Question 1

FIGURE 4-2
-Refer to Figure 4-2.As price decreases,total expenditure increases,reaches a maximum,and then decreases for the demand curve in diagram(s)

Accepted Answer

A) 1. 
B) 2. 
C) 3. 
D) 4. 
E) 1 and 3. 
A) 1. 
B) 2. 
C) 3. 
D) 4. 
E) 1 and 3.

Question 2

FIGURE 4-3
-Refer to Figure 4-3,which shows a demand shift and the short-run and long-run supply curves for some product.In the new long-run equilibrium at EL,producers' revenue

Accepted Answer

A) is unambiguously lower than at ES. 
B) could be higher or lower than at ES,depending on the price elasticity of demand. 
C) is unambiguously lower than at E0. 
D) could be higher or lower than at E0,depending on the price elasticity of demand. 
E) is unambiguously higher than at ES. 
A) is unambiguously lower than at ES. 
B) could be higher or lower than at ES,depending on the price elasticity of demand. 
C) is unambiguously lower than at E0. 
D) could be higher or lower than at E0,depending on the price elasticity of demand. 
E) is unambiguously higher than at ES.

Question 3

During the 1970s,OPEC's output restrictions caused gasoline prices to increase sharply.Coincidentally,demand for gas-guzzling cars fell.A likely explanation for these observations is that gasoline and cars had a ________ elasticity of demand that was ________.

Accepted Answer

A) cross; negative 
B) cross; positive 
C) income; negative 
D) income; positive 
E) price; negative 
A) cross; negative 
B) cross; positive 
C) income; negative 
D) income; positive 
E) price; negative

Question 4

A vertical demand curve shows that the price elasticity of demand is

Accepted Answer

A) zero. 
B) unity. 
C) less than one. 
D) infinity. 
E) not defined. 
A) zero. 
B) unity. 
C) less than one. 
D) infinity. 
E) not defined.

Question 5

FIGURE 4-1
-Refer to Figure 4-1,which shows two demand curves,one linear and the other a rectangular hyperbola.The price elasticity of demand is equal to one along the entire demand curve in

Accepted Answer

A) diagram 1 only. 
B) diagram 2 only. 
C) both diagrams. 
D) neither diagram. 
A) diagram 1 only. 
B) diagram 2 only. 
C) both diagrams. 
D) neither diagram.

Question 6

An upward-sloping straight-line supply curve through the origin has an elasticity of

Accepted Answer

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

Question 7

If price elasticity of demand for good X is equal to 0.4,then an increase in price will cause total expenditure on good X to

Accepted Answer

A) increase. 
B) remain constant. 
C) decrease. 
D) fall to zero. 
E) be negative. 
A) increase. 
B) remain constant. 
C) decrease. 
D) fall to zero. 
E) be negative.

Question 8

Suppose the supply curve for breakfast cereals is upward sloping.Suppose also that as average household income increases we observe a fall in the price of breakfast cereal.We can conclude that breakfast cereal is a(n)

Accepted Answer

A) luxury good. 
B) substitute good. 
C) inferior good. 
D) normal good. 
E) necessity good. 
A) luxury good. 
B) substitute good. 
C) inferior good. 
D) normal good. 
E) necessity good.

Question 9

Suppose that the quantity of lemonade demanded falls from 103 000 litres per week to 97 000 litres per week as a result of a 10% increase in its price.The price elasticity of demand for lemonade is therefore

Accepted Answer

A) 0.6. 
B) 6.0. 
C) 1.97. 
D) 1.03. 
E) impossible to compute unless we know the before and after prices. 
A) 0.6. 
B) 6.0. 
C) 1.97. 
D) 1.03. 
E) impossible to compute unless we know the before and after prices.

Question 10

If the demand for some good fluctuates,but the supply curve is stable,then which of the following combinations would generally yield the greatest quantity fluctuations?

Accepted Answer

A) large demand fluctuations and inelastic supply 
B) small demand fluctuations and unit elastic supply 
C) small demand fluctuations and inelastic supply 
D) small demand fluctuations and elastic supply 
E) large demand fluctuations and elastic supply 
A) large demand fluctuations and inelastic supply 
B) small demand fluctuations and unit elastic supply 
C) small demand fluctuations and inelastic supply 
D) small demand fluctuations and elastic supply 
E) large demand fluctuations and elastic supply

Question 11

Suppose an increase in world demand for potash (used in the production of fertilizer)increases the price from $285 per tonne to $315 per tonne.Annual Canadian production increases from 15 million tonnes to 17 million tonnes.What is the elasticity of supply of Canadian potash?

