Question 1

Suppose a one percent change in the price of oil causes a −0.02 percent change in the quantity demanded of oil. Thus, −0.02 is the:

Accepted Answer

A)   price elasticity of demand.
B)   price elasticity of supply.
C)   cross-price elasticity of demand.
D)   income elasticity of demand.E) B) and C)
F) A) and B)

Question 2

Suppose the price of a can of tuna is $1.30 and the quantity demanded is 9. When the price increases to $1.50, the quantity demanded drops to 7. Using the mid-point method, what is the price elasticity of demand?

Accepted Answer

A)   −1.75
B)   −0.57
C)   0.57
D)   1.75E) A) and C)
F) B) and C)

Question 3

A linear demand curve:

Accepted Answer

A)   has a constant elasticity.
B)   will be more elastic when price is low and more inelastic when price is high.
C)   must be either perfectly inelastic or perfectly elastic.
D)   has a constant slope.E) None of the above
F) C) and D)

Question 4

A good with an income elasticity of 2.3 is:

Accepted Answer

A)   a luxury.
B)   inferior.
C)   a necessity.
D)   a complement.E) B) and D)
F) A) and C)

Question 5

The demand for dolls is _____ price elastic than the demand for Barbie dolls because _____.

Accepted Answer

A)   less; the scope of the market for dolls is more broadly defined
B)   more; the scope of the market for dolls is more broadly defined
C)   less; Barbie dolls have more available substitutes
D)   more; Barbie dolls have more available substitutesE) A) and B)
F) A) and C)

Question 6

An increase in price causes:I. a decrease in revenue due to the price effect.II. an increase in revenue due to the price effect.III. a decrease in revenue due to the quantity effect.IV. an increase in revenue due to the quantity effect.

Accepted Answer

A)   I and III
B)   II and III
C)   II and IV
D)   II onlyE) All of the above
F) A) and B) B

Question 7

The demand for ice cream is _____ price elastic than the demand for frozen treats overall because _____.

Accepted Answer

A)   less; ice cream has fewer substitutes than frozen treats.
B)   more; ice cream has fewer substitutes than frozen treats.
C)   less; the scope of the market for ice cream is less broadly defined
D)   more; the scope of the market for ice cream is less broadly definedE) C) and D)
F) A) and B) D

Question 8

Gasoline and motel rooms are complements for many consumers. When the price of gasoline declines, consumers take longer vacations and rent more motel rooms. Therefore, the cross-price elasticity of demand between gasoline and motel rooms is

Accepted Answer

A)   positive.
B)   negative.
C)   less than one because neither is a luxury.
D)   more than one because both are luxuries.E) B) and C)
F) All of the above

Question 9

Suppose the price of jelly increases by 10 percent and the amount of peanut butter purchased decreases by 20 percent. What is the cross-price elasticity of demand between these two goods?

Accepted Answer

A)   0.5
B)   2
C)   −0.5
D)   −2E) A) and C)
F) A) and B)

Question 10

When the quantity effect outweighs the price effect, a price _____ will cause a(n)  _____ in total revenue.

Accepted Answer

A)   increase; decrease
B)   increase; increase
C)   decrease; decrease
D)   All of these could occur.E) B) and D)
F) B) and C)

Question 11

In general, the more elastic a demand curve is, the:

Accepted Answer

A)   flatter it will be.
B)   steeper it will be.
C)   more bowed-in it will be.
D)   faster it will shift when price changes.E) B) and D)
F) All of the above

Question 12

Suppose the price of a good is $6 and quantity demanded is 10 units. When price decreases to $5, quantity demanded increases to 13 units. What happened to total revenue and what does this indicate?

Accepted Answer

A)   Total revenue decreased from $65 to $60, indicating that demand is inelastic.
B)   Total revenue decreased from $65 to $60, indicating that demand is elastic.
C)   Total revenue increased from $60 to $65, indicating that demand is inelastic.
D)   Total revenue increased from $60 to $65, indicating that demand is elastic.E) A) and B)
F) A) and C)

Question 13

A good with an income elasticity of 0.4 is:

Accepted Answer

A)   a luxury.
B)   normal.
C)   inferior.
D)   a substitute.E) A) and B)
F) A) and C)

Question 14

Consider the demand curve in the graph shown. Suppose the price is initially $6 and then falls to $4. Which of the following statements is true?

Accepted Answer

A)   The quantity effect will outweigh the price effect, and total revenue will rise.
B)   The quantity effect will outweigh the price effect, and total revenue will fall.
C)   The price effect will outweigh the quantity effect, and total revenue will rise.
D)   The price effect will outweigh the quantity effect, and total revenue will fall.E) All of the above
F) None of the above

Question 15

If a good has an elastic demand, then:

Accepted Answer

A)   a small percentage change in price will cause a larger percentage change in quantity demanded.
B)   a small percentage change in price will cause virtually no change in quantity demanded.
C)   a large percentage change in price will cause a smaller change in quantity demanded.
D)   any percentage change in price will cause an almost immediate response in quantity demanded.E) A) and C)
F) None of the above

Question 16

If total revenue increases when price increases:

Accepted Answer

A)   demand is elastic.
B)   demand is inelastic.
C)   demand is unit elastic.
D)   Any of these could be true.E) All of the above
F) None of the above

Question 17

If a good has unitary price elasticity of demand, then the absolute value of the percentage change in _____ equals _____.

