Question 1

If a product has an elastic demand,this means that:

Accepted Answer

A) consumers are relatively sensitive to a change in the price of the product. 
B) consumers are relatively insensitive to a change in the quantity demanded. 
C) consumers are relatively insensitive to a change in the price of the product. 
D) producers are relatively insensitive to a change in the price of the product. 
E) producers are relatively sensitive to a change in the quantity demanded. 
A) consumers are relatively sensitive to a change in the price of the product. 
B) consumers are relatively insensitive to a change in the quantity demanded. 
C) consumers are relatively insensitive to a change in the price of the product. 
D) producers are relatively insensitive to a change in the price of the product. 
E) producers are relatively sensitive to a change in the quantity demanded.

Question 2

In order to avoid problems involved with calculating percentage changes over a wide range,economists use the base or midpoint formula to calculate percent changes when measuring the price elasticity of demand.

Accepted Answer

A) True 
 B)False

Question 3

Suppose the price of a product is reduced from $10 to $6 and the quantity demanded increases from 40 to 60 units.From this we can conclude that the price elasticity of demand over this price range is equal to _____.

Accepted Answer

A) 1.2 
B) 1.25 
C) 0.80 
D) 0.20 
E) 0.5 
A) 1.2 
B) 1.25 
C) 0.80 
D) 0.20 
E) 0.5

Question 4

What would be the consequences of a 10 percent decrease in the price of a good for which price elasticity of demand is 5?

Accepted Answer

A) A 50 percent decrease in quantity demanded 
B) A 5 percent increase in quantity demanded 
C) A 50 percent increase in quantity demanded 
D) A decrease in quantity demanded by 0.2 
E) An increase in quantity demanded by 0.2 
A) A 50 percent decrease in quantity demanded 
B) A 5 percent increase in quantity demanded 
C) A 50 percent increase in quantity demanded 
D) A decrease in quantity demanded by 0.2 
E) An increase in quantity demanded by 0.2

Question 5

Which of the following statements correctly describe the elasticities of demand for gasoline and automobiles?

Accepted Answer

A) The income elasticity of demand for gasoline and automobiles is negative. 
B) The price elasticity of demand for gasoline is elastic and the cross-price elasticity between gasoline and SUVs is positive. 
C) The price elasticity of demand for gasoline is inelastic and the cross-price elasticity between gasoline and SUVs is negative. 
D) The price elasticity of demand for gasoline is inelastic and the income elasticity between gasoline and SUVs is positive. 
E) The price elasticity of demand for gasoline is elastic and the income elasticity between gasoline and SUVs is negative. 
A) The income elasticity of demand for gasoline and automobiles is negative. 
B) The price elasticity of demand for gasoline is elastic and the cross-price elasticity between gasoline and SUVs is positive. 
C) The price elasticity of demand for gasoline is inelastic and the cross-price elasticity between gasoline and SUVs is negative. 
D) The price elasticity of demand for gasoline is inelastic and the income elasticity between gasoline and SUVs is positive. 
E) The price elasticity of demand for gasoline is elastic and the income elasticity between gasoline and SUVs is negative.

Question 6

When product A is a good substitute for product B,the cross-price elasticity of demand for products A and B will be _____.

Accepted Answer

A) unity 
B) negative 
C) positive 
D) decreasing 
E) increasing 
A) unity 
B) negative 
C) positive 
D) decreasing 
E) increasing

Question 7

If the price elasticity of demand is greater than 1,then demand is inelastic.

Accepted Answer

A) True 
 B)False

Question 8

Consider a medical breakthrough that led to the discovery of a simple microchip which when inserted inside the human ear could prevent certain chronic diseases.The price elasticity of demand for that microchip would most likely be _____.

Accepted Answer

A) very elastic 
B) very inelastic 
C) infinite 
D) negative only for high prices 
E) positive only for high prices 
A) very elastic 
B) very inelastic 
C) infinite 
D) negative only for high prices 
E) positive only for high prices

Question 9

If the price elasticity of supply is 0.75,it would imply that a _____.

