Question 1

Demand is classed as elastic if the elasticity coefficient is:

Accepted Answer

A)  greater than one 
B)  less than one 
C)  equal to one 
D)  equal to zero 
A)  greater than one 
B)  less than one 
C)  equal to one 
D)  equal to zero

Question 2

Graph 5-2
  
-In Graph 5-2, the elasticity of demand from point A to point B, using the midpoint method, would be:

Accepted Answer

A)  1 
B)  1.5 
C)  2 
D)  2.5 
A)  1 
B)  1.5 
C)  2 
D)  2.5

Question 3

If price changes and total revenue changes in the opposite direction, we can conclude that demand is relatively elastic.

Accepted Answer

A) True 
 B)False

Question 4

The price elasticity of demand for a product will tend to be higher if fewer good substitutes for it are available.

Accepted Answer

A) True 
 B)False

Question 5

Graph 5-4
  
-Refer to Graph 5-4. Total revenue at P2 would be represented by area(s):

Accepted Answer

A)  B + D 
B)  A + B 
C)  C + D 
D)  D 
A)  B + D 
B)  A + B 
C)  C + D 
D)  D

Question 6

You have just been hired by a forestry company as a consultant. The company wishes to know whether increasing or decreasing A-grade log prices will increase revenue. What information do you need? Suppose you have been given this information, what would you recommend?

Accepted Answer

The necessary information is the price e

Question 7

The discovery of a new hybrid wheat would tend to increase the supply of wheat. Under what conditions would wheat farmers realise an increase in revenue?

Accepted Answer

A)  if the supply of wheat is elastic 
B)  if the supply of wheat is inelastic 
C)  if the demand for wheat is inelastic 
D)  if the demand for wheat is elastic 
A)  if the supply of wheat is elastic 
B)  if the supply of wheat is inelastic 
C)  if the demand for wheat is inelastic 
D)  if the demand for wheat is elastic

Question 8

Use the graphs below to answer the following questions.
   a. Determine equilibrium price and quantity for each graph.
b. Given demand and supply, what would total revenue be for each graph?
c. Assume that supply shifts to the left on both graphs by 100, raising price. Given the new equilibrium price and equilibrium quantity, what would total revenue be for each graph?
d. What do your answers to part c tell you about the relationship between elasticity of demand and total revenue?

Accepted Answer

a. The equilibrium price would be $60 an

Question 9

When demand is elastic in the current price range:

Accepted Answer

A)  an increase in price will increase total revenue because the decrease in quantity demanded is less than the increase in price 
B)  an increase in price will decrease total revenue because the decrease in quantity demanded is greater than the increase in price 
C)  a decrease in price will decrease total revenue because the increase in quantity demanded is smaller than the decrease in price 
D)  a decrease in price will not affect the total revenue 
A)  an increase in price will increase total revenue because the decrease in quantity demanded is less than the increase in price 
B)  an increase in price will decrease total revenue because the decrease in quantity demanded is greater than the increase in price 
C)  a decrease in price will decrease total revenue because the increase in quantity demanded is smaller than the decrease in price 
D)  a decrease in price will not affect the total revenue

Question 10

The demand for a good is said to be elastic if a small price decrease leads to a substantial increase in the quantity demanded.

Accepted Answer

A) True 
 B)False

Question 11

The price elasticity of demand measures how responsive:

Accepted Answer

A)  buyers are to a change in price 
B)  buyers are to a change in advertising by sellers 
C)  sellers are to a change in price 
D)  buyers are to a change in their tastes 
A)  buyers are to a change in price 
B)  buyers are to a change in advertising by sellers 
C)  sellers are to a change in price 
D)  buyers are to a change in their tastes

Question 12

The concept of elasticity is used to:

Accepted Answer

A)  analyse how much the economy is capable of expanding 
B)  analyse supply and demand with greater precision 
C)  determine the level of government invention in the economy 
D)  calculate consumer credit purchases 
A)  analyse how much the economy is capable of expanding 
B)  analyse supply and demand with greater precision 
C)  determine the level of government invention in the economy 
D)  calculate consumer credit purchases

Question 13

Suppose you are the manager of a theatre. You currently charge the same admission price to all customers, regardless of age. You hire an economist to determine the price elasticity of demand for admissions by age and he tells you that at the current price, demand by adults is inelastic and demand by children is elastic. If you want to increase your total revenue by adjusting admission prices, how should they be adjusted?

