Question 1

Suppose we find that the price elasticity of demand for a product is 3.5 when its price is increased by 2 percent. We can conclude that quantity demanded

Accepted Answer

A)  increased by 7 percent. 
B)  decreased by 7 percent. 
C)  decreased by 9 percent. 
D)  decreased by 1.75 percent. 
A)  increased by 7 percent. 
B)  decreased by 7 percent. 
C)  decreased by 9 percent. 
D)  decreased by 1.75 percent.

Question 2

The law of supply suggests that the price-elasticity of supply is

Accepted Answer

A)  positive. 
B)  negative. 
C)  always greater than 1. 
D)  always less than 1. 
A)  positive. 
B)  negative. 
C)  always greater than 1. 
D)  always less than 1.

Question 3

Which product is most likely to be the most price elastic?

Accepted Answer

A)  milk 
B)  housing 
C)  clothing 
D)  automobiles 
A)  milk 
B)  housing 
C)  clothing 
D)  automobiles

Question 4

A firm can sell as much as it wants at a constant price. Demand is thus

Accepted Answer

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

Question 5

Cross elasticity of demand is

Accepted Answer

A)  negative for complementary goods. 
B)  negative for substitute goods. 
C)  unitary for inferior goods. 
D)  positive for inferior goods. 
A)  negative for complementary goods. 
B)  negative for substitute goods. 
C)  unitary for inferior goods. 
D)  positive for inferior goods.

Question 6

If the coefficient of cross elasticity of demand is positive, the two products are complementary goods.

Accepted Answer

A) True 
 B)False

Question 7

The basic formula for the price elasticity of demand coefficient is

Accepted Answer

A)  absolute decline in quantity demanded/absolute increase in price. 
B)  percentage change in quantity demanded/percentage change in price. 
C)  absolute decline in price/absolute increase in quantity demanded. 
D)  percentage change in price/percentage change in quantity demanded. 
A)  absolute decline in quantity demanded/absolute increase in price. 
B)  percentage change in quantity demanded/percentage change in price. 
C)  absolute decline in price/absolute increase in quantity demanded. 
D)  percentage change in price/percentage change in quantity demanded.

Question 8

The more time consumers have to adjust to a change in price,

Accepted Answer

A)  the smaller will be the price elasticity of demand. 
B)  the greater will be the price elasticity of demand. 
C)  the more likely the product is a normal good. 
D)  the more likely the product is an inferior good. 
A)  the smaller will be the price elasticity of demand. 
B)  the greater will be the price elasticity of demand. 
C)  the more likely the product is a normal good. 
D)  the more likely the product is an inferior good.

Question 9

The price-elasticity coefficients are 2.6, 0.5, 1.4, and 0.18 for four different demand schedules,D1, D2, D3, and D4, respectively. A 2-percent increase in price will result in an increase in total revenues in which of the following cases?

Accepted Answer

A)  D1 and D3 
B)  D1 and D4 
C)  D2 and D4 
D)  D1, D2, and D3 
A)  D1 and D3 
B)  D1 and D4 
C)  D2 and D4 
D)  D1, D2, and D3

Question 10

A 3 percent increase in the price of tea causes a 6 percent increase in the demand for coffee. The cross elasticity of demand for coffee with respect to the price of tea is

Accepted Answer

A)  −0.5. 
B)  +0.5. 
C)  −2.0. 
D)  +2.0. 
A)  −0.5. 
B)  +0.5. 
C)  −2.0. 
D)  +2.0.

Question 11

When the price of candy bars decreased from $0.55 to $0.45, the quantity demanded changed from 19,000 per day to 21,000 per day. In this price range, the price-elasticity coefficient (based on the midpoint formula) for candy bars is

Accepted Answer

A)  1. 
B)  2. 
C)  0.2. 
D)  0.5. 
A)  1. 
B)  2. 
C)  0.2. 
D)  0.5.

Question 12

Answer the question based on the following table, which shows a demand schedule.   Total revenues will decrease if price rises from

Accepted Answer

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

Question 13

In which price range of the accompanying demand schedule is demand elastic?

