Question 1

If the market price of a product falls and as a result total revenue of firms falls, we can conclude that

Accepted Answer

A)  demand is elastic in this price range. 
B)  the product's price is above the midpoint of its demand curve. 
C)  demand is inelastic in this price range. 
D)  the demand curve is horizontal. 
A)  demand is elastic in this price range. 
B)  the product's price is above the midpoint of its demand curve. 
C)  demand is inelastic in this price range. 
D)  the demand curve is horizontal.

Question 2

If demand is perfectly elastic everywhere along the demand curve, then

Accepted Answer

A)  people must be irrational. 
B)  the demand curve is vertical. 
C)  the demand curve is a rectangular hyperbola. 
D)  the demand curve is horizontal. 
A)  people must be irrational. 
B)  the demand curve is vertical. 
C)  the demand curve is a rectangular hyperbola. 
D)  the demand curve is horizontal.

Question 3

Price elasticity of supply is always

Accepted Answer

A)  positive because of the law of supply. 
B)  negative because of the law of supply. 
C)  positive because of diminishing marginal utility. 
D)  negative because percentages can only be negative. 
A)  positive because of the law of supply. 
B)  negative because of the law of supply. 
C)  positive because of diminishing marginal utility. 
D)  negative because percentages can only be negative.

Question 4

Compared to the long-run absolute elasticity of demand, the short-run absolute elasticity of demand is

Accepted Answer

A)  smaller. 
B)  the same. 
C)  larger. 
D)  either smaller or larger, depending on other factors. 
A)  smaller. 
B)  the same. 
C)  larger. 
D)  either smaller or larger, depending on other factors.

Question 5

A 10 percent increase in the price of smartphones leads to a 10 percent decrease in the quantity demanded of smartphones. The absolute price elasticity of demand is

Accepted Answer

A)  3. 
B)  0.3. 
C)  1.0. 
D)  0.01. 
A)  3. 
B)  0.3. 
C)  1.0. 
D)  0.01.

Question 6

If the supply of a good is perfectly inelastic, the price elasticity of supply will equal

Accepted Answer

A)  positive infinity. 
B)  one. 
C)  zero. 
D)  none of the above. 
A)  positive infinity. 
B)  one. 
C)  zero. 
D)  none of the above.

Question 7

A perfectly elastic demand curve exhibits

Accepted Answer

A)  zero responsiveness to changes in price. 
B)  that quantity demanded will decrease to zero when there is a slight increase in the price level. 
C)  a change in quantity demanded that is proportional to the change in price. 
D)  a change in quantity demanded that is always twenty percent of the change in price. 
A)  zero responsiveness to changes in price. 
B)  that quantity demanded will decrease to zero when there is a slight increase in the price level. 
C)  a change in quantity demanded that is proportional to the change in price. 
D)  a change in quantity demanded that is always twenty percent of the change in price.

Question 8

A perfectly elastic supply curve is

Accepted Answer

A)  an upward sloping straight line that intersects the origin. 
B)  horizontal. 
C)  vertical. 
D)  downward sloping. 
A)  an upward sloping straight line that intersects the origin. 
B)  horizontal. 
C)  vertical. 
D)  downward sloping.

Question 9

For most items, we find the price elasticity of supply will be

Accepted Answer

A)  negative. 
B)  positive. 
C)  invisible. 
D)  inverse. 
A)  negative. 
B)  positive. 
C)  invisible. 
D)  inverse.

Question 10

Even though price elasticity of demand is always ________, by convention its absolute value is always discussed as a ________.

Accepted Answer

A)  negative; prime number 
B)  positive; negative number 
C)  a fraction; whole number 
D)  negative; positive number 
A)  negative; prime number 
B)  positive; negative number 
C)  a fraction; whole number 
D)  negative; positive number

Question 11

When the price of a video rental was $2.00, ticket sales at the local movie theatre averaged 180 admissions per night. Then the video store reduced the price of a video rental to $1, and the theatre manager reported that ticket sales had fallen to 126 per night. What is the approximate value of the cross price elasticity of demand between video rentals and theatre tickets?

Accepted Answer

A)  -0.53 
B)  +0.30 
C)  +0.53 
D)  +1.67 
A)  -0.53 
B)  +0.30 
C)  +0.53 
D)  +1.67

Question 12

When the consumer spends a small portion of his income on a good, demand will be

Accepted Answer

A)  elastic. 
B)  unit-elastic. 
C)  inelastic. 
D)  elastic, unit-elastic or inelastic depending upon supply. 
A)  elastic. 
B)  unit-elastic. 
C)  inelastic. 
D)  elastic, unit-elastic or inelastic depending upon supply.

