Question 1

When demand is unit elastic, a change in price causes total revenue to stay the same because

Accepted Answer

A) the percentage change in quantity demanded exactly offsets the percentage change in price. 
B) buyers are buying the same quantity. 
C) total revenue never changes with price changes. 
D) the change in profit is offset by the change in production cost. 
A) the percentage change in quantity demanded exactly offsets the percentage change in price. 
B) buyers are buying the same quantity. 
C) total revenue never changes with price changes. 
D) the change in profit is offset by the change in production cost.

Question 2

Which of the following correctly comments on the following statement? "The only way to increase the revenue from selling a product is to increase the product's price."

Accepted Answer

A) It is not true. Revenue will increase as the price of the product increases only if demand is elastic. 
B) This statement is not true. Revenue will increase as the price of the product increases only if demand is inelastic. 
C) The statement is true. 
D) This statement is not true. Revenue will decrease as the price of the product increases because quantity demanded will fall. 
A) It is not true. Revenue will increase as the price of the product increases only if demand is elastic. 
B) This statement is not true. Revenue will increase as the price of the product increases only if demand is inelastic. 
C) The statement is true. 
D) This statement is not true. Revenue will decrease as the price of the product increases because quantity demanded will fall.

Question 3

If a firm lowered the price of the product it sells and found that total revenue did not change, then the demand for its product is

Accepted Answer

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

Question 4

Suppose the price elasticity of demand for cigarettes is -0.4.The FDA decides to regulate tobacco production, which increases the price of cigarettes and causes the quantity of cigarettes demanded to decrease by 25 percent.What is the percentage increase in price which would lead to the 25 percent decrease in quantity demanded? If the price elasticity was -4, what would be the percentage increase in price?

Accepted Answer

If price elasticity of demand is -0.4, a

Question 5

Last year, Sefton purchased 60 pounds of potatoes to feed his family of five when his household income was $30,000.This year, his household income fell to $20,000 and Sefton purchased 80 pounds of potatoes.All else constant, Sefton's income elasticity of demand for potatoes is

Accepted Answer

A) negative, so Sefton considers potatoes to be an inferior good. 
B) positive, so Sefton considers potatoes to be an inferior good. 
C) positive, so Sefton considers potatoes to be a normal good and a necessity. 
D) negative, so Sefton considers potatoes to be a normal good. 
A) negative, so Sefton considers potatoes to be an inferior good. 
B) positive, so Sefton considers potatoes to be an inferior good. 
C) positive, so Sefton considers potatoes to be a normal good and a necessity. 
D) negative, so Sefton considers potatoes to be a normal good.

Question 6

Suppose at the going wage rate of $20 per hour, firms can hire as many hours of janitorial services as they desire.If any firm tries to lower the wage rate to $19, it will not be able to hire any janitor.What does this indicate about the supply curve for janitorial services?

Accepted Answer

A) Supply is unit-elastic. 
B) Supply is perfectly elastic. 
C) Supply is perfectly inelastic. 
D) Supply is relatively inelastic. 
A) Supply is unit-elastic. 
B) Supply is perfectly elastic. 
C) Supply is perfectly inelastic. 
D) Supply is relatively inelastic.

Question 7

If the demand for iPods is price elastic, then

Accepted Answer

A) the percentage change in quantity demanded is greater than the percentage change in price (in absolute value). 
B) the percentage change in quantity demanded is less than the percentage change in price (in absolute value). 
C) the percentage change in quantity demanded is equal to the percentage change in price. 
D) quantity demanded is not responsive to changes in price. 
A) the percentage change in quantity demanded is greater than the percentage change in price (in absolute value). 
B) the percentage change in quantity demanded is less than the percentage change in price (in absolute value). 
C) the percentage change in quantity demanded is equal to the percentage change in price. 
D) quantity demanded is not responsive to changes in price.

