Question 1

If you enjoy buying luxury goods more than buying groceries, your income elasticity of demand for luxury goods will be less elastic than for groceries.

Accepted Answer

A) True 
 B)False

Question 2

If the quantity supplied of a good responds strongly to a change in the price of an input:

Accepted Answer

A) the price elasticity of demand is inelastic 
B) the income elasticity of supply is inelastic 
C) the income elasticity of supply is elastic 
D) the price elasticity of supply is elastic

Question 3

Oliver makes guitars.There are four other guitar shops that also make good guitars on the same street.If Oliver wishes to increase his total revenue, he should:

Accepted Answer

A) decrease the price of the guitars 
B) increase the price of the guitars 
C) not change the price of the guitars 
D) manufacture pianos instead

Question 4

Graph 5-4
-Refer to Graph 5-4.Total revenue at P₂ would be represented by area(s):

Accepted Answer

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

Question 5

When the price of digital SLR cameras was $2000, consumers bought 4000.When the price fell to $1200, consumers bought 5000.What was the price elasticity of demand between these two prices, calculated with the midpoint method? Is demand elastic or inelastic?

Accepted Answer

The answer of When the price of digital SLR cameras...

Question 6

The midpoint method is used to calculate elasticity because it gives the same answer regardless of the direction of the change between two points.

Accepted Answer

A) True 
 B)False

Question 7

If the demand curve is linear and downward-sloping, which of the following would NOT be correct?

Accepted Answer

A) the upper part of the demand curve is more elastic than the lower part 
B) elasticity will change with a movement down the curve 
C) the lower part of the demand curve will be less elastic than the upper part 
D) elasticity and slope will both remain constant along the curve

Question 8

Suppose you are the manager of a theatre.You currently charge the same admission price to all customers, regardless of age.You hire an economist to determine the price elasticity of demand for admissions by age and he tells you that at the current price, demand by adults is inelastic and demand by children is elastic.If you want to increase your total revenue by adjusting admission prices, how should they be adjusted?

Accepted Answer

The answer of Suppose you are the manager of a...

Question 9

In the aftermath of the US decision to halt logging of Pacific North-West forests in 1990 to protect spotted owls, the global demand for Australian and New Zealand timber jumped.Predict how Australasian forestry companies responded to the increased demand in the short run and in the long run.

Accepted Answer

The answer of In the aftermath of the US decision...

Question 10

Supply tends to be:

Accepted Answer

A) less price elastic in the long run 
B) more price elastic in the long run 
C) perfectly price inelastic in the long run 
D) perfectly price inelastic in the short run

Question 11

A perfectly inelastic demand curve:

Accepted Answer

A) rises upward and to the right but has a constant slope 
B) can be drawn as a line parallel to the vertical axis 
C) cannot be shown on a two-dimensional graph 
D) can be represented by a line parallel to the horizontal axis

Question 12

Graph 5-1  
-In Graph 5-1, the section of the demand curve labelled A represents the:

Accepted Answer

A) inelastic section of the demand curve 
B) unit elastic section of the demand curve 
C) elastic section of the demand curve 
D) perfectly elastic section of the demand curve

Question 13

Recently, the price of a Kit Kat fell from $1.80 to $1.50.As a result, the quantity demanded of Mars Bars decreased from 1200 to 1000.What would be the appropriate elasticity to compute? What does your answer tell you?

Accepted Answer

The answer of Recently, the price of a Kit Kat...

Question 14

A perfectly inelastic demand implies that:

Accepted Answer

A) buyers will not respond to any change in price 
B) any rise in price above that represented by the demand curve will result in no output demanded 
C) price and quantity demanded respond proportionally 
D) price will rise by an infinite amount when there is a change in quantity demanded

Question 15

Table 5-1
Suppose a coffee shop faces the following demand schedule for coffee. $\begin{array}{|c|c|}
\hline \text { Price per coffee (\$) } & \text { Quantity demanded } \
\hline 4.00 & 200 \
\hline 3.00 & 600 \
\hline 2.50 & 800 \
\hline 2.00 & 1000 \
\hline 1.50 & 1200 \
\hline 1.00 & 1400 \
\hline
\end{array}$
-Referring to Table 5-1, comparing the sales at $1.00 and $3.00, which of the statements below is true?

Accepted Answer

A) the price elasticity of demand is higher at $3.00 than $1.00 
B) the price elasticity of demand is lower at $3.00 than at $1.00 
C) the price elasticity of demand is the same at both prices 
D) the price elasticity of demand at $3.00 is zero

Question 16

Suppose a demand function yields an equilibrium price of $5.00 and an equilibrium quantity of 50 000 individual units.The equilibrium quantity could also be expressed in units of 1000, yielding an equilibrium of $5.00 and 50 units.How would expressing the quantity in units of 1000 affect the value of the slope and the elasticity?

Accepted Answer

The answer of Suppose a demand function yields an equilibrium...

Question 17

A given leftward shift in the supply curve of product X will increase equilibrium price to a greater extent, the:

Accepted Answer

A) more elastic the supply curve 
B) larger the elasticity of demand 
C) more elastic the demand for the product 
D) more inelastic the demand for the product

Question 18

Table 5-2
Quantities urchased
 $\begin{array}{|c|c|c|}
\hline \text { Income(\$) } & \text { Good X } & \text { Good Y } \
\hline 30000 & 2 & 20 \
\hline 50000 & 5 & 10 \
\hline
\end{array}$
-Refer to Table 5-2.Good Y is:

Accepted Answer

A) not related to income 
B) an inferior good 
C) price inelastic 
D) a normal good

Question 19

Suppose that 50 candy bars are demanded at a particular price.Using the midpoint method, if the price of candy bars rises by four per cent, the number of candy bars demanded falls to 48 candy bars.This means that the:

Accepted Answer

A) demand for candy bars in this price range is elastic 
B) demand for candy bars in this price range is inelastic 
C) price elasticity of demand for candy bars is zero 
D) demand for candy bars is unit elastic

Question 20

Get Smart University (GSU) is contemplating increasing tuition to enhance revenue.If GSU feels that raising tuition would enhance revenue they are:

Accepted Answer

A) necessarily ignoring the law of demand 
B) assuming that the demand for university education is elastic 
C) assuming that the supply of university education is elastic 
D) assuming that the demand for university education is inelastic

Exam 5: Elasticity and Its Application