Question 1

If the cross-price elasticity of demand for two goods is negative, then the two goods are complements.

Accepted Answer

A) True 
 B)False

Question 2

Figure 5-4  
-Refer to Figure 5-4. The section of the demand curve from B to C represents the

Accepted Answer

A) elastic section of the demand curve. 
B) perfectly elastic section of the demand curve. 
C) unit elastic section of the demand curve. 
D) inelastic section of the demand curve. 
A) elastic section of the demand curve. 
B) perfectly elastic section of the demand curve. 
C) unit elastic section of the demand curve. 
D) inelastic section of the demand curve.

Question 3

When demand is perfectly inelastic, the demand curve will be

Accepted Answer

A) negatively sloped, because buyers decrease their purchases when the price rises. 
B) vertical, because buyers purchase the same amount as before whenever the price rises or falls. 
C) positively sloped, because buyers increase their purchases when price rises. 
D) positively sloped, because buyers increase their total expenditures when price rises. 
A) negatively sloped, because buyers decrease their purchases when the price rises. 
B) vertical, because buyers purchase the same amount as before whenever the price rises or falls. 
C) positively sloped, because buyers increase their purchases when price rises. 
D) positively sloped, because buyers increase their total expenditures when price rises.

Question 4

Which of the following is likely to have the most price inelastic demand?

Accepted Answer

A) mint-flavored toothpaste 
B) toothpaste 
C) Colgate mint-flavored toothpaste 
D) a generic mint-flavored toothpaste 
A) mint-flavored toothpaste 
B) toothpaste 
C) Colgate mint-flavored toothpaste 
D) a generic mint-flavored toothpaste

Question 5

When demand is inelastic, a decrease in price will cause

Accepted Answer

A) an increase in total revenue. 
B) a decrease in total revenue. 
C) no change in total revenue but an increase in quantity demanded. 
D) no change in total revenue but a decrease in quantity demanded. 
A) an increase in total revenue. 
B) a decrease in total revenue. 
C) no change in total revenue but an increase in quantity demanded. 
D) no change in total revenue but a decrease in quantity demanded.

Question 6

Figure 5-8  
-Refer to Figure 5-8. For prices above $5, demand is price

Accepted Answer

A) elastic, and raising price will increase total revenue. 
B) inelastic, and raising price will increase total revenue. 
C) elastic, and lowering price will increase total revenue. 
D) inelastic, and lowering price will increase total revenue. 
A) elastic, and raising price will increase total revenue. 
B) inelastic, and raising price will increase total revenue. 
C) elastic, and lowering price will increase total revenue. 
D) inelastic, and lowering price will increase total revenue.

Question 7

The smaller the price elasticity of demand, the

Accepted Answer

A) steeper the demand curve will be through a given point. 
B) flatter the demand curve will be through a given point. 
C) more strongly buyers respond to a change in price between any two prices P1 and P2. 
D) smaller the decrease in equilibrium price when the supply curve shifts rightward from S1 to S2. 
A) steeper the demand curve will be through a given point. 
B) flatter the demand curve will be through a given point. 
C) more strongly buyers respond to a change in price between any two prices P1 and P2. 
D) smaller the decrease in equilibrium price when the supply curve shifts rightward from S1 to S2.

Question 8

Get Smart University is contemplating an increase in tuition to enhance revenue. If GSU feels that raising tuition would enhance revenue, it is

Accepted Answer

A) ignoring the law of demand. 
B) assuming that the demand for university education is elastic. 
C) assuming that the demand for university education is inelastic. 
D) assuming that the supply of university education is elastic. 
A) ignoring the law of demand. 
B) assuming that the demand for university education is elastic. 
C) assuming that the demand for university education is inelastic. 
D) assuming that the supply of university education is elastic.

