Question 1

The demand for cocaine among addicts is relatively elastic.

Accepted Answer

A) True 
 B)False

Question 2

A glass company making windows for houses also makes windows for other things (cars, boats, stores, etc.). We would expect its supply curve for house windows to be

Accepted Answer

A)  dependent on the demand for boat and plane windows. 
B)  no different from that of firms which make only house windows. 
C)  relatively more elastic than those of firms that make only house windows 
D)  relatively more inelastic than those of firms that make only house windows 
A)  dependent on the demand for boat and plane windows. 
B)  no different from that of firms which make only house windows. 
C)  relatively more elastic than those of firms that make only house windows 
D)  relatively more inelastic than those of firms that make only house windows

Question 3

If the demand for wheat is highly price inelastic, an extraordinarily large crop may reduce farm incomes.

Accepted Answer

A) True 
 B)False

Question 4

At a price of $4 per unit, Gadgets Inc. is willing to supply 20,000 gadgets, while United Gadgets is willing to supply 10,000 gadgets. If the price were to rise to $8 per unit, their respective quantities supplied would rise to 45,000 and 25,000. If these are the only two firms supplying gadgets, what is the elasticity of supply in the market for gadgets?

Accepted Answer

A)  1.2 
B)  1.0 
C)  .833 
D)  .80 
A)  1.2 
B)  1.0 
C)  .833 
D)  .80

Question 5

Suppose that a 10 percent increase in the price of normal good Y causes a 20 percent increase in the quantity demanded of normal good X. The coefficient of cross elasticity of demand is

Accepted Answer

A)  negative, and therefore these goods are substitutes. 
B)  negative, and therefore these goods are complements. 
C)  positive, and therefore these goods are substitutes. 
D)  positive, and therefore these goods are complements. 
A)  negative, and therefore these goods are substitutes. 
B)  negative, and therefore these goods are complements. 
C)  positive, and therefore these goods are substitutes. 
D)  positive, and therefore these goods are complements.

Question 6

If the demand for farm products is price inelastic, a good harvest will cause farm revenues to

Accepted Answer

A)  increase. 
B)  decrease. 
C)  be unchanged. 
D)  either increase or decrease, depending on what happens to supply. 
A)  increase. 
B)  decrease. 
C)  be unchanged. 
D)  either increase or decrease, depending on what happens to supply.

Question 7

If the price elasticity of demand for orange juice is 0.8, then a reduction in the price of orange juice will cause buyers to buy

Accepted Answer

A)  fewer bottles of orange juice, and their total spending on orange juice will decrease. 
B)  fewer bottles of orange juice, but their total spending on orange juice will increase. 
C)  more bottles of orange juice, and their total spending on orange juice will increase. 
D)  more bottles of orange juice, but their total spending on orange juice will decrease. 
A)  fewer bottles of orange juice, and their total spending on orange juice will decrease. 
B)  fewer bottles of orange juice, but their total spending on orange juice will increase. 
C)  more bottles of orange juice, and their total spending on orange juice will increase. 
D)  more bottles of orange juice, but their total spending on orange juice will decrease.

Question 8

The price elasticity of supply measures how

Accepted Answer

A)  easily labor and capital can be substituted for one another in the production process. 
B)  responsive the quantity supplied of X is to changes in the price of X. 
C)  responsive the quantity supplied of Y is to changes in the price of X. 
D)  responsive quantity supplied is to a change in incomes. 
A)  easily labor and capital can be substituted for one another in the production process. 
B)  responsive the quantity supplied of X is to changes in the price of X. 
C)  responsive the quantity supplied of Y is to changes in the price of X. 
D)  responsive quantity supplied is to a change in incomes.

Question 9

The narrower the definition of a product,

Accepted Answer

A)  the larger the number of substitutes and the greater the price elasticity of demand. 
B)  the smaller the number of substitutes and the greater the price elasticity of demand. 
C)  the larger the number of substitutes and the smaller the price elasticity of demand. 
D)  the smaller the number of substitutes and the smaller the price elasticity of demand. 
A)  the larger the number of substitutes and the greater the price elasticity of demand. 
B)  the smaller the number of substitutes and the greater the price elasticity of demand. 
C)  the larger the number of substitutes and the smaller the price elasticity of demand. 
D)  the smaller the number of substitutes and the smaller the price elasticity of demand.

Question 10

The elasticity of demand for a product is likely to be greater,

Accepted Answer

A)  if the product is a necessity, rather than a luxury good. 
B)  the greater the amount of time over which buyers adjust to a price change. 
C)  the smaller the proportion of one's income spent on the product. 
D)  the smaller the number of substitute products available. 
A)  if the product is a necessity, rather than a luxury good. 
B)  the greater the amount of time over which buyers adjust to a price change. 
C)  the smaller the proportion of one's income spent on the product. 
D)  the smaller the number of substitute products available.

Question 11

The price of product X is reduced from $100 to $90 and, as a result, the quantity demanded increases from 50 to 60 units. Therefore, demand for X in this price range

Accepted Answer

A)  has declined. 
B)  is of unit elasticity. 
C)  is inelastic. 
D)  is elastic. 
A)  has declined. 
B)  is of unit elasticity. 
C)  is inelastic. 
D)  is elastic.

