Question 1

Studies show that the income elasticity of demand for wine is approximately five.What does this mean?

Accepted Answer

A) A 1 percent decrease in the price of wine leads to a 5 percent increase in wine consumption. 
B) A 1 percent increase in income leads to a 5 percent increase in wine consumption. 
C) A 5 percent increase in income leads to a 1 percent increase in wine consumption. 
D) Wine is a relatively elastic good.

Question 2

Table 6-7
 $$\begin{array} { | l | l | c | c | } 
\hline & & \begin{array} { c } 
\text { Quantities } \
\text { Purchased }
\end{array} & \begin{array} { c } 
\text { Quantities } \
\text { Purchased }
\end{array} \
\hline \text { Income } & \text { Prices } & \text { Good X } & \text { Good Y } \
\hline \$ 30,000 & \text { Px } = \$ 6 , \mathrm { Py } = \$ 3 & 2 & 20 \
\hline 50,000 & \mathrm { Px } = \$ 6 , \mathrm { Py } = \$ 4 & 5 & 10 \
\hline
\end{array}$$
-Refer to Table 6-7.
a.Using the information in the table,calculate the income elasticity of demand for good X and characterize the good.Use the midpoint formula.
b.Can you calculate the income elasticity of demand for good Y? If you can,show your calculation and characterize the good.If you cannot,explain why.

Accepted Answer

The answer of Table 6-7
 \[\begin{array} { | l |...

Question 3

Along a downward-sloping,linear demand curve,total revenue is the greatest

Accepted Answer

A) where demand is normal. 
B) where demand is the most inelastic. 
C) where demand is the most elastic. 
D) where demand is unit elastic.

Question 4

Table 6-2
 $$\begin{array} { | l | c | } 
\hline & \begin{array} { c } 
\text { Estimated Price Elasticity } \
\text { of Demand }
\end{array} \
\hline \text { Coca-Cola } & - 3.0 \
\hline \text { All carbonated soft drinks } & - 1.5 \
\hline \text { All soft drinks } & - 0.8 \
\hline
\end{array}$$
-Refer to Table 6-2.Assume that an economist has estimated the price elasticity of demand values in the table above.Use the data in the table to select the correct statement.

Accepted Answer

A) The demand for Coca-Cola is inelastic. 
B) The elasticity for "All soft drinks" is less than the elasticity for Coca-Cola because Coca-Cola is more of a luxury than a necessity;"All soft drinks" represent goods that are more necessity than luxury. 
C) The difference in elasticity values is explained by the fact that the more narrowly we define a market the more elastic the demand will be. 
D) There are fewer substitutes for "All carbonated soft drinks" than there are for "All soft drinks."

Question 5

Suppose the current price of copper is $3 per pound and the quantity supplied is 200 pounds per day.If the price of copper falls to $2.50 per pound,the quantity supplied drops to 180 pounds per day.Use the midpoint formula to calculate the price elasticity of supply for copper.

Accepted Answer

The answer of Suppose the current price of copper is...

Question 6

A demand curve that is horizontal indicates that the commodity

Accepted Answer

A) has few substitutes. 
B) must be very cheap. 
C) is a necessity. 
D) has a large number of substitutes.

Question 7

If a firm is in an antitrust court case being accused of monopolizing a product,the firm would hire an economist to show

Accepted Answer

A) the cross-price elasticity of demand between the firm's good and another is negative. 
B) the cross-price elasticity of demand between the firm's good and another is positive. 
C) the price elasticity of demand for the firm's good is highly inelastic. 
D) the income elasticity of the firm's good is inferior.

Question 8

Bringing oil to the market is a relatively long and costly process.The whole process from exploration to pumping significant amounts of oil can take years.What does this indicate about the price elasticity of supply for oil?

Accepted Answer

A) The elasticity coefficient is likely to be very high and supply is inelastic. 
B) The elasticity coefficient is likely to be close to zero and supply is perfectly elastic. 
C) The elasticity coefficient is likely to be low and supply is highly inelastic. 
D) The elasticity coefficient is likely to be low and supply is highly elastic.

