Question 1

When demand is elastic, a decrease in price will cause

Accepted Answer

A) an increase in total revenue. 
B) a decrease in total revenue. 
C) no change in total revenue but an increase in quantity demanded. 
D) no change in total revenue but a decrease in quantity demanded.

Question 2

Necessities such as food and clothing tend to have

Accepted Answer

A) high price elasticities of demand and high income elasticities of demand. 
B) high price elasticities of demand and low income elasticities of demand. 
C) low price elasticities of demand and high income elasticities of demand. 
D) low price elasticities of demand and low income elasticities of demand.

Question 3

Which of the following statements is valid when the market supply curve is vertical?

Accepted Answer

A) Market quantity supplied does not change when the price changes. 
B) Supply is perfectly elastic. 
C) An increase in market demand will increase the equilibrium quantity. 
D) An increase in market demand will not increase the equilibrium price.

Question 4

The flatter the demand curve that passes through a given point, the more inelastic the demand.

Accepted Answer

A) True 
 B)False

Question 5

While in college, Marty and Laura each buy 15 bus tickets per month. After they graduate and have full-time jobs, Marty buys 0 bus tickets per month and Laura buys 28 bus tickets per month. Comparing income elasticity of demand for bus tickets, Marty's

Accepted Answer

A) is negative, and Laura's is positive. 
B) is positive, and Laura's is negative. 
C) is zero, and Laura's is positive. 
D) is zero, and Laura's is negative.

Question 6

You and your college roommate eat three packages of Ramen noodles each week. After graduation last month, both of you were hired at several times your college income. You still enjoy Ramen noodles very much and buy even more, but your roommate plans to buy fewer Ramen noodles in favor of foods she prefers more. When looking at income elasticity of demand for Ramen noodles, yours would

Accepted Answer

A) be negative, and your roommate's would be positive. 
B) be positive, and your roommate's would be negative. 
C) be zero, and your roommate's would approach infinity. 
D) approach infinity, and your roommate's would be zero.

Question 7

For a particular good, a 10 percent increase in price causes a 3 percent decrease in quantity demanded. Which of the following statements is most likely applicable to this good?

Accepted Answer

A) The relevant time horizon is short. 
B) The good is a luxury. 
C) The market for the good is narrowly defined. 
D) There are many close substitutes for this good.

Question 8

Last year, Tess bought 5 handbags when her income was $54,000. This year, her income is $60,000, and she purchased 7 handbags. Holding other factors constant, it follows that Tess's income elasticity of demand is about

Accepted Answer

A) 0.32, and Tess regards handbags as inferior goods. 
B) 0.32, and Tess regards handbags as normal goods. 
C) 3.17, and Tess regards handbags as inferior goods. 
D) 3.17, and Tess regards handbags as normal goods.

Question 9

Suppose the price of natural gas, a typical fuel for heating homes, rises in January in Alaska. Would you expect the price elasticity of demand for natural gas to more inelastic immediately after the price increase or at some point in the future?

Accepted Answer

The answer of Suppose the price of natural gas, a...

Question 10

The price elasticity of demand is defined as the percentage change in price divided by the percentage change in quantity demanded.

Accepted Answer

A) True 
 B)False

Question 11

Hilda's Hair Hysteria earned $3,750 in total revenue last month when it sold 125 haircuts. This month it earned $3,600 in total revenue when it sold 90 haircuts. The price elasticity of demand for Hilda's Hair Hysteria is

Accepted Answer

A) 0.33. 
B) 0.88. 
C) 1.14. 
D) 7.98.

Question 12

Assume that a 4 percent decrease in income results in a 6 percent increase in the quantity demanded of a good. The income elasticity of demand for the good is

Accepted Answer

A) negative, and the good is an inferior good. 
B) negative, and the good is a normal good. 
C) positive, and the good is an inferior good. 
D) positive, and the good is a normal good.

Question 13

Which of the following is likely to have the most price inelastic demand?

Accepted Answer

A) mint-flavored toothpaste 
B) toothpaste 
C) Colgate mint-flavored toothpaste 
D) a generic mint-flavored toothpaste

Question 14

Josh mows lawns. If the demand for lawn-mowing service is elastic and Josh wants to increase his total revenue, he should

Accepted Answer

A) increase the price of his lawn-mowing service. 
B) decrease the price of his lawn-mowing service. 
C) reduce the costs of operating his lawn-mowing service. 
D) More than one of the above is correct.

Question 15

Demand is said to be price elastic if

Accepted Answer

A) the price of the good responds substantially to changes in demand. 
B) demand shifts substantially when income or the expected future price of the good changes. 
C) buyers do not respond much to changes in the price of the good. 
D) buyers respond substantially to changes in the price of the good.

Question 16

There are very few, if any, good substitutes for motor oil. Therefore, the

Accepted Answer

A) demand for motor oil would tend to be inelastic. 
B) demand for motor oil would tend to be elastic. 
C) demand for motor oil would tend to respond strongly to changes in prices of other goods. 
D) supply of motor oil would tend to respond strongly to changes in people's tastes for large cars relative to their tastes for small cars.

Question 17

The flatter the demand curve through a given point, the

Accepted Answer

A) greater the price elasticity of demand at that point. 
B) smaller the price elasticity of demand at that point. 
C) closer the price elasticity of demand will be to the slope of the curve. 
D) greater the absolute value of the change in total revenue when there is a movement from that point upward and to the left along the demand curve.

Question 18

If a 25% change in price results in a 40% change in quantity supplied, then the price elasticity of supply is about

Accepted Answer

A) 0.63, and supply is elastic. 
B) 0.63, and supply is inelastic. 
C) 1.60, and supply is elastic. 
D) 1.60, and supply is inelastic.

Question 19

Figure 5-20 
-Refer to Figure 5-20. Which supply curve represents perfectly inelastic supply?

Accepted Answer

A) S1 
B) S2 
C) S3 
D) None of the supply curves is perfectly inelastic.

Question 20

Which of the following could be the price elasticity of demand for a good for which a decrease in price would increase revenue?

Accepted Answer

A) 0 
B) 0.4 
C) 1 
D) 4

Exam 5: Elasticity and Its Application