Question 1

The price elasticity of demand of a straight-line demand curve is

Accepted Answer

A)  elastic in high-price ranges and inelastic in low-price ranges. 
B)  elastic but does not change at various points on the curve. 
C)  inelastic but does not change at various points on the curve. 
D)  1 at all points on the curve. 
A)  elastic in high-price ranges and inelastic in low-price ranges. 
B)  elastic but does not change at various points on the curve. 
C)  inelastic but does not change at various points on the curve. 
D)  1 at all points on the curve.

Question 2

The price elasticity of demand for a textbook is estimated to be 1 no matter what the price or quantity demanded. In this case,

Accepted Answer

A)  a 10 percent increase in price will result in a 10 percent increase in total revenues. 
B)  a 10 percent increase in price will result in a 10 percent decrease in the quantity demanded. 
C)  a 10 percent increase in price will result in a 10 percent decrease in total revenues. 
D)  a 10 percent increase in price will result in a 10 percent increase in quantity demanded. 
A)  a 10 percent increase in price will result in a 10 percent increase in total revenues. 
B)  a 10 percent increase in price will result in a 10 percent decrease in the quantity demanded. 
C)  a 10 percent increase in price will result in a 10 percent decrease in total revenues. 
D)  a 10 percent increase in price will result in a 10 percent increase in quantity demanded.

Question 3

You notice that whenever incomes rise by 5 percent, people buy 3 percent more of Good A. This suggests that Good A has a negative income elasticity of demand.

Accepted Answer

A) True 
 B)False

Question 4

The total revenue received by sellers of a good is the same amount as the

Accepted Answer

A)  total income earned by the buyers. 
B)  total amount spent on the good by the buyers. 
C)  price paid by the buyers for each unit of the good. 
D)  profits earned by the sellers of the good. 
A)  total income earned by the buyers. 
B)  total amount spent on the good by the buyers. 
C)  price paid by the buyers for each unit of the good. 
D)  profits earned by the sellers of the good.

Question 5

The concept of price elasticity of demand measures

Accepted Answer

A)  the slope of the demand curve. 
B)  the number of buyers in a market. 
C)  the extent to which the demand curve shifts as the result of a price decline. 
D)  the sensitivity of consumer purchases to price changes. 
A)  the slope of the demand curve. 
B)  the number of buyers in a market. 
C)  the extent to which the demand curve shifts as the result of a price decline. 
D)  the sensitivity of consumer purchases to price changes.

Question 6

If the demand for a product is elastic, then

Accepted Answer

A)  a higher tax on the product will generate more tax revenue. 
B)  a higher tax on the product will generate less tax revenue. 
C)  total revenue will decrease as price decreases. 
D)  total revenue will remain constant as price increases. 
A)  a higher tax on the product will generate more tax revenue. 
B)  a higher tax on the product will generate less tax revenue. 
C)  total revenue will decrease as price decreases. 
D)  total revenue will remain constant as price increases.

Question 7

Which of the following statements is inconsistent with an elastic demand curve?

Accepted Answer

A)  The price-elasticity coefficient is greater than 1. 
B)  Total revenue increases when price increases. 
C)  Buyers are relatively sensitive to price changes. 
D)  The relative change in quantity exceeds the relative change in price. 
A)  The price-elasticity coefficient is greater than 1. 
B)  Total revenue increases when price increases. 
C)  Buyers are relatively sensitive to price changes. 
D)  The relative change in quantity exceeds the relative change in price.

Question 8

The supply of product X is inelastic (but not perfectly inelastic) if the price of X rises by

Accepted Answer

A)  5 percent and quantity supplied rises by 7 percent. 
B)  8 percent and quantity supplied rises by 8 percent. 
C)  10 percent and quantity supplied remains the same. 
D)  7 percent and quantity supplied rises by 5 percent. 
A)  5 percent and quantity supplied rises by 7 percent. 
B)  8 percent and quantity supplied rises by 8 percent. 
C)  10 percent and quantity supplied remains the same. 
D)  7 percent and quantity supplied rises by 5 percent.

