Question 1

In which of the following instances will total revenues decline?

Accepted Answer

A)  price rises and Ed equals .41 
B)  price rises and demand is of unit elasticity 
C)  price falls and demand is elastic 
D)  price rises and Ed equals 2.47

Question 2

If demand for farm crops is inelastic, a good harvest will cause farm revenues to

Accepted Answer

A)  increase because of the increase in the quantity that farmers can sell. 
B)  increase because of a downward movement along the supply curve, encouraging an increase in demand. 
C)  decrease because of a percentage fall in price that is greater than the percentage increase in quantity sold. 
D)  remain unchanged, because the increase in quantity that can be sold will be matched by an equal decrease in price.

Question 3

It takes a considerable amount of time to increase the production of pork. This implies that

Accepted Answer

A)  a change in the demand for pork will not affect its price in the short run. 
B)  the short-run supply curve for pork is less elastic than the long-run supply curve for pork. 
C)  an increase in the demand for pork will elicit a larger supply response in the short run than in the long run. 
D)  the long-run supply curve for pork is less elastic than the short-run supply curve for pork.

Question 4

Over a longer time period after a price change, the price elasticity of supply tends to decrease.

Accepted Answer

A) True 
 B)False

Question 5

A manufacturer of frozen pizzas found that total revenue decreased when price was lowered from $5 to $4. It was also found that total revenue decreased when price was raised from $5 to $6. Thus,

Accepted Answer

A)  the demand for pizza is elastic above $5 and inelastic below $5. 
B)  the demand for pizza is elastic both above and below $5. 
C)  the demand for pizza is inelastic above $5 and elastic below $5. 
D)  $5 is not the equilibrium price of pizza.

Question 6

The following data relate to the supply schedule of a product.  Over which of the following price ranges is the price-elasticity of supply greater than 1?

Accepted Answer

A)  $10 to $15 
B)  $15 to $20 
C)  $20 to $25 
D)  $25 to $30

Question 7

If the price elasticity of demand for a product is 2.5, then a price cut from $2.00 to $1.80 will

Accepted Answer

A)  increase the quantity demanded by about 2.5 percent. 
B)  decrease the quantity demanded by about 2.5 percent. 
C)  increase the quantity demanded by about 25 percent. 
D)  increase the quantity demanded by about 250 percent.

Question 8

Demand is said to be inelastic when

Accepted Answer

A)  an increase in price results in a reduction in total revenue. 
B)  a reduction in price results in an increase in total revenue. 
C)  a reduction in price results in a decrease in total revenue. 
D)  the elasticity coefficient exceeds one.

Question 9

It is argued that, with a rising demand for college education, if the supply were to become more elastic, then college tuition costs would

Accepted Answer

A)  rise faster. 
B)  decrease slowly. 
C)  increase more slowly. 
D)  decrease steeply.

Question 10

The total-revenue test for elasticity

Accepted Answer

A)  is equally applicable to both demand and supply. 
B)  does not apply to demand, because price and quantity are inversely related. 
C)  does not apply to supply, because price and total revenue have a positive correlation. 
D)  applies to the short-run supply curve but not to the long-run supply curve.

Question 11

If the University Chamber Music Society decides to raise ticket prices to provide more funds to finance concerts, the Society is assuming that the demand for tickets is

Accepted Answer

A)  parallel to the horizontal axis. 
B)  shifting to the left. 
C)  inelastic. 
D)  elastic.

Question 12

If a firm finds that it can sell $13,000 worth of a product when its price is $5 per unit and $11,000 worth of it when its price is $6, then

Accepted Answer

A)  the demand for the product is elastic in the $6-$5 price range. 
B)  the demand for the product must have increased. 
C)  elasticity of demand is 0.74. 
D)  the demand for the product is inelastic in the $6-$5 price range.

Question 13

Airlines charge business travelers more than leisure travelers because there is a more

Accepted Answer

A)  elastic supply of business travel. 
B)  inelastic supply of business travel. 
C)  elastic demand for business travel. 
D)  inelastic demand for business travel.

Question 14

Studies of the minimum wage suggest that the price elasticity of demand for teenage workers is relatively inelastic. This means that

Accepted Answer

A)  an increase in the minimum wage would increase the total incomes of teenage workers as a group. 
B)  an increase in the minimum wage would decrease the total incomes of teenage workers as a group. 
C)  the unemployment effect of an increase in the minimum wage would be relatively large. 
D)  the cross elasticity of demand between teenage and adult workers is positive and very large.

Question 15

The main reason for the high price of antiques is that

Accepted Answer

A)  supply is relatively elastic and demand increases over time. 
B)  supply is relatively inelastic and demand increases over time. 
C)  demand is relatively elastic and supply increases over time. 
D)  demand is relatively inelastic and supply increases over time.

Question 16

Which of the following goods (with their respective income elasticity coefficients in parentheses) will most likely suffer a decline in demand during a recession?

Accepted Answer

A)  dinner at a nice restaurant (+1.8) 
B)  chicken purchased at the grocery store for preparation at home (+0.25) 
C)  second-hand clothing (-0.6) 
D)  plasma screen and LCD TVs (+4.2)

Question 17

An auto rental company lowers the price of its rentals to increase its market share. The price cut increases quantity demanded, but total revenue decreases. This result suggests that over this price range, the demand for the auto rentals is

Accepted Answer

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

Question 18

You are the newly appointed sales manager of the Rock Computer Tablets Company and have been charged with the task of increasing revenues. Your economics consultants have informed you that at present price and output levels, price elasticity of demand for your product is less than one. You should

Accepted Answer

A)  decrease prices. 
B)  increase prices. 
C)  hold prices constant and increase supply. 
D)  cut advertising expenditures to save money.

Question 19

Which of the following is not characteristic of a product with relatively inelastic demand?

Accepted Answer

A)  The good is regarded by consumers as a necessity. 
B)  There are a large number of good substitutes for the good. 
C)  Buyers spend a small percentage of their total income on the product. 
D)  Consumers have had only a short time period to adjust to changes in price.

Question 20

If price changes and total revenue changes in the opposite direction, demand is relatively elastic.

Accepted Answer