Question 1

If the price of a good goes up by 20 percent and the quantity demanded falls by 40 percent, the price elasticity of demand is 2.

Accepted Answer

A) True 
 B)False

Question 2

As the price of samosas (a triangular pastry in India) was raised from 2 to 3 rupees (Indian currency), their quantity demanded fell from 15,000 to 12,000. Rounding to the nearest tenth, the elasticity of demand of samosas is:

Accepted Answer

A)  4. 
B)  0.6. 
C)  1.8. 
D)  impossible to determine because we don't know the exchange rate of the rupee. 
A)  4. 
B)  0.6. 
C)  1.8. 
D)  impossible to determine because we don't know the exchange rate of the rupee.

Question 3

Along a straight-line supply curve:

Accepted Answer

A)  elasticity rises as price rises. 
B)  elasticity declines as price declines. 
C)  elasticity is equal to slope. 
D)  the change in elasticity depends on the supply curve in question. 
A)  elasticity rises as price rises. 
B)  elasticity declines as price declines. 
C)  elasticity is equal to slope. 
D)  the change in elasticity depends on the supply curve in question.

Question 4

A marketing student observes that when the price of ice cream rises by 10 percent, the quantity of ice cream a supplier is willing to sell rises by 5 percent. The student correctly concludes that the elasticity of supply for ice cream is:

Accepted Answer

A)  .2. 
B)  .5. 
C)  2. 
D)  5. 
A)  .2. 
B)  .5. 
C)  2. 
D)  5.

Question 5

Measuring the price of gasoline in dollars, an economist calculates the price elasticity of demand to be .5. What would the price elasticity of demand be if the economist had chosen to measure the price of gasoline in pennies rather than dollars?

Accepted Answer

A)  .5 
B)  .05 
C)  .005 
D)  50 
A)  .5 
B)  .05 
C)  .005 
D)  50

Question 6

Refer to the graph shown. At which point is elasticity 1?

Accepted Answer

A)  A 
B)  B 
C)  C 
D)  D 
A)  A 
B)  B 
C)  C 
D)  D

Question 7

Refer to the graph shown. Total revenue is at a maximum when price is:

Accepted Answer

A)  $2. 
B)  $4. 
C)  $6. 
D)  $8. 
A)  $2. 
B)  $4. 
C)  $6. 
D)  $8.

Question 8

Refer to the following graph.   The demand curve with the greatest elasticity is:

Accepted Answer

A)  A. 
B)  B. 
C)  C. 
D)  D. 
A)  A. 
B)  B. 
C)  C. 
D)  D.

Question 9

Refer to the following table to answer the question. Which of the following statements is true? $\begin{array}{|c|c|c|c|}
\hline \text { Price of A } & \begin{array}{c}
\text { Quantity Demanded } \
\text { of A }
\end{array} & \begin{array}{c}
\text { Quantity Demanded of } \
\text { B }
\end{array} & \begin{array}{c}
\text { Quantity Demanded } \
\text { of C }
\end{array} \
\hline \$ 1.00 & 80 & 100 & 5 \
\hline \$ 1.50 & 60 & 98 & 10 \
\hline \$ 2.00 & 40 & 96 & 15 \
\hline \$ 2.50 & 20 & 94 & 20 \
\hline \$ 3.00 & 0 & 92 & 25 \
\hline
\end{array}$

Accepted Answer

A)  A and B are complements whereas A and C are substitutes. 
B)  A and C are complements whereas A and B are substitutes. 
C)  A and B are complements and A and C are complements. 
D)  A and B are substitutes and A and C are substitutes. 
A)  A and B are complements whereas A and C are substitutes. 
B)  A and C are complements whereas A and B are substitutes. 
C)  A and B are complements and A and C are complements. 
D)  A and B are substitutes and A and C are substitutes.

Question 10

Refer to the table shown to answer the question. Between $2 and $2.20, demand is: $$\begin{array} { | c | c | } 
\hline \text { Price } & \text { Quantity Demanded } \
\hline \$ 1.60 & 130 \
\hline \$ 1.80 & 120 \
\hline \$ 2.00 & 110 \
\hline \$ 2.20 & 100 \
\hline \$ 2.40 & 90 \
\hline \$ 2.60 & 80 \
\hline
\end{array}$$

Accepted Answer

A)  elastic. 
B)  unit elastic. 
C)  inelastic. 
D)  perfectly elastic. 
A)  elastic. 
B)  unit elastic. 
C)  inelastic. 
D)  perfectly elastic.

Question 11

A price elasticity of demand for a good or service of 1.8 tells us that:

Accepted Answer

A)  the price changes by $1.80 when quantity changes by 1 unit. 
B)  quantity demanded falls by 1.8 percent when price rises by 1 percent. 
C)  the price rises by 1.8 percent when quantity demanded falls by 1 percent. 
D)  quantity demanded falls by 1.8 units when price changes by $1. 
A)  the price changes by $1.80 when quantity changes by 1 unit. 
B)  quantity demanded falls by 1.8 percent when price rises by 1 percent. 
C)  the price rises by 1.8 percent when quantity demanded falls by 1 percent. 
D)  quantity demanded falls by 1.8 units when price changes by $1.

Question 12

If elasticity of demand is greater than 1:

Accepted Answer

A)  a rise in price lowers total revenue. 
B)  a decline in price will not change total revenue. 
C)  a rise in price increases total revenue. 
D)  a decline in price lowers total revenue. 
A)  a rise in price lowers total revenue. 
B)  a decline in price will not change total revenue. 
C)  a rise in price increases total revenue. 
D)  a decline in price lowers total revenue.

