Question 1

The total revenue effect of a movement along a demand curve can best be predicted using the

Accepted Answer

A) Law of diminishing marginal utility. 
B) Price elasticity of demand. 
C) Utility-maximizing rule. 
D) Law of demand. 
A) Law of diminishing marginal utility. 
B) Price elasticity of demand. 
C) Utility-maximizing rule. 
D) Law of demand.

Question 2

Suppose the income elasticity of demand for used jet skis is 3.5.If the level of income decreases by 1 percent, the number of used jet skis sold will, ceteris paribus,

Accepted Answer

A) Rise by 0.29 percent. 
B) Rise by 3.5 percent. 
C) Fall by 0.29 percent. 
D) Fall by 3.5 percent. 
A) Rise by 0.29 percent. 
B) Rise by 3.5 percent. 
C) Fall by 0.29 percent. 
D) Fall by 3.5 percent.

Question 3

The demand will be _______________ if the consumer has _________ substitute goods to choose from

Accepted Answer

A) elastic; less 
B) inelastic; more 
C) elastic; more 
D) elastic; no 
A) elastic; less 
B) inelastic; more 
C) elastic; more 
D) elastic; no

Question 4

The price elasticity of demand is calculated by dividing the percentage change in quantity demanded by the percentage change in price.

Accepted Answer

A) True 
 B)False

Question 5

If the price elasticity of demand is 0.4, a 5 percent increase in price will quantity demanded to fall by 2 percent.

Accepted Answer

A) True 
 B)False

Question 6

If the price elasticity of demand is 1.0, and a firm raises its price by 10 percent, the total revenue will

Accepted Answer

A) Rise by 10 percent. 
B) Fall by 10 percent. 
C) Not change. 
D) Rise by 100 percent. 
A) Rise by 10 percent. 
B) Fall by 10 percent. 
C) Not change. 
D) Rise by 100 percent.

Question 7

Which of the following products will have more inelastic demand?

Accepted Answer

A) New cars. 
B) Fresh flowers. 
C) Fast food. 
D) Medicines. 
A) New cars. 
B) Fresh flowers. 
C) Fast food. 
D) Medicines.

Question 8

If a good is normal, its

Accepted Answer

A) Price elasticity of demand is positive. 
B) Income elasticity of demand is negative. 
C) Income elasticity of demand is positive. 
D) Cross-price elasticity is positive. 
A) Price elasticity of demand is positive. 
B) Income elasticity of demand is negative. 
C) Income elasticity of demand is positive. 
D) Cross-price elasticity is positive.

Question 9

Ceteris paribus, the longer the time period, the

Accepted Answer

A) Smaller the income elasticity for the good. 
B) Less elastic the demand for the good. 
C) More unitary elastic the demand for the good. 
D) More elastic the demand for the good. 
A) Smaller the income elasticity for the good. 
B) Less elastic the demand for the good. 
C) More unitary elastic the demand for the good. 
D) More elastic the demand for the good.

Question 10

Assume the price elasticity of demand for JT Chip Co.chips is 4.0.If the company decreases the price of each bag of chips from $1.89 to $1.49, the number of bags sold will

Accepted Answer

A) Decrease by 78 percent. 
B) Increase by 95 percent. 
C) Increase by 48 percent. 
D) Increase by 78 percent. 
A) Decrease by 78 percent. 
B) Increase by 95 percent. 
C) Increase by 48 percent. 
D) Increase by 78 percent.

Question 11

To reduce our dependence on foreign oil, policy makers must realize that the cross-price elasticity sign for gasoline and fossil fuel-burning cars is negative.

Accepted Answer

A) True 
 B)False

Question 12

Assume the price elasticity of demand for MC Pretzel Co.pretzels is 0.8.If the company increases the price of each bag of pretzels, total revenue will

Accepted Answer

A) Decrease because fewer bags will be sold. 
B) Increase because demand is elastic and revenue will rise. 
C) Increase because the percentage increase in price is greater than the percentage change in quantity demanded. 
D) Be impossible to predict because the percentage change in price is not known. 
A) Decrease because fewer bags will be sold. 
B) Increase because demand is elastic and revenue will rise. 
C) Increase because the percentage increase in price is greater than the percentage change in quantity demanded. 
D) Be impossible to predict because the percentage change in price is not known.

Question 13

If income falls 4 percent for a year and as a result the quantity of new homes demanded falls from 23 million to 20 million units for the year, the value of the income elasticity of demand for new homes is closest to

Accepted Answer

A) 0.6. 
B) 1.8. 
C) 2.9. 
D) 3.5. 
A) 0.6. 
B) 1.8. 
C) 2.9. 
D) 3.5.

