Question 1

Demand is unit elastic whenever

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 always respond to a one-dollar change in price by decreasing their quantity demanded by one unit 
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 always respond to a one-dollar change in price by decreasing their quantity demanded by one unit

Question 2

For which of the following is demand likely to be the most price inelastic?

Accepted Answer

A)  furniture 
B)  automobiles 
C)  hotel rooms 
D)  airline travel 
E)  candy bars 
A)  furniture 
B)  automobiles 
C)  hotel rooms 
D)  airline travel 
E)  candy bars

Question 3

Luxury goods are

Accepted Answer

A)  price inelastic 
B)  income inelastic 
C)  income elastic 
D)  goods with negative income elasticity 
E)  goods with positive price elasticity 
A)  price inelastic 
B)  income inelastic 
C)  income elastic 
D)  goods with negative income elasticity 
E)  goods with positive price elasticity

Question 4

Today's supply curve of dorm rooms on campus is likely to be

Accepted Answer

A)  downward sloping 
B)  relatively flat 
C)  vertical 
D)  horizontal 
E)  price elastic 
A)  downward sloping 
B)  relatively flat 
C)  vertical 
D)  horizontal 
E)  price elastic

Question 5

The cross-price elasticity of demand between rifles and bullets is likely to be

Accepted Answer

A)  negative because the goods are complements 
B)  positive because the goods are complements 
C)  negative because the goods are substitutes 
D)  positive because the goods are substitutes 
E)  0 because the goods are not substitutes 
A)  negative because the goods are complements 
B)  positive because the goods are complements 
C)  negative because the goods are substitutes 
D)  positive because the goods are substitutes 
E)  0 because the goods are not substitutes

Question 6

If a good is inferior, then the income elasticity of demand for that good is

Accepted Answer

A)  positive and greater than 1 
B)  negative 
C)  positive and less than 1 
D)  0 
E)  perfectly elastic 
A)  positive and greater than 1 
B)  negative 
C)  positive and less than 1 
D)  0 
E)  perfectly elastic

Question 7

The ability of increasing quantity supplied in response to a higher price is identical across industries.

Accepted Answer

A) True 
 B)False

Question 8

A government-imposed price floor above the market price of milk would increase consumers' expenditures on milk only if

Accepted Answer

A)  demand is elastic 
B)  supply is inelastic 
C)  demand falls 
D)  demand is inelastic 
E)  supply is unit elastic 
A)  demand is elastic 
B)  supply is inelastic 
C)  demand falls 
D)  demand is inelastic 
E)  supply is unit elastic

Question 9

As price decreases along a linear demand curve, price elasticity of demand decreases.

Accepted Answer

A) True 
 B)False

Question 10

Along a linear demand curve,

Accepted Answer

A)  both the slope and price elasticity are constant 
B)  the price elasticity is constant, but the slope varies 
C)  total revenues are constant 
D)  the slope is constant, but the price elasticity varies 
E)  total revenues are negative 
A)  both the slope and price elasticity are constant 
B)  the price elasticity is constant, but the slope varies 
C)  total revenues are constant 
D)  the slope is constant, but the price elasticity varies 
E)  total revenues are negative

Question 11

Necessities and luxuries are both types of normal goods.

Accepted Answer

A) True 
 B)False

Question 12

NARRBEGIN: Exhibit 5-26
Exhibit 5-25
  
-Refer to exhibit 5-25. As you move from B to C on the demand curve, total revenue __________ and therefore the price elasticity must be ____________ between B and C.

Accepted Answer

A)  stays the same; unitary 
B)  decreases; inelastic 
C)  increases; elastic 
D)  decreases; elastic 
E)  increases, inelastic 
A)  stays the same; unitary 
B)  decreases; inelastic 
C)  increases; elastic 
D)  decreases; elastic 
E)  increases, inelastic

Question 13

If the price elasticity of supply in the kiwi fruit industry equals 1, supply is

Accepted Answer

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

Question 14

If the demand for a good is elastic, then total revenue

Accepted Answer

A)  increases as price increases 
B)  remains constant as quantity demanded increases 
C)  increases as price decreases 
D)  decreases as quantity demanded increases 
E)  decreases as price decreases 
A)  increases as price increases 
B)  remains constant as quantity demanded increases 
C)  increases as price decreases 
D)  decreases as quantity demanded increases 
E)  decreases as price decreases

Question 15

The larger the proportion of the consumer's budget that is spent on a product, the more elastic that consumer's demand for the product will be.

