Question 1

Suppose the cross-price elasticity of demand between DVDs at Amazon.com and DVDs at Buy.com is 3.5.Based on this information,predict what happens when Amazon.com lowers its DVD prices by 10 percent.

Accepted Answer

A)  The quantity of DVDs demanded on Amazon.com will increase by 35 percent. 
B)  The quantity of DVDs demanded on Buy.com will increase by 35 percent. 
C)  The quantity of DVDs demanded on Amazon.com will decrease by 35 percent. 
D)  The quantity of DVDs demanded on Buy.com will decrease by 35 percent.

Question 2

Which of the following correctly comments on the following statement? "The only way to increase the revenue from selling a product is to increase the product's price."

Accepted Answer

A)  It is not true. Revenue will increase as the price of the product increases only if demand is elastic. 
B)  This statement is not true. Revenue will increase as the price of the product increases only if demand is inelastic. 
C)  The statement is true. 
D)  This statement is not true. Revenue will decrease as the price of the product increases because quantity demanded will fall.

Question 3

Table 6-1
 
-Refer to Table 6-1.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.

Question 4

Refer to the Article Summary.The idea that sports teams could charge more for tickets and still increase revenue indicates that tickets are being priced in the ________ portion of their demand curve.

Accepted Answer

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

Question 5

There are a limited number of original Picasso paintings.This means that the supply of original Picasso paintings is perfectly inelastic.

Accepted Answer

A) True 
 B)False

Question 6

The income elasticity of demand measures

Accepted Answer

A)  the responsiveness of quantity demanded to changes in income. 
B)  how a consumer's purchasing power is affected by a change in the price of a product. 
C)  the percentage change in the price of a product divided by the percentage change in consumer income. 
D)  the income effect of a change in price.

Question 7

The absolute value of the price elasticity of demand for telescopes is 1.5.Therefore,telescopes can be classified as a luxury.

Accepted Answer

A) True 
 B)False

Question 8

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 9

The most important determinant of the price elasticity of demand for a good is

Accepted Answer

A)  the definition of the market for a good. 
B)  the availability of substitutes for the good. 
C)  the share of the good in the consumer's budget. 
D)  whether the good is a necessity or a luxury.

Question 10

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.

Question 11

Suppose the price of gasoline in July 2004 averaged $1.35 a gallon and 15 million gallons a day were sold.In October 2004,the price averaged $2.15 a gallon and 14 million gallons were sold.If the demand for gasoline did not shift between these two months,use the midpoint formula to calculate the price elasticity of demand.Indicate whether demand was elastic or inelastic.

Accepted Answer

The answer of Suppose the price of gasoline in July...

Question 12

Suppose at the current price,the demand for copper is estimated at -3.14.What happens to sales revenue if the government imposes a price ceiling below the free market equilibrium price in the copper market?

Accepted Answer

A)  Sales revenue falls. 
B)  Sales revenue rises. 
C)  Sales revenue remains unchanged because copper is a necessity for most industries. 
D)  It cannot be determined without information on prices.

Question 13

Opera Estate Girls' School is considering increasing its tuition to raise revenue.If the school believes that raising tuition will increase revenue

Accepted Answer

A)  it is assuming that the demand for attending the school is inelastic. 
B)  it is assuming that the demand for attending the school is elastic. 
C)  it is assuming that the demand for attending the school is unit-elastic. 
D)  it is assuming that the demand for attending the school is perfectly elastic.

Question 14

If the cross-price elasticity of demand between Breeze Detergent and Faber Detergent is a relatively large positive number,then it indicates that

Accepted Answer

A)  the two brands are probably made by the same company. 
B)  the two brands of detergent are close substitutes. 
C)  consumers have a distinct preference for one brand versus the other. 
D)  detergents are necessities.

Question 15

A supply curve that is vertical

Accepted Answer

A)  is perfectly elastic. 
B)  is perfectly inelastic. 
C)  is impossible. 
D)  has an elasticity equal to 1.

Question 16

Rank these three items in terms of the elasticity of the demand for them at any given price,from most elastic to least elastic: hot beverages,coffee and Peet's Coffee.

Accepted Answer

A)  hot beverages, coffee, Peet's Coffee 
B)  Peet's Coffee, coffee, hot beverages 
C)  coffee, Peet's Coffee, hot beverages 
D)  coffee, hot beverages, Peet's Coffee

Question 17

If the quantity supplied of walkie-talkies increases by 5 percent when prices increase by 12 percent,then

Accepted Answer

A)  the supply of walkie-talkies is inelastic. 
B)  the supply of walkie-talkies is elastic. 
C)  the walkie-talkie supply curve will shift to the right. 
D)  the walkie-talkie supply curve will shift to the left.

Question 18

According to an article in the Wall Street Journal,unlike airlines,even elite hotels don't have sophisticated systems that can react quickly to changes in demand.Even if they could,many hoteliers say people don't respond that much to lower rates."We've tested this,cutting our rates by $50 [per night],and we didn't see an appreciable response in occupancy," says Jim Schultenover,a vice president for Ritz-Carlton. Source: Jesse Drucker,"In Times of Belt-Tightening,We Seek Reasonable Rates," Wall Street Journal,April 6,2001.
Based on the information above,the demand for hotel rooms is

Accepted Answer

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

Question 19

If the slope of a demand curve is equal to -0.1 then

Accepted Answer

A)  demand is inelastic. 
B)  we don't 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 percent quantity demanded decreases by 1 percent.

Question 20

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...

Exam 6: Elasticity: The Responsiveness of Demand and Supply