Question 1

The income elasticity of demand _____.

Accepted Answer

A) must be negative because of the law of diminishing marginal utility 
B) could be positive or negative or zero, depending on the nature of the good 
C) must be positive because consumers tend to buy more at higher incomes 
D) is usually zero because "you can only have so much" 
E) can never be zero 
A) must be negative because of the law of diminishing marginal utility 
B) could be positive or negative or zero, depending on the nature of the good 
C) must be positive because consumers tend to buy more at higher incomes 
D) is usually zero because "you can only have so much" 
E) can never be zero

Question 2

If   = 1.50, and price decreases by 20 percent, then:

Accepted Answer

A) quantity demanded will decrease by 30 percent. 
B) quantity demanded will increase by 30 percent. 
C) total revenue will remain unchanged. 
D) total revenue will decrease. 
E) quantity demanded will increase by 3 percent. 
A) quantity demanded will decrease by 30 percent. 
B) quantity demanded will increase by 30 percent. 
C) total revenue will remain unchanged. 
D) total revenue will decrease. 
E) quantity demanded will increase by 3 percent.

Question 3

In which of the following cases will an effective price floor lead to the largest surplus in a market?

Accepted Answer

A) When demand is elastic and supply is inelastic 
B) When demand is inelastic and supply is elastic 
C) When both demand and supply are elastic 
D) When both demand and supply are inelastic 
E) When demand is inelastic and supply is perfectly inelastic 
A) When demand is elastic and supply is inelastic 
B) When demand is inelastic and supply is elastic 
C) When both demand and supply are elastic 
D) When both demand and supply are inelastic 
E) When demand is inelastic and supply is perfectly inelastic

Question 4

Economists have said that deregulation of the electric utility industry might lead to increased prices in the short run but prices will fall in the long run.In this context:

Accepted Answer

A) the short run means the middle of next year. 
B) the short run means after all adjustments have been made and the quantities of all resources have been varied as necessary. 
C) the long run means after all adjustments have been made, the quantities of all resources have been varied as necessary, and new market entrants begin producing electricity. 
D) the short run means after new firms begin producing electricity. 
E) the long run means approximately ten years. 
A) the short run means the middle of next year. 
B) the short run means after all adjustments have been made and the quantities of all resources have been varied as necessary. 
C) the long run means after all adjustments have been made, the quantities of all resources have been varied as necessary, and new market entrants begin producing electricity. 
D) the short run means after new firms begin producing electricity. 
E) the long run means approximately ten years.

Question 5

When the cross-price elasticity of demand is a large positive number, one can correctly conclude that:

Accepted Answer

A) the goods are normal goods. 
B) the goods are inferior goods. 
C) the goods are substitutes. 
D) the goods are complements. 
E) total revenue will increase when the price increases. 
A) the goods are normal goods. 
B) the goods are inferior goods. 
C) the goods are substitutes. 
D) the goods are complements. 
E) total revenue will increase when the price increases.

Question 6

Supply tends to be more elastic in the long run than in the short run.

Accepted Answer

A) True 
 B)False

Question 7

The less responsive consumers are to a change in the price of a product:

Accepted Answer

A) the more price-elastic is the supply curve. 
B) the more income-elastic is the demand curve. 
C) the more price-inelastic is the demand curve. 
D) the more income-elastic is the supply curve. 
E) the more price-elastic is the demand curve. 
A) the more price-elastic is the supply curve. 
B) the more income-elastic is the demand curve. 
C) the more price-inelastic is the demand curve. 
D) the more income-elastic is the supply curve. 
E) the more price-elastic is the demand curve.

Question 8

The price elasticity of demand is the ratio of the change in quantity demanded to the change in price.

Accepted Answer

A) True 
 B)False

Question 9

If the price elasticity of demand is greater than 1, then demand is inelastic.

Accepted Answer

A) True 
 B)False

Question 10

When the supply elasticity of a product is 2.5, a 10 percent decrease in price will _____ the quantity supplied of the product by _____ percent.

