Question 1

When the demand for a good is inelastic, 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 2

To increase total revenue, firms with ______ demand should lower price, and firms with ______ demand should increase price.

Accepted Answer

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

Question 3

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 4

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

Accepted Answer

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

Question 5

Suppose the company that owns the vending machines on your campus has doubled the price of a can of soda. If they then still sell almost the same number of sodas per day, this suggests:

Accepted Answer

A) students do not have good nutritional information. 
B) soda purchases represent a large fraction of students' budgets. 
C) there are few other places to purchase soda on campus. 
D) the price elasticity of demand for soda is equal to 1.

Question 6

If the demand for salad dressing increases when the price of lettuce decreases, the cross-price elasticity of demand between salad dressing and lettuce will be ______ because these two goods are ______.

Accepted Answer

A) equal to 1; inelastic 
B) zero; inferior 
C) negative; substitutes 
D) negative; complements

Question 7

When the price of NBA tickets is $25 each, 30,000 tickets are sold. After the price rises to $30 each, 20,000 tickets are sold. At the original price, the demand for NBA ticket is:

Accepted Answer

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

Question 8

For which of the following products is demand likely to be least elastic with respect to price?

Accepted Answer

A) Food 
B) Vegetables 
C) Green vegetables 
D) Green beans

Question 9

When the price of hot dogs is $1.50 each, 500 hot dogs are sold every day. After the price falls to $1.35 each, 510 hot dogs are sold every day. At the original price, what is the price elasticity of demand for hot dogs?

Accepted Answer

A) 66.67 
B) 5 
C) 2 
D) 0.2

Question 10

If your income elasticity of demand for hot dogs is negative, then:

Accepted Answer

A) your demand curve for hot dogs is not downward sloping. 
B) hot dogs are an inferior good for you. 
C) hot dogs have no close substitutes for you. 
D) you must not enjoy eating hot dogs.

Question 11

Suppose the price of a Snickers candy bar is $2.00 at both the airport and the grocery store. The price elasticity of demand for a Snickers candy bar at an airport is likely to be ______ the price elasticity of demand for a Snickers candy bar at the grocery store.

Accepted Answer

A) less than 
B) equal to 
C) greater than 
D) the reciprocal of

Question 12

The reason a brand name item (e.g., Tyson chicken) has a larger price elasticity than a class of items (e.g., chicken) is that:

Accepted Answer

A) there are fewer substitutes for Tyson chicken than for chicken generally. 
B) it takes a lot of time to adjust to a substitute brand of chicken. 
C) the share of income spent on "chicken" is larger than spent on "Tyson Chicken". 
D) there are fewer substitutes for chicken generally than for Tyson chicken.

Question 13

When Joe's Gas raises its price for regular unleaded gasoline, total revenue from regular unleaded gas falls to zero. It must be the case that

Accepted Answer

A) the demand for Joe's regular unleaded gasoline is perfectly elastic. 
B) the demand for Joe's regular unleaded is inelastic. 
C) there are not many good substitutes for Joe's regular unleaded gasoline. 
D) consumers are switching to premium grades of gasoline.

Question 14

Refer to the figure below. Suppose this demand curve shows the demand for lattes at a single coffee shop that charges $2.00 for a latte. If the manager wants to increase total revenue, what should the manager do?

Accepted Answer

A) Increase the price from $2.00 to $3.00. 
B) Increase the price from $2.00 to $2.50. 
C) Reduce the price from $2.00 to $1.00. 
D) Reduce the price from $2.00 to $1.75.

Question 15

A change in consumers' incomes causes a change in:

Accepted Answer

A) demand. 
B) supply. 
C) the demand for normal goods but not the demand for inferior goods. 
D) the cross-price elasticity of demand.

Question 16

Refer to the figure below. At P = 8 and Q = 4, D1 is ______ elastic than D2, which is shown graphically as D1 being _____ D2.

Accepted Answer

A) more; flatter than 
B) more; steeper than 
C) less; flatter than 
D) less; steeper than

Question 17

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 18

The demand for a good is unit elastic with respect to price if the price elasticity of demand is:

Accepted Answer

A) equal to one. 
B) greater than one. 
C) less than one. 
D) greater than negative one.

Question 19

As one moves down along a linear demand curve (i.e., from high price, low quantity pairs to low price, high quantity pairs), demand:

Accepted Answer

A) becomes more elastic. 
B) increases. 
C) decreases. 
D) becomes less elastic.

Question 20

Suppose you believe that plaid flannel shirts are an inferior good, and want to test this with economic data. You expect to find that the income elasticity for plaid flannel shirts is:

Accepted Answer

A) close to zero. 
B) greater than zero, but less than one. 
C) greater than one. 
D) less than zero.

Exam 4: Elasticity