Question 1

Demand is price inelastic if ________ percentage change in the price leads to a ________ percentage change in the quantity demanded.

Accepted Answer

A)  a small; large 
B)  a large; small 
C)  any; large 
D)  Both answers A and B are correct. 
E)  None of the above answers is correct.

Question 2

Alan purchases 10 percent fewer bags of chips when his income decreases by 5 percent.Based on only this information,we know that for Alan

Accepted Answer

A)  chips are a normal good. 
B)  chips are a complement to salsa. 
C)  chips are a substitute to pretzels. 
D)  chips are an inferior good. 
E)  the price of chips fell.

Question 3

Suppose bad weather decreases the quantity of wheat by 12 percent.If the price elasticity of demand for wheat is 0.6,how would the crop failure affect the price of wheat? Would the crop decrease benefit or harm wheat farmers?

Accepted Answer

The answer of Suppose bad weather decreases the quantity of...

Question 4

Which of the following is true?
I.The easier it is to find substitutes for a good,the more price elastic the demand for the good is.
II.The demand for a good is more price elastic the smaller the proportion of income spent on it.
III.If demand is price elastic,lowering the price leads to a decrease in total revenue.

Accepted Answer

A)  Only I 
B)  Only II 
C)  Only III 
D)  I and II 
E)  I and III

Question 5

The price elasticity of supply equals the percentage change in the

Accepted Answer

A)  quantity demanded divided by the percentage change in the price of a substitute or complement. 
B)  quantity supplied divided by the percentage change in price. 
C)  quantity demanded divided by the percentage change in price. 
D)  supply divided by the percentage change in the demand. 
E)  quantity supplied divided by the percentage change in the quantity demanded.

Question 6

You are more sensitive to a change in price if you

Accepted Answer

A)  spend a lot of your income on the good. 
B)  spend a small percentage of your income on the good. 
C)  buy very little of the good. 
D)  do not buy the good regularly. 
E)  have a very inelastic demand for the good.

Question 7

If a 1 percent increase in the price of X increases the quantity demanded of Y by 2 percent,then X and Y are

Accepted Answer

A)  complements and the cross elasticity of demand equals 2. 
B)  substitutes and the cross elasticity of demand equals 1/2. 
C)  substitutes and the cross elasticity of demand equals 2. 
D)  complements and the income elasticity of demand equals 2. 
E)  normal goods and the income elasticity of demand of each equals 2.

Question 8

-The table above gives the demand schedule for museum visits.
a.You,as the resident economist,have been given the task of maximizing the museum's total revenue.What admission price should you charge?
b.What is the elasticity of demand between $6 and $4?
c.Moving along the demand schedule from $10 to $8 to $6 and ultimately to $4,how does the price elasticity of demand change in size?

Accepted Answer

The answer of 
-The table above gives the demand schedule...

Question 9

A firm raises the price it charges.The firm's total revenue decreases.What can we conclude about the price elasticity of demand?

Accepted Answer

A)  Demand is elastic. 
B)  Demand is unit elastic. 
C)  Demand is inelastic. 
D)  Demand is perfectly inelastic. 
E)  Not enough information is given to conclude anything about price elasticity of demand.

Question 10

-The data in the table above give two points on the demand curve for pizza.Using the midpoint method,when the price of a pizza falls from $10 to $9,what is the price elasticity of demand?

Accepted Answer

A)  0.5 
B)  0.6 
C)  0.9 
D)  2.1 
E)  8.6

Question 11

It is very difficult for Gourmet Chocolatier to find inexpensive and available inputs for the business.Because of this,we predict that Gourmet Chocolatier's supply to be

Accepted Answer

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

Question 12

A 10 percent increase in price leads to a 20 percent decrease in the quantity demanded.The price elasticity of demand is equal to

Accepted Answer

A)  0.5. 
B)  1.0. 
C)  2.0. 
D)  20.0. 
E)  10.0.

Question 13

Because the price elasticity of supply for jumbo jets is 0.35,the supply of jumbo jets is

Accepted Answer

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

Question 14

Which of the following explains why supply is more elastic as more time passes?

Accepted Answer

A)  It is difficult or impossible to increase the quantity produced in a short period of time. 
B)  Consumers have more time to search for substitutes. 
C)  Sellers try to take advantage of a high price in the short term. 
D)  The supply curve becomes generally steeper as more time passes. 
E)  There is no explanation for this phenomenon.

Question 15

The income elasticity of demand for skiing trips to Vermont is greater than one.Thus a trip to Vermont for skiing is ________ good.

Accepted Answer

A)  a normal 
B)  an inferior 
C)  a unit elastic 
D)  a price elastic 
E)  a price inelastic

Question 16

-In the figure above,when the price falls from $8 to $7,total revenue

Accepted Answer

A)  increases from $120 to $210 so demand is elastic. 
B)  decreases from $210 to $120 so demand is inelastic. 
C)  increases from $120 to $210 so demand is inelastic. 
D)  decreases from $210 to $120 so demand is elastic. 
E)  increases from $120 to $210 but more information is needed to determine whether demand is elastic, inelastic, or unit elastic.

Question 17

Assume that it is predicted that for the years after you graduate from college,the entire economy will experience a long period of prosperity when incomes grow rapidly.What type of industry would be the best for you to find employment if this prediction is correct? An industry that produces a product that is

Accepted Answer

A)  income elastic. 
B)  income inelastic. 
C)  inferior. 
D)  a substitute good. 
E)  none of these industries

Question 18

What does a horizontal demand curve indicate about the price elasticity of demand?

Accepted Answer

The answer of What does a horizontal demand curve indicate...

Question 19

If the price increases by 20 percent and the quantity supplied increases by 40 percent,what does the elasticity of supply equal?

Accepted Answer

The answer of If the price increases by 20 percent...

Question 20

An inferior good has a ________ elasticity of demand.

Accepted Answer

A)  positive income 
B)  negative income 
C)  negative cross 
D)  positive cross 
E)  negative price

Exam 5: Elasticities of Demand and Supply

Demand is price inelastic if percentage change in the price leads to a percentage change in the quantity demanded.