Question 1

Total revenue is maximized where demand is inelastic.

Accepted Answer

A) True 
 B)False

Question 2

Elasticity measures

Accepted Answer

A)  whether a price increase causes quantity demanded to increase or decrease 
B)  the strength of an economy's tendency to recover from recession 
C)  the responsiveness of decision makers to changes in prices, income, or other variables 
D)  the profitability of investment in an industry 
E)  the long-run flexibility of prices in the economy 
A)  whether a price increase causes quantity demanded to increase or decrease 
B)  the strength of an economy's tendency to recover from recession 
C)  the responsiveness of decision makers to changes in prices, income, or other variables 
D)  the profitability of investment in an industry 
E)  the long-run flexibility of prices in the economy

Question 3

NARRBEGIN: Exhibit 5-26
Exhibit 5-25
  
-Refer to exhibit 5-25. Between points B and C price elasticity of demand is:

Accepted Answer

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

Question 4

NARRBEGIN: Exhibit 5-7
Exhibit 5-7
  
-Which of the following is true between points g and h in Exhibit 5-7?

Accepted Answer

A)  Total revenue remains constant at $180. 
B)  Total revenue falls by $12. 
C)  Total revenue falls by $60. 
D)  Total revenue falls by $180. 
E)  Demand is elastic. 
A)  Total revenue remains constant at $180. 
B)  Total revenue falls by $12. 
C)  Total revenue falls by $60. 
D)  Total revenue falls by $180. 
E)  Demand is elastic.

Question 5

The supply curve will be more elastic if

Accepted Answer

A)  the good has few substitutes 
B)  the time the producer has to adjust is long 
C)  the time frame for adjusting to price changes is short 
D)  demand is elastic 
E)  demand is inelastic 
A)  the good has few substitutes 
B)  the time the producer has to adjust is long 
C)  the time frame for adjusting to price changes is short 
D)  demand is elastic 
E)  demand is inelastic

Question 6

If a tripling of price triples the quantity of a good supplied, the price elasticity of supply is

Accepted Answer

A)  3 
B)  300 
C)  1 
D)  -1 
E)  -3 
A)  3 
B)  300 
C)  1 
D)  -1 
E)  -3

Question 7

If the price of Pepsi-Cola increases from 50 cents to 60 cents per can and the quantity demanded decreases from 100 cans to 50 cans, then the demand for Pepsi-Cola is

Accepted Answer

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

Question 8

If income rises and the demand for a product remains unchanged, the income elasticity of demand for that product is unit elastic.

Accepted Answer

A) True 
 B)False

Question 9

An inferior good is one for which demand increases as

Accepted Answer

A)  price decreases 
B)  price increases 
C)  income increases 
D)  income decreases 
E)  the price of a related good decreases 
A)  price decreases 
B)  price increases 
C)  income increases 
D)  income decreases 
E)  the price of a related good decreases

Question 10

Unit elastic demand occurs when

Accepted Answer

A)  a one-unit increase in price leads to a one-unit decrease in quantity demanded 
B)  a 1% increase in price leads to a one-unit decrease in quantity demanded 
C)  price elasticity of demand is positive 
D)  price elasticity of demand is exactly zero 
E)  price elasticity of demand is exactly -1 
A)  a one-unit increase in price leads to a one-unit decrease in quantity demanded 
B)  a 1% increase in price leads to a one-unit decrease in quantity demanded 
C)  price elasticity of demand is positive 
D)  price elasticity of demand is exactly zero 
E)  price elasticity of demand is exactly -1

Question 11

NARRBEGIN: Exhibit 5-7
Exhibit 5-7
  
-Between points b and c in Exhibit 5-7, price decreases by $1, quantity demanded increases by 10,

Accepted Answer

A)  total revenue decreases by $1, and demand is elastic 
B)  total revenue decreases by $1, and demand is inelastic 
C)  total revenue increases by $40, and demand is elastic 
D)  total revenue increases by $40, and demand is inelastic 
E)  and total revenue increases by $80 
A)  total revenue decreases by $1, and demand is elastic 
B)  total revenue decreases by $1, and demand is inelastic 
C)  total revenue increases by $40, and demand is elastic 
D)  total revenue increases by $40, and demand is inelastic 
E)  and total revenue increases by $80

Question 12

Demand is inelastic only if

Accepted Answer

A)  price elasticity has an absolute value of 1 
B)  price elasticity has an absolute value greater than 1 
C)  price elasticity has an absolute value less than 1 
D)  price elasticity is negative 
E)  consumers do not respond to a change in price 
A)  price elasticity has an absolute value of 1 
B)  price elasticity has an absolute value greater than 1 
C)  price elasticity has an absolute value less than 1 
D)  price elasticity is negative 
E)  consumers do not respond to a change in price

Question 13

The greater the availability of close substitutes for a product, the greater the price elasticity of demand for that product.

Accepted Answer

A) True 
 B)False

Question 14

NARRBEGIN: Exhibit 5-20
Exhibit 5-20
  
-What is the price elasticity of supply between $20 and $40 on supply curve S' in Exhibit 5-20?

