Question 1

Goods whose income elasticity of demand is greater than zero are _____.

Accepted Answer

A) inferior goods 
B) normal goods 
C) luxury goods 
D) superior goods 
E) public goods 
A) inferior goods 
B) normal goods 
C) luxury goods 
D) superior goods 
E) public goods

Question 2

An economic survey observed that, a 20 percent cut in the price of a certain line of women's clothing, almost doubled the quantity demanded of the clothing.This led economists to conclude that the demand for this line of clothing is _____.

Accepted Answer

A) very elastic 
B) very inelastic 
C) vertical 
D) horizontal 
E) inferior 
A) very elastic 
B) very inelastic 
C) vertical 
D) horizontal 
E) inferior

Question 3

Which of the following goods is likely to have an income elasticity of demand that is less than zero?

Accepted Answer

A) A luxury yacht 
B) A beach house 
C) A state-of-the-art cellular phone 
D) A box of generic macaroni and cheese dinner 
E) A dinner at a French restaurant 
A) A luxury yacht 
B) A beach house 
C) A state-of-the-art cellular phone 
D) A box of generic macaroni and cheese dinner 
E) A dinner at a French restaurant

Question 4

Acme Tools manufactures anvils, a forging tool.When the price of anvils was increased from $7 to $13, Acme Tools was willing and able to increase production from 1 to 4 units per day.Using the midpoint formula, what is Acme's price elasticity of supply for anvils?

Accepted Answer

A) 2 
B) 1 
C) 0.5 
D) 4 
E) 3.5 
A) 2 
B) 1 
C) 0.5 
D) 4 
E) 3.5

Question 5

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 6

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 7

Demand becomes more elastic as:

Accepted Answer

A) the number of substitutes available declines. 
B) the time period becomes shorter. 
C) a good makes up a larger percentage of a consumer's budget. 
D) a product is defined more broadly. 
E) the producer has more time to respond to price changes. 
A) the number of substitutes available declines. 
B) the time period becomes shorter. 
C) a good makes up a larger percentage of a consumer's budget. 
D) a product is defined more broadly. 
E) the producer has more time to respond to price changes.

Question 8

A perfectly inelastic demand curve is represented by an upward rising straight line.

Accepted Answer

A) True 
 B)False

Question 9

Price elasticity of demand measured over a range of prices and quantities along the demand curve is _____.

Accepted Answer

A) point elasticity 
B) arc elasticity 
C) income elasticity 
D) cross elasticity 
E) price elasticity 
A) point elasticity 
B) arc elasticity 
C) income elasticity 
D) cross elasticity 
E) price elasticity

Question 10

If a 15 percent reduction in the price of electricity per kilowatt hour has no impact on the total electricity consumption, we can infer that in the short run, the demand for electricity is _____.

Accepted Answer

A) perfectly inelastic 
B) perfectly elastic 
C) unitary elastic 
D) relatively inelastic 
E) relatively elastic 
A) perfectly inelastic 
B) perfectly elastic 
C) unitary elastic 
D) relatively inelastic 
E) relatively elastic

Question 11

If demand is unit-elastic, a 25 percent increase in price will result in:

Accepted Answer

A) a 25 percent change in total revenue. 
B) no change in quantity demanded. 
C) a 1 percent decrease in quantity demanded. 
D) a 25 percent decrease in quantity demanded. 
E) a 100 percent change in quantity demanded. 
A) a 25 percent change in total revenue. 
B) no change in quantity demanded. 
C) a 1 percent decrease in quantity demanded. 
D) a 25 percent decrease in quantity demanded. 
E) a 100 percent change in quantity demanded.

Question 12

When the income elasticity of demand for a good is negative, the good is called a luxury good.

Accepted Answer

A) True 
 B)False

Question 13

The demand for mansions is elastic because a small percentage change in price results in a large change in quantity demanded.

