Question 1

If two products are substitutes, then the:

Accepted Answer

A) income elasticity of demand for both will be high. 
B) price elasticity of demand for both will be positive. 
C) cross-price elasticity of demand between them will be negative. 
D) cross-price elasticity of demand between them will be positive. 
A) income elasticity of demand for both will be high. 
B) price elasticity of demand for both will be positive. 
C) cross-price elasticity of demand between them will be negative. 
D) cross-price elasticity of demand between them will be positive.

Question 2

The reason a brand name item (e.g., Tyson chicken)has a larger price elasticity than a class of items (e.g., chicken)is that:

Accepted Answer

A) there are fewer substitutes for Tyson chicken than for chicken generally. 
B) it takes a lot of time to adjust to a substitute brand of chicken. 
C) the share of income spent on "chicken" is larger than spent on "Tyson Chicken". 
D) there are fewer substitutes for chicken generally than for Tyson chicken. 
A) there are fewer substitutes for Tyson chicken than for chicken generally. 
B) it takes a lot of time to adjust to a substitute brand of chicken. 
C) the share of income spent on "chicken" is larger than spent on "Tyson Chicken". 
D) there are fewer substitutes for chicken generally than for Tyson chicken.

Question 3

Suppose you learn that in 1,900, households spent about 40 percent of their budget on food, and today, they spend about 10 percent of their budget of food. All else equal, this suggests that the price elasticity of demand for food:

Accepted Answer

A) is probably negative. 
B) has always been very high. 
C) is probably lower now than it was in 1,900. 
D) is probably higher now than it was in 1,900. 
A) is probably negative. 
B) has always been very high. 
C) is probably lower now than it was in 1,900. 
D) is probably higher now than it was in 1,900.

Question 4

The responsiveness of the quantity demanded of one good to a change in the price of a different good is measured by the:

Accepted Answer

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

Question 5

If the price elasticity of demand for a good is greater than one, then the demand for that good is:

Accepted Answer

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

Question 6

If a 10 percent decrease in the price of a good leads to a 20 percent increase in the quantity demanded, then what is the price elasticity of demand?

Accepted Answer

A) 0.5 
B) 2 
C) 10 
D) 20 
A) 0.5 
B) 2 
C) 10 
D) 20

Question 7

All else equal, the price elasticity of demand for small-budget items such as soap tends to be ________ than the price elasticity of demand for big-ticket items such as flat-screen TVs.

Accepted Answer

A) higher 
B) lower 
C) very high 
D) the same 
A) higher 
B) lower 
C) very high 
D) the same

Question 8

Refer to the accompanying figure. Suppose this demand curve shows the demand for lattes at a single coffee shop that charges $2.00 for a latte. If the manager wants to increase total revenue, what should the manager do?

Accepted Answer

A) Increase the price from $2.00 to $3.00. 
B) Increase the price from $2.00 to $2.50. 
C) Reduce the price from $2.00 to $1.00. 
D) Reduce the price from $2.00 to $1.75. 
A) Increase the price from $2.00 to $3.00. 
B) Increase the price from $2.00 to $2.50. 
C) Reduce the price from $2.00 to $1.00. 
D) Reduce the price from $2.00 to $1.75.

Question 9

Suppose that if the price of plane tickets increased, more people would choose to travel by train. If this happened, you would know that:

Accepted Answer

A) plane tickets are an inferior good. 
B) the cross-price elasticity between plane tickets and train tickets is positive. 
C) the cross-price elasticity between plane tickets and train tickets is negative. 
D) plane tickets and train tickets are complements. 
A) plane tickets are an inferior good. 
B) the cross-price elasticity between plane tickets and train tickets is positive. 
C) the cross-price elasticity between plane tickets and train tickets is negative. 
D) plane tickets and train tickets are complements.

Question 10

If the absolute value of slope of the demand curve is 2.5, price is $6 per unit, and the quantity demanded is 8 units, then the price elasticity of demand is:

Accepted Answer

A) 0.3. 
B) 0.533. 
C) 1.6. 
D) 1.875. 
A) 0.3. 
B) 0.533. 
C) 1.6. 
D) 1.875.

