Question 1

The more good substitutes there are for a product, the more likely it is that the total revenue for the good in question would increase as a result of an increase in price.

Accepted Answer

A) True 
 B)False

Question 2

If the demand curve for a product was vertical, then the elasticity of demand would be:

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 3

An increase in tax rates on a product will raise more revenue, the more inelastic is the demand curve.

Accepted Answer

A) True 
 B)False

Question 4

A tax is imposed on wine. Sellers will bear the full burden of this tax if the:

Accepted Answer

A) ​demand for wine is perfectly inelastic. 
B) ​price elasticity of demand for wine equals 1.0. 
C) ​demand for wine is unit elastic. 
D) ​supply for wine is perfectly inelastic. 
A) ​demand for wine is perfectly inelastic. 
B) ​price elasticity of demand for wine equals 1.0. 
C) ​demand for wine is unit elastic. 
D) ​supply for wine is perfectly inelastic.

Question 5

The price of a new toy increases from $5 to $7 and the quantity demanded decreases from 12,000 to 6,000 per month as a result. Based on this information, the price elasticity of demand (in absolute terms) is estimated to be equal to:

Accepted Answer

A) ​0.5, indicating relatively elastic demand. 
B) ​0.5, indicating relatively inelastic demand. 
C) ​2.0, indicating relatively elastic demand. 
D) ​2.0, indicating relatively inelastic demand. 
A) ​0.5, indicating relatively elastic demand. 
B) ​0.5, indicating relatively inelastic demand. 
C) ​2.0, indicating relatively elastic demand. 
D) ​2.0, indicating relatively inelastic demand.

Question 6

A bountiful wheat harvest can be bad news for wheat farmers because the

Accepted Answer

A) ​supply curve for an individual wheat farmer is usually perfectly elastic. 
B) ​supply curve for an individual wheat farmer is usually perfectly inelastic. 
C) ​demand for wheat is usually inelastic, meaning that factors that shift supply curve to the right decrease total revenues to sellers. 
D) ​demand for basic wheat is usually elastic, meaning that factors that shift supply to the right increase total revenues to sellers. 
A) ​supply curve for an individual wheat farmer is usually perfectly elastic. 
B) ​supply curve for an individual wheat farmer is usually perfectly inelastic. 
C) ​demand for wheat is usually inelastic, meaning that factors that shift supply curve to the right decrease total revenues to sellers. 
D) ​demand for basic wheat is usually elastic, meaning that factors that shift supply to the right increase total revenues to sellers.

Question 7

If the elasticity of supply coefficient for a good is one-sixth (in absolute terms), we know:

Accepted Answer

A) ​that for every 1% increase in quantity, there will be a 6% increase in price. 
B) ​that for every 1% increase in quantity, there will be a 6% decrease in price. 
C) ​that for every 6% increase in quantity, there will be a 1% increase in price. 
D) ​that for every 6% increase in quantity, there will be a 1% decrease in price. 
A) ​that for every 1% increase in quantity, there will be a 6% increase in price. 
B) ​that for every 1% increase in quantity, there will be a 6% decrease in price. 
C) ​that for every 6% increase in quantity, there will be a 1% increase in price. 
D) ​that for every 6% increase in quantity, there will be a 1% decrease in price.

Question 8

If the cross price elasticity of demand between goods A and B was equal to 0.5, those goods are substitutes.

Accepted Answer

A) True 
 B)False

Question 9

Chicken and fish are substitutes. Therefore, the cross elasticity of demand between chicken and fish should be:

Accepted Answer

A) ​negative. 
B) ​positive. 
C) ​zero. 
D) ​All of the above are possible. 
A) ​negative. 
B) ​positive. 
C) ​zero. 
D) ​All of the above are possible.

Question 10

Suppose the demand for a good is currently unit elastic over the relevant range. Then the producer of a substitute good goes out of business and stops producing it. As a result, demand over that range is now likely to be

Accepted Answer

A) ​Unit elastic. 
B) ​Relatively elastic. 
C) ​Relatively inelastic. 
D) ​Perfectly inelastic. 
A) ​Unit elastic. 
B) ​Relatively elastic. 
C) ​Relatively inelastic. 
D) ​Perfectly inelastic.

