Question 1

The price elasticity of demand for insulin (a hormone necessary to treat Type I diabetes)  is:

Accepted Answer

A)   likely to be perfectly inelastic over some range of prices.
B)   perfectly elastic.
C)   always perfectly inelastic.
D)   low relative to the price elasticity of supply.E) A) and B)
F) All of the above

Question 2

A decrease in price causes:

Accepted Answer

A)   a quantity effect, which is an increase in revenue that results from selling fewer units of the good.
B)   a price effect, which is an increase in revenue that results from receiving a lower price for each unit sold.
C)   both a price effect and quantity effect.
D)   a decrease in quantity demanded.E) C) and D)
F) None of the above

Question 3

The demand for a subway ride is likely _____ price elastic than the demand for a car because _____.

Accepted Answer

A)   less; a subway ride requires a smaller portion of one's income
B)   more; a subway ride requires a smaller portion of one's income
C)   less; consumers will take a longer time to adjust to a change in the price of a subway ride
D)   more; consumers will take a longer time to adjust to a change in the price of a subway rideE) A) and C)
F) None of the above

Question 4

Whether a cross-price elasticity of demand is positive or negative indicates whether the:

Accepted Answer

A)   goods are substitutes or complements.
B)   elasticities are reported in absolute value.
C)   demands are elastic or inelastic.
D)   goods are a luxury or a necessity.E) B) and C)
F) C) and D)

Question 5

When a good has many close substitutes available, it is likely to be:

Accepted Answer

A)   less price elastic than a good without close substitutes available.
B)   more price elastic than a good with many complement goods available.
C)   less price elastic than a good with many complement goods available.
D)   more price elastic than a good without close substitutes available.E) B) and C)
F) A) and D)

Question 6

Assuming price elasticity of demand is reported as an absolute value, the measured elasticity for an elastic demand would be:

Accepted Answer

A)   greater than one.
B)   less than one.
C)   exactly one.
D)   greater than zero and less than one.E) A) and C)
F) C) and D)

Question 7

A linear demand curve has a:

Accepted Answer

A)   slope equal to that of its elasticity.
B)   constant slope, but changing elasticity.
C)   changing slope, but constant elasticity.
D)   constant slope and a constant elasticity, but they need not be equal.E) A) and B)
F) A) and C)

Question 8

Suppose a decrease in price increases quantity demanded from 8 to 12 units. Using the mid-point formula, what is the percentage change in quantity demanded?

Accepted Answer

A)   0.1 = 10 percent
B)   40 = 400 percent
C)   0.40 = 40 percent
D)   −0.40 = −40 percentE) B) and C)
F) C) and D)

Question 9

If the price of a cup of Dunkin' Donuts coffee increases while the price of a Starbucks latte is unchanged, we expect the number of lattes purchased at Starbucks to _____ as some consumers _____.

Accepted Answer

A)   increase; switch from Dunkin' Donuts coffee to Starbucks lattes.
B)   decrease; switch from Dunkin' Donuts coffee to Starbucks lattes.
C)   decrease; have less money to spend on caffeinated beverages.
D)   decrease; switch from Starbucks lattes to Dunkin' Donuts coffee.E) A) and B)
F) A) and C)

Question 10

For many consumers, bacon and eggs are complements. Egg producers monitor the price of bacon because the cross-price elasticity of demand between bacon and eggs is _____, meaning a(n)  _____ in the price of bacon will _____ the demand for eggs.

Accepted Answer

A)   negative; decrease; decrease
B)   positive; decrease; increase
C)   negative; decrease; increase
D)   positive; increase; increaseE) A) and D)
F) A) and C)

Question 11

Consider the demand curve in the graph shown. Suppose price is initially $11 and falls to $8. 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 C)
F) A) and B)

Question 12

Coke and Pepsi, both cola producers, likely have a _____ cross-price elasticity of demand than that of Coke and bananas.

Accepted Answer

A)   less elastic
B)   smaller
C)   more negative
D)   more elasticE) All of the above
F) None of the above

Question 13

Knowing the price elasticity of demand is important in business because it allows a manager to determine whether:

Accepted Answer

A)   a price increase will cause total revenue to rise or fall.
B)   an increase in supply will cause total profit to rise or fall.
C)   a price increase will cause the quantity demanded to rise or fall.
D)   a price increase will cause the demand to rise or fall.E) A) and D)
F) B) and C)

Question 14

When demand is perfectly elastic:

Accepted Answer

A)   the demand curve is perfectly vertical.
B)   the demand curve is perfectly horizontal.
C)   price elasticity is exactly −1.
D)   the response to a change in price is immediate.E) B) and D)
F) A) and B)

Question 15

Suppose the price of mascara is $12 and the quantity demanded is 450. When the price drops to $8, the quantity demanded increases to 550. Using the mid-point method, what is the price elasticity of demand?

Accepted Answer

A)   −0.5
B)   −2.0
C)   −55
D)   −180E) C) and D)
F) B) and D)

Question 16

A baker of chocolate chip cookies is likely to have a _____ price elasticity of supply than the seller of rare baseball cards due to _____.

Accepted Answer

A)   more elastic; the availability of inputs
B)   less elastic; the availability of inputs
C)   less elastic; a shorter adjustment time
D)   less elastic; a more flexible production processE) B) and C)
F) A) and D)

Question 17

Consider a market in which price is initially $2 and rises to $6. If we know total revenue fell as a result of this price change, then we also know that the _____ effect outweighed the _____ effect, and the market is more likely to be represented by _____.