Question 11

Antony's Pizza uses the same dough, sauce, and cheese for pizza and calzones. When the price of pizza is low Antony produces more calzones. For Antony, the supply of pizza is ________ compared to the supply at a pizza restaurant that does not serve calzones.

Accepted Answer

A) less price elastic 
B) more price elastic 
C) higher 
D) lower 
A) less price elastic 
B) more price elastic 
C) higher 
D) lower

Question 12

When Taylor raised the price of earrings at Taylor's Boutique, her total revenue from selling earrings increased. This suggests that:

Accepted Answer

A) the demand for Taylor's earrings at the original price was elastic. 
B) there are many other boutiques competing with Taylor. 
C) there was excess demand for earrings at the original price. 
D) the demand for Taylor's earrings at the original price was inelastic. 
A) the demand for Taylor's earrings at the original price was elastic. 
B) there are many other boutiques competing with Taylor. 
C) there was excess demand for earrings at the original price. 
D) the demand for Taylor's earrings at the original price was inelastic.

Question 13

The price elasticity of demand for a good measures the responsiveness of:

Accepted Answer

A) demand to a 1 percent change in price of that good. 
B) price to a 1 percent change in the demand for that good. 
C) quantity demanded to a 1 percent change in price of that good. 
D) price to a 1 percent change in the quantity demanded of that good. 
A) demand to a 1 percent change in price of that good. 
B) price to a 1 percent change in the demand for that good. 
C) quantity demanded to a 1 percent change in price of that good. 
D) price to a 1 percent change in the quantity demanded of that good.

Question 14

Assume the price of gasoline doubles tonight and remains at that price for the next two years. Compared with the long-run price elasticity of demand for gasoline, the short-run price elasticity of demand for gasoline will be ________.

Accepted Answer

A) higher 
B) more variable 
C) the same 
D) lower 
A) higher 
B) more variable 
C) the same 
D) lower

Question 15

Economists have found that the price elasticity of demand for water is higher in the summer than in the winter. Why is this likely to be so?

Accepted Answer

A) Winter is longer than summer, and price elasticity is lower over longer time horizons. 
B) Summer is longer than winter, and price elasticity is higher over longer time horizons. 
C) Winter water use tends to be for necessities such as cleaning and cooking, and summer water use tends to be for both necessities and non-necessities such as gardening and recreation. 
D) People take more vacations in the summer and so use less water at home. 
A) Winter is longer than summer, and price elasticity is lower over longer time horizons. 
B) Summer is longer than winter, and price elasticity is higher over longer time horizons. 
C) Winter water use tends to be for necessities such as cleaning and cooking, and summer water use tends to be for both necessities and non-necessities such as gardening and recreation. 
D) People take more vacations in the summer and so use less water at home.

Question 16

Refer to the accompanying figure. What is the price elasticity of supply at point A?

Accepted Answer

A) 4 
B) 2 
C) 1 
D) 1/2 
A) 4 
B) 2 
C) 1 
D) 1/2

Question 17

Diet Coke is a close substitute for Diet Pepsi. When Coca-Cola introduced Diet Coke in 1982, the price elasticity of demand for Diet Pepsi ________ and PepsiCo's ability to raise revenues through price increases ________.

Accepted Answer

A) increased; was reduced 
B) increased; increased 
C) decreased; was reduced 
D) had no effect; was reduced 
A) increased; was reduced 
B) increased; increased 
C) decreased; was reduced 
D) had no effect; was reduced

Question 18

The accompanying graph depicts demand.   The price elasticity of demand at point B is:

Accepted Answer

A) 3/4. 
B) 4/3. 
C) 3. 
D) 1/3. 
A) 3/4. 
B) 4/3. 
C) 3. 
D) 1/3.

Question 19

For any horizontal demand curve, the price elasticity of demand is:

Accepted Answer

A) 0. 
B) 1. 
C) infinite. 
D) equal to the price of the good. 
A) 0. 
B) 1. 
C) infinite. 
D) equal to the price of the good.