Accepted Answer

A) 0.5 
B) 0.8 
C) 1.0 
D) 1.25 
E) 2.5 
A) 0.5 
B) 0.8 
C) 1.0 
D) 1.25 
E) 2.5

Question 12

The price elasticity of demand for a product tends to be greater the

Accepted Answer

A) lower its price. 
B) more broadly the product is defined. 
C) fewer close substitutes for it there are. 
D) more close substitutes for it there are. 
E) shorter the time span being considered. 
A) lower its price. 
B) more broadly the product is defined. 
C) fewer close substitutes for it there are. 
D) more close substitutes for it there are. 
E) shorter the time span being considered.

Question 13

Consider a firm's price elasticity of supply.If firms' costs rise rapidly as output increases,the

Accepted Answer

A) supply curve will tend to be flat. 
B) demand curve will tend to be steep. 
C) elasticity of demand will tend to be low. 
D) price elasticity of supply will tend to be high. 
E) price elasticity of supply will tend to be low. 
A) supply curve will tend to be flat. 
B) demand curve will tend to be steep. 
C) elasticity of demand will tend to be low. 
D) price elasticity of supply will tend to be high. 
E) price elasticity of supply will tend to be low.

Question 14

Consider an excise tax imposed on daily parking charges in the downtown of a small city.Before the imposition of the tax,equilibrium price and quantity are $15 and 100 cars parked per day.(P = $15,Q = 100).The city government then imposes a tax of $3 per car parked per day.Market equilibrium adjusts to P = $16 and Q = 95.Which of the following statements about the burden of the tax is correct?

Accepted Answer

A) Supply is less elastic relative to demand and therefore more of the burden falls on the consumer. 
B) Supply is more elastic relative to demand and therefore more of the burden falls on the seller. 
C) Supply is more elastic relative to demand and therefore more of the burden falls on the consumer. 
D) Supply is less elastic relative to demand and therefore more of the burden falls on the seller. 
A) Supply is less elastic relative to demand and therefore more of the burden falls on the consumer. 
B) Supply is more elastic relative to demand and therefore more of the burden falls on the seller. 
C) Supply is more elastic relative to demand and therefore more of the burden falls on the consumer. 
D) Supply is less elastic relative to demand and therefore more of the burden falls on the seller.

Question 15

The president of a major nickel-producing company says that an increase in the price of nickel would have no effect on the total amount spent on nickel.If this is true,the price elasticity of demand for nickel is

Accepted Answer

A) more than one. 
B) exactly one. 
C) less than zero. 
D) infinitely elastic. 
E) not calculable from the information given. 
A) more than one. 
B) exactly one. 
C) less than zero. 
D) infinitely elastic. 
E) not calculable from the information given.

Question 16

Income elasticity measures the change in quantity demanded of some product with respect to changes in

Accepted Answer

A) the demand of the product. 
B) the price of another related product. 
C) its price. 
D) the supply of the product. 
E) households' income. 
A) the demand of the product. 
B) the price of another related product. 
C) its price. 
D) the supply of the product. 
E) households' income.

Question 17

Consider an excise tax imposed on daily parking charges in the downtown of a small city.Before the imposition of the tax,equilibrium price and quantity are $15 and 100 cars parked.(P = $15,Q = 100).The city government imposes a tax of $3 per car parked per day.Market equilibrium adjusts to P = $16 and Q = 95.What is the total after-tax revenue received per day by the seller after imposition of the tax?

Accepted Answer

A) $1235 
B) $1600 
C) $1500 
D) $1520 
E) $1425 
A) $1235 
B) $1600 
C) $1500 
D) $1520 
E) $1425

Question 18

Cross-price elasticity of demand may be defined as

Accepted Answer

A)    . 
B)    . 
C)    . 
D)    . 
E)    . 
A)    . 
B)    . 
C)    . 
D)    . 
E)    .

Question 19

Consider an excise tax imposed on daily parking charges in the downtown of a small city.Before the imposition of the tax,equilibrium price and quantity are $15 and 100 cars parked.(P = $15,Q = 100).The city government imposes a tax of $3 per car parked per day.Market equilibrium adjusts to P = $18 and Q = 100.Which of the following statements about the burden of the tax is correct?

Accepted Answer

A) Price elasticity of supply is 0 and therefore the entire burden of the tax falls on the consumer. 
B) Elasticity of demand is 0 and therefore the entire burden of the tax falls on the consumer. 
C) Elasticity of supply is 1 and therefore the entire burden of the tax falls on the seller. 
D) Price elasticity of demand is 1 and therefore the entire burden of the tax falls on the seller 
E) The burden of the tax is shared equally by the seller and the consumer. 
A) Price elasticity of supply is 0 and therefore the entire burden of the tax falls on the consumer. 
B) Elasticity of demand is 0 and therefore the entire burden of the tax falls on the consumer. 
C) Elasticity of supply is 1 and therefore the entire burden of the tax falls on the seller. 
D) Price elasticity of demand is 1 and therefore the entire burden of the tax falls on the seller 
E) The burden of the tax is shared equally by the seller and the consumer.

