Question 1

Most likely, the elasticity of demand for transportation is greater than the elasticity of demand for cars.

Accepted Answer

A) True 
 B)False

Question 2

If Portuguese wines are an inferior good, higher incomes will cause:

Accepted Answer

A)  an increase in the demand for Portuguese wines. 
B)  a decrease in the demand for Portuguese wines. 
C)  an increase in the quantity demanded for Portuguese wines. 
D)  a decrease in the quantity demanded for Portuguese wines.

Question 3

In which case will the price change be the greatest (assuming the shifts described are the same size)?

Accepted Answer

A)  Demand is inelastic, and supply shifts to the left. 
B)  Supply is perfectly elastic, and demand shifts to the left. 
C)  Demand is elastic, and supply shifts to the left. 
D)  Supply is elastic, and demand shifts to the left.

Question 4

If consumers won't pay more than $1.50 for a pack of gum and at $1.50 they will buy an almost infinite amount, price elasticity of demand at $1.50 is:

Accepted Answer

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

Question 5

The cross-price elasticity of demand is the percentage change in price divided by the percentage change in the price of another good.

Accepted Answer

A) True 
 B)False

Question 6

Refer to the following table to answer the question. A local government is looking to reduce "undesirable" behavior on the part of its citizens: drinking alcoholic beverages and smoking. Assuming people cannot shop for alcoholic beverages out of town, a 10 percent tax on all alcoholic beverages would have the largest proportionate effect on the sale of: $\begin{array}{|c|c|}
\hline \text { Good } & \text { Elasticity } \
\hline \text { Cigarettes } & 3 \
\hline \text { Liquor } & .5 \
\hline \text { Wine } & .4 \
\hline \text { Beer } & .1 \
\hline
\end{array}$

Accepted Answer

A)  cigarettes. 
B)  liquor. 
C)  beer. 
D)  wine.

Question 7

Repeated hurricanes in Florida have caused some retirees to choose to retire to Arizona instead. Based on this information, retirement housing in Florida and that in Arizona are what kinds of goods?

Accepted Answer

A)  Florida housing has become an inferior good, and Arizona housing had been a luxury good. 
B)  Florida housing has become a luxury good, and Arizona housing had been an inferior good. 
C)  Florida housing and Arizona housing are substitutes. 
D)  Florida housing and Arizona housing are complementary goods.

Question 8

If the price of corn goes up by $1 a bushel and the quantity supplied rises by 100 bushels, the price elasticity of supply has to be 100.

Accepted Answer

A) True 
 B)False

Question 9

If the percentage increase in the quantity supplied is greater than the percentage increase in the price, the supply:

Accepted Answer

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

Question 10

Refer to the graph shown. Calculate the approximate average elasticity of demand as the price falls from $18 to $0:

Accepted Answer

A)  3. 
B)  1. 
C)  2/3. 
D)  3/2.

Question 11

A perfectly elastic supply curve would:

Accepted Answer

A)  intersect the two axes at the origin. 
B)  intersect the horizontal axis. 
C)  be horizontal. 
D)  be vertical.

Question 12

Refer to the graph shown. Which supply curve is perfectly inelastic?

Accepted Answer

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

Question 13

Richard Voith estimated the price elasticity of demand for round-trip rail fare to be 0.62. If fares rose by 30 percent, one would expect the quantity of round-trip tickets purchased to:

Accepted Answer

A)  rise by 18.6 percent. 
B)  fall by 18.6 percent. 
C)  rise by 48.4 percent. 
D)  fall by 48.4 percent.

Question 14

Along a straight-line demand curve, total revenue is the highest when elasticity of demand is:

Accepted Answer

A)  zero. 
B)  1. 
C)  infinity. 
D)  between zero and 1.

Question 15

If supply is highly elastic and demand shifts to the right:

Accepted Answer

A)  price will rise significantly; quantity hardly changes at all. 
B)  price will hardly change at all; quantity will rise significantly. 
C)  price will rise significantly as will quantity. 
D)  price and quantity will hardly change at all.

