Question 1

If price increases 6% and the quantity exchanged increases 4%, what does that tell us about the elasticity of demand?

Accepted Answer

A) ​Demand is elastic. 
B) ​Demand is unit elastic. 
C) ​Demand is inelastic. 
D) ​It tells us nothing about the elasticity of demand. 
A) ​Demand is elastic. 
B) ​Demand is unit elastic. 
C) ​Demand is inelastic. 
D) ​It tells us nothing about the elasticity of demand.

Question 2

If price increases 6% and the quantity exchanged decreases 6%, what does that tell us about the elasticity of supply?

Accepted Answer

A) ​It tells us nothing about the elasticity of supply. 
B) ​Supply is elastic. 
C) ​Supply is inelastic. 
D) ​Supply is unit elastic. 
A) ​It tells us nothing about the elasticity of supply. 
B) ​Supply is elastic. 
C) ​Supply is inelastic. 
D) ​Supply is unit elastic.

Question 3

The nation's largest cable TV company tested the effect of a price increase for premium sports channels. It increased prices 10% and found that the number of customers decreased by more than 40%. This means:

Accepted Answer

A) ​the demand curve for the premium sports channels shifted to the right. 
B) ​the supply curve for premium sports channels shifted to the left. 
C) ​the demand for premium sports channels is elastic in this price range. 
D) ​the demand for premium sports channels is inelastic in this price range. 
A) ​the demand curve for the premium sports channels shifted to the right. 
B) ​the supply curve for premium sports channels shifted to the left. 
C) ​the demand for premium sports channels is elastic in this price range. 
D) ​the demand for premium sports channels is inelastic in this price range.

Question 4

Which of the following is not a major determinant of the price elasticity of demand?

Accepted Answer

A) ​availability of close substitutes 
B) ​proportion of income spent on the good 
C) ​The supply of goods available 
D) ​amount of time that has elapsed since the price change 
A) ​availability of close substitutes 
B) ​proportion of income spent on the good 
C) ​The supply of goods available 
D) ​amount of time that has elapsed since the price change

Question 5

When a tax is imposed on a good for which both demand and supply are very elastic,

Accepted Answer

A) ​sellers effectively pay the majority of the tax. 
B) ​buyers effectively pay the majority of the tax. 
C) ​the tax burden is equally divided between buyers and sellers. 
D) ​None of the above is correct; further information would be required to determine how the burden of the tax is distributed between buyers and sellers. 
A) ​sellers effectively pay the majority of the tax. 
B) ​buyers effectively pay the majority of the tax. 
C) ​the tax burden is equally divided between buyers and sellers. 
D) ​None of the above is correct; further information would be required to determine how the burden of the tax is distributed between buyers and sellers.

Question 6

If the demand for apples is highly elastic and the supply is highly inelastic, then if a tax is imposed on apples it will be paid:

Accepted Answer

A) ​largely by the sellers of apples. 
B) ​largely by the buyers of apples. 
C) ​equally by the sellers and buyers of apples. 
D) ​by the government. 
A) ​largely by the sellers of apples. 
B) ​largely by the buyers of apples. 
C) ​equally by the sellers and buyers of apples. 
D) ​by the government.

Question 7

If most passenger trains operate far below full capacity and demand is ____, reducing travel fares would be likely to increase total revenue.

Accepted Answer

A) ​inelastic 
B) ​unit elastic 
C) ​unit inelastic 
D) ​elastic 
A) ​inelastic 
B) ​unit elastic 
C) ​unit inelastic 
D) ​elastic

Question 8

If the demand curve for a life-saving medicine is perfectly inelastic, a reduction in supply will cause the equilibrium price to:

Accepted Answer

A) ​rise and the equilibrium quantity to fall. 
B) ​rise and the equilibrium quantity to stay the same. 
C) ​rise and the equilibrium quantity to rise. 
D) ​stay the same and the equilibrium quantity to fall. 
A) ​rise and the equilibrium quantity to fall. 
B) ​rise and the equilibrium quantity to stay the same. 
C) ​rise and the equilibrium quantity to rise. 
D) ​stay the same and the equilibrium quantity to fall.

