Question 1

The cross price elasticity of demand is measured by the

Accepted Answer

A)  percentage change in the quantity demanded of one good divided by the percentage change in quantity demanded of another good. 
B)  percentage change in the price of one good divided by the percentage change in price of another good. 
C)  percentage change in the demand for one good divided by the percentage change in price of another good. 
D)  percentage change in the price of one good divided by the percentage change in the demand for another good.

Question 2

When demand is unit elastic, a 10 percent change in the price of the good

Accepted Answer

A)  will cause a change in quantity demanded of less than 10 percent. 
B)  will cause a change in quantity demanded equal to 10 percent. 
C)  will cause a change in quantity demanded greater than 10 percent. 
D)  will not cause any change in quantity demanded.

Question 3

-In the above figure, along which range would the demand for this good be most elastic?

Accepted Answer

A)  Between point a and point b 
B)  Between point c and point d 
C)  Between point d and point e 
D)  At point e

Question 4

An increase in total revenue will result if

Accepted Answer

A)  demand is inelastic and price increases. 
B)  demand is elastic and price increases. 
C)  demand is inelastic and price decreases. 
D)  demand is unitary elastic and price decreases.

Question 5

A positive cross price elasticity of demand between two goods suggests that the goods are

Accepted Answer

A)  not related. 
B)  complements. 
C)  substitutes. 
D)  both of unitary elasticity.

Question 6

A 2 percent increase in the price of neckties leads to a 5 percent decrease in the quantity demanded of neckties. The absolute price elasticity of demand is

Accepted Answer

A)  2.5. 
B)  1. 
C)  0.4. 
D)  0.2.

Question 7

An 18 percent increase in the price of small cars results in a 10 percent expansion in the quantity supplied. The supply elasticity in this range equals ________.

Accepted Answer

A)  9/5 
B)  5/9 
C)  7/10 
D)  4/10

Question 8

If a good has an absolute price elasticity of 2, the demand for the good is

Accepted Answer

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

Question 9

An inferior good has an income elasticity of demand that is

Accepted Answer

A)  positive. 
B)  negative. 
C)  positive but less than 1. 
D)  zero.

Question 10

A local transit authority charges $1 for a bus ride. An economics study suggests that in the price range from $0.50 to $1.50, the elasticity of demand for bus trips is 1.1. To increase its revenue, the transit authority should

Accepted Answer

A)  leave the fare as it is. 
B)  raise the fare. 
C)  lower the fare. 
D)  charge $1.10.

Question 11

-In the above table, the cross price elasticity of demand for good X with good Y when PY falls from $20 to $18 is

Accepted Answer

A)  -2. 
B)  0. 
C)  +1. 
D)  -1.

Question 12

The price elasticity of supply is higher when

Accepted Answer

A)  the number of buyers in the market decreases. 
B)  the product in question is an inferior good. 
C)  the number of buyers in the market increases. 
D)  producers have more time to adjust to price changes.

Question 13

The price elasticity of demand along a linear demand curve is

Accepted Answer

A)  more elastic at higher prices than at low prices. 
B)  infinite. 
C)  one. 
D)  constant.

Question 14

If the absolute price elasticity of demand for a product is greater than 1, then

Accepted Answer

A)  the absolute price elasticity of demand is inelastic and consumers are relatively insensitive to price changes. 
B)  the absolute price elasticity of demand is inelastic and consumers are relatively sensitive to price changes. 
C)  the absolute price elasticity of demand is elastic and consumers are relatively insensitive to price changes. 
D)  the absolute price elasticity of demand is elastic and consumers are relatively sensitive to price changes.

Question 15

Chad's income went from $1000 per week to $1500 per week. As a result he increased his consumption of steak from 1 pound a week to 3 pounds a week. Based on his consumption patterns, the income elasticity of steak for Chad is

Accepted Answer

A)  2.50. 
B)  -.50. 
C)  )50. 
D)  -1.50.

Question 16

If demand is inelastic and the price of a product decreases by 10 percent, then

Accepted Answer

A)  the change in quantity demanded is less than 10 percent. 
B)  the change in quantity demanded is equal to 10 percent. 
C)  the change in quantity demanded is greater than 10 percent. 
D)  the decrease in quantity demanded is greater than 0 percent.

Question 17

When price is $5 per unit, quantity demanded is 12 units. When price is $6 per unit, quantity demanded is 8 units. The value of the absolute price elasticity of demand is approximately

Accepted Answer

A)  2.20. 
B)  4.00. 
C)  1.82. 
D)  0.36.

Question 18

Suppose that the absolute price elasticity of demand for hamburger is 1.15 and that the absolute price elasticity of demand for steak is 2.4. Then the absolute price elasticity of demand for beef will be

Accepted Answer

A)  less than 1.15. 
B)  more than 2.4. 
C)  between 1.15 and 2.4. 
D)  equal to 1.15.

Question 19

When the absolute price elasticity of demand is less than 1, demand is

Accepted Answer

A)  elastic. 
B)  unit-elastic. 
C)  inelastic. 
D)  undetermined without more information.

Question 20

In an extreme hypothetical instance in which the price change of a good elicited no change in quantity demanded, we would say that the item is

Accepted Answer

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

Exam 19: Demand and Supply Elasticity