Question 1

A firm is currently producing in the inelastic portion of its demand curve. What course of action do you recommend for it, assuming it wants to raise revenue?

Accepted Answer

A)  Continue producing at the current output level, because it maximizes its total revenue by producing in the inelastic portion of its demand curve. 
B)  Reduce price, because if it reduces price and demand is inelastic, total revenue will increase. 
C)  Increase price, because if it increases price and demand is inelastic, total revenue will increase. 
D)  Continue selling at the same price, but increase the amount it produces. 
A)  Continue producing at the current output level, because it maximizes its total revenue by producing in the inelastic portion of its demand curve. 
B)  Reduce price, because if it reduces price and demand is inelastic, total revenue will increase. 
C)  Increase price, because if it increases price and demand is inelastic, total revenue will increase. 
D)  Continue selling at the same price, but increase the amount it produces.

Question 2

If government officials are mainly interested in generating tax revenue, then they should tax goods for which demand is price elastic.

Accepted Answer

A) True 
 B)False

Question 3

Refer to the information provided in Figure 5.2 below to answer the questions that follow.   Figure 5.2
-Refer to Figure 5.2. If the price of a hamburger is increased from $6 to $8, the price elasticity of demand equals ________. Use the midpoint formula.

Accepted Answer

A)  -0.24 
B)  -1.0 
C)  -1.4 
D)  -2.0 
A)  -0.24 
B)  -1.0 
C)  -1.4 
D)  -2.0

Question 4

A perfectly price elastic demand curve will be a ________ line.

Accepted Answer

A)  horizontal 
B)  vertical 
C)  positively sloped 
D)  negatively sloped 
A)  horizontal 
B)  vertical 
C)  positively sloped 
D)  negatively sloped

Question 5

Refer to the information provided in Figure 5.4 below to answer the questions that follow.   Figure 5.4
-Refer to Figure 5.4. The demand for milkshakes is unit elastic at Point C. If a store reduces the price of a milkshake from P3 to P4, its total revenue will

Accepted Answer

A)  increase. 
B)  decrease. 
C)  remain constant. 
D)  either increase or decrease. 
A)  increase. 
B)  decrease. 
C)  remain constant. 
D)  either increase or decrease.

Question 6

A demand curve with continuously changing slope over all quantity values will always have a constant price elasticity of demand.

Accepted Answer

A) True 
 B)False

Question 7

Refer to the information provided in Figure 5.3 below to answer the questions that follow.   Figure 5.3
-Refer to Figure 5.3. Using the midpoint formula, if the price of a gardenburger is decreased from $7 to $6, the price elasticity of demand equals ________, and the decrease results in a(n) ________ in total revenue.

Accepted Answer

A)  -.13; decrease 
B)  -.69; increase 
C)  -1.44; increase 
D)  -13; increase 
A)  -.13; decrease 
B)  -.69; increase 
C)  -1.44; increase 
D)  -13; increase

Question 8

If income increases by 10% and, in response, the quantity of housing demanded increases by 7%, then the income elasticity of demand for housing is

Accepted Answer

A)  -1. 
B)  -0.7. 
C)  0.7. 
D)  1.43. 
A)  -1. 
B)  -0.7. 
C)  0.7. 
D)  1.43.

Question 9

Refer to the information provided in Figure 5.3 below to answer the questions that follow.   Figure 5.3
-Refer to Figure 5.3. Use the midpoint formula. If the price of a gardenburger is increased from $8 to $10, the price elasticity of demand equals ________ and demand is ________.

Accepted Answer

A)  4.5; elastic 
B)  -0.5; inelastic 
C)  -4.5; elastic 
D)  -9.0; inelastic 
A)  4.5; elastic 
B)  -0.5; inelastic 
C)  -4.5; elastic 
D)  -9.0; inelastic

Question 10

When the slope of a demand curve is constant, price elasticity of demand is constant as well.

Accepted Answer

A) True 
 B)False

Question 11

Demand is more elastic for an item which represents a relatively large part of a person's total budget.

Accepted Answer

A) True 
 B)False

Question 12

A government wants to reduce electricity consumption by 10%. The price elasticity of demand for electricity is -5. The government must ________ the price of electricity by ________.

Accepted Answer

A)  raise; 2.0% 
B)  raise; 0.5% 
C)  raise; 1.25% 
D)  lower; 0.5% 
A)  raise; 2.0% 
B)  raise; 0.5% 
C)  raise; 1.25% 
D)  lower; 0.5%

Question 13

The price elasticity of demand is generally negative to reflect the indirect relationship between the quantity demanded of a good and its price.

Accepted Answer

A) True 
 B)False

Question 14

The income elasticity of demand for education is 3.5. Thus, a 4% increase in income will

Accepted Answer

A)  decrease the quantity of education demanded by 3.5%. 
B)  decrease the quantity of education demanded by 14%. 
C)  increase the quantity of education demanded by 4%. 
D)  increase the quantity of education demanded by 14%. 
A)  decrease the quantity of education demanded by 3.5%. 
B)  decrease the quantity of education demanded by 14%. 
C)  increase the quantity of education demanded by 4%. 
D)  increase the quantity of education demanded by 14%.

