Question 1

The demand for a cup of coffee is _____ price elastic than the demand for a dinner at a fancy restaurant because a cup of coffee _____.

Accepted Answer

A)  more; requires a smaller portion of one's income
B)  less; requires a smaller portion of one's income
C)  less; is more of a luxury
D)  more; is more of a luxury

Question 2

Assuming price elasticity of demand is reported as an absolute value, a price elasticity of one indicates that:

Accepted Answer

A)  the percentage change in quantity demanded will equal the percentage change in price.
B)  the percentage change in quantity demanded will equal one.
C)  both the percentage change in price and quantity demanded must equal one.
D)  the percentage change in quantity demanded and the percentage change in price must sum to one.

Question 3

A decrease in price causes:

Accepted Answer

A)  a quantity effect, which is an increase in revenue that results from selling fewer units of the good.
B)  a price effect, which is an increase in revenue that results from receiving a lower price for each unit sold.
C)  both a price effect and quantity effect.
D)  a decrease in quantity demanded.

Question 4

Demand for a good is inelastic if:

Accepted Answer

A)  total revenue decreases when price decreases.
B)  the quantity effect outweighs the price effect of a price increase.
C)  the absolute value of price elasticity is greater than 1.
D)  None of these are correct.

Question 5

The cross-price elasticity of demand is most likely to be negative between which of the following pairs of goods?

Accepted Answer

A)  Hot dogs and hamburgers
B)  Peanut butter and jelly
C)  Butter and margarine
D)  Milk and pencils

Question 6

Considering the concept of cross-price elasticity, if two goods are complements:

Accepted Answer

A)  an increase in the price of one will cause a decrease in the demand for the other.
B)  an increase in the price of one will cause an increase in the demand for the other.
C)  a decrease in the price of one will cause a decrease in the demand for the other.
D)  a decrease in the price of one has no effect on the demand for the other.

Question 7

If consumers spend more money on coffee than on sugar, then the demand for a pound of coffee is likely _____ price elastic than the demand for a pound sugar of because _____.

Accepted Answer

A)  less; coffee requires a larger portion of consumers' incomes
B)  more; coffee requires a larger portion of consumers' incomes
C)  less; consumers will take a longer time to adjust to a change in the price
D)  more; consumers will take a longer time to adjust to a change in the price

Question 8

A horizontal demand curve indicates that:

Accepted Answer

A)  quantity demanded will rise if the price increases by any amount.
B)  quantity demanded will drop to zero if the price increases by any amount.
C)  quantity demanded will remain unchanged no matter what happens to the price.
D)  price is not important in this market.

Question 9

Suppose that the price of a good is $10 and quantity demanded is 50 units. When price increases to $12, quantity demanded decreases to 40 units. What happened to total revenue and what does this indicate?

Accepted Answer

A)  Total revenue decreased from $500 to $480, indicating that demand is inelastic.
B)  Total revenue decreased from $500 to $480, indicating that demand is elastic.
C)  Total revenue increased from $480 to $500, indicating that demand is inelastic.
D)  Total revenue increased from $480 to $500, indicating that demand is elastic.

Question 10

If total revenue increases when price increases:

Accepted Answer

A)  demand is elastic.
B)  demand is inelastic.
C)  demand is unit elastic.
D)  Any of these could be true.

Question 11

Multiplying the quantity sold by the price paid for each unit will give us:

Accepted Answer

A)  total profit.
B)  total revenue.
C)  total cost.
D)  total benefit.

Question 12

The price elasticity of supply tells us:

Accepted Answer

A)  the percentage change in quantity supplied when the price of the good changes by one percent.
B)  in which direction the quantity supplied changes as we move along the supply curve.
C)  how quickly supply will respond to a change in price.
D)  the magnitude of a shift in the supply curve in response to a change in price.

Question 13

Suppose an increase in price decreases quantity demanded from 210 to 190 units. Using the mid-point formula, what is the percentage change in quantity demanded?

Accepted Answer

A)  2 = 200 percent
B)  −0.2 = −20 percent
C)  0.2 = 20 percent
D)  −0.1 = −10 percent

Question 14

Suppose the cross-price elasticity of demand between goods X and Y is 0.15 and the cross-price elasticity of demand between goods X and Z is 1.3. Which of the following statements is true?

Accepted Answer

A)  X and Y are complements, while X and Z are substitutes.
B)  X and Y are weak complements, while X and Z are strong complements.
C)  X and Y are strong complements, while X and Z are weak complements.
D)  Y is a necessity and Z is a luxury.

Question 15

When two goods are complements, their cross-price elasticity of demand is:

Accepted Answer

A)  positive.
B)  negative.
C)  zero.
D)  equal to one.

Question 16

The most commonly used measures of elasticity are:

Accepted Answer

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

Question 17

Why do producers calculate the price elasticity of demand for their goods and services?

Accepted Answer

A)  They want to know the goods and services for which consumers are most sensitive to price changes.
B)  They want to be able to predict the future preferences of their customers.
C)  They want to know that consumers will have the same response to a price change regardless of the good or service.
D)  They want to understand what goods their customers dislike the most.

Question 18

If a good has an income elasticity of 1.83, then it is a(n) _____good.

Accepted Answer

A)  normal
B)  inferior
C)  substitute
D)  luxury

Question 19

A good with a unit elastic demand has a:

Accepted Answer

A)  perfectly horizontal demand curve.
B)  perfectly vertical demand curve.
C)  price elasticity greater than 1.
D)  price elasticity equal to −1.

Question 20

When a good has many close substitutes available, it is likely to be:

Accepted Answer

A)  less price elastic than a good without close substitutes available.
B)  more price elastic than a good with many complement goods available.
C)  less price elastic than a good with many complement goods available.
D)  more price elastic than a good without close substitutes available.

Exam 4: Elasticity

If total revenue increases when price increases:

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When a good has many close substitutes available, it is likely to be:

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Multiplying the quantity sold by the price paid for each unit will give us:

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Suppose the cross-price elasticity of demand between goods X and Y is 0.15 and the cross-price elasticity of demand between goods X and Z is 1.3. Which of the following statements is true?

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A decrease in price causes:

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The price elasticity of supply tells us:

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When two goods are complements, their cross-price elasticity of demand is:

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Assuming price elasticity of demand is reported as an absolute value, a price elasticity of one indicates that:

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Why do producers calculate the price elasticity of demand for their goods and services?

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The demand for a cup of coffee is _____ price elastic than the demand for a dinner at a fancy restaurant because a cup of coffee _____.

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A horizontal demand curve indicates that:

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Suppose an increase in price decreases quantity demanded from 210 to 190 units. Using the mid-point formula, what is the percentage change in quantity demanded?

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If a good has an income elasticity of 1.83, then it is a(n) _____good.

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The most commonly used measures of elasticity are:

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Considering the concept of cross-price elasticity, if two goods are complements:

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A good with a unit elastic demand has a:

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If consumers spend more money on coffee than on sugar, then the demand for a pound of coffee is likely _____ price elastic than the demand for a pound sugar of because _____.

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Suppose that the price of a good is $10 and quantity demanded is 50 units. When price increases to $12, quantity demanded decreases to 40 units. What happened to total revenue and what does this indicate?

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Demand for a good is inelastic if:

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The cross-price elasticity of demand is most likely to be negative between which of the following pairs of goods?

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The demand for a cup of coffee is _ price elastic than the demand for a dinner at a fancy restaurant because a cup of coffee _.

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If consumers spend more money on coffee than on sugar, then the demand for a pound of coffee is likely _ price elastic than the demand for a pound sugar of because _.

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