Question 8

In September 2006, the Food and Drug Administration recommended that Americans avoid eating bagged raw spinach in the wake of an outbreak of E.coli bacteria.Following this recommendation, the food industry looked at alternatives and many turned to arugula.One Chicago distributor claimed, "The sale of the stuff has gone through the roof." Based on this information

Accepted Answer

A) arugula is a normal good while raw spinach is an inferior good. 
B) the cross-price elasticity between arugula and spinach is negative. 
C) the cross-price elasticity between arugula and spinach is positive. 
D) the price elasticity of arugula is positive while the price elasticity of spinach falls to zero. 
A) arugula is a normal good while raw spinach is an inferior good. 
B) the cross-price elasticity between arugula and spinach is negative. 
C) the cross-price elasticity between arugula and spinach is positive. 
D) the price elasticity of arugula is positive while the price elasticity of spinach falls to zero.

Question 9

Most food products have low income and price elasticities of demand.

Accepted Answer

A) True 
 B)False

Question 10

Figure 6-1
  
-Refer to Figure 6-1.The demand curve on which elasticity changes at every point is given in

Accepted Answer

A) Panel A. 
B) Panel B. 
C) Panel C. 
D) none of the above graphs. 
A) Panel A. 
B) Panel B. 
C) Panel C. 
D) none of the above graphs.

Question 11

Table 6-2
  
-Refer to Table 6-2.Assume that an economist has estimated the price elasticity of demand values in the table above.Use the data in the table to select the correct statement.

Accepted Answer

A) The demand for Coca-Cola is inelastic. 
B) The elasticity for "All soft drinks" is less than the elasticity for Coca-Cola because Coca-Cola is more of a luxury than a necessity; "All soft drinks" represent goods that are more necessity than luxury. 
C) The difference in elasticity values is explained by the fact that the more narrowly we define a market the more elastic the demand will be. 
D) There are fewer substitutes for "All carbonated soft drinks" than there are for "All soft drinks." 
A) The demand for Coca-Cola is inelastic. 
B) The elasticity for "All soft drinks" is less than the elasticity for Coca-Cola because Coca-Cola is more of a luxury than a necessity; "All soft drinks" represent goods that are more necessity than luxury. 
C) The difference in elasticity values is explained by the fact that the more narrowly we define a market the more elastic the demand will be. 
D) There are fewer substitutes for "All carbonated soft drinks" than there are for "All soft drinks."

Question 12

Assume that you own a small boutique hotel.In an attempt to raise revenue, you reduce your rates by 20 percent.However, your revenue falls.What does this indicate about the demand for your boutique hotel rooms?

Accepted Answer

A) Boutique hotel rooms are inferior goods. 
B) Demand is inelastic. 
C) The demand curve for your hotel rooms is vertical. 
D) Demand is elastic. 
A) Boutique hotel rooms are inferior goods. 
B) Demand is inelastic. 
C) The demand curve for your hotel rooms is vertical. 
D) Demand is elastic.

Question 13

Figure 6-8
  
-Refer to Figure 6-8.Identify the two goods which are substitutes.

Accepted Answer

A) Good X and Good Y 
B) Good Y and Good Z 
C) Good X and Good Z 
D) It is not possible to distinguish any relationship among the goods. 
A) Good X and Good Y 
B) Good Y and Good Z 
C) Good X and Good Z 
D) It is not possible to distinguish any relationship among the goods.

Question 14

The price elasticity of an upward-sloping supply curve is always

Accepted Answer

A) positive. 
B) negative. 
C) greater than one. 
D) impossible to determine. 
A) positive. 
B) negative. 
C) greater than one. 
D) impossible to determine.

Question 15

Figure 6-1
  
-Refer to Figure 6-1.A perfectly elastic demand curve is shown in

Accepted Answer

A) Panel A. 
B) Panel B. 
C) Panel C. 
D) Panel D. 
A) Panel A. 
B) Panel B. 
C) Panel C. 
D) Panel D.

Question 16

Suppose the value of the price elasticity of supply is 4.What does this mean?

