Question 1

Goods are ________ when the income elasticity of demand is positive.

Accepted Answer

A) complements 
B) elastic 
C) inferior 
D) substitutes 
E) normal

Question 2

If you know the cross elasticity between two goods is negative, then you know the goods are

Accepted Answer

A) substitutes. 
B) normal goods. 
C) complements. 
D) inferior goods. 
E) inelastic goods.

Question 3

The price of coffee rose 40 percent and the quantity of coffee demanded fell by 20 percent. The quantity of doughnuts demanded also fell by 20 percent. From this information, we can conclude that

Accepted Answer

A) the demand for coffee is elastic. 
B) the demand for coffee is unit elastic. 
C) coffee is an inferior good. 
D) the cross elasticity demand between coffee and doughnuts is -0.5. 
E) the income elasticity of demand for coffee is 2.

Question 4

The total revenue test says that if a price decrease leads to

Accepted Answer

A) an increase in total revenue, demand is income elastic. 
B) a decrease in total revenue, demand is income inelastic. 
C) a decrease in total revenue, demand is price inelastic. 
D) a decrease in total revenue, supply is price inelastic. 
E) a decrease in total revenue, supply is price elastic.

Question 5

Which of the following is correct?
I. All linear demand curves have a constant slope and a constant price elasticity of demand.
Ii. The price elasticity of demand changes while moving along a downward-sloping linear demand curve.
Iii. The magnitude of the slope of all linear demand curves is equal to the price elasticity of demand.

Accepted Answer

A) i only 
B) ii only 
C) iii only 
D) i and ii 
E) i, ii, and iii

Question 6

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 7

The figure above shows the supply curve for roses.
-In the figure above, at the point where the price is $60 per bunch, the price elasticity of supply is

Accepted Answer

A) 1.8. 
B) 0.56. 
C) 1. 
D) 1.5. 
E) 0.

Question 8

Suppose the quantity supplied of computers increases from 2 million to 4 million units as the price of a computer increases from $600 to $700. What does the price elasticity of supply equal?

Accepted Answer

The answer of Suppose the quantity supplied of computers increases...

Question 9

If a 30 percent price increase generates a 20 percent decrease in quantity demanded, then demand is

Accepted Answer

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

Question 10

If a small percentage change in the price brings a very large percentage change in the quantity supplied, then the supply is almost perfectly ________ and the supply curve is almost ________.

Accepted Answer

A) elastic; vertical 
B) elastic; horizontal 
C) inelastic; horizontal 
D) inelastic ; vertical 
E) elastic; 45 degrees

Question 11

The figure above shows the supply curve for roses.
-In the figure above, at the point where the price is $50 per bunch, the price elasticity of supply is

Accepted Answer

A) 2.14. 
B) 0.47. 
C) 1. 
D) 3. 
E) 0.33.

Question 12

If the cross elasticity of demand between peanut butter and milk is -1.11, then are peanut butter and milk substitutes or complements?

Accepted Answer

The answer of If the cross elasticity of demand between...

Question 13

How does elasticity of supply differ for a product that can be stored, compared to a product that cannot be stored?

Accepted Answer

The answer of How does elasticity of supply differ for...

Question 14

If two goods have a cross elasticity of demand of -2, then when the price of one good increases, the demand curve of the other good

Accepted Answer

A) shifts rightward. 
B) shifts leftward. 
C) remains unchanged and the supply curve also remains unchanged. 
D) might shift rightward, leftward, or remain unchanged. 
E) remains unchanged but the supply curve shifts leftward.

Question 15

When the percentage change in the quantity demanded exceeds the percentage change in price, then demand is

Accepted Answer

A) inelastic. 
B) unit elastic. 
C) elastic. 
D) irrelevant. 
E) undefined.

Question 16

If the price of a good decreases from $9 to $6 and the quantity supplied decreases from 1,500 to 1,300, using the midpoint formula the elasticity of supply equals

Accepted Answer

A) 0.20. 
B) 2.80. 
C) 0.36. 
D) 0.40. 
E) 3.20.

Question 17

Supply is unit elastic when the

Accepted Answer

A) supply curve is upward sloping. 
B) price elasticity of supply is positive. 
C) percentage change in the quantity supplied equals the percentage change in price. 
D) supply curve is horizontal. 
E) supply curve is vertical.

Question 18

"If the price falls and, as a result, the total revenue decreases, demand is elastic." Is the previous assertion correct?

Accepted Answer

The answer of "If the price falls and, as a...

Question 19

If a product is narrowly defined, it is likely to

Accepted Answer

A) have many substitutes and therefore its demand is elastic. 
B) have few substitutes, and therefore its demand is less elastic. 
C) be unique, and therefore its demand is inelastic. 
D) be unique and have many substitutes. 
E) have a larger proportion of income spent on it.

Question 20

Total revenue increases if the price of the good

Accepted Answer

A) rises and demand is elastic. 
B) rises and demand is inelastic. 
C) rises and demand is unit elastic. 
D) falls and supply is inelastic. 
E) falls and demand is unit elastic.

Exam 5: Elasticities of Demand and Supply