Question 1

The pair of items that is likely to have the highest cross-price elasticity of demand is:

Accepted Answer

A)  baseball and baseball glove. 
B)  spaghetti and meatballs. 
C)  coffee and tea. 
D)  peanut butter and jelly.

Question 2

Total revenue is:

Accepted Answer

A)  total sales less total cost. 
B)  the price of a good times the quantity of the good that is sold. 
C)  the price effect times the quantity effect. 
D)  the price of a good divided by the amount of the good sold.

Question 3

Suppose the price of cereal rose by 25% and the quantity of milk sold decreased by 50%. We know that the:

Accepted Answer

A)  cross-price elasticity between cereal and milk is -2. 
B)  cross-price elasticity between cereal and milk is -0.5. 
C)  price elasticity of demand for milk is 2. 
D)  cross-price elasticity of demand between cereal and milk is 2.

Question 4

The Cozy Chair Company believes it can sell 200 chairs at $200 per chair or 300 chairs at $150 per chair. Using the midpoint formula, what do they think is the price elasticity of demand?

Accepted Answer

A)  2.5. 
B)  1.4. 
C)  0.7. 
D)  0.5.

Question 5

If demand is elastic, the _____ effect dominates the _____ effect, and a(n) _____ in price will cause total revenue to rise.

Accepted Answer

A)  price; quantity; decrease 
B)  price; quantity; increase 
C)  quantity; price; increase. 
D)  quantity; price; decrease

Question 6

On a linear demand curve, the price elasticity of demand at higher prices will be:

Accepted Answer

A)  price-inelastic. 
B)  price-elastic. 
C)  price unit-elastic. 
D)  perfectly price-inelastic.

Question 7

Sonik, a wireless phone company, tested the effect of a price reduction for text messaging. It lowered prices from $0.08 to $0.04 per message and found that the number of messages sent tripled. This means:

Accepted Answer

A)  the demand for text messaging is inelastic in this price range. 
B)  the demand curve for text messaging shifted to the right. 
C)  the supply curve for text messaging shifted to the left. 
D)  the demand for text messaging is elastic in this price range.

Question 8

On a linear demand curve, demand at lower prices will be:

Accepted Answer

A)  price-inelastic. 
B)  price-elastic. 
C)  price unit-elastic. 
D)  perfectly price-elastic.

Question 9

Egg producers know that the elasticity of demand for eggs is 0.1. If they want to increase sales by 5%, they will have to lower price by:

Accepted Answer

A)  0.1%. 
B)  1%. 
C)  5%. 
D)  50%.

Question 10

Use of the midpoint method to calculate the price elasticity of demand eliminates the problem of computing:

Accepted Answer

A)  different elasticities, depending on whether price decreases or increases. 
B)  different elasticities, because price and quantity are inversely related on the demand curve. 
C)  total revenue when price falls and demand is inelastic. 
D)  total revenue when price falls and demand is elastic.

Question 11

If the income elasticity of demand for a good is negative, the good is said to be:

Accepted Answer

A)  inferior. 
B)  negative. 
C)  positive. 
D)  normal.

Question 12

Demand for vegetables at a small farmers' market is steady, but the supply of vegetables has decreased because of a drought. This is good news for farmers if demand is _____ and the _____ effect outweighs the _____ effect.

Accepted Answer

A)  inelastic; price; quantity 
B)  elastic; price; quantity 
C)  inelastic; output; price 
D)  elastic; output; price

Question 13

If the absolute value of the price elasticity of demand is greater than 1:

Accepted Answer

A)  small percentage changes in the price will lead to much larger percentage changes in the quantity demanded. 
B)  small percentage changes in the price will lead to even smaller changes in the percentage change in the quantity demanded. 
C)  percentage changes in the price will lead to equal percentage changes in the quantity demanded. 
D)  changes in the price will have no impact on changes in the quantity demanded.

Question 14

Use the following to answer questions:
Figure: Supply Curves 
-(Figure: Supply Curves) Look at the figure Supply Curves. Which graph shows a perfectly inelastic supply curve?

Accepted Answer

A)  A 
B)  B 
C)  C 
D)  D

Question 15

Use the following to answer questions:
Table: Price Elasticity 
-(Table: Price Elasticity) Look at the table Price Elasticity. What is the price elasticity of demand between $0.75 and $0.50?

Accepted Answer

A)  0.25 
B)  0.33 
C)  0.43 
D)  0.52

Question 16

Use the following to answer questions:
Figure: The Demand for Shirts 
-(Figure: The Demand for Shirts) Look at the figure The Demand for Shirts. The Demand for Shirts. At a price of $40, total revenue is:

Accepted Answer

A)  $40. 
B)  $200. 
C)  $4,000. 
D)  $8,000.

Question 17

The demand for strawberry ice cream tends to be relatively price-elastic because:

Accepted Answer

A)  for most people there are many close substitutes for strawberry ice cream. 
B)  it costs so little. 
C)  it has to be consumed very quickly. 
D)  for most people there are many close substitutes for strawberry ice cream and it costs so little.

Question 18

The price of notebooks is $5, and at that price consumers demand 12 notebooks. If the price rises to $7, consumers will decrease consumption to 4 notebooks. Using the midpoint formula, what is the price elasticity of demand for notebooks?

Accepted Answer

A)  0.33 
B)  3 
C)  0.17 
D)  6

Question 19

Tomas produces 100 cartons of free range eggs when the price is $5 and 150 cartons of free range eggs when the price is $7. What is the value of Tomas's price elasticity of supply?

Accepted Answer

A)  1.2 
B)  2.0 
C)  1.0 
D)  3.2

Question 20

Suppose the price of barley increases by 16.53%. If breweries buy 3.28% less barley after the price increase, the total revenue for barley producers will _____ because the _____ effect is greater than the _____ effect.

Accepted Answer

A)  decrease; quantity; price 
B)  increase; price; quantity 
C)  not change; quantity; price 
D)  increase; quantity; price

Exam 6: Elasticity