Question 1

If demand is elastic, a rise in price will decrease total expenditure.

Accepted Answer

A) True 
 B)False

Question 2

Hot dogs and hot dog buns are found to be related by the cross elasticity of demand.If they are complementary goods, the cross elasticity will be

Accepted Answer

A) positive. 
B) equal to zero. 
C) negative. 
D) unknown. 
A) positive. 
B) equal to zero. 
C) negative. 
D) unknown.

Question 3

Which of the following will lead to a movement along the same demand curve?

Accepted Answer

A) Changes in income. 
B) Changes in the price of substitute goods. 
C) Changes in the price of the product. 
D) Changes in the preference of the consumer. 
A) Changes in income. 
B) Changes in the price of substitute goods. 
C) Changes in the price of the product. 
D) Changes in the preference of the consumer.

Question 4

The measure used to determine whether two products are substitutes or complements is called

Accepted Answer

A) price elasticity of demand. 
B) income elasticity of demand. 
C) cross elasticity of demand. 
D) inverse elasticity of demand. 
A) price elasticity of demand. 
B) income elasticity of demand. 
C) cross elasticity of demand. 
D) inverse elasticity of demand.

Question 5

Suppose that the supply of insulin is perfectly elastic and the demand for insulin perfectly inelastic.Then the result of an excise tax would be

Accepted Answer

A) a significant increase in government revenue and a significant decrease in the quantity consumed. 
B) a significant decrease in the quantity consumed with no change in government revenue. 
C) a significant increase in government revenue and no change in the quantity consumed. 
D) no increase in government revenue and no change in the quantity consumed. 
A) a significant increase in government revenue and a significant decrease in the quantity consumed. 
B) a significant decrease in the quantity consumed with no change in government revenue. 
C) a significant increase in government revenue and no change in the quantity consumed. 
D) no increase in government revenue and no change in the quantity consumed.

Question 6

Since an individual spends a small share of her income on salt, the elasticity of demand is likely to be low.

Accepted Answer

A) True 
 B)False

Question 7

If the price of gasoline rises by 20 percent and consumption of gasoline falls 5 percent,

Accepted Answer

A) demand is elastic. 
B) demand is unit-elastic. 
C) demand is inelastic. 
D) elasticity of demand cannot be calculated. 
A) demand is elastic. 
B) demand is unit-elastic. 
C) demand is inelastic. 
D) elasticity of demand cannot be calculated.

Question 8

If the cross elasticity of demand for potato chips and pretzels equals 1.5,

Accepted Answer

A) potato chips and pretzels must both be luxury goods. 
B) either potato chips or pretzels must be a luxury good, and both may be luxury goods. 
C) potato chips and pretzels must be substitutes. 
D) potato chips and pretzels must be complements. 
A) potato chips and pretzels must both be luxury goods. 
B) either potato chips or pretzels must be a luxury good, and both may be luxury goods. 
C) potato chips and pretzels must be substitutes. 
D) potato chips and pretzels must be complements.

Question 9

If a 10 percent rise in price leads to a reduction in quantity demanded of more than 10 percent,

Accepted Answer

A) demand is elastic. 
B) demand is inelastic. 
C) elasticity of demand is unitary. 
D) None of the above is correct. 
A) demand is elastic. 
B) demand is inelastic. 
C) elasticity of demand is unitary. 
D) None of the above is correct.

Question 10

Cross elasticity of demand for

Accepted Answer

A) substitutes will normally be positive. 
B) complements will normally be positive. 
C) substitutes will normally be negative. 
D) complements will normally be infinite. 
A) substitutes will normally be positive. 
B) complements will normally be positive. 
C) substitutes will normally be negative. 
D) complements will normally be infinite.

Question 11

After a number of acquisitions, Air American controls 75 percent of the U.S.market.It has been charged with "monopolizing" the U.S.air markets by the Justice Department.In its defense, the airline would want to introduce evidence that

Accepted Answer

A) cross elasticities for air and rail travel were very high. 
B) income elasticities for air and rail travel were very high. 
C) price elasticity for air, rail, and auto travel were negative. 
D) management always considered the public interest when setting prices. 
A) cross elasticities for air and rail travel were very high. 
B) income elasticities for air and rail travel were very high. 
C) price elasticity for air, rail, and auto travel were negative. 
D) management always considered the public interest when setting prices.

Question 12

How would an increase in cigarette taxes succeed according to the following criteria: collecting a large amount of tax revenue; distorting demand as little as possible; discouraging consumption of harmful commodities?

Accepted Answer

Assuming demand for cigarettes is fairly

Question 13

Using the general concept of elasticity, would you expect the elasticity of demand for advertising to be positive or negative?
 Explain.

