Question 1

This summer the lobster catch in Maine has been especially large, but instead of celebrating the fisherman are suffering from a lower total revenue. (Source: New York Times, July 28, 2012) As the lobster catch increases, there is

Accepted Answer

A)  a movement along the demand curve, resulting in a higher price and a decreased quantity. 
B)  a movement along the demand curve, resulting in a lower price and an increased quantity. 
C)  no change in either the price or the quantity. 
D)  a movement along the demand curve, resulting in a higher price and an increased quantity.

Question 2

Suppose that the demand for corn is price inelastic. If a technological advance makes corn farms more productive, the equilibrium price of corn will ________ and the farmers' total revenue will ________.

Accepted Answer

A)  rise; increase 
B)  rise; decrease 
C)  fall; increase 
D)  fall; decrease

Question 3

Explain the total revenue test.

Accepted Answer

The answer of Explain the total revenue test....

Question 4

Is there any set of relationships between price elasticity of supply and total revenue similar to the relationships between price elasticity of demand and total revenue?

Accepted Answer

The answer of Is there any set of relationships between...

Question 5

If the demand curve for oranges is a downward sloping straight line, the price elasticity of demand will increase the

Accepted Answer

A)  higher the price of oranges. 
B)  higher the price of other fruits. 
C)  higher the income level of consumers. 
D)  lower the price of oranges.

Question 6

If the cross elasticity of demand between two goods is -0.56, then a fall in the price of one good leads to a ________ shift in the ________ of the other good.

Accepted Answer

A)  rightward; demand 
B)  rightward; supply 
C)  leftward; demand 
D)  leftward; supply

Question 7

Explain why the number of substitutes influences the price elasticity of demand.

Accepted Answer

The answer of Explain why the number of substitutes influences...

Question 8

When does a decrease in supply raise the price more: When demand is elastic or when demand is inelastic? When OPEC decreases the supply of oil, the price of gasoline skyrockets. Hence is the demand for gasoline elastic or inelastic?

Accepted Answer

The answer of When does a decrease in supply raise...

Question 9

When consumers' incomes increased 6 percent, the quantity of wine bought increased 12 percent. This result means

Accepted Answer

A)  wine is a luxury. 
B)  the demand for wine is income inelastic. 
C)  wine is a necessity. 
D)  wine is an inferior good.

Question 10

If a 4 percent rise in the price of peanut butter lowers the total revenue received by the producers of peanut butter by 4 percent, the demand for peanut butter

Accepted Answer

A)  is elastic. 
B)  is inelastic. 
C)  is unit elastic. 
D)  has an elasticity of 2.0.

Question 11

Goods whose income elasticities are negative are called

Accepted Answer

A)  normal goods. 
B)  superior goods. 
C)  inferior goods. 
D)  complements.

Question 12

Peter's monthly income increases from $1,500 to $1,600. As a result, he increases the number of DVDs he buys per month from 2 to 3. Peter's demand for DVDs is

Accepted Answer

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

Question 13

The marketing people at Ben and Jerry's Ice Cream Company believe that if they lower the price of their Cherry Garcia flavor ice cream by 25 percent, the quantity demanded will increase by 5 percent. If they are correct in their belief, then

Accepted Answer

A)  the demand for Cherry Garcia is price elastic. 
B)  their total revenue from Cherry Garcia will increase if they lower the price. 
C)  the demand for Cherry Garcia is income elastic. 
D)  their total revenue from Cherry Garcia will decrease if they lower the price.

Question 14

Donuts and coffee are complements. When the price of a donut increases, the demand for coffee ________ and the cross elasticity of demand for coffee with respect to the price of a donut is ________.

Accepted Answer

A)  decreases; negative 
B)  increases; negative 
C)  increases; positive 
D)  decreases; positive

Question 15

If at a given moment, no matter what the price, producers cannot change the quantity supplied, the momentary supply

Accepted Answer

A)  has zero elasticity. 
B)  has unit elasticity. 
C)  has infinite elasticity. 
D)  does not exist.

Question 16

What happens to the price elasticity of demand moving down along a downward-sloping, linear demand curve?

Accepted Answer

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Question 17

If the price of oil is $60 per barrel, the quantity of oil supplied is 70 million barrels per day. If the price is $40 per barrel, the quantity of oil supplied is 69 million barrels per day. This implies that the

Accepted Answer

A)  supply of oil is elastic. 
B)  supply of oil is inelastic. 
C)  demand for oil is inelastic. 
D)  demand for oil is elastic.

Question 18

If the demand for a good is elastic, when the price increases, the

Accepted Answer

A)  demand will decrease. 
B)  quantity demanded will increase. 
C)  quantity demanded will decrease by a smaller percentage than the price increased. 
D)  quantity demanded will decrease by a greater percentage than the price increased.

Question 19

An increase in Abigail's income decreases her demand for used cars. For her, used cars are

Accepted Answer

A)  a normal good. 
B)  an inferior good. 
C)  a complement to any good. 
D)  a substitute good.

Question 20

For which of the following pairs of goods is the cross elasticity of demand positive?

Accepted Answer

A)  tennis balls and tennis rackets 
B)  videotapes and laundry detergent 
C)  airline trips and textbooks 
D)  beef and chicken

Exam 4: Elasticity