Accepted Answer

A) increase;25 
B) decrease;25 
C) increase;2.5 
D) decrease;2.5 
E) decrease;4 
A) increase;25 
B) decrease;25 
C) increase;2.5 
D) decrease;2.5 
E) decrease;4

Question 11

If price elasticity of supply is large and demand is price-inelastic, then the firm can earn positive profits byincreasing the price.

Accepted Answer

A) True 
 B)False

Question 12

Assume that as the price of wheat falls from $10 to $8, the quantity demanded of wheat increases from 100 bushels to 150 bushels.This implies the price elasticity of demand for wheat is 0.5.

Accepted Answer

A) True 
 B)False

Question 13

If 12 candy bars are demanded at $0.30 each and 4 candy bars are demanded at $0.50 each, what is the elasticity of demand over the price range from $0.30 to $0.50?

Accepted Answer

A) 2 
B) 1.67 
C) 0.5 
D) 7.5 
E) 0.4 
A) 2 
B) 1.67 
C) 0.5 
D) 7.5 
E) 0.4

Question 14

Since an expensive sports car constitutes a greater portion of the consumer's budget than does laundry soap, the elasticity of demand for an expensive sports car is _____.

Accepted Answer

A) relatively less elastic 
B) a vertical line 
C) a downward sloping straight line 
D) relatively more elastic 
E) not subject to elasticity because of the income level of the consumers who purchase expensive sports cars 
A) relatively less elastic 
B) a vertical line 
C) a downward sloping straight line 
D) relatively more elastic 
E) not subject to elasticity because of the income level of the consumers who purchase expensive sports cars

Question 15

Everything else held constant, the greater the number of close substitutes there are for a good, the smaller the price elasticity of demand for that good.

Accepted Answer

A) True 
 B)False

Question 16

If the price elasticity of supply is zero, the supply curve is a horizontal line parallel to the quantity axis.

Accepted Answer

A) True 
 B)False

Question 17

If a 10 percent increase in the price of gasoline results in a 2 percent decrease in the quantity demanded of gasoline, then the elasticity of demand for gasoline is:

Accepted Answer

A) equal to 0.2 and demand is inelastic. 
B) equal to 0.2 and demand is elastic. 
C) equal to 0.02 and demand is elastic. 
D) equal to 0.5 and demand is inelastic. 
E) equal to 0.5 and the demand is elastic. 
A) equal to 0.2 and demand is inelastic. 
B) equal to 0.2 and demand is elastic. 
C) equal to 0.02 and demand is elastic. 
D) equal to 0.5 and demand is inelastic. 
E) equal to 0.5 and the demand is elastic.

Question 18

A 0.5% increase in the price of a particular product causes the quantity demanded of the product to drop to zero.This means that the price elasticity of demand for the product is:

Accepted Answer

A) moderately inelastic. 
B) highly inelastic. 
C) unitary elastic. 
D) perfectly inelastic. 
E) perfectly elastic. 
A) moderately inelastic. 
B) highly inelastic. 
C) unitary elastic. 
D) perfectly inelastic. 
E) perfectly elastic.

Question 19

Ceteris paribus, a 10 percent increase in income results in a 50 percent decline in the quantity of potatoes purchased.This implies potatoes can be categorized as _____.

Accepted Answer

A) complements 
B) substitutes 
C) inferior goods 
D) normal goods 
E) luxurious goods 
A) complements 
B) substitutes 
C) inferior goods 
D) normal goods 
E) luxurious goods

Question 20

If the price of chocolate increases by 15 percent and the quantity demanded of chocolate declines by 5 percent, the price elasticity of demand (   )is 3.

Accepted Answer

A) True 
 B)False

Exam 33: Elasticity: Demand and Supply

The income elasticity of demand _____.

If = 1.50, and price decreases by 20 percent, then:

In which of the following cases will an effective price floor lead to the largest surplus in a market?

