Question 1

If the percentage change in quantity demanded is zero for any percentage change in the price of the good, demand is classified as:

Accepted Answer

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

Question 2

If consumers respond to a 10% price reduction by buying twice as much of a particular good, we would conclude that:

Accepted Answer

A) there was excess demand at the original price. 
B) there was excess supply at the original price. 
C) the price elasticity of demand at the original price was greater than one. 
D) the price elasticity of demand at the original price was less than one. 
A) there was excess demand at the original price. 
B) there was excess supply at the original price. 
C) the price elasticity of demand at the original price was greater than one. 
D) the price elasticity of demand at the original price was less than one.

Question 3

On a given linear demand curve, as price increases demand becomes:

Accepted Answer

A) more elastic. 
B) less elastic. 
C) more negative. 
D) more variable. 
A) more elastic. 
B) less elastic. 
C) more negative. 
D) more variable.

Question 4

If bagels and cereal are substitutes, then the cross-price elasticity of demand between bagels and cereal will be:

Accepted Answer

A) greater than one. 
B) less than one. 
C) greater than zero. 
D) less than zero. 
A) greater than one. 
B) less than one. 
C) greater than zero. 
D) less than zero.

Question 5

If 20 percent increase in the price of a good leads to a 60 percent decrease in the quantity demanded, then what is the price elasticity of demand?

Accepted Answer

A) 30. 
B) 3. 
C) 1/3. 
D) 1/6. 
A) 30. 
B) 3. 
C) 1/3. 
D) 1/6.

Question 6

Jeans in general have fewer close substitutes than a specific brand of jeans. Therefore, the demand for jeans in general will be ________ than the demand for a specific brand of jeans.

Accepted Answer

A) more elastic 
B) less elastic 
C) more unit elastic 
D) less inelastic 
A) more elastic 
B) less elastic 
C) more unit elastic 
D) less inelastic

Question 7

If the demand for a good is highly elastic, 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.

Question 8

Suppose that a new drug has been approved to treat a life-threatening disease. The demand for that drug is shown on the accompanying graph. Prior to approval of this drug, the only treatment for this condition was any one of several non-prescription, or over-the-counter, pain relievers. The demand for one brand of the several non-prescription pain relievers is also shown on the graph.   If the manufacturer of the new drug chose to increase its price from $30 to $35, consumers would buy ________ doses, and have ________ total expenditures.

Accepted Answer

A) more; higher 
B) fewer; lower 
C) more; lower 
D) fewer; higher 
A) more; higher 
B) fewer; lower 
C) more; lower 
D) fewer; higher

Question 9

Demand tends to be ________ in the short run than in the long run.

Accepted Answer

A) more elastic 
B) less elastic 
C) more variable 
D) less important 
A) more elastic 
B) less elastic 
C) more variable 
D) less important

Question 10

Suppose that a new drug has been approved to treat a life-threatening disease. The demand for that drug is shown on the accompanying graph. Prior to approval of this drug, the only treatment for this condition was any one of several non-prescription, or over-the-counter, pain relievers. The demand for one brand of the several non-prescription pain relievers is also shown on the graph.    The manufacturer of the new drug would ________ total revenue by increasing the price from $15 to $16.

Accepted Answer

A) increase 
B) decrease 
C) experience no change in 
D) experience an uncertain change in 
A) increase 
B) decrease 
C) experience no change in 
D) experience an uncertain change in

Question 11

In 1985 a desert community stopped pumping water from a 1000 foot well because it had run dry. In 2005 the price of water doubled. The community then drilled the well deeper and started pumping again. In this community,

Accepted Answer

A) the supply of water is perfectly inelastic because it is a finite resource. 
B) water production is characterized by increasing opportunity costs. 
C) markets cannot reach equilibrium because there is a persistent shortage of water. 
D) higher water prices can reduce quantity demanded but cannot increase quantity supplied. 
A) the supply of water is perfectly inelastic because it is a finite resource. 
B) water production is characterized by increasing opportunity costs. 
C) markets cannot reach equilibrium because there is a persistent shortage of water. 
D) higher water prices can reduce quantity demanded but cannot increase quantity supplied.

Question 12

Which of the following determines whether a firm will earn higher revenues when it raises its price?

