Question 1

A perfectly elastic demand would imply what kind of demand curve?

Accepted Answer

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

Question 2

How does the cross elasticity of demand differ from the price elasticity of demand? How are they related?

Accepted Answer

The cross elasticity of demand is the re

Question 3

A value of the absolute price elasticity of demand equal to 0.5 indicates that

Accepted Answer

A)  a 0.5% decrease in price leads to a 1% increase in quantity demanded. 
B)  a 2% decrease in price leads to a 25% increase in quantity demanded. 
C)  a 1% increase in price leads to a 5% decrease in quantity demanded. 
D)  a 1% increase in price leads to a 0.5% decrease in quantity demanded. 
A)  a 0.5% decrease in price leads to a 1% increase in quantity demanded. 
B)  a 2% decrease in price leads to a 25% increase in quantity demanded. 
C)  a 1% increase in price leads to a 5% decrease in quantity demanded. 
D)  a 1% increase in price leads to a 0.5% decrease in quantity demanded.

Question 4

Which of the following statements is FALSE?

Accepted Answer

A)  A perfectly inelastic supply curve is a vertical line. 
B)  Time is an important consideration in determining supply elasticity. 
C)  Price elasticity of supply can never equal 1. 
D)  A horizontal supply curve is possible. 
A)  A perfectly inelastic supply curve is a vertical line. 
B)  Time is an important consideration in determining supply elasticity. 
C)  Price elasticity of supply can never equal 1. 
D)  A horizontal supply curve is possible.

Question 5

Suppose that when the price of good X changes, the quantity of good Y demanded remains the same. The cross price elasticity of demand is

Accepted Answer

A)  zero. 
B)  positive. 
C)  negative. 
D)  either positive or negative. 
A)  zero. 
B)  positive. 
C)  negative. 
D)  either positive or negative.

Question 6

If demand for Rolls Royce automobiles rises in an area where incomes have increased, this tells us that a Rolls Royce is

Accepted Answer

A)  a normal good. 
B)  an inferior good. 
C)  a complementary good. 
D)  a substitute good. 
A)  a normal good. 
B)  an inferior good. 
C)  a complementary good. 
D)  a substitute good.

Question 7

A demand relationship in which a given percentage change in price will result in a less than proportionate percentage change in quantity demanded is

Accepted Answer

A)  elastic. 
B)  unit-elastic. 
C)  inelastic. 
D)  consistent with zero elasticity. 
A)  elastic. 
B)  unit-elastic. 
C)  inelastic. 
D)  consistent with zero elasticity.

Question 8

The cross elasticity of demand is

Accepted Answer

A)  the percentage change in the demand divided by the percentage change in price of another good. 
B)  the change in the price of one good divided by the change of quantity demanded of another good. 
C)  the percentage change in the quantity demanded of one good divided by the percentage change in the quantity demanded of another good. 
D)  the percentage change in the price of one good divided by the percentage change in the price of another good. 
A)  the percentage change in the demand divided by the percentage change in price of another good. 
B)  the change in the price of one good divided by the change of quantity demanded of another good. 
C)  the percentage change in the quantity demanded of one good divided by the percentage change in the quantity demanded of another good. 
D)  the percentage change in the price of one good divided by the percentage change in the price of another good.

Question 9

The slope of the perfectly inelastic demand curve is ________, the slope of the perfectly elastic demand curve is ________.

Accepted Answer

A)  undefined, zero 
B)  one, one 
C)  zero, undefined 
D)  one, zero 
A)  undefined, zero 
B)  one, one 
C)  zero, undefined 
D)  one, zero

Question 10

When John earned $65,000 he purchased 10 DVDs a year. His income has just increased to $68,000 and he plans to purchase 15 DVDs this year. John's income elasticity of demand equals

Accepted Answer

A)  0 
B)  0.11 
C)  1.67 
D)  8.87 
A)  0 
B)  0.11 
C)  1.67 
D)  8.87

Question 11

When two goods are substitutes,

Accepted Answer

A)  the demands for both goods will be inelastic. 
B)  cross price elasticity of demand will be 0. 
C)  cross price elasticity of demand will be negative. 
D)  cross price elasticity of demand will be positive. 
A)  the demands for both goods will be inelastic. 
B)  cross price elasticity of demand will be 0. 
C)  cross price elasticity of demand will be negative. 
D)  cross price elasticity of demand will be positive.

