Question 1

If firms do not increase their quantity supplied when price changes, then supply is

Accepted Answer

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

Question 2

If demand is inelastic, the absolute value of the price elasticity of demand is

Accepted Answer

A) one. 
B) less than one. 
C) greater than one. 
D) greater than the absolute value of the slope of the demand curve.

Question 3

The price elasticity of demand for Kellogg's Raisin Bran is larger in absolute value than the price elasticity of demand for all breakfast cereals.

Accepted Answer

A) True 
 B)False

Question 4

Suppose the cross-price elasticity of demand between DVDs at Amazon.com and DVDs at Buy.com is 3.5.Based on this information, predict what happens when Amazon.com lowers its DVD prices by 10 percent.

Accepted Answer

A) The quantity of DVDs demanded on Amazon.com will increase by 35 percent. 
B) The quantity of DVDs demanded on Buy.com will increase by 35 percent. 
C) The quantity of DVDs demanded on Amazon.com will decrease by 35 percent. 
D) The quantity of DVDs demanded on Buy.com will decrease by 35 percent.

Question 5

If at a price of $24, Octavia sells 36 home-grown orchids and at $30 she sells 24 home-grown orchids, the demand for her orchids is

Accepted Answer

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

Question 6

A recent study indicated that "Stricter college alcohol policies such as raising the price of alcohol, or banning alcohol on campus, decreases the number of students who use marijuana." This indicates that the cross-price elasticity between alcohol and marijuana is positive.

Accepted Answer

A) True 
 B)False

Question 7

Suppose a frost destroys the tomato crop in California but farmers see an increase in their revenues.Which of the following best explains this?

Accepted Answer

A) The decrease in supply led to huge price increases. 
B) Tomatoes are necessities. 
C) The demand for tomatoes is price inelastic. 
D) The cross-price elasticity between tomatoes and most other substitute vegetables is very low.

Question 8

Last year, Joan bought 50 pounds of hamburger when her household income was $40,000.This year, her household income was only $30,000 and Joan bought 60 pounds of hamburger.Holding everything else constant, Joan's income elasticity of demand for hamburger is

Accepted Answer

A) positive, so Joan considers hamburger to be an inferior good. 
B) negative, so Joan considers hamburger to be an inferior good. 
C) positive, so Joan considers hamburger to be a normal good and a necessity. 
D) negative, so Joan considers hamburger to be a normal good.

Question 9

Ali's Gyros operates near a college campus.Ali has been selling 120 gyros a day at $4.50 each and is considering a price cut.He estimates that he would be able to sell 200 gyros per day at $3.50 each.
a.Calculate the price elasticity of demand using the midpoint formula.
b.Calculate the change in revenue as a result of the price cut.

Accepted Answer

The answer of Ali's Gyros operates near a college campus.Ali...

Question 10

Which of the following statements is true?

Accepted Answer

A) Whenever a firm raises its price its total revenue will increase. 
B) When a firm lowers its price its total revenue may either increase or decrease. 
C) Whenever a firm increases its quantity sold its revenue will increase. 
D) Total revenue will equal zero when the demand for a product is unit elastic.

Question 11

When demand is elastic, a fall in price causes total revenue to rise because

Accepted Answer

A) when price falls, quantity sold increases so total revenue automatically rises. 
B) the increase in quantity sold is large enough to offset the lower price. 
C) the percentage increase in quantity demanded is less than the percentage fall in price. 
D) the demand curve shifts.

Question 12

Which of the following could explain why the demand for table salt is inelastic?

Accepted Answer

A) Salt is a luxury good. 
B) Salt is a rare commodity. 
C) Households devote a very small portion of their income to salt purchases. 
D) Salt is a luxury for high-income consumers but a necessity for low-income consumers.

Question 13

Barbara, the consummate hostess, proudly announced as she served dessert, "A port is often the perfect end to a meal, sipped with a piece of my scrumptious chocolate cake." Evidently, Barbara views port and chocolate cake as

Accepted Answer

A) luxury items. 
B) necessities. 
C) complementary goods. 
D) substitutes for other desserts.

Question 14

The cross-price elasticity of demand between Coca-Cola and Pepsi-Cola is calculated by dividing

Accepted Answer

A) the percentage change in quantity demanded of Coca-Cola by the percentage change in the quantity demanded of Pepsi-Cola. 
B) the percentage change in the price of Pepsi-Cola by the percentage change in quantity demanded of Coca-Cola. 
C) the percentage change in the price of Coca-Cola by the percentage change in the price of Pepsi-Cola. 
D) the percentage change in the quantity demanded of Coca-Cola by the percentage change in the price of Pepsi-Cola.

Question 15

Jill Borts believes that the price elasticity of demand for her economics textbook is relatively inelastic.She argues "I was told I had to purchase a book written by Hubbard and O'Brien that is required by my instructor.If I wanted to buy a mystery novel I would have many authors to choose from.Therefore, the demand for mystery novels is more elastic than the demand for my textbook." Is Jill correct?

Accepted Answer

A) The demand for the textbook is more inelastic, but Jill's reasoning is incorrect. The reason the textbook has an inelastic demand is that it is more expensive than any novel. 
B) She is correct. 
C) She is confused. She should have concluded that the textbook has a more elastic demand than a novel. 
D) She is correct that the textbook has a more inelastic demand, but that is because most students pay for their textbooks with credit cards. Most people pay for novels and other books with debit cards.

Question 16

Assume that the market for barley is in equilibrium and the demand for barley is inelastic.Predict what happens to the revenue of barley farmers if a prolonged drought reduces the supply of barley.The drought will cause farm revenue to

Accepted Answer

A) rise because there will be a shortage of barley. 
B) rise because the percentage decrease in quantity sold is less than the percentage increase in price. 
C) rise because the percentage increase in quantity sold is greater than the percentage increase in price. 
D) fall because of the decrease in the quantity of barley sold.

Question 17

Suppose Tinsel Town Videos lowers the price of its movie club membership by 10 percent and as a result, CineArts Videos experienced a 16 percent decline in its movie club membership.What is the value of the cross-price elasticity between the two movie club memberships?

Accepted Answer

A) -1.6 
B) -0.625 
C) 0.625 
D) 1.6

Question 18

Between 1950 and 2015 the productivity of wheat farmers in the United States more than doubled.This means that

Accepted Answer

A) the amount of land and other resources devoted to wheat production more than doubled. 
B) the incomes of wheat farmers more than doubled. 
C) the total amount of wheat produced more than doubled. 
D) the amount of wheat produced by the average farmer more than doubled.

Question 19

Figure 6-4
 
-Refer to Figure 6-4.The inelastic segment of the demand curve

Accepted Answer

A) is coincident with the horizontal axis. 
B) is coincident with the vertical axis. 
C) lies below the midpoint of the curve. 
D) lies above the midpoint of the curve.

Question 20

Opera Estate Girls' School is considering increasing its tuition to raise revenue.If the school believes that raising tuition will increase revenue it is assuming that the demand for attending the school is

Accepted Answer

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

Exam 6: Elasticity: the Responsiveness of Demand and Supply