Question 1

Income elasticity of demand measures how

Accepted Answer

A) the quantity demanded changes as consumer income changes. 
B) consumer purchasing power is affected by a change in the price of a good. 
C) the price of a good is affected when there is a change in consumer income. 
D) many units of a good a consumer can buy given a certain income level. 
A) the quantity demanded changes as consumer income changes. 
B) consumer purchasing power is affected by a change in the price of a good. 
C) the price of a good is affected when there is a change in consumer income. 
D) many units of a good a consumer can buy given a certain income level.

Question 2

Figure 5-4  
-Refer to Figure 5-4.Assume,for the good in question,two specific points on the demand curve are (Q = 2,000,P = $15)and (Q = 2,400,P = $12).Then which of the following scenarios is possible?

Accepted Answer

A) Both of these points lie on section BC of the demand curve. 
B) The vertical intercept of the demand curve is the point (Q = 0,P = $22). 
C) The horizontal intercept of the demand curve is the point (Q = 5,000,P = $0). 
D) Any of these scenarios is possible. 
A) Both of these points lie on section BC of the demand curve. 
B) The vertical intercept of the demand curve is the point (Q = 0,P = $22). 
C) The horizontal intercept of the demand curve is the point (Q = 5,000,P = $0). 
D) Any of these scenarios is possible.

Question 3

Figure 5-12  
-Refer to Figure 5-12.Sellers' total revenue would increase if the price

Accepted Answer

A) increased from $12 to $15. 
B) decreased from $39 to $36. 
C) decreased from $27 to $24. 
D) All of the above are correct. 
A) increased from $12 to $15. 
B) decreased from $39 to $36. 
C) decreased from $27 to $24. 
D) All of the above are correct.

Question 4

Last month,sellers of good Y took in $100 in total revenue on sales of 50 units of good Y.This month sellers of good Y raised their price and took in $120 in total revenue on sales of 40 units of good Y.At the same time,the price of good X stayed the same,but sales of good X increased from 20 units to 40 units.We can conclude that goods X and Y are

Accepted Answer

A) substitutes,and have a cross-price elasticity of 0.60. 
B) complements,and have a cross-price elasticity of -0.60. 
C) substitutes,and have a cross-price elasticity of 1.67. 
D) complements,and have a cross-price elasticity of -1.67. 
A) substitutes,and have a cross-price elasticity of 0.60. 
B) complements,and have a cross-price elasticity of -0.60. 
C) substitutes,and have a cross-price elasticity of 1.67. 
D) complements,and have a cross-price elasticity of -1.67.

Question 5

For which of the following goods is the income elasticity of demand likely lowest?

Accepted Answer

A) water 
B) sapphire pendant necklaces 
C) filet mignon steaks 
D) fresh fruit 
A) water 
B) sapphire pendant necklaces 
C) filet mignon steaks 
D) fresh fruit

Question 6

How does total revenue change as one moves downward and to the right along a linear demand curve?

Accepted Answer

A) It always increases. 
B) It always decreases. 
C) It first increases,then decreases. 
D) It is unaffected by a movement along the demand curve. 
A) It always increases. 
B) It always decreases. 
C) It first increases,then decreases. 
D) It is unaffected by a movement along the demand curve.

Question 7

Figure 5-5  
-Refer to Figure 5-5.At a price of $70 per unit,sellers' total revenue equals

Accepted Answer

A) $700. 
B) $1050. 
C) $1250. 
D) $1400. 
A) $700. 
B) $1050. 
C) $1250. 
D) $1400.

Question 8

Using the midpoint method,the price elasticity of demand for a good is computed to be approximately 0.75.Which of the following events is consistent with a 10 percent decrease in the quantity of the good demanded?

Accepted Answer

A) a 7.5 increase in the price of the good 
B) a 13.33 percent increase in the price of the good 
C) an increase in the price of the good from $7.50 to $10 
D) an increase in the price of the good from $10 to $17.50 
A) a 7.5 increase in the price of the good 
B) a 13.33 percent increase in the price of the good 
C) an increase in the price of the good from $7.50 to $10 
D) an increase in the price of the good from $10 to $17.50

Question 9

Food and clothing tend to have

Accepted Answer

A) small income elasticities because consumers,regardless of their incomes,choose to buy relatively constant quantities of these goods. 
B) small income elasticities because consumers buy proportionately more of both goods at higher income levels than they buy at low income levels. 
C) large income elasticities because they are necessities. 
D) large income elasticities because they are relatively inexpensive. 
A) small income elasticities because consumers,regardless of their incomes,choose to buy relatively constant quantities of these goods. 
B) small income elasticities because consumers buy proportionately more of both goods at higher income levels than they buy at low income levels. 
C) large income elasticities because they are necessities. 
D) large income elasticities because they are relatively inexpensive.