Accepted Answer

A) A 4 percent increase in the price of the good causes quantity supplied to increase by 1 percent. 
B) A 1 percent increase in the price of the good causes the supply curve to shift upward by 4 percent. 
C) A 1 percent increase in the price of the good causes quantity supplied to increase by 4 percent. 
D) For every $1 increase in price, quantity supplied increases by 4 units. 
A) A 4 percent increase in the price of the good causes quantity supplied to increase by 1 percent. 
B) A 1 percent increase in the price of the good causes the supply curve to shift upward by 4 percent. 
C) A 1 percent increase in the price of the good causes quantity supplied to increase by 4 percent. 
D) For every $1 increase in price, quantity supplied increases by 4 units.

Question 17

If the absolute value of the price elasticity of demand for aspirin equals 0.8 then

Accepted Answer

A) aspirin is a normal good. 
B) the demand for aspirin is inelastic. 
C) aspirin has few substitutes. 
D) the demand for aspirin is elastic. 
A) aspirin is a normal good. 
B) the demand for aspirin is inelastic. 
C) aspirin has few substitutes. 
D) the demand for aspirin is elastic.

Question 18

If the demand for a product is elastic, the quantity demanded changes by a larger percentage than the percentage change in price.

Accepted Answer

A) True 
 B)False

Question 19

Suppose the price of gasoline is $3.50 per gallon, the quantity of gasoline demanded is 150 billion gallons per year, the price elasticity of demand for gasoline is -0.06, and the federal government decides to increase the excise tax on gasoline by $1.00 per gallon, which increases the price of gasoline by $0.75 per gallon.How much revenue does the federal government receive from the tax?

Accepted Answer

A) $95.44 billion 
B) $111.20 billion 
C) $148.27 billion 
D) $161.61 billion 
A) $95.44 billion 
B) $111.20 billion 
C) $148.27 billion 
D) $161.61 billion

Question 20

Which of the following statements is true?

Accepted Answer

A) The supply of oil is very elastic over short time periods but becomes perfectly inelastic over time. A given shift in supply results in a greater increase in the price of oil when the supply of oil is perfectly inelastic. 
B) The supply of oil is very inelastic over short time periods but becomes more elastic over time. A given shift in supply results in a smaller increase in the price of oil when the supply is more elastic. 
C) The supply of oil is perfectly inelastic; therefore, as the demand for oil increases over time the price of oil increases significantly. 
D) Over short periods of time increases in the demand for oil are greater than increases in the supply of oil. Over the long run increases in the demand and the supply of oil are about equal. As a result, the price of oil increases greatly in the short run but is stable in the long run. 
A) The supply of oil is very elastic over short time periods but becomes perfectly inelastic over time. A given shift in supply results in a greater increase in the price of oil when the supply of oil is perfectly inelastic. 
B) The supply of oil is very inelastic over short time periods but becomes more elastic over time. A given shift in supply results in a smaller increase in the price of oil when the supply is more elastic. 
C) The supply of oil is perfectly inelastic; therefore, as the demand for oil increases over time the price of oil increases significantly. 
D) Over short periods of time increases in the demand for oil are greater than increases in the supply of oil. Over the long run increases in the demand and the supply of oil are about equal. As a result, the price of oil increases greatly in the short run but is stable in the long run.

When demand is unit elastic, a change in price causes total revenue to stay the same because

Which of the following correctly comments on the following statement? "The only way to increase the revenue from selling a product is to increase the product's price."

If a firm lowered the price of the product it sells and found that total revenue did not change, then the demand for its product is

Last year, Sefton purchased 60 pounds of potatoes to feed his family of five when his household income was $30,000.This year, his household income fell to $20,000 and Sefton purchased 80 pounds of potatoes.All else constant, Sefton's income elasticity of demand for potatoes is

Suppose at the going wage rate of $20 per hour, firms can hire as many hours of janitorial services as they desire.If any firm tries to lower the wage rate to $19, it will not be able to hire any janitor.What does this indicate about the supply curve for janitorial services?

If the demand for iPods is price elastic, then

Most food products have low income and price elasticities of demand.

Figure 6-1 -Refer to Figure 6-1.The demand curve on which elasticity changes at every point is given in

Table 6-2 -Refer to Table 6-2.Assume that an economist has estimated the price elasticity of demand values in the table above.Use the data in the table to select the correct statement.

