short Run

Production and Cost Analysis in the Long Run

Market Structure: Perfect Competition

Market Structure: Monopoly and Monopolistic Competition

Market Structure: Oligopoly

Pricing Strategies for the Firm

Measuring Macroeconomic Activity

Spending by Individuals, firms, and Governments on Real Goods and Services

The Role of Money in the Macro Economy

The Aggregate Model of the Macro Economy

International and Balance of Payments Issues in the Macro Economy

Combining Micro and Macro Analysis for Managerial Decision Making

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