Question 1

A value of the absolute price elasticity of demand equal to 0.25 indicates that

Accepted Answer

A)  a 10% decrease in price leads to a 4% increase in quantity demanded. 
B)  a 10% decrease in price leads to a 25% increase in quantity demanded. 
C)  a 1% decrease in price leads to a 2.5% increase in quantity demanded. 
D)  a 0.25% decrease in price leads to a 1% increase in quantity. 
A)  a 10% decrease in price leads to a 4% increase in quantity demanded. 
B)  a 10% decrease in price leads to a 25% increase in quantity demanded. 
C)  a 1% decrease in price leads to a 2.5% increase in quantity demanded. 
D)  a 0.25% decrease in price leads to a 1% increase in quantity.

Question 2

A 2 percent increase in the price of jeans leads to a 5 percent decrease in the quantity demanded of jeans. The absolute price elasticity of demand is

Accepted Answer

A)  2.5. 
B)  1. 
C)  0.4. 
D)  0.2. 
A)  2.5. 
B)  1. 
C)  0.4. 
D)  0.2.

Question 3

Two items which have a positive cross price elasticity of demand are referred to as

Accepted Answer

A)  luxury goods. 
B)  inferior goods. 
C)  substitutes. 
D)  complements. 
A)  luxury goods. 
B)  inferior goods. 
C)  substitutes. 
D)  complements.

Question 4

While the slope of the perfectly inelastic supply curve ________, the slope of the perfectly elastic supply curve ________.

Accepted Answer

A)  is zero, approaches infinity 
B)  approaches infinity, is zero 
C)  is zero, is zero 
D)  approaches infinity, approaches infinity 
A)  is zero, approaches infinity 
B)  approaches infinity, is zero 
C)  is zero, is zero 
D)  approaches infinity, approaches infinity

Question 5

Which of the following would most likely exhibit the highest price elasticity of demand?

Accepted Answer

A)  gasoline 
B)  Colgate toothpaste 
C)  motor oil 
D)  salt 
A)  gasoline 
B)  Colgate toothpaste 
C)  motor oil 
D)  salt

Question 6

Which of the following is a determinant of the price elasticity of demand for a product? I. The existence of substitute goods
II) The percentage of a consumer's total budget devoted to purchases of that commodity

Accepted Answer

A)  I only 
B)  II only 
C)  both I and II 
D)  neither I nor II 
A)  I only 
B)  II only 
C)  both I and II 
D)  neither I nor II

Question 7

We say that a good has elastic demand whenever the absolute value of the price elasticity of demand is greater than one. A one percent change in price therefore causes

Accepted Answer

A)  exactly a one percent change in the quantity demanded. 
B)  a change of less than one percent in the quantity demanded. 
C)  a greater than one percent change in quantity demanded. 
D)  a change that cannot be determined based on one percent. 
A)  exactly a one percent change in the quantity demanded. 
B)  a change of less than one percent in the quantity demanded. 
C)  a greater than one percent change in quantity demanded. 
D)  a change that cannot be determined based on one percent.

Question 8

A firm could lower prices and still increase revenue if

Accepted Answer

A)  demand is elastic. 
B)  elasticity of demand is equal to unity. 
C)  demand is inelastic. 
D)  elasticity of demand is equal to zero. 
A)  demand is elastic. 
B)  elasticity of demand is equal to unity. 
C)  demand is inelastic. 
D)  elasticity of demand is equal to zero.

Question 9

A demand relationship that is a vertical line up from the quantity axis is

Accepted Answer

A)  perfectly elastic. 
B)  unit-elastic. 
C)  perfectly inelastic. 
D)  somewhat elastic. 
A)  perfectly elastic. 
B)  unit-elastic. 
C)  perfectly inelastic. 
D)  somewhat elastic.

Question 10

If the cross price elasticity of demand between two commodities is positive, then these commodities are

Accepted Answer

A)  are superior. 
B)  are complements. 
C)  are substitutes. 
D)  are inferior. 
A)  are superior. 
B)  are complements. 
C)  are substitutes. 
D)  are inferior.