Question 10

Studies indicate that the price elasticity of demand for cigarettes is about 0.4.A government policy aimed at reducing smoking changed the price of a pack of cigarettes from $2 to $6.According to the midpoint method,the government policy should have reduced smoking by

Accepted Answer

A) 30%. 
B) 40%. 
C) 80%. 
D) 250%. 
A) 30%. 
B) 40%. 
C) 80%. 
D) 250%.

Question 11

When demand is perfectly inelastic,the demand curve will be

Accepted Answer

A) negatively sloped,because buyers decrease their purchases when the price rises. 
B) vertical,because buyers purchase the same amount as before whenever the price rises or falls. 
C) positively sloped,because buyers increase their purchases when price rises. 
D) positively sloped,because buyers increase their total expenditures when price rises. 
A) negatively sloped,because buyers decrease their purchases when the price rises. 
B) vertical,because buyers purchase the same amount as before whenever the price rises or falls. 
C) positively sloped,because buyers increase their purchases when price rises. 
D) positively sloped,because buyers increase their total expenditures when price rises.

Question 12

For a particular good,an 8 percent increase in price causes a 4 percent decrease in quantity demanded.Which of the following statements is most likely applicable to this good?

Accepted Answer

A) There are many close substitutes for this good. 
B) The good is a luxury. 
C) The market for the good is broadly defined. 
D) The relevant time horizon is long. 
A) There are many close substitutes for this good. 
B) The good is a luxury. 
C) The market for the good is broadly defined. 
D) The relevant time horizon is long.

Question 13

Figure 5-8  
-Refer to Figure 5-8.When price falls from $25 to $20,demand is

Accepted Answer

A) inelastic,since total revenue decreases from $4,000 to $2,500. 
B) inelastic,since total revenue increases from $2,500 to $4,000. 
C) elastic,since total revenue increases from $2,500 to $4,000. 
D) unit elastic,since total revenue does not change. 
A) inelastic,since total revenue decreases from $4,000 to $2,500. 
B) inelastic,since total revenue increases from $2,500 to $4,000. 
C) elastic,since total revenue increases from $2,500 to $4,000. 
D) unit elastic,since total revenue does not change.

Question 14

If the price of natural gas rises,when is the price elasticity of demand likely to be the highest?

Accepted Answer

A) immediately after the price increase 
B) one month after the price increase 
C) three months after the price increase 
D) one year after the price increase 
A) immediately after the price increase 
B) one month after the price increase 
C) three months after the price increase 
D) one year after the price increase

Question 15

Demand is said to be unit elastic if quantity demanded

Accepted Answer

A) changes by the same percent as the price. 
B) changes by a larger percent than the price. 
C) changes by a smaller percent than the price. 
D) does not respond to a change in price. 
A) changes by the same percent as the price. 
B) changes by a larger percent than the price. 
C) changes by a smaller percent than the price. 
D) does not respond to a change in price.

Question 16

Figure 5-5  
-Refer to Figure 5-5.Using the midpoint method,between prices of $70 and $80,price elasticity of demand is

Accepted Answer

A) 0.33. 
B) 0.4. 
C) 1.33. 
D) 3. 
A) 0.33. 
B) 0.4. 
C) 1.33. 
D) 3.

Question 17

Figure 5-12  
-Refer to Figure 5-12.Using the midpoint method,the price elasticity of demand between point X and point Y is

Accepted Answer

A) 0.4. 
B) 1. 
C) 2. 
D) 2.5. 
A) 0.4. 
B) 1. 
C) 2. 
D) 2.5.

Question 18

Figure 5-1  
-Refer to Figure 5-1.Between point A and point B on the graph,demand is

Accepted Answer

A) perfectly elastic. 
B) inelastic. 
C) unit elastic. 
D) elastic,but not perfectly elastic. 
A) perfectly elastic. 
B) inelastic. 
C) unit elastic. 
D) elastic,but not perfectly elastic.

Question 19

Suppose that when the price of good X falls from $10 to $8,the quantity demanded of good Y rises from 20 units to 25 units.Using the midpoint method,the cross-price elasticity of demand is

Accepted Answer

A) -1.0,and X and Y are complements. 
B) -1.0,and X and Y are substitutes. 
C) 1.0,and X and Y are complements. 
D) 1.0,and X and Y are substitutes. 
A) -1.0,and X and Y are complements. 
B) -1.0,and X and Y are substitutes. 
C) 1.0,and X and Y are complements. 
D) 1.0,and X and Y are substitutes.

Question 20

Figure 5-5  
-Refer to Figure 5-5.Using the midpoint method,between prices of $20 and $30,price elasticity of demand is about

Accepted Answer

A) 0.33. 
B) 0.4. 
C) 1.33. 
D) 3. 
A) 0.33. 
B) 0.4. 
C) 1.33. 
D) 3.

Exam 5: Elasticity and Its Applications: The Elasticity of Demand

Income elasticity of demand measures how

Figure 5-4 -Refer to Figure 5-4.Assume,for the good in question,two specific points on the demand curve are (Q = 2,000,P = $15)and (Q = 2,400,P = $12).Then which of the following scenarios is possible?

