Question 1

A perfectly inelastic supply curve is vertical.

Accepted Answer

A) True 
 B)False

Question 2

If one is interested in knowing whether or not a product is a normal good, one would be interested in the value of the:

Accepted Answer

A) ​elasticity of supply. 
B) ​price elasticity of demand. 
C) ​income elasticity of demand. 
D) ​cross-price elasticity of demand. 
A) ​elasticity of supply. 
B) ​price elasticity of demand. 
C) ​income elasticity of demand. 
D) ​cross-price elasticity of demand.

Question 3

Suppose a 5 percent increase in price causes a 25 percent decrease in quantity demanded. Which of the following statements is most likely true?

Accepted Answer

A) ​There are many substitutes for this good. 
B) ​There are few substitutes for this good. 
C) ​The market for the good is a necessity. 
D) ​The price change persists over a very short period of time. 
A) ​There are many substitutes for this good. 
B) ​There are few substitutes for this good. 
C) ​The market for the good is a necessity. 
D) ​The price change persists over a very short period of time.

Question 4

If an increase in price causes total expenditure on a product to decrease, then the price elasticity of demand is:

Accepted Answer

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

Question 5

If the supply curve for a product is vertical, then the elasticity of supply 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 6

If the elasticity of supply of a good was 2, how much would the price have to increase to lead to an increase in output of 6 percent?

Accepted Answer

A) ​3 percent. 
B) ​4 percent. 
C) ​8 percent. 
D) ​12 percent. 
A) ​3 percent. 
B) ​4 percent. 
C) ​8 percent. 
D) ​12 percent.

Question 7

When a tax is placed on a good

Accepted Answer

A) ​the price paid by buyers rises, and the price received by sellers rises. 
B) ​the price paid by buyers rises, and the price received by sellers falls. 
C) ​the price paid by buyers falls, and the price received by sellers rises. 
D) ​the price paid by buyers falls, and the price received by sellers falls. 
A) ​the price paid by buyers rises, and the price received by sellers rises. 
B) ​the price paid by buyers rises, and the price received by sellers falls. 
C) ​the price paid by buyers falls, and the price received by sellers rises. 
D) ​the price paid by buyers falls, and the price received by sellers falls.

Question 8

If demand is unit elastic:

Accepted Answer

A) ​Total revenue and prices rise and fall together. 
B) ​Total revenue rises as price falls. 
C) ​Total revenue falls as price rises. 
D) ​Total revenue remains constant as price rises or falls. 
A) ​Total revenue and prices rise and fall together. 
B) ​Total revenue rises as price falls. 
C) ​Total revenue falls as price rises. 
D) ​Total revenue remains constant as price rises or falls.

Question 9

The longer the time period considered, the elasticity of supply 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 10

If the short run elasticity of demand for bus service is 1.01, we would expect the long run elasticity of demand to be:

Accepted Answer

A) ​relatively inelastic. 
B) ​greater than 1.01. 
C) ​equal to 1.01. 
D) ​less than 1.01. 
A) ​relatively inelastic. 
B) ​greater than 1.01. 
C) ​equal to 1.01. 
D) ​less than 1.01.

Question 11

If a small change in price will lead to an infinite change in the quantity demanded, then the demand curve is:

Accepted Answer

A) ​horizontal. 
B) ​vertical. 
C) ​inclined. 
D) ​non-linear. 
A) ​horizontal. 
B) ​vertical. 
C) ​inclined. 
D) ​non-linear.

Question 12

Assume that the elasticities of supply and demand in an industry are both equal to 2 and that it is currently untaxed. A new tax imposed on the industry will:

Accepted Answer

A) ​be borne more by suppliers than demanders. 
B) ​be borne more by demanders than suppliers. 
C) ​be borne equally by demanders and suppliers. 
D) ​not raise any added revenue for the government since demand is relatively elastic. 
A) ​be borne more by suppliers than demanders. 
B) ​be borne more by demanders than suppliers. 
C) ​be borne equally by demanders and suppliers. 
D) ​not raise any added revenue for the government since demand is relatively elastic.

Question 13

If the estimated elasticity of supply coefficient equals 0.85, then:

Accepted Answer

A) ​the supply curve is vertical. 
B) ​the demand curve is horizontal. 
C) ​supply is unit elastic. 
D) ​supply is relatively inelastic. 
A) ​the supply curve is vertical. 
B) ​the demand curve is horizontal. 
C) ​supply is unit elastic. 
D) ​supply is relatively inelastic.