Question 20

When the demand for a good is inelastic, that good is likely to have:

Accepted Answer

A) many close complements. 
B) few close complements. 
C) many close substitutes. 
D) few close substitutes. 
A) many close complements. 
B) few close complements. 
C) many close substitutes. 
D) few close substitutes.

Exam 4: Elasticity

If two products are substitutes, then the:

The reason a brand name item (e.g., Tyson chicken)has a larger price elasticity than a class of items (e.g., chicken)is that:

Suppose you learn that in 1,900, households spent about 40 percent of their budget on food, and today, they spend about 10 percent of their budget of food. All else equal, this suggests that the price elasticity of demand for food:

The responsiveness of the quantity demanded of one good to a change in the price of a different good is measured by the:

If the price elasticity of demand for a good is greater than one, then the demand for that good is:

If a 10 percent decrease in the price of a good leads to a 20 percent increase in the quantity demanded, then what is the price elasticity of demand?

All else equal, the price elasticity of demand for small-budget items such as soap tends to be ________ than the price elasticity of demand for big-ticket items such as flat-screen TVs.

Refer to the accompanying figure. Suppose this demand curve shows the demand for lattes at a single coffee shop that charges $2.00 for a latte. If the manager wants to increase total revenue, what should the manager do?

Suppose that if the price of plane tickets increased, more people would choose to travel by train. If this happened, you would know that:

If the absolute value of slope of the demand curve is 2.5, price is $6 per unit, and the quantity demanded is 8 units, then the price elasticity of demand is:

Antony's Pizza uses the same dough, sauce, and cheese for pizza and calzones. When the price of pizza is low Antony produces more calzones. For Antony, the supply of pizza is ________ compared to the supply at a pizza restaurant that does not serve calzones.

When Taylor raised the price of earrings at Taylor's Boutique, her total revenue from selling earrings increased. This suggests that:

The price elasticity of demand for a good measures the responsiveness of:

Assume the price of gasoline doubles tonight and remains at that price for the next two years. Compared with the long-run price elasticity of demand for gasoline, the short-run price elasticity of demand for gasoline will be ________.

Economists have found that the price elasticity of demand for water is higher in the summer than in the winter. Why is this likely to be so?

Refer to the accompanying figure. What is the price elasticity of supply at point A?

Diet Coke is a close substitute for Diet Pepsi. When Coca-Cola introduced Diet Coke in 1982, the price elasticity of demand for Diet Pepsi ________ and PepsiCo's ability to raise revenues through price increases ________.

The accompanying graph depicts demand. The price elasticity of demand at point B is:

For any horizontal demand curve, the price elasticity of demand is:

When the demand for a good is inelastic, that good is likely to have:

Thinking Like an Economist

Comparative Advantage

Supply and Demand

Demand

Perfectly Competitive Supply

Efficiency, Exchange, and the Invisible Hand in Action

Monopoly, Oligopoly, and Monopolistic Competition

Games and Strategic Behavior

An Introduction to Behavioral Economics

Externalities, Property Rights, and the Environment

The Economics of Information

Labor Markets, Poverty, and Income Distribution

Public Goods and Tax Policy

International Trade and Trade Policy

Macroeconomics: The Birds Eye View of the Economy

Measuring Economic Activity: GDP and Unemployment

Measuring the Price Level and Inflation

Economic Growth, Productivity, and Living Standards

The Labor Market: Workers, Wages, and Unemployment

Saving and Capital Formation

Money Prices and the Federal Reserve

Financial Markets and International Capital Flows

Short-Term Economic Fluctuations: An Introduction

Spending and Output in the Short Run

Stabilizing the Economy: The Role of the Fed

Aggregate Demand, Aggregate Supply, and Inflation

Exchange Rates and the Open Economy

Filters

Diet Coke is a close substitute for Diet Pepsi. When Coca-Cola introduced Diet Coke in 1982, the price elasticity of demand for Diet Pepsi and PepsiCo's ability to raise revenues through price increases .