Question 1

For which of the following types of goods would the income elasticity of demand be positive and relatively large?

Accepted Answer

A)  all inferior goods
B)  all normal goods
C)  goods for which there are many complements
D)  luxuriesE) None of the above
F) B) and D)

Question 2

Which of the following expressions represents a cross-price elasticity of demand?

Accepted Answer

A)  percentage change in quantity demanded of bread divided by percentage change in quantity supplied of bread
B)  percentage change in quantity demanded of bread divided by percentage change in price of butter
C)  percentage change in price of bread divided by percentage change in quantity demanded of bread
D)  percentage change in quantity demanded of bread divided by percentage change in incomeE) A) and B)
F) C) and D)

Question 3

When demand is inelastic, the price elasticity of demand is

Accepted Answer

A)  less than 1, and price and total revenue will move in the same direction.
B)  less than 1, and price and total revenue will move in opposite directions.
C)  greater than 1, and price and total revenue will move in the same direction.
D)  greater than 1, and price and total revenue will move in opposite directions.E) All of the above
F) B) and C)

Question 4

When the local used bookstore prices economics books at $15 each, it generally sells 70 books per month. If it lowers the price to $7, sales increase to 90 books per month. Given this information, we know that the price elasticity of demand for economics books is about

Accepted Answer

A)  2.91, and an increase in price from $7 to $15 results in an increase in total revenue.
B)  2.91, and an increase in price from $7 to $15 results in a decrease in total revenue.
C)  0.34, and an increase in price from $7 to $15 results in an increase in total revenue.
D)  0.34, and an increase in price from $7 to $15 results in a decrease in total revenue.E) B) and C)
F) A) and D)

Question 5

A key determinant of the price elasticity of supply is the time period under consideration. Which of the following statements best explains this fact?

Accepted Answer

A)  Supply curves are steeper over long periods of time than over short periods of time.
B)  Buyers of goods tend to be more responsive to price changes over long periods of time than over short periods of time.
C)  The number of firms in a market tends to be more variable over long periods of time than over short periods of time.
D)  Firms prefer to change their prices in the short run rather than in the long run.E) A) and D)
F) C) and D)

Question 6

If the price elasticity of supply is 0.8, and price increased by 5%, quantity supplied would

Accepted Answer

A)  increase by 4%.
B)  increase by 6.25%.
C)  decrease by 4%.
D)  decrease by 6.25%.E) A) and B)
F) All of the above

Question 7

Figure 5-10 
-Refer to Figure 5-10. An increase in price from $30 to $35 would

Accepted Answer

A)  increase total revenue by $250
B)  decrease total revenue by $250.
C)  increase total revenue by $500.
D)  decrease total revenue by $500.E) None of the above
F) B) and C)

Question 8

Scenario 5-3
Milk has an inelastic demand, and beef has an elastic demand. Suppose that a mysterious increase in bovine infertility decreases both the population of dairy cows and the population of beef cattle by 50 percent.
-Refer to Scenario 5-3. The equilibrium quantity will

Accepted Answer

A)  increase in both the milk and beef markets.
B)  increase in the milk market and decrease in the beef market.
C)  decrease in the milk market and increase in the beef market.
D)  decrease in both the milk and beef markets.E) None of the above
F) B) and C)

Question 9

For a particular good, a 10 percent increase in price causes a 5 percent decrease in quantity demanded. Which of the following statements is most likely applicable to this good?

Accepted Answer

A)  There are many close substitutes for this good.
B)  The good is a necessity.
C)  The market for the good is narrowly defined.
D)  The relevant time horizon is long.E) B) and D)
F) B) and C)

Question 10

Figure 5-6 
-Refer to Figure 5-6. Sellers' total revenue would increase if the price

Accepted Answer

A)  increased from $6 to $8.
B)  decreased from $18 to $16.
C)  decreased from $16 to $15.
D)  All of the above are correct.E) A) and D)
F) A) and B)

Question 11

Some firms eventually experience problems with their capacity to produce output as their output levels increase. For these firms,

Accepted Answer

A)  market power is substantial.
B)  supply is perfectly inelastic.
C)  supply is more elastic at low levels of output and less elastic at high levels of output.
D)  supply is less elastic at low levels of output and more elastic at high levels of output.E) B) and C)
F) None of the above

Question 12

Figure 5-15 
-Refer to Figure 5-15. Using the midpoint method, what is the price elasticity of supply between $4 and $6?

