Question 1

Demand for a good is said to be inelastic if the quantity demanded increases slightly when the price falls by a large amount.

Accepted Answer

A) True 
 B)False

Question 2

Suppose that when the price of good X falls from $6 to $4, the quantity demanded of good Y rises from 30 units to 40 units. Using the midpoint method, the cross-price elasticity of demand is

Accepted Answer

A)  -0.71, and X and Y are complements. 
B)  -1.40, and X and Y are complements. 
C)  -0.71, and X and Y are substitutes. 
D)  -1.40, and X and Y are substitutes. 
A)  -0.71, and X and Y are complements. 
B)  -1.40, and X and Y are complements. 
C)  -0.71, and X and Y are substitutes. 
D)  -1.40, and X and Y are substitutes.

Question 3

For which of the following goods is the income elasticity of demand likely highest?

Accepted Answer

A)  water 
B)  diamonds 
C)  hamburgers 
D)  housing 
A)  water 
B)  diamonds 
C)  hamburgers 
D)  housing

Question 4

Some firms eventually experience problems with their capacity to produce output as their output levels increase. For these firms,

Accepted Answer

A)  market power is substantial. 
B)  supply is perfectly inelastic. 
C)  supply is more elastic at low levels of output and less elastic at high levels of output. 
D)  supply is less elastic at low levels of output and more elastic at high levels of output. 
A)  market power is substantial. 
B)  supply is perfectly inelastic. 
C)  supply is more elastic at low levels of output and less elastic at high levels of output. 
D)  supply is less elastic at low levels of output and more elastic at high levels of output.

Question 5

The flatter the demand curve that passes through a given point, the more inelastic the demand.

Accepted Answer

A) True 
 B)False

Question 6

Total revenue

Accepted Answer

A)  always increases as price increases. 
B)  increases as price increases, as long as demand is elastic. 
C)  decreases as price increases, as long as demand is inelastic. 
D)  remains unchanged as price increases when demand is unit elastic. 
A)  always increases as price increases. 
B)  increases as price increases, as long as demand is elastic. 
C)  decreases as price increases, as long as demand is inelastic. 
D)  remains unchanged as price increases when demand is unit elastic.

Question 7

Necessities tend to have inelastic demands, whereas luxuries tend to have elastic demands.

Accepted Answer

A) True 
 B)False

Question 8

You have just been hired as a business consultant to determine what pricing policy would be appropriate to increase the total revenue of a bakery. The first step you would take would be to

Accepted Answer

A)  increase the price of every loaf of bread in the store. 
B)  look for ways to cut costs and increase profit for the bakery. 
C)  determine the price elasticity of demand for the bakery's products. 
D)  determine the price elasticity of supply for the bakery's products. 
A)  increase the price of every loaf of bread in the store. 
B)  look for ways to cut costs and increase profit for the bakery. 
C)  determine the price elasticity of demand for the bakery's products. 
D)  determine the price elasticity of supply for the bakery's products.

Question 9

Scenario 5-7
Suppose the demand function for good X is given by:   where   is the quantity demanded of good X,   is the price of good X, and   is the price of good Y, which is related to good X.
-Refer to Scenario 5-7. Good X and Good Y are related as

Accepted Answer

The answer of Scenario 5-7
Suppose the demand function for good...

Question 10

Which of the following is not possible?

Accepted Answer

A)  Demand is elastic, and a decrease in price causes an increase in revenue. 
B)  Demand is unit elastic, and a decrease in price causes an increase in revenue. 
C)  Demand is inelastic, and an increase in price causes an increase in revenue. 
D)  Demand is perfectly inelastic, and an increase in price causes an increase in revenue. 
A)  Demand is elastic, and a decrease in price causes an increase in revenue. 
B)  Demand is unit elastic, and a decrease in price causes an increase in revenue. 
C)  Demand is inelastic, and an increase in price causes an increase in revenue. 
D)  Demand is perfectly inelastic, and an increase in price causes an increase in revenue.

Question 11

If the price elasticity of supply is 1.2, and a price increase led to a 5% increase in quantity supplied, then the price increase is about

Accepted Answer

A)  0.24%. 
B)  4.2%. 
C)  6%. 
D)  6.2%. 
A)  0.24%. 
B)  4.2%. 
C)  6%. 
D)  6.2%.

Question 12

The midpoint method is used to calculate elasticity between two points because it gives the same answer regardless of the direction of the change.

Accepted Answer

A) True 
 B)False

Question 13

If a supply curve is perfectly horizontal, what is the value of the price elasticity of supply?

Accepted Answer

The answer of If a supply curve is perfectly horizontal,...

Question 14

The flatter the demand curve that passes through a given point, the more elastic the demand.

Accepted Answer

A) True 
 B)False

Question 15

Adam and Barb go to the store to purchase some lottery tickets. Without looking at the price, Adam says "I'll take 10 lottery tickets," and Barb says "I'll take $10 worth of lottery tickets." What is each person's price elasticity of demand for lottery tickets?

