Question 1

A linear downward-sloping demand curve has price elasticities (in absolute values) that

Accepted Answer

A)  increase as price decreases. 
B)  remain constant along the demand curve. 
C)  decrease as price decreases. 
D)  are greater than or equal to 1. 
A)  increase as price decreases. 
B)  remain constant along the demand curve. 
C)  decrease as price decreases. 
D)  are greater than or equal to 1.

Question 2

Suppose Tinsel Town Videos lowers the price of its movie club membership by 10 percent and as a result, CineArts Videos experienced a 16 percent decline in its movie club membership. What is the value of the cross-price elasticity between the two movie club memberships?

Accepted Answer

A)  -1.6 
B)  -0.625 
C)  0.625 
D)  1.6 
A)  -1.6 
B)  -0.625 
C)  0.625 
D)  1.6

Question 3

Table 6-4
The publisher of a magazine gives his staff the following information:
   He tells the staff, "Our costs are currently $150,000 more than our revenues each month. I propose to eliminate this problem by raising the price of the magazine to $3.00 per issue. This will result in our revenue being exactly equal to our cost."
-Refer to Table 6-4. Which of the following statements is correct?

Accepted Answer

A)  The publisher's analysis is correct only if the demand is perfectly elastic. 
B)  The publisher's analysis is correct only if the demand is elastic. 
C)  The publisher's analysis is correct only if the demand is perfectly inelastic. 
D)  The publisher's analysis is correct only if the demand is unit-elastic. 
A)  The publisher's analysis is correct only if the demand is perfectly elastic. 
B)  The publisher's analysis is correct only if the demand is elastic. 
C)  The publisher's analysis is correct only if the demand is perfectly inelastic. 
D)  The publisher's analysis is correct only if the demand is unit-elastic.

Question 4

If a 5 percent increase in income leads to a 10 percent increase in quantity demanded for airline travel, then airline travel is

Accepted Answer

A)  a necessity. 
B)  a substitute for another good. 
C)  a luxury. 
D)  an inferior good. 
A)  a necessity. 
B)  a substitute for another good. 
C)  a luxury. 
D)  an inferior good.

Question 5

Most people buy salt infrequently and in small quantities. Even a doubling of the price of salt is likely to result in a small decline in the quantity of salt demanded. Therefore,

Accepted Answer

A)  the demand for salt will be perfectly inelastic. 
B)  salt is a normal good. 
C)  the demand for salt is relatively inelastic. 
D)  the price elasticity of demand for salt is greater than 1 (in absolute value). 
A)  the demand for salt will be perfectly inelastic. 
B)  salt is a normal good. 
C)  the demand for salt is relatively inelastic. 
D)  the price elasticity of demand for salt is greater than 1 (in absolute value).

Question 6

Assume that the demand curve for sunblock is linear and downward sloping. Which of the following statements about the slope of the demand curve for sunblock and the price elasticity of demand for sunblock are true?

Accepted Answer

A)  The slope and the price elasticity of demand are constant at all points along the demand curve for sunblock. 
B)  The slope is constant, but the price elasticity of demand is not constant at all points along the demand curve for sunblock. 
C)  The slope is not constant, but the price elasticity of demand is constant at all points along the demand curve for sunblock. 
D)  The slope of the demand curve for sunblock is constant and equal to zero; demand is perfectly inelastic. 
A)  The slope and the price elasticity of demand are constant at all points along the demand curve for sunblock. 
B)  The slope is constant, but the price elasticity of demand is not constant at all points along the demand curve for sunblock. 
C)  The slope is not constant, but the price elasticity of demand is constant at all points along the demand curve for sunblock. 
D)  The slope of the demand curve for sunblock is constant and equal to zero; demand is perfectly inelastic.

Question 7

If demand is perfectly inelastic, the absolute value of the price elasticity coefficient is

Accepted Answer

A)  infinity. 
B)  zero. 
C)  more than one. 
D)  equal to the absolute value of the slope of the demand curve. 
A)  infinity. 
B)  zero. 
C)  more than one. 
D)  equal to the absolute value of the slope of the demand curve.

Question 8

Figure 6-10  
-Refer to Figure 6-10. A perfectly inelastic supply curve is shown in

Accepted Answer

A)  Panel A. 
B)  Panel B. 
C)  Panel C. 
D)  Panel D. 
A)  Panel A. 
B)  Panel B. 
C)  Panel C. 
D)  Panel D.

