Question 1

Use the figure below to answer the following questions.  Figure 4.1.2
-Figure 4.1.2 illustrates a linear demand curve.If the price falls from $13 to $11,

Accepted Answer

A) total revenue increases. 
B) total revenue decreases. 
C) total revenue remains unchanged. 
D) total revenue initially increases then decreases. 
E) total revenue initially decreases then increases.

Question 2

With higher fuel costs,airlines raise their average fare from $0.50 to $1.50 per passenger kilometre and the number of passenger kilometres decreases from 2.5 million a day to 1.5 million a day.What is the price elasticity of demand for air travel when the price is $1 per passenger kilometre?

Accepted Answer

A) 2 
B) 0.75 
C) 1.33 
D) 50 
E) 0.5

Question 3

If the demand for good Z is perfectly inelastic,then the demand curve for good Z is

Accepted Answer

A) vertical. 
B) horizontal. 
C) upward sloping. 
D) downward sloping. 
E) initially upward sloping and then downward sloping.

Question 4

The cross elasticity of demand between Coca-Cola and Pepsi-Cola is ________.Coke and Pepsi are ________.

Accepted Answer

A) positive;normal goods 
B) positive;complements 
C) negative;substitutes 
D) positive;substitutes 
E) negative;complements

Question 5

Suppose the demand curve for good X is horizontal.The demand for good X is

Accepted Answer

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

Question 6

The price of gasoline rises by 25 percent and remains fixed at the new higher level.Choose the correct statement.

Accepted Answer

A) The demand for gasoline will increase after consumers adjust their consumption behaviour to the new higher price. 
B) The demand for gasoline will decrease after consumers adjust their consumption behaviour to the new higher price. 
C) Initially after the price change,the demand for gasoline will be less elastic than it will be a few years after the price change. 
D) The price elasticity of demand for gasoline will decrease in the future. 
E) Initially after the price change,the demand for gasoline will be more elastic than it will be a few years after the price change.

Question 7

When the price elasticity of demand is ________,demand for the good is elastic.

Accepted Answer

A) positive 
B) greater than 1 
C) equal to 1 
D) between 1 and zero 
E) equal to zero

Question 8

Suppose Swiss Chalet in Moncton knows that the demand for their half-chicken meals is elastic.If the manager wants to increase total revenue from half-chicken meal sales,he should

Accepted Answer

A) lower the price of a half-chicken meal. 
B) not change the price of a half-chicken meal. 
C) raise the price of a half-chicken meal. 
D) decrease the supply of half-chicken meals. 
E) hire fewer employees.

Question 9

Use the table below to answer the following question.
Table 4.2.1 
-Consider the information in Table 4.2.1.The income elasticity of demand is

Accepted Answer

A) -2.5. 
B) 2.5. 
C) -3.33. 
D) 3.33. 
E) -1.33.

Question 10

Suppose the government of Nova Scotia wants to reduce the consumption of electricity by 5 percent.The price elasticity of demand for electricity is 0.40.You advise the Nova Scotia government to

Accepted Answer

A) raise the price of electricity by 12.5 percent. 
B) raise the price of electricity by 2 percent. 
C) lower the price of electricity by 12.5 percent. 
D) raise the price of electricity by 8 percent. 
E) lower the price of electricity by 2 percent.

Question 11

If the income elasticity of demand for chocolate chip cookies is 1.5,then chocolate chip cookies are

Accepted Answer

A) a normal good and income elastic. 
B) a normal good and income inelastic. 
C) price elastic. 
D) an inferior good and income elastic. 
E) an inferior good and income inelastic.

Question 12

Suppose the quantity of root beer demanded decreases from 105,000 litres per week to 95,000 litres per week when the price rises by 5 percent.The price elasticity of demand is

Accepted Answer

A) 2.0. 
B) 0.5. 
C) 10. 
D) 0.02. 
E) 50.

Question 13

If the price elasticity of demand is zero,then demand is

Accepted Answer

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

Question 14

If the demand curve for a good is a horizontal line,then the good has

Accepted Answer

A) zero income elasticity. 
B) price elasticity of demand equal to zero. 
C) a perfectly elastic demand. 
D) a price elasticity of demand that is likely to rise in the short run. 
E) a price elasticity of demand that is likely to fall in the short run.

Question 15

A cut in the price increases total revenue.Demand is

Accepted Answer

A) inelastic. 
B) unit elastic. 
C) perfectly inelastic. 
D) equal to supply. 
E) elastic.

Question 16

Fred's income increases from $800 per week to $1,200 per week.As a result,he decides to purchase 40 percent more bubble gum each week.The income elasticity of Fred's demand for bubble gum is

Accepted Answer

A) 0.40. 
B) 40. 
C) 1.0. 
D) 0.12. 
E) 10.

Question 17

A fall in the price of X from $6 to $4 increases the quantity of Y demanded from 900 to 1,100 units.What is the cross elasticity of demand for Y with respect to the price of X?

Accepted Answer

A) 0.5 
B) -0.5 
C) 2 
D) -2 
E) Either 0.5 or -0.5,depending on whether X and Y are substitutes or complements.

Question 18

When a supply curve

Accepted Answer

A) intersects the origin,the good has an elasticity of supply equal to 1. 
B) is vertical,the good has an elasticity of supply equal to infinity. 
C) is horizontal,the good has an elasticity of supply equal to zero. 
D) intersects the origin,the good has an elasticity of supply equal to zero. 
E) intersects the origin,the good has an elasticity of supply that is negative.

Question 19

In 2003,when music downloading first took off,Universal Music slashed the average price of a CD from $21 to $15.The company expected the price cut to boost the quantity of CDs sold by 30 percent,other things remaining the same.What was Universal Music's estimate of the price elasticity of demand for CDs?

Accepted Answer

A) 0.9 
B) 90 
C) 1.11 
D) 0.011 
E) 0.2

Question 20

The price elasticity of demand is a units-free measure of the responsiveness of the ________ when all other influences on buying plans remain the same.

Accepted Answer

A) quantity demanded of a good to a change in the price of a substitute or complement 
B) quantity demanded of a good to a change in income 
C) quantity demanded of a good to a change in its price 
D) price to a change in the quantity demanded of a good 
E) quantity demanded of a good to a change in supply

Exam 4: Elasticity

Use the figure below to answer the following questions. Figure 4.1.2 -Figure 4.1.2 illustrates a linear demand curve.If the price falls from $13 to $11,