Question 1

Calculate the income elasticity if an 8 per cent increase in income leads to a 4 per cent increase in quantity demanded for organic produce.

Accepted Answer

A)  -0.66 
B)  0.5 
C)  1.5 
D)  2

Question 2

Inelastic supply occurs whenever the elasticity of supply value is

Accepted Answer

A)  negative and  1. 
D)  positive and < 1.

Question 3

We should never assume that an inelastic demand curve is a perfectly inelastic demand curve because

Accepted Answer

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

Question 4

A perfectly elastic demand curve is

Accepted Answer

A)  vertical. 
B)  horizontal. 
C)  curvilinear. 
D)  upward sloping.

Question 5

-Refer to Figure 4-5. The section of the demand curve labeled 'A' represents

Accepted Answer

A)  the inelastic section of the demand curve. 
B)  the unit-elastic section of the demand curve. 
C)  the elastic section of the demand curve. 
D)  the perfectly elastic section of the demand curve.

Question 6

Suppose a decrease in the supply of bottled water results in a decrease in revenue. This indicates that

Accepted Answer

A)  the demand for bottled water is inelastic in the price range considered. 
B)  the demand for bottled water is elastic in the price range considered. 
C)  the supply of bottled water is inelastic in the price range considered. 
D)  the supply of bottled water is elastic in the price range considered.

Question 7

The price elasticity of supply of hot dog buns is estimated to be 1.5. Holding everything else constant, this means that a 10 per cent decrease in the price of hot dog buns will cause the quantity of hot dog buns supplied to decrease by

Accepted Answer

A)  1.5 per cent. 
B)  15 per cent. 
C)  approximately 25 per cent. 
D)  approximately 5 per cent.

Question 8

Last year, Joan bought 50 pounds of hamburger when her household income was $40 000. This year, her household income was only $30 000 and Joan bought 60 pounds of hamburger. Holding everything else constant, Joan's income elasticity of demand for hamburger is

Accepted Answer

A)  positive, so Joan considers hamburger to be an inferior good. 
B)  negative, so Joan considers hamburger to be an inferior good. 
C)  positive, so Joan considers hamburger to be a normal good and a necessity. 
D)  negative, so Joan considers hamburger to be a normal good.

Question 9

Suppose the value of the price elasticity of demand is -3. What does this mean?

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 10

If a firm is in an antitrust court case being accused of monopolising a product, the firm would hire an economist to show

Accepted Answer

A)  the cross-price elasticity of demand between the firm's good and another is negative. 
B)  the cross-price elasticity of demand between the firm's good and another is positive. 
C)  the price elasticity of demand for the firm's good is highly inelastic. 
D)  the income elasticity of the firm's good is inferior.

Question 11

Which of the following statements about price elasticity of demand is false?

Accepted Answer

A)  The value of the price elasticity of demand is the reciprocal of the value of the demand curve's slope. 
B)  If quantity demanded changes by a larger percentage than the percentage change in price, demand is elastic. 
C)  The value of the price elasticity of demand along a downward-sloping demand curve is always negative. 
D)  A linear downward-sloping demand curve has a varying price elasticity coefficient.

Question 12

List the five key determinants of price elasticity of demand and explain how each determinant indicates if demand tends to be elastic or inelastic.

Accepted Answer

The answer of List the five key determinants of price...

Question 13

Suppose the demand curve for a product is represented by a typical downward-sloping curve. Now suppose the demand for this product decreases. Which of the following statements accurately predicts the resulting decrease 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 decrease. 
C)  The increase in price is not affected by the elasticity of the supply curve. 
D)  The decrease in price will always be proportional to the magnitude of the demand shift.

Question 14

The cross-price elasticity of demand measures the

Accepted Answer

A)  absolute change in the quantity demanded of one good divided by the absolute change in the price of another good. 
B)  percentage change in the quantity demanded of one good divided by the percentage change in the price of another good. 
C)  percentage change in the price of one good divided by the percentage change in the quantity demanded of another good. 
D)  percentage change in the quantity demanded of one good in one location divided by the price of the same good in another location.

Question 15

Since 1950 there has been a substantial increase in wheat production. The increase in production has led to a decrease in the price of wheat because of which of the following factors?

Accepted Answer

A)  The absolute value of the price elasticity of demand for wheat is less than 1, and the income elasticity of demand for wheat is greater than 1. 
B)  The absolute value of the price elasticity of demand for wheat is greater than 1, and wheat is a close substitute for other food products. 
C)  The absolute value of the price elasticity of demand for wheat is less than 1, and the income elasticity of demand for wheat is low. 
D)  The income elasticity of demand for wheat is high, and wheat is an inferior good.

Question 16

-Refer to Figure 4-7. A perfectly inelastic supply curve is shown in

Accepted Answer

A)  Panel A. 
B)  Panel B. 
C)  Panel C. 
D)  Panel D.

Question 17

The slope of a demand curve is not used to measure the price elasticity of demand because

Accepted Answer

A)  the slope of a linear demand curve is not constant. 
B)  the slope of a line cannot have a negative value. 
C)  the measurement of slope is sensitive to the units chosen for price and quantity. 
D)  the slope of the demand curve does not tell us how much quantity changes as price changes.

Question 18

Income elasticity measures

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.

Question 19

Explain the relationship between price elasticity of demand and total revenue.

Accepted Answer

The answer of Explain the relationship between price elasticity of...

Question 20

-Refer to Table 4-1. Suppose you own a bookstore. You believe that you can sell 40 copies per day of the latest John Grisham novel when the price is $35. You consider lowering the price to $25 and believe this will increase the quantity sold to 50 books per day. Compute the price elasticity of demand using the mid-point formula and these data. Select the correct implication from your work.

Accepted Answer

A)  The demand for the John Grisham book is inelastic. Revenue will fall if the price is lowered. 
B)  The demand for the John Grisham book is elastic. Revenue will rise if the price is lowered. 
C)  The demand for the John Grisham book is inelastic. Revenue will rise if the price is lowered. 
D)  The demand for the John Grisham book is elastic. Revenue will fall if the price is lowered.

Exam 4: Elasticity: The Responsiveness of Demand and Supply