Accepted Answer

Since Adam wants 10 tickets regardless o

Question 16

Suppose the point Q = 3,400, P = $20) is the midpoint on a certain downward-sloping, linear demand curve. Then

Accepted Answer

A)  a decrease in price from $18 to $16 will increase total revenue. 
B)  a decrease in price from $24 to $22 will decrease total revenue. 
C)  a decrease in the price from $21 to $19 will decrease total revenue. 
D)  the maximum value of total revenue is $68,000. 
A)  a decrease in price from $18 to $16 will increase total revenue. 
B)  a decrease in price from $24 to $22 will decrease total revenue. 
C)  a decrease in the price from $21 to $19 will decrease total revenue. 
D)  the maximum value of total revenue is $68,000.

Question 17

When demand is unit elastic, price elasticity of demand equals

Accepted Answer

A)  1, and total revenue and price move in the same direction. 
B)  1, and total revenue and price move in opposite directions. 
C)  1, and total revenue does not change when price changes. 
D)  0, and total revenue does not change when price changes. 
A)  1, and total revenue and price move in the same direction. 
B)  1, and total revenue and price move in opposite directions. 
C)  1, and total revenue does not change when price changes. 
D)  0, and total revenue does not change when price changes.

Question 18

Suppose the price elasticity of supply for soccer balls is 0.3 in the short run and 1.2 in the long run. If an increase in the demand for soccer balls causes the price of soccer balls to increase by 20%, then the quantity supplied of soccer balls will increase by about

Accepted Answer

A)  0.67% in the short run and 0.17% in the long run. 
B)  3% in the short run and 1.2% in the long run. 
C)  6% in the short run and 24% in the long run. 
D)  66.7% in the short run and 16.7% in the long run. 
A)  0.67% in the short run and 0.17% in the long run. 
B)  3% in the short run and 1.2% in the long run. 
C)  6% in the short run and 24% in the long run. 
D)  66.7% in the short run and 16.7% in the long run.

Question 19

In the short run, as compared to the long run, both the price elasticity of demand and the price elasticity of supply tend to be more

Accepted Answer

The answer of In the short run, as compared to...

Question 20

Which of the following statements is not valid when the market supply curve is vertical?

Accepted Answer

A)  Market quantity supplied does not change when the price changes. 
B)  Supply is perfectly inelastic. 
C)  An increase in market demand will increase the equilibrium quantity. 
D)  An increase in market demand will increase the equilibrium price. 
A)  Market quantity supplied does not change when the price changes. 
B)  Supply is perfectly inelastic. 
C)  An increase in market demand will increase the equilibrium quantity. 
D)  An increase in market demand will increase the equilibrium price.

Exam 5: Elasticity and Its Application

Demand for a good is said to be inelastic if the quantity demanded increases slightly when the price falls by a large amount.

Suppose that when the price of good X falls from $6 to $4, the quantity demanded of good Y rises from 30 units to 40 units. Using the midpoint method, the cross-price elasticity of demand is

For which of the following goods is the income elasticity of demand likely highest?

Some firms eventually experience problems with their capacity to produce output as their output levels increase. For these firms,

The flatter the demand curve that passes through a given point, the more inelastic the demand.

Total revenue

Necessities tend to have inelastic demands, whereas luxuries tend to have elastic demands.

You have just been hired as a business consultant to determine what pricing policy would be appropriate to increase the total revenue of a bakery. The first step you would take would be to

Scenario 5-7 Suppose the demand function for good X is given by: where is the quantity demanded of good X, is the price of good X, and is the price of good Y, which is related to good X. -Refer to Scenario 5-7. Good X and Good Y are related as

Which of the following is not possible?

If the price elasticity of supply is 1.2, and a price increase led to a 5% increase in quantity supplied, then the price increase is about

The midpoint method is used to calculate elasticity between two points because it gives the same answer regardless of the direction of the change.

If a supply curve is perfectly horizontal, what is the value of the price elasticity of supply?

The flatter the demand curve that passes through a given point, the more elastic the demand.

Adam and Barb go to the store to purchase some lottery tickets. Without looking at the price, Adam says "I'll take 10 lottery tickets," and Barb says "I'll take $10 worth of lottery tickets." What is each person's price elasticity of demand for lottery tickets?

Suppose the point Q = 3,400, P = $20) is the midpoint on a certain downward-sloping, linear demand curve. Then

When demand is unit elastic, price elasticity of demand equals

Suppose the price elasticity of supply for soccer balls is 0.3 in the short run and 1.2 in the long run. If an increase in the demand for soccer balls causes the price of soccer balls to increase by 20%, then the quantity supplied of soccer balls will increase by about

In the short run, as compared to the long run, both the price elasticity of demand and the price elasticity of supply tend to be more

Which of the following statements is not valid when the market supply curve is vertical?

Ten Principles of Economics

Thinking Like an Economist

Interdependence and the Gains From Trade

The Market Forces of Supply and Demand

Supply, Demand, and Government Policies

Consumers, Producers, and the Efficiency of Markets

Application: the Costs of Taxation

Application: International Trade

Measuring a Nations Income

Measuring the Cost of Living

Production and Growth

Saving, Investment, and the Financial System

The Basic Tools of Finance

Unemployment

The Monetary System

Money Growth and Inflation

Open-Economy Macroeconomics: Basic Concepts

A Macroeconomic Theory of the Open Economy

Aggregate Demand and Aggregate Supply

The Influence of Monetary and Fiscal Policy on Aggregate Demand

The Short-Run Trade-Off Between Inflation and Unemployment

Six Debates Over Macroeconomic Policy

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