Question 14

Ceteris paribus, as the number of substitutes for a good increases, the

Accepted Answer

A) Price elasticity of demand should become smaller. 
B) Price elasticity of demand should become larger. 
C) Cross-price elasticity of demand should become negative. 
D) Income elasticity of demand should become negative. 
A) Price elasticity of demand should become smaller. 
B) Price elasticity of demand should become larger. 
C) Cross-price elasticity of demand should become negative. 
D) Income elasticity of demand should become negative.

Question 15

Discuss how the concepts of cross-price elasticity of demand and income elasticity of demand can help businesses plan production and pricing.

Accepted Answer

Cross-price elasticity measures how the

Question 16

Policy proposals to make the United States energy-independent

Accepted Answer

A) Have arisen only recently because of the high price of oil. 
B) Were originally for national security reasons. 
C) Have never been proposed because the United States cannot become energy-independent. 
D) Have been proposed recently because the price of wind and solar power has fallen. 
A) Have arisen only recently because of the high price of oil. 
B) Were originally for national security reasons. 
C) Have never been proposed because the United States cannot become energy-independent. 
D) Have been proposed recently because the price of wind and solar power has fallen.

Question 17

Which of the following is likely to have the most inelastic price elasticity of demand?

Accepted Answer

A) Automobiles. 
B) Pickup trucks. 
C) Hondas. 
D) The Hondas one Honda dealer sells. 
A) Automobiles. 
B) Pickup trucks. 
C) Hondas. 
D) The Hondas one Honda dealer sells.

Question 18

Assume a good has a downward-sloping, linear demand curve.Starting at a price of zero, as the price of the good increases, total revenue

Accepted Answer

A) Increases indefinitely. 
B) Decreases indefinitely because the quantity sold will decrease. 
C) Is constant. 
D) Increases, then decreases. 
A) Increases indefinitely. 
B) Decreases indefinitely because the quantity sold will decrease. 
C) Is constant. 
D) Increases, then decreases.

Question 19

Price elasticity of demand refers to

Accepted Answer

A) How responsive producers are to a change in the cost of production. 
B) How sensitive buyers are to a change in price. 
C) How buyers respond to a change in income. 
D) How buyers react to a change in the price of a substitute good. 
A) How responsive producers are to a change in the cost of production. 
B) How sensitive buyers are to a change in price. 
C) How buyers respond to a change in income. 
D) How buyers react to a change in the price of a substitute good.

Question 20

If two goods are substitute goods,

Accepted Answer

A) The percentage change in quantity demanded for good X will fall if there is a reduction in price of good Y. 
B) The percentage change in quantity demanded for good X will stay the same if there is an increase in the price of good Y. 
C) If the price of good X increases, the demand for good Y falls. 
D) The percentage change in quantity demanded for good X will rise if there is a reduction in the price of good Y. 
A) The percentage change in quantity demanded for good X will fall if there is a reduction in price of good Y. 
B) The percentage change in quantity demanded for good X will stay the same if there is an increase in the price of good Y. 
C) If the price of good X increases, the demand for good Y falls. 
D) The percentage change in quantity demanded for good X will rise if there is a reduction in the price of good Y.

Exam 6: Elasticity

The total revenue effect of a movement along a demand curve can best be predicted using the

Suppose the income elasticity of demand for used jet skis is 3.5.If the level of income decreases by 1 percent, the number of used jet skis sold will, ceteris paribus,

The demand will be _______________ if the consumer has _________ substitute goods to choose from

The price elasticity of demand is calculated by dividing the percentage change in quantity demanded by the percentage change in price.

If the price elasticity of demand is 0.4, a 5 percent increase in price will quantity demanded to fall by 2 percent.

If the price elasticity of demand is 1.0, and a firm raises its price by 10 percent, the total revenue will

Which of the following products will have more inelastic demand?

If a good is normal, its

Ceteris paribus, the longer the time period, the

Assume the price elasticity of demand for JT Chip Co.chips is 4.0.If the company decreases the price of each bag of chips from $1.89 to $1.49, the number of bags sold will

To reduce our dependence on foreign oil, policy makers must realize that the cross-price elasticity sign for gasoline and fossil fuel-burning cars is negative.

Assume the price elasticity of demand for MC Pretzel Co.pretzels is 0.8.If the company increases the price of each bag of pretzels, total revenue will

If income falls 4 percent for a year and as a result the quantity of new homes demanded falls from 23 million to 20 million units for the year, the value of the income elasticity of demand for new homes is closest to

Ceteris paribus, as the number of substitutes for a good increases, the

Discuss how the concepts of cross-price elasticity of demand and income elasticity of demand can help businesses plan production and pricing.

Policy proposals to make the United States energy-independent

Which of the following is likely to have the most inelastic price elasticity of demand?

Assume a good has a downward-sloping, linear demand curve.Starting at a price of zero, as the price of the good increases, total revenue

Price elasticity of demand refers to

If two goods are substitute goods,

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The demand will be _______ if the consumer has _ substitute goods to choose from