Question 1

A horizontal demand curve is perfectly elastic because a change in price will induce an infinite change in quantity demanded.

Accepted Answer

A) True 
 B)False

Question 2

The elasticity formula solves the units problem because percentages are unaffected by the units of measure.

Accepted Answer

A) True 
 B)False

Question 3

A price increase will always increase a firm's revenue.

Accepted Answer

A) True 
 B)False

Question 4

All of the following observations concerning the elasticity formula are true except

Accepted Answer

A) the changes with which it deals is measured as a percentage change. 
B) each of the percentage changes is calculated in terms of the average values. 
C) the calculation considers both positive and negative signs. 
D) each percentage change is taken as an "absolute value." 
A) the changes with which it deals is measured as a percentage change. 
B) each of the percentage changes is calculated in terms of the average values. 
C) the calculation considers both positive and negative signs. 
D) each percentage change is taken as an "absolute value."

Question 5

Why do economists measure responsiveness of demand to price in percentage changes rather than in absolute changes?

Accepted Answer

Different units of measurement will give

Question 6

The ratio of the percentage change in quantity demanded to the percentage change in income is known as the cross elasticity of demand.

Accepted Answer

A) True 
 B)False

Question 7

If demand is unit elastic,revenue

Accepted Answer

A) and price rise and fall together. 
B) rises as price falls. 
C) falls as price rises. 
D) remains constant as price rises or falls. 
A) and price rise and fall together. 
B) rises as price falls. 
C) falls as price rises. 
D) remains constant as price rises or falls.

Question 8

Price elasticity of demand can be written as percentage change in Q divided by percentage change in P.

Accepted Answer

A) True 
 B)False

Question 9

Perfectly elastic demand curves are vertical.

Accepted Answer

A) True 
 B)False

Question 10

The demand for a new effective drug for the cure of AIDS would most likely be

Accepted Answer

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

Question 11

The demand for potatoes at current prices is likely to be

Accepted Answer

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

Question 12

A price cut will increase the revenue a firm receives if the demand for its product is

Accepted Answer

A) elastic. 
B) inelastic. 
C) of unit elasticity. 
D) straight elastic. 
A) elastic. 
B) inelastic. 
C) of unit elasticity. 
D) straight elastic.

Question 13

If a 10 percent rise in price leads to a reduction in quantity demanded of more than 10 percent,

Accepted Answer

A) demand is elastic. 
B) demand is inelastic. 
C) elasticity of demand is unitary. 
D) None of the above is correct. 
A) demand is elastic. 
B) demand is inelastic. 
C) elasticity of demand is unitary. 
D) None of the above is correct.

Question 14

The price of coffee rose 50 percent and coffee sales fell 25 percent.Doughnut sales also fell 25 percent.From this information we can conclude that

Accepted Answer

A) demand for coffee is inelastic. 
B) coffee and doughnuts are complements. 
C) the cross elasticity of demand is minus 0.5 percent. 
D) All of the above are correct. 
A) demand for coffee is inelastic. 
B) coffee and doughnuts are complements. 
C) the cross elasticity of demand is minus 0.5 percent. 
D) All of the above are correct.

Question 15

If both matches and automobile prices increase by 10 percent,consumers will likely buy

Accepted Answer

A) fewer matches and approximately the same quantity of automobiles. 
B) approximately the same quantity of matches and fewer automobiles. 
C) fewer matches and fewer automobiles. 
D) approximately the same quantity of both matches and automobiles. 
A) fewer matches and approximately the same quantity of automobiles. 
B) approximately the same quantity of matches and fewer automobiles. 
C) fewer matches and fewer automobiles. 
D) approximately the same quantity of both matches and automobiles.

Question 16

What is the shape of a perfectly elastic demand curve? Explain its significance for a seller.

Accepted Answer

The perfectly elastic demand curve is ho

Question 17

What does cross elasticity of demand between goods reveal about the nature of relationship between them?

Accepted Answer

Its sign reveals whether the goods are s

Question 18

How might a court use cross elasticity in an antitrust case?

Accepted Answer

One major issue a court must settle is t

Question 19

A perfectly elastic demand curve for a firm

Accepted Answer

A) is represented by a vertical line. 
B) means that with every unit price increase there will be a unit decrease in demand. 
C) is formulated by P * Q = a constant, for all prices and quantities. 
D) indicates that any increase in price will eliminate all purchases of its product. 
A) is represented by a vertical line. 
B) means that with every unit price increase there will be a unit decrease in demand. 
C) is formulated by P * Q = a constant, for all prices and quantities. 
D) indicates that any increase in price will eliminate all purchases of its product.

Question 20

Arrange the following goods from least to most elastic,explaining your ordering: gasoline,Exxon gas,Exxon gas at a particular gas station.

Accepted Answer

Gasoline is least elastic,since there ar

Exam 6: Demand and Elasticity

A horizontal demand curve is perfectly elastic because a change in price will induce an infinite change in quantity demanded.

The elasticity formula solves the units problem because percentages are unaffected by the units of measure.

A price increase will always increase a firm's revenue.

All of the following observations concerning the elasticity formula are true except

Why do economists measure responsiveness of demand to price in percentage changes rather than in absolute changes?

The ratio of the percentage change in quantity demanded to the percentage change in income is known as the cross elasticity of demand.

If demand is unit elastic,revenue

Price elasticity of demand can be written as percentage change in Q divided by percentage change in P.

Perfectly elastic demand curves are vertical.

The demand for a new effective drug for the cure of AIDS would most likely be

The demand for potatoes at current prices is likely to be

A price cut will increase the revenue a firm receives if the demand for its product is

If a 10 percent rise in price leads to a reduction in quantity demanded of more than 10 percent,

The price of coffee rose 50 percent and coffee sales fell 25 percent.Doughnut sales also fell 25 percent.From this information we can conclude that

If both matches and automobile prices increase by 10 percent,consumers will likely buy

What is the shape of a perfectly elastic demand curve? Explain its significance for a seller.

What does cross elasticity of demand between goods reveal about the nature of relationship between them?

How might a court use cross elasticity in an antitrust case?

A perfectly elastic demand curve for a firm

Arrange the following goods from least to most elastic,explaining your ordering: gasoline,Exxon gas,Exxon gas at a particular gas station.

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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