Question 9

Suppose there is a 10 percent increase in the price of good X and it causes a 10 percent decrease in the quantity of X demanded. Price elasticity of demand for X is

Accepted Answer

A) ​0. 
B) ​1. 
C) ​10. 
D) ​100. 
A) ​0. 
B) ​1. 
C) ​10. 
D) ​100.

Question 10

If the demand curve for a product is horizontal, then the elasticity of demand is:

Accepted Answer

A) ​equal to zero. 
B) ​equal to one. 
C) ​greater than one, but less than infinity. 
D) ​equal to infinity. 
A) ​equal to zero. 
B) ​equal to one. 
C) ​greater than one, but less than infinity. 
D) ​equal to infinity.

Question 11

If a consumer's total expenditure on a good does not vary with price, then that consumer's demand curve is unit elastic over that range of prices.

Accepted Answer

A) True 
 B)False

Question 12

The larger the proportion of income spent on a product, other things equal, the:

Accepted Answer

A) ​more unit elastic is a consumer's demand. 
B) ​more elastic is a consumer's demand. 
C) ​more inelastic is a consumer's demand. 
D) ​more vertical is a consumer's demand curve. 
A) ​more unit elastic is a consumer's demand. 
B) ​more elastic is a consumer's demand. 
C) ​more inelastic is a consumer's demand. 
D) ​more vertical is a consumer's demand curve.

Question 13

When the price of ulcer medication increased by $20 per 100 tablets, a drug company's revenue increased by $10 million. Its elasticity of demand coefficient (in absolute terms) must be:

Accepted Answer

A) ​zero. 
B) ​greater than one. 
C) ​less than one. 
D) ​infinitely large. 
A) ​zero. 
B) ​greater than one. 
C) ​less than one. 
D) ​infinitely large.

Question 14

If an increase in prices decreases total revenue in the short run, what will it do to total revenue in the long run?

Accepted Answer

A) ​It will decrease total revenue in the long run. 
B) ​It will increase total revenue in the long run. 
C) ​It will leave total revenue unchanged in the long run. 
D) ​Any of the above results are possible in the long run. 
A) ​It will decrease total revenue in the long run. 
B) ​It will increase total revenue in the long run. 
C) ​It will leave total revenue unchanged in the long run. 
D) ​Any of the above results are possible in the long run.

Question 15

Demand is said to be ____ when the quantity demanded changes the same proportion as the price.

Accepted Answer

A) ​independent 
B) ​inelastic 
C) ​unit elastic 
D) ​elastic 
A) ​independent 
B) ​inelastic 
C) ​unit elastic 
D) ​elastic

Question 16

The longer the time period considered, the price elasticity of demand tends to:

Accepted Answer

A) ​decrease. 
B) ​remain constant. 
C) ​increase. 
D) ​converge to zero. 
A) ​decrease. 
B) ​remain constant. 
C) ​increase. 
D) ​converge to zero.

Question 17

Certain goods are related so that an increase in the price of one good decreases the demand for the other. These goods are:

Accepted Answer

A) ​complements. 
B) ​substitutes. 
C) ​luxury goods. 
D) ​competing goods. 
A) ​complements. 
B) ​substitutes. 
C) ​luxury goods. 
D) ​competing goods.

Question 18

Suppose the United States government is successful in reducing the flow of drugs into the United States. What impact does this have on the supply and demand curves for illegal drugs.

Accepted Answer

A) ​supply decreases, demand is unaffected, and price increases. 
B) ​demand decreases, supply is unaffected, and price decreases. 
C) ​demand and supply both decrease, leaving price essentially unchanged. 
D) ​supply decreases, demand increases, and price increases substantially. 
A) ​supply decreases, demand is unaffected, and price increases. 
B) ​demand decreases, supply is unaffected, and price decreases. 
C) ​demand and supply both decrease, leaving price essentially unchanged. 
D) ​supply decreases, demand increases, and price increases substantially.