Question 11

A consumer is willing and able to buy 100 units of a good at $100, but the consumer's quantity demanded falls to zero if the price rises even a fraction of a cent. The consumer's demand curve is

Accepted Answer

A)  horizontal and is perfectly inelastic. 
B)  horizontal and is perfectly elastic. 
C)  vertical and is perfectly elastic. 
D)  downward sloping from higher prices down to $10 and then horizontal. 
A)  horizontal and is perfectly inelastic. 
B)  horizontal and is perfectly elastic. 
C)  vertical and is perfectly elastic. 
D)  downward sloping from higher prices down to $10 and then horizontal.

Question 12

-Refer to the above figure. The supply curve is

Accepted Answer

A)  elastic at high prices and inelastic at low prices. 
B)  unitary for all prices. 
C)  perfectly elastic. 
D)  perfectly inelastic. 
A)  elastic at high prices and inelastic at low prices. 
B)  unitary for all prices. 
C)  perfectly elastic. 
D)  perfectly inelastic.

Question 13

When price is $5 per unit, quantity demanded is 12 units. When price is $6 per unit, quantity demanded is 8 units. The value of the absolute price elasticity of demand is approximately

Accepted Answer

A)  2.20. 
B)  4.00. 
C)  1.82. 
D)  0.36. 
A)  2.20. 
B)  4.00. 
C)  1.82. 
D)  0.36.

Question 14

Suppose the demand for rental apartments decreased substantially. We would expect to observe

Accepted Answer

A)  no change in rent and a sharp reduction in quantity supplied in the short run, and an even larger decrease in quantity supplied in the long run. 
B)  a large decrease in quantity supplied in the short run, followed by a counter-reaction and an increase in quantity supplied in the long run. 
C)  a small decrease in quantity supplied and significantly lower rents in the short run, and quantity supplied to decrease much more in the long run. 
D)  a large decrease in quantity supplied in the short run and the long run, but much larger reductions in rent in the long run. 
A)  no change in rent and a sharp reduction in quantity supplied in the short run, and an even larger decrease in quantity supplied in the long run. 
B)  a large decrease in quantity supplied in the short run, followed by a counter-reaction and an increase in quantity supplied in the long run. 
C)  a small decrease in quantity supplied and significantly lower rents in the short run, and quantity supplied to decrease much more in the long run. 
D)  a large decrease in quantity supplied in the short run and the long run, but much larger reductions in rent in the long run.

Question 15

If the price of coffee increases from $2.50 per cup to $3.00 per cup and the quantity demanded goes down from 120 cups per week to 115 cups per week, the absolute value of price elasticity of demand in that price range is approximately

Accepted Answer

A)  0.23. 
B)  4.35. 
C)  0.93. 
D)  2.34. 
A)  0.23. 
B)  4.35. 
C)  0.93. 
D)  2.34.

Question 16

If the absolute price elasticity of demand for good X is 0.5, when there is a 10 percent increase in price, we can conclude that quantity demanded

Accepted Answer

A)  has fallen by 50 percent. 
B)  has fallen by 20 percent. 
C)  has fallen by 10 percent. 
D)  has fallen by 5 percent. 
A)  has fallen by 50 percent. 
B)  has fallen by 20 percent. 
C)  has fallen by 10 percent. 
D)  has fallen by 5 percent.

Question 17

The price elasticity of supply is higher when

Accepted Answer

A)  the number of producers in the market increases over time. 
B)  the product in question is a complementary good. 
C)  the number of buyers in the market increases. 
D)  producers have less time to adjust to price changes. 
A)  the number of producers in the market increases over time. 
B)  the product in question is a complementary good. 
C)  the number of buyers in the market increases. 
D)  producers have less time to adjust to price changes.

Question 18

A situation in which there is a reduction in quantity supplied to zero when there is the slightest decrease in price is

Accepted Answer

A)  perfectly elastic supply. 
B)  perfectly elastic demand. 
C)  perfectly inelastic supply. 
D)  perfectly inelastic demand. 
A)  perfectly elastic supply. 
B)  perfectly elastic demand. 
C)  perfectly inelastic supply. 
D)  perfectly inelastic demand.

