Question 1

Luxury goods are

Accepted Answer

A)  price inelastic 
B)  income inelastic 
C)  income elastic 
D)  goods with negative income elasticity 
E)  goods with positive price elasticity 
A)  price inelastic 
B)  income inelastic 
C)  income elastic 
D)  goods with negative income elasticity 
E)  goods with positive price elasticity

Question 2

Along a straight-line downward-sloping demand curve,elasticity is

Accepted Answer

A)  constant,but its value cannot be determined without measurement 
B)  constant and equal to an absolute value of one 
C)  greater at higher prices 
D)  greater at lower prices 
E)  greater in the middle 
A)  constant,but its value cannot be determined without measurement 
B)  constant and equal to an absolute value of one 
C)  greater at higher prices 
D)  greater at lower prices 
E)  greater in the middle

Question 3

Which of the following describes a situation in which demand must be inelastic?

Accepted Answer

A)  The price of pens rises by 10 cents,and quantity of pens demanded falls by 50. 
B)  The price of pens rises by 10 cents,and total revenue rises. 
C)  A 20 percent increase in the price of pens leads to a 20 percent decrease in the quantity of pens demanded. 
D)  Total revenue does not change when the price of pens rises. 
E)  Total revenue decreases when the price of pens rises. 
A)  The price of pens rises by 10 cents,and quantity of pens demanded falls by 50. 
B)  The price of pens rises by 10 cents,and total revenue rises. 
C)  A 20 percent increase in the price of pens leads to a 20 percent decrease in the quantity of pens demanded. 
D)  Total revenue does not change when the price of pens rises. 
E)  Total revenue decreases when the price of pens rises.

Question 4

If demand is unit elastic,a price reduction will

Accepted Answer

A)  increase revenues 
B)  reduce revenues 
C)  reduce quantity demanded 
D)  have no effect on revenues 
E)  increase profits 
A)  increase revenues 
B)  reduce revenues 
C)  reduce quantity demanded 
D)  have no effect on revenues 
E)  increase profits

Question 5

As the income increases from $40,000 to $60,000,the quantity demanded for a product increases from 27 to 29.Then:

Accepted Answer

A)  The demand for this normal good is income inelastic 
B)  The demand for this normal good is income elastic 
C)  The demand for this normal good is price elastic 
D)  The demand for this normal good is price inelastic 
E)  The supply of this inferior good is inelastic 
A)  The demand for this normal good is income inelastic 
B)  The demand for this normal good is income elastic 
C)  The demand for this normal good is price elastic 
D)  The demand for this normal good is price inelastic 
E)  The supply of this inferior good is inelastic

Question 6

Substitutes are pairs of goods that have a positive cross-price elasticity of demand.

Accepted Answer

A) True 
 B)False

Question 7

The price elasticity of demand

Accepted Answer

A)  is of no use to producers 
B)  tells producers what will happen to total profit if they change product price 
C)  tells producers what will happen to quantity supplied if they change product price 
D)  tells producers what will happen to total revenue if they change product price 
E)  tells producers what will happen to price in the following time period 
A)  is of no use to producers 
B)  tells producers what will happen to total profit if they change product price 
C)  tells producers what will happen to quantity supplied if they change product price 
D)  tells producers what will happen to total revenue if they change product price 
E)  tells producers what will happen to price in the following time period

Question 8

If the cross-price elasticity of demand between good x and good y is 0.4,then

Accepted Answer

A)  the demand for good x is highly responsive to changes in the price of good y 
B)  a 10 percent increase in the price of good y leads to a 0.4 percent increase in the quantity demanded of good x 
C)  a 10 percent decrease in the price of good y leads to a 4 percent decrease in the demand for good y 
D)  good x and good y are complements 
E)  good x is a normal good and good y is an inferior good 
A)  the demand for good x is highly responsive to changes in the price of good y 
B)  a 10 percent increase in the price of good y leads to a 0.4 percent increase in the quantity demanded of good x 
C)  a 10 percent decrease in the price of good y leads to a 4 percent decrease in the demand for good y 
D)  good x and good y are complements 
E)  good x is a normal good and good y is an inferior good

Question 9

As DVDs become popular substitutes for video cassettes,demand for video cassettes is likely to

Accepted Answer

A)  become less price elastic 
B)  become more price elastic 
C)  increase 
D)  stay the same 
E)  become unit elastic 
A)  become less price elastic 
B)  become more price elastic 
C)  increase 
D)  stay the same 
E)  become unit elastic

Question 10

Price elasticity is unit elastic at the midpoint of a linear,downward-sloping demand curve.

Accepted Answer

A) True 
 B)False

Question 11

Exhibit 5-19
  
-Consider Exhibit 5-19.Between the prices of $5 and $6,which supply curve is most elastic and which is least elastic?

Accepted Answer

A)  S1 is most elastic;S2 is least elastic. 
B)  S1 is most elastic;S3 is least elastic. 
C)  S3 is most elastic;S1 is least elastic. 
D)  S3 is most elastic;S2 is least elastic. 
E)  S2 is most elastic;S3 is least elastic. 
A)  S1 is most elastic;S2 is least elastic. 
B)  S1 is most elastic;S3 is least elastic. 
C)  S3 is most elastic;S1 is least elastic. 
D)  S3 is most elastic;S2 is least elastic. 
E)  S2 is most elastic;S3 is least elastic.

Question 12

If the sellers in the cigarette industry formed a cartel and decided to set price along a straight-line downward-sloping demand curve,which point would they choose if they wanted to gain the highest total revenue?

