Question 1

The income elasticity of demand for food is roughly 1. Suppose a consumer's monthly income is $2,000, of which 20 percent is spent on food. If the income of this consumer doubles, the amount she'll spend on food will be

Accepted Answer

A) $400 per month. 
B) $500 per month. 
C) $800 per month. 
D) $1,000 per month.

Question 2

A demand curve that is parallel to the horizontal axis is

Accepted Answer

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

Question 3

Other things the same, if a price change causes total revenue to change in the opposite direction, demand is

Accepted Answer

A) perfectly inelastic. 
B) relatively elastic. 
C) relatively inelastic. 
D) of unit elasticity.

Question 4

A computer company is considering lowering the price of its laptop computer to promote sales. However, it worries that this will reduce desktop computer sales. It finds the cross elasticity of demand to be 1. 5. Are its concerns legitimate? Explain.

Accepted Answer

The answer of A computer company is considering lowering the...

Question 5

Refer to the graphs above. A price increase from $20 to $40 causes quantity demanded to decrease from 100 units to 50 units. Which graph best illustrates the demand for this good?

Accepted Answer

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

Question 6

If the percentage change in quantity demanded is less than the percentage change in price, then demand is said to be elastic.

Accepted Answer

A) True 
 B)False

Question 7

The diagram concerns supply adjustments to an increase in demand (D₁ to D₂)in the immediate market period, the short run, and the long run. On the basis of this illustration, we can conclude that

Accepted Answer

A) short-run adjustments are more economically efficient than are long-run adjustments. 
B) the amount of time producers have to adjust to a change in demand is not a determinant of supply elasticity. 
C) S₁ reflects a longer adjustment period for producers than does S₂. 
D) S₂ reflects a longer adjustment period for producers than does S₁.

Question 8

Refer to the graphs above. Which one shows demand with a price-elasticity coefficient equal to zero?

Accepted Answer

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

Question 9

Refer to the diagram. If price falls from $10 to $2, total revenue

Accepted Answer

A) rises from A + B to A + B + D + C, and demand is elastic. 
B) falls from A + D to B + C, and demand is inelastic. 
C) rises from C + D to B + A, and demand is elastic. 
D) falls from A + B to B + C, and demand is inelastic.

Question 10

The larger the coefficient of price elasticity of demand for a product, the

Accepted Answer

A) larger the resulting price change for an increase in supply. 
B) more rapid the rate at which the marginal utility of that product diminishes. 
C) less competitive will be the industry supplying that product. 
D) smaller the resulting price change for an increase in supply.

Question 11

Explain how each of four determinants of elasticity of demand can affect the price elasticity of demand.

Accepted Answer

The answer of Explain how each of four determinants of...

Question 12

Why is the price elasticity of demand for air travel for business travelers different from that of leisure travelers?

Accepted Answer

The answer of Why is the price elasticity of demand...

Question 13

Answer the question on the basis of the following demand schedule.  Which of the following is correct?

Accepted Answer

A) Although the slope of the demand curve is constant, price elasticity declines as we move from high to low price ranges. 
B) Although the slope of the demand curve is constant, price elasticity increases as we move from high to low price ranges. 
C) Although the demand curve is convex to the origin, price elasticity of demand is constant throughout. 
D) A steep slope means demand is inelastic; a flat slope means demand is elastic.

Question 14

When the price of movie tickets in a certain town was reduced, the movie theaters' revenues did not change. This suggests that the demand for movie tickets in that town has a price-elasticity coefficient of

Accepted Answer

A) 1.0. 
B) greater than 1. 
C) 0.5. 
D) zero.

Question 15

Why is there no total revenue test for elasticity of supply?

Accepted Answer

The answer of Why is there no total revenue test...

Question 16

Suppose you are given the following data on demand for a product. The price elasticity of demand (based on the midpoint formula)when price decreases from $9 to $7 is

Accepted Answer

A) 0.63. 
B) 1.16. 
C) 1.6. 
D) 2.27.

Question 17

The Bear Corporation finds that its total spending on machine parts increases after the price of machine parts falls, other things being equal. Which of the following is true about the Bear Corporation's demand for machine parts with the price change?

Accepted Answer

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

Question 18

Supply curves tend to be

Accepted Answer

A) perfectly elastic in the long run because consumer demand will have sufficient time to adjust fully to changes in supply. 
B) more elastic in the long run because there is time for firms to enter or leave the industry. 
C) perfectly inelastic in the long run because the law of scarcity imposes absolute limits on production. 
D) less elastic in the long run because there is time for firms to enter or leave an industry.

Question 19

Refer to the information. Over the $7-$5 price range, demand is

Accepted Answer

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

Exam 6: Elasticity