Question 20

Suppose you are advising the government on changes in the gasoline market.The current price is $1.00 per litre and the quantity demanded is 2.5 million litres per day.Short-run price elasticity of demand is constant at 0.3.If the supply of gasoline is reduced so that the price rises to $1.50 per litre,then quantity demanded is predicted to fall in the short run by

Accepted Answer

A) 15%,and total expenditure will rise. 
B) 15%,and total expenditure will fall. 
C) 50%,and total expenditure will fall. 
D) 12%,and total expenditure will rise. 
E) 13.3%,and total expenditure will rise. 
A) 15%,and total expenditure will rise. 
B) 15%,and total expenditure will fall. 
C) 50%,and total expenditure will fall. 
D) 12%,and total expenditure will rise. 
E) 13.3%,and total expenditure will rise.

Exam 4: Elasticity

FIGURE 4-2 -Refer to Figure 4-2.As price decreases,total expenditure increases,reaches a maximum,and then decreases for the demand curve in diagram(s)

FIGURE 4-3 -Refer to Figure 4-3,which shows a demand shift and the short-run and long-run supply curves for some product.In the new long-run equilibrium at EL,producers' revenue

During the 1970s,OPEC's output restrictions caused gasoline prices to increase sharply.Coincidentally,demand for gas-guzzling cars fell.A likely explanation for these observations is that gasoline and cars had a ________ elasticity of demand that was ________.

A vertical demand curve shows that the price elasticity of demand is

FIGURE 4-1 -Refer to Figure 4-1,which shows two demand curves,one linear and the other a rectangular hyperbola.The price elasticity of demand is equal to one along the entire demand curve in

An upward-sloping straight-line supply curve through the origin has an elasticity of

If price elasticity of demand for good X is equal to 0.4,then an increase in price will cause total expenditure on good X to

Suppose the supply curve for breakfast cereals is upward sloping.Suppose also that as average household income increases we observe a fall in the price of breakfast cereal.We can conclude that breakfast cereal is a(n)

Suppose that the quantity of lemonade demanded falls from 103 000 litres per week to 97 000 litres per week as a result of a 10% increase in its price.The price elasticity of demand for lemonade is therefore

If the demand for some good fluctuates,but the supply curve is stable,then which of the following combinations would generally yield the greatest quantity fluctuations?

Suppose an increase in world demand for potash (used in the production of fertilizer)increases the price from $285 per tonne to $315 per tonne.Annual Canadian production increases from 15 million tonnes to 17 million tonnes.What is the elasticity of supply of Canadian potash?

The price elasticity of demand for a product tends to be greater the

Consider a firm's price elasticity of supply.If firms' costs rise rapidly as output increases,the

The president of a major nickel-producing company says that an increase in the price of nickel would have no effect on the total amount spent on nickel.If this is true,the price elasticity of demand for nickel is

Income elasticity measures the change in quantity demanded of some product with respect to changes in

Cross-price elasticity of demand may be defined as

Economic Issues and Concepts

Economic Theories,Data,and Graphs

Demand, Supply, and Price

Price Controls and Market Efficiency

Consumer Behaviour

Producers in the Short Run

Producers in the Long Run

Competitive Markets

Monopoly, cartels, and Price Discrimination

Imperfect Competition and Strategic Behaviour

Economic Efficiency and Public Policy

How Factor Markets Work

Labour Markets and Income Inequality

Interest Rates and the Capital Market

Market Failures and Government Intervention

The Economics of Environmental Protection

Taxation and Public Expenditure

What Macroeconomics Is All About

The Measurement of National Income

The Simplest Short-Run Macro Model

Adding Government and Trade to the Simple Macro Model

Output and Prices in the Short Run

From the Short Run to the Long Run: The Adjustment of Factor Prices

Long-Run Economic Growth

Money and Banking

Money, Interest Rates, and Economic Activity

Monetary Policy in Canada

Inflation and Disinflation

Unemployment Fluctuations and the Nairu

Government Debt and Deficits

The Gains From International Trade

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Filters

FIGURE 4-3 -Refer to Figure 4-3,which shows a demand shift and the short-run and long-run supply curves for some product.In the new long-run equilibrium at E_L,producers' revenue

During the 1970s,OPEC's output restrictions caused gasoline prices to increase sharply.Coincidentally,demand for gas-guzzling cars fell.A likely explanation for these observations is that gasoline and cars had a elasticity of demand that was .