Accepted Answer

A)   price; quantity; Graph A
B)   quantity; price; Graph A
C)   price; quantity; Graph B
D)   quantity; price; Graph BE) B) and D)
F) A) and B)

Question 18

Why do producers calculate the price elasticity of demand for their goods and services?

Accepted Answer

A)   They want to know the goods and services for which consumers are most sensitive to price changes.
B)   They want to be able to predict the future preferences of their customers.
C)   They want to know that consumers will have the same response to a price change regardless of the good or service.
D)   They want to understand what goods their customers dislike the most.E) All of the above
F) A) and D)

Question 19

Assuming price elasticity of demand is reported as an absolute value, a price elasticity of demand of 1.2 indicates an _____ demand, meaning the percentage change in quantity demanded will be _____ than the percentage change in price.

Accepted Answer

A)   elastic; greater
B)   inelastic; greater
C)   elastic; less
D)   inelastic; lessE) A) and B)
F) All of the above

Question 20

If the price of a cup of coffee increases by 50 percent and the quantity of cups demanded decreases by 50 percent, the price elasticity of demand is:

Accepted Answer

A)   elastic.
B)   inelastic.
C)   unit elastic.
D)   zero.E) None of the above
F) B) and D)

Exam 4: Elasticity

Suppose a decrease in price increases quantity demanded from 8 to 12 units. Using the mid-point formula, what is the percentage change in quantity demanded?

Correct AnswerverifiedShow Answer

For many consumers, bacon and eggs are complements. Egg producers monitor the price of bacon because the cross-price elasticity of demand between bacon and eggs is _____, meaning a(n) _____ in the price of bacon will _____ the demand for eggs.

Correct AnswerverifiedShow Answer

The price elasticity of demand for insulin (a hormone necessary to treat Type I diabetes) is:

Correct AnswerverifiedShow Answer

Why do producers calculate the price elasticity of demand for their goods and services?

Correct AnswerverifiedShow Answer

Knowing the price elasticity of demand is important in business because it allows a manager to determine whether:

Correct AnswerverifiedShow Answer

Assuming price elasticity of demand is reported as an absolute value, the measured elasticity for an elastic demand would be:

Correct AnswerverifiedShow Answer

A baker of chocolate chip cookies is likely to have a _____ price elasticity of supply than the seller of rare baseball cards due to _____.

Correct AnswerverifiedShow Answer

Coke and Pepsi, both cola producers, likely have a _____ cross-price elasticity of demand than that of Coke and bananas.

Correct AnswerverifiedShow Answer

If the price of a cup of coffee increases by 50 percent and the quantity of cups demanded decreases by 50 percent, the price elasticity of demand is:

Correct AnswerverifiedShow Answer

When a good has many close substitutes available, it is likely to be:

Correct AnswerverifiedShow Answer

A linear demand curve has a:

Correct AnswerverifiedShow Answer

Suppose the price of mascara is $12 and the quantity demanded is 450. When the price drops to $8, the quantity demanded increases to 550. Using the mid-point method, what is the price elasticity of demand?

Correct AnswerverifiedShow Answer

When demand is perfectly elastic:

Correct AnswerverifiedShow Answer

Consider the demand curve in the graph shown. Suppose price is initially $11 and falls to $8. Which of the following statements is true?

Correct AnswerverifiedShow Answer

The demand for a subway ride is likely _____ price elastic than the demand for a car because _____.

Correct AnswerverifiedShow Answer

Whether a cross-price elasticity of demand is positive or negative indicates whether the:

Correct AnswerverifiedShow Answer

A decrease in price causes:

Correct AnswerverifiedShow Answer

Assuming price elasticity of demand is reported as an absolute value, a price elasticity of demand of 1.2 indicates an _____ demand, meaning the percentage change in quantity demanded will be _____ than the percentage change in price.

Correct AnswerverifiedShow Answer

Consider a market in which price is initially $2 and rises to $6. If we know total revenue fell as a result of this price change, then we also know that the _____ effect outweighed the _____ effect, and the market is more likely to be represented by _____.

Correct AnswerverifiedShow Answer

If the price of a cup of Dunkin' Donuts coffee increases while the price of a Starbucks latte is unchanged, we expect the number of lattes purchased at Starbucks to _____ as some consumers _____.

Correct AnswerverifiedShow Answer

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For many consumers, bacon and eggs are complements. Egg producers monitor the price of bacon because the cross-price elasticity of demand between bacon and eggs is ___, meaning a(n) _ in the price of bacon will ___ the demand for eggs.

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A baker of chocolate chip cookies is likely to have a _ price elasticity of supply than the seller of rare baseball cards due to _.

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The demand for a subway ride is likely _ price elastic than the demand for a car because _.

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Assuming price elasticity of demand is reported as an absolute value, a price elasticity of demand of 1.2 indicates an _ demand, meaning the percentage change in quantity demanded will be _ than the percentage change in price.

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Consider a market in which price is initially $2 and rises to $6. If we know total revenue fell as a result of this price change, then we also know that the ___ effect outweighed the _ effect, and the market is more likely to be represented by ___.

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If the price of a cup of Dunkin' Donuts coffee increases while the price of a Starbucks latte is unchanged, we expect the number of lattes purchased at Starbucks to _ as some consumers _.

Correct Answer
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