Question 1

If the demand curve for a good is a vertical line at Q = 1, then a decrease in the price of that good will:

Accepted Answer

A)  decrease the quantity demanded.
B)  increase the quantity demanded.
C)  lead the quantity demanded to fall to zero.
D)  not change the quantity demanded. D

Question 2

Suppose an increase in the price of golf clubs from $75 to $125 leads to an increase in quantity supplied from 200 units to 300 units. The price elasticity of supply for golf clubs at the original price of $75 is ______, so supply is ______.

Accepted Answer

A)  2; elastic
B)  2; inelastic
C)  4/3; elastic
D)  3/4; inelastic D

Question 3

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. D

Question 4

Refer to the figure below. What is the price elasticity of supply at point B and point C?

Accepted Answer

A)  1/2; 3/4
B)  3/4; 1/2
C)  3; 2
D)  1; 1

Question 5

Suppose you learn that in 1900, households spent about 40 percent of their budget on food, and today, they spend about 10 percent of their budget of food. All else equal, this suggests that the price elasticity of demand for food:

Accepted Answer

A)  is probably negative.
B)  has always been very high.
C)  is probably lower now than it was in 1900.
D)  is probably higher now than it was in 1900.

Question 6

When calculating price elasticity of demand, if the percentage change in price is negative, then the percentage change in quantity demanded is typically:

Accepted Answer

A)  greater than one.
B)  positive.
C)  less than one.
D)  negative.

Question 7

The owner of a pizza shop observes that when she raises the price of a large pizza, her total revenue decreases, and when she lowers the price of a large pizza, her total revenue increases. This suggests that:

Accepted Answer

A)  pizza lovers act irrationally.
B)  the demand for her large pizzas is elastic with respect to price.
C)  there are few good substitutes for a large pizza.
D)  the demand for her large pizzas is inelastic with respect to price.

Question 8

Assume the price of gasoline doubles tonight and remains at that price for the next two years. Compared with the long-run price elasticity of demand for gasoline, the short-run price elasticity of demand for gasoline will be ______.

Accepted Answer

A)  higher
B)  more variable
C)  the same
D)  lower

Question 9

Refer to the figure below. What is the price elasticity of supply at point A?

Accepted Answer

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

Question 10

If the demand curve for open-heart surgery is vertical for people with serious heart conditions, then the demand for open-heart surgery is ______ with respect to price.

Accepted Answer

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

Question 11

The championship game will be held next weekend in your college's 40,000-seat stadium. The supply of tickets to the game:

Accepted Answer

A)  will increase because the price charged will be higher.
B)  is elastic.
C)  is perfectly inelastic.
D)  depends on which teams make it to the championship game.

Question 12

Demand tends to be ______ in the short run than in the long run.

Accepted Answer

A)  more elastic
B)  less elastic
C)  more variable
D)  less important

Question 13

If the demand for a good is highly elastic, that good is likely to have:

Accepted Answer

A)  many close complements.
B)  few close complements.
C)  many close substitutes.
D)  few close substitutes.

Question 14

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 15

If the cross-price elasticity of demand between blueberries and yogurt is negative, then the two goods are:

Accepted Answer

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

Question 16

The responsiveness of the quantity demanded of one good to a change in the price of a different good is measured by the:

Accepted Answer

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

Question 17

Suppose a 10% increase in the price of aspirin leads to a 5% decrease in the quantity demanded of aspirin. The demand for aspirin, therefore, is

Accepted Answer

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

Question 18

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

Accepted Answer

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

Question 19

Refer to the figure below. What is the slope of the supply curve?

Accepted Answer

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

Question 20

The following graph depicts demand.  The price elasticity of demand at point D is:

Accepted Answer

A)  5/2.
B)  1/2.
C)  2/5.
D)  2.

Exam 4: Elasticity