Question 1

Refer to the accompanying figure. When the price is equal to 8, the price elasticity of demand for the demand curve D1 is ________ and for D2 the price elasticity of demand is ________.

Accepted Answer

A) 4; 1 
B) 1; 4 
C) 4; 4 
D) 2; 4

Question 2

If the price elasticity of demand for chicken is 2, then a 20 percent decrease in the price of chicken will lead to a:

Accepted Answer

A) 10 percent decrease in the quantity demanded of chicken. 
B) 10 percent increase in the quantity demanded of chicken. 
C) 40 percent decrease in the quantity demanded of chicken. 
D) 40 percent increase in the quantity demanded of chicken.

Question 3

Satellite TV is a close substitute for cable TV. In the 1990's, small satellite TV units were developed that made it less costly for individual consumers to subscribe to satellite TV service. This caused the price elasticity of demand for cable TV service to:

Accepted Answer

A) become more inelastic. 
B) become less elastic. 
C) become more elastic. 
D) shift to the left.

Question 4

The accompanying graph depicts demand.  At point A, demand is:

Accepted Answer

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

Question 5

The percentage change in quantity supplied that results from a 1 percent change in price is known as the:

Accepted Answer

A) cross-price elasticity of supply. 
B) slope of the supply curve. 
C) price elasticity of supply. 
D) cross-price elasticity of demand.

Question 6

Refer to the accompanying figure. The absolute value of the slope of the demand curve D1 is ________, and the absolute value of the slope of demand curve D2 is ________.

Accepted Answer

A) 1/2; 2 
B) 2; 1/2 
C) 5/4; 4/5 
D) 4/5; 5/4

Question 7

In surveying their alumni, State U's economics department discovered that ramen noodle consumption declined once students graduated and found jobs. One conclusion the survey team might draw from this result is that:

Accepted Answer

A) there is excess demand for ramen noodles. 
B) the equilibrium price for ramen noodles is too high. 
C) college graduates have a high reservation price for ramen noodles. 
D) ramen noodles are an inferior good.

Question 8

The price elasticity of demand is a measure of:

Accepted Answer

A) the change in quantity demanded of a good that results from a change in its price. 
B) the change in price of a good that results from a change in its quantity demanded. 
C) the demand for a good. 
D) how consumers respond to excess demand.

Question 9

A firm that produces a good with many substitutes will most likely find that:

Accepted Answer

A) lowering its price will increase total revenue. 
B) lowering its price will decrease total revenue. 
C) raising its price will increase total revenue. 
D) lowering its price will not affect total revenue.

Question 10

Suppose that Chris had been charging $1.00 per pound for potatoes. When Chris lowered the price to $0.90 per pound, his total revenue fell. When Chris raised the price to $1.10, total revenue also fell. Which of the following could explain this?

Accepted Answer

A) $1.00 is the equilibrium price for potatoes. 
B) At 90 cents, there is excess demand for potatoes. 
C) $1.10 is more than Chris's customers' reservation prices. 
D) The price elasticity of demand for potatoes is 1 at a price of $1.00 per pound.

Question 11

If the absolute value of the price elasticity of demand for tickets to a football game is 2, then if the price increases by 1 percent, quantity demanded decreases by:

Accepted Answer

A) 0.5 percent. 
B) 1 percent. 
C) 2 percent. 
D) 4 percent.

Question 12

The cross-price elasticity of demand between bread and potatoes is estimated to be 0.5. This implies bread and potatoes are:

Accepted Answer

A) normal goods. 
B) substitutes. 
C) unrelated. 
D) complements.

Question 13

If the elasticity of demand for the latest American Idol album is 1.4, this means

Accepted Answer

A) few substitutes for the American Idol album exist. 
B) a 1 percent increase in the price leads to a 14 percent decrease in quantity demanded. 
C) a 10 percent decrease in the price leads to a 140 percent increase in quantity demanded. 
D) a 5 percent increase in the price leads to a 7 percent decrease in quantity demanded.

Question 14

Suppose that a new drug has been approved to treat a life-threatening disease. The demand for that drug is shown on the accompanying graph. Prior to approval of this drug, the only treatment for this condition was any one of several non-prescription, or over-the-counter, pain relievers. The demand for one brand of the several non-prescription pain relievers is also shown on the graph.  Demand for the new drug is ________ while demand for one brand of the over-the-counter pain relievers is ________.

Accepted Answer

A) the line labeled A; the line labeled B 
B) the line labeled B; the line labeled A 
C) the horizontal line at $60; the line labeled B 
D) the vertical line at 100; the line labeled A

Question 15

Refer to the accompanying figure. At a price of $2, the total expenditure on lattes each hour equals:

Accepted Answer

A) $30. 
B) $40. 
C) $60. 
D) $80.

Question 16

You read online that, at current rates of production, the yearly world supply of food is sufficient to feed the projected 2050 population of earth, but that after 2050 there will be massive starvation. This prediction appears to assume that:

Accepted Answer

A) the long-run supply of food is perfectly elastic. 
B) the long-run supply of food is perfectly inelastic. 
C) the short-run supply of food is perfectly elastic. 
D) the short-run elasticity of supply of food is greater than long-run elasticity of supply.

Question 17

If the demand curve is horizontal, then demand is:

Accepted Answer

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

Question 18

Suppose that total expenditures for coffee reach a maximum at a price of $5 per pound. At this price, the demand for coffee is:

Accepted Answer

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

Question 19

Refer to the accompanying figure. When P = 4, the price elasticity of demand for the demand curve D1 is ________ and D2 is ________.

Accepted Answer

A) 3; 3 
B) 2/3; 1/3 
C) 1/3; 3 
D) 1/3; 2/3

Question 20

If consumers completely cease purchasing a product when its price increases by any amount, then demand is:

Accepted Answer

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

Exam 4: Elasticity

Refer to the accompanying figure. When the price is equal to 8, the price elasticity of demand for the demand curve D1 is and for D2 the price elasticity of demand is .