Question 1

A normal good would have a positive price-elasticity of demand.

Accepted Answer

A) True 
 B)False  False

Question 2

If demand for a product is elastic, the value of the price elasticity coefficient is

Accepted Answer

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

Question 3

A firm produces and sells two goods, A and B. Good A is known to have many close substitutes; good B makes up a significant portion of most families' budgets. From these facts, we would expect that the demand for Good A would be _, while that of Good B would be .

Accepted Answer

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

Question 4

We would expect the cross elasticity of demand between dress shirts and ties to be

Accepted Answer

A)  positive, indicating normal goods. 
B)  positive, indicating complementary goods. 
C)  negative, indicating substitute goods. 
D)  negative, indicating complementary goods. 
A)  positive, indicating normal goods. 
B)  positive, indicating complementary goods. 
C)  negative, indicating substitute goods. 
D)  negative, indicating complementary goods.

Question 5

The Illinois Central Railroad once asked the Illinois Commerce Commission for permission to increase its commuter rates by 20 percent. The railroad argued that declining revenues made this rate increase essential. Opponents of the rate increase contended that the railroad's revenues would fall because of the rate hike. It can be concluded that

Accepted Answer

A)  both groups felt that the demand was elastic but for different reasons. 
B)  both groups felt that the demand was inelastic but for different reasons. 
C)  the railroad felt that the demand for passenger service was inelastic and opponents of the rate increase felt it was elastic. 
D)  the railroad felt that the demand for passenger service was elastic and opponents of the rate increase felt it was inelastic. 
A)  both groups felt that the demand was elastic but for different reasons. 
B)  both groups felt that the demand was inelastic but for different reasons. 
C)  the railroad felt that the demand for passenger service was inelastic and opponents of the rate increase felt it was elastic. 
D)  the railroad felt that the demand for passenger service was elastic and opponents of the rate increase felt it was inelastic.

Question 6

If the supply of product X is perfectly elastic, an increase in the demand for it will increase

Accepted Answer

A)  equilibrium quantity but reduce equilibrium price. 
B)  equilibrium quantity, but equilibrium price will be unchanged. 
C)  equilibrium price but reduce equilibrium quantity. 
D)  equilibrium price, but equilibrium quantity will be unchanged. 
A)  equilibrium quantity but reduce equilibrium price. 
B)  equilibrium quantity, but equilibrium price will be unchanged. 
C)  equilibrium price but reduce equilibrium quantity. 
D)  equilibrium price, but equilibrium quantity will be unchanged.

Question 7

A straight-line downward-sloping demand curve has a price elasticity of demand which

Accepted Answer

A)  decreases as price decreases. 
B)  increases as price decreases. 
C)  is zero at all prices. 
D)  is unitary at all prices. 
A)  decreases as price decreases. 
B)  increases as price decreases. 
C)  is zero at all prices. 
D)  is unitary at all prices.

Question 8

(p. $$pageTag$$)   Refer to the above graph. Consider a situation where price increases from P3 to P4. In this price range, demand is relatively

Accepted Answer

A)  inelastic because the loss in total revenue (areas E + F + G) is greater than the gain in total revenue (area 
A) . 
B)  elastic because the loss in total revenue (areas E + F + G) is greater than the gain in total revenue (area 
A) . 
C)  elastic because the loss in total revenue (area 
A)  is greater than the gain in total revenue (areas E + F + G). 
D)  inelastic because the loss in total revenue (area 
A)  is greater than the gain in total revenue (areas E + F + G). 
A)  inelastic because the loss in total revenue (areas E + F + G) is greater than the gain in total revenue (area 
A) . 
B)  elastic because the loss in total revenue (areas E + F + G) is greater than the gain in total revenue (area 
A) . 
C)  elastic because the loss in total revenue (area 
A)  is greater than the gain in total revenue (areas E + F + G). 
D)  inelastic because the loss in total revenue (area 
A)  is greater than the gain in total revenue (areas E + F + G).

Question 9

(Last Word) Suppose that a firm has "pricing power" and can segregate its market into two distinct groups based on differences in elasticities of demand. The firm might charge

Accepted Answer

A)  a lower price to the group that has the less elastic demand. 
B)  a higher price to the group that has the less elastic demand. 
C)  the same price to both groups but include a "free" related product for the group that has an inelastic demand. 
D)  the same price to both groups but make it difficult for the group with the more elastic demand to gain access to the product. 
A)  a lower price to the group that has the less elastic demand. 
B)  a higher price to the group that has the less elastic demand. 
C)  the same price to both groups but include a "free" related product for the group that has an inelastic demand. 
D)  the same price to both groups but make it difficult for the group with the more elastic demand to gain access to the product.

Question 10

A good with a price-elasticity coefficient of 0.75 has a demand that is price-inelastic.

Accepted Answer

A) True 
 B)False

Question 11

The cross elasticity of demand for product X with respect to the price of product Y is −1.2. It can be inferred that X and Y are

Accepted Answer

A)  substitute products. 
B)  complementary products. 
C)  luxury products. 
D)  unrelated products. 
A)  substitute products. 
B)  complementary products. 
C)  luxury products. 
D)  unrelated products.

Question 12

To economists, the main differences between "the short run" and "the long run" are that

Accepted Answer

A)  the law of diminishing returns applies in the long run, but not in the short run. 
B)  in the short run all resources are fixed, while in the long run all resources are variable. 
C)  fixed inputs are more important to decision making in the long run than they are in the short run. 
D)  in the long run all resources are variable, while in the short run at least one resource is fixed. 
A)  the law of diminishing returns applies in the long run, but not in the short run. 
B)  in the short run all resources are fixed, while in the long run all resources are variable. 
C)  fixed inputs are more important to decision making in the long run than they are in the short run. 
D)  in the long run all resources are variable, while in the short run at least one resource is fixed.

