Question 1

Nobel Prize-winning economist Gary Becker corrected President Clinton's elasticity estimate for cigarette smoking by

Accepted Answer

A) Showing that cigarettes were actually price-elastic. 
B) Showing that the long-run response to a price increase in cigarettes was likely to be more elastic than the president had estimated. 
C) Showing that the demand for cigarettes in the short run was more inelastic than the president calculated. 
D) Correcting the president's math. 
A) Showing that cigarettes were actually price-elastic. 
B) Showing that the long-run response to a price increase in cigarettes was likely to be more elastic than the president had estimated. 
C) Showing that the demand for cigarettes in the short run was more inelastic than the president calculated. 
D) Correcting the president's math.

Question 2

The price elasticity of demand is equal to

Accepted Answer

A) The percentage change in quantity demanded times the percentage change in price. 
B) The unit change in price divided by the unit change in quantity demanded. 
C) The percentage change in quantity demanded divided by the percentage change in price. 
D) The unit change in quantity demanded times the unit change in price. 
A) The percentage change in quantity demanded times the percentage change in price. 
B) The unit change in price divided by the unit change in quantity demanded. 
C) The percentage change in quantity demanded divided by the percentage change in price. 
D) The unit change in quantity demanded times the unit change in price.

Question 3

Supply is very elastic when

Accepted Answer

A) The quantity supplied does not change much when price rises. 
B) The quantity supplied has a large increase in response to an increase in price. 
C) The quantity supply does not respond to an increase in price. 
D) The quantity demanded causes the quantity supplied to increase. 
A) The quantity supplied does not change much when price rises. 
B) The quantity supplied has a large increase in response to an increase in price. 
C) The quantity supply does not respond to an increase in price. 
D) The quantity demanded causes the quantity supplied to increase.

Question 4

If incomes fall by 5 percent and the quantity demanded for new cars falls by 10 percent,

Accepted Answer

A) New cars are a normal good, and the income elasticity is +.5. 
B) New cars are an inferior good, and the income elasticity is +2.0. 
C) New cars are a normal good, and the income elasticity is +2.0. 
D) New cars are an inferior good, and the income elasticity is +0.5. 
A) New cars are a normal good, and the income elasticity is +.5. 
B) New cars are an inferior good, and the income elasticity is +2.0. 
C) New cars are a normal good, and the income elasticity is +2.0. 
D) New cars are an inferior good, and the income elasticity is +0.5.

Question 5

If the price increases by 10 percent, and the quantity demanded falls by 5 percent, the absolute value of the price elasticity will be

Accepted Answer

A) 0.5. 
B) 5.0. 
C) 50. 
D) -5.0. 
A) 0.5. 
B) 5.0. 
C) 50. 
D) -5.0.

Question 6

Maximum total revenue occurs when

Accepted Answer

A) The absolute value of the price elasticity of demand is 1.0. 
B) Price multiplied by quantity is 1.0. 
C) The absolute value of the price elasticity of demand is 100. 
A) The absolute value of the price elasticity of demand is 1.0. 
B) Price multiplied by quantity is 1.0. 
C) The absolute value of the price elasticity of demand is 100.

Question 7

In the $160 to $180 price range in Figure 20.1, the absolute value of the price elasticity of demand is closest to

Accepted Answer

A) 9.0. 
B) 1.0. 
C) 5.7. 
D) 0.175. 
A) 9.0. 
B) 1.0. 
C) 5.7. 
D) 0.175.

Question 8

If the price elasticity of demand for cigarettes is 0.4,

Accepted Answer

A) The demand is very elastic. 
B) A 10 percent increase in price will cause quantity demanded to fall by 40 percent. 
C) The demand is very inelastic. 
D) A 5 percent decrease in price will cause quantity demanded to rise by 10 percent. 
A) The demand is very elastic. 
B) A 10 percent increase in price will cause quantity demanded to fall by 40 percent. 
C) The demand is very inelastic. 
D) A 5 percent decrease in price will cause quantity demanded to rise by 10 percent.

Question 9

Suppose the price of soccer shoes decreases by 7 percent and as a result, there is a 12 percent rise in the quantity of shin guards demanded.The value of the cross-price elasticity of demand is

Accepted Answer

A)  -1.71. 
B) -0.58. 
C) 1.71. 
D) 0.58. 
A)  -1.71. 
B) -0.58. 
C) 1.71. 
D) 0.58.

Question 10

Cross-price elasticity looks at the impact that income changes have on sales.

Accepted Answer

A) True 
 B)False

Question 11

Which of the following is most likely an inferior good?

Accepted Answer

A) Rolex watches. 
B) Nike running shoes. 
C) Generic canned food. 
D) A custom-built mansion. 
A) Rolex watches. 
B) Nike running shoes. 
C) Generic canned food. 
D) A custom-built mansion.

Question 12

Assume apples and oranges are substitutes.Suppose apple growers launch a successful advertising campaign that convinces consumers apples are a better product.As a result the cross-price elasticity of apples and oranges will become

Accepted Answer

A) Less negative (move closer to zero). 
B) More negative. 
C) Less positive (move closer to zero). 
D) More positive. 
A) Less negative (move closer to zero). 
B) More negative. 
C) Less positive (move closer to zero). 
D) More positive.