Accepted Answer

A) True 
 B)False

Question 16

Suppose that you allow yourself $50 per month to spend on compact disks. You spend exactly this much every month regardless of the price of compact disks. Therefore, your demand for CDs

Accepted Answer

A)  is elastic 
B)  is inelastic 
C)  is unit elastic 
D)  cannot be characterized unless we know the price of a disk 
E)  cannot be characterized unless we know the price and quantity of compact disks purchased 
A)  is elastic 
B)  is inelastic 
C)  is unit elastic 
D)  cannot be characterized unless we know the price of a disk 
E)  cannot be characterized unless we know the price and quantity of compact disks purchased

Question 17

NARRBEGIN: Exhibit 5-13
Exhibit 5-13
  
-Which of the following is true of the demand curve in Exhibit 5-13?

Accepted Answer

A)  Its slope is 0, and the value of elasticity is negative infinity. 
B)  Its slope is infinite, and the value of elasticity is 0. 
C)  Both its slope and the value of elasticity are 0. 
D)  Both its slope and the value of elasticity are negative infinity. 
E)  Its slope is 0, and demand is unit elastic. 
A)  Its slope is 0, and the value of elasticity is negative infinity. 
B)  Its slope is infinite, and the value of elasticity is 0. 
C)  Both its slope and the value of elasticity are 0. 
D)  Both its slope and the value of elasticity are negative infinity. 
E)  Its slope is 0, and demand is unit elastic.

Question 18

Elasticity is always

Accepted Answer

A)  measured in dollars 
B)  measured in dollars per unit of quantity 
C)  measured in units of quantity 
D)  measured in units of quantity per dollar 
E)  independent of the units of measurement 
A)  measured in dollars 
B)  measured in dollars per unit of quantity 
C)  measured in units of quantity 
D)  measured in units of quantity per dollar 
E)  independent of the units of measurement

Question 19

NARRBEGIN: Exhibit 5-26
Exhibit 5-25
  
-Refer to exhibit 5-25. Between points C and D 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 20

If a firm facing a perfectly elastic demand curve raises its price,

Accepted Answer

A)  it will still sell exactly the same amount of output as it did at the lower price 
B)  it will lose some, but not all, of its sales 
C)  its sales will decrease to zero 
D)  its sales will increase 
E)  it is impossible to predict what will happen to its sales 
A)  it will still sell exactly the same amount of output as it did at the lower price 
B)  it will lose some, but not all, of its sales 
C)  its sales will decrease to zero 
D)  its sales will increase 
E)  it is impossible to predict what will happen to its sales

Exam 5: Elasticity of Demand and Supply

Demand is unit elastic whenever

For which of the following is demand likely to be the most price inelastic?

Luxury goods are

Today's supply curve of dorm rooms on campus is likely to be

The cross-price elasticity of demand between rifles and bullets is likely to be

If a good is inferior, then the income elasticity of demand for that good is

The ability of increasing quantity supplied in response to a higher price is identical across industries.

A government-imposed price floor above the market price of milk would increase consumers' expenditures on milk only if

As price decreases along a linear demand curve, price elasticity of demand decreases.

Along a linear demand curve,

Necessities and luxuries are both types of normal goods.

NARRBEGIN: Exhibit 5-26 Exhibit 5-25 -Refer to exhibit 5-25. As you move from B to C on the demand curve, total revenue __________ and therefore the price elasticity must be ____________ between B and C.

If the price elasticity of supply in the kiwi fruit industry equals 1, supply is

If the demand for a good is elastic, then total revenue

The larger the proportion of the consumer's budget that is spent on a product, the more elastic that consumer's demand for the product will be.

Suppose that you allow yourself $50 per month to spend on compact disks. You spend exactly this much every month regardless of the price of compact disks. Therefore, your demand for CDs

NARRBEGIN: Exhibit 5-13 Exhibit 5-13 -Which of the following is true of the demand curve in Exhibit 5-13?

Elasticity is always

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

If a firm facing a perfectly elastic demand curve raises its price,

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

Filters

NARRBEGIN: Exhibit 5-26 Exhibit 5-25 -Refer to exhibit 5-25. As you move from B to C on the demand curve, total revenue and therefore the price elasticity must be __ between B and C.