Accepted Answer

A)  0.75
B)  1.00
C)  1.20
D)  1.25E) A) and D)
F) A) and C)

Question 13

If a 15% increase in price for a good results in a 20% decrease in quantity demanded, the price elasticity of demand is

Accepted Answer

A)  0.75.
B)  1.25.
C)  1.33.
D)  1.60.E) B) and C)
F) A) and B)

Question 14

Figure 5-4 
-Refer to Figure 5-4. The section of the demand curve from A to B represents the

Accepted Answer

A)  elastic section of the demand curve.
B)  inelastic section of the demand curve.
C)  unit elastic section of the demand curve.
D)  perfectly elastic section of the demand curve.E) B) and C)
F) A) and C)

Question 15

Suppose that when the price of ginger ale is $2 per bottle, firms can sell 4 million bottles. When the price of ginger ale is $3 per bottle, firms can sell 2 million bottles. Which of the following statements is true?

Accepted Answer

A)  The demand for ginger ale is income inelastic, so an increase in the price of ginger ale will increase the total revenue of ginger ale producers.
B)  The demand for ginger ale is income elastic, so an increase in the price of ginger ale will increase the total revenue of ginger ale producers.
C)  The demand for ginger ale is price inelastic, so an increase in the price of ginger ale will increase the total revenue of ginger ale producers.
D)  The demand for ginger ale is price elastic, so an increase in the price of ginger ale will decrease the total revenue of ginger ale producers.E) A) and B)
F) All of the above

Question 16

The demand for desserts tends to be more inelastic than the demand for red velvet cake.

Accepted Answer

A) True 
 B)False

Question 17

Figure 5-16 
-Refer to Figure 5-16. If, holding the supply curve fixed, there were an increase in demand that caused the equilibrium price to increase from $6 to $8, then sellers' total revenue would

Accepted Answer

A)  increase.
B)  decrease.
C)  remain unchanged.
D)  The effect on total revenue cannot be determined from the given information.E) B) and C)
F) A) and B)

Question 18

If the income elasticity of demand for a good is negative, then the good must be an inferior good.

Accepted Answer

A) True 
 B)False

Question 19

If we observe that when the price of chocolate increases by 10%, quantity demanded falls by 5%, then the demand for chocolate is price inelastic.

Accepted Answer

A) True 
 B)False

Question 20

As we move downward and to the right along a linear, downward-sloping demand curve,

Accepted Answer

A)  both slope and elasticity remain constant.
B)  slope changes but elasticity remains constant.
C)  both slope and elasticity change.
D)  slope remains constant but elasticity changes.E) C) and D)
F) A) and B)

Exam 5: Elasticity and Its Application

If a 15% increase in price for a good results in a 20% decrease in quantity demanded, the price elasticity of demand is

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Figure 5-16 -Refer to Figure 5-16. If, holding the supply curve fixed, there were an increase in demand that caused the equilibrium price to increase from $6 to $8, then sellers' total revenue would

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Some firms eventually experience problems with their capacity to produce output as their output levels increase. For these firms,

Correct AnswerverifiedShow Answer

If we observe that when the price of chocolate increases by 10%, quantity demanded falls by 5%, then the demand for chocolate is price inelastic.

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If the income elasticity of demand for a good is negative, then the good must be an inferior good.

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The demand for desserts tends to be more inelastic than the demand for red velvet cake.

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Suppose that when the price of ginger ale is $2 per bottle, firms can sell 4 million bottles. When the price of ginger ale is $3 per bottle, firms can sell 2 million bottles. Which of the following statements is true?

Correct AnswerverifiedShow Answer

Figure 5-4 -Refer to Figure 5-4. The section of the demand curve from A to B represents the

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For a particular good, a 10 percent increase in price causes a 5 percent decrease in quantity demanded. Which of the following statements is most likely applicable to this good?

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When demand is inelastic, the price elasticity of demand is

Correct AnswerverifiedShow Answer

As we move downward and to the right along a linear, downward-sloping demand curve,

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A key determinant of the price elasticity of supply is the time period under consideration. Which of the following statements best explains this fact?

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Figure 5-6 -Refer to Figure 5-6. Sellers' total revenue would increase if the price

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Figure 5-15 -Refer to Figure 5-15. Using the midpoint method, what is the price elasticity of supply between $4 and $6?

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Scenario 5-3 Milk has an inelastic demand, and beef has an elastic demand. Suppose that a mysterious increase in bovine infertility decreases both the population of dairy cows and the population of beef cattle by 50 percent. -Refer to Scenario 5-3. The equilibrium quantity will

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Figure 5-10 -Refer to Figure 5-10. An increase in price from $30 to $35 would

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If the price elasticity of supply is 0.8, and price increased by 5%, quantity supplied would

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Which of the following expressions represents a cross-price elasticity of demand?

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For which of the following types of goods would the income elasticity of demand be positive and relatively large?

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When the local used bookstore prices economics books at $15 each, it generally sells 70 books per month. If it lowers the price to $7, sales increase to 90 books per month. Given this information, we know that the price elasticity of demand for economics books is about

Correct AnswerverifiedShow Answer

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