Question 15

A perfectly price elastic supply curve will be a(n) ________ line.

Accepted Answer

A)  horizontal 
B)  vertical 
C)  upward sloping 
D)  downward sloping 
A)  horizontal 
B)  vertical 
C)  upward sloping 
D)  downward sloping

Question 16

Suppose a 10% increase in the price of steak reduces the consumption of steak by 30%. Such a price rise will induce households to spend

Accepted Answer

A)  less of their income on steak. 
B)  more of their income on steak. 
C)  the same amount on steak as before. 
D)  more on products that are complementary with steak. 
A)  less of their income on steak. 
B)  more of their income on steak. 
C)  the same amount on steak as before. 
D)  more on products that are complementary with steak.

Question 17

The cross-price elasticity of demand between good X and good Y is 0.5. Given this information, which of the following statements is true?

Accepted Answer

A)  The demand for goods X and Y is inelastic. 
B)  Goods X and Y are substitutes. 
C)  Goods X and Y are complements. 
D)  The demand for goods X and Y is income inelastic. 
A)  The demand for goods X and Y is inelastic. 
B)  Goods X and Y are substitutes. 
C)  Goods X and Y are complements. 
D)  The demand for goods X and Y is income inelastic.

Question 18

The determinants of elasticity include

Accepted Answer

A)  availability of substitutes. 
B)  price relative to income. 
C)  time. 
D)  all of the above 
A)  availability of substitutes. 
B)  price relative to income. 
C)  time. 
D)  all of the above

Question 19

In order to discourage consumers from eating unhealthy fast food, the government is considering placing a tax on all fast food sales. Which of the following statements is true?

Accepted Answer

A)  Given the numerous alternatives, consumers' demand for fast food is relatively elastic and the tax will likely work to discourage fast food consumption. 
B)  The tax on fast food will likely raise considerable revenue but will be unlikely to reduce the consumption of fast food by consumers. 
C)  The tax on fast food will likely increase the demand for home cooked meals. 
D)  Both A and C are true. 
A)  Given the numerous alternatives, consumers' demand for fast food is relatively elastic and the tax will likely work to discourage fast food consumption. 
B)  The tax on fast food will likely raise considerable revenue but will be unlikely to reduce the consumption of fast food by consumers. 
C)  The tax on fast food will likely increase the demand for home cooked meals. 
D)  Both A and C are true.

Question 20

Refer to the information provided in Figure 5.6 below to answer the question that follows.   Figure 5.6
-Refer to Figure 5.6. The market is initially in equilibrium at Point A and supply shifts from S1 to S2. Which of the following statements is true?

Accepted Answer

A)  Price will still serve as a rationing device causing quantity supplied to exceed 12 thousand pizzas. 
B)  There is no need for price to serve as a rationing device in this case because the new equilibrium quantity exceeds the original equilibrium quantity. 
C)  Price will still serve as a rationing device causing quantity demanded to fall from 12 to 10 thousand pizzas. 
D)  The market cannot move to a new equilibrium until there is also a change in demand. 
A)  Price will still serve as a rationing device causing quantity supplied to exceed 12 thousand pizzas. 
B)  There is no need for price to serve as a rationing device in this case because the new equilibrium quantity exceeds the original equilibrium quantity. 
C)  Price will still serve as a rationing device causing quantity demanded to fall from 12 to 10 thousand pizzas. 
D)  The market cannot move to a new equilibrium until there is also a change in demand.

A firm is currently producing in the inelastic portion of its demand curve. What course of action do you recommend for it, assuming it wants to raise revenue?

If government officials are mainly interested in generating tax revenue, then they should tax goods for which demand is price elastic.

Refer to the information provided in Figure 5.2 below to answer the questions that follow. Figure 5.2 -Refer to Figure 5.2. If the price of a hamburger is increased from $6 to $8, the price elasticity of demand equals ________. Use the midpoint formula.

A perfectly price elastic demand curve will be a ________ line.

Refer to the information provided in Figure 5.4 below to answer the questions that follow. Figure 5.4 -Refer to Figure 5.4. The demand for milkshakes is unit elastic at Point C. If a store reduces the price of a milkshake from P3 to P4, its total revenue will

A demand curve with continuously changing slope over all quantity values will always have a constant price elasticity of demand.

If income increases by 10% and, in response, the quantity of housing demanded increases by 7%, then the income elasticity of demand for housing is

Refer to the information provided in Figure 5.3 below to answer the questions that follow. Figure 5.3 -Refer to Figure 5.3. Use the midpoint formula. If the price of a gardenburger is increased from $8 to $10, the price elasticity of demand equals and demand is .

When the slope of a demand curve is constant, price elasticity of demand is constant as well.

Demand is more elastic for an item which represents a relatively large part of a person's total budget.

A government wants to reduce electricity consumption by 10%. The price elasticity of demand for electricity is -5. The government must the price of electricity by .

The price elasticity of demand is generally negative to reflect the indirect relationship between the quantity demanded of a good and its price.