Question 9

Assume that a 3 percent increase in income across the economy produces a 1 percent decline in the quantity demanded of good X. The coefficient of income elasticity of demand for good X is

Accepted Answer

A)  negative, and therefore X is an inferior good. 
B)  negative, and therefore X is a normal good. 
C)  positive, and therefore X is an inferior good. 
D)  positive and therefore X is a normal good. 
A)  negative, and therefore X is an inferior good. 
B)  negative, and therefore X is a normal good. 
C)  positive, and therefore X is an inferior good. 
D)  positive and therefore X is a normal good.

Question 10

The price of gold is often volatile because

Accepted Answer

A)  demand is relatively inelastic, so changes in supply have a large effect on price. 
B)  supply is relatively elastic, so changes in demand have a large effect on price. 
C)  demand is relatively elastic, so changes in supply have a large effect on price. 
D)  supply is relatively inelastic, so changes in demand have a large effect on price. 
A)  demand is relatively inelastic, so changes in supply have a large effect on price. 
B)  supply is relatively elastic, so changes in demand have a large effect on price. 
C)  demand is relatively elastic, so changes in supply have a large effect on price. 
D)  supply is relatively inelastic, so changes in demand have a large effect on price.

Question 11

Which of the following factors will make the demand for a product relatively elastic?

Accepted Answer

A)  There are few substitutes. 
B)  The time interval considered is long. 
C)  The good is considered a necessity. 
D)  Purchases of the good require a small portion of consumers' budgets. 
A)  There are few substitutes. 
B)  The time interval considered is long. 
C)  The good is considered a necessity. 
D)  Purchases of the good require a small portion of consumers' budgets.

Question 12

Total revenue falls as the price of a good is raised, if the demand for the good is

Accepted Answer

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

Question 13

When the percentage change in price is greater than the resulting percentage change in quantity demanded,

Accepted Answer

A)  a decrease in price will increase total revenue. 
B)  demand may be either elastic or inelastic. 
C)  an increase in price will increase total revenue. 
D)  demand is elastic. 
A)  a decrease in price will increase total revenue. 
B)  demand may be either elastic or inelastic. 
C)  an increase in price will increase total revenue. 
D)  demand is elastic.

Question 14

The elasticity of supply of product X is unitary if the price of X rises by

Accepted Answer

A)  5 percent and quantity supplied rises by 7 percent. 
B)  8 percent and quantity supplied rises by 8 percent. 
C)  10 percent and quantity supplied stays the same. 
D)  7 percent and quantity supplied rises by 5 percent. 
A)  5 percent and quantity supplied rises by 7 percent. 
B)  8 percent and quantity supplied rises by 8 percent. 
C)  10 percent and quantity supplied stays the same. 
D)  7 percent and quantity supplied rises by 5 percent.

Question 15

Assume that pizza and hamburgers are the only food items available to consumers. If the price of pizza increases, other factors constant, then which of the following will definitely happen?

Accepted Answer

A)  Total revenues received by pizza sellers will increase. 
B)  Total revenues received by pizza sellers will decrease. 
C)  Total revenues received by hamburger sellers will increase. 
D)  Total revenues received by hamburger sellers will decrease. 
A)  Total revenues received by pizza sellers will increase. 
B)  Total revenues received by pizza sellers will decrease. 
C)  Total revenues received by hamburger sellers will increase. 
D)  Total revenues received by hamburger sellers will decrease.

Question 16

Given that the demand for grains is price-inelastic, we would expect that if the harvest of grains increases significantly, other factors constant, then grain farmers' total revenues would increase.

Accepted Answer

A) True 
 B)False

Question 17

Generally speaking, the smaller the percentage of one's total budget devoted to a particular product, the more price elastic will be the demand for that product.

Accepted Answer

A) True 
 B)False

Question 18

You are the only seller of eggs in town, and the price-elasticity coefficient for eggs is known to be 0.8. If you want to increase your sales quantity by 10 percent through a price change, what should you do to price?

