Question 1

Which of the following should be held constant when calculating an income elasticity of demand?

Accepted Answer

A) the quantity of the good demanded 
B) the price of the good 
C) income 
D) All of the above should be held constant. 
A) the quantity of the good demanded 
B) the price of the good 
C) income 
D) All of the above should be held constant.

Question 2

The price elasticity of demand for mobile phones

Accepted Answer

A) will be higher if there is an improvement in the production technology. 
B) will be lower if consumers perceive mobile phones to be a necessity. 
C) is computed as the percentage change in the price of mobile phones divided by the percentage change in quantity of mobile phones. 
D) All of the above are correct. 
A) will be higher if there is an improvement in the production technology. 
B) will be lower if consumers perceive mobile phones to be a necessity. 
C) is computed as the percentage change in the price of mobile phones divided by the percentage change in quantity of mobile phones. 
D) All of the above are correct.

Question 3

If the cross-price elasticity of demand for two goods is 1.25,then

Accepted Answer

A) the two goods are luxuries. 
B) the two goods are substitutes. 
C) one of the goods is normal and the other good is inferior. 
D) the demand for one of the goods conforms to the law of demand,but the demand for the other good violates the law of demand. 
A) the two goods are luxuries. 
B) the two goods are substitutes. 
C) one of the goods is normal and the other good is inferior. 
D) the demand for one of the goods conforms to the law of demand,but the demand for the other good violates the law of demand.

Question 4

For a particular good,a 10 percent increase in price causes a 3 percent decrease in quantity demanded.Which of the following statements is most likely applicable to this good?

Accepted Answer

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

Question 5

When demand is unit elastic,price elasticity of demand equals

Accepted Answer

A) 1,and total revenue and price move in the same direction. 
B) 1,and total revenue and price move in opposite directions. 
C) 1,and total revenue does not change when price changes. 
D) 0,and total revenue does not change when price changes. 
A) 1,and total revenue and price move in the same direction. 
B) 1,and total revenue and price move in opposite directions. 
C) 1,and total revenue does not change when price changes. 
D) 0,and total revenue does not change when price changes.

Question 6

Suppose the cross-price elasticity of demand between peanut butter and jelly is -2.50.This implies that a 20 percent increase in the price of peanut butter will cause the quantity of jelly purchased to

Accepted Answer

A) fall by 8 percent. 
B) fall by 50 percent. 
C) rise by 8 percent. 
D) rise by 50 percent. 
A) fall by 8 percent. 
B) fall by 50 percent. 
C) rise by 8 percent. 
D) rise by 50 percent.

Question 7

When we move upward and to the left along a linear,downward-sloping demand curve,price elasticity of demand

Accepted Answer

A) first becomes smaller,then larger. 
B) always becomes larger. 
C) always becomes smaller. 
D) first becomes larger,then smaller. 
A) first becomes smaller,then larger. 
B) always becomes larger. 
C) always becomes smaller. 
D) first becomes larger,then smaller.

Question 8

Suppose that when the price of good X falls from $6 to $4,the quantity demanded of good Y rises from 30 units to 40 units.Using the midpoint method,the cross-price elasticity of demand is

Accepted Answer

A) -0.71,and X and Y are complements. 
B) -1.40,and X and Y are complements. 
C) -0.71,and X and Y are substitutes. 
D) -1.40,and X and Y are substitutes. 
A) -0.71,and X and Y are complements. 
B) -1.40,and X and Y are complements. 
C) -0.71,and X and Y are substitutes. 
D) -1.40,and X and Y are substitutes.

Question 9

Figure 5-13  
-Refer to Figure 5-13.Between point A and point B,price elasticity of demand using the midpoint method is equal to

Accepted Answer

A) 0.71. 
B) 0.85. 
C) 1.18. 
D) 1.40. 
A) 0.71. 
B) 0.85. 
C) 1.18. 
D) 1.40.

Question 10

When the price of a bracelet was $28 each,the jewelry shop sold 128 per month.When it raised the price to $32 each,it sold 112 per month.Using the midpoint method,the price elasticity of demand for bracelets is

Accepted Answer

A) 1.14. 
B) 1. 
C) 0.25. 
D) 0.13. 
A) 1.14. 
B) 1. 
C) 0.25. 
D) 0.13.

Question 11

When demand is inelastic,a decrease in price will cause

Accepted Answer

A) an increase in total revenue. 
B) a decrease in total revenue. 
C) no change in total revenue but an increase in quantity demanded. 
D) no change in total revenue but a decrease in quantity demanded. 
A) an increase in total revenue. 
B) a decrease in total revenue. 
C) no change in total revenue but an increase in quantity demanded. 
D) no change in total revenue but a decrease in quantity demanded.

Question 12

Figure 5-13  
-Refer to Figure 5-13.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 13

Suppose a market has the demand function Qd=20-0.5P.Between which of the following price ranges is demand most inelastic?

Accepted Answer

A) $0 to $10 
B) $10 to $20 
C) $20 to $30 
D) $30 to $40 
A) $0 to $10 
B) $10 to $20 
C) $20 to $30 
D) $30 to $40

Question 14

If the demand curve is linear and downward sloping,which of the following statements is not correct?

