Question 1

The demand for ice cream is _____ price elastic than the demand for frozen treats overall because _____.

Accepted Answer

A)   less; ice cream has fewer substitutes than frozen treats.
B)   more; ice cream has fewer substitutes than frozen treats.
C)   less; the scope of the market for ice cream is less broadly defined
D)   more; the scope of the market for ice cream is less broadly defined D

Question 2

An increase in price causes:I. a decrease in revenue due to the price effect.II. an increase in revenue due to the price effect.III. a decrease in revenue due to the quantity effect.IV. an increase in revenue due to the quantity effect.

Accepted Answer

A)   I and III
B)   II and III
C)   II and IV
D)   II only B

Question 3

Suppose that the price of a good is $10 and quantity demanded is 50 units. When price decreases to $8, quantity demanded increases to 60 units. What happened to total revenue and what does this indicate?

Accepted Answer

A)   Total revenue decreased from $500 to $480, indicating that demand is inelastic.
B)   Total revenue decreased from $500 to $480, indicating that demand is elastic.
C)   Total revenue increased from $480 to $500, indicating that demand is inelastic.
D)   Total revenue increased from $480 to $500, indicating that demand is elastic. A

Question 4

Suppose the price of jelly increases by 10 percent and the amount of peanut butter purchased decreases by 20 percent. What is the cross-price elasticity of demand between these two goods?

Accepted Answer

A)   0.5
B)   2
C)   −0.5
D)   −2

Question 5

A good with an income elasticity of 2.3 is:

Accepted Answer

A)   a luxury.
B)   inferior.
C)   a necessity.
D)   a complement.

Question 6

The demand for spring break vacations is _____ price elastic than the demand for textbooks because vacations _____.

Accepted Answer

A)   less; have more available substitutes
B)   more; have less available substitutes
C)   less; are more of a luxury
D)   more; are more of a luxury

Question 7

Consider the demand curve in the graph shown. Suppose the price is initially $6 and then falls to $4. Which of the following statements is true?

Accepted Answer

A)   The quantity effect will outweigh the price effect, and total revenue will rise.
B)   The quantity effect will outweigh the price effect, and total revenue will fall.
C)   The price effect will outweigh the quantity effect, and total revenue will rise.
D)   The price effect will outweigh the quantity effect, and total revenue will fall.

Question 8

A good with an income elasticity of 0.4 is:

Accepted Answer

A)   a luxury.
B)   normal.
C)   inferior.
D)   a substitute.

Question 9

Suppose the price of a can of tuna is $1.30 and the quantity demanded is 9. When the price increases to $1.50, the quantity demanded drops to 7. Using the mid-point method, what is the price elasticity of demand?

Accepted Answer

A)   −1.75
B)   −0.57
C)   0.57
D)   1.75

Question 10

The demand for dolls is _____ price elastic than the demand for Barbie dolls because _____.

Accepted Answer

A)   less; the scope of the market for dolls is more broadly defined
B)   more; the scope of the market for dolls is more broadly defined
C)   less; Barbie dolls have more available substitutes
D)   more; Barbie dolls have more available substitutes

Question 11

In general, the more elastic a demand curve is, the:

Accepted Answer

A)   flatter it will be.
B)   steeper it will be.
C)   more bowed-in it will be.
D)   faster it will shift when price changes.

Question 12

Suppose the price of a good is $6 and quantity demanded is 10 units. When price decreases to $5, quantity demanded increases to 13 units. What happened to total revenue and what does this indicate?

Accepted Answer

A)   Total revenue decreased from $65 to $60, indicating that demand is inelastic.
B)   Total revenue decreased from $65 to $60, indicating that demand is elastic.
C)   Total revenue increased from $60 to $65, indicating that demand is inelastic.
D)   Total revenue increased from $60 to $65, indicating that demand is elastic.

Question 13

When the quantity effect outweighs the price effect, a price _____ will cause a(n) _____ in total revenue.

Accepted Answer

A)   increase; decrease
B)   increase; increase
C)   decrease; decrease
D)   All of these could occur.

Question 14

If total revenue increases when price increases:

Accepted Answer

A)   demand is elastic.
B)   demand is inelastic.
C)   demand is unit elastic.
D)   Any of these could be true.

Question 15

A linear demand curve:

Accepted Answer

A)   has a constant elasticity.
B)   will be more elastic when price is low and more inelastic when price is high.
C)   must be either perfectly inelastic or perfectly elastic.
D)   has a constant slope.

Question 16

Suppose a one percent change in the price of oil causes a −0.02 percent change in the quantity demanded of oil. Thus, −0.02 is the:

Accepted Answer

A)   price elasticity of demand.
B)   price elasticity of supply.
C)   cross-price elasticity of demand.
D)   income elasticity of demand.

Question 17

Gasoline and motel rooms are complements for many consumers. When the price of gasoline declines, consumers take longer vacations and rent more motel rooms. Therefore, the cross-price elasticity of demand between gasoline and motel rooms is

Accepted Answer

A)   positive.
B)   negative.
C)   less than one because neither is a luxury.
D)   more than one because both are luxuries.

Question 18

Consider the demand curve in the graph shown. Suppose price is initially $6 and falls to $4. Which of the following statements is true?

Accepted Answer

A)   The quantity effect will outweigh the price effect, and total revenue will rise.
B)   The quantity effect will outweigh the price effect, and total revenue will fall.
C)   The price effect will outweigh the quantity effect, and total revenue will rise.
D)   The price effect will outweigh the quantity effect, and total revenue will fall.

Question 19

If a good has an elastic demand, then:

Accepted Answer

A)   a small percentage change in price will cause a larger percentage change in quantity demanded.
B)   a small percentage change in price will cause virtually no change in quantity demanded.
C)   a large percentage change in price will cause a smaller change in quantity demanded.
D)   any percentage change in price will cause an almost immediate response in quantity demanded.

Question 20

If a good has unitary price elasticity of demand, then the absolute value of the percentage change in _____ equals _____.

Accepted Answer

A)   quantity demanded; one
B)   price; one
C)   quantity demanded; the absolute value of the corresponding percentage change in price
D)   price; the absolute value of the percentage change in quantity demanded, plus one

Exam 4: Elasticity

The demand for ice cream is _ price elastic than the demand for frozen treats overall because _.