Question 1

If demand is price inelastic and the price is lowered, which of the following occurs?

Accepted Answer

A)  The total revenue of the firms selling the product is unchanged. 
B)  The total expenditure increases and the total revenue decreases. 
C)  The total expenditure decreases and the total revenue increases. 
D)  The total revenue of the firms selling the product decreases. 
E)  The quantity sold decreases.

Question 2

Moving downward along a linear (straight-line) downward-sloping demand curve, the

Accepted Answer

A)  demand becomes less elastic. 
B)  quantity demanded decreases. 
C)  price elasticity of demand does not change. 
D)  total revenue never changes. 
E)  demand becomes more elastic.

Question 3

If a 2 per cent change in price leads to a ________ per cent change in the quantity demanded, then demand is ________.

Accepted Answer

A)  3; inelastic 
B)  2; elastic 
C)  0; perfectly elastic 
D)  1; inelastic 
E)  1; unit elastic

Question 4

When income increases from $30,000 a year to $40,000 a year, the quantity demanded of weekend vacations by Sara increases from 2 a year to 5 a year. For Sara, the income elasticity of demand of weekend vacations is ________ and weekend vacations are ________ good.

Accepted Answer

A)  1/3; a normal 
B)  -4.5; an inferior 
C)  3; a normal 
D)  1/3; an inferior 
E)  4.5 a normal

Question 5

-In the figure above, using the midpoint method, what is the price elasticity of demand when the price falls from $8 to $7?

Accepted Answer

A)  0.4 
B)  5.0 
C)  4.0 
D)  0.5 
E)  0.25

Question 6

If Microsoft wanted to prove to the federal court that its Windows software has many substitutes that personal computer owners can use, Microsoft hopes to find

Accepted Answer

A)  a positive income elasticity for Windows. 
B)  that the demand for Windows is inelastic. 
C)  that the demand for Windows is elastic. 
D)  a large positive value for the cross elasticity of demand for Windows and other software. 
E)  a negative income elasticity for Windows.

Question 7

If the price of a cinema ticket rises 3 per cent and, as a result, the quantity demanded of DVD rentals increases 6 per cent, then the cross elasticity of demand is

Accepted Answer

A)  2. 
B)  9. 
C)  1/2. 
D)  -2. 
E)  -1/2.

Question 8

-Based on data in the table above, use the midpoint method to determine the cross elasticity of demand for ice cream and cake.

Accepted Answer

A)  The cross elasticity is -0.83. 
B)  The cross elasticity is -1.75. 
C)  The cross elasticity is -0.75. 
D)  The cross elasticity is -1.33. 
E)  The cross elasticity is -4.0.

Question 9

If the price elasticity of demand for opera tickets in Sydney is 1.00, then the demand for opera tickets in Sydney is

Accepted Answer

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

Question 10

Assume that it is predicted that, for the years after you graduate from university, the entire economy will experience a long period of recession during which people's incomes will decrease. What type of industry would be the best for you to find employment in if this prediction is correct? An industry that produces a product that

Accepted Answer

A)  is a complement. 
B)  is income inelastic. 
C)  is income elastic. 
D)  is inferior. 
E)  None of these industries.

Question 11

Joe receives a 20 per cent increase in his income from his part-time job and as a consequence decreases his consumption of two-minute noodles by 10 per cent. Hence to Joe, two-minute noodles are

Accepted Answer

A)  a substitute good with a cross elasticity of 0.5. 
B)  an inferior good with an income elasticity of -0.5. 
C)  an inferior good with an income elasticity of -2.0. 
D)  a good with a price elasticity of supply of -0.5. 
E)  a normal good with a price elasticity of demand of 0.5.

Question 12

If the percentage change in the quantity demanded is not zero, but is less than the percentage change in the price, demand is

Accepted Answer

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

Question 13

When the price of a cup of coffee falls from $3.00 to $2.50, the quantity demanded increases from 1,000 per month to 1,150 per month. Using the midpoint method, the price elasticity of demand is

Accepted Answer

A)  0.77. 
B)  1.30. 
C)  0.07. 
D)  2.50. 
E)  3.00.

Question 14

The price elasticity of demand measures which of the following?

Accepted Answer

A)  How responsive the quantity demanded is to changes in price. 
B)  The rate at which demand changes when price changes. 
C)  The slope of the demand curve. 
D)  The percentage-slope of the demand curve. 
E)  None of these correctly defines what price elasticity of demand measures.

Question 15

-In the figure above, what happens to total revenue as we move from point A to point B?

Accepted Answer

A)  It remains constant. 
B)  It decreases. 
C)  It becomes negative. 
D)  It increases. 
E)  More information about the elasticity of demand is needed to determine if it increases, decreases or does not change.

Question 16

The longer the time that has elapsed since the price of a good changed, the

Accepted Answer

A)  steeper the demand curve. 
B)  more elastic the demand for that good. 
C)  fewer substitutes available for the good. 
D)  smaller the amount of that good bought. 
E)  less elastic the demand for that good.

Question 17

-In the figure above, if the price falls from $8 to $7, demand is

Accepted Answer

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

Question 18

If the price of timber increased by 10 per cent and the quantity supplied increased by 20 per cent. Then the supply of timber is

Accepted Answer

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

Question 19

-In the figure above, using the midpoint method, the price elasticity of demand when the price falls from $6 to $5 is equal to

Accepted Answer

A)  1.63. 
B)  1.10. 
C)  2.50. 
D)  0.91. 
E)  1.00.

Question 20

Suppose you are working as a tutor charging $85 per hour. If your fee increases from $85 to $93 per hour, using the midpoint method, what is the percentage change in price?

Accepted Answer

A)  8.99 per cent 
B)  9.12 per cent 
C)  9.41 per cent 
D)  8.00 per cent 
E)  8.62 per cent

Exam 5: Elasticities of Demand and Supply