Question 14

Good A has an income elasticity equal to -1.0 and a cross price elasticity with respect to Good B of 0.9. Then:

Accepted Answer

A) ​Good A is an inferior good and Goods A and B are substitutes. 
B) ​Good A is an inferior good and Goods A and B are complements. 
C) ​Good A is a normal good and Goods A and B are substitutes. 
D) ​Good A is a normal good and Goods A and B are complements. 
A) ​Good A is an inferior good and Goods A and B are substitutes. 
B) ​Good A is an inferior good and Goods A and B are complements. 
C) ​Good A is a normal good and Goods A and B are substitutes. 
D) ​Good A is a normal good and Goods A and B are complements.

Question 15

An increase in demand will increase the quantity sold but not the price in a market if:

Accepted Answer

A) ​supply is perfectly elastic 
B) ​supply is perfectly inelastic 
C) ​supply is relatively elastic 
D) ​supply is relatively inelastic 
A) ​supply is perfectly elastic 
B) ​supply is perfectly inelastic 
C) ​supply is relatively elastic 
D) ​supply is relatively inelastic

Question 16

The widespread availability of e-mail has likely increased the price elasticity of demand for the services of the U.S. Postal Service.

Accepted Answer

A) True 
 B)False

Question 17

Two goods are considered substitutes when the cross elasticity of demand is ___ and complements when the cross elasticity of demand is ___.

Accepted Answer

A) ​Greater than zero, less than zero. 
B) ​Less than zero, greater than zero. 
C) ​Greater than one, less than one. 
D) ​Less than one, greater than one. 
A) ​Greater than zero, less than zero. 
B) ​Less than zero, greater than zero. 
C) ​Greater than one, less than one. 
D) ​Less than one, greater than one.

Question 18

Calculate the elasticity of supply when an increase in demand causes the equilibrium price and quantity to change from $2.00 and 500 to $2.80 and 1,000, respectively.

Accepted Answer

Elasticity of supply = Percent

Question 19

When two goods have positive cross elasticities of demand and positive income elasticities, they are:

Accepted Answer

A) ​Normal and substitutes. 
B) ​Normal and complements. 
C) ​Inferior and substitutes. 
D) ​Inferior and complements. 
A) ​Normal and substitutes. 
B) ​Normal and complements. 
C) ​Inferior and substitutes. 
D) ​Inferior and complements.

Question 20

The definition of cross-elasticity of demand with regard to two products X and Y is:

Accepted Answer

A) ​the percentage change in the quantity of X demanded divided by the percentage change in the quantity of Y demanded. 
B) ​the percentage change in the price of Y divided by the percentage change in the quantity of X demanded. 
C) ​the percentage change in the price of Y divided by the percentage change in the price of X. 
D) ​the percentage change in the demand of one good (good X) divided by the percentage change in the price of another good (good Y). 
A) ​the percentage change in the quantity of X demanded divided by the percentage change in the quantity of Y demanded. 
B) ​the percentage change in the price of Y divided by the percentage change in the quantity of X demanded. 
C) ​the percentage change in the price of Y divided by the percentage change in the price of X. 
D) ​the percentage change in the demand of one good (good X) divided by the percentage change in the price of another good (good Y).

Exam 6: Elasticities

A perfectly inelastic supply curve is vertical.

If one is interested in knowing whether or not a product is a normal good, one would be interested in the value of the:

Suppose a 5 percent increase in price causes a 25 percent decrease in quantity demanded. Which of the following statements is most likely true?

If an increase in price causes total expenditure on a product to decrease, then the price elasticity of demand is:

If the supply curve for a product is vertical, then the elasticity of supply is:

If the elasticity of supply of a good was 2, how much would the price have to increase to lead to an increase in output of 6 percent?

When a tax is placed on a good

If demand is unit elastic:

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

If the short run elasticity of demand for bus service is 1.01, we would expect the long run elasticity of demand to be:

If a small change in price will lead to an infinite change in the quantity demanded, then the demand curve is:

Assume that the elasticities of supply and demand in an industry are both equal to 2 and that it is currently untaxed. A new tax imposed on the industry will:

If the estimated elasticity of supply coefficient equals 0.85, then:

Good A has an income elasticity equal to -1.0 and a cross price elasticity with respect to Good B of 0.9. Then:

An increase in demand will increase the quantity sold but not the price in a market if:

The widespread availability of e-mail has likely increased the price elasticity of demand for the services of the U.S. Postal Service.

Two goods are considered substitutes when the cross elasticity of demand is ___ and complements when the cross elasticity of demand is ___.

Calculate the elasticity of supply when an increase in demand causes the equilibrium price and quantity to change from $2.00 and 500 to $2.80 and 1,000, respectively.

When two goods have positive cross elasticities of demand and positive income elasticities, they are:

The definition of cross-elasticity of demand with regard to two products X and Y is:

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

Filters

Two goods are considered substitutes when the cross elasticity of demand is _ and complements when the cross elasticity of demand is _.