Accepted Answer

A) The cost of the firm's inputs. 
B) Government regulation of the industry. 
C) The price elasticity of demand. 
D) None of these, because companies always earn higher revenues when they increase price. 
A) The cost of the firm's inputs. 
B) Government regulation of the industry. 
C) The price elasticity of demand. 
D) None of these, because companies always earn higher revenues when they increase price.

Question 13

If the price of cheese falls by 1 percent and the quantity demanded rises by 3 percent, then the price elasticity of demand for cheese is equal to:

Accepted Answer

A) 30. 
B) 0.30. 
C) 0.333. 
D) 3. 
A) 30. 
B) 0.30. 
C) 0.333. 
D) 3.

Question 14

Which of the following is likely to have the highest price elasticity of demand?

Accepted Answer

A) Shoes 
B) Running shoes 
C) Nike running shoes 
D) The price elasticity of demand will be the same for all of the answers listed. 
A) Shoes 
B) Running shoes 
C) Nike running shoes 
D) The price elasticity of demand will be the same for all of the answers listed.

Question 15

If the percentage change in the price of a good is equal to the percentage change in the quantity demanded of that good, 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 16

The demand for a good is unit elastic with respect to price if the price elasticity of demand is:

Accepted Answer

A) equal to one. 
B) greater than one. 
C) less than one. 
D) greater than negative one. 
A) equal to one. 
B) greater than one. 
C) less than one. 
D) greater than negative one.

Question 17

Refer to the accompanying figure. What is the price elasticity of demand when the price of rice is $6 per pound?

Accepted Answer

A) 0.5 
B) 0.67 
C) 2 
D) 3 
A) 0.5 
B) 0.67 
C) 2 
D) 3

Question 18

If the slope of a demand curve is infinite, then the price elasticity of demand is:

Accepted Answer

A) zero. 
B) infinite. 
C) one. 
D) equal to the price of the good. 
A) zero. 
B) infinite. 
C) one. 
D) equal to the price of the good.

Question 19

A perfectly elastic demand curve has a slope of ________ while a perfectly inelastic demand curve has a slope of ________.

Accepted Answer

A) infinity; 0 
B) 1; 0 
C) 0; 1 
D) 0; infinity 
A) infinity; 0 
B) 1; 0 
C) 0; 1 
D) 0; infinity

Question 20

If the demand for electricity is inelastic, and the local utility wants to increase its total revenue, it should ________ its price.

Accepted Answer

A) lower 
B) raise 
C) not change 
D) frequently change 
A) lower 
B) raise 
C) not change 
D) frequently change

Exam 4: Elasticity

If the percentage change in quantity demanded is zero for any percentage change in the price of the good, demand is classified as:

If consumers respond to a 10% price reduction by buying twice as much of a particular good, we would conclude that:

On a given linear demand curve, as price increases demand becomes:

If bagels and cereal are substitutes, then the cross-price elasticity of demand between bagels and cereal will be:

If 20 percent increase in the price of a good leads to a 60 percent decrease in the quantity demanded, then what is the price elasticity of demand?

Jeans in general have fewer close substitutes than a specific brand of jeans. Therefore, the demand for jeans in general will be ________ than the demand for a specific brand of jeans.

If the demand for a good is highly elastic, that good is likely to have:

Demand tends to be ________ in the short run than in the long run.

In 1985 a desert community stopped pumping water from a 1000 foot well because it had run dry. In 2005 the price of water doubled. The community then drilled the well deeper and started pumping again. In this community,

Which of the following determines whether a firm will earn higher revenues when it raises its price?

If the price of cheese falls by 1 percent and the quantity demanded rises by 3 percent, then the price elasticity of demand for cheese is equal to:

Which of the following is likely to have the highest price elasticity of demand?

If the percentage change in the price of a good is equal to the percentage change in the quantity demanded of that good, then the demand for that good is:

The demand for a good is unit elastic with respect to price if the price elasticity of demand is:

Refer to the accompanying figure. What is the price elasticity of demand when the price of rice is $6 per pound?

If the slope of a demand curve is infinite, then the price elasticity of demand is:

A perfectly elastic demand curve has a slope of ________ while a perfectly inelastic demand curve has a slope of ________.

If the demand for electricity is inelastic, and the local utility wants to increase its total revenue, it should ________ its price.

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

A perfectly elastic demand curve has a slope of while a perfectly inelastic demand curve has a slope of .