Question 9

The price elasticity of demand for Stork ice cream is -4.Suppose you're told that following a price increase,quantity demanded fell by 10 percent.What was the percentage change in price that brought about this change in quantity demanded?

Accepted Answer

A) 40 percent 
B) 25 percent 
C) 2.5 percent 
D) 0.4 percent

Question 10

Suppose a decrease in the supply of bottled water results in a decrease in revenue.This indicates that

Accepted Answer

A) the demand for bottled water is inelastic in the price range considered. 
B) the demand for bottled water is elastic in the price range considered. 
C) the supply of bottled water is inelastic in the price range considered. 
D) the supply of bottled water is elastic in the price range considered.

Question 11

During an economic expansion as consumer incomes rise,holding everything else constant

Accepted Answer

A) the demand for most goods,except luxuries,will rise. 
B) the demand for luxuries will rise while the demand for inferior goods will fall. 
C) the demand for luxuries and inferior goods will rise. 
D) the prices of luxuries will fall while the prices of inferior goods will rise.

Question 12

If the absolute value of the price elasticity of demand for gasoline is 0.5,then a 10 percent increase in the price of gasoline leads to a 0.5 percent decrease in the quantity demanded.

Accepted Answer

A) True 
 B)False

Question 13

Last year,Sefton purchased 60 pounds of potatoes to feed his family of five when his household income was $30,000.This year,his household income fell to $20,000 and Sefton purchased 80 pounds of potatoes.All else constant,Sefton's income elasticity of demand for potatoes is

Accepted Answer

A) negative,so Sefton considers potatoes to be an inferior good. 
B) positive,so Sefton considers potatoes to be an inferior good. 
C) positive,so Sefton considers potatoes to be a normal good and a necessity. 
D) negative,so Sefton considers potatoes to be a normal good.

Question 14

In September 2006,the Food and Drug Administration recommended that Americans avoid eating bagged raw spinach in the wake of an outbreak of E.coli bacteria.Following this recommendation,the food industry looked at alternatives and many turned to arugula.One Chicago distributor claimed,"The sale of the stuff has gone through the roof." Based on this information

Accepted Answer

A) arugula is a normal good while raw spinach is an inferior good. 
B) the cross-price elasticity between arugula and spinach is negative. 
C) the cross-price elasticity between arugula and spinach is positive. 
D) the price elasticity of arugula is positive while the price elasticity of spinach falls to zero.

Question 15

We should never assume that an inelastic demand curve is a perfectly inelastic demand curve because

Accepted Answer

A) there has never been evidence of a perfectly inelastic demand curve. 
B) an inelastic demand curve may be perfectly inelastic at some times but not others. 
C) perfectly inelastic demand curves are rare. 
D) an inelastic demand curve may be elastic at low prices.

Question 16

If the demand for a product is perfectly inelastic,a decrease in the price of the product

Accepted Answer

A) will increase total revenue. 
B) will decrease total revenue. 
C) will not change total revenue. 
D) any of the above are possible.

Question 17

According to a study of the U.S.demand for alcoholic beverages,the price elasticity of demand for beer is -0.30.Which of the following could explain why the price elasticity of demand for beer is low?

Accepted Answer

A) Beer is an inferior alcoholic beverage. 
B) More and more people are switching to wine and cocktails rather than beer. 
C) The price of beer is relatively low and for many people it is a habit forming product. 
D) There are only a few major suppliers of beer.

Question 18

Price elasticity of demand measures

Accepted Answer

A) how responsive suppliers are to price changes. 
B) how responsive sales are to changes in the price of a related good. 
C) how responsive quantity demanded is to a change in price. 
D) how responsive sales are to a change in buyers' incomes.

Question 19

What factors would make you more sensitive or less sensitive to price when purchasing gasoline?

Accepted Answer

The answer of What factors would make you more sensitive...

Question 20

Suppose the demand for milk is relatively inelastic.What happens to sales revenue if the government imposes a price floor above the free-market equilibrium price in the market for milk?

Accepted Answer

A) Sales revenue falls. 
B) Sales revenue rises. 
C) Sales revenue remains unchanged. 
D) It cannot be determined without information on prices.

Exam 6: Elasticity: the Responsiveness of Demand and Supply