Question 9

Suppose that Juan Carlos is filling out a survey that he received in the mail. The survey asks him what he would do if the price of his favorite toothpaste increased. Juan Carlos reports that he would switch to a different brand. The survey asks what he would do if the price of all toothpastes increased. Juan Carlos reports that he must use toothpaste, so he would have to adjust his spending elsewhere. These examples illustrate the importance of

Accepted Answer

A) changes in total revenue in determining the price elasticity of demand. 
B) a necessity versus a luxury in determining the price elasticity of demand. 
C) the definition of a market in determining the price elasticity of demand. 
D) the time horizon in determining the price elasticity of demand. 
A) changes in total revenue in determining the price elasticity of demand. 
B) a necessity versus a luxury in determining the price elasticity of demand. 
C) the definition of a market in determining the price elasticity of demand. 
D) the time horizon in determining the price elasticity of demand.

Question 10

Figure 5-10  
-Refer to Figure 5-10. An increase in price from $20 to $30 would

Accepted Answer

A) increase total revenue by $2,000. 
B) decrease total revenue by $2,000. 
C) increase total revenue by $1,000. 
D) decrease total revenue by $1,000. 
A) increase total revenue by $2,000. 
B) decrease total revenue by $2,000. 
C) increase total revenue by $1,000. 
D) decrease total revenue by $1,000.

Question 11

If a 40% change in price results in a 25% change in quantity supplied, then the price elasticity of supply is about

Accepted Answer

A) 0.63, and supply is elastic. 
B) 0.63, and supply is inelastic. 
C) 1.60, and supply is elastic. 
D) 1.60, and supply is inelastic. 
A) 0.63, and supply is elastic. 
B) 0.63, and supply is inelastic. 
C) 1.60, and supply is elastic. 
D) 1.60, and supply is inelastic.

Question 12

If the price of gasoline rises, when is the price elasticity of demand likely to be the highest?

Accepted Answer

A) immediately after the price increases 
B) one month after the price increase 
C) three months after the price increase 
D) one year after the price increase 
A) immediately after the price increases 
B) one month after the price increase 
C) three months after the price increase 
D) one year after the price increase

Question 13

Which of the following is not a determinant of the price elasticity of demand for a good?

Accepted Answer

A) the time horizon 
B) the steepness or flatness of the supply curve for the good 
C) the definition of the market for the good 
D) the availability of substitutes for the good 
A) the time horizon 
B) the steepness or flatness of the supply curve for the good 
C) the definition of the market for the good 
D) the availability of substitutes for the good

Question 14

The difference between slope and elasticity is that slope

Accepted Answer

A) is a ratio of two changes, and elasticity is a ratio of two percentage changes. 
B) is a ratio of two percentage changes, and elasticity is a ratio of two changes. 
C) measures changes in quantity demanded more accurately than elasticity. 
D) none of the above; there is no difference between slope and elasticity. 
A) is a ratio of two changes, and elasticity is a ratio of two percentage changes. 
B) is a ratio of two percentage changes, and elasticity is a ratio of two changes. 
C) measures changes in quantity demanded more accurately than elasticity. 
D) none of the above; there is no difference between slope and elasticity.

Question 15

Figure 5-4  
-Refer to Figure 5-4. Assume, for the good in question, two specific points on the demand curve are (Q = 2,000, P = $15) and (Q = 2,400, P = $12). Then which of the following scenarios is possible?

Accepted Answer

A) Both of these points lie on section BC of the demand curve. 
B) The vertical intercept of the demand curve is the point (Q = 0, P = $22). 
C) The horizontal intercept of the demand curve is the point (Q = 5,000, P = $0). 
D) Any of these scenarios is possible. 
A) Both of these points lie on section BC of the demand curve. 
B) The vertical intercept of the demand curve is the point (Q = 0, P = $22). 
C) The horizontal intercept of the demand curve is the point (Q = 5,000, P = $0). 
D) Any of these scenarios is possible.

Question 16

If a firm is facing elastic demand, then the firm should decrease price to increase revenue.

Accepted Answer

A) True 
 B)False

Question 17

Table 5-5
  
-Refer to Table 5-5. Which of the three supply curves represents the most elastic supply?

Accepted Answer

A) supply curve A 
B) supply curve B 
C) supply curve C 
D) There is no difference in the elasticity of the three supply curves. 
A) supply curve A 
B) supply curve B 
C) supply curve C 
D) There is no difference in the elasticity of the three supply curves.