Question 13

If the quantity demanded of a product is the same for each possible price, demand is

Accepted Answer

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

Question 14

What does a perfectly elastic demand curve look like? A perfectly inelastic demand curve? Explain.

Accepted Answer

A perfectly elastic demand curve is hori

Question 15

If the value of the cross elasticity of demand is negative, the two goods are

Accepted Answer

A)  complementary goods. 
B)  substitute goods. 
C)  normal goods. 
D)  inferior goods. 
A)  complementary goods. 
B)  substitute goods. 
C)  normal goods. 
D)  inferior goods.

Question 16

Within the range of prices around the midpoint on a straight-line demand curve, demand is

Accepted Answer

A)  elastic. 
B)  inelastic. 
C)  unit-elastic. 
D)  zero. 
A)  elastic. 
B)  inelastic. 
C)  unit-elastic. 
D)  zero.

Question 17

For which of the following purchases would the absolute price elasticity of demand be greatest?

Accepted Answer

A)  A sports car 
B)  Utilities 
C)  Chewing gum 
D)  A cell phone 
A)  A sports car 
B)  Utilities 
C)  Chewing gum 
D)  A cell phone

Question 18

Total revenue is

Accepted Answer

A)  price × quantity. 
B)  change in price × change in quantity. 
C)  change in price × quantity. 
D)  price × change in quantity. 
A)  price × quantity. 
B)  change in price × change in quantity. 
C)  change in price × quantity. 
D)  price × change in quantity.

Question 19

Two items which have a positive cross price elasticity of demand are referred to as

Accepted Answer

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

Question 20

The value of the absolute price elasticity of demand for good X is 3. The absolute price elasticity for good Y is 2. Which good's quantity demanded is less responsive to a change in price?

Accepted Answer

A)  Good X. 
B)  Good Y. 
C)  They are equally responsive. 
D)  Not enough information is given. 
A)  Good X. 
B)  Good Y. 
C)  They are equally responsive. 
D)  Not enough information is given.

Exam 19: Demand and Supply Elasticity

If the market price of a product falls and as a result total revenue of firms falls, we can conclude that

If demand is perfectly elastic everywhere along the demand curve, then

Price elasticity of supply is always

Compared to the long-run absolute elasticity of demand, the short-run absolute elasticity of demand is

A 10 percent increase in the price of smartphones leads to a 10 percent decrease in the quantity demanded of smartphones. The absolute price elasticity of demand is

If the supply of a good is perfectly inelastic, the price elasticity of supply will equal

A perfectly elastic demand curve exhibits

A perfectly elastic supply curve is

For most items, we find the price elasticity of supply will be

Even though price elasticity of demand is always ________, by convention its absolute value is always discussed as a ________.

When the consumer spends a small portion of his income on a good, demand will be

If the quantity demanded of a product is the same for each possible price, demand is

What does a perfectly elastic demand curve look like? A perfectly inelastic demand curve? Explain.

If the value of the cross elasticity of demand is negative, the two goods are

Within the range of prices around the midpoint on a straight-line demand curve, demand is

For which of the following purchases would the absolute price elasticity of demand be greatest?

Total revenue is

Two items which have a positive cross price elasticity of demand are referred to as

The value of the absolute price elasticity of demand for good X is 3. The absolute price elasticity for good Y is 2. Which good's quantity demanded is less responsive to a change in price?

The Nature of Economics

Scarcity and the World of Trade-Offs

Demand and Supply

Extensions of Demand and Supply Analysis

Public Spending and Public Choice

Funding the Public Sector

The Macroeconomy: Unemployment, Inflation, and Deflation

Measuring the Economys Performance

Global Economic Growth and Development

Real GDP and the Price Level in the Long Run

Classical and Keynesian Macro Analyses

Consumption, Real GDP, and the Multiplier

Fiscal Policy

Deficit Spending and the Public Debt

Money, Banking, and Central Banking

Domestic and International Dimensions of Monetary Policy

Stabilization in an Integrated World Economy

Policies and Prospects for Global Economic Growth

Consumer Choice

Rents, Profits, and the Financial Environment of Business

The Firm: Cost and Output Determination

Perfect Competition

Monopoly

Monopolistic Competition

Oligopoly and Strategic Behavior

Regulation and Antitrust Policy in a Globalized Economy

The Labor Market: Demand, Supply and Outsourcing

Unions and Labor Market Monopoly Power

Income, Poverty, and Health Care

Environmental Economics

Comparative Advantage and the Open Economy

Exchange Rates and the Balance of Payments

Filters

Even though price elasticity of demand is always , by convention its absolute value is always discussed as a .