Question 1

If the demand for donuts is elastic, then a decrease in the price of donuts will

Accepted Answer

A)  increase total revenue of donut sellers. 
B)  decrease total revenue of donut sellers. 
C)  not change total revenue of donut sellers. 
D)  There is not enough information to answer this question. 
A)  increase total revenue of donut sellers. 
B)  decrease total revenue of donut sellers. 
C)  not change total revenue of donut sellers. 
D)  There is not enough information to answer this question.

Question 2

For a particular good, a 5 percent increase in price causes a 2 percent decrease in quantity demanded. Which of the following statements is most likely applicable to this good?

Accepted Answer

A)  There are many close substitutes for this good. 
B)  The good is a luxury. 
C)  The market for the good is broadly defined. 
D)  The relevant time horizon is long. 
A)  There are many close substitutes for this good. 
B)  The good is a luxury. 
C)  The market for the good is broadly defined. 
D)  The relevant time horizon is long.

Question 3

Suppose demand is given by the equation:   Using the midpoint method, what is the price elasticity of demand between $1 and $2?

Accepted Answer

The price

Question 4

Cross-price elasticity is used to determine whether goods are substitutes or complements.

Accepted Answer

A) True 
 B)False

Question 5

In which of the following situations would supply be the most elastic?

Accepted Answer

A)  An auto parts manufacturer is operating at capacity. 
B)  A real estate developer in Boston is looking to build condos on the waterfront. 
C)  A furniture manufacturer is operating its factory 8 hours per day. 
D)  A hotel has all of its rooms booked for each night of the next 3 months. 
A)  An auto parts manufacturer is operating at capacity. 
B)  A real estate developer in Boston is looking to build condos on the waterfront. 
C)  A furniture manufacturer is operating its factory 8 hours per day. 
D)  A hotel has all of its rooms booked for each night of the next 3 months.

Question 6

In general, demand curves for necessities tend to be price elastic.

Accepted Answer

A) True 
 B)False

Question 7

Suppose the income elasticity of demand is -0.5 for good X. This implies that a 5% decrease in income will cause the quantity demanded of good X to

Accepted Answer

A)  increase by 2.5%, and X is an inferior good. 
B)  decrease by 2.5% and X is a normal good. 
C)  increase by 10% and X is an inferior good. 
D)  decrease by 10% and X is a normal good. 
A)  increase by 2.5%, and X is an inferior good. 
B)  decrease by 2.5% and X is a normal good. 
C)  increase by 10% and X is an inferior good. 
D)  decrease by 10% and X is a normal good.

Question 8

Which of the following expressions is valid for the price elasticity of demand?
A) Price elasticity of demand = .
B) Price elasticity of demand = .
C) Price elasticity of demand = .
D) Price elasticity of demand = .

Accepted Answer

The answer of Which of the following expressions is valid...

Question 9

Scenario 5-1
Suppose that when the average college student's income is $10,000 per year, the annual quantity demanded of Patty's Pizza is 50 and the annual quantity demanded of Sue's Subs is 80. Suppose that when the price of Patty's Pizza increases from $8 to $10 per pie, the quantity demanded of Sue's Subs increases from 80 to 100. Suppose also that when the average student's income increases to $12,000 per year, the annual quantity demanded of Patty's Pizza increases from 50 to 60.
-Refer to Scenario 5-1. Using the midpoint method, what is the income elasticity of demand for pizza and what does the value indicate about the demand for pizza?

Accepted Answer

A)  The income elasticity is 0.18 so pizza is a normal good. 
B)  The income elasticity is -1 so pizza is an inferior good. 
C)  The income elasticity is 1 so pizza is unitary elastic. 
D)  The income elasticity is 1 so pizza is a normal good. 
A)  The income elasticity is 0.18 so pizza is a normal good. 
B)  The income elasticity is -1 so pizza is an inferior good. 
C)  The income elasticity is 1 so pizza is unitary elastic. 
D)  The income elasticity is 1 so pizza is a normal good.

