Question 1

Cross-price elasticity is represented by the formula DQ/DP ´ P/Q;where P and DP represent the price and change in price of a related good respectively.

Accepted Answer

A) True 
 B)False  True

Question 2

If the demand for product R increases as the price of product S increases, then _____.

Accepted Answer

A) consumer preferences for S have increased 
B) R and S are not related goods 
C) R and S are substitutes 
D) R and S are complements 
E) R is an inferior good 
A) consumer preferences for S have increased 
B) R and S are not related goods 
C) R and S are substitutes 
D) R and S are complements 
E) R is an inferior good C

Question 3

By measuring the price elasticity of demand in terms of percentage changes, economists are able to compare the way consumers respond to changes in the prices of different products.

Accepted Answer

A) True 
 B)False  True

Question 4

What would be the consequences of a 10 percent decrease in the price of a good for which price elasticity of demand is 5?

Accepted Answer

A) A 50 percent decrease in quantity demanded 
B) A 5 percent increase in quantity demanded 
C) A 50 percent increase in quantity demanded 
D) A decrease in quantity demanded by 0.2 
E) An increase in quantity demanded by 0.2 
A) A 50 percent decrease in quantity demanded 
B) A 5 percent increase in quantity demanded 
C) A 50 percent increase in quantity demanded 
D) A decrease in quantity demanded by 0.2 
E) An increase in quantity demanded by 0.2

Question 5

If firms have to change their production techniques in order to change the quantities they supply, they can respond less in a year to a price change than they could in a month.

Accepted Answer

A) True 
 B)False

Question 6

Which of the following statements correctly describe the elasticities of demand for gasoline and automobiles?

Accepted Answer

A) The income elasticity of demand for gasoline and automobiles is negative. 
B) The price elasticity of demand for gasoline is elastic and the cross-price elasticity between gasoline and SUVs is positive. 
C) The price elasticity of demand for gasoline is inelastic and the cross-price elasticity between gasoline and SUVs is negative. 
D) The price elasticity of demand for gasoline is inelastic and the income elasticity between gasoline and SUVs is positive. 
E) The price elasticity of demand for gasoline is elastic and the income elasticity between gasoline and SUVs is negative. 
A) The income elasticity of demand for gasoline and automobiles is negative. 
B) The price elasticity of demand for gasoline is elastic and the cross-price elasticity between gasoline and SUVs is positive. 
C) The price elasticity of demand for gasoline is inelastic and the cross-price elasticity between gasoline and SUVs is negative. 
D) The price elasticity of demand for gasoline is inelastic and the income elasticity between gasoline and SUVs is positive. 
E) The price elasticity of demand for gasoline is elastic and the income elasticity between gasoline and SUVs is negative.

Question 7

Price elasticity of demand is the sole determinant of profit for a firm.

Accepted Answer

A) True 
 B)False

Question 8

Assume that due to unfavorable conditions in a prime honey-producing area, the price of honey increases by 50 percent.The quantity consumed of herbal tea declines immediately by 25 percent.Everything else held constant, the:

Accepted Answer

A) cross-price elasticity of demand for herbal tea and honey is negative, and therefore the two goods are substitutes. 
B) cross-price elasticity of demand for herbal tea and honey is negative, and therefore the two goods are complements. 
C) cross-price elasticity of demand for herbal tea and honey is positive, and therefore the two goods are substitutes. 
D) cross-price elasticity of demand for herbal tea and honey is positive, and therefore the two goods are complements. 
E) cross-price elasticity of demand cannot be determined from the information provided. 
A) cross-price elasticity of demand for herbal tea and honey is negative, and therefore the two goods are substitutes. 
B) cross-price elasticity of demand for herbal tea and honey is negative, and therefore the two goods are complements. 
C) cross-price elasticity of demand for herbal tea and honey is positive, and therefore the two goods are substitutes. 
D) cross-price elasticity of demand for herbal tea and honey is positive, and therefore the two goods are complements. 
E) cross-price elasticity of demand cannot be determined from the information provided.

Question 9

Which of the following is an example of inelastic demand?