Accepted Answer

A)   quantity demanded; one
B)   price; one
C)   quantity demanded; the absolute value of the corresponding percentage change in price
D)   price; the absolute value of the percentage change in quantity demanded, plus oneE) A) and D)
F) All of the above

Question 18

The demand for spring break vacations is _____ price elastic than the demand for textbooks because vacations _____.

Accepted Answer

A)   less; have more available substitutes
B)   more; have less available substitutes
C)   less; are more of a luxury
D)   more; are more of a luxuryE) A) and C)
F) A) and D)

Question 19

Consider the demand curve in the graph shown. Suppose price is initially $6 and falls to $4. Which of the following statements is true?

Accepted Answer

A)   The quantity effect will outweigh the price effect, and total revenue will rise.
B)   The quantity effect will outweigh the price effect, and total revenue will fall.
C)   The price effect will outweigh the quantity effect, and total revenue will rise.
D)   The price effect will outweigh the quantity effect, and total revenue will fall.E) A) and D)
F) A) and B)

Question 20

Suppose that the price of a good is $10 and quantity demanded is 50 units. When price decreases to $8, quantity demanded increases to 60 units. What happened to total revenue and what does this indicate?

Accepted Answer

A)   Total revenue decreased from $500 to $480, indicating that demand is inelastic.
B)   Total revenue decreased from $500 to $480, indicating that demand is elastic.
C)   Total revenue increased from $480 to $500, indicating that demand is inelastic.
D)   Total revenue increased from $480 to $500, indicating that demand is elastic.E) All of the above
F) C) and D) A

Exam 4: Elasticity

Suppose a one percent change in the price of oil causes a −0.02 percent change in the quantity demanded of oil. Thus, −0.02 is the:

Correct AnswerverifiedShow Answer

Suppose the price of a can of tuna is $1.30 and the quantity demanded is 9. When the price increases to $1.50, the quantity demanded drops to 7. Using the mid-point method, what is the price elasticity of demand?

Correct AnswerverifiedShow Answer

A linear demand curve:

Correct AnswerverifiedShow Answer

A good with an income elasticity of 2.3 is:

Correct AnswerverifiedShow Answer

The demand for dolls is _____ price elastic than the demand for Barbie dolls because _____.

Correct AnswerverifiedShow Answer

An increase in price causes:I. a decrease in revenue due to the price effect.II. an increase in revenue due to the price effect.III. a decrease in revenue due to the quantity effect.IV. an increase in revenue due to the quantity effect.

Correct AnswerverifiedB

The demand for ice cream is _____ price elastic than the demand for frozen treats overall because _____.

Correct AnswerverifiedD

Gasoline and motel rooms are complements for many consumers. When the price of gasoline declines, consumers take longer vacations and rent more motel rooms. Therefore, the cross-price elasticity of demand between gasoline and motel rooms is

Correct AnswerverifiedShow Answer

Suppose the price of jelly increases by 10 percent and the amount of peanut butter purchased decreases by 20 percent. What is the cross-price elasticity of demand between these two goods?

Correct AnswerverifiedShow Answer

When the quantity effect outweighs the price effect, a price _____ will cause a(n) _____ in total revenue.

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In general, the more elastic a demand curve is, the:

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Suppose the price of a good is $6 and quantity demanded is 10 units. When price decreases to $5, quantity demanded increases to 13 units. What happened to total revenue and what does this indicate?

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A good with an income elasticity of 0.4 is:

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Consider the demand curve in the graph shown. Suppose the price is initially $6 and then falls to $4. Which of the following statements is true?

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If a good has an elastic demand, then:

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If total revenue increases when price increases:

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If a good has unitary price elasticity of demand, then the absolute value of the percentage change in _____ equals _____.

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The demand for spring break vacations is _____ price elastic than the demand for textbooks because vacations _____.

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Consider the demand curve in the graph shown. Suppose price is initially $6 and falls to $4. Which of the following statements is true?

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Suppose that the price of a good is $10 and quantity demanded is 50 units. When price decreases to $8, quantity demanded increases to 60 units. What happened to total revenue and what does this indicate?

Correct AnswerverifiedA

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The demand for dolls is _ price elastic than the demand for Barbie dolls because _.

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B

The demand for ice cream is _ price elastic than the demand for frozen treats overall because _.

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D

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When the quantity effect outweighs the price effect, a price _ will cause a(n) _ in total revenue.

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If a good has unitary price elasticity of demand, then the absolute value of the percentage change in _ equals _.

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The demand for spring break vacations is _ price elastic than the demand for textbooks because vacations _.

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A