Question 12

Other things the same, if a price change causes total revenue to change in the opposite direction, demand is

Accepted Answer

A)  perfectly inelastic. 
B)  relatively elastic. 
C)  relatively inelastic. 
D)  of unit elasticity. 
A)  perfectly inelastic. 
B)  relatively elastic. 
C)  relatively inelastic. 
D)  of unit elasticity.

Question 13

If in the short run the demand for mass transit is inelastic and in the long run the demand is elastic, then a price

Accepted Answer

A)  increase will decrease total revenue in the short run but increase total revenue in the long run. 
B)  increase will increase total revenue in the short run but decrease total revenue in the long run. 
C)  decrease will increase total revenue in the short run but decrease total revenue in the long run. 
D)  decrease will decrease total revenue in the short run and decrease total revenue in the long run. 
A)  increase will decrease total revenue in the short run but increase total revenue in the long run. 
B)  increase will increase total revenue in the short run but decrease total revenue in the long run. 
C)  decrease will increase total revenue in the short run but decrease total revenue in the long run. 
D)  decrease will decrease total revenue in the short run and decrease total revenue in the long run.

Question 14

Answer the question based on the following data.   Over which of the following price ranges is the demand unit-elastic?

Accepted Answer

A)  $18-$16 
B)  $16-$14 
C)  $14-$12 
D)  $12-$10 
A)  $18-$16 
B)  $16-$14 
C)  $14-$12 
D)  $12-$10

Question 15

A linear demand curve has a constant elasticity over the full range of the curve.

Accepted Answer

A) True 
 B)False

Question 16

Answer the question based on the following table, which shows a demand schedule.   The largest decline in total revenue will occur when price falls from

Accepted Answer

A)  $5 to $4. 
B)  $4 to $3. 
C)  $3 to $2. 
D)  $2 to $1. 
A)  $5 to $4. 
B)  $4 to $3. 
C)  $3 to $2. 
D)  $2 to $1.

Question 17

We use the midpoint formula in computing the price elasticity of demand coefficient in order to

Accepted Answer

A)  make the coefficient value become independent of whether price goes up or down. 
B)  convert absolute changes into percentage changes. 
C)  eliminate the negative sign of the coefficient. 
D)  make the coefficient become equal to the slope of the demand curve. 
A)  make the coefficient value become independent of whether price goes up or down. 
B)  convert absolute changes into percentage changes. 
C)  eliminate the negative sign of the coefficient. 
D)  make the coefficient become equal to the slope of the demand curve.

Question 18

The price of old baseball cards rises rapidly with increases in demand because

Accepted Answer

A)  the supply of old baseball cards is price inelastic. 
B)  the supply of old baseball cards in price elastic. 
C)  the demand for old baseball cards is price inelastic. 
D)  the demand for old baseball cards is price elastic. 
A)  the supply of old baseball cards is price inelastic. 
B)  the supply of old baseball cards in price elastic. 
C)  the demand for old baseball cards is price inelastic. 
D)  the demand for old baseball cards is price elastic.

Question 19

A 4 percent reduction in the price of a product has zero effect on the dollar amount of consumer expenditure on the product. The price elasticity of demand is

Accepted Answer

A)  zero. 
B)  greater than zero. 
C)  greater than zero but less than 1. 
D)  equal to 1. 
A)  zero. 
B)  greater than zero. 
C)  greater than zero but less than 1. 
D)  equal to 1.

Question 20

If the price of hand calculators falls from $10 to $9 and, as a result, the quantity demanded increases from 100 to 125, then

Accepted Answer

A)  demand is price elastic. 
B)  demand is price inelastic. 
C)  demand is unit elastic with respect to price. 
D)  not enough information is given to make a statement about elasticity. 
A)  demand is price elastic. 
B)  demand is price inelastic. 
C)  demand is unit elastic with respect to price. 
D)  not enough information is given to make a statement about elasticity.

Exam 6: Elasticity

The demand for cocaine among addicts is relatively elastic.

A glass company making windows for houses also makes windows for other things (cars, boats, stores, etc.). We would expect its supply curve for house windows to be

If the demand for wheat is highly price inelastic, an extraordinarily large crop may reduce farm incomes.

Suppose that a 10 percent increase in the price of normal good Y causes a 20 percent increase in the quantity demanded of normal good X. The coefficient of cross elasticity of demand is

If the demand for farm products is price inelastic, a good harvest will cause farm revenues to

If the price elasticity of demand for orange juice is 0.8, then a reduction in the price of orange juice will cause buyers to buy

The price elasticity of supply measures how

The narrower the definition of a product,

The elasticity of demand for a product is likely to be greater,

The price of product X is reduced from $100 to $90 and, as a result, the quantity demanded increases from 50 to 60 units. Therefore, demand for X in this price range

Other things the same, if a price change causes total revenue to change in the opposite direction, demand is

If in the short run the demand for mass transit is inelastic and in the long run the demand is elastic, then a price

Answer the question based on the following data. Over which of the following price ranges is the demand unit-elastic?

A linear demand curve has a constant elasticity over the full range of the curve.

Answer the question based on the following table, which shows a demand schedule. The largest decline in total revenue will occur when price falls from

We use the midpoint formula in computing the price elasticity of demand coefficient in order to

The price of old baseball cards rises rapidly with increases in demand because

A 4 percent reduction in the price of a product has zero effect on the dollar amount of consumer expenditure on the product. The price elasticity of demand is

If the price of hand calculators falls from $10 to $9 and, as a result, the quantity demanded increases from 100 to 125, then

Limits, Alternatives, and Choices

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