Accepted Answer

A) A 10 percent increase in the price of milk leads to a 20 percent decrease in the quantity demanded of milk. 
B) A 10 percent increase in the price of milk leads to a 10 percent decrease in the quantity demanded of milk. 
C) A 10 percent increase in the price of milk leads to a 5 percent decrease in the quantity demanded of milk. 
D) A 10 percent increase in the price of milk leads to no change in the quantity demanded of milk. 
E) A 10 percent increase in the price of milk leads to a 5 percent increase in the quantity demanded of milk. 
A) A 10 percent increase in the price of milk leads to a 20 percent decrease in the quantity demanded of milk. 
B) A 10 percent increase in the price of milk leads to a 10 percent decrease in the quantity demanded of milk. 
C) A 10 percent increase in the price of milk leads to a 5 percent decrease in the quantity demanded of milk. 
D) A 10 percent increase in the price of milk leads to no change in the quantity demanded of milk. 
E) A 10 percent increase in the price of milk leads to a 5 percent increase in the quantity demanded of milk.

Question 10

Assume that the price elasticity of demand for a commodity is 0.20.A 10 percent increase in price will be followed by a:

Accepted Answer

A) 20 percent increase in the quantity demanded. 
B) 2 percent decrease in the quantity demanded. 
C) 20 percent decrease in the quantity demanded. 
D) 0.2 percent decrease in the quantity demanded. 
E) 2 percent increase in the quantity demanded. 
A) 20 percent increase in the quantity demanded. 
B) 2 percent decrease in the quantity demanded. 
C) 20 percent decrease in the quantity demanded. 
D) 0.2 percent decrease in the quantity demanded. 
E) 2 percent increase in the quantity demanded.

Question 11

If the quantity demanded of product S increases as the price of product T decreases, then S and T are complements.

Accepted Answer

A) True 
 B)False

Question 12

If the price elasticity of supply is 0.75, it would imply that a _____.

Accepted Answer

A) a 100 percent increase in price would increase the quantity supplied by 75 percent 
B) doubling of the price would increase the quantity supplied by 175 percent 
C) 50 percent increase in price would increase the quantity supplied by 25 percent 
D) 75 percent increase in price would increase the quantity supplied by 100 percent 
E) 120 percent increase in price would increase the quantity supplied by 90 percent 
A) a 100 percent increase in price would increase the quantity supplied by 75 percent 
B) doubling of the price would increase the quantity supplied by 175 percent 
C) 50 percent increase in price would increase the quantity supplied by 25 percent 
D) 75 percent increase in price would increase the quantity supplied by 100 percent 
E) 120 percent increase in price would increase the quantity supplied by 90 percent

Question 13

The table below shows the quantities of automobiles, margarine, and coffee purchased by Ted at different levels of income. Table 5.2
  Based on the information given in Table 5.2, margarine is:

Accepted Answer

A) an inferior good. 
B) a necessity. 
C) a normal good. 
D) a complementary good. 
E) a luxury good. 
A) an inferior good. 
B) a necessity. 
C) a normal good. 
D) a complementary good. 
E) a luxury good.

Question 14

Assume that the demand curve for a certain good is a vertical line.This vertical demand curve illustrates the idea that:

Accepted Answer

A) consumers are unwilling to pay more than a certain price for the good. 
B) the good is a complement to another good. 
C) consumers are unwilling to pay less than a certain price for the good. 
D) there are many substitutes for this good. 
E) people will not change the quantity of the good when the price of the good is changed. 
A) consumers are unwilling to pay more than a certain price for the good. 
B) the good is a complement to another good. 
C) consumers are unwilling to pay less than a certain price for the good. 
D) there are many substitutes for this good. 
E) people will not change the quantity of the good when the price of the good is changed.