Accepted Answer

A) True 
 B)False

Question 14

Suppose 50 loaves of bread are demanded at a particular price.If that price rises by 2 percent, the quantity demanded decreases to 49.5 loaves of bread.This implies:

Accepted Answer

A) demand is elastic. 
B) demand is unit-elastic. 
C) the price elasticity of demand is equal to 2. 
D) demand is inelastic. 
E) consumers are very responsive to a price change. 
A) demand is elastic. 
B) demand is unit-elastic. 
C) the price elasticity of demand is equal to 2. 
D) demand is inelastic. 
E) consumers are very responsive to a price change.

Question 15

If a consumer is spending a small portion of his or her income on a good, then the demand for the good is likely to be inelastic.

Accepted Answer

A) True 
 B)False

Question 16

The table given below reports the price and quantity demanded of a commodity. Table 5.1
  According to Table 5.1, when the price increases from $5 to $6, the price elasticity of demand is _____.

Accepted Answer

A) 0.25 
B) 1.0 
C) 1.3 
D) 1.8 
E) 1.67 
A) 0.25 
B) 1.0 
C) 1.3 
D) 1.8 
E) 1.67

Question 17

The point elasticity is a measure of the sensitivity of consumers to a larger price change - a range from one price to another.

Accepted Answer

A) True 
 B)False

Question 18

Since demand curves aremostly downward sloping, economists tend to ignore the negative sign when calculating the price elasticity of demand.

Accepted Answer

A) True 
 B)False

Question 19

When the price of hot dogs at the supermarket increases, the quantity demanded of hot dog buns declines.This situation describes:

Accepted Answer

A) the income elasticity of demand for hot dogs. 
B) the income elasticity of demand for hot dog buns. 
C) the price elasticity of supply for hot dogs. 
D) the cross-price elasticity of demand for hot dogs and hot dog buns. 
E) the cross-price elasticity of supply for hot dogs and hot dog buns. 
A) the income elasticity of demand for hot dogs. 
B) the income elasticity of demand for hot dog buns. 
C) the price elasticity of supply for hot dogs. 
D) the cross-price elasticity of demand for hot dogs and hot dog buns. 
E) the cross-price elasticity of supply for hot dogs and hot dog buns.

Question 20

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

Exam 4: Elasticity: Demand and Supply

Goods whose income elasticity of demand is greater than zero are _____.

An economic survey observed that, a 20 percent cut in the price of a certain line of women's clothing, almost doubled the quantity demanded of the clothing.This led economists to conclude that the demand for this line of clothing is _____.

Which of the following goods is likely to have an income elasticity of demand that is less than zero?

Acme Tools manufactures anvils, a forging tool.When the price of anvils was increased from $7 to $13, Acme Tools was willing and able to increase production from 1 to 4 units per day.Using the midpoint formula, what is Acme's price elasticity of supply for anvils?

The income elasticity of demand _____.

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:

Demand becomes more elastic as:

A perfectly inelastic demand curve is represented by an upward rising straight line.

Price elasticity of demand measured over a range of prices and quantities along the demand curve is _____.

If a 15 percent reduction in the price of electricity per kilowatt hour has no impact on the total electricity consumption, we can infer that in the short run, the demand for electricity is _____.

If demand is unit-elastic, a 25 percent increase in price will result in:

When the income elasticity of demand for a good is negative, the good is called a luxury good.

The demand for mansions is elastic because a small percentage change in price results in a large change in quantity demanded.

Suppose 50 loaves of bread are demanded at a particular price.If that price rises by 2 percent, the quantity demanded decreases to 49.5 loaves of bread.This implies:

If a consumer is spending a small portion of his or her income on a good, then the demand for the good is likely to be inelastic.

The table given below reports the price and quantity demanded of a commodity. Table 5.1 According to Table 5.1, when the price increases from $5 to $6, the price elasticity of demand is _____.

The point elasticity is a measure of the sensitivity of consumers to a larger price change - a range from one price to another.

Since demand curves aremostly downward sloping, economists tend to ignore the negative sign when calculating the price elasticity of demand.

When the price of hot dogs at the supermarket increases, the quantity demanded of hot dog buns declines.This situation describes:

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.

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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