Accepted Answer

A)  $4-$3 
B)  $3-$2 
C)  $2-$1 
D)  below $1 
A)  $4-$3 
B)  $3-$2 
C)  $2-$1 
D)  below $1

Question 14

Cross elasticity of demand measures the effect of a change in the price of one product on the quantity demanded of another product.

Accepted Answer

A) True 
 B)False

Question 15

When demand is price-elastic, an increase in price will lead to increased total consumer spending for the product.

Accepted Answer

A) True 
 B)False

Question 16

If the price-elasticity coefficient for a good is 1.75, the demand for that good is described as

Accepted Answer

A)  normal. 
B)  elastic. 
C)  inferior. 
D)  inelastic. 
A)  normal. 
B)  elastic. 
C)  inferior. 
D)  inelastic.

Question 17

In the price range where demand is elastic, if the seller of the good raises its price, then total revenues will increase.

Accepted Answer

A) True 
 B)False

Question 18

Which type of goods is most adversely affected by recessions?

Accepted Answer

A)  Goods for which the income elasticity coefficient is relatively low or negative. 
B)  Goods for which the income elasticity coefficient is relatively high and positive. 
C)  Goods for which the cross elasticity coefficient is positive. 
D)  Goods for which the cross elasticity coefficient is negative. 
A)  Goods for which the income elasticity coefficient is relatively low or negative. 
B)  Goods for which the income elasticity coefficient is relatively high and positive. 
C)  Goods for which the cross elasticity coefficient is positive. 
D)  Goods for which the cross elasticity coefficient is negative.

Question 19

In which of the following instances will total revenue decline?

Accepted Answer

A)  Price rises and supply is elastic. 
B)  Price falls and demand is elastic. 
C)  Price rises and demand is inelastic. 
D)  Price rises and demand is elastic. 
A)  Price rises and supply is elastic. 
B)  Price falls and demand is elastic. 
C)  Price rises and demand is inelastic. 
D)  Price rises and demand is elastic.

Question 20

The price-elasticity of demand coefficient, Ed, is measured in terms of

Accepted Answer

A)  dollar change in price and unit change in quantity demanded. 
B)  dollar change in price and amount of shift in demand. 
C)  percentage change in price and percentage change in quantity demanded. 
D)  percentage change in price and unit change in demand. 
A)  dollar change in price and unit change in quantity demanded. 
B)  dollar change in price and amount of shift in demand. 
C)  percentage change in price and percentage change in quantity demanded. 
D)  percentage change in price and unit change in demand.

Exam 6: Elasticity

Suppose we find that the price elasticity of demand for a product is 3.5 when its price is increased by 2 percent. We can conclude that quantity demanded

The law of supply suggests that the price-elasticity of supply is

Which product is most likely to be the most price elastic?

A firm can sell as much as it wants at a constant price. Demand is thus

Cross elasticity of demand is

If the coefficient of cross elasticity of demand is positive, the two products are complementary goods.

The basic formula for the price elasticity of demand coefficient is

The more time consumers have to adjust to a change in price,

The price-elasticity coefficients are 2.6, 0.5, 1.4, and 0.18 for four different demand schedules,D1, D2, D3, and D4, respectively. A 2-percent increase in price will result in an increase in total revenues in which of the following cases?

A 3 percent increase in the price of tea causes a 6 percent increase in the demand for coffee. The cross elasticity of demand for coffee with respect to the price of tea is

When the price of candy bars decreased from $0.55 to $0.45, the quantity demanded changed from 19,000 per day to 21,000 per day. In this price range, the price-elasticity coefficient (based on the midpoint formula) for candy bars is

Answer the question based on the following table, which shows a demand schedule. Total revenues will decrease if price rises from

In which price range of the accompanying demand schedule is demand elastic?

Cross elasticity of demand measures the effect of a change in the price of one product on the quantity demanded of another product.

When demand is price-elastic, an increase in price will lead to increased total consumer spending for the product.

If the price-elasticity coefficient for a good is 1.75, the demand for that good is described as

In the price range where demand is elastic, if the seller of the good raises its price, then total revenues will increase.

Which type of goods is most adversely affected by recessions?

In which of the following instances will total revenue decline?

The price-elasticity of demand coefficient, Ed, is measured in terms of

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