Question 1

The price elasticity of demand for oil is estimated at 0.05. This value means a 10 percent increase in the

Accepted Answer

A)   quantity of oil demanded will result from a 0.5 percent increase in the price of oil.
B)   quantity of oil demanded will result from a 0.5 percent decrease in the price of oil.
C)   price of oil will increase the quantity of oil demanded by 0.5 percent.
D)   price of oil will decrease the quantity of oil demanded by 0.5 percent. D

Question 2

Which of the following statements is FALSE?

Accepted Answer

A)   A good with a vertical demand curve has a perfectly inelastic demand.
B)   A good with a straight line, downward sloping demand curve has a demand whose elasticity is constant.
C)   A good with a horizontal demand curve has a perfectly elastic demand.
D)   All of the above statements are false. B

Question 3

When demand is ________, a decrease in price ________ total revenue.

Accepted Answer

A)   elastic; decreases
B)   inelastic; decreases
C)   unit elastic; increases
D)   elastic; does not change B

Question 4

The cross elasticity of demand between apples and oranges is defined as the

Accepted Answer

A)   percentage change in the quantity of apples demanded divided by the percentage change in the price of oranges.
B)   price elasticity of demand for apples divided by the price elasticity of demand for oranges.
C)   percentage change in the quantity of apples demanded divided by the percentage change in the quantity of oranges demanded.
D)   change in the quantity of apples demanded divided by the change in the quantity of oranges demanded.

Question 5

When Sam's annual income was only $15,000, he purchased 50 pounds of bananas a year. When his income rose to $18,000, he purchased 55 pounds a year. Therefore,

Accepted Answer

A)   for Sam, bananas are an inferior good.
B)   his income elasticity of demand for bananas is negative.
C)   his income elasticity and price elasticity of demand for bananas are both greater than one.
D)   for Sam, bananas are a normal good.

Question 6

If the price elasticity of demand for airline travel is 0.52 in the short run and 1.46 in the long run, then the demand for airline travel is ________ in the short run and ________ in the long run.

Accepted Answer

A)   elastic; elastic
B)   elastic; inelastic
C)   inelastic; elastic
D)   inelastic; inelastic

Question 7

-The figure illustrates the demand for hamburgers. When the price is $1.00 a hamburger, the elasticity of demand is ________ and a 1 percent increase in the price will ________ the quantity of hamburgers demanded by ________ percent.

Accepted Answer

A)   1.00; decrease; 0.40
B)   0.40; decrease; 0.40
C)   2.50; increase; 2.50
D)   5.00; decrease; 5.00

Question 8

For Product X, the income elasticity of demand is 1.16. Which of the following is therefore definitely true?

Accepted Answer

A)   Product X is a necessity.
B)   Product X is income elastic.
C)   Product X is a substitute for some other good.
D)   Product X is something that mostly poor people will buy.

Question 9

The price elasticity of supply of laptop computers equals 1.5 if

Accepted Answer

A)   a rightward shift of the demand curve for laptops causes the quantity supplied to increase by 1.5 percent.
B)   a rightward shift of the demand curve for laptops causes a 1.5 percent increase in their price.
C)   for every 1 percent that laptop prices increase, computer makers produce another 1.5 percent laptops.
D)   for every $1.00 that laptops increase in price, computer makers produce another 150 laptops.

Question 10

When the price of a hot dog rises 10 percent, your expenditure on hot dogs increases. Hence, it is certain that

Accepted Answer

A)   hot dogs are a normal good for you.
B)   hot dogs are an inferior good for you.
C)   your demand for hot dogs is elastic.
D)   your demand for hot dogs is inelastic.

Question 11

When the price of Ford pickup trucks rises from $18,000 to $19,000, the quantity of Chevy trucks demanded increases from 112,000 to 144,000. What is the cross elasticity of demand between Ford and Chevy trucks?

Accepted Answer

The answer of When the price of Ford pickup trucks...

Question 12

Suppose the price of flour increases from $0.80 to $1.00 a pound and the quantity demanded decreases from 100 pounds to 95 pounds. Using the midpoint method, what is the price elasticity of demand for flour? Is the demand for flour elastic or inelastic?

Accepted Answer

The answer of Suppose the price of flour increases from...

Question 13

What are the three cases for the price elasticity of demand? Briefly define each.

Accepted Answer

The answer of What are the three cases for the...

Question 14

The worst drought in over 50 years has decimated crops of soy beans and corn in the United States. (Source: New York Times, August 10, 2012). Because the production of corn has decreased, prices are expected to increase by 25 percent. These data are insufficient for calculating the elasticity of demand because we also need to know the

Accepted Answer

A)   percentage increase in income.
B)   percentage increase in quantity.
C)   percentage decrease in quantity.
D)   increase in bushels per acre.

Question 15

Suppose Clem's Chemical Company wants to increase its total revenue. If there are few substitutes for Clem's Chemicals,

Accepted Answer

A)   Clem should increase the price of his chemicals.
B)   Clem should decrease the price of his chemicals.
C)   the demand for chemicals is elastic.
D)   Clem will not be able to change the price of his chemicals.

Question 16

Demand is unit elastic when

Accepted Answer

A)   the slope of the demand curve is -1.
B)   a shift of the supply curve leads to no change in price.
C)   a shift of the supply curve leads to an equal shift of the demand curve.
D)   a change in the price of the product leads to no change in the total revenue.

Question 17

The price elasticity of demand can range between

Accepted Answer

A)   zero and one.
B)   negative infinity and infinity.
C)   zero and infinity.
D)   negative one and one.

Question 18

The price elasticity of demand for cigarettes is 0.4. If government wants to reduce smoking by 10 percent, by how much should it raise the price of cigarettes by imposing a tax?

Accepted Answer

A)   by 10 percent
B)   by 20 percent
C)   by 25 percent
D)   by 50 percent

Question 19

Paul's monthly income decreased from $2,500 to $2,300. As a result, he decreased the number of DVDs he rents per month from 5 to 4. Paul's demand for DVD rentals is

Accepted Answer

A)   price elastic.
B)   price inelastic.
C)   income elastic.
D)   income inelastic.

Question 20

If the income elasticity for chocolate chip cookies is 1.84, then chocolate chip cookies are

Accepted Answer

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

Exam 4: Elasticity