Assume that you own a small boutique hotel.In an attempt to raise revenue, you reduce your rates by 20 percent.However, your revenue falls.What does this indicate about the demand for your boutique hotel rooms?

Figure 6-8 -Refer to Figure 6-8.Identify the two goods which are substitutes.

The price elasticity of an upward-sloping supply curve is always

Figure 6-1 -Refer to Figure 6-1.A perfectly elastic demand curve is shown in

Suppose the value of the price elasticity of supply is 4.What does this mean?

If the absolute value of the price elasticity of demand for aspirin equals 0.8 then

If the demand for a product is elastic, the quantity demanded changes by a larger percentage than the percentage change in price.

Which of the following statements is true?

Economics: Foundations and Models

Trade-Offs, Comparative Advantage, and the Market System

Where Prices Come From: the Interaction of Demand and Supply

Economic Efficiency, Government Price Setting, and Taxes

Externalities, Environmental Policy, and Public Goods

The Economics of Health Care

Firms, the Stock Market, and Corporate Governance

Comparative Advantage and the Gains From International Trade

Consumer Choice and Behavioral Economics

Technology, Production, and Costs

Firms in Perfectly Competitive Markets

Monopolistic Competition: the Competitive Model in a More Realistic Setting

Oligopoly: Firms in Less Competitive Markets

Monopoly and Antitrust Policy

Pricing Strategy

The Markets for Labor and Other Factors of Production

Public Choice, Taxes, and the Distribution of Income

Filters

Exam 6: Elasticity: the Responsiveness of Demand and Supply

When demand is unit elastic, a change in price causes total revenue to stay the same because

Which of the following correctly comments on the following statement? "The only way to increase the revenue from selling a product is to increase the product's price."

If a firm lowered the price of the product it sells and found that total revenue did not change, then the demand for its product is

Last year, Sefton purchased 60 pounds of potatoes to feed his family of five when his household income was $30,000.This year, his household income fell to $20,000 and Sefton purchased 80 pounds of potatoes.All else constant, Sefton's income elasticity of demand for potatoes is

Suppose at the going wage rate of $20 per hour, firms can hire as many hours of janitorial services as they desire.If any firm tries to lower the wage rate to $19, it will not be able to hire any janitor.What does this indicate about the supply curve for janitorial services?

If the demand for iPods is price elastic, then

Most food products have low income and price elasticities of demand.

Figure 6-1 -Refer to Figure 6-1.The demand curve on which elasticity changes at every point is given in

Table 6-2 -Refer to Table 6-2.Assume that an economist has estimated the price elasticity of demand values in the table above.Use the data in the table to select the correct statement.

Assume that you own a small boutique hotel.In an attempt to raise revenue, you reduce your rates by 20 percent.However, your revenue falls.What does this indicate about the demand for your boutique hotel rooms?

Figure 6-8 -Refer to Figure 6-8.Identify the two goods which are substitutes.

The price elasticity of an upward-sloping supply curve is always

Figure 6-1 -Refer to Figure 6-1.A perfectly elastic demand curve is shown in

Suppose the value of the price elasticity of supply is 4.What does this mean?

If the absolute value of the price elasticity of demand for aspirin equals 0.8 then

If the demand for a product is elastic, the quantity demanded changes by a larger percentage than the percentage change in price.

Which of the following statements is true?

Economics: Foundations and Models

Trade-Offs, Comparative Advantage, and the Market System

Where Prices Come From: the Interaction of Demand and Supply

Economic Efficiency, Government Price Setting, and Taxes

Externalities, Environmental Policy, and Public Goods

The Economics of Health Care

Firms, the Stock Market, and Corporate Governance

Comparative Advantage and the Gains From International Trade

Consumer Choice and Behavioral Economics

Technology, Production, and Costs

Firms in Perfectly Competitive Markets

Monopolistic Competition: the Competitive Model in a More Realistic Setting

Oligopoly: Firms in Less Competitive Markets

Monopoly and Antitrust Policy

Pricing Strategy

The Markets for Labor and Other Factors of Production

Public Choice, Taxes, and the Distribution of Income

Filters