Question 1

A demand curve that is perfectly inelastic is

Accepted Answer

A) Horizontal. 
B) Vertical. 
C) Upward-sloping. 
D) Downward-sloping. 
A) Horizontal. 
B) Vertical. 
C) Upward-sloping. 
D) Downward-sloping.

Question 2

If demand is elastic, then

Accepted Answer

A) An increase in price will reduce total revenue. 
B) An increase in price will increase total revenue. 
C) A decrease in price will reduce total revenue. 
D) A decrease in price will have no effect on total revenue. 
A) An increase in price will reduce total revenue. 
B) An increase in price will increase total revenue. 
C) A decrease in price will reduce total revenue. 
D) A decrease in price will have no effect on total revenue.

Question 3

If the price elasticity of demand is equal to 2, the good has _____ demand.

Accepted Answer

A) elastic 
B) inelastic 
C) unitary elastic 
D) restrictive 
A) elastic 
B) inelastic 
C) unitary elastic 
D) restrictive

Question 4

If demand is very inelastic,

Accepted Answer

A) The demand curve will be very flat. 
B) The demand curve will be horizontal. 
C) The demand curve will be very steep. 
D) The demand curve is upward-sloping. 
A) The demand curve will be very flat. 
B) The demand curve will be horizontal. 
C) The demand curve will be very steep. 
D) The demand curve is upward-sloping.

Question 5

If the demand for a product is elastic, then

Accepted Answer

A) The percentage change in quantity demanded is greater than the percentage in price. 
B) The percentage change in price is greater than the percentage change in quantity demanded. 
C) The change in the quantity demanded is greater than the change in income. 
D) Buyers are not very sensitive to a change in price. 
A) The percentage change in quantity demanded is greater than the percentage in price. 
B) The percentage change in price is greater than the percentage change in quantity demanded. 
C) The change in the quantity demanded is greater than the change in income. 
D) Buyers are not very sensitive to a change in price.

Question 6

If the price of sandals increases by 10 percent and the quantity demanded falls by 20 percent, then the price elasticity of demand in absolute value is

Accepted Answer

A) .2. 
B) 2. 
C) 20 percent. 
D) 2 percent. 
A) .2. 
B) 2. 
C) 20 percent. 
D) 2 percent.

Question 7

The formula for the elasticity of supply is

Accepted Answer

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

Question 8

Explain why it is so important for a business to understand the concept of price elasticity and be able to measure this for its products.

Accepted Answer

The choice of what prices will maximize

Question 9

On a demand curve, demand is more elastic

Accepted Answer

A) At higher prices. 
B) At lower prices. 
C) When demand is unitary. 
D) At the middle price. 
A) At higher prices. 
B) At lower prices. 
C) When demand is unitary. 
D) At the middle price.

Question 10

Refer to Figure 20.2.If the area 0P1AB is less than the area 0P2CD, we can conclude that the price elasticity of demand between point A and point C is

Accepted Answer

A) Elastic. 
B) Inelastic. 
C) Unitary elastic. 
D) Impossible to determine.It depends on whether the price has increased or decreased.Lower prices result in higher total revenue (price times quantity) only if demand is elastic. 
A) Elastic. 
B) Inelastic. 
C) Unitary elastic. 
D) Impossible to determine.It depends on whether the price has increased or decreased.Lower prices result in higher total revenue (price times quantity) only if demand is elastic.

Question 11

Suppose the price of video games falls from $40 to $20 and as a result the quantity demanded of scooters falls from 40,000 to 10,000 per year.The value of the cross-price elasticity of demand is

Accepted Answer

A) 1.80. 
B) 1.00. 
C) 0.83. 
D) 0.56. 
A) 1.80. 
B) 1.00. 
C) 0.83. 
D) 0.56.

Question 12

To increase U.S.energy independence, prices must be lowered on gasoline and electricity.

Accepted Answer

A) True 
 B)False

Question 13

Cross-price elasticity refers to

Accepted Answer

A) How responsive consumers are to a change in price. 
B) How responsive consumers are to a change in income. 
C) How responsive consumers of one good are to a change in the price of another good. 
D) How responsive consumers are to a change in quantity demanded. 
A) How responsive consumers are to a change in price. 
B) How responsive consumers are to a change in income. 
C) How responsive consumers of one good are to a change in the price of another good. 
D) How responsive consumers are to a change in quantity demanded.