Question 16

Suppose average attendance to Six Flags is 500,000 when prices are $40 a ticket and 450,000 when prices are $50 a ticket. Other things being equal, the data imply that the elasticity of demand for Six Flags is:

Accepted Answer

A)  elastic, so the increase in price caused total revenue to rise. 
B)  elastic, so the increase in price caused total revenue to fall. 
C)  inelastic, so the increase in price caused total revenue to rise. 
D)  inelastic, so the increase in price caused total revenue to fall.

Question 17

If milk and cookies are complements and the price of cookies rises, we would expect to see:

Accepted Answer

A)  an increase in the demand for milk. 
B)  a decrease in the demand for milk. 
C)  an increase in the quantity demanded for milk but no change in demand. 
D)  a decrease in the quantity demanded for milk but no change in demand.

Question 18

If milk and cookies are complements and the price of cookies falls, we would expect to see:

Accepted Answer

A)  an increase in the demand for milk. 
B)  a decrease in the demand for milk. 
C)  an increase in the quantity demanded for milk but no change in demand. 
D)  a decrease in the quantity demanded for milk but no change in demand.

Question 19

It has been estimated that the price elasticity for cigarettes is 0.164. Assuming there are currently no taxes on cigarettes, to reduce cigarette purchases by 5 percent, the government would need to tax cigarettes enough to:

Accepted Answer

A)  raise the price by 0.82 percent. 
B)  lower the price by 0.82 percent. 
C)  raise the price by 30.5 percent. 
D)  lower the price by 30.5 percent.

Question 20

Elasticity of demand for bus services is 0.23 for the peak hours and 0.42 for off-peak hours. The same percentage increase in price would:

Accepted Answer

A)  lower revenues for both, but more for peak hours. 
B)  raise revenues for both, but more for peak hours. 
C)  raise revenue for peak hours but lower revenue for off-peak hours. 
D)  lower revenue for peak hours but raise revenue for off-peak hours.

Exam 6: Describing Supply and Demand: Elasticities

Most likely, the elasticity of demand for transportation is greater than the elasticity of demand for cars.

If Portuguese wines are an inferior good, higher incomes will cause:

In which case will the price change be the greatest (assuming the shifts described are the same size) ?

If consumers won't pay more than $1.50 for a pack of gum and at $1.50 they will buy an almost infinite amount, price elasticity of demand at $1.50 is:

The cross-price elasticity of demand is the percentage change in price divided by the percentage change in the price of another good.

Repeated hurricanes in Florida have caused some retirees to choose to retire to Arizona instead. Based on this information, retirement housing in Florida and that in Arizona are what kinds of goods?

If the price of corn goes up by $1 a bushel and the quantity supplied rises by 100 bushels, the price elasticity of supply has to be 100.

If the percentage increase in the quantity supplied is greater than the percentage increase in the price, the supply:

Refer to the graph shown. Calculate the approximate average elasticity of demand as the price falls from $18 to $0:

A perfectly elastic supply curve would:

Refer to the graph shown. Which supply curve is perfectly inelastic?

Richard Voith estimated the price elasticity of demand for round-trip rail fare to be 0.62. If fares rose by 30 percent, one would expect the quantity of round-trip tickets purchased to:

Along a straight-line demand curve, total revenue is the highest when elasticity of demand is:

If supply is highly elastic and demand shifts to the right:

Suppose average attendance to Six Flags is 500,000 when prices are $40 a ticket and 450,000 when prices are $50 a ticket. Other things being equal, the data imply that the elasticity of demand for Six Flags is:

If milk and cookies are complements and the price of cookies rises, we would expect to see:

If milk and cookies are complements and the price of cookies falls, we would expect to see:

It has been estimated that the price elasticity for cigarettes is 0.164. Assuming there are currently no taxes on cigarettes, to reduce cigarette purchases by 5 percent, the government would need to tax cigarettes enough to:

Elasticity of demand for bus services is 0.23 for the peak hours and 0.42 for off-peak hours. The same percentage increase in price would: