Question 1

The percentage change in the demand for one good divided by the percentage change in the price of a related good is the

Accepted Answer

A)  price elasticity of demand. 
B)  price elasticity of supply. 
C)  cross price elasticity of demand. 
D)  income elasticity. 
A)  price elasticity of demand. 
B)  price elasticity of supply. 
C)  cross price elasticity of demand. 
D)  income elasticity.

Question 2

The difference between price elasticity of demand and income elasticity of demand is that

Accepted Answer

A)  income elasticity of demand examines how an individual's income changes when prices change and the price elasticity of demand examines how quantity demand changes when price changes. 
B)  income elasticity refers to the movement along the demand curve while price elasticity refers to a horizontal shift of the demand curve. 
C)  income elasticity measures the responsiveness of income to changes in supply while price elasticity of demand measures the responsiveness of demand to a change in price. 
D)  income elasticity refers to a horizontal shift of the demand curve while price elasticity of demand refers to a movement along the demand curve. 
A)  income elasticity of demand examines how an individual's income changes when prices change and the price elasticity of demand examines how quantity demand changes when price changes. 
B)  income elasticity refers to the movement along the demand curve while price elasticity refers to a horizontal shift of the demand curve. 
C)  income elasticity measures the responsiveness of income to changes in supply while price elasticity of demand measures the responsiveness of demand to a change in price. 
D)  income elasticity refers to a horizontal shift of the demand curve while price elasticity of demand refers to a movement along the demand curve.

Question 3

When the absolute price elasticity of demand is greater than 1, demand is

Accepted Answer

A)  elastic. 
B)  unit-elastic. 
C)  inelastic. 
D)  undetermined without more information. 
A)  elastic. 
B)  unit-elastic. 
C)  inelastic. 
D)  undetermined without more information.

Question 4

-In the above table, the cross price elasticity of demand for good Z with good Y when PY rises from $15 to $18 is

Accepted Answer

A)  -2.20. 
B)  +2.20. 
C)  +1.10. 
D)  -1.10. 
A)  -2.20. 
B)  +2.20. 
C)  +1.10. 
D)  -1.10.

Question 5

"Income elasticity of demand is always positive." Do you agree or disagree? Explain.

Accepted Answer

Disagree. Income elasticity of demand ca

Question 6

When demand is perfectly inelastic, the demand curve is

Accepted Answer

A)  horizontal. 
B)  vertical. 
C)  upward sloping. 
D)  downward sloping. 
A)  horizontal. 
B)  vertical. 
C)  upward sloping. 
D)  downward sloping.

Question 7

Vincent Van Gogh paintings have a price elasticity of supply

Accepted Answer

A)  equal to 2.0. 
B)  equal to 1.0. 
C)  close to 0.0. 
D)  approaching infinity. 
A)  equal to 2.0. 
B)  equal to 1.0. 
C)  close to 0.0. 
D)  approaching infinity.

Question 8

The price elasticity of supply is 0.6. This means that

Accepted Answer

A)  a $10 increase in price would increase quantity supplied by 60. 
B)  a 150 percent increase in price would increase quantity supplied by 90 percent. 
C)  a 50 percent increase in quantity will occur when price increases by 30 percent. 
D)  a 10 percent increase in quantity will occur when price increases by 6 percent. 
A)  a $10 increase in price would increase quantity supplied by 60. 
B)  a 150 percent increase in price would increase quantity supplied by 90 percent. 
C)  a 50 percent increase in quantity will occur when price increases by 30 percent. 
D)  a 10 percent increase in quantity will occur when price increases by 6 percent.

Question 9

The government raises gasoline taxes as part of the price of gasoline and receives more tax revenues. However, after five years, the government discovers that revenues from the gasoline tax have declined. This situation would be most likely to occur if

Accepted Answer

A)  the long-run elasticity of supply was much greater than the long-run elasticity of demand. 
B)  the demand for gasoline was inelastic in the short run, but elastic in the long run. 
C)  the long-run elasticity of demand was greater than the long-run elasticity of supply. 
D)  the demand for gasoline was perfectly inelastic in both the short run and the long run. 
A)  the long-run elasticity of supply was much greater than the long-run elasticity of demand. 
B)  the demand for gasoline was inelastic in the short run, but elastic in the long run. 
C)  the long-run elasticity of demand was greater than the long-run elasticity of supply. 
D)  the demand for gasoline was perfectly inelastic in both the short run and the long run.

Question 10

The range to the left of the midpoint on a linear demand curve is

Accepted Answer

A)  elastic. 
B)  infinite. 
C)  one. 
D)  inelastic. 
A)  elastic. 
B)  infinite. 
C)  one. 
D)  inelastic.

Question 11

When the absolute price elasticity of demand equals 2.5, demand is

Accepted Answer

A)  elastic. 
B)  unit-elastic. 
C)  inelastic. 
D)  undetermined without more information. 
A)  elastic. 
B)  unit-elastic. 
C)  inelastic. 
D)  undetermined without more information.