Question 12

Generally, expenses on toothpaste are a small part of a consumer's budget, so the demand for toothpaste is more likely to be

Accepted Answer

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

Question 13

Tickets for the Super Bowl are an example of supply that is

Accepted Answer

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

Question 14

When the price of gasoline is $2.20 per gallon, 11 million gallons are demanded, and when the price of gasoline goes up to $2.60 per gallon, 10 million gallons are demanded. The gasoline in this range has a(n)

Accepted Answer

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

Question 15

Usually, price elasticities of supply are

Accepted Answer

A)  positive, because higher prices yield larger quantities supplied. 
B)  considered short-run adjustments due to supply constraints. 
C)  ordinarily a negative number based on the law of supply. 
D)  an inverse relationship between price and quantity supplied. 
A)  positive, because higher prices yield larger quantities supplied. 
B)  considered short-run adjustments due to supply constraints. 
C)  ordinarily a negative number based on the law of supply. 
D)  an inverse relationship between price and quantity supplied.

Question 16

-Refer to the above table. Demand is least price elastic at a price of

Accepted Answer

A)  $10.00. 
B)  $7.50. 
C)  $7.00. 
D)  $5.00. 
A)  $10.00. 
B)  $7.50. 
C)  $7.00. 
D)  $5.00.

Question 17

If the absolute price elasticity of demand is equal to 1 in the short run, then in the long run, other things being equal, the absolute price elasticity of demand will be

Accepted Answer

A)  less than one. 
B)  less than zero. 
C)  greater than one. 
D)  equal to zero. 
A)  less than one. 
B)  less than zero. 
C)  greater than one. 
D)  equal to zero.

Question 18

If a price decrease of a product significantly raises its revenues, then the absolute price elasticity of demand for that product must be

Accepted Answer

A)  less than one. 
B)  equal to one. 
C)  greater than one. 
D)  an example of unit elasticity. 
A)  less than one. 
B)  equal to one. 
C)  greater than one. 
D)  an example of unit elasticity.

Question 19

-Refer to the above table. Suppose the price of X increases from $10 to $12. What is the cross price elasticity of demand between X and Z?

Accepted Answer

A)  +0.292 
B)  +7.06 
C)  -7.06 
D)  -0.292 
A)  +0.292 
B)  +7.06 
C)  -7.06 
D)  -0.292

Question 20

Absolute price elasticities are calculated for four commodities, and the values are: 0.009; 1.0; 3.3; and 4.1. Which indicates the most price-responsive situation?

Accepted Answer

A)  0.009 
B)  1.0 
C)  3.3 
D)  4.1 
A)  0.009 
B)  1.0 
C)  3.3 
D)  4.1

Exam 19: Demand and Supply Elasticity

A perfectly elastic demand would imply what kind of demand curve?

How does the cross elasticity of demand differ from the price elasticity of demand? How are they related?

A value of the absolute price elasticity of demand equal to 0.5 indicates that

Which of the following statements is FALSE?

Suppose that when the price of good X changes, the quantity of good Y demanded remains the same. The cross price elasticity of demand is

If demand for Rolls Royce automobiles rises in an area where incomes have increased, this tells us that a Rolls Royce is

A demand relationship in which a given percentage change in price will result in a less than proportionate percentage change in quantity demanded is

The cross elasticity of demand is

The slope of the perfectly inelastic demand curve is ________, the slope of the perfectly elastic demand curve is ________.

When John earned $65,000 he purchased 10 DVDs a year. His income has just increased to $68,000 and he plans to purchase 15 DVDs this year. John's income elasticity of demand equals

When two goods are substitutes,

Generally, expenses on toothpaste are a small part of a consumer's budget, so the demand for toothpaste is more likely to be

Tickets for the Super Bowl are an example of supply that is

When the price of gasoline is $2.20 per gallon, 11 million gallons are demanded, and when the price of gasoline goes up to $2.60 per gallon, 10 million gallons are demanded. The gasoline in this range has a(n)

Usually, price elasticities of supply are

-Refer to the above table. Demand is least price elastic at a price of

If the absolute price elasticity of demand is equal to 1 in the short run, then in the long run, other things being equal, the absolute price elasticity of demand will be

If a price decrease of a product significantly raises its revenues, then the absolute price elasticity of demand for that product must be

-Refer to the above table. Suppose the price of X increases from $10 to $12. What is the cross price elasticity of demand between X and Z?

Absolute price elasticities are calculated for four commodities, and the values are: 0.009; 1.0; 3.3; and 4.1. Which indicates the most price-responsive situation?

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

The slope of the perfectly inelastic demand curve is , the slope of the perfectly elastic demand curve is .