Question 1

The cross-price elasticity of demand between two goods measures the percentage change in the demand for one good for a given percentage change in the price of another good.

Accepted Answer

A) True 
 B)False

Question 2

Other things being equal,the demand for a product is less elastic if

Accepted Answer

A) the product has a very small ticket price. 
B) the product has more substitutes. 
C) the product has more complements. 
D) consumers have more time to adjust for any price change. 
E) the product's cost of production is higher.

Question 3

Which of the following is a characteristic of an item with elastic demand?

Accepted Answer

A) A price that accounts for a small percentage of consumers' incomes 
B) A short time period under consideration 
C) A small number of competitors selling the product 
D) Many substitutes 
E) A high cost of production

Question 4

For a given shift in demand,the less elastic is supply,the

Accepted Answer

A) greater is the shift in demand. 
B) greater is the change in equilibrium quantity. 
C) smaller is the shift in demand. 
D) greater is the change in price. 
E) smaller is the change in price.

Question 5

Carla buys one soft drink a day,regardless of the price.Which of the following statements is correct with respect to Carla?

Accepted Answer

A) Price elasticity of demand for soft drinks is infinite. 
B) Price elasticity of demand for soft drinks is zero. 
C) Price elasticity of demand for soft drinks is 1. 
D) Cross-price elasticity of demand for soft drinks is 1. 
E) Price elasticity of demand cannot be calculated with the information given.

Question 6

One reason the demand for electricity is probably more price elastic than the demand for table salt is that

Accepted Answer

A) people react to a change in the price of electricity in the long run but react to a change in the price of salt in the short run. 
B) there are more substitutes for electricity than for table salt. 
C) people react to a change in the price of electricity in the short run but react to a change in the price of salt in the long run. 
D) a change in the price of electricity is likely to be temporary compared to a change in the price of table salt. 
E) electricity takes up a larger proportion of one's income than does table salt.

Question 7

Assume that a firm makes available 50 more units of a good at a price of $2 than it made available when the price was $1.What is the price elasticity of supply?

Accepted Answer

A) It cannot be determined from the information given. 
B) .02 
C) 25 
D) 50 
E) .04

Question 8

Indicate whether the percentage change in quantity demanded or percentage change in price is greater and whether demand is considered sensitive or insensitive for each of the following categories: elastic,inelastic,unit elastic.

Accepted Answer

The answer of Indicate whether the percentage change in quantity...

Question 9

Explain,in words,the difference between a low price elasticity of demand and a high price elasticity of demand for a 15 percent increase in price.

Accepted Answer

The answer of Explain,in words,the difference between a low price...

Question 10

Exhibit 4-2 
-Refer to Exhibit 4-2.If the supply curve shifts to the right,then which of the following is true?

Accepted Answer

A) D1 results in the most decrease in the equilibrium price. 
B) D1 results in the most increase in the equilibrium price. 
C) D2 results in the most decrease in the equilibrium price. 
D) D2 results in the most increase in the equilibrium price. 
E) The change in the equilibrium price is the same for D1 and D2.

Question 11

If supply decreases and total revenue in an industry increases,

Accepted Answer

A) demand elasticity must be equal to 1. 
B) demand must be horizontal. 
C) demand elasticity must be greater than 1. 
D) we have a perfectly implausible situation. 
E) demand elasticity must be less than 1.

Question 12

Define,in words,income elasticity of demand and tell why we care if it is positive or negative.

Accepted Answer

The answer of Define,in words,income elasticity of demand and tell...

Question 13

The government can issue ration coupons to deal with problems resulting from a price floor.

Accepted Answer

A) True 
 B)False

Question 14

A price ceiling would result in a(n)

Accepted Answer

A) surplus. 
B) shortage. 
C) increase in equilibrium price. 
D) decrease in equilibrium price. 
E) increase in quantity supplied.

Question 15

Suppose that the price of product G increases from $10 to $20 and,in response,quantity demanded declines from 100 to 80.Using the midpoint formula,what is the elasticity of demand?

Accepted Answer

A) .5 
B) 3 
C) .67 
D) .33 
E) 2

Question 16

Does a price ceiling result in a shortage or a surplus? Why?

Accepted Answer

The answer of Does a price ceiling result in a...

Question 17

The demand for gasoline should be

Accepted Answer

A) less elastic in the long run than in the short run. 
B) more elastic in the long run than in the short run. 
C) equally elastic in the long run as in the short run. 
D) perfectly inelastic in the long run and perfectly elastic in the short run. 
E) unit elastic in both the long run and the short run.

Question 18

If a household increases its consumption of a good by 10 percent when its income increases by 5 percent,then the good is

Accepted Answer

A) an inferior good. 
B) a luxury. 
C) a necessity. 
D) both an inferior good and a necessity. 
E) an unclassified good.

Question 19

A perfectly inelastic demand curve has a price elasticity

Accepted Answer

A) equal to zero. 
B) that varies. 
C) equal to 1. 
D) less than 1. 
E) of infinity.

Question 20

Total revenue will decrease if price

Accepted Answer

A) rises and demand is inelastic. 
B) falls and demand is unit elastic. 
C) rises and demand is unit elastic. 
D) rises and demand is elastic. 
E) falls and demand is elastic.

Exam 4: Subtleties of the Supply and Demand Model: Price Floors,price Ceilings,and Elasticity