Question 10

Last year, Max bought 6 pairs of athletic shoes when his income was $35,000. This year, his income is $42,000, and he purchased 8 pairs of athletic shoes. Holding other factors constant, it follows that Max

Accepted Answer

A)  considers athletic shoes to be necessities. 
B)  considers athletic shoes to be inferior goods. 
C)  considers athletic shoes to be normal goods. 
D)  has a low price elasticity of demand for athletic shoes. 
A)  considers athletic shoes to be necessities. 
B)  considers athletic shoes to be inferior goods. 
C)  considers athletic shoes to be normal goods. 
D)  has a low price elasticity of demand for athletic shoes.

Question 11

Scenario 5-4
The supply of aged cheddar cheese is inelastic, and the supply of bread is elastic. Both goods are considered to be normal goods by a majority of consumers. Suppose that a large income tax increase decreases the demand for both goods by 10%.
-Refer to Scenario 5-4. The equilibrium price will

Accepted Answer

A)  increase in both the aged cheddar cheese and bread markets. 
B)  increase in the aged cheddar cheese market and decrease in the bread market. 
C)  decrease in the aged cheddar cheese market and increase in the bread market. 
D)  decrease in both the aged cheddar cheese and bread markets. 
A)  increase in both the aged cheddar cheese and bread markets. 
B)  increase in the aged cheddar cheese market and decrease in the bread market. 
C)  decrease in the aged cheddar cheese market and increase in the bread market. 
D)  decrease in both the aged cheddar cheese and bread markets.

Question 12

Suppose that when the price rises by 20% for a particular good, the quantity demanded of that good falls by 10%.
The price elasticity of demand for this good is equal to 2.0.

Accepted Answer

A) True 
 B)False

Question 13

A perfectly elastic demand implies that

Accepted Answer

A)  buyers will not respond to any change in price. 
B)  any rise in price above that represented by the demand curve will result in a quantity demanded of zero. 
C)  quantity demanded and price change by the same percent as we move along the demand curve. 
D)  price will rise by an infinite amount when there is a change in quantity demanded. 
A)  buyers will not respond to any change in price. 
B)  any rise in price above that represented by the demand curve will result in a quantity demanded of zero. 
C)  quantity demanded and price change by the same percent as we move along the demand curve. 
D)  price will rise by an infinite amount when there is a change in quantity demanded.

Question 14

Consider luxury weekend hotel packages in Las Vegas. When the price is $250, the quantity demanded is 2,000 packages per week. When the price is $280, the quantity demanded is 1,700 packages per week. Using the midpoint method, the price elasticity of demand is about

Accepted Answer

A)  1.43, and an increase in the price will cause hotels' total revenue to decrease. 
B)  1.43, and an increase in the price will cause hotels' total revenue to increase. 
C)  0.70, and an increase in the price will cause hotels' total revenue to decrease. 
D)  0.70, and an increase in the price will cause hotels' total revenue to increase. 
A)  1.43, and an increase in the price will cause hotels' total revenue to decrease. 
B)  1.43, and an increase in the price will cause hotels' total revenue to increase. 
C)  0.70, and an increase in the price will cause hotels' total revenue to decrease. 
D)  0.70, and an increase in the price will cause hotels' total revenue to increase.

Question 15

If the price elasticity of demand for a good is 0.5, then a 5 percent increase in price results in a

Accepted Answer

A)  0.1 percent decrease in the quantity demanded. 
B)  1 percent decrease in the quantity demanded. 
C)  2.5 percent decrease in the quantity demanded. 
D)  10 percent decrease in the quantity demanded. 
A)  0.1 percent decrease in the quantity demanded. 
B)  1 percent decrease in the quantity demanded. 
C)  2.5 percent decrease in the quantity demanded. 
D)  10 percent decrease in the quantity demanded.

Question 16

Demand is said to be inelastic if the

Accepted Answer

A)  quantity demanded changes proportionately more than price. 
B)  price changes proportionately more than income. 
C)  quantity demanded changes proportionately less than price. 
D)  quantity demanded changes proportionately the same as price. 
A)  quantity demanded changes proportionately more than price. 
B)  price changes proportionately more than income. 
C)  quantity demanded changes proportionately less than price. 
D)  quantity demanded changes proportionately the same as price.

Question 17

A city wants to raise revenues to build a new municipal swimming pool next year. The mayor suggests that the city raise the price of admission to the current municipal pools this year to raise revenues. The city manager suggests that the city lower the price of admission to raise revenues. Who is correct?

