Question 1

Assuming price elasticity of demand is reported as an absolute value, a price elasticity of demand greater than one indicates that demand for the good is:

Accepted Answer

A)   elastic.
B)   inelastic.
C)   unitary elastic.
D)   perfectly inelastic.E) A) and B)
F) All of the above

Question 2

The mid-point method of calculating price elasticity of demand measures the _____ changes in quantity demanded and price relative to a point midway between _____.

Accepted Answer

A)   percentage; two points on a demand curve
B)   absolute; two points on a demand curve
C)   percentage; the demand and supply curves
D)   absolute; the demand and supply curvesE) A) and D)
F) C) and D)

Question 3

Suppose gas prices have steadily increased over the last decade. We would expect the price elasticity of demand for gas, when measured over the last decade, to:

Accepted Answer

A)   be more elastic than it has been in the last six months.
B)   be less elastic than it has been in the last six months.
C)   be relatively the same as the last six months.
D)   no longer be an issue because consumers are used to higher gas prices.E) None of the above
F) B) and C)

Question 4

Which of the following is a determinant of both price elasticity of supply and price elasticity of demand?

Accepted Answer

A)   Availability of inputs
B)   Flexibility of the production process
C)   Adjustment time
D)   Degree of necessityE) A) and B)
F) A) and C)

Question 5

If the price of hairbrushes decreases by 20 percent and the quantity of hairbrushes demanded increases by 2 percent, the price elasticity of demand is _____ and is _____.

Accepted Answer

A)   −0.1; elastic
B)   10; elastic
C)   −0.1; inelastic
D)   10; inelasticE) C) and D)
F) None of the above

Question 6

If consumers' buying decisions are not very sensitive to changes in price, then their demand is:

Accepted Answer

A)   more elastic.
B)   less elastic.
C)   perfectly inelastic.
D)   unit elastic.E) A) and D)
F) A) and C)

Question 7

Suppose the cross-price elasticity of demand between two goods is −2. This tells us the two goods are:

Accepted Answer

A)   substitutes.
B)   complements.
C)   unrelated.
D)   inelastic.E) A) and B)
F) A) and D)

Question 8

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.E) A) and B)
F) All of the above

Question 9

How much the demand for one good changes in response to a change in the price of a different good is measured by:

Accepted Answer

A)   price elasticity of supply.
B)   price elasticity of demand.
C)   income elasticity of demand.
D)   cross-price elasticity of demand.E) C) and D)
F) None of the above

Question 10

When consumers' incomes decline during a recession, they increase their consumption of instant coffee and reduce their consumption of other beverages. Therefore, instant coffee:

Accepted Answer

A)   is a necessity.
B)   has a negative income elasticity of demand.
C)   has an income elasticity of demand greater than zero but less than one.
D)   is a normal good.E) A) and B)
F) A) and C)

Question 11

Consider a market in which price is initially $6 and falls to $2. If we know that the price effect outweighed the quantity effect, we know the market is _____ and is more likely to be represented by _____.

Accepted Answer

A)   elastic; Graph A
B)   inelastic; Graph A
C)   elastic; Graph B
D)   inelastic; Graph BE) B) and D)
F) B) and C)

Question 12

Suppose the price of butter increases by 5 percent and the amount of margarine purchased increases by 25 percent. What is the cross-price elasticity of demand between these two goods?

Accepted Answer

A)   0.2
B)   5
C)   1.0
D)   −5.0E) A) and B)
F) All of the above

Question 13

Suppose when the price of novels goes from $15 to $20 per book, production increases from 760 million books to 840 million books per year. Using the mid-point method, what is the price elasticity of supply?

Accepted Answer

A)   0.77
B)   2.85
C)   2.0
D)   0.35E) B) and D)
F) A) and D)

Question 14

The concept of price elasticity can be applied to:

Accepted Answer

A)   demand, but not supply.
B)   supply, but not demand.
C)   both supply and demand.
D)   neither supply nor demand.E) