Question 1

If the quantity of concert tickets sold decreases by 10 percent when the price increases by 5 percent, this market is operating in which section of its downward-sloping straight-line demand curve?

Accepted Answer

A)  the section above the point of unit elasticity 
B)  the point equal to unit elasticity 
C)  the section below the point of unit elasticity 
D)  This market show elastic demand which could occur at any point along the demand curve.

Question 2

Suppose that the quantity of apples sold increases by 30 percent after the price of pears increases by 15 percent. What is the coefficient of cross elasticity of demand?

Accepted Answer

A)  3.0. 
B)  1.5. 
C)  0.2. 
D)  2.0.

Question 3

Consider the market for bicycles. If a dealer cuts prices by 10 percent and sells 20 percent more bikes, then demand for bicycles is:

Accepted Answer

A)  inelastic, and total revenue will increase. 
B)  elastic, and total revenue will increase. 
C)  inelastic, and total revenue will decrease. 
D)  elastic, and total revenue will decrease.

Question 4

To determine whether two goods are substitutes or complements, an economist would estimate the:

Accepted Answer

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

Question 5

On a part of the demand curve where the price elasticity of demand is less than 1, a decrease in price:

Accepted Answer

A)  decreases quantity demanded. 
B)  will increase total revenue. 
C)  will decrease total revenue. 
D)  raises the price elasticity of demand.

Question 6

A perfectly elastic demand curve has a price elasticity of demand coefficient of:

Accepted Answer

A)  zero. 
B)  infinity. 
C)  greater than 1, but less than infinity. 
D)  less than 1, but greater than zero.

Question 7

Suppose the president of a college argues that a 25 percent tuition increase will raise revenues for the college. It can be concluded that the president thinks that demand to attend this college is:

Accepted Answer

A)  elastic. 
B)  inelastic, but not perfectly inelastic. 
C)  unitary elastic. 
D)  perfectly elastic.

Question 8

If the percentage change in the quantity demanded of a good is greater than the percentage change in price, price elasticity of demand is:

Accepted Answer

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

Question 9

If the price elasticity of supply equals zero, this implies that:

Accepted Answer

A)  suppliers can easily change the quantity supplied of the product as the price of the product changes. 
B)  the period under consideration is a very long-run time period. 
C)  the supply curve is perfectly vertical. 
D)  the percentage change in quantity supplied equals the percentage change in product price.

Question 10

Suppose there is no change in total revenue when the price changes. The demand curve for this good is:

Accepted Answer

A)  perfectly elastic. 
B)  perfectly inelastic. 
C)  elastic. 
D)  unitary elastic.

Question 11

Two goods are complementary if:

Accepted Answer

A)  the income elasticity of demand is negative. 
B)  each performs the same basic task. 
C)  the cross elasticity of demand is positive. 
D)  they are used together.

Question 12

As cities prospered and per-capita incomes increased, the demand for bus travel diminished. This suggests that:

Accepted Answer

A)  cities could raise revenue by increasing bus fares. 
B)  the demand for bus travel is price elastic. 
C)  bus travel and automobile travel are complements. 
D)  bus travel is an inferior good.

Question 13

When the price of Good X increases by 10 percent, the quantity demanded of Good Y increases by 25 percent. The cross elasticity between these two goods is

Accepted Answer

A)  0.4 and they are complements. 
B)  2.5 and they are complements. 
C)  0.4 and they are substitutes. 
D)  2.5 and they are substitutes.

Question 14

Sally recently got a 15 percent raise. She now purchases 7.5 percent more steak dinners. Sally's income elasticity for steak dinners is:

Accepted Answer

A)  0.5. 
B)  0.75. 
C)  1.5. 
D)  2.0.

Question 15

For which of the following goods are consumers likely to have the most elastic demand?

Accepted Answer

A)  clothing 
B)  sweaters 
C)  wool sweaters 
D)  purple wool sweaters

Question 16

Suppose the Good Food supermarket increases the price of a pound of bananas from $.75 to $1.25 and finds that the quantity of bananas it sells per month drops from 1,500 to 1,000. The price elasticity of demand coefficient for bananas in this price range is:

Accepted Answer

A)  0.80. 
B)  3.00. 
C)  2.00. 
D)  0.50.

Question 17

If the price elasticity of demand coefficient equals 2 then:

Accepted Answer

A)  a 7 percent decrease in the price will result in a 14 percent decrease in the quantity demanded. 
B)  a price decrease will increase total revenue. 
C)  the good has an inelastic demand. 
D)  there is likely few substitutes, a short time period under consideration, or this good accounts for a relatively small percentage of consumers' budgets.

Question 18

The income elasticity of demand for shoes is estimated to be 1.50. We can conclude that shoes:

Accepted Answer

A)  have a relatively steep demand curve. 
B)  have a relatively flat demand curve 
C)  are a normal good. 
D)  are an inferior good.

Question 19

The sign of the price elasticity coefficient for a normal good will:

Accepted Answer

A)  always be negative. 
B)  always be positive. 
C)  be positive if demand is elastic but negative if demand is inelastic. 
D)  be positive if demand is inelastic but negative if demand is elastic.

Question 20

Other things constant, the price elasticity of demand for a product will be smaller (more inelastic) if:

Accepted Answer

A)  people spend a large share of their income on the product. 
B)  people spend an insignificant share of their income on the product. 
C)  the population in the market area is large. 
D)  there are many good substitutes for the product.

Exam 5: Price Elasticity of Demand and Supply