Question 1

Elasticity

Accepted Answer

A) deals with percentage changes in price and quantity demanded. 
B) employs percentage changes calculated in terms of average values of the prices and quantities at issue. 
C) is generally stated in absolute value. 
D) All of the above are correct. 
A) deals with percentage changes in price and quantity demanded. 
B) employs percentage changes calculated in terms of average values of the prices and quantities at issue. 
C) is generally stated in absolute value. 
D) All of the above are correct.

Question 2

Using the general concept of elasticity,would you expect the elasticity of demand for advertising to be positive or negative? Explain.

Accepted Answer

Firms would advertise only if they belie

Question 3

Figure 6-3
  
-In Figure 6-3(a),demand is

Accepted Answer

A) perfectly elastic. 
B) perfectly inelastic. 
C) unit elastic. 
D) fixed at one particular quantity. 
A) perfectly elastic. 
B) perfectly inelastic. 
C) unit elastic. 
D) fixed at one particular quantity.

Question 4

When the price of penicillin tablets increases by $5 per dozen,the drug company's revenue increases by $6 million.Its elasticity of demand (in absolute terms)must be

Accepted Answer

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

Question 5

Total expenditure equals price times elasticity.

Accepted Answer

A) True 
 B)False

Question 6

Along a straight-line demand curve (dropping all minus signs),the price elasticity of demand

Accepted Answer

A) gets larger as quantity demanded gets larger. 
B) gets smaller as quantity demanded gets larger. 
C) always equals one. 
D) is constant (though not necessarily equal to one). 
A) gets larger as quantity demanded gets larger. 
B) gets smaller as quantity demanded gets larger. 
C) always equals one. 
D) is constant (though not necessarily equal to one).

Question 7

The sales manager of a retail outlet suggests that the best way to increase customers is to have a sale.If a 10 percent price cut doesn't bring in enough customers,then he'll cut prices 20 percent.Increased cash flow should take care of profits.Do you agree? Explain.

Accepted Answer

A price cut will (usually)lead

Question 8

When the goods of competing companies are identical,consumers have no reason to prefer one product over the other so the demand curve for each manufacturer will be perfectly elastic.

Accepted Answer

A) True 
 B)False

Question 9

Chicken and fish are substitutes.Therefore,the cross elasticity of demand between chicken and fish is

Accepted Answer

A) negative. 
B) positive. 
C) zero. 
D) Any of the above is possible. 
A) negative. 
B) positive. 
C) zero. 
D) Any of the above is possible.

Question 10

The price elasticity of a vertical demand curve is always

Accepted Answer

A) infinitely large. 
B) zero. 
C) one. 
D) increasing as price increases. 
A) infinitely large. 
B) zero. 
C) one. 
D) increasing as price increases.

Question 11

Elasticity provides a guide to both

Accepted Answer

A) market stability and change in revenue as price changes. 
B) responsiveness of quantity demanded to a change in price and market stability. 
C) responsiveness of quantity demanded to a change in price and change in revenue as price changes. 
D) technological change and change in revenue as price changes. 
A) market stability and change in revenue as price changes. 
B) responsiveness of quantity demanded to a change in price and market stability. 
C) responsiveness of quantity demanded to a change in price and change in revenue as price changes. 
D) technological change and change in revenue as price changes.

Question 12

If the marginal cost of producing vanity license plates is virtually zero (by prison inmates with little else to do),then states would maximize their profits on plate sales at the point on a linear demand curve where

Accepted Answer

A) demand is inelastic. 
B) demand is elastic. 
C) demand is unit elastic. 
D) the demand curve crosses the horizontal axis. 
A) demand is inelastic. 
B) demand is elastic. 
C) demand is unit elastic. 
D) the demand curve crosses the horizontal axis.

Question 13

If the price of gasoline rises by 20 percent and consumption of gasoline falls 5 percent,

Accepted Answer

A) demand is elastic. 
B) demand is unit-elastic. 
C) demand is inelastic. 
D) elasticity of demand cannot be calculated. 
A) demand is elastic. 
B) demand is unit-elastic. 
C) demand is inelastic. 
D) elasticity of demand cannot be calculated.

Question 14

In an attempt to raise sales,Hannah cut prices in her bookstore by 20 percent.If the dollar value of her sales remained constant,that indicates

Accepted Answer

A) old customers bought no more books. 
B) no new customers bought books. 
C) the quantity of books sold increased 20 percent. 
D) the demand curve is vertical. 
A) old customers bought no more books. 
B) no new customers bought books. 
C) the quantity of books sold increased 20 percent. 
D) the demand curve is vertical.