Accepted Answer

Since the demand for admissions by adult

Question 14

Graph 5-1
  
-In Graph 5-1, the section of the demand curve labelled A represents the:

Accepted Answer

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

Question 15

The local pizza restaurant makes such great bread sticks that consumers do not respond much to a change in the price. If the owner is only interested in increasing revenue, he should:

Accepted Answer

A)  lower the price of the bread sticks 
B)  raise the price of the bread sticks 
C)  leave the price of the bread sticks alone 
D)  reduce costs 
A)  lower the price of the bread sticks 
B)  raise the price of the bread sticks 
C)  leave the price of the bread sticks alone 
D)  reduce costs

Question 16

Graph 5-4
  
-Refer to Graph 5-4. The total revenue at P1 is represented by area(s):

Accepted Answer

A)  B + D 
B)  A + B 
C)  C + D 
D)  D 
A)  B + D 
B)  A + B 
C)  C + D 
D)  D

Question 17

Supply curves tend to be:

Accepted Answer

A)  perfectly elastic in the long run, because consumer demand will have sufficient time to adjust fully to changes in supply 
B)  more elastic in the long run, because there is time for firms to enter or leave the industry and to change the size of factories 
C)  perfectly inelastic in the long run, because the law of scarcity imposes absolute limits upon production 
D)  less elastic in the long run, because there is time for firms to enter or leave an industry 
A)  perfectly elastic in the long run, because consumer demand will have sufficient time to adjust fully to changes in supply 
B)  more elastic in the long run, because there is time for firms to enter or leave the industry and to change the size of factories 
C)  perfectly inelastic in the long run, because the law of scarcity imposes absolute limits upon production 
D)  less elastic in the long run, because there is time for firms to enter or leave an industry

Question 18

Price elasticity over any range of a demand curve is measured by the slope of the demand curve over that range.

Accepted Answer

A) True 
 B)False

Question 19

Last year, Joan bought 50 kilograms of hamburger mince when the household income was $40 000. This year, the household income was only $30 000 and Joan bought 60 kilograms of hamburger mince. All else being constant, Joan's income elasticity of demand for hamburger is:

Accepted Answer

A)  positive, so Joan considers hamburger to be an inferior good 
B)  positive, so Joan considers hamburger to be a normal good and a necessity 
C)  negative, so Joan considers hamburger mince to be an inferior good 
D)  negative, so Joan considers hamburger mince to be a normal good 
A)  positive, so Joan considers hamburger to be an inferior good 
B)  positive, so Joan considers hamburger to be a normal good and a necessity 
C)  negative, so Joan considers hamburger mince to be an inferior good 
D)  negative, so Joan considers hamburger mince to be a normal good

Question 20

An inferior good is one that has:

Accepted Answer

A)  a positive income elasticity of demand 
B)  a negative income elasticity of demand 
C)  a positive price elasticity of demand 
D)  a negative elasticity of demand 
A)  a positive income elasticity of demand 
B)  a negative income elasticity of demand 
C)  a positive price elasticity of demand 
D)  a negative elasticity of demand

Exam 5: Elasticity and Its Application

Demand is classed as elastic if the elasticity coefficient is:

Graph 5-2 -In Graph 5-2, the elasticity of demand from point A to point B, using the midpoint method, would be:

If price changes and total revenue changes in the opposite direction, we can conclude that demand is relatively elastic.

The price elasticity of demand for a product will tend to be higher if fewer good substitutes for it are available.

Graph 5-4 -Refer to Graph 5-4. Total revenue at P2 would be represented by area(s):

You have just been hired by a forestry company as a consultant. The company wishes to know whether increasing or decreasing A-grade log prices will increase revenue. What information do you need? Suppose you have been given this information, what would you recommend?

The discovery of a new hybrid wheat would tend to increase the supply of wheat. Under what conditions would wheat farmers realise an increase in revenue?

When demand is elastic in the current price range:

The demand for a good is said to be elastic if a small price decrease leads to a substantial increase in the quantity demanded.

The price elasticity of demand measures how responsive:

The concept of elasticity is used to:

Graph 5-1 -In Graph 5-1, the section of the demand curve labelled A represents the:

The local pizza restaurant makes such great bread sticks that consumers do not respond much to a change in the price. If the owner is only interested in increasing revenue, he should:

Graph 5-4 -Refer to Graph 5-4. The total revenue at P1 is represented by area(s):

Supply curves tend to be:

Price elasticity over any range of a demand curve is measured by the slope of the demand curve over that range.

Last year, Joan bought 50 kilograms of hamburger mince when the household income was $40 000. This year, the household income was only $30 000 and Joan bought 60 kilograms of hamburger mince. All else being constant, Joan's income elasticity of demand for hamburger is:

An inferior good is one that has:

Ten Lessons From 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

Externalities

Public Goods and Common Resources

The Design of the Tax System

The Costs of Production

Firms in Competitive Markets

Monopoly

Business Strategy

Competition Policy

Monopolistic Competition

The Markets for the Factors of Production

Earnings, Unions and Discrimination

Income Inequity and Poverty

The Theory of Consumer Choice

Frontiers of Microeconomics

Measuring a Nations Income

Measuring the Cost of Living

Production and Growth

Saving, Investment and the Financial System

The Natural Rate of Unemployment

The Monetary System

Inflation: Its Causes and Costs

Open-Economy Macroeconomics: Basic Concepts

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

Five Debates Over Macroeconomic Policy

Filters

Graph 5-4 -Refer to Graph 5-4. Total revenue at P₂ would be represented by area(s):

Graph 5-4 -Refer to Graph 5-4. The total revenue at P₁ is represented by area(s):