Question 18

Which of the following is likely to have the most price elastic demand?

Accepted Answer

A) lattés 
B) doctor's visits 
C) eggs 
D) natural gas 
A) lattés 
B) doctor's visits 
C) eggs 
D) natural gas

Question 19

Holding all other factors constant and using the midpoint method, if a candy manufacturer increases production by 20 percent when the market price of candy increases from $0.50 to $0.60, then supply is

Accepted Answer

A) inelastic, since the price elasticity of supply is equal to .91. 
B) inelastic, since the price elasticity of supply is equal to 1.1. 
C) elastic, since the price elasticity of supply is equal to 0.91. 
D) elastic, since the price elasticity of supply is equal to 1.1. 
A) inelastic, since the price elasticity of supply is equal to .91. 
B) inelastic, since the price elasticity of supply is equal to 1.1. 
C) elastic, since the price elasticity of supply is equal to 0.91. 
D) elastic, since the price elasticity of supply is equal to 1.1.

Question 20

Suppose the point (Q = 2,000, P = $60) is the midpoint on a certain downward-sloping, linear demand curve. Then

Accepted Answer

A) an increase in price from $40 to $42 will increase total revenue. 
B) a decrease in price from $61 to $59 will leave total revenue unchanged. 
C) the maximum value of total revenue is $120,000. 
D) All of the above are correct. 
A) an increase in price from $40 to $42 will increase total revenue. 
B) a decrease in price from $61 to $59 will leave total revenue unchanged. 
C) the maximum value of total revenue is $120,000. 
D) All of the above are correct.

Exam 5: Elasticity and Its Application

If the cross-price elasticity of demand for two goods is negative, then the two goods are complements.

Figure 5-4 -Refer to Figure 5-4. The section of the demand curve from B to C represents the

When demand is perfectly inelastic, the demand curve will be

Which of the following is likely to have the most price inelastic demand?

When demand is inelastic, a decrease in price will cause

Figure 5-8 -Refer to Figure 5-8. For prices above $5, demand is price

The smaller the price elasticity of demand, the

Get Smart University is contemplating an increase in tuition to enhance revenue. If GSU feels that raising tuition would enhance revenue, it is

Figure 5-10 -Refer to Figure 5-10. An increase in price from $20 to $30 would

If a 40% change in price results in a 25% change in quantity supplied, then the price elasticity of supply is about

If the price of gasoline rises, when is the price elasticity of demand likely to be the highest?

Which of the following is not a determinant of the price elasticity of demand for a good?

The difference between slope and elasticity is that slope

Figure 5-4 -Refer to Figure 5-4. Assume, for the good in question, two specific points on the demand curve are (Q = 2,000, P = $15) and (Q = 2,400, P = $12). Then which of the following scenarios is possible?

If a firm is facing elastic demand, then the firm should decrease price to increase revenue.

Table 5-5 -Refer to Table 5-5. Which of the three supply curves represents the most elastic supply?

Which of the following is likely to have the most price elastic demand?

Holding all other factors constant and using the midpoint method, if a candy manufacturer increases production by 20 percent when the market price of candy increases from $0.50 to $0.60, then supply is

Suppose the point (Q = 2,000, P = $60) is the midpoint on a certain downward-sloping, linear demand curve. Then

Ten Principles of Economics

Thinking Like an Economist

Interdependence and the Gains From Trade

The Market Forces of Supply and Demand

Supply, Demand, and Government Policies

Consumers, Producers, and the Efficiency of Markets

Application: The Costs of Taxation

Application: International Trade

Measuring a Nations Income

Measuring the Cost of Living

Production and Growth

Saving, Investment, and the Financial System

The Basic Tools of Finance

Unemployment

The Monetary System

Money Growth and Inflation

Open-Economy Macroeconomic Models

A Macroeconomic Theory of the Open Economy

Aggregate Demand and Aggregate Supply

The Influence of Monetary and Fiscal Policy on Aggregate Demand

The Short-Run Trade-Off Between Inflation and Unemployment

Six Debates Over Macroeconomic Policy

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