Question 15

If,as price increases by 10 percent,total revenue decreases by 10 percent demand is

Accepted Answer

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

Question 16

Specifically,what might cause the quantity demanded of a particular good to double at a particular price?

Accepted Answer

This results from a rightward shift in t

Question 17

A demand curve is described as perfectly inelastic if

Accepted Answer

A) the same quantity is purchased regardless of price. 
B) the same price is charged regardless of quantity sold. 
C) neither price nor quantity demanded ever change. 
D) only quantity demanded can change. 
A) the same quantity is purchased regardless of price. 
B) the same price is charged regardless of quantity sold. 
C) neither price nor quantity demanded ever change. 
D) only quantity demanded can change.

Question 18

The formula for price elasticity of demand that is used in practice

Accepted Answer

A) usually drops all minus signs. 
B) usually takes on different values at different points on the demand curve. 
C) may calculate the percentage change in price between P1 and P2 as "(P2 - P1) as a percentage of (P1 + P2)/2." 
D) All of the above are correct. 
A) usually drops all minus signs. 
B) usually takes on different values at different points on the demand curve. 
C) may calculate the percentage change in price between P1 and P2 as "(P2 - P1) as a percentage of (P1 + P2)/2." 
D) All of the above are correct.

Question 19

If demand is elastic,a rise in price will decrease total expenditure.

Accepted Answer

A) True 
 B)False

Question 20

The elasticity of supply is calculated by

Accepted Answer

A) determining the slope of the supply curve. 
B) dividing the absolute change in quantity supplied by the absolute change in price. 
C) dividing the percentage change in quantity supplied by the percentage change in price. 
D) dividing the percentage change in price by the percentage change in quantity demanded. 
A) determining the slope of the supply curve. 
B) dividing the absolute change in quantity supplied by the absolute change in price. 
C) dividing the percentage change in quantity supplied by the percentage change in price. 
D) dividing the percentage change in price by the percentage change in quantity demanded.

Exam 6: Demand and Elasticity

Elasticity

Using the general concept of elasticity,would you expect the elasticity of demand for advertising to be positive or negative? Explain.

Figure 6-3 -In Figure 6-3(a),demand is

When the price of penicillin tablets increases by $5 per dozen,the drug company's revenue increases by $6 million.Its elasticity of demand (in absolute terms)must be

Total expenditure equals price times elasticity.

Along a straight-line demand curve (dropping all minus signs),the price elasticity of demand

The sales manager of a retail outlet suggests that the best way to increase customers is to have a sale.If a 10 percent price cut doesn't bring in enough customers,then he'll cut prices 20 percent.Increased cash flow should take care of profits.Do you agree? Explain.

When the goods of competing companies are identical,consumers have no reason to prefer one product over the other so the demand curve for each manufacturer will be perfectly elastic.

Chicken and fish are substitutes.Therefore,the cross elasticity of demand between chicken and fish is

The price elasticity of a vertical demand curve is always

Elasticity provides a guide to both

If the marginal cost of producing vanity license plates is virtually zero (by prison inmates with little else to do),then states would maximize their profits on plate sales at the point on a linear demand curve where

If the price of gasoline rises by 20 percent and consumption of gasoline falls 5 percent,

In an attempt to raise sales,Hannah cut prices in her bookstore by 20 percent.If the dollar value of her sales remained constant,that indicates

If,as price increases by 10 percent,total revenue decreases by 10 percent demand is

Specifically,what might cause the quantity demanded of a particular good to double at a particular price?

A demand curve is described as perfectly inelastic if

The formula for price elasticity of demand that is used in practice

If demand is elastic,a rise in price will decrease total expenditure.

The elasticity of supply is calculated by

What Is Economics

The Economy: Myth and Reality

The Fundamental Economic Problem: Scarcity and Choice

Supply and Demand: An Initial Look

Consumer Choice: Individual and Market Demand

Production,Inputs,and Cost: Building Blocks for Supply Analysis

Output,Price,and Profit: The Importance of Marginal Analysis

Securities: Business Finance,and the Economy: The Tail That Wags the Dog

The Firm and the Industry Under Perfect Competition

Monopoly

Between Competition and Monopoly

Limiting Market Power: Regulation and Antitrust

The Case for Free Markets I: the Price System

The Shortcomings of Free Markets

The Markets Prime Achievement: Innovation and Growth

Externalities, the Environment, and Natural Resources

Taxation and Resource Allocation

Pricing the Factors of Production

Labor and Entrepreneurship: The Human Inputs

Poverty, Inequality, and Discrimination

International Trade and Comparative Advantage

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