Question 13

If the quantity of Arizona green teas demanded falls from 4.0 million to 3.0 million as the price of Lipton green teas falls from $2.70 to $2.50, Arizona's teas and Lipton's teas are:

Accepted Answer

A)  substitutes. 
B)  complements. 
C)  luxuries. 
D)  inferior goods. 
A)  substitutes. 
B)  complements. 
C)  luxuries. 
D)  inferior goods.

Question 14

If macaroni and cheese is an inferior good, falling incomes will tend to:

Accepted Answer

A)  put upward pressure on its price and quantity. 
B)  put downward pressure on its price and quantity. 
C)  raise its price but lower its quantity. 
D)  lower its price but raise its quantity. 
A)  put upward pressure on its price and quantity. 
B)  put downward pressure on its price and quantity. 
C)  raise its price but lower its quantity. 
D)  lower its price but raise its quantity.

Question 15

As the price of beachfront cottages in Florida was raised from $400,000 to $500,000, their quantity supplied rose from 2,000 to 2,100. Rounding to the nearest tenth, the elasticity of supply of beachfront cottages is:

Accepted Answer

A)  0.4. 
B)  0.2. 
C)  1.0. 
D)  4.6. 
A)  0.4. 
B)  0.2. 
C)  1.0. 
D)  4.6.

Question 16

Refer to the following graph.   If price is currently at B and rises, total revenue will rise.

Accepted Answer

A) True 
 B)False

Question 17

During World War II, the price of rubber went up considerably. The rise in price stimulated research for alternatives. Today's automobile tires are made almost entirely from synthetic materials. As a result, the increase in the price of rubber eventually led to a very large drop in quantity demanded. This is an example of how the price elasticity of demand:

Accepted Answer

A)  falls the less specifically the good is defined. 
B)  rises the less specifically the good is defined. 
C)  falls the greater the time frame considered. 
D)  rises the greater the time frame considered. 
A)  falls the less specifically the good is defined. 
B)  rises the less specifically the good is defined. 
C)  falls the greater the time frame considered. 
D)  rises the greater the time frame considered.

Question 18

The price elasticity of supply is the:

Accepted Answer

A)  change in the quantity supplied divided by the change in price. 
B)  percentage change in the quantity supplied divided by the percentage change in price. 
C)  change in the price divided by the change in the quantity supplied. 
D)  percentage change in the price divided by the percentage change in the quantity supplied. 
A)  change in the quantity supplied divided by the change in price. 
B)  percentage change in the quantity supplied divided by the percentage change in price. 
C)  change in the price divided by the change in the quantity supplied. 
D)  percentage change in the price divided by the percentage change in the quantity supplied.

Question 19

If an economist observed that higher hot dog prices lead to an increase in the demand for chili, she most likely would conclude that:

Accepted Answer

A)  chili and hot dogs are complements. 
B)  chili and hot dogs are substitutes. 
C)  chili and hot dogs are both inferior goods. 
D)  chili and hot dogs are both normal goods. 
A)  chili and hot dogs are complements. 
B)  chili and hot dogs are substitutes. 
C)  chili and hot dogs are both inferior goods. 
D)  chili and hot dogs are both normal goods.

Question 20

If quantity demanded does not change when the price changes, the demand:

Accepted Answer

A)  is elastic. 
B)  is inelastic. 
C)  has unit elasticity. 
D)  is perfectly inelastic. 
A)  is elastic. 
B)  is inelastic. 
C)  has unit elasticity. 
D)  is perfectly inelastic.

Exam 6: Describing Supply and Demand: Elasticities

If the price of a good goes up by 20 percent and the quantity demanded falls by 40 percent, the price elasticity of demand is 2.

As the price of samosas (a triangular pastry in India) was raised from 2 to 3 rupees (Indian currency), their quantity demanded fell from 15,000 to 12,000. Rounding to the nearest tenth, the elasticity of demand of samosas is:

Along a straight-line supply curve:

A marketing student observes that when the price of ice cream rises by 10 percent, the quantity of ice cream a supplier is willing to sell rises by 5 percent. The student correctly concludes that the elasticity of supply for ice cream is:

Measuring the price of gasoline in dollars, an economist calculates the price elasticity of demand to be .5. What would the price elasticity of demand be if the economist had chosen to measure the price of gasoline in pennies rather than dollars?

Refer to the graph shown. At which point is elasticity 1?

Refer to the graph shown. Total revenue is at a maximum when price is:

Refer to the following graph. The demand curve with the greatest elasticity is:

Refer to the following table to answer the question. Which of the following statements is true? Price of A Quantity Demanded of A Quantity Demanded of B Quantity Demanded of C \ 1.00 80 100 5 \ 1.50 60 98 10 \ 2.00 40 96 15 \ 2.50 20 94 20 \ 3.00 0 92 25

Refer to the table shown to answer the question. Between $2 and $2.20, demand is: Price Quantity Demanded \ 1.60 130 \ 1.80 120 \ 2.00 110 \ 2.20 100 \ 2.40 90 \ 2.60 80

A price elasticity of demand for a good or service of 1.8 tells us that:

If elasticity of demand is greater than 1:

If the quantity of Arizona green teas demanded falls from 4.0 million to 3.0 million as the price of Lipton green teas falls from $2.70 to $2.50, Arizona's teas and Lipton's teas are:

If macaroni and cheese is an inferior good, falling incomes will tend to:

As the price of beachfront cottages in Florida was raised from $400,000 to $500,000, their quantity supplied rose from 2,000 to 2,100. Rounding to the nearest tenth, the elasticity of supply of beachfront cottages is:

Refer to the following graph. If price is currently at B and rises, total revenue will rise.

The price elasticity of supply is the:

If an economist observed that higher hot dog prices lead to an increase in the demand for chili, she most likely would conclude that:

If quantity demanded does not change when the price changes, the demand:

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