Question 19

The price elasticity of supply is 6. This means that

Accepted Answer

A)  a $10 increase in price would increase quantity supplied by 60. 
B)  a 10 percent increase in price would increase quantity supplied by 60 percent. 
C)  a 10 percent increase in quantity will occur when price increases by 0.6 percent. 
D)  a 10 percent increase in quantity will occur when price increases by 6 percent. 
A)  a $10 increase in price would increase quantity supplied by 60. 
B)  a 10 percent increase in price would increase quantity supplied by 60 percent. 
C)  a 10 percent increase in quantity will occur when price increases by 0.6 percent. 
D)  a 10 percent increase in quantity will occur when price increases by 6 percent.

Question 20

When very few substitutes for a good exist, demand will be

Accepted Answer

A)  elastic. 
B)  unit-elastic. 
C)  inelastic. 
D)  perfectly elastic. 
A)  elastic. 
B)  unit-elastic. 
C)  inelastic. 
D)  perfectly elastic.

Exam 19: Demand and Supply Elasticity

A value of the absolute price elasticity of demand equal to 0.25 indicates that

A 2 percent increase in the price of jeans leads to a 5 percent decrease in the quantity demanded of jeans. The absolute price elasticity of demand is

Two items which have a positive cross price elasticity of demand are referred to as

While the slope of the perfectly inelastic supply curve ________, the slope of the perfectly elastic supply curve ________.

Which of the following would most likely exhibit the highest price elasticity of demand?

Which of the following is a determinant of the price elasticity of demand for a product? I. The existence of substitute goods II) The percentage of a consumer's total budget devoted to purchases of that commodity

We say that a good has elastic demand whenever the absolute value of the price elasticity of demand is greater than one. A one percent change in price therefore causes

A firm could lower prices and still increase revenue if

A demand relationship that is a vertical line up from the quantity axis is

If the cross price elasticity of demand between two commodities is positive, then these commodities are

A consumer is willing and able to buy 100 units of a good at $100, but the consumer's quantity demanded falls to zero if the price rises even a fraction of a cent. The consumer's demand curve is

-Refer to the above figure. The supply curve is

When price is $5 per unit, quantity demanded is 12 units. When price is $6 per unit, quantity demanded is 8 units. The value of the absolute price elasticity of demand is approximately

Suppose the demand for rental apartments decreased substantially. We would expect to observe

If the price of coffee increases from $2.50 per cup to $3.00 per cup and the quantity demanded goes down from 120 cups per week to 115 cups per week, the absolute value of price elasticity of demand in that price range is approximately

If the absolute price elasticity of demand for good X is 0.5, when there is a 10 percent increase in price, we can conclude that quantity demanded

The price elasticity of supply is higher when

A situation in which there is a reduction in quantity supplied to zero when there is the slightest decrease in price is

The price elasticity of supply is 6. This means that

When very few substitutes for a good exist, demand will be

The Nature of Economics

Scarcity and the World of Trade-Offs

Demand and Supply

Extensions of Demand and Supply Analysis

Public Spending and Public Choice

Funding the Public Sector

The Macroeconomy: Unemployment, Inflation, and Deflation

Measuring the Economys Performance

Global Economic Growth and Development

Real GDP and the Price Level in the Long Run

Classical and Keynesian Macro Analyses

Consumption, Real GDP, and the Multiplier

Fiscal Policy

Deficit Spending and the Public Debt

Money, Banking, and Central Banking

Domestic and International Dimensions of Monetary Policy

Stabilization in an Integrated World Economy

Policies and Prospects for Global Economic Growth

Consumer Choice

Rents, Profits, and the Financial Environment of Business

The Firm: Cost and Output Determination

Perfect Competition

Monopoly

Monopolistic Competition

Oligopoly and Strategic Behavior

Regulation and Antitrust Policy in a Globalized Economy

The Labor Market: Demand, Supply and Outsourcing

Unions and Labor Market Monopoly Power

Income, Poverty, and Health Care

Environmental Economics

Comparative Advantage and the Open Economy

Exchange Rates and the Balance of Payments

Filters

While the slope of the perfectly inelastic supply curve , the slope of the perfectly elastic supply curve .