Figure 5-12 -Refer to Figure 5-12.Sellers' total revenue would increase if the price

For which of the following goods is the income elasticity of demand likely lowest?

How does total revenue change as one moves downward and to the right along a linear demand curve?

Figure 5-5 -Refer to Figure 5-5.At a price of $70 per unit,sellers' total revenue equals

Using the midpoint method,the price elasticity of demand for a good is computed to be approximately 0.75.Which of the following events is consistent with a 10 percent decrease in the quantity of the good demanded?

Food and clothing tend to have

Studies indicate that the price elasticity of demand for cigarettes is about 0.4.A government policy aimed at reducing smoking changed the price of a pack of cigarettes from $2 to $6.According to the midpoint method,the government policy should have reduced smoking by

When demand is perfectly inelastic,the demand curve will be

For a particular good,an 8 percent increase in price causes a 4 percent decrease in quantity demanded.Which of the following statements is most likely applicable to this good?

Figure 5-8 -Refer to Figure 5-8.When price falls from $25 to $20,demand is

If the price of natural gas rises,when is the price elasticity of demand likely to be the highest?

Demand is said to be unit elastic if quantity demanded

Figure 5-5 -Refer to Figure 5-5.Using the midpoint method,between prices of $70 and $80,price elasticity of demand is

Figure 5-12 -Refer to Figure 5-12.Using the midpoint method,the price elasticity of demand between point X and point Y is

Figure 5-1 -Refer to Figure 5-1.Between point A and point B on the graph,demand is

Suppose that when the price of good X falls from $10 to $8,the quantity demanded of good Y rises from 20 units to 25 units.Using the midpoint method,the cross-price elasticity of demand is

Figure 5-5 -Refer to Figure 5-5.Using the midpoint method,between prices of $20 and $30,price elasticity of demand is about

Ten Principles of Economics

Ten Principles of Economics: How People Make Decisions

Ten Principles of Economics: How People Interact

Ten Principles of Economics: How the Economy As a Whole Works

Ten Principles of Economics: Part A

Ten Principles of Economics: Part B

Thinking Like an Economist

Thinking Like an Economist: The Economist As Scientist

Thinking Like an Economist: The Economist As Policy Adviser

Thinking Like an Economist: Why Economists Disagree

Thinking Like an Economist: Lets Get Going

Thinking Like an Economist: Graphing a Brief Review

Thinking Like an Economist: Part A

Thinking Like an Economist: Part B

Interdependence and the Gains From Trade

Interdependence and the Gains From Trade: A Parable for the Modern Economy

Interdependence and the Gains From Trade: Comparative Advantage the Driving Force of Specialization

Interdependence and the Gains From Trade: Applications of Comparative Advantage

Interdependence and the Gains From Trade: Conclusion

Interdependence and the Gains From Trade: Part A

Interdependence and the Gains From Trade: Part B

The Market Forces of Supply and Demand

The Market Forces of Supply and Demand:Markets and Competition

The Market Forces of Supply and Demand: Demand

The Market Forces of Supply and Demand: Supply

The Market Forces of Supply and Demand: Supply and Demand Together

The Market Forces of Supply and DemandConclusion How Prices Allocate Resources

The Market Forces of Supply and Demand: Part A

The Market Forces of Supply and Demand: Part B

Elasticity and Its Applications

Elasticity and Its Applications: The Elasticity of Supply

Elasticity and Its Applications: Three Applications of Supply,demand,and Elasticity

Elasticity and Its Applications: Part A

Elasticity and Its Applications: Part B

Supply Demand and Government Policies

Supply Demand and Government Policies: Controls on Prices

Supply Demand and Government Policies: Taxes

Supply Demand and Government Policies: Part A

Supply Demand and Government Policies: Part B

Consumers Producers and the Efficiency of Markets

Consumers Producers and the Efficiency of Markets: Consumer Surplus

Consumers Producers and the Efficiency of Markets: Producer Surplus

Consumers Producers and the Efficiency of Markets: Market Efficiency

Consumers Producers and the Efficiency of Markets: Conclusion Market Efficiency and Market Failure

Consumers Producers and the Efficiency of Markets: Part A

Consumers Producers and the Efficiency of Markets: Part B

Application the Cost of Taxation

Application the Cost of Taxation: The Deadweight Loss of Taxation

Application the Cost of Taxation: The Determinants of the Deadweight Loss

Application the Cost of Taxation: Deadweight Loss and Tax Revenue As Taxes Vary

Application the Cost of Taxation: Conclusion

Application the Cost of Taxation: Part A

Application the Cost of Taxation: Part B

Application International Trade

Application International Trade: The Determinants of Trade

Application International Trade: The Winners and Losers From Trade

Application International Trade: The Arguments for Restricting Trade

Application International Trade: Conclusion

Application International Trade: Part A

Application International Trade: Part B