Question 1

If the supply curve slopes upward and a $3 per unit tax on suppliers raises the profit-maximizing price by $3, demand must be perfectly inelastic.

Accepted Answer

A) True 
 B)False

Question 2

Exhibit 5-28   Use the information in Exhibit 5-28 to calculate the value of price elasticity of demand from point a to b.

Accepted Answer

A) -5/4 
B) -4/5 
C) -13/18 
D) -18/13 
E) 0 
A) -5/4 
B) -4/5 
C) -13/18 
D) -18/13 
E) 0

Question 3

The more broadly a good is defined,

Accepted Answer

A) the more substitutes it has so the more elastic is its demand 
B) the fewer substitutes it has so the more elastic is its demand 
C) the more substitutes it has so the less elastic is its demand 
D) the fewer substitutes it has so the less elastic is its demand 
E) the more complements it has so the more elastic is its demand 
A) the more substitutes it has so the more elastic is its demand 
B) the fewer substitutes it has so the more elastic is its demand 
C) the more substitutes it has so the less elastic is its demand 
D) the fewer substitutes it has so the less elastic is its demand 
E) the more complements it has so the more elastic is its demand

Question 4

For which of the following is demand most likely to be perfectly inelastic?

Accepted Answer

A) BMW automobiles 
B) Pepsi Cola 
C) hot dogs 
D) insulin 
E) Tylenol 
A) BMW automobiles 
B) Pepsi Cola 
C) hot dogs 
D) insulin 
E) Tylenol

Question 5

If an increase in price from $1.20 to $2 per unit leads to an increase in quantity supplied from 20 to 100 units,

Accepted Answer

A) demand is elastic 
B) demand is inelastic 
C) demand is unit elastic 
D) supply is elastic 
E) supply is inelastic 
A) demand is elastic 
B) demand is inelastic 
C) demand is unit elastic 
D) supply is elastic 
E) supply is inelastic

Question 6

Which of the following describes a situation in which demand must be elastic?

Accepted Answer

A) The price of pens rises by 10 cents, and quantity of pens demanded falls by 50. 
B) The price of pens rises by 10 cents, and total revenue rises. 
C) A 20 percent increase in the price of pens leads to a 20 percent decrease in the quantity of pens demanded. 
D) Total revenue does not change when the price of pens rises. 
E) Total revenue decreases when the price of pencils rises. 
A) The price of pens rises by 10 cents, and quantity of pens demanded falls by 50. 
B) The price of pens rises by 10 cents, and total revenue rises. 
C) A 20 percent increase in the price of pens leads to a 20 percent decrease in the quantity of pens demanded. 
D) Total revenue does not change when the price of pens rises. 
E) Total revenue decreases when the price of pencils rises.

Question 7

If the value of the price elasticity of demand is -0.2, this means that a

Accepted Answer

A) 20 percent decrease in price causes a 1 percent increase in quantity demanded 
B) 0.2 percent decrease in price causes a 1 percent increase in quantity demanded 
C) 5 percent decrease in price causes a 1 percent increase in quantity demanded 
D) 0.2 percent decrease in price causes a 0.2 percent increase in quantity demanded 
E) 100 percent decrease in price causes a 200 percent increase in quantity demanded 
A) 20 percent decrease in price causes a 1 percent increase in quantity demanded 
B) 0.2 percent decrease in price causes a 1 percent increase in quantity demanded 
C) 5 percent decrease in price causes a 1 percent increase in quantity demanded 
D) 0.2 percent decrease in price causes a 0.2 percent increase in quantity demanded 
E) 100 percent decrease in price causes a 200 percent increase in quantity demanded

Question 8

Demand for a necessity, such as food, is

Accepted Answer

A) both income and price inelastic 
B) income inelastic and price elastic 
C) income elastic and price inelastic 
D) both income and price elastic 
E) income elastic and perfectly price inelastic 
A) both income and price inelastic 
B) income inelastic and price elastic 
C) income elastic and price inelastic 
D) both income and price elastic 
E) income elastic and perfectly price inelastic