Question 14

Along a linear or straight-line demand curve, demand is more elastic at higher prices.

Accepted Answer

A) True 
 B)False

Question 15

If a good is inferior, its

Accepted Answer

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

Question 16

If the price of Coke rises by 5 percent and the sales of Pepsi go up by 10 percent, we can conclude that

Accepted Answer

A) The sign on the cross-price elasticity will be negative. 
B) Both goods are normal goods. 
C) Both goods are substitute goods because the cross-price elasticity is +0.5. 
D) Both goods are substitute goods because the cross-price elasticity is +2. 
A) The sign on the cross-price elasticity will be negative. 
B) Both goods are normal goods. 
C) Both goods are substitute goods because the cross-price elasticity is +0.5. 
D) Both goods are substitute goods because the cross-price elasticity is +2.

Question 17

Which of the following does not influence the price elasticity of demand?

Accepted Answer

A) The availability of substitutes. 
B) The price of the item relative to the consumer's budget. 
C) Costs of production. 
D) The length of time. 
A) The availability of substitutes. 
B) The price of the item relative to the consumer's budget. 
C) Costs of production. 
D) The length of time.

Question 18

The demand is more price-elastic

Accepted Answer

A) In the long run. 
B) If the product is a necessity. 
C) If the product is a small part of the consumer's budget. 
D) If the product has very few substitutes. 
A) In the long run. 
B) If the product is a necessity. 
C) If the product is a small part of the consumer's budget. 
D) If the product has very few substitutes.

Question 19

If the elasticity of demand for cigarettes is 0.4, a seller should

Accepted Answer

A) Increase price to increase total revenue. 
B) Decrease price to increase total revenue. 
C) Reduce price to maximize profits. 
D) Increase price because the percentage change in quantity demanded will be greater than the price effect.If price elasticity of demand is 0.4, then demand is very inelastic.That means the seller can increase price and increase total revenue. 
A) Increase price to increase total revenue. 
B) Decrease price to increase total revenue. 
C) Reduce price to maximize profits. 
D) Increase price because the percentage change in quantity demanded will be greater than the price effect.If price elasticity of demand is 0.4, then demand is very inelastic.That means the seller can increase price and increase total revenue.

Question 20

During a recession the sales of autos fall, and the best measure of this is to use cross-price elasticity.

Accepted Answer

A) True 
 B)False

Exam 6: Elasticity

A demand curve that is perfectly inelastic is

If demand is elastic, then

If the price elasticity of demand is equal to 2, the good has _____ demand.

If demand is very inelastic,

If the demand for a product is elastic, then

If the price of sandals increases by 10 percent and the quantity demanded falls by 20 percent, then the price elasticity of demand in absolute value is

The formula for the elasticity of supply is

Explain why it is so important for a business to understand the concept of price elasticity and be able to measure this for its products.

On a demand curve, demand is more elastic

Refer to Figure 20.2.If the area 0P1AB is less than the area 0P2CD, we can conclude that the price elasticity of demand between point A and point C is

Suppose the price of video games falls from $40 to $20 and as a result the quantity demanded of scooters falls from 40,000 to 10,000 per year.The value of the cross-price elasticity of demand is

To increase U.S.energy independence, prices must be lowered on gasoline and electricity.

Cross-price elasticity refers to

Along a linear or straight-line demand curve, demand is more elastic at higher prices.

If a good is inferior, its

If the price of Coke rises by 5 percent and the sales of Pepsi go up by 10 percent, we can conclude that

Which of the following does not influence the price elasticity of demand?

The demand is more price-elastic

If the elasticity of demand for cigarettes is 0.4, a seller should

During a recession the sales of autos fall, and the best measure of this is to use cross-price elasticity.

Economics: the Core Issues

The Useconomy: a Global View

Supply and Demand

The Role of Government

Consumer Choice

The Costs of Production

The Competitive Firm

Competitive Markets

Monopoly

Oligopoly

Monopolistic Competition

Natural Monopolies: Deregulation

Environmental Protection

The Farm Problem

The Labor Market

Labor Unions

Financial Markets

Taxes: Equity Versus Efficiency

Transfer Payments: Welfare and Social Security

International Trade

International Finance

Global Poverty

Filters

Refer to Figure 20.2.If the area 0P₁AB is less than the area 0P₂CD, we can conclude that the price elasticity of demand between point A and point C is