Economists have said that deregulation of the electric utility industry might lead to increased prices in the short run but prices will fall in the long run.In this context:

When the cross-price elasticity of demand is a large positive number, one can correctly conclude that:

Supply tends to be more elastic in the long run than in the short run.

The less responsive consumers are to a change in the price of a product:

The price elasticity of demand is the ratio of the change in quantity demanded to the change in price.

If the price elasticity of demand is greater than 1, then demand is inelastic.

When the supply elasticity of a product is 2.5, a 10 percent decrease in price will _____ the quantity supplied of the product by _____ percent.

If price elasticity of supply is large and demand is price-inelastic, then the firm can earn positive profits byincreasing the price.

Assume that as the price of wheat falls from $10 to $8, the quantity demanded of wheat increases from 100 bushels to 150 bushels.This implies the price elasticity of demand for wheat is 0.5.

If 12 candy bars are demanded at $0.30 each and 4 candy bars are demanded at $0.50 each, what is the elasticity of demand over the price range from $0.30 to $0.50?

Since an expensive sports car constitutes a greater portion of the consumer's budget than does laundry soap, the elasticity of demand for an expensive sports car is _____.

Everything else held constant, the greater the number of close substitutes there are for a good, the smaller the price elasticity of demand for that good.

If the price elasticity of supply is zero, the supply curve is a horizontal line parallel to the quantity axis.

If a 10 percent increase in the price of gasoline results in a 2 percent decrease in the quantity demanded of gasoline, then the elasticity of demand for gasoline is:

A 0.5% increase in the price of a particular product causes the quantity demanded of the product to drop to zero.This means that the price elasticity of demand for the product is:

Ceteris paribus, a 10 percent increase in income results in a 50 percent decline in the quantity of potatoes purchased.This implies potatoes can be categorized as _____.

If the price of chocolate increases by 15 percent and the quantity demanded of chocolate declines by 5 percent, the price elasticity of demand ( )is 3.

Economics: The World Around You

Choice, Opportunity Costs, and Specialization

Markets, Demand and Supply, and the Price System

The Market System and the Private and Public Sector

Elasticity: Demand and Supply

National Income Accounting

an Introduction to the Foreign Exchange Market and the Balance of Payments

Consumer Choice

Supply: The Costs of Doing Business

Unemployment and Inflation

Macroeconomic Equilibrium: Aggregate Demand and Supply

Profit Maximization

Aggregate Expenditures

Perfect Competition

Income and Expenditures Equilibrium

Monopoly

Fiscal Policy

Monopolistic Competition and Oligopoly

Antitrust and Regulation

Money and Banking

Market Failures, Government Failures, and Rent Seeking

Monetary Policy

Macroeconomic Policy: Tradeoffs, Expectations, Credibility, and Sources of Business Cycles

Resource Markets

Macroeconomic Viewpoints: New Keynesian, Monetarist, and New Classical

The Labor Market

Capital Markets

Economic Growth

Development Economics

the Land Market and Natural Resources

Aging, Social Security and Health Care

Globalization

Income Distribution, Poverty and Government Policy

World Trade Equilibrium

Consumer Choice

International Trade Restrictions

World Trade Equilibrium

Exchange Rates and Financial Links Between Countries

International Trade Restrictions

Supply: the Costs of Doing Business

Exchange Rates and Financial Links Between Countries

Profit Maximization

Perfect Competition

Monopoly

Monopolistic Competition and Oligopoly

Antitrust and Regulation

Market Failures, Government Failures, and Rent Seeking

Resource Markets

The Labor Market

Capital Markets

The Land Market and Natural Resources

Aging, Social Security and Health Care

Income Distribution, Poverty and Government Policy

World Trade Equilibrium

International Trade Restrictions

Exchange Rates and Financial Links Between Countries

Filters

When the supply elasticity of a product is 2.5, a 10 percent decrease in price will _ the quantity supplied of the product by _ percent.