Question 9

Demand is elastic whenever

Accepted Answer

A) price elasticity has an absolute value of 1 
B) price elasticity has an absolute value greater than 1 
C) price elasticity has an absolute value less than 1 
D) price elasticity is negative 
E) consumers respond to a change in price 
A) price elasticity has an absolute value of 1 
B) price elasticity has an absolute value greater than 1 
C) price elasticity has an absolute value less than 1 
D) price elasticity is negative 
E) consumers respond to a change in price

Question 10

Demand for clothing tends to be

Accepted Answer

A) elastic because there are few substitutes for clothing 
B) inelastic because there are few substitutes for clothing 
C) elastic because expenditures for clothing represent a large part of the consumer's budget 
D) inelastic because expenditures for clothing represent a large part of the consumer's budget 
E) elastic because it is a broadly defined good 
A) elastic because there are few substitutes for clothing 
B) inelastic because there are few substitutes for clothing 
C) elastic because expenditures for clothing represent a large part of the consumer's budget 
D) inelastic because expenditures for clothing represent a large part of the consumer's budget 
E) elastic because it is a broadly defined good

Question 11

Negative cross-price elasticity of demand indicates that

Accepted Answer

A) the product is an inferior good 
B) the product is a necessity 
C) the product is a luxury 
D) the two products are substitutes 
E) the two products are complements 
A) the product is an inferior good 
B) the product is a necessity 
C) the product is a luxury 
D) the two products are substitutes 
E) the two products are complements

Question 12

If the price of a good doubles and quantity supplied triples, then

Accepted Answer

A) demand is elastic 
B) demand is inelastic 
C) supply is inelastic 
D) supply is elastic 
E) there is insufficient information to reach any conclusion about the price elasticity of supply 
A) demand is elastic 
B) demand is inelastic 
C) supply is inelastic 
D) supply is elastic 
E) there is insufficient information to reach any conclusion about the price elasticity of supply

Question 13

If an increase in price from $1 to $2 per unit leads to an increase in quantity supplied from 20 to 100 units, then the value of price elasticity of supply is

Accepted Answer

A) 0.38 
B) 2 
C) 2.67 
D) 4 
E) 8 
A) 0.38 
B) 2 
C) 2.67 
D) 4 
E) 8

Question 14

If the sellers in the cigarette industry formed a cartel and decided to set price along a straight-line downward-sloping demand curve, which point would they choose if they wanted to gain the highest total revenue?

Accepted Answer

A) The point nearest the vertical axis, where the price is highest. 
B) The point nearest the horizontal axis, where quantity demanded is greatest. 
C) One of the points higher up on the demand curve, where demand is elastic. 
D) One of the points lower down on the demand curve, where demand is inelastic. 
E) The point of unit elasticity, in the middle of the demand curve. 
A) The point nearest the vertical axis, where the price is highest. 
B) The point nearest the horizontal axis, where quantity demanded is greatest. 
C) One of the points higher up on the demand curve, where demand is elastic. 
D) One of the points lower down on the demand curve, where demand is inelastic. 
E) The point of unit elasticity, in the middle of the demand curve.

Question 15

A good that takes up a very large percentage of the consumer's budget will tend to have

Accepted Answer

A) an elastic demand 
B) a perfectly elastic demand 
C) an inelastic demand 
D) an upward-sloping demand curve 
E) very many substitutes 
A) an elastic demand 
B) a perfectly elastic demand 
C) an inelastic demand 
D) an upward-sloping demand curve 
E) very many substitutes

Question 16

The total revenue curve that corresponds to a downward-sloping linear demand curve

Accepted Answer

A) slopes downward 
B) slopes upward 
C) is a horizontal line 
D) first rises, then falls 
E) first falls, then rises 
A) slopes downward 
B) slopes upward 
C) is a horizontal line 
D) first rises, then falls 
E) first falls, then rises

Question 17

Exhibit 5-12   Refer to Exhibit 5-12.What can be said of the price elasticity of demand for this good?

