Question 1

If an increase in quantity demanded of a product reduces the quantity demanded of another,then the two goods are said to be substitutes.

Accepted Answer

A) True 
 B)False

Question 2

The quantity demanded in a market depends on many things,but the concept of elasticity focuses on the effect of changes in the price of the good.

Accepted Answer

A) True 
 B)False

Question 3

After a number of acquisitions,Air American controls 75 percent of the U.S.market.It has been charged with "monopolizing" the U.S.air markets by the Justice Department.In its defense,the airline would want to introduce evidence that

Accepted Answer

A) cross elasticities for air and rail travel were very high. 
B) income elasticities for air and rail travel were very high. 
C) price elasticity for air, rail, and auto travel were negative. 
D) management always considered the public interest when setting prices. 
A) cross elasticities for air and rail travel were very high. 
B) income elasticities for air and rail travel were very high. 
C) price elasticity for air, rail, and auto travel were negative. 
D) management always considered the public interest when setting prices.

Question 4

Suppose that the supply of insulin is perfectly elastic and the demand for insulin perfectly inelastic.Then the result of an excise tax would be

Accepted Answer

A) a significant increase in government revenue and a significant decrease in the quantity consumed. 
B) a significant decrease in the quantity consumed with no change in government revenue. 
C) a significant increase in government revenue and no change in the quantity consumed. 
D) no increase in government revenue and no change in the quantity consumed. 
A) a significant increase in government revenue and a significant decrease in the quantity consumed. 
B) a significant decrease in the quantity consumed with no change in government revenue. 
C) a significant increase in government revenue and no change in the quantity consumed. 
D) no increase in government revenue and no change in the quantity consumed.

Question 5

Historical data on prices and quantities sold do not provide the basis for drawing an accurate demand curve because

Accepted Answer

A) reporters who gather these data are often wrong. 
B) factors other than price may change over time. 
C) they do not include measures of price close to the quantity axis. 
D) they sometimes tend to be clustered around one point. 
A) reporters who gather these data are often wrong. 
B) factors other than price may change over time. 
C) they do not include measures of price close to the quantity axis. 
D) they sometimes tend to be clustered around one point.

Question 6

A price increase will always cause a firm's revenue to fall,because they will sell less of the good.

Accepted Answer

A) True 
 B)False

Question 7

A craze for apples in Riverdale increases the quantity demanded at every price by five bushels.Between any two prices,the new demand curve will be ____ the old demand curve.

Accepted Answer

A) more elastic than 
B) less elastic than 
C) equal in elasticity to 
D) More information is needed to predict the relationship. 
A) more elastic than 
B) less elastic than 
C) equal in elasticity to 
D) More information is needed to predict the relationship.

Question 8

Figure 6-2
  
-From Figure 6-2,we can infer that demand is ____ between P = 12 and P = 10 and ____ between P = 6 and P = 4.

Accepted Answer

A) elastic; elastic 
B) elastic; inelastic 
C) inelastic; elastic 
D) inelastic; inelastic 
A) elastic; elastic 
B) elastic; inelastic 
C) inelastic; elastic 
D) inelastic; inelastic

Question 9

As a result of a decline in interest rates and a rise in household income,the demand curve for housing has shifted to the right,but has retained the same slope.Consequently,the elasticity of demand for housing

Accepted Answer

A) has declined. 
B) has increased. 
C) has remained unchanged. 
D) cannot be compared. 
A) has declined. 
B) has increased. 
C) has remained unchanged. 
D) cannot be compared.

Question 10

A buyer's response to a change in income is an example of a "change in demand."

Accepted Answer

A) True 
 B)False

Question 11

The price elasticity of new automobile purchases is about 1.2.This implies that an increase of $1,000 on a $10,000 automobile will

Accepted Answer

A) reduce the number of autos sold by approximately 1.2 percent. 
B) increase the consumer expenditures on autos by approximately 1.2 percent. 
C) reduce the number of autos sold by approximately 12 percent. 
D) increase consumer expenditures on autos by approximately 12 percent. 
A) reduce the number of autos sold by approximately 1.2 percent. 
B) increase the consumer expenditures on autos by approximately 1.2 percent. 
C) reduce the number of autos sold by approximately 12 percent. 
D) increase consumer expenditures on autos by approximately 12 percent.

Question 12

Which of the following will lead to a movement along the same demand curve?

