Question 1

Governments impose excise taxes on goods that have inelastic demand,such as cigarettes,more often than in other cases.Why?

Accepted Answer

Imposing an excise tax reduces the supply of the good,reducing equilibrium quantity and raising the price.If demand is elastic,taxes will tend to reduce quantity by a significant amount,and thus government tax revenues will be relatively small.However,if demand is inelastic,the reduction in quantity will be small,and government tax revenues will be higher.(Governments may also impose taxes to deter consumption,but this is likely to be ineffective if elasticity is low.)

Question 2

The derived demand curve for a good component will be more inelastic

Accepted Answer

A) the larger is the fraction of total cost going to this component. 
B) the more inelastic is the demand curve for the final good. 
C) the more elastic are the supply curves of cooperating factors. 
D) the less essential is the component in question. 
A) the larger is the fraction of total cost going to this component. 
B) the more inelastic is the demand curve for the final good. 
C) the more elastic are the supply curves of cooperating factors. 
D) the less essential is the component in question. B

Question 3

Which of the following instances will total revenue or receipts decline?

Accepted Answer

A) Price rises and demand is inelastic. 
B) Price falls and demand is elastic. 
C) Price rises and demand is elastic. 
D) Price falls and demand is unit elastic. 
A) Price rises and demand is inelastic. 
B) Price falls and demand is elastic. 
C) Price rises and demand is elastic. 
D) Price falls and demand is unit elastic. C

Question 4

Suppose that the price elasticity of demand for wheat is known to be -0.75.Will a good wheat crop (which increases the supply of wheat)be likely to increase or decrease the revenues of farmers? Carefully explain.

Accepted Answer

A good wheat crop that increases the sup

Question 5

If OPEC increases its price of oil,and still the demand for oil decreases by a very small amount,we can conclude that the demand for oil is

Accepted Answer

A) relatively elastic. 
B) relatively inelastic. 
C) perfectly elastic. 
D) perfectly inelastic. 
A) relatively elastic. 
B) relatively inelastic. 
C) perfectly elastic. 
D) perfectly inelastic.

Question 6

If the price of a good is decreased and total revenue received from the sale of this good does not change,then the price elasticity of demand for the good is

Accepted Answer

A) elastic. 
B) inelastic. 
C) unitary. 
D) None of the above 
A) elastic. 
B) inelastic. 
C) unitary. 
D) None of the above

Question 7

When a government imposes a price floor on a good that is above the market equilibrium price

Accepted Answer

A) a surplus will develop. 
B) a shortage will develop. 
C) producers will increase their sales price. 
D) consumers will increase their demand for the good. 
A) a surplus will develop. 
B) a shortage will develop. 
C) producers will increase their sales price. 
D) consumers will increase their demand for the good.

Question 8

The owner of a produce store found that when the price of a head of lettuce was raised from 50 cents to $1,the quantity sold per hour fell from 18 to 8.The arc elasticity of demand for lettuce is

Accepted Answer

A) -0.56. 
B) -1.15. 
C) -0.8. 
D) -1.57. 
A) -0.56. 
B) -1.15. 
C) -0.8. 
D) -1.57.

Question 9

The initial price of a cup of coffee is $1,and at that price,400 cups are demanded.If the price falls to $0.90,the quantity demanded will increase to 500.
a.Calculate the (arc)price elasticity of demand for coffee.
b.Based on your answer,is the demand for coffee elastic or inelastic?
c.Based on your answer to a.,if the price of coffee is increased by 10%,what will happen to the revenues from coffee? Carefully explain how you know.

Accepted Answer

a.Arc elasticity = -2.11 b.Elastic c.Rev

Question 10

The cross-price elasticity of demand for coffee and caskets is likely to be

Accepted Answer

A) less than zero. 
B) greater than zero. 
C) zero. 
D) infinity. 
A) less than zero. 
B) greater than zero. 
C) zero. 
D) infinity.

Question 11

The demand for salt is relatively price inelastic,while the demand for pretzels is relatively price elastic.How can you best explain why?

Accepted Answer

Salt has few substitutes,and takes up a

Question 12

The sensitivity of the change in quantity consumed of one good to a change in the price of a related good is called

Accepted Answer

A) cross-elasticity. 
B) substitute elasticity. 
C) complementary elasticity. 
D) price elasticity of demand. 
A) cross-elasticity. 
B) substitute elasticity. 
C) complementary elasticity. 
D) price elasticity of demand.