Accepted Answer

A)  0 
B)  infinity 
C)  1 
D)  2 
E)  10 
A)  0 
B)  infinity 
C)  1 
D)  2 
E)  10

Question 15

NARRBEGIN: Exhibit 5-1
Exhibit 5-1
  
-Use the information in Exhibit 5-1 to calculate the price elasticity of demand for Good A.

Accepted Answer

A)  -5/2 
B)  -11/3 
C)  -3/10 
D)  -10/3 
E)  -19/11 
A)  -5/2 
B)  -11/3 
C)  -3/10 
D)  -10/3 
E)  -19/11

Question 16

The demand for a particular brand of automobile is likely to be more inelastic than the demand for automobiles in general.

Accepted Answer

A) True 
 B)False

Question 17

Suppose the income elasticity of demand for a private college education is equal to 1.5. This means that

Accepted Answer

A)  every $1 increase in income provides an incentive for a $1.50 increase in expenditures on private college education 
B)  every $1.50 increase in income provides an incentive for a $1 increase in expenditures on private college education 
C)  a 10 percent increase in income causes a 15 percent increase in the demand for a private college education 
D)  a 15 percent increase in income causes a 10 percent increase in the demand for a private college education 
E)  a 10 percent decrease in private college tuition will have a large enough income effect to increase spending on private college education by 15 percent 
A)  every $1 increase in income provides an incentive for a $1.50 increase in expenditures on private college education 
B)  every $1.50 increase in income provides an incentive for a $1 increase in expenditures on private college education 
C)  a 10 percent increase in income causes a 15 percent increase in the demand for a private college education 
D)  a 15 percent increase in income causes a 10 percent increase in the demand for a private college education 
E)  a 10 percent decrease in private college tuition will have a large enough income effect to increase spending on private college education by 15 percent

Question 18

The more narrowly a product is defined, the less elastic the demand for that product will be.

Accepted Answer

A) True 
 B)False

Question 19

The demand for a good is elastic if

Accepted Answer

A)  an increase in price leads to a decrease in total revenue 
B)  an increase in price leads to an increase in total revenue 
C)  an increase in price causes no change in total revenue 
D)  total revenue is maximum 
E)  total revenue is minimum 
A)  an increase in price leads to a decrease in total revenue 
B)  an increase in price leads to an increase in total revenue 
C)  an increase in price causes no change in total revenue 
D)  total revenue is maximum 
E)  total revenue is minimum

Question 20

NARRBEGIN: Exhibit 5-17
Exhibit 5-17
  
-Use the information in Exhibit 5-17 to calculate the price elasticity of supply for restaurant meals.

Accepted Answer

A)  7 
B)  2 
C)  1/2 
D)  3/5 
E)  5/3 
A)  7 
B)  2 
C)  1/2 
D)  3/5 
E)  5/3

Exam 5: Elasticity of Demand and Supply

Total revenue is maximized where demand is inelastic.

Elasticity measures

NARRBEGIN: Exhibit 5-26 Exhibit 5-25 -Refer to exhibit 5-25. Between points B and C price elasticity of demand is:

NARRBEGIN: Exhibit 5-7 Exhibit 5-7 -Which of the following is true between points g and h in Exhibit 5-7?

The supply curve will be more elastic if

If a tripling of price triples the quantity of a good supplied, the price elasticity of supply is

If the price of Pepsi-Cola increases from 50 cents to 60 cents per can and the quantity demanded decreases from 100 cans to 50 cans, then the demand for Pepsi-Cola is

If income rises and the demand for a product remains unchanged, the income elasticity of demand for that product is unit elastic.

An inferior good is one for which demand increases as

Unit elastic demand occurs when

NARRBEGIN: Exhibit 5-7 Exhibit 5-7 -Between points b and c in Exhibit 5-7, price decreases by $1, quantity demanded increases by 10,

Demand is inelastic only if

The greater the availability of close substitutes for a product, the greater the price elasticity of demand for that product.

NARRBEGIN: Exhibit 5-20 Exhibit 5-20 -What is the price elasticity of supply between $20 and $40 on supply curve S' in Exhibit 5-20?

NARRBEGIN: Exhibit 5-1 Exhibit 5-1 -Use the information in Exhibit 5-1 to calculate the price elasticity of demand for Good A.

The demand for a particular brand of automobile is likely to be more inelastic than the demand for automobiles in general.

Suppose the income elasticity of demand for a private college education is equal to 1.5. This means that

The more narrowly a product is defined, the less elastic the demand for that product will be.

The demand for a good is elastic if

NARRBEGIN: Exhibit 5-17 Exhibit 5-17 -Use the information in Exhibit 5-17 to calculate the price elasticity of supply for restaurant meals.

The Art and Science of Economic Analysis

Appendix: Understanding Graphs

Economic Tools and Economics Systems

Economic Decision Makers

Demand, Supply, and Markets

Consumer Choice and Demand

Production and Cost in the Firm

A: Perfect Competition

B: Perfect Competition

A: Monopoly

B: Monopoly

Monopolistic Competition and Oligopoly

Resource Markets

Labor Markets and Labor Unions

Capital, Interest, and Corporate Finance

Transaction Costs, Imperfect Information, and Behavioral Economics

Economic Regulation and Antitrust Policy

Public Goods and Public Choice

Externalities and the Environment

Income Distribution and Poverty

International Trade

International Finance

Economic Development

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