Accepted Answer

A) Demand is inelastic. 
B) Demand is unit elastic. 
C) Demand is elastic. 
D) Demand is perfectly elastic. 
E) Not enough information is given to determine elasticity. 
A) Demand is inelastic. 
B) Demand is unit elastic. 
C) Demand is elastic. 
D) Demand is perfectly elastic. 
E) Not enough information is given to determine elasticity.

Question 18

Luis wonders why commercials appear more frequently at the end of a TV movie than at the beginning.Carol says that this pattern can be explained by the

Accepted Answer

A) share of the viewer's budget spent on TV watching 
B) length of the adjustment period 
C) cost of supplying additional minutes of the movie 
D) high elasticity of demand for watching the end of a TV movie 
E) availability of substitutes 
A) share of the viewer's budget spent on TV watching 
B) length of the adjustment period 
C) cost of supplying additional minutes of the movie 
D) high elasticity of demand for watching the end of a TV movie 
E) availability of substitutes

Question 19

When quantity is measured in gallons, the price elasticity of demand for milk will be __________ the price elasticity when quantity is measured in quarts.

Accepted Answer

A) the same as 
B) four times 
C) one quarter 
D) two times 
E) less than 
A) the same as 
B) four times 
C) one quarter 
D) two times 
E) less than

Question 20

The demand for firewood is likely to be more elastic in the summer than in the winter.

Accepted Answer

A) True 
 B)False

Exam 5: Elasticity of Demand and Supply

If the supply curve slopes upward and a $3 per unit tax on suppliers raises the profit-maximizing price by $3, demand must be perfectly inelastic.

Exhibit 5-28 Use the information in Exhibit 5-28 to calculate the value of price elasticity of demand from point a to b.

The more broadly a good is defined,

For which of the following is demand most likely to be perfectly inelastic?

If an increase in price from $1.20 to $2 per unit leads to an increase in quantity supplied from 20 to 100 units,

Which of the following describes a situation in which demand must be elastic?

If the value of the price elasticity of demand is -0.2, this means that a

Demand for a necessity, such as food, is

Demand is elastic whenever

Demand for clothing tends to be

Negative cross-price elasticity of demand indicates that

If the price of a good doubles and quantity supplied triples, then

If an increase in price from $1 to $2 per unit leads to an increase in quantity supplied from 20 to 100 units, then the value of price elasticity of supply is

If the sellers in the cigarette industry formed a cartel and decided to set price along a straight-line downward-sloping demand curve, which point would they choose if they wanted to gain the highest total revenue?

A good that takes up a very large percentage of the consumer's budget will tend to have

The total revenue curve that corresponds to a downward-sloping linear demand curve

Exhibit 5-12 Refer to Exhibit 5-12.What can be said of the price elasticity of demand for this good?

Luis wonders why commercials appear more frequently at the end of a TV movie than at the beginning.Carol says that this pattern can be explained by the

When quantity is measured in gallons, the price elasticity of demand for milk will be __________ the price elasticity when quantity is measured in quarts.

The demand for firewood is likely to be more elastic in the summer than in the winter.

The Art and Science of Economic Analysis

Appendix--Understanding Graphs

Economic Tools and Economics Systems

Economic Decision Makers

Demand, Supply, and Markets

Appendix--Price Elasticity and Tax Incidence

Consumer Choice and Demand

Appendix--Indifference Curves and Utility Maximization

Production and Cost in the Firm

A--Perfect Competition

B--Perfect Competition

A--Monopoly

B--Monopoly

Monopolistic Competition and Oligopoly

Resource Markets

Labor Markets and Labor Unions

Capital, Interest, and Corporate Finance

Transaction Costs, Imperfect Information, and Behavioral Economics

Economic Regulation and Antitrust Policy

Public Goods and Public Choice

Externalities and the Environment

Income Distribution and Poverty

International Trade

International Finance

Economic Development

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