Accepted Answer

A) Demand is more elastic on the lower part of the demand curve than on the upper part. 
B) Different pairs of points on the demand curve can result in different values of the price elasticity of demand. 
C) Different pairs of points on the demand curve result in identical values of the slope of the demand curve. 
D) Starting from a point on the upper part of the demand curve,an increase in price leads to a decrease in total revenue. 
A) Demand is more elastic on the lower part of the demand curve than on the upper part. 
B) Different pairs of points on the demand curve can result in different values of the price elasticity of demand. 
C) Different pairs of points on the demand curve result in identical values of the slope of the demand curve. 
D) Starting from a point on the upper part of the demand curve,an increase in price leads to a decrease in total revenue.

Question 15

Figure 5-3  
-Refer to Figure 5-3.Which demand curve is unit elastic?

Accepted Answer

A) A 
B) B 
C) D 
D) None of the above. 
A) A 
B) B 
C) D 
D) None of the above.

Question 16

If the price of milk rises,when is the price elasticity of demand likely to be the lowest?

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 17

If a 20% increase in price for a good results in a 15% decrease in quantity demanded,the price elasticity of demand is

Accepted Answer

A) 0.75. 
B) 1.25. 
C) 1.33. 
D) 1.60. 
A) 0.75. 
B) 1.25. 
C) 1.33. 
D) 1.60.

Question 18

Suppose that Juan Carlos is filling out a survey that he received in the mail.The survey asks him what he would do if the price of his favorite toothpaste increased.Juan Carlos reports that he would switch to a different brand.The survey asks what he would do if the price of all toothpastes increased.Juan Carlos reports that he must use toothpaste,so he would have to adjust his spending elsewhere.These examples illustrate the importance of

Accepted Answer

A) changes in total revenue in determining the price elasticity of demand. 
B) a necessity versus a luxury in determining the price elasticity of demand. 
C) the definition of a market in determining the price elasticity of demand. 
D) the time horizon in determining the price elasticity of demand. 
A) changes in total revenue in determining the price elasticity of demand. 
B) a necessity versus a luxury in determining the price elasticity of demand. 
C) the definition of a market in determining the price elasticity of demand. 
D) the time horizon in determining the price elasticity of demand.

Question 19

Figure 5-4  
-Refer to Figure 5-4.Assume the section of the demand curve from A to B corresponds to prices between $8 and $16.Then,when the price changes between $9 and $10,

Accepted Answer

A) quantity demanded changes proportionately less than the price. 
B) quantity demanded changes proportionately more than the price. 
C) quantity demanded changes the same amount proportionately as price. 
D) the price elasticity of demand equals 1. 
A) quantity demanded changes proportionately less than the price. 
B) quantity demanded changes proportionately more than the price. 
C) quantity demanded changes the same amount proportionately as price. 
D) the price elasticity of demand equals 1.

Question 20

Suppose demand is perfectly inelastic,and the supply of the good in question decreases.As a result,

Accepted Answer

A) the equilibrium quantity decreases,and the equilibrium price is unchanged. 
B) the equilibrium price increases,and the equilibrium quantity is unchanged. 
C) the equilibrium quantity and the equilibrium price both are unchanged. 
D) buyers' total expenditure on the good is unchanged. 
A) the equilibrium quantity decreases,and the equilibrium price is unchanged. 
B) the equilibrium price increases,and the equilibrium quantity is unchanged. 
C) the equilibrium quantity and the equilibrium price both are unchanged. 
D) buyers' total expenditure on the good is unchanged.

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

Which of the following should be held constant when calculating an income elasticity of demand?

The price elasticity of demand for mobile phones

If the cross-price elasticity of demand for two goods is 1.25,then

For a particular good,a 10 percent increase in price causes a 3 percent decrease in quantity demanded.Which of the following statements is most likely applicable to this good?

When demand is unit elastic,price elasticity of demand equals

Suppose the cross-price elasticity of demand between peanut butter and jelly is -2.50.This implies that a 20 percent increase in the price of peanut butter will cause the quantity of jelly purchased to

When we move upward and to the left along a linear,downward-sloping demand curve,price elasticity of demand

Suppose that when the price of good X falls from $6 to $4,the quantity demanded of good Y rises from 30 units to 40 units.Using the midpoint method,the cross-price elasticity of demand is

Figure 5-13 -Refer to Figure 5-13.Between point A and point B,price elasticity of demand using the midpoint method is equal to

When the price of a bracelet was $28 each,the jewelry shop sold 128 per month.When it raised the price to $32 each,it sold 112 per month.Using the midpoint method,the price elasticity of demand for bracelets is

When demand is inelastic,a decrease in price will cause

Figure 5-13 -Refer to Figure 5-13.Between point A and point B on the graph,demand is

Suppose a market has the demand function Qd=20-0.5P.Between which of the following price ranges is demand most inelastic?

If the demand curve is linear and downward sloping,which of the following statements is not correct?

Figure 5-3 -Refer to Figure 5-3.Which demand curve is unit elastic?

If the price of milk rises,when is the price elasticity of demand likely to be the lowest?

If a 20% increase in price for a good results in a 15% decrease in quantity demanded,the price elasticity of demand is

Figure 5-4 -Refer to Figure 5-4.Assume the section of the demand curve from A to B corresponds to prices between $8 and $16.Then,when the price changes between $9 and $10,

Suppose demand is perfectly inelastic,and the supply of the good in question decreases.As a result,

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

Suppose a market has the demand function Q^d=20-0.5P.Between which of the following price ranges is demand most inelastic?