Question 1

A decrease in demand will:

Accepted Answer

A)  reduce total revenue. 
B)  increase total revenue. 
C)  increase total revenue only if demand is inelastic. 
D)  increase total revenue only if demand is elastic.

Question 2

Which of the following is the most important determinant of the elasticity of supply?

Accepted Answer

A)  The number of uses for the product. 
B)  The number of close substitutes to the product available to consumers. 
C)  The amount of time producers have to adjust their behavior in response to a price change. 
D)  The percentage of their incomes consumers spend on the product.

Question 3

The measure of the relationship between a change in income and the consequent relative change in quantity demanded at a given price is the:

Accepted Answer

A)  cross elasticity of supply. 
B)  elasticity of supply. 
C)  cross elasticity of demand. 
D)  income elasticity of demand.

Question 4

A perfectly elastic supply curve is:

Accepted Answer

A)  upward sloping to the right. 
B)  downward sloping to the left. 
C)  horizontal. 
D)  vertical.

Question 5

Price elasticity of demand is a measure of the relative responsiveness of the change in quantity demanded to a change in price.

Accepted Answer

A) True 
 B)False

Question 6

Which of the following is false?

Accepted Answer

A)  The price elasticity of demand measures the responsiveness of quantity demanded to a change in price. 
B)  The price elasticity of demand is defined as the percentage change in quantity demanded divided by the percentage change in price. 
C)  If demand is elastic, it means the quantity demanded changes by a relatively larger amount than the price change. 
D)  All of the above are true.

Question 7

Which of the following is not a major determinant of the price elasticity of demand?

Accepted Answer

A)  availability of close substitutes 
B)  proportion of income spent on the good 
C)  quantity of goods available 
D)  amount of time that has elapsed since the price change

Question 8

If the price of a product is lowered from $300 to $270,and as a result the quantity demanded increases from 25 to 30 units,we know that in that range:

Accepted Answer

A)  demand has declined. 
B)  demand is elastic. 
C)  demand is unit elastic. 
D)  demand is inelastic. 
E)  demand is perfectly elastic.

Question 9

For a given decrease in demand,the effect on price is largest and the effect on quantity exchanged smallest when:

Accepted Answer

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

Question 10

The greater the positive cross elasticity of demand between products A and B,the:

Accepted Answer

A)  greater the degree to which they are substitutes. 
B)  greater the degree to which they are complements. 
C)  smaller the elasticity of demand for both products. 
D)  greater will be both products responsiveness to changes in income.

Question 11

Price elasticity of demand is defined as:

Accepted Answer

A)  the slope of the demand curve. 
B)  the slope of the demand curve divided by the price. 
C)  the percentage change in price divided by the percentage change in quantity demanded. 
D)  the percentage change in quantity demanded divided by the percentage change in price.

Question 12

A decrease in price will cause a firm's total revenue to decrease if demand is price inelastic.

Accepted Answer

A) True 
 B)False

Question 13

If two goods both had negative cross elasticities and negative income elasticities,

Accepted Answer

A)  they are both normal and substitutes for one another. 
B)  they are both normal and complements for one another. 
C)  they are both inferior and substitutes for one another. 
D)  they are both inferior and complements for one another.

Question 14

A tax is imposed on wine.Sellers will bear no burden from this tax if the:

Accepted Answer

A)  demand for wine is perfectly inelastic. 
B)  demand for wine is perfectly elastic. 
C)  demand for wine is unit elastic. 
D)  supply curve for wine is perfectly inelastic.

Question 15

For a given,permanent reduction in demand for a product:

Accepted Answer

A)  the decrease in price will be greater the more elastic is supply. 
B)  the decrease in price will be greater in the long run than in the short run. 
C)  the decrease in price will be greater the more inelastic is supply. 
D)  none of the above

Question 16

If most passenger trains operate far below full capacity and demand is ____,reducing travel fares would be likely to increase total revenue.

Accepted Answer

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

Question 17

Elasticity of demand will ____ as the availability of substitutes ____.

Accepted Answer

A)  increase; decreases 
B)  decrease; increases 
C)  increase; increases 
D)  remain unchanged; decreases

Question 18

The price of a new electronic toy increases from $16 to $24 and the quantity demanded decreases from 1,050 to 950 per month as a result.Based on this information,the price elasticity of demand (in absolute terms)is estimated to be equal to:

Accepted Answer

A)  5.00 
B)  4.00 
C)  0.75 
D)  0.25

Question 19

The more inelastic is demand,ceteris paribus:

Accepted Answer

A)  the larger the welfare cost of a given tax. 
B)  the larger the proportion of the burden of a given tax borne by the sellers. 
C)  the larger the proportion of the burden of a given tax borne by the buyers. 
D)  the smaller amount of revenue generated by the tax.

Question 20

The following schedule represents a portion of Tim's demand for video rentals each month.  Along this portion of Tim's demand curve for video rentals,price elasticity of demand is:

Accepted Answer

A)  equal to zero. 
B)  less than one. 
C)  equal to one. 
D)  greater than one.

Exam 6: Elasticities