Question 9

If the absolute value of the price elasticity of demand for DVD movies is 0.8, then the elasticity of demand for the DVD for the movie The Hangover should be

Accepted Answer

A)  less than 0.8 in absolute value. 
B)  greater than 0.8 in absolute value. 
C)  equal to 1 in absolute value. 
D)  equal to zero because the DVD of this movie has been out for several years. 
A)  less than 0.8 in absolute value. 
B)  greater than 0.8 in absolute value. 
C)  equal to 1 in absolute value. 
D)  equal to zero because the DVD of this movie has been out for several years.

Question 10

The current price of canvas messenger bags is $36 each and sales of the bags equal 400 per week. If the price elasticity of demand is -2.5 and the price changes to $44, how many messenger bags will be sold per week? Use the midpoint formula.

Accepted Answer

Using the midpoint formula:
-2.5 = (400

Question 11

At a price of $50, Ghani sells 20 hand-made leather cell-phone covers, but at a price of $60, zero units are sold. Based on this information, the demand for his cell-phone covers is

Accepted Answer

A)  elastic or perfectly inelastic 
B)  elastic or perfectly elastic. 
C)  unit-elastic. 
D)  perfectly inelastic. 
A)  elastic or perfectly inelastic 
B)  elastic or perfectly elastic. 
C)  unit-elastic. 
D)  perfectly inelastic.

Question 12

Article Summary
Based on resale prices for tickets for the 2013 Super Bowl in New Orleans, face-value prices for the most expensive tickets to the 2014 game are expected to more than double, with significant price increases for lesser-valued tickets as well. Evidence indicates that sports teams are more interested in maximizing attendance instead of ticket revenue, since greater attendance means more spending on items such as parking and concessions. Higher ticket prices in secondary markets seem to verify that teams are charging less than they could be if their goal was to maximize ticket revenue.
Source: Patrick Rishe, "Super Bowl XLVIII Pricing: A Lesson In Demand Elasticity," Forbes, September 19, 2013.
-Refer to the Article Summary. The idea that sports teams could charge more for tickets and still increase revenue indicates that tickets are being priced in the ________ portion of their demand curve.

Accepted Answer

A)  elastic 
B)  inelastic 
C)  unit elastic 
D)  perfectly elastic 
A)  elastic 
B)  inelastic 
C)  unit elastic 
D)  perfectly elastic

Question 13

If, for a given percentage decrease in price, quantity supplied decreases by a proportionately smaller percentage, then supply is

Accepted Answer

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

Question 14

Suppose the absolute value of the price elasticity of demand for meals at Fortune Buffet House is ∞. What happens to sales revenue if the restaurant increases its price by 5 percent?

Accepted Answer

A)  Sales revenue falls by less than 5 percent. 
B)  Sales revenue remains unchanged. 
C)  Sales revenue falls by 100 percent. 
D)  It cannot be determined without information on prices. 
A)  Sales revenue falls by less than 5 percent. 
B)  Sales revenue remains unchanged. 
C)  Sales revenue falls by 100 percent. 
D)  It cannot be determined without information on prices.

Question 15

In September 2012, the average price of gasoline in the United States was $3.91 per gallon, and consumers purchased nearly 5 percent less gasoline than they had during September 2011, when the average price of gasoline was $3.66 per gallon. Based on these figures, when the price of gasoline rose from $3.66 per gallon to $3.91 per gallon, total revenue

Accepted Answer

A)  increased. 
B)  decreased. 
C)  did not change. 
D)  There is not enough information to determine what happened to total revenue. 
A)  increased. 
B)  decreased. 
C)  did not change. 
D)  There is not enough information to determine what happened to total revenue.

Question 16

The demand for gasoline is perfectly inelastic because most people need gasoline to drive their cars.

Accepted Answer

A) True 
 B)False

Question 17

The price elasticity of supply is usually a positive number because

Accepted Answer

A)  quantity supplied increases in response to income increases. 
B)  quantity supplied increases in response to price increases. 
C)  the quantity demanded usually rises when price falls and therefore suppliers would want to capitalize on this increase in demand. 
D)  price rises when supply increases. 
A)  quantity supplied increases in response to income increases. 
B)  quantity supplied increases in response to price increases. 
C)  the quantity demanded usually rises when price falls and therefore suppliers would want to capitalize on this increase in demand. 
D)  price rises when supply increases.

Question 18

Figure 6-11  
-The price elasticity of supply for umbrellas is 2. Suppose you're told that following a price increase, quantity supplied increased by 30 percent. What was the percentage change in price that brought this about?