Question 13

You are the sales manager for a software company and have been informed that the price elasticity of demand for your most popular software is less than 1. In order to increase total revenues from that product, you should

Accepted Answer

A)  increase the price of the software. 
B)  decrease the price of the software. 
C)  hold the price of the software constant. 
D)  increase the supply of the software. 
A)  increase the price of the software. 
B)  decrease the price of the software. 
C)  hold the price of the software constant. 
D)  increase the supply of the software.

Question 14

Considering the price-elasticity of demand for wheat, we would expect that if the supply of wheat increases, other factors constant, then wheat farmers' total revenues would

Accepted Answer

A)  increase because the demand is price-inelastic. 
B)  decrease because the demand is price-inelastic. 
C)  increase because the demand is price-elastic. 
D)  decrease because the demand is price-elastic. 
A)  increase because the demand is price-inelastic. 
B)  decrease because the demand is price-inelastic. 
C)  increase because the demand is price-elastic. 
D)  decrease because the demand is price-elastic.

Question 15

In interpreting the Ed value as either elastic or inelastic, we look at the

Accepted Answer

A)  Ed coefficient with its negative sign. 
B)  absolute value of the Ed coefficient. 
C)  percentage change in price. 
D)  percentage change in quantity. 
A)  Ed coefficient with its negative sign. 
B)  absolute value of the Ed coefficient. 
C)  percentage change in price. 
D)  percentage change in quantity.

Question 16

Suppose the price elasticity of demand for bread is 0.20. If the price of bread falls by 10 percent, the quantity demanded will increase by

Accepted Answer

A)  2 percent and total expenditures on bread will rise. 
B)  2 percent and total expenditures on bread will fall. 
C)  20 percent and total expenditures on bread will fall. 
D)  20 percent and total expenditures on bread will rise. 
A)  2 percent and total expenditures on bread will rise. 
B)  2 percent and total expenditures on bread will fall. 
C)  20 percent and total expenditures on bread will fall. 
D)  20 percent and total expenditures on bread will rise.

Question 17

A positive cross-elasticity of demand between two goods indicates that the two goods are both normal goods.

Accepted Answer

A) True 
 B)False

Question 18

Gigantic State University raises tuition for the purpose of increasing its revenue so that more faculty can be hired. GSU is assuming that the demand for education at GSU is

Accepted Answer

A)  decreasing. 
B)  relatively elastic. 
C)  perfectly elastic. 
D)  relatively inelastic. 
A)  decreasing. 
B)  relatively elastic. 
C)  perfectly elastic. 
D)  relatively inelastic.

Question 19

Suppose the price elasticity of supply for crude oil is 2.5. How much would price have to rise to increase production by 20 percent?

Accepted Answer

A)  8 percent 
B)  12.5 percent 
C)  20 percent 
D)  45 percent 
A)  8 percent 
B)  12.5 percent 
C)  20 percent 
D)  45 percent

Question 20

Suppose the supply of product X is perfectly inelastic. If there is an increase in the demand for this product, equilibrium price

Accepted Answer

A)  will decrease, but equilibrium quantity will increase. 
B)  and quantity will both decrease. 
C)  will increase, but equilibrium quantity will decline. 
D)  will increase, but equilibrium quantity will be unchanged. 
A)  will decrease, but equilibrium quantity will increase. 
B)  and quantity will both decrease. 
C)  will increase, but equilibrium quantity will decline. 
D)  will increase, but equilibrium quantity will be unchanged.

Exam 6: Elasticity

A normal good would have a positive price-elasticity of demand.

If demand for a product is elastic, the value of the price elasticity coefficient is

A firm produces and sells two goods, A and B. Good A is known to have many close substitutes; good B makes up a significant portion of most families' budgets. From these facts, we would expect that the demand for Good A would be _, while that of Good B would be .

We would expect the cross elasticity of demand between dress shirts and ties to be

If the supply of product X is perfectly elastic, an increase in the demand for it will increase

A straight-line downward-sloping demand curve has a price elasticity of demand which

(p. pageTagpageTagpageTag ) Refer to the above graph. Consider a situation where price increases from P3 to P4. In this price range, demand is relatively

(Last Word) Suppose that a firm has "pricing power" and can segregate its market into two distinct groups based on differences in elasticities of demand. The firm might charge

A good with a price-elasticity coefficient of 0.75 has a demand that is price-inelastic.

The cross elasticity of demand for product X with respect to the price of product Y is −1.2. It can be inferred that X and Y are

To economists, the main differences between "the short run" and "the long run" are that

You are the sales manager for a software company and have been informed that the price elasticity of demand for your most popular software is less than 1. In order to increase total revenues from that product, you should

Considering the price-elasticity of demand for wheat, we would expect that if the supply of wheat increases, other factors constant, then wheat farmers' total revenues would

In interpreting the Ed value as either elastic or inelastic, we look at the

Suppose the price elasticity of demand for bread is 0.20. If the price of bread falls by 10 percent, the quantity demanded will increase by

A positive cross-elasticity of demand between two goods indicates that the two goods are both normal goods.

Gigantic State University raises tuition for the purpose of increasing its revenue so that more faculty can be hired. GSU is assuming that the demand for education at GSU is

Suppose the price elasticity of supply for crude oil is 2.5. How much would price have to rise to increase production by 20 percent?

Suppose the supply of product X is perfectly inelastic. If there is an increase in the demand for this product, equilibrium price

Limits, Alternatives, and Choices

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(p. $pageTag$ ) Refer to the above graph. Consider a situation where price increases from P3 to P4. In this price range, demand is relatively