Question 15

Last year, Alice bought 40 CDs when her income was $20, 000.This year, her income increased to $25, 000, and she purchased 48 CDs.We can conclude that:

Accepted Answer

A) Alice's price elasticity of demand for CDs is equal to 1. 
B) Alice's demand for CDs is price-inelastic. 
C) Alice's demand for CDs is price-elastic. 
D) the income elasticity of demand for CDs is negative. 
E) CDs are a normal good. 
A) Alice's price elasticity of demand for CDs is equal to 1. 
B) Alice's demand for CDs is price-inelastic. 
C) Alice's demand for CDs is price-elastic. 
D) the income elasticity of demand for CDs is negative. 
E) CDs are a normal good.

Question 16

Demand is price-elastic at the top portion of a straight-line downward-sloping demand curve.

Accepted Answer

A) True 
 B)False

Question 17

Since they are often used together, peanut butter and jelly are:

Accepted Answer

A) substitutes and have a positive cross-price elasticity. 
B) complements and have a positive cross-price elasticity. 
C) substitutes and have a negative cross-price elasticity. 
D) complements and have a negative cross-price elasticity. 
E) inferior goods when the demand or goods is positive. 
A) substitutes and have a positive cross-price elasticity. 
B) complements and have a positive cross-price elasticity. 
C) substitutes and have a negative cross-price elasticity. 
D) complements and have a negative cross-price elasticity. 
E) inferior goods when the demand or goods is positive.

Question 18

As the price is raised along a straight-line demand curve, the demand curve becomes more elastic.

Accepted Answer

A) True 
 B)False

Question 19

The price elasticity of demand depends on how readily and easily consumers can switch their purchases from one product to another.

Accepted Answer

A) True 
 B)False

Question 20

Supply curves applicable to shorter periods of time tend to:

Accepted Answer

A) be represented by horizontal lines parallel to the quantity axis. 
B) be perfectly elastic. 
C) be more inelastic than supply curves that apply to longer periods of time. 
D) be more elastic than supply curves that apply to longer periods of time. 
E) have a price elasticity of supply that is approximately equal to 1. 
A) be represented by horizontal lines parallel to the quantity axis. 
B) be perfectly elastic. 
C) be more inelastic than supply curves that apply to longer periods of time. 
D) be more elastic than supply curves that apply to longer periods of time. 
E) have a price elasticity of supply that is approximately equal to 1.

Exam 4: Elasticity: Demand and Supply

Cross-price elasticity is represented by the formula DQ/DP ´ P/Q;where P and DP represent the price and change in price of a related good respectively.

If the demand for product R increases as the price of product S increases, then _____.

By measuring the price elasticity of demand in terms of percentage changes, economists are able to compare the way consumers respond to changes in the prices of different products.

What would be the consequences of a 10 percent decrease in the price of a good for which price elasticity of demand is 5?

If firms have to change their production techniques in order to change the quantities they supply, they can respond less in a year to a price change than they could in a month.

Which of the following statements correctly describe the elasticities of demand for gasoline and automobiles?

Price elasticity of demand is the sole determinant of profit for a firm.

Assume that due to unfavorable conditions in a prime honey-producing area, the price of honey increases by 50 percent.The quantity consumed of herbal tea declines immediately by 25 percent.Everything else held constant, the:

Which of the following is an example of inelastic demand?

Assume that the price elasticity of demand for a commodity is 0.20.A 10 percent increase in price will be followed by a:

If the quantity demanded of product S increases as the price of product T decreases, then S and T are complements.

If the price elasticity of supply is 0.75, it would imply that a _____.

The table below shows the quantities of automobiles, margarine, and coffee purchased by Ted at different levels of income. Table 5.2 Based on the information given in Table 5.2, margarine is:

Assume that the demand curve for a certain good is a vertical line.This vertical demand curve illustrates the idea that:

Last year, Alice bought 40 CDs when her income was $20, 000.This year, her income increased to $25, 000, and she purchased 48 CDs.We can conclude that:

Demand is price-elastic at the top portion of a straight-line downward-sloping demand curve.

Since they are often used together, peanut butter and jelly are:

As the price is raised along a straight-line demand curve, the demand curve becomes more elastic.

The price elasticity of demand depends on how readily and easily consumers can switch their purchases from one product to another.

Supply curves applicable to shorter periods of time tend to:

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

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

Elasticity: Demand and Supply

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

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