Accepted Answer

A)  the mayor 
B)  the city manager 
C)  The answer depends on the price elasticity of demand. 
D)  The answer depends on the costs of construction of the new municipal swimming pool. 
A)  the mayor 
B)  the city manager 
C)  The answer depends on the price elasticity of demand. 
D)  The answer depends on the costs of construction of the new municipal swimming pool.

Question 18

There are very few, if any, good substitutes for motor oil. Therefore, the

Accepted Answer

A)  demand for motor oil would tend to be inelastic. 
B)  demand for motor oil would tend to be elastic. 
C)  demand for motor oil would tend to respond strongly to changes in prices of other goods. 
D)  supply of motor oil would tend to respond strongly to changes in people's tastes for large cars relative to their tastes for small cars. 
A)  demand for motor oil would tend to be inelastic. 
B)  demand for motor oil would tend to be elastic. 
C)  demand for motor oil would tend to respond strongly to changes in prices of other goods. 
D)  supply of motor oil would tend to respond strongly to changes in people's tastes for large cars relative to their tastes for small cars.

Question 19

The price elasticity of demand for mobile phones

Accepted Answer

A)  will be higher if there is an improvement in the production technology. 
B)  will be lower if consumers perceive mobile phones to be a necessity. 
C)  is computed as the percentage change in the price of mobile phones divided by the percentage change in quantity of mobile phones. 
D)  All of the above are correct. 
A)  will be higher if there is an improvement in the production technology. 
B)  will be lower if consumers perceive mobile phones to be a necessity. 
C)  is computed as the percentage change in the price of mobile phones divided by the percentage change in quantity of mobile phones. 
D)  All of the above are correct.

Question 20

Table 5-2  
-Refer to Table 5-2. Using the midpoint method, if the price falls from $100 to $50, the absolute value of the price elasticity of demand is

Accepted Answer

A)  0.31. 
B)  0.46. 
C)  1.25. 
D)  2.17 
A)  0.31. 
B)  0.46. 
C)  1.25. 
D)  2.17

Exam 5: Elasticity and Its Application

If the demand for donuts is elastic, then a decrease in the price of donuts will

For a particular good, a 5 percent increase in price causes a 2 percent decrease in quantity demanded. Which of the following statements is most likely applicable to this good?

Suppose demand is given by the equation: Using the midpoint method, what is the price elasticity of demand between $1 and $2?

Cross-price elasticity is used to determine whether goods are substitutes or complements.

In which of the following situations would supply be the most elastic?

In general, demand curves for necessities tend to be price elastic.

Suppose the income elasticity of demand is -0.5 for good X. This implies that a 5% decrease in income will cause the quantity demanded of good X to

Which of the following expressions is valid for the price elasticity of demand? A) Price elasticity of demand = . B) Price elasticity of demand = . C) Price elasticity of demand = . D) Price elasticity of demand = .

Last year, Max bought 6 pairs of athletic shoes when his income was $35,000. This year, his income is $42,000, and he purchased 8 pairs of athletic shoes. Holding other factors constant, it follows that Max

Suppose that when the price rises by 20% for a particular good, the quantity demanded of that good falls by 10%. The price elasticity of demand for this good is equal to 2.0.

A perfectly elastic demand implies that

Consider luxury weekend hotel packages in Las Vegas. When the price is $250, the quantity demanded is 2,000 packages per week. When the price is $280, the quantity demanded is 1,700 packages per week. Using the midpoint method, the price elasticity of demand is about

If the price elasticity of demand for a good is 0.5, then a 5 percent increase in price results in a

Demand is said to be inelastic if the

There are very few, if any, good substitutes for motor oil. Therefore, the

The price elasticity of demand for mobile phones

Table 5-2 -Refer to Table 5-2. Using the midpoint method, if the price falls from $100 to $50, the absolute value of the price elasticity of demand is

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

Externalities

Public Goods and Common Resources

The Design of the Tax System

The Costs of Production

Firms in Competitive Markets

Monopoly

Monopolistic Competition

Oligopoly

The Markets for the Factors of Production

Earnings and Discrimination

Income Inequality and Poverty

The Theory of Consumer Choice

Frontiers of Microeconomics

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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