Accepted Answer

A) a 100 percent increase in price would increase the quantity supplied by 75 percent 
B) doubling of the price would increase the quantity supplied by 175 percent 
C) 50 percent increase in price would increase the quantity supplied by 25 percent 
D) 75 percent increase in price would increase the quantity supplied by 100 percent 
E) 120 percent increase in price would increase the quantity supplied by 90 percent 
A) a 100 percent increase in price would increase the quantity supplied by 75 percent 
B) doubling of the price would increase the quantity supplied by 175 percent 
C) 50 percent increase in price would increase the quantity supplied by 25 percent 
D) 75 percent increase in price would increase the quantity supplied by 100 percent 
E) 120 percent increase in price would increase the quantity supplied by 90 percent

Question 10

Which of the following situations is represented by a nearly horizontal supply curve?

Accepted Answer

A) Small price changes lead to small changes in quantity demanded of the good. 
B) Small price changes lead to small changes in quantity supplied of the good. 
C) Producers of the good are not operating efficiently. 
D) Producers of the good are not maximizing profit. 
E) Small changes in the price of the good lead to large changes in the quantity supplied of the good. 
A) Small price changes lead to small changes in quantity demanded of the good. 
B) Small price changes lead to small changes in quantity supplied of the good. 
C) Producers of the good are not operating efficiently. 
D) Producers of the good are not maximizing profit. 
E) Small changes in the price of the good lead to large changes in the quantity supplied of the good.

Question 11

Which of the following items is likely to have the highest positive income elasticity of demand?

Accepted Answer

A) Bread 
B) Jewelry 
C) Soap 
D) A plumber's service 
E) Table salt 
A) Bread 
B) Jewelry 
C) Soap 
D) A plumber's service 
E) Table salt

Question 12

Suppose the manager of a store wants to know whether the product of the store across the street is a substitute for her product.In other words,she would need to know if the cross-price elasticity of demand for the products _____.

Accepted Answer

A) is positive 
B) is negative 
C) is unity 
D) is zero 
E) is infinite 
A) is positive 
B) is negative 
C) is unity 
D) is zero 
E) is infinite

Question 13

If the demand for beans tends to decline as incomes rise,everything else held constant,beans are _____.

Accepted Answer

A) a luxury good 
B) a normal good 
C) price sensitive 
D) not price sensitive 
E) an inferior good 
A) a luxury good 
B) a normal good 
C) price sensitive 
D) not price sensitive 
E) an inferior good

Question 14

The point elasticity is a measure of the sensitivity of consumers to a larger price change - a range from one price to another.

Accepted Answer

A) True 
 B)False

Question 15

Assume that the demand curve for a certain good is a vertical line.This vertical demand curve illustrates the idea that:

Accepted Answer

A) consumers are unwilling to pay more than a certain price for the good. 
B) the good is a complement to another good. 
C) consumers are unwilling to pay less than a certain price for the good. 
D) there are many substitutes for this good. 
E) people will not change the quantity of the good when the price of the good is changed. 
A) consumers are unwilling to pay more than a certain price for the good. 
B) the good is a complement to another good. 
C) consumers are unwilling to pay less than a certain price for the good. 
D) there are many substitutes for this good. 
E) people will not change the quantity of the good when the price of the good is changed.

Question 16

Price elasticity of demand is more likely to be greater than one if:

Accepted Answer

A) consumers have a long time to adjust to a price change. 
B) the product is a necessity. 
C) demand is inelastic. 
D) there are few close substitutes for the product. 
E) total revenue declines in response to a price reduction. 
A) consumers have a long time to adjust to a price change. 
B) the product is a necessity. 
C) demand is inelastic. 
D) there are few close substitutes for the product. 
E) total revenue declines in response to a price reduction.

Question 17

Which of the following is true with respect to the price elasticity of demand?