Accepted Answer

A)  60 percent 
B)  15 percent 
C)  6.7 percent 
D)  impossible to determine without additional information 
A)  60 percent 
B)  15 percent 
C)  6.7 percent 
D)  impossible to determine without additional information

Question 19

The cross-price elasticity between Gillette razors and a related good is -3.4. What happens to the demand for the related good if the price of Gillette razors falls by 10 percent?

Accepted Answer

A)  The quantity demanded of the related good rises by 3.4 percent. 
B)  The quantity demanded of the related good falls by 34 percent. 
C)  The quantity demanded of the related good rises by 34 percent. 
D)  The quantity demanded of the related good falls by 3.4 percent. 
A)  The quantity demanded of the related good rises by 3.4 percent. 
B)  The quantity demanded of the related good falls by 34 percent. 
C)  The quantity demanded of the related good rises by 34 percent. 
D)  The quantity demanded of the related good falls by 3.4 percent.

Question 20

Suppose a 4 percent increase in income results in a 2 percent decrease in the quantity demanded of a good. Calculate the income elasticity of demand for the good and determine what type of good it is.

Accepted Answer

Income elasticity of

Exam 6: Elasticity: the Responsiveness of Demand and Supply

A linear downward-sloping demand curve has price elasticities (in absolute values) that

Suppose Tinsel Town Videos lowers the price of its movie club membership by 10 percent and as a result, CineArts Videos experienced a 16 percent decline in its movie club membership. What is the value of the cross-price elasticity between the two movie club memberships?

If a 5 percent increase in income leads to a 10 percent increase in quantity demanded for airline travel, then airline travel is

Most people buy salt infrequently and in small quantities. Even a doubling of the price of salt is likely to result in a small decline in the quantity of salt demanded. Therefore,

Assume that the demand curve for sunblock is linear and downward sloping. Which of the following statements about the slope of the demand curve for sunblock and the price elasticity of demand for sunblock are true?

If demand is perfectly inelastic, the absolute value of the price elasticity coefficient is

Figure 6-10 -Refer to Figure 6-10. A perfectly inelastic supply curve is shown in

If the absolute value of the price elasticity of demand for DVD movies is 0.8, then the elasticity of demand for the DVD for the movie The Hangover should be

The current price of canvas messenger bags is $36 each and sales of the bags equal 400 per week. If the price elasticity of demand is -2.5 and the price changes to $44, how many messenger bags will be sold per week? Use the midpoint formula.

At a price of $50, Ghani sells 20 hand-made leather cell-phone covers, but at a price of $60, zero units are sold. Based on this information, the demand for his cell-phone covers is

If, for a given percentage decrease in price, quantity supplied decreases by a proportionately smaller percentage, then supply is

Suppose the absolute value of the price elasticity of demand for meals at Fortune Buffet House is ∞. What happens to sales revenue if the restaurant increases its price by 5 percent?

The demand for gasoline is perfectly inelastic because most people need gasoline to drive their cars.

The price elasticity of supply is usually a positive number because

Figure 6-11 -The price elasticity of supply for umbrellas is 2. Suppose you're told that following a price increase, quantity supplied increased by 30 percent. What was the percentage change in price that brought this about?

The cross-price elasticity between Gillette razors and a related good is -3.4. What happens to the demand for the related good if the price of Gillette razors falls by 10 percent?

Suppose a 4 percent increase in income results in a 2 percent decrease in the quantity demanded of a good. Calculate the income elasticity of demand for the good and determine what type of good it is.

Economics: Foundations and Models

Trade-Offs, Comparative Advantage, and the Market System

Where Prices Come From: the Interaction of Demand and Supply

Economic Efficiency, Government Price Setting, and Taxes

Externalities, Environmental Policy, and Public Goods

The Economics of Health Care

Firms, the Stock Market, and Corporate Governance

Comparative Advantage and the Gains From International Trade

Consumer Choice and Behavioral Economics

Technology, Production, and Costs

Firms in Perfectly Competitive Markets

Monopolistic Competition: the Competitive Model in a More Realistic Setting

Oligopoly: Firms in Less Competitive Markets

Monopoly and Antitrust Policy

Pricing Strategy

The Markets for Labor and Other Factors of Production

Public Choice, Taxes, and the Distribution of Income

GDP: Measuring Total Production and Income

Unemployment and Inflation

Economic Growth, the Financial System, and Business Cycles

Long-Run Economic Growth: Sources and Policies

Aggregate Expenditure and Output in the Short Run

Aggregate Demand and Aggregate Supply Analysis

Money, Banks, and the Federal Reserve System

Monetary Policy

Fiscal Policy

Inflation, Unemployment, and Federal Reserve Policy

Macroeconomics in an Open Economy

The International Financial System

Filters