Question 1

Given a price elasticity of demand of -0.33,a decrease in price will

Accepted Answer

A) reduce total revenue. 
B) increase total revenue. 
C) leave total revenue unchanged. 
D) decrease quantity.

Question 2

A movie theatre raises ticket prices from $8 to $10 in order to raise revenues.The theatre's management is assuming the absolute value of the price elasticity of demand for tickets is

Accepted Answer

A) less than 1. 
B) greater than 1. 
C) equal to 1. 
D) infinity.

Question 3

When the absolute price elasticity of demand is greater than 1,demand is

Accepted Answer

A) elastic. 
B) unit-elastic. 
C) inelastic. 
D) undetermined without more information.

Question 4

If the government places a $0.50 tax on an item for which demand is perfectly elastic

Accepted Answer

A) the entire tax will be paid by the consumer. 
B) the tax will be split equally between the consumer and producer,with each paying exactly $0.25. 
C) most of the tax will be paid by the consumer. 
D) the entire tax will be paid by the producer.

Question 5

Tickets for the Super Bowl are an example of supply that is

Accepted Answer

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

Question 6

When two goods are complements,

Accepted Answer

A) the demands for both goods will be elastic. 
B) cross price elasticity of demand will be 0. 
C) cross price elasticity of demand will be negative. 
D) cross price elasticity of demand will be positive.

Question 7

Suppose 1000 units of a good are sold at $10 a unit.If price increases to $15 and total revenue increases to $15,000 and increases by $1000 for every dollar increase in price after that,we know that

Accepted Answer

A) demand is perfectly elastic. 
B) the demand curve is vertical. 
C) the demand curve is downward sloping and the firm is on the inelastic portion of the demand curve. 
D) the demand curve is a rectangular hyperbola.

Question 8

Even though price elasticity of demand is always ________,by convention its absolute value is always discussed as a ________.

Accepted Answer

A) negative; prime number 
B) positive; negative number 
C) a fraction; whole number 
D) negative; positive number

Question 9

All of the following are true regarding the relationship between price elasticity of demand and total revenues EXCEPT

Accepted Answer

A) when market demand is elastic,if the market price declines,then total revenues will rise. 
B) when market demand is unit elastic,if the market price rises,then total revenues will not change. 
C) when market demand is inelastic,if the market price falls,then total revenues will decrease. 
D) when market demand is inelastic,if the market price rises,then total revenues will decrease.

Question 10

The income elasticity of demand for all goods taken together must be

Accepted Answer

A) zero. 
B) -1. 
C) +1. 
D) between 0 and 1.

Question 11

Suppose that the amount of computer printers demanded increases by 20 percent when the price of personal computers falls by 10 percent.The cross price elasticity of demand between computer printers and personal computers is

Accepted Answer

A) 0.5. 
B) -2.0. 
C) -0.5. 
D) 2.0.

Question 12

If the absolute price elasticity of demand for automobiles is equal to 0.75,we say

Accepted Answer

A) that demand is inelastic. 
B) that demand is elastic. 
C) that there is a strong responsiveness of quantity demanded to automobiles price cuts. 
D) none of the above is correct.

Question 13

A local transit authority charges $1 for a bus ride.An economics study suggests that in the price range from $0.50 to $1.50,the elasticity of demand for bus trips is 1.1.To increase its revenue,the transit authority should

Accepted Answer

A) leave the fare as it is. 
B) raise the fare. 
C) lower the fare. 
D) charge $1.10.

Question 14

If goods are completely unrelated,their cross price elasticity will

Accepted Answer

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

Question 15

For most items,we find the price elasticity of supply will be

Accepted Answer

A) negative. 
B) positive. 
C) invisible. 
D) inverse.

Question 16

If the quantity supplied stays the same no matter what the price is,then supply is

Accepted Answer

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

Question 17

Compared to the short-run price elasticity of demand,the long-run price elasticity of demand is

Accepted Answer

A) smaller. 
B) the same. 
C) greater. 
D) either greater than or less,depending on the number of substitutes the good has.

Question 18

A value of the absolute price elasticity of demand equal to 0.6 indicates that

Accepted Answer

A) a 6 percent increase in price leads to a 10 percent decrease in quantity demanded. 
B) a 10 percent increase in price leads to a 6 percent decrease in quantity demanded. 
C) a 0.6 percent increase in price leads to a 1 percent decrease in quantity demanded. 
D) a 1 percent increase in price leads to a 6 percent decrease in quantity demanded.

Question 19

A 2 percent increase in the price of neckties leads to a 5 percent decrease in the quantity demanded of neckties.The absolute price elasticity of demand is

Accepted Answer

A) 2.5. 
B) 1. 
C) 0.4. 
D) 0.2.

Question 20

The price elasticity of demand along a vertical demand curve is

Accepted Answer

A) elastic at high prices and inelastic at low prices. 
B) infinite. 
C) one. 
D) zero.

Exam 6: Demand and Supply Elasticity