Accepted Answer

A) The coefficient of price elasticity of demand will change with changes in the units of measurement (for instance,going from pounds to ounces). 
B) Elasticity of demand will be equal to the slope of the demand curve. 
C) Elasticity measures the sensitivity of total expenditure to a change in price. 
D) Elasticity will tend to be greater for a relatively expensive product than for a cheaper one. 
E) A coefficient of 1 means that the percentage change in total expenditure is equivalent to the percentage change in price. 
A) The coefficient of price elasticity of demand will change with changes in the units of measurement (for instance,going from pounds to ounces). 
B) Elasticity of demand will be equal to the slope of the demand curve. 
C) Elasticity measures the sensitivity of total expenditure to a change in price. 
D) Elasticity will tend to be greater for a relatively expensive product than for a cheaper one. 
E) A coefficient of 1 means that the percentage change in total expenditure is equivalent to the percentage change in price.

Question 18

A perfectly inelastic demand curve is represented by an upward rising straight line.

Accepted Answer

A) True 
 B)False

Question 19

Ceteris paribus,a 10 percent increase in income results in a 50 percent decline in the quantity of potatoes purchased.This implies potatoes can be categorized as _____.

Accepted Answer

A) complements 
B) substitutes 
C) inferior goods 
D) normal goods 
E) luxurious goods 
A) complements 
B) substitutes 
C) inferior goods 
D) normal goods 
E) luxurious goods

Question 20

Which of the following is a determinant of price elasticity of demand?

Accepted Answer

A) Availability of substitute goods 
B) Excess capacity 
C) Scale of production 
D) Inventories 
E) Cost of production 
A) Availability of substitute goods 
B) Excess capacity 
C) Scale of production 
D) Inventories 
E) Cost of production

Exam 5: Elasticity: Demand and Supply

If a product has an elastic demand,this means that:

In order to avoid problems involved with calculating percentage changes over a wide range,economists use the base or midpoint formula to calculate percent changes when measuring the price elasticity of demand.

Suppose the price of a product is reduced from $10 to $6 and the quantity demanded increases from 40 to 60 units.From this we can conclude that the price elasticity of demand over this price range is equal to _____.

What would be the consequences of a 10 percent decrease in the price of a good for which price elasticity of demand is 5?

Which of the following statements correctly describe the elasticities of demand for gasoline and automobiles?

When product A is a good substitute for product B,the cross-price elasticity of demand for products A and B will be _____.

If the price elasticity of demand is greater than 1,then demand is inelastic.

Consider a medical breakthrough that led to the discovery of a simple microchip which when inserted inside the human ear could prevent certain chronic diseases.The price elasticity of demand for that microchip would most likely be _____.

If the price elasticity of supply is 0.75,it would imply that a _____.

Which of the following situations is represented by a nearly horizontal supply curve?

Which of the following items is likely to have the highest positive income elasticity of demand?

Suppose the manager of a store wants to know whether the product of the store across the street is a substitute for her product.In other words,she would need to know if the cross-price elasticity of demand for the products _____.

If the demand for beans tends to decline as incomes rise,everything else held constant,beans are _____.

The point elasticity is a measure of the sensitivity of consumers to a larger price change - a range from one price to another.

Assume that the demand curve for a certain good is a vertical line.This vertical demand curve illustrates the idea that:

Price elasticity of demand is more likely to be greater than one if:

Which of the following is true with respect to the price elasticity of demand?

A perfectly inelastic demand curve is represented by an upward rising straight line.

Ceteris paribus,a 10 percent increase in income results in a 50 percent decline in the quantity of potatoes purchased.This implies potatoes can be categorized as _____.

Which of the following is a determinant of price elasticity of demand?

Economics: The World Around You

Choice, opportunity Costs, and Specialization

Markets, Demand and Supply, and the Price System

The Market System and the Private and Public Sector

Consumer Choice

Supply: The Costs of Doing Business

Profit Maximization

Perfect Competition

Monopoly

Monopolistic Competition and Oligopoly

Antitrust and Regulation

Market Failures, Government Failures, and Rent Seeking

Resource Markets

The Labor Market

Capital Markets

The Land Market and Natural Resources

Aging, Social Security and Health Care

Income Distribution,Poverty and Government Policy

World Trade Equilibrium

International Trade Restrictions

Exchange Rates and Financial Links Between Countries

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