Question 13

If the elasticity of demand is 3, and the price rises by 15 percent, then

Accepted Answer

A) The quantity demanded will increase by 5 percent. 
B) The quantity demanded will fall by 45 percent. 
C) The quantity demanded will rise by 4.5 percent. 
D) The percentage change in quantity demanded will fall as income rises. 
A) The quantity demanded will increase by 5 percent. 
B) The quantity demanded will fall by 45 percent. 
C) The quantity demanded will rise by 4.5 percent. 
D) The percentage change in quantity demanded will fall as income rises.

Question 14

If the price of the iPod falls by 3 percent and the price elasticity of demand for iPods is 2.0, then quantity demanded will fall by what percentage?

Accepted Answer

A) 5 percent. 
B) 6 percent. 
C) 0.6 percent. 
D) 60 percent. 
A) 5 percent. 
B) 6 percent. 
C) 0.6 percent. 
D) 60 percent.

Question 15

If the price of cell phones increases by 5 percent and the quantity demanded falls by 2 percent, the absolute value of the price elasticity of demand is

Accepted Answer

A) 5.0. 
B) 0.4. 
C) 2.1. 
D) 5 percent. 
A) 5.0. 
B) 0.4. 
C) 2.1. 
D) 5 percent.

Question 16

Refer to Figure 20.2.Comparing the price elasticity of demand at points A and C, we can say that

Accepted Answer

A) The elasticities are the same because the points are on the same demand curve. 
B) Point A has a greater price elasticity of demand. 
C) Point C has a greater price elasticity of demand. 
D) Demand elasticity is indeterminate because specific price data are not given. 
A) The elasticities are the same because the points are on the same demand curve. 
B) Point A has a greater price elasticity of demand. 
C) Point C has a greater price elasticity of demand. 
D) Demand elasticity is indeterminate because specific price data are not given.

Question 17

The formula for the elasticity of supply is the percentage change in quantity supplied divided by the percentage change in price.

Accepted Answer

A) True 
 B)False

Question 18

If the price elasticity of demand is 0.6, then a 10 percent increase in the price of the good will lead to a ________ in the quantity demanded.

Accepted Answer

A) 6 percent increase 
B) 6 percent decrease 
C) 0.6 percent increase 
D) 0.6 percent decrease 
A) 6 percent increase 
B) 6 percent decrease 
C) 0.6 percent increase 
D) 0.6 percent decrease

Question 19

The formula for cross-price elasticity is

Accepted Answer

A) The percentage change in the quantity demanded for one good divided by the percentage change in income. 
B) The percentage change in the quantity demanded for one good divided by the percentage change in the price of another good. 
C) The percentage change in the price of one good divided by the percentage change in the quantity demanded of another good. 
D) The percentage change in the quantity demanded divided by the average change in price. 
A) The percentage change in the quantity demanded for one good divided by the percentage change in income. 
B) The percentage change in the quantity demanded for one good divided by the percentage change in the price of another good. 
C) The percentage change in the price of one good divided by the percentage change in the quantity demanded of another good. 
D) The percentage change in the quantity demanded divided by the average change in price.

Question 20

If the price of gasoline rises by 10 percent and new car sales fall by 5 percent, this indicates that these two goods are complementary.

Accepted Answer

A) True 
 B)False

Exam 6: Elasticity

Nobel Prize-winning economist Gary Becker corrected President Clinton's elasticity estimate for cigarette smoking by

The price elasticity of demand is equal to

Supply is very elastic when

If incomes fall by 5 percent and the quantity demanded for new cars falls by 10 percent,

If the price increases by 10 percent, and the quantity demanded falls by 5 percent, the absolute value of the price elasticity will be

Maximum total revenue occurs when

In the $160 to $180 price range in Figure 20.1, the absolute value of the price elasticity of demand is closest to

If the price elasticity of demand for cigarettes is 0.4,

Suppose the price of soccer shoes decreases by 7 percent and as a result, there is a 12 percent rise in the quantity of shin guards demanded.The value of the cross-price elasticity of demand is

Cross-price elasticity looks at the impact that income changes have on sales.

Which of the following is most likely an inferior good?

Assume apples and oranges are substitutes.Suppose apple growers launch a successful advertising campaign that convinces consumers apples are a better product.As a result the cross-price elasticity of apples and oranges will become

If the elasticity of demand is 3, and the price rises by 15 percent, then

If the price of the iPod falls by 3 percent and the price elasticity of demand for iPods is 2.0, then quantity demanded will fall by what percentage?

If the price of cell phones increases by 5 percent and the quantity demanded falls by 2 percent, the absolute value of the price elasticity of demand is

Refer to Figure 20.2.Comparing the price elasticity of demand at points A and C, we can say that

The formula for the elasticity of supply is the percentage change in quantity supplied divided by the percentage change in price.

If the price elasticity of demand is 0.6, then a 10 percent increase in the price of the good will lead to a ________ in the quantity demanded.

The formula for cross-price elasticity is

If the price of gasoline rises by 10 percent and new car sales fall by 5 percent, this indicates that these two goods are complementary.

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