Question 1

Income elasticity of demand is defined as

Accepted Answer

A)  the change in income divided by the change in quantity. 
B)  the change in price divided by the change in income. 
C)  the percentage change in demand divided by the percentage change in income. 
D)  the change in income multiplied by the change in quantity. 
A)  the change in income divided by the change in quantity. 
B)  the change in price divided by the change in income. 
C)  the percentage change in demand divided by the percentage change in income. 
D)  the change in income multiplied by the change in quantity.

Question 2

-Refer to the above table. Suppose the price of B rises from $18 to $20. What is the cross price elasticity of demand between A and B?

Accepted Answer

A)  -2 
B)  -1 
C)  0 
D)  +1 
A)  -2 
B)  -1 
C)  0 
D)  +1

Question 3

-Refer to the above table. At a price below $5, the absolute price elasticity of demand is

Accepted Answer

A)  1.0. 
B)  below 1. 
C)  between 0.8 and 1.0. 
D)  greater than 1. 
A)  1.0. 
B)  below 1. 
C)  between 0.8 and 1.0. 
D)  greater than 1.

Question 4

-Consider the above figure. Which of the following statements is correct?

Accepted Answer

A)  In any range of prices encompassing the crossing point of the two demand curves, the price elasticity of demand associated with demand curve D1 is equal to the price elasticity of demand associated with demand curve D2. 
B)  In any range of prices encompassing the crossing point of the two demand curves, the price elasticity of demand associated with demand curve D1 is less than the price elasticity of demand associated with demand curve D2. 
C)  In any range of prices encompassing the crossing point of the two demand curves, the price elasticity of demand associated with demand curve D1 is greater than the price elasticity of demand associated with demand curve D2. 
D)  In any range of prices encompassing the crossing point of the two demand curves, the price elasticity of demand is infinite. 
A)  In any range of prices encompassing the crossing point of the two demand curves, the price elasticity of demand associated with demand curve D1 is equal to the price elasticity of demand associated with demand curve D2. 
B)  In any range of prices encompassing the crossing point of the two demand curves, the price elasticity of demand associated with demand curve D1 is less than the price elasticity of demand associated with demand curve D2. 
C)  In any range of prices encompassing the crossing point of the two demand curves, the price elasticity of demand associated with demand curve D1 is greater than the price elasticity of demand associated with demand curve D2. 
D)  In any range of prices encompassing the crossing point of the two demand curves, the price elasticity of demand is infinite.

Question 5

Income elasticity relates to

Accepted Answer

A)  a movement down a demand curve. 
B)  a movement up a demand curve. 
C)  a horizontal shift in a demand curve. 
D)  the percentage change in quantity demanded divided by the percentage change in the price. 
A)  a movement down a demand curve. 
B)  a movement up a demand curve. 
C)  a horizontal shift in a demand curve. 
D)  the percentage change in quantity demanded divided by the percentage change in the price.

Question 6

What would you expect the cross price elasticity of iPods and online music downloads? Explain your answer.

Accepted Answer

The cross price elasticity of iPods and

Question 7

If demand for a good is perfectly inelastic, then

Accepted Answer

A)  a price increase would cause a fall in quantity demanded. 
B)  a price increase would cause no change in quantity demanded. 
C)  a price increase would cause an increase in quantity demanded. 
D)  a price increase would cause a fall in total revenue. 
A)  a price increase would cause a fall in quantity demanded. 
B)  a price increase would cause no change in quantity demanded. 
C)  a price increase would cause an increase in quantity demanded. 
D)  a price increase would cause a fall in total revenue.

Question 8

A perfectly inelastic demand curve exhibits

Accepted Answer

A)  zero responsiveness to changes in price. 
B)  zero quantity demanded when there is a slight change in price. 
C)  a change in quantity demanded that is proportional to the change in price. 
D)  a change in quantity demanded that is always twenty percent of the change in price. 
A)  zero responsiveness to changes in price. 
B)  zero quantity demanded when there is a slight change in price. 
C)  a change in quantity demanded that is proportional to the change in price. 
D)  a change in quantity demanded that is always twenty percent of the change in price.

Question 9

If the supply curve is vertical, then supply is

Accepted Answer

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

Question 10

For most items, we find the price elasticity of supply will be

Accepted Answer

A)  negative. 
B)  positive. 
C)  zero. 
D)  infinity. 
A)  negative. 
B)  positive. 
C)  zero. 
D)  infinity.

