Question 1

The price elasticity of demand for canned soup is estimated at -1.62.If the price of canned soup rises, sales revenue________.

Accepted Answer

A)  falls by 162 per cent.
B)  rises by 1.62 per cent.
C)  falls.
D)  rises. C

Question 2

What does income elasticity measure?

Accepted Answer

A)  How a good's quantity demanded responds to change in the good's price.
B)  How a good's quantity demanded responds to change in the price of another good.
C)  How a good's quantity demanded responds to change in buyers' incomes.
D)  How a good's quantity demanded responds to producers' incomes. C

Question 3

Which of the following is not a determinant of a good's price elasticity of demand?

Accepted Answer

A)  The slope of the demand curve
B)  The share of the good in the consumer's total budget
C)  Whether the good is a luxury or a necessity
D)  The passage of time A

Question 4

Suppose the price elasticity of demand for methamphetamine is -0.35.If decriminalisation caused the price of methamphetamine to fall by 75 per cent, what will be the percentage increase in the quantity of methamphetamine demanded? If the price elasticity is -3.5, what will be the percentage increase in quantity demanded?
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Accepted Answer

The answer of Suppose the price elasticity of demand for...

Question 5

Which of the following statements is true?

Accepted Answer

A)  In general, if a product has few substitutes, it will have an elastic demand.
B)  The more time that passes, the more inelastic the demand for a product becomes.
C)  The demand curve for a necessity is more elastic than the demand curve for a luxury.
D)  The more narrowly we define a market, the more elastic the demand for a product will be.

Question 6

You are the manager of a theatre.At present the theatre charges the same admission price of $8 to all customers, regardless of age.You propose a two-tier pricing scheme: $5 for children under the age of 12 and $10 for adults.You tell your supervisor that your proposal is likely to increase revenues.What must be true about the price elasticity of demand if your proposal is to achieve its goal of raising revenue? Explain your answer.
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Accepted Answer

The answer of You are the manager of a theatre.At...

Question 7

To what is total revenue equal?

Accepted Answer

A)  The amount of funds earned by a firm minus its costs of production
B)  The total quantity sold of a product over a given period of time
C)  The price of a product multiplied by the number of units of the product sold
D)  The monetary value of the capital (for example, plant and equipment) a firm owns

Question 8

Explain the economic concept of price elasticity of supply.How is price elasticity of supply calculated?
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Accepted Answer

The answer of Explain the economic concept of price elasticity...

Question 9

Assume that a 50 per cent petrol tax led to a large increase in its price and only a small decrease in the quantity of petrol demanded.Economic analysis would lead one to conclude that________.

Accepted Answer

A)  petrol should be taxed because the benefits of the tax would exceed the costs.
B)  petrol should not be taxed because the benefits are uncertain.
C)  petrol should not be taxed on ethical grounds since ethical benefits and costs cannot be measured.
D)  the benefits of taxing petrol is a normative issue.Economic analysis can be used to contribute to discussion of this issue but cannot decide it.

Question 10

Why should we never assume that an inelastic demand curve is a perfectly inelastic demand curve?

Accepted Answer

A)  because there has never been evidence of a perfectly inelastic demand curve.
B)  because an inelastic demand curve may be perfectly inelastic at some times but not others.
C)  because perfectly inelastic demand curves are rare.
D)  because an inelastic demand curve may be elastic at high prices.

Question 11

What would be the cross-price elasticity of demand between an unlimited texting option and an unlimited call minutes option offered from a mobile phone provider?

Accepted Answer

A)  Positive if subscribers consider the services substitutes for each other.
B)  Positive if subscribers consider the services complements to each other.
C)  Negative if subscribers consider the services substitutes for each other.
D)  Negative no matter if subscribers consider the services substitutes or complements for each other.

Question 12

Necessities tend to have more inelastic demands than luxuries.

Accepted Answer

A) True 
 B)False

Question 13

If the demand for a life-saving drug was perfectly inelastic and the price doubled, what would happen to the quantity demanded?

Accepted Answer

A)  It would also double.
B)  It would decrease by 50%.
C)  It would be cut in half.
D)  It would remain constant.

Question 14

The price elasticity of demand for beef is estimated to be 0.60 (in absolute value).This means that a 20 per cent increase in the price of beef, holding everything else constant, will cause the quantity of beef demanded to________.

Accepted Answer

A)  decrease by 12 per cent.
B)  decrease by 26 per cent.
C)  decrease by 32 per cent.
D)  decrease by 60 per cent.

Question 15

Suppose the demand curve for a product is represented by a typical downward-sloping curve.Now suppose the demand for this product increases.Which of the following statements accurately predicts the resulting increase in price?

Accepted Answer

A)  The more elastic the supply curve, the greater the price increase.
B)  The more elastic the supply curve, the smaller the price increase.
C)  The increase in price is not affected by the elasticity of the supply curve.
D)  There will be no increase in price if the supply curve is perfectly inelastic.

Question 16

If a 5 per cent increase in income leads to a 10 per cent decrease in quantity demanded for a product this product is:

Accepted Answer

A)  an income elastic good.
B)  an inferior good.
C)  a necessity.
D)  a luxury good.

Question 17

Assume that the price elasticity of demand for petrol is -0.06.If the government tax causes the price of petrol to increase by 50 per cent, what will be the decrease in the quantity of petrol demanded?

Accepted Answer

A)  0) 5 per cent
B)  3) 0 per cent
C)  8) 33 per cent
D)  50 per cent

Question 18

To calculate the price elasticity of supply we divide________.

Accepted Answer

A)  the percentage change in price by the percentage change in quantity supplied.
B)  the percentage change in quantity supplied by the percentage change in price.
C)  rise by the run.
D)  the average price by the average quantity supplied.

Question 19

If the demand for mobile phone service is inelastic, then________.

Accepted Answer

A)  the percentage change in quantity demanded is greater than the percentage change in price (in absolute value) .
B)  the percentage change in quantity demanded is equal to the percentage change in price.
C)  the quantity demanded does not change in response to changes in price.
D)  the percentage change in quantity demanded is less than the percentage change in price (in absolute value) .

Question 20

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________.

Accepted Answer

A)  port and chocolate cake as luxury items.
B)  port and chocolate cake as necessities.
C)  port and chocolate cake as complementary goods.
D)  port and chocolate cake as substitutes to other desserts.

Exam 4: Elasticity: The Responsiveness of Demand and Supply