Question 11

Good A has an income elasticity equal to -0.8 and a cross price elasticity with respect to Good B of -0.75. 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 12

If the income elasticity of demand is less than 1.0, it means it is an inferior good.

Accepted Answer

A) True 
 B)False

Question 13

Ceteris paribus, if an 6% increase in quantity supplied is caused by an 8% increase in price, then:

Accepted Answer

A) ​supply is elastic. 
B) ​supply is unit elastic. 
C) ​supply is inelastic. 
D) ​the supply curve is perfectly vertical. 
A) ​supply is elastic. 
B) ​supply is unit elastic. 
C) ​supply is inelastic. 
D) ​the supply curve is perfectly vertical.

Question 14

If an increase prices increases 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

If the supply curve for a product is horizontal, 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 16

The greater the positive cross elasticity of demand between products A and B, the:

Accepted Answer

A) ​greater the degree to which they are substitutes. 
B) ​greater the degree to which they are complements. 
C) ​smaller the elasticity of demand for both products. 
D) ​greater will be both products responsiveness to changes in income. 
A) ​greater the degree to which they are substitutes. 
B) ​greater the degree to which they are complements. 
C) ​smaller the elasticity of demand for both products. 
D) ​greater will be both products responsiveness to changes in income.

Question 17

Which of the following is associated with inelastic demand?

Accepted Answer

A) ​a limited amount of time for consumers to respond to a price change 
B) ​availability of many close substitutes 
C) ​large percentage of income spent on the good in question 
D) ​all of the above 
A) ​a limited amount of time for consumers to respond to a price change 
B) ​availability of many close substitutes 
C) ​large percentage of income spent on the good in question 
D) ​all of the above

Question 18

If both of two goods have price elasticities of demand, price elasticities of supply, income elasticities of demand and cross elasticities of demand all equal to 2.0:

Accepted Answer

A) ​They are both normal and substitutes. 
B) ​They are both normal and complements. 
C) ​They are both inferior and substitutes. 
D) ​They are both inferior and complements. 
A) ​They are both normal and substitutes. 
B) ​They are both normal and complements. 
C) ​They are both inferior and substitutes. 
D) ​They are both inferior and complements.

Question 19

Moving along the inelastic portion of a demand curve, a large percentage change in price leads to a smaller percentage change in quantity demanded.

Accepted Answer

A) True 
 B)False

Question 20

If a cut 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.

Exam 6: Elasticities

The more good substitutes there are for a product, the more likely it is that the total revenue for the good in question would increase as a result of an increase in price.

If the demand curve for a product was vertical, then the elasticity of demand would be:

An increase in tax rates on a product will raise more revenue, the more inelastic is the demand curve.

A tax is imposed on wine. Sellers will bear the full burden of this tax if the:

The price of a new toy increases from $5 to $7 and the quantity demanded decreases from 12,000 to 6,000 per month as a result. Based on this information, the price elasticity of demand (in absolute terms) is estimated to be equal to:

A bountiful wheat harvest can be bad news for wheat farmers because the

If the elasticity of supply coefficient for a good is one-sixth (in absolute terms), we know:

If the cross price elasticity of demand between goods A and B was equal to 0.5, those goods are substitutes.

Chicken and fish are substitutes. Therefore, the cross elasticity of demand between chicken and fish should be:

Suppose the demand for a good is currently unit elastic over the relevant range. Then the producer of a substitute good goes out of business and stops producing it. As a result, demand over that range is now likely to be

Good A has an income elasticity equal to -0.8 and a cross price elasticity with respect to Good B of -0.75. Then:

If the income elasticity of demand is less than 1.0, it means it is an inferior good.

Ceteris paribus, if an 6% increase in quantity supplied is caused by an 8% increase in price, then:

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

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

The greater the positive cross elasticity of demand between products A and B, the:

Which of the following is associated with inelastic demand?

If both of two goods have price elasticities of demand, price elasticities of supply, income elasticities of demand and cross elasticities of demand all equal to 2.0:

Moving along the inelastic portion of a demand curve, a large percentage change in price leads to a smaller percentage change in quantity demanded.

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

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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