Question 12

The cross price elasticity of demand between two goods is 50. We may conclude that

Accepted Answer

A)  the two goods are very complementary and probably are sold together. 
B)  the two goods are poor substitutes for each other. 
C)  the demand for one of the goods is likely to be fairly elastic and the demand for the other good is likely to be fairly inelastic. 
D)  the demand for each of the goods is likely to be very elastic. 
A)  the two goods are very complementary and probably are sold together. 
B)  the two goods are poor substitutes for each other. 
C)  the demand for one of the goods is likely to be fairly elastic and the demand for the other good is likely to be fairly inelastic. 
D)  the demand for each of the goods is likely to be very elastic.

Question 13

A vertical demand curve has

Accepted Answer

A)  infinite elasticity. 
B)  positive elasticity. 
C)  zero elasticity. 
D)  negative elasticity. 
A)  infinite elasticity. 
B)  positive elasticity. 
C)  zero elasticity. 
D)  negative elasticity.

Question 14

If price elasticity of supply is less than 1,

Accepted Answer

A)  supply is elastic. 
B)  demand is elastic. 
C)  demand is inelastic. 
D)  supply is inelastic. 
A)  supply is elastic. 
B)  demand is elastic. 
C)  demand is inelastic. 
D)  supply is inelastic.

Question 15

If a 1 percent increase in price causes a 2 percent increase in quantity supplied, then supply is

Accepted Answer

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

Question 16

Suppose that the price of eggs increases from 75 cents to $1.00 per dozen and as a result a typical farmer experiences a decrease in egg sales from 300 to 200 dozen per week. Using the method of average values, the absolute price elasticity of demand is

Accepted Answer

A)  1.4. 
B)  0.8. 
C)  3.0. 
D)  1.75. 
A)  1.4. 
B)  0.8. 
C)  3.0. 
D)  1.75.

Question 17

Julie always purchases the soda with the lowest price. For Julie, the cross price elasticity of demand for brand X and brand Y will be

Accepted Answer

A)  equal to 0. 
B)  negative. 
C)  positive. 
D)  impossible to determine without more information. 
A)  equal to 0. 
B)  negative. 
C)  positive. 
D)  impossible to determine without more information.

Question 18

A consumer is willing and able to buy 1,000 units of a good at $10, but the consumer's quantity demanded falls to zero if the price rises even a fraction of a cent. The consumer's demand curve is

Accepted Answer

A)  horizontal and is perfectly inelastic. 
B)  horizontal and is perfectly elastic. 
C)  vertical and is perfectly elastic. 
D)  downward sloping from higher prices down to $10 and then horizontal. 
A)  horizontal and is perfectly inelastic. 
B)  horizontal and is perfectly elastic. 
C)  vertical and is perfectly elastic. 
D)  downward sloping from higher prices down to $10 and then horizontal.

Question 19

Suppose that the cross price elasticity of demand between goods A and B equals 1.5. Which of the following is TRUE?

Accepted Answer

A)  A and B are complements because the cross price elasticity is greater than one. 
B)  A and B are complements because the cross price elasticity is positive. 
C)  A and B are substitutes because the cross price elasticity is greater than one. 
D)  A and B are substitutes because the cross price elasticity is positive. 
A)  A and B are complements because the cross price elasticity is greater than one. 
B)  A and B are complements because the cross price elasticity is positive. 
C)  A and B are substitutes because the cross price elasticity is greater than one. 
D)  A and B are substitutes because the cross price elasticity is positive.

Question 20

-Use the above figure. Which graph depicts substitute goods?

Accepted Answer

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

Exam 19: Demand and Supply Elasticity

The percentage change in the demand for one good divided by the percentage change in the price of a related good is the

The difference between price elasticity of demand and income elasticity of demand is that

When the absolute price elasticity of demand is greater than 1, demand is

-In the above table, the cross price elasticity of demand for good Z with good Y when PY rises from $15 to $18 is

"Income elasticity of demand is always positive." Do you agree or disagree? Explain.

When demand is perfectly inelastic, the demand curve is

Vincent Van Gogh paintings have a price elasticity of supply

The price elasticity of supply is 0.6. This means that

The government raises gasoline taxes as part of the price of gasoline and receives more tax revenues. However, after five years, the government discovers that revenues from the gasoline tax have declined. This situation would be most likely to occur if

The range to the left of the midpoint on a linear demand curve is

When the absolute price elasticity of demand equals 2.5, demand is

The cross price elasticity of demand between two goods is 50. We may conclude that

A vertical demand curve has

If price elasticity of supply is less than 1,

If a 1 percent increase in price causes a 2 percent increase in quantity supplied, then supply is

Suppose that the price of eggs increases from 75 cents to $1.00 per dozen and as a result a typical farmer experiences a decrease in egg sales from 300 to 200 dozen per week. Using the method of average values, the absolute price elasticity of demand is

Julie always purchases the soda with the lowest price. For Julie, the cross price elasticity of demand for brand X and brand Y will be

A consumer is willing and able to buy 1,000 units of a good at $10, but the consumer's quantity demanded falls to zero if the price rises even a fraction of a cent. The consumer's demand curve is

Suppose that the cross price elasticity of demand between goods A and B equals 1.5. Which of the following is TRUE?

-Use the above figure. Which graph depicts substitute goods?

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

-In the above table, the cross price elasticity of demand for good Z with good Y when P_Y rises from $15 to $18 is