Question 11

The difference between price elasticity of demand and income elasticity of demand is that

Accepted Answer

A)  income elasticity of demand examines how an individual's income changes when prices change and the price elasticity of demand examines how quantity demand changes when price changes. 
B)  income elasticity refers to the movement along the demand curve while price elasticity refers to a horizontal shift of the demand curve. 
C)  income elasticity measures the responsiveness of income to changes in supply while price elasticity of demand measures the responsiveness of demand to a change in price. 
D)  income elasticity refers to a horizontal shift of the demand curve while price elasticity of demand refers to a movement along the demand curve. 
A)  income elasticity of demand examines how an individual's income changes when prices change and the price elasticity of demand examines how quantity demand changes when price changes. 
B)  income elasticity refers to the movement along the demand curve while price elasticity refers to a horizontal shift of the demand curve. 
C)  income elasticity measures the responsiveness of income to changes in supply while price elasticity of demand measures the responsiveness of demand to a change in price. 
D)  income elasticity refers to a horizontal shift of the demand curve while price elasticity of demand refers to a movement along the demand curve.

Question 12

Inelastic demand implies

Accepted Answer

A)  that a one percent increase in price results in a smaller than one percent decrease in quantity demanded. 
B)  that a one percent increase in price results in a larger than one percent decrease in quantity demanded. 
C)  that a one percent cut in price results in a larger than one percent increase in quantity demanded. 
D)  that a one percent decrease or increase in price induces no change in total revenue. 
A)  that a one percent increase in price results in a smaller than one percent decrease in quantity demanded. 
B)  that a one percent increase in price results in a larger than one percent decrease in quantity demanded. 
C)  that a one percent cut in price results in a larger than one percent increase in quantity demanded. 
D)  that a one percent decrease or increase in price induces no change in total revenue.

Question 13

A perfectly elastic supply curve is

Accepted Answer

A)  an upward sloping straight line that intersects the origin. 
B)  horizontal. 
C)  vertical. 
D)  downward sloping. 
A)  an upward sloping straight line that intersects the origin. 
B)  horizontal. 
C)  vertical. 
D)  downward sloping.

Question 14

If the price elasticity of supply is equal to 1, we would say the supply of the item is

Accepted Answer

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

Question 15

Which has a more elastic demand: hamburger or beef?

Accepted Answer

Hamburger has the more elastic demand be

Question 16

To say that demand is elastic means that

Accepted Answer

A)  people do not like the good very much. 
B)  quantity demanded not very responsive to price changes. 
C)  relatively small changes in price lead to relatively large changes in quantity demanded. 
D)  relatively small changes in quantity demanded lead to relatively small changes in price. 
A)  people do not like the good very much. 
B)  quantity demanded not very responsive to price changes. 
C)  relatively small changes in price lead to relatively large changes in quantity demanded. 
D)  relatively small changes in quantity demanded lead to relatively small changes in price.

Question 17

-Refer to the above table. Suppose the price of A increases from $10 to $12. What is the cross price elasticity of demand between A and C?

Accepted Answer

A)  +0.292 
B)  +7.06 
C)  -7.06 
D)  -0.292 
A)  +0.292 
B)  +7.06 
C)  -7.06 
D)  -0.292

Question 18

If the absolute value of the price elasticity of demand for a product is 2, and the price of a product increased 10 percent, then the quantity demanded will decline by

Accepted Answer

A)  20 percent. 
B)  10 percent. 
C)  5 percent. 
D)  2 percent. 
A)  20 percent. 
B)  10 percent. 
C)  5 percent. 
D)  2 percent.

Question 19

A positive cross price elasticity of demand between two goods suggests that the goods are

Accepted Answer

A)  not related. 
B)  complements. 
C)  substitutes. 
D)  both of unitary elasticity. 
A)  not related. 
B)  complements. 
C)  substitutes. 
D)  both of unitary elasticity.

Question 20

The actual value of the price elasticity of demand is always

Accepted Answer

A)  positive because of the law of demand. 
B)  negative because of the law of demand. 
C)  positive because of diminishing marginal utility. 
D)  negative because percentages can only be negative. 
A)  positive because of the law of demand. 
B)  negative because of the law of demand. 
C)  positive because of diminishing marginal utility. 
D)  negative because percentages can only be negative.

Exam 19: Demand and Supply Elasticity

Income elasticity of demand is defined as

-Refer to the above table. Suppose the price of B rises from $18 to $20. What is the cross price elasticity of demand between A and B?

-Refer to the above table. At a price below $5, the absolute price elasticity of demand is

-Consider the above figure. Which of the following statements is correct?

Income elasticity relates to

What would you expect the cross price elasticity of iPods and online music downloads? Explain your answer.

If demand for a good is perfectly inelastic, then

A perfectly inelastic demand curve exhibits

If the supply curve is vertical, then supply is

For most items, we find the price elasticity of supply will be

The difference between price elasticity of demand and income elasticity of demand is that

Inelastic demand implies

A perfectly elastic supply curve is

If the price elasticity of supply is equal to 1, we would say the supply of the item is

Which has a more elastic demand: hamburger or beef?

To say that demand is elastic means that

-Refer to the above table. Suppose the price of A increases from $10 to $12. What is the cross price elasticity of demand between A and C?

If the absolute value of the price elasticity of demand for a product is 2, and the price of a product increased 10 percent, then the quantity demanded will decline by

A positive cross price elasticity of demand between two goods suggests that the goods are

The actual value of the price elasticity of demand is always

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