Question 19

If the short run elasticity of demand for widgets is 0.4 and the long run elasticity of demand for widgets is 0.95, an increase in price will ____ total revenue in the short run and ____ total revenue in the long run.

Accepted Answer

A) ​Increase; increase. 
B) ​Increase; decrease. 
C) ​Decrease; increase. 
D) ​Decrease; decrease. 
A) ​Increase; increase. 
B) ​Increase; decrease. 
C) ​Decrease; increase. 
D) ​Decrease; decrease.

Question 20

Assume an industry initially in equilibrium has a price floor imposed at a price above the equilibrium price. Total revenue received by the producers from sales will:

Accepted Answer

A) ​rise as a result. 
B) ​rise as a result only if supply is elastic. 
C) ​rise as a result only if demand is elastic. 
D) ​rise as a result only if demand is inelastic. 
A) ​rise as a result. 
B) ​rise as a result only if supply is elastic. 
C) ​rise as a result only if demand is elastic. 
D) ​rise as a result only if demand is inelastic.

Exam 6: Elasticities

If price increases 6% and the quantity exchanged increases 4%, what does that tell us about the elasticity of demand?

If price increases 6% and the quantity exchanged decreases 6%, what does that tell us about the elasticity of supply?

The nation's largest cable TV company tested the effect of a price increase for premium sports channels. It increased prices 10% and found that the number of customers decreased by more than 40%. This means:

Which of the following is not a major determinant of the price elasticity of demand?

When a tax is imposed on a good for which both demand and supply are very elastic,

If the demand for apples is highly elastic and the supply is highly inelastic, then if a tax is imposed on apples it will be paid:

If most passenger trains operate far below full capacity and demand is ____, reducing travel fares would be likely to increase total revenue.

If the demand curve for a life-saving medicine is perfectly inelastic, a reduction in supply will cause the equilibrium price to:

Suppose there is a 10 percent increase in the price of good X and it causes a 10 percent decrease in the quantity of X demanded. Price elasticity of demand for X is

If the demand curve for a product is horizontal, then the elasticity of demand is:

If a consumer's total expenditure on a good does not vary with price, then that consumer's demand curve is unit elastic over that range of prices.

The larger the proportion of income spent on a product, other things equal, the:

When the price of ulcer medication increased by $20 per 100 tablets, a drug company's revenue increased by $10 million. Its elasticity of demand coefficient (in absolute terms) must be:

If an increase in prices decreases total revenue in the short run, what will it do to total revenue in the long run?

Demand is said to be ____ when the quantity demanded changes the same proportion as the price.

The longer the time period considered, the price elasticity of demand tends to:

Certain goods are related so that an increase in the price of one good decreases the demand for the other. These goods are:

Suppose the United States government is successful in reducing the flow of drugs into the United States. What impact does this have on the supply and demand curves for illegal drugs.

If the short run elasticity of demand for widgets is 0.4 and the long run elasticity of demand for widgets is 0.95, an increase in price will ____ total revenue in the short run and ____ total revenue in the long run.

Assume an industry initially in equilibrium has a price floor imposed at a price above the equilibrium price. Total revenue received by the producers from sales will:

The Role and Method of Economics

Eight Powerful Ideas

Scarcity, Trade-Offs, and Production Possibilities

Demand, Supply, and Market Equilibrium

Market in Motion and Price Controls

Market Efficiency and Welfare

Market Failure

Public Finance and Public Choice

Consumer Choice Theory

The Firm: Production and Costs

Firms in Perfectly Competitive Markets

Monopoly and Antitrust

Monopolistic Competition and Product Differentiation

Oligopoly and Strategic Behavior

The Markets for Labor, Capital, and Land

Income, Poverty and Health Care

Introduction to Macroeconomics: Unemployment, Inflation, and Economic Fluctuations

Measuring Economic Performance

Economic Growth in the Global Economy

Financial Markets, Saving, and Investment

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If the short run elasticity of demand for widgets is 0.4 and the long run elasticity of demand for widgets is 0.95, an increase in price will total revenue in the short run and total revenue in the long run.