Question 1

Which of the following statements is true?

Accepted Answer

A) The supply of oil is very elastic over short time periods but becomes perfectly inelastic over time.A given shift in supply results in a greater increase in the price of oil when the supply of oil is perfectly inelastic. 
B) The supply of oil is very inelastic over short time periods but becomes more elastic over time.A given shift in supply results in a smaller increase in the price of oil when the supply is more elastic. 
C) The supply of oil is perfectly inelastic; therefore, as the demand for oil increases over time, the price of oil increases significantly. 
D) Over short periods of time, increases in the demand for oil are greater than increases in the supply of oil.Over the long run, increases in the demand and the supply of oil are about equal.As a result, the price of oil increases greatly in the short run but is stable in the long run.

Question 2

What concept do economists use to measure how one economic variable, such as quantity, responds to a change in another economic variable, such as price?

Accepted Answer

A) Slope 
B) Efficiency 
C) Relativity 
D) Elasticity

Question 3

If the quantity demanded for a good rises as income rises, then the income elasticity of demand for this good is ________ than 0, and the good is ________ good.

Accepted Answer

A) greater; an inferior 
B) less; a normal 
C) less; an inferior 
D) greater; a normal

Question 4

If the slope of a demand curve is equal to -0.1, then________.

Accepted Answer

A) demand is inelastic. 
B) we do not know whether the demand is elastic or inelastic. 
C) the demand is elastic at low prices and inelastic at high prices. 
D) as price increases by 10 per cent, quantity demanded decreases by 1 per cent.

Question 5

If the cross-price elasticity of demand between beer and wine is 0.31, then beer and wine are:

Accepted Answer

A) complements. 
B) price inelastic goods. 
C) substitutes. 
D) necessities.

Question 6

The larger the share of a good in a consumer's budget, holding everything else constant, the________.

Accepted Answer

A) more price elastic is a consumer's demand. 
B) more vertical is a consumer's demand curve. 
C) more price inelastic is a consumer's demand. 
D) more unit-elastic is a consumer's demand.

Question 7

If demand is perfectly elastic, what is the absolute value of the price elasticity coefficient?

Accepted Answer

A) Infinity 
B) Zero 
C) More than one 
D) Equal to the absolute value of the slope of the demand curve

Question 8

When the price of tortilla chips rose by 10 per cent, the quantity of tortilla chips sold fell 4 per cent, and the sale of dips (like salsa and bean dip)fell 8 per cent.This set of facts indicates that

Accepted Answer

A) the cross-price elasticity between tortilla chips and dips is 0.8, so the two are substitutes. 
B) the cross-price elasticity between tortilla chips and dips is -0.4, so the two are complements. 
C) the cross-price elasticity between tortilla chips and dips is -0.8, so the two are complements. 
D) the cross-price elasticity between tortilla chips and dips is 0.4, so the two are substitutes.

Question 9

If, for a given percentage increase in price, quantity demanded falls by a proportionately smaller percentage, then demand is:

Accepted Answer

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

Question 10

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 11

Suppose a decrease in the supply of wheat results in an increase in revenue.This indicates that________.

Accepted Answer

A) the decrease in quantity sold is proportionately larger than the resulting change in price. 
B) the resulting increase in price is proportionately greater than decrease in quantity sold. 
C) the demand curve for wheat must be vertical. 
D) the supply curve for wheat must be vertical.

Question 12

What is generally true about a 'big ticket item' such as a house or new car?

Accepted Answer

A) It will tend to have a more elastic demand than a lower priced good. 
B) It will tend to have an inelastic demand because spending on the item takes up a large share of the average consumer's budget. 
C) It will tend to have an inelastic demand because it has many substitutes. 
D) It will tend to have a more inelastic demand the more time that passes.

Question 13

For each pair of items below, determine which product would have the higher price elasticity of demand (in absolute value).
a.Blood pressure medicine for someone who has high blood pressure and the purchase of Clairol hair colouring product
b.A new Ford Fusion or a tank of gas for your current car
c.A Seiko watch or watches in general
__________________________________________________________________________________________________________________________________________________________________________________________

Accepted Answer

The answer of For each pair of items below, determine...

Question 14

Explain the concepts of cross-price elasticity of demand and income elasticity of demand.What do positive and negative values indicate for each of these demand elasticities?
__________________________________________________________________________________________________________________________________________________________________________________________

Accepted Answer

The answer of Explain the concepts of cross-price elasticity of...

Question 15

If at a price of $10, a vendor sells 5 units of a product and at a price of $8, 6 units are sold, then, using the midpoint formula, the demand for this good is inelastic.

Accepted Answer

A) True 
 B)False

Question 16

Suppose the value of the price elasticity of demand is -3.This means that________.

Accepted Answer

A) A 1 per cent increase in the price of the good causes quantity demanded to increase by 3 per cent. 
B) A 1 per cent increase in the price of the good causes quantity demanded to decrease by 3 per cent. 
C) A 3 per cent increase in the price of the good causes quantity demanded to decrease by 1 per cent. 
D) A $1 increase in price causes quantity demanded to fall by 3 units.

Question 17

The statement which explains why a firm would be interested in knowing the price elasticity of demand for a good it sells is:

Accepted Answer

A) the price elasticity of demand can be used to determine the impact of changes in income on quantity sold. 
B) knowing the price elasticity of demand allows the firm to determine how the cost of producing additional units of the good will change. 
C) knowing the price elasticity of demand allows the firm to calculate how changes in the price of the good will affect the firm's total profit. 
D) the price elasticity of demand allows the firm to calculate how changes in the price of the good will affect the firm's total revenue.

Question 18

The current price of canvas messenger bags is $36 each, and sales of the bags equal 400 per week.If the price elasticity of demand is -2.5 and the price changes to $44, how many messenger bags will be sold per week? Use the midpoint formula.
__________________________________________________________________________________________________________________________________________________________________________________________

Accepted Answer

The answer of The current price of canvas messenger bags...

Question 19

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 20

The demand for most farm products is relatively inelastic.A drought that reduces the supply of farm products will also cause farm revenues to fall.

Accepted Answer

A) True 
 B)False

Exam 4: Elasticity: The Responsiveness of Demand and Supply

Which of the following statements is true?

What concept do economists use to measure how one economic variable, such as quantity, responds to a change in another economic variable, such as price?

If the quantity demanded for a good rises as income rises, then the income elasticity of demand for this good is than 0, and the good is good.

If the slope of a demand curve is equal to -0.1, then________.

If the cross-price elasticity of demand between beer and wine is 0.31, then beer and wine are:

The larger the share of a good in a consumer's budget, holding everything else constant, the________.

If demand is perfectly elastic, what is the absolute value of the price elasticity coefficient?

When the price of tortilla chips rose by 10 per cent, the quantity of tortilla chips sold fell 4 per cent, and the sale of dips (like salsa and bean dip) fell 8 per cent.This set of facts indicates that

If, for a given percentage increase in price, quantity demanded falls by a proportionately smaller percentage, then demand is:

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

Suppose a decrease in the supply of wheat results in an increase in revenue.This indicates that________.

What is generally true about a 'big ticket item' such as a house or new car?

If at a price of $10, a vendor sells 5 units of a product and at a price of $8, 6 units are sold, then, using the midpoint formula, the demand for this good is inelastic.

Suppose the value of the price elasticity of demand is -3.This means that________.

The statement which explains why a firm would be interested in knowing the price elasticity of demand for a good it sells is:

Which of the following statements is true?

The demand for most farm products is relatively inelastic.A drought that reduces the supply of farm products will also cause farm revenues to fall.