Question 13

If the demand for a good is price inelastic and the good price is increased,then the marginal revenue (MR)received by the seller will

Accepted Answer

A) not change. 
B) decrease. 
C) increase. 
D) Cannot be determined from this information 
A) not change. 
B) decrease. 
C) increase. 
D) Cannot be determined from this information

Question 14

If government imposes an excise tax on a good and the tax burden is borne equally by buyers and sellers,then

Accepted Answer

A) price elasticity of demand is unitary. 
B) price elasticity of supply is unitary. 
C) the absolute values of price elasticities of demand and supply are equal. 
D) None of the above 
A) price elasticity of demand is unitary. 
B) price elasticity of supply is unitary. 
C) the absolute values of price elasticities of demand and supply are equal. 
D) None of the above

Question 15

$\text {Table 1}$
$\text {The following information is provided for Tony Romo's income and expenditures.}$

$$\begin{array}{l}
\underline{\text { Quantity Purchased per Month }}\
\begin{array}{ccc}
\underline{\text { Monthly Income }} & \underline{\text { Steaks }}&\underline{ \text { Pizzas } }\
\$ 2,000 & 2 & 8 \
\$ 3,000 & 4 & 6
\end{array}
\end{array}$$
-In Table 1,Tony's income elasticity of demand for pizzas is

Accepted Answer

A) 0) 
B) less than zero. 
C) greater than 1.0. 
D) 1)0. 
A) 0) 
B) less than zero. 
C) greater than 1.0. 
D) 1)0.

Question 16

A perfectly elastic demand curve

Accepted Answer

A) can be represented by a line parallel to the vertical axis. 
B) is a 45-degree line. 
C) can be represented by a line parallel to the horizontal axis. 
D) cannot be represented on a two-dimensional graph. 
A) can be represented by a line parallel to the vertical axis. 
B) is a 45-degree line. 
C) can be represented by a line parallel to the horizontal axis. 
D) cannot be represented on a two-dimensional graph.

Question 17

Suppose the price of crude oil drops from $150 a barrel to $120 a barrel.The quantity bought remains unchanged at 100 barrels.The coefficient of price elasticity of demand in this example would be

Accepted Answer

A) -0.5. 
B) infinity. 
C) -1.0. 
D) 0) 
A) -0.5. 
B) infinity. 
C) -1.0. 
D) 0)

Question 18

When total revenue reaches its peak (elasticity equals 1),marginal revenue reaches

Accepted Answer

A) 1) 
B) zero. 
C) -1. 
D) Cannot be determined from the information provided 
A) 1) 
B) zero. 
C) -1. 
D) Cannot be determined from the information provided

Question 19

You are told that the price elasticity of demand for widgets is -0.75,the income elasticity of widgets is 2,and the cross-price elasticity of widgets and gadgets is 4.Carefully explain what information you can gather from each of these figures.

Accepted Answer

Demand for this good is inelastic with r

Question 20

Demand and supply in the wheat market are given by:
QD = 2000 - 1000 P and QS = -500 + 1000 P
where Q is millions of bushels and P is price per bushel.
a.Find the equilibrium price and quantity.
b.Suppose that the government wishes to support farm income and thus sets a price floor of $1.50/bushel.Find the size of the farm surplus.
c.What is the cost of this program to the government?

Accepted Answer

a.P = $1.25,Q = 750 b.If P = $

Governments impose excise taxes on goods that have inelastic demand,such as cigarettes,more often than in other cases.Why?

The derived demand curve for a good component will be more inelastic

Which of the following instances will total revenue or receipts decline?

Suppose that the price elasticity of demand for wheat is known to be -0.75.Will a good wheat crop (which increases the supply of wheat)be likely to increase or decrease the revenues of farmers? Carefully explain.

If OPEC increases its price of oil,and still the demand for oil decreases by a very small amount,we can conclude that the demand for oil is

If the price of a good is decreased and total revenue received from the sale of this good does not change,then the price elasticity of demand for the good is

When a government imposes a price floor on a good that is above the market equilibrium price

The owner of a produce store found that when the price of a head of lettuce was raised from 50 cents to $1,the quantity sold per hour fell from 18 to 8.The arc elasticity of demand for lettuce is

The cross-price elasticity of demand for coffee and caskets is likely to be

The demand for salt is relatively price inelastic,while the demand for pretzels is relatively price elastic.How can you best explain why?