The income elasticity of demand for education is 3.5. Thus, a 4% increase in income will

A perfectly price elastic supply curve will be a(n) ________ line.

Suppose a 10% increase in the price of steak reduces the consumption of steak by 30%. Such a price rise will induce households to spend

The cross-price elasticity of demand between good X and good Y is 0.5. Given this information, which of the following statements is true?

The determinants of elasticity include

In order to discourage consumers from eating unhealthy fast food, the government is considering placing a tax on all fast food sales. Which of the following statements is true?

Refer to the information provided in Figure 5.6 below to answer the question that follows. Figure 5.6 -Refer to Figure 5.6. The market is initially in equilibrium at Point A and supply shifts from S1 to S2. Which of the following statements is true?

The Scope and Method of Economics

The Economic Problem: Scarcity and Choice

Demand, Supply, and Market Equilibrium

Demand and Supply Applications

Household Behavior and Consumer Choice

The Production Process: the Behavior of Profit-Maximizing Firms

Short-Run Costs and Output Decisions

Long-Run Costs and Output Decisions

Input Demand: the Labor and Land Markets

Input Demand: the Capital Market and the Investment Decision

General Equilibrium and the Efficiency of Perfect Competition

Monopoly and Antitrust Policy

Oligopoly

Monopolistic Competition

Externalities, Public Goods, and Social Choice

Uncertainty and Asymmetric Information

Income Distribution and Poverty

Public Finance: The Economics of Taxation

International Trade, Comparative Advantage, and Protectionism

Economic Growth in Developing and Transitional Economies

Filters

Exam 5: Elasticity

A firm is currently producing in the inelastic portion of its demand curve. What course of action do you recommend for it, assuming it wants to raise revenue?

If government officials are mainly interested in generating tax revenue, then they should tax goods for which demand is price elastic.

Refer to the information provided in Figure 5.2 below to answer the questions that follow. Figure 5.2 -Refer to Figure 5.2. If the price of a hamburger is increased from $6 to $8, the price elasticity of demand equals ________. Use the midpoint formula.

A perfectly price elastic demand curve will be a ________ line.

Refer to the information provided in Figure 5.4 below to answer the questions that follow. Figure 5.4 -Refer to Figure 5.4. The demand for milkshakes is unit elastic at Point C. If a store reduces the price of a milkshake from P3 to P4, its total revenue will

A demand curve with continuously changing slope over all quantity values will always have a constant price elasticity of demand.

If income increases by 10% and, in response, the quantity of housing demanded increases by 7%, then the income elasticity of demand for housing is

Refer to the information provided in Figure 5.3 below to answer the questions that follow. Figure 5.3 -Refer to Figure 5.3. Use the midpoint formula. If the price of a gardenburger is increased from $8 to $10, the price elasticity of demand equals ________ and demand is ________.

When the slope of a demand curve is constant, price elasticity of demand is constant as well.

Demand is more elastic for an item which represents a relatively large part of a person's total budget.

A government wants to reduce electricity consumption by 10%. The price elasticity of demand for electricity is -5. The government must ________ the price of electricity by ________.

The price elasticity of demand is generally negative to reflect the indirect relationship between the quantity demanded of a good and its price.

The income elasticity of demand for education is 3.5. Thus, a 4% increase in income will

A perfectly price elastic supply curve will be a(n) ________ line.

Suppose a 10% increase in the price of steak reduces the consumption of steak by 30%. Such a price rise will induce households to spend

The cross-price elasticity of demand between good X and good Y is 0.5. Given this information, which of the following statements is true?

The determinants of elasticity include

In order to discourage consumers from eating unhealthy fast food, the government is considering placing a tax on all fast food sales. Which of the following statements is true?

Refer to the information provided in Figure 5.6 below to answer the question that follows. Figure 5.6 -Refer to Figure 5.6. The market is initially in equilibrium at Point A and supply shifts from S1 to S2. Which of the following statements is true?

The Scope and Method of Economics

The Economic Problem: Scarcity and Choice

Demand, Supply, and Market Equilibrium

Demand and Supply Applications

Household Behavior and Consumer Choice

The Production Process: the Behavior of Profit-Maximizing Firms

Short-Run Costs and Output Decisions

Long-Run Costs and Output Decisions

Input Demand: the Labor and Land Markets

Input Demand: the Capital Market and the Investment Decision

General Equilibrium and the Efficiency of Perfect Competition

Monopoly and Antitrust Policy

Oligopoly

Monopolistic Competition

Externalities, Public Goods, and Social Choice

Uncertainty and Asymmetric Information

Income Distribution and Poverty

Public Finance: The Economics of Taxation

International Trade, Comparative Advantage, and Protectionism

Economic Growth in Developing and Transitional Economies

Filters

Refer to the information provided in Figure 5.3 below to answer the questions that follow. Figure 5.3 -Refer to Figure 5.3. Use the midpoint formula. If the price of a gardenburger is increased from $8 to $10, the price elasticity of demand equals and demand is .

A government wants to reduce electricity consumption by 10%. The price elasticity of demand for electricity is -5. The government must the price of electricity by .