Question 1

What would you expect the cross price elasticity of iPods and online music downloads? Explain your answer.

Accepted Answer

The cross price elasticity of iPods and

Question 2

Price elasticity of demand is measured using percentage changes. Why?

Accepted Answer

By using percentage changes, we are focu

Question 3

If the price of gasoline increased by 5 % and consumers responded by purchasing 1 % less gasoline, the absolute value of price elasticity of demand for gasoline would equal

Accepted Answer

A)  0.1. 
B)  0.5. 
C)  1.5. 
D)  0.2. 
A)  0.1. 
B)  0.5. 
C)  1.5. 
D)  0.2.

Question 4

The absolute price elasticity of demand for a product that has many good substitutes is probably

Accepted Answer

A)  less than 1. 
B)  greater than 1. 
C)  equal to 1. 
D)  infinity. 
A)  less than 1. 
B)  greater than 1. 
C)  equal to 1. 
D)  infinity.

Question 5

If there is no response in quantity demanded to a change in price, demand is

Accepted Answer

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

Question 6

If the bus fare of a city increases from $1.00 to $1.25 per ride and as a result total revenue increases, then we know that

Accepted Answer

A)  percentage change in fare is less than percentage change in number of rides. 
B)  percentage change in fare is greater than percentage change in number of rides. 
C)  percentage change in fare is equal to the percentage change in number of rides. 
D)  it is impossible to tell. 
A)  percentage change in fare is less than percentage change in number of rides. 
B)  percentage change in fare is greater than percentage change in number of rides. 
C)  percentage change in fare is equal to the percentage change in number of rides. 
D)  it is impossible to tell.

Question 7

If the price of oil goes up by 50 % and the quantity demanded goes down by 25%, the absolute value of the price elasticity of demand is

Accepted Answer

A)  0.25. 
B)  0.50. 
C)  0.75. 
D)  1.00. 
A)  0.25. 
B)  0.50. 
C)  0.75. 
D)  1.00.

Question 8

Which has a more elastic demand: hamburger or beef?

Accepted Answer

Hamburger has the more elastic demand be

Question 9

The result of the calculation of the price elasticity of demand is

Accepted Answer

A)  always positive. 
B)  always negative. 
C)  sometimes positive, sometimes negative. 
D)  always greater than one. 
A)  always positive. 
B)  always negative. 
C)  sometimes positive, sometimes negative. 
D)  always greater than one.

Question 10

Two items which have a negative 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 11

When demand is unit elastic, a change in price will cause

Accepted Answer

A)  a change in total revenue in the same direction. 
B)  a change in total revenue in the opposite direction. 
C)  no change in total revenue. 
D)  a change in total revenue in either direction depending on whether the price is increasing or decreasing. 
A)  a change in total revenue in the same direction. 
B)  a change in total revenue in the opposite direction. 
C)  no change in total revenue. 
D)  a change in total revenue in either direction depending on whether the price is increasing or decreasing.

Question 12

"Price elasticity measures how many more units of a good that consumers will buy given a decrease in price." Do you agree or disagree? Explain.

Accepted Answer

Disagree. Price elasticity mea

Question 13

Suppose that the cross price elasticity of demand between good X and good Y is -1.55. This indicates that the two goods are

Accepted Answer

A)  substitutes. 
B)  complements. 
C)  both inferior. 
D)  completely unrelated in the minds of consumers. 
A)  substitutes. 
B)  complements. 
C)  both inferior. 
D)  completely unrelated in the minds of consumers.

Question 14

When the consumer spends over 50% of her 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 15

Graphically, what is the main difference between the measure of income elasticity of demand as opposed to the measure of price elasticity of demand?

Accepted Answer

Graphically, income elasticity of demand

Question 16

Suppose that the amount of computer printers demanded increases by 20 percent when the price of personal computers falls by 10 percent. The cross price elasticity of demand between computer printers and personal computers is

Accepted Answer

A)  0.5. 
B)  -2.0. 
C)  -0.5. 
D)  2.0. 
A)  0.5. 
B)  -2.0. 
C)  -0.5. 
D)  2.0.

Question 17

A good's price elasticity of demand can be calculated by using the formula of

Accepted Answer

A)  percentage change in price divided by percentage change in quantity demanded. 
B)  percentage change in quantity demanded divided by percentage change in price. 
C)  percentage change in price divided by percentage change in income. 
D)  absolute change in quantity demanded divided by absolute change in price. 
A)  percentage change in price divided by percentage change in quantity demanded. 
B)  percentage change in quantity demanded divided by percentage change in price. 
C)  percentage change in price divided by percentage change in income. 
D)  absolute change in quantity demanded divided by absolute change in price.

Question 18

A perfectly elastic demand curve

Accepted Answer

A)  shows that a slight change in income will lead to a large reduction in price. 
B)  is a horizontal line drawn across from the quantity axis. 
C)  shows that a slight increase in price will reduce quantity demanded to zero. 
D)  has a slope of -1. 
A)  shows that a slight change in income will lead to a large reduction in price. 
B)  is a horizontal line drawn across from the quantity axis. 
C)  shows that a slight increase in price will reduce quantity demanded to zero. 
D)  has a slope of -1.

Question 19

A perfectly inelastic demand curve is

Accepted Answer

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

Question 20

Moving downward on a downward sloping linear demand curve, the absolute value of the price elasticity of demand

Accepted Answer

A)  is constant. 
B)  increases continuously. 
C)  decreases continuously. 
D)  may either increase or decrease. 
A)  is constant. 
B)  increases continuously. 
C)  decreases continuously. 
D)  may either increase or decrease.

Exam 19: Demand and Supply Elasticity

What would you expect the cross price elasticity of iPods and online music downloads? Explain your answer.

Price elasticity of demand is measured using percentage changes. Why?

If the price of gasoline increased by 5 % and consumers responded by purchasing 1 % less gasoline, the absolute value of price elasticity of demand for gasoline would equal

The absolute price elasticity of demand for a product that has many good substitutes is probably

If there is no response in quantity demanded to a change in price, demand is

If the bus fare of a city increases from $1.00 to $1.25 per ride and as a result total revenue increases, then we know that

If the price of oil goes up by 50 % and the quantity demanded goes down by 25%, the absolute value of the price elasticity of demand is

Which has a more elastic demand: hamburger or beef?

The result of the calculation of the price elasticity of demand is

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

When demand is unit elastic, a change in price will cause

"Price elasticity measures how many more units of a good that consumers will buy given a decrease in price." Do you agree or disagree? Explain.

Suppose that the cross price elasticity of demand between good X and good Y is -1.55. This indicates that the two goods are

When the consumer spends over 50% of her income on a good, demand will be

Graphically, what is the main difference between the measure of income elasticity of demand as opposed to the measure of price elasticity of demand?

Suppose that the amount of computer printers demanded increases by 20 percent when the price of personal computers falls by 10 percent. The cross price elasticity of demand between computer printers and personal computers is

A good's price elasticity of demand can be calculated by using the formula of

A perfectly elastic demand curve

A perfectly inelastic demand curve is

Moving downward on a downward sloping linear demand curve, the absolute value of the price elasticity of demand

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

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The Macroeconomy: Unemployment, Inflation, and Deflation

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Global Economic Growth and Development

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Consumer Choice

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The Firm: Cost and Output Determination

Perfect Competition

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Regulation and Antitrust Policy in a Globalized Economy

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Unions and Labor Market Monopoly Power

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Environmental Economics

Comparative Advantage and the Open Economy

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