The sensitivity of the change in quantity consumed of one good to a change in the price of a related good is called

If the demand for a good is price inelastic and the good price is increased,then the marginal revenue (MR)received by the seller will

If government imposes an excise tax on a good and the tax burden is borne equally by buyers and sellers,then

$\text {Table 1}$ $\text {The following information is provided for Tony Romo's income and expenditures.}$ \ 2,000 2 8 \ 3,000 4 6 -In Table 1,Tony's income elasticity of demand for pizzas is

A perfectly elastic demand curve

Suppose the price of crude oil drops from $150 a barrel to $120 a barrel.The quantity bought remains unchanged at 100 barrels.The coefficient of price elasticity of demand in this example would be

When total revenue reaches its peak (elasticity equals 1),marginal revenue reaches

You are told that the price elasticity of demand for widgets is -0.75,the income elasticity of widgets is 2,and the cross-price elasticity of widgets and gadgets is 4.Carefully explain what information you can gather from each of these figures.

Introduction

The Firm and Its Goals

Supply and Demand

Demand Estimation and Forecasting Appendices 5A and 5B

The Theory and Estimation of Production Appendices 6A,6B,and 6C

The Theory and Estimation of Cost Appendices 7A,7B,and 7C

Pricing and Output Decisions: Perfect Competition and Monopoly Appendices 8A and 8B

Pricing and Output Decisions: Monopolistic Competition and Oligopoly

Special Pricing Practices

Game Theory and Asymmetric Information

Capital Budgeting and Risk

The Multinational Corporation in a Global Setting

Government and Industry: Challenges and Opportunities for Todays Manager

The Global Soft Drink Industry

Filters

Exam 4: Demand Elasticity

Governments impose excise taxes on goods that have inelastic demand,such as cigarettes,more often than in other cases.Why?

The derived demand curve for a good component will be more inelastic

Which of the following instances will total revenue or receipts decline?

Suppose that the price elasticity of demand for wheat is known to be -0.75.Will a good wheat crop (which increases the supply of wheat)be likely to increase or decrease the revenues of farmers? Carefully explain.

If OPEC increases its price of oil,and still the demand for oil decreases by a very small amount,we can conclude that the demand for oil is

If the price of a good is decreased and total revenue received from the sale of this good does not change,then the price elasticity of demand for the good is

When a government imposes a price floor on a good that is above the market equilibrium price

The owner of a produce store found that when the price of a head of lettuce was raised from 50 cents to $1,the quantity sold per hour fell from 18 to 8.The arc elasticity of demand for lettuce is

The cross-price elasticity of demand for coffee and caskets is likely to be

The demand for salt is relatively price inelastic,while the demand for pretzels is relatively price elastic.How can you best explain why?

The sensitivity of the change in quantity consumed of one good to a change in the price of a related good is called

If the demand for a good is price inelastic and the good price is increased,then the marginal revenue (MR)received by the seller will

If government imposes an excise tax on a good and the tax burden is borne equally by buyers and sellers,then

A perfectly elastic demand curve

Suppose the price of crude oil drops from $150 a barrel to $120 a barrel.The quantity bought remains unchanged at 100 barrels.The coefficient of price elasticity of demand in this example would be

When total revenue reaches its peak (elasticity equals 1),marginal revenue reaches

You are told that the price elasticity of demand for widgets is -0.75,the income elasticity of widgets is 2,and the cross-price elasticity of widgets and gadgets is 4.Carefully explain what information you can gather from each of these figures.

Introduction

The Firm and Its Goals

Supply and Demand

Demand Estimation and Forecasting Appendices 5A and 5B

The Theory and Estimation of Production Appendices 6A,6B,and 6C

The Theory and Estimation of Cost Appendices 7A,7B,and 7C

Pricing and Output Decisions: Perfect Competition and Monopoly Appendices 8A and 8B

Pricing and Output Decisions: Monopolistic Competition and Oligopoly

Special Pricing Practices

Game Theory and Asymmetric Information

Capital Budgeting and Risk

The Multinational Corporation in a Global Setting

Government and Industry: Challenges and Opportunities for Todays Manager

The Global Soft Drink Industry

Filters