Accepted Answer

A)  The point nearest the vertical axis,where the price is highest. 
B)  The point nearest the horizontal axis,where quantity demanded is greatest. 
C)  One of the points higher up on the demand curve,where demand is elastic. 
D)  One of the points lower down on the demand curve,where demand is inelastic. 
E)  The point of unit elasticity,in the middle of the demand curve. 
A)  The point nearest the vertical axis,where the price is highest. 
B)  The point nearest the horizontal axis,where quantity demanded is greatest. 
C)  One of the points higher up on the demand curve,where demand is elastic. 
D)  One of the points lower down on the demand curve,where demand is inelastic. 
E)  The point of unit elasticity,in the middle of the demand curve.

Question 13

If demand is price elastic,total revenue is

Accepted Answer

A)  directly related to quantity demanded 
B)  inversely related to quantity demanded 
C)  directly related to price 
D)  directly related to price and inversely related to quantity demanded 
E)  not related to either price or to quantity demanded 
A)  directly related to quantity demanded 
B)  inversely related to quantity demanded 
C)  directly related to price 
D)  directly related to price and inversely related to quantity demanded 
E)  not related to either price or to quantity demanded

Question 14

The general term elasticity refers to a relationship between

Accepted Answer

A)  quantity demanded and price only 
B)  quantity supplied and price only 
C)  quantity supplied or demanded and price only 
D)  quantity supplied or demanded and anything other than price 
E)  percentage changes in any two variables 
A)  quantity demanded and price only 
B)  quantity supplied and price only 
C)  quantity supplied or demanded and price only 
D)  quantity supplied or demanded and anything other than price 
E)  percentage changes in any two variables

Question 15

If the demand for airline tickets to Fort Lauderdale is price elastic,

Accepted Answer

A)  airline revenue will increase if supply increases 
B)  airline revenue will increase if supply decreases 
C)  a small change in price will cause a large shift in the demand curve 
D)  a large change in price will cause a small shift in the demand curve 
E)  a large change in price will cause a large shift in the demand curve 
A)  airline revenue will increase if supply increases 
B)  airline revenue will increase if supply decreases 
C)  a small change in price will cause a large shift in the demand curve 
D)  a large change in price will cause a small shift in the demand curve 
E)  a large change in price will cause a large shift in the demand curve

Question 16

The demand for Olin skis is likely to be

Accepted Answer

A)  less elastic than the demand for skis in general 
B)  more elastic than the demand for skis in general 
C)  unit elastic relative to the demand for skis in general 
D)  as elastic as the demand for skis in general 
E)  greater than the demand for skis in general 
A)  less elastic than the demand for skis in general 
B)  more elastic than the demand for skis in general 
C)  unit elastic relative to the demand for skis in general 
D)  as elastic as the demand for skis in general 
E)  greater than the demand for skis in general

Question 17

Price elasticity of demand and price elasticity of supply are both influenced by

Accepted Answer

A)  the availability of close substitutes for the product 
B)  the proportion of the consumer's budget spend on the product 
C)  the length of the adjustment period considered 
D)  technological conditions such as the additional costs of increasing production 
E)  none of the above 
A)  the availability of close substitutes for the product 
B)  the proportion of the consumer's budget spend on the product 
C)  the length of the adjustment period considered 
D)  technological conditions such as the additional costs of increasing production 
E)  none of the above

Question 18

Exhibit 5-4
  
-Demand in Exhibit 5-4 is

Accepted Answer

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

Question 19

A good synonym for elasticity would be

Accepted Answer

A)  stability 
B)  volatility 
C)  stickiness 
D)  demand 
E)  responsiveness 
A)  stability 
B)  volatility 
C)  stickiness 
D)  demand 
E)  responsiveness

Question 20

Exhibit 5-8
  
-Which of the following statements is true in the range of the total revenue curve labeled B in Exhibit 5-8?

Accepted Answer

A)  Demand is elastic. 
B)  Demand is inelastic. 
C)  Demand is unit elastic. 
D)  We cannot tell anything about elasticity of demand because this is a total revenue curve. 
E)  Demand is perfectly elastic. 
A)  Demand is elastic. 
B)  Demand is inelastic. 
C)  Demand is unit elastic. 
D)  We cannot tell anything about elasticity of demand because this is a total revenue curve. 
E)  Demand is perfectly elastic.

Exam 5: Elasticity of Demand and Supply

Luxury goods are

Along a straight-line downward-sloping demand curve,elasticity is

Which of the following describes a situation in which demand must be inelastic?

If demand is unit elastic,a price reduction will

As the income increases from $40,000 to $60,000,the quantity demanded for a product increases from 27 to 29.Then:

Substitutes are pairs of goods that have a positive cross-price elasticity of demand.

The price elasticity of demand

If the cross-price elasticity of demand between good x and good y is 0.4,then

As DVDs become popular substitutes for video cassettes,demand for video cassettes is likely to

Price elasticity is unit elastic at the midpoint of a linear,downward-sloping demand curve.

Exhibit 5-19 -Consider Exhibit 5-19.Between the prices of $5 and $6,which supply curve is most elastic and which is least elastic?

If the sellers in the cigarette industry formed a cartel and decided to set price along a straight-line downward-sloping demand curve,which point would they choose if they wanted to gain the highest total revenue?

If demand is price elastic,total revenue is

The general term elasticity refers to a relationship between

If the demand for airline tickets to Fort Lauderdale is price elastic,

The demand for Olin skis is likely to be

Price elasticity of demand and price elasticity of supply are both influenced by

Exhibit 5-4 -Demand in Exhibit 5-4 is

A good synonym for elasticity would be

Exhibit 5-8 -Which of the following statements is true in the range of the total revenue curve labeled B in Exhibit 5-8?

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