Accepted Answer

A) Changes in income. 
B) Changes in the price of substitute goods. 
C) Changes in the price of the product. 
D) Changes in the preference of the consumer. 
A) Changes in income. 
B) Changes in the price of substitute goods. 
C) Changes in the price of the product. 
D) Changes in the preference of the consumer.

Question 13

Would a profit-maximizing firm sell at a price where demand is inelastic? Explain.

Accepted Answer

No.If demand is inelastic,then

Question 14

A unit-elastic demand curve will be concave toward the origin.

Accepted Answer

A) True 
 B)False

Question 15

Price elasticity of demand is defined as

Accepted Answer

A) slope divided by price. 
B) percentage change in price divided by percentage change in quantity demanded. 
C) percentage change in quantity demanded divided by percentage change in price. 
D) the inverse of the price elasticity of supply. 
A) slope divided by price. 
B) percentage change in price divided by percentage change in quantity demanded. 
C) percentage change in quantity demanded divided by percentage change in price. 
D) the inverse of the price elasticity of supply.

Question 16

Elasticity of demand equals the ratio of the percentage change in quantity demanded to the percentage change in the price of the good.

Accepted Answer

A) True 
 B)False

Question 17

The definition of cross elasticity of demand for two products X and Y is

Accepted Answer

A) percentage change in quantity of X demanded/percentage change in quantity of Y demanded. 
B) percentage change in price of Y/percentage change in quantity of X demanded. 
C) percentage change in price of Y/percentage change in price of X. 
D) percentage change in quantity of X demanded/percentage change in price of Y. 
A) percentage change in quantity of X demanded/percentage change in quantity of Y demanded. 
B) percentage change in price of Y/percentage change in quantity of X demanded. 
C) percentage change in price of Y/percentage change in price of X. 
D) percentage change in quantity of X demanded/percentage change in price of Y.

Question 18

Suppose that elasticity has been reliably measured as 1.55 and the unit price decreases from $20 to $17.50.How much will quantity demanded increase?

Accepted Answer

The percentage change in price

Question 19

Buyers' expenditures and sellers' revenues are always identical.

Accepted Answer

A) True 
 B)False

Question 20

Elasticity of demand equals the ratio of the percentage change in the price of a good to the percentage change in the quantity demanded.

Accepted Answer

A) True 
 B)False

Exam 6: Demand and Elasticity

If an increase in quantity demanded of a product reduces the quantity demanded of another,then the two goods are said to be substitutes.

The quantity demanded in a market depends on many things,but the concept of elasticity focuses on the effect of changes in the price of the good.

After a number of acquisitions,Air American controls 75 percent of the U.S.market.It has been charged with "monopolizing" the U.S.air markets by the Justice Department.In its defense,the airline would want to introduce evidence that

Suppose that the supply of insulin is perfectly elastic and the demand for insulin perfectly inelastic.Then the result of an excise tax would be

Historical data on prices and quantities sold do not provide the basis for drawing an accurate demand curve because

A price increase will always cause a firm's revenue to fall,because they will sell less of the good.

A craze for apples in Riverdale increases the quantity demanded at every price by five bushels.Between any two prices,the new demand curve will be ____ the old demand curve.

Figure 6-2 -From Figure 6-2,we can infer that demand is ____ between P = 12 and P = 10 and ____ between P = 6 and P = 4.

As a result of a decline in interest rates and a rise in household income,the demand curve for housing has shifted to the right,but has retained the same slope.Consequently,the elasticity of demand for housing

A buyer's response to a change in income is an example of a "change in demand."

The price elasticity of new automobile purchases is about 1.2.This implies that an increase of $1,000 on a $10,000 automobile will

Which of the following will lead to a movement along the same demand curve?

Would a profit-maximizing firm sell at a price where demand is inelastic? Explain.

A unit-elastic demand curve will be concave toward the origin.

Price elasticity of demand is defined as

Elasticity of demand equals the ratio of the percentage change in quantity demanded to the percentage change in the price of the good.

The definition of cross elasticity of demand for two products X and Y is

Suppose that elasticity has been reliably measured as 1.55 and the unit price decreases from $20 to $17.50.How much will quantity demanded increase?

Buyers' expenditures and sellers' revenues are always identical.

Elasticity of demand equals the ratio of the percentage change in the price of a good to the percentage change in the quantity demanded.

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

Filters

Figure 6-2 -From Figure 6-2,we can infer that demand is between P = 12 and P = 10 and between P = 6 and P = 4.