Accepted Answer

A)  increase price by 12.5 percent 
B)  reduce price by 12.5 percent 
C)  increase price by 8 percent 
D)  reduce price by 8 percent 
A)  increase price by 12.5 percent 
B)  reduce price by 12.5 percent 
C)  increase price by 8 percent 
D)  reduce price by 8 percent

Question 19

A union argues that a price cut will boost the revenues of the firm, while management argues that the opposite is true. This suggests that the price elasticity of demand is

Accepted Answer

A)  unit-elastic from the union's perspective and unit-inelastic from management's perspective. 
B)  perfectly inelastic from the union's perspective and perfectly elastic from management's perspective. 
C)  elastic from the union's perspective, inelastic from management's perspective. 
D)  inelastic from the union's perspective, elastic from management's perspective. 
A)  unit-elastic from the union's perspective and unit-inelastic from management's perspective. 
B)  perfectly inelastic from the union's perspective and perfectly elastic from management's perspective. 
C)  elastic from the union's perspective, inelastic from management's perspective. 
D)  inelastic from the union's perspective, elastic from management's perspective.

Question 20

The supply of tickets to a major sporting event held in an enclosed stadium, such as the Super Bowl or a World Series game, is perfectly inelastic.

Accepted Answer

A) True 
 B)False

Exam 6: Elasticity

The price elasticity of demand of a straight-line demand curve is

The price elasticity of demand for a textbook is estimated to be 1 no matter what the price or quantity demanded. In this case,

You notice that whenever incomes rise by 5 percent, people buy 3 percent more of Good A. This suggests that Good A has a negative income elasticity of demand.

The total revenue received by sellers of a good is the same amount as the

The concept of price elasticity of demand measures

If the demand for a product is elastic, then

Which of the following statements is inconsistent with an elastic demand curve?

The supply of product X is inelastic (but not perfectly inelastic) if the price of X rises by

Assume that a 3 percent increase in income across the economy produces a 1 percent decline in the quantity demanded of good X. The coefficient of income elasticity of demand for good X is

The price of gold is often volatile because

Which of the following factors will make the demand for a product relatively elastic?

Total revenue falls as the price of a good is raised, if the demand for the good is

When the percentage change in price is greater than the resulting percentage change in quantity demanded,

The elasticity of supply of product X is unitary if the price of X rises by

Assume that pizza and hamburgers are the only food items available to consumers. If the price of pizza increases, other factors constant, then which of the following will definitely happen?

Given that the demand for grains is price-inelastic, we would expect that if the harvest of grains increases significantly, other factors constant, then grain farmers' total revenues would increase.

Generally speaking, the smaller the percentage of one's total budget devoted to a particular product, the more price elastic will be the demand for that product.

You are the only seller of eggs in town, and the price-elasticity coefficient for eggs is known to be 0.8. If you want to increase your sales quantity by 10 percent through a price change, what should you do to price?

A union argues that a price cut will boost the revenues of the firm, while management argues that the opposite is true. This suggests that the price elasticity of demand is

The supply of tickets to a major sporting event held in an enclosed stadium, such as the Super Bowl or a World Series game, is perfectly inelastic.

Limits, Alternatives, and Choices

The Market System and the Circular Flow

Demand, Supply, and Market Equilibrium

Market Failures: Public Goods and Externalities

Governments Role and Government Failure

Utility Maximization

Behavioral Economics

Businesses and the Costs of Production

Pure Competition in the Short Run

Pure Competition in the Long Run

Pure Monopoly

Monopolistic Competition

Oligopoly and Strategic Behavior

Technology, Rd, and Efficiency

The Demand for Resources

Wage Determination

Rent, Interest, and Profit

Natural Resource and Energy Economics

Public Finance: Expenditures and Taxes

Antitrust Policy and Regulation

Agriculture: Economics and Policy

Income Inequality, Poverty, and Discrimination

Health Care

Immigration

International Trade

The Balance of Payments, Exchange Rates, and Trade Deficits

The Economics of Developing Countries

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