Accepted Answer

Firms would advertise only if they belie

Question 14

Elasticity of demand equals the ratio of the percentage change in the price of a good to the percentage change in the quantity demanded.

Accepted Answer

A) True 
 B)False

Question 15

The difference between slope and elasticity is that slope measures absolute change and elasticity measures percentage change.

Accepted Answer

A) True 
 B)False

Question 16

A vertical demand curve has an elasticity of demand equal to zero.

Accepted Answer

A) True 
 B)False

Question 17

A rightward shift in the demand curve for a product will ordinarily result from

Accepted Answer

A) a decrease in the advertising budget. 
B) a decrease in the price of a competing product. 
C) an increase in consumer income. 
D) an increase in the price of a complementary good. 
A) a decrease in the advertising budget. 
B) a decrease in the price of a competing product. 
C) an increase in consumer income. 
D) an increase in the price of a complementary good.

Question 18

A demand curve is described as perfectly elastic if

Accepted Answer

A) any quantity can be sold at a given price. 
B) the same quantity is sold regardless of price. 
C) neither price nor quantity demanded ever change. 
D) only price can change. 
A) any quantity can be sold at a given price. 
B) the same quantity is sold regardless of price. 
C) neither price nor quantity demanded ever change. 
D) only price can change.

Question 19

Elasticity of demand is likely to be higher for less-expensive goods, other things being equal.

Accepted Answer

A) True 
 B)False

Question 20

A price increase will always increase a firm's revenue.

Accepted Answer

A) True 
 B)False

Exam 6: Demand and Elasticity

If demand is elastic, a rise in price will decrease total expenditure.

Hot dogs and hot dog buns are found to be related by the cross elasticity of demand.If they are complementary goods, the cross elasticity will be

Which of the following will lead to a movement along the same demand curve?

The measure used to determine whether two products are substitutes or complements is called

Suppose that the supply of insulin is perfectly elastic and the demand for insulin perfectly inelastic.Then the result of an excise tax would be

Since an individual spends a small share of her income on salt, the elasticity of demand is likely to be low.

If the price of gasoline rises by 20 percent and consumption of gasoline falls 5 percent,

If the cross elasticity of demand for potato chips and pretzels equals 1.5,

If a 10 percent rise in price leads to a reduction in quantity demanded of more than 10 percent,

Cross elasticity of demand for

After a number of acquisitions, Air American controls 75 percent of the U.S.market.It has been charged with "monopolizing" the U.S.air markets by the Justice Department.In its defense, the airline would want to introduce evidence that

How would an increase in cigarette taxes succeed according to the following criteria: collecting a large amount of tax revenue; distorting demand as little as possible; discouraging consumption of harmful commodities?

Using the general concept of elasticity, would you expect the elasticity of demand for advertising to be positive or negative? Explain.

Elasticity of demand equals the ratio of the percentage change in the price of a good to the percentage change in the quantity demanded.

The difference between slope and elasticity is that slope measures absolute change and elasticity measures percentage change.

A vertical demand curve has an elasticity of demand equal to zero.

A rightward shift in the demand curve for a product will ordinarily result from

A demand curve is described as perfectly elastic if

Elasticity of demand is likely to be higher for less-expensive goods, other things being equal.

A price increase will always increase a firm's revenue.

What Is Economics

The Economy: Myth and Reality

The Fundamental Economic Problem: Scarcity and Choice

Supply and Demand: an Initial Look

Consumer Choice: Individual and Market Demand

Production, Inputs, and Cost: Building Blocks for Supply Analysis

Output, Price, and Profit: the Importance of Marginal Analysis

Securities: Business Finance and the Economy: the Tail That Wags the Dog

The Firm and the Industry Under Perfect Competition

Monopoly

Between Competition and Monopoly

Limiting Market Power: Regulation and Antitrust

The Case for Free Markets: the Price System

The Shortcomings of Free Markets

Externalities, the Environment, and Natural Resources

Taxation and Resource Allocation

Pricing the Factors of Production

Labor and Entrepreneurship: the Human Inputs

Poverty, Inequality, and Discrimination

Is Useconomic Leadership Threatened

An Introduction to Macroeconomics

The Goals of Macroeconomic Policy

Economic Growth: Theory and Policy

Aggregate Demand and the Powerful Consumer

Demand-Side Equilibrium: Unemployment or Inflation

Bringing in the Supply Side: Unemployment and Inflation

Managing Aggregate Demand: Fiscal Policy

Money and the Banking System

Monetary Policy: Conventional and Unconventional

He Financial Crisis and the Great Recession

The Debate Over Monetary and Fiscal Policy

Budget Deficits in the Short and Long Run

The Trade-Off Between Inflation and Unemployment

International Trade and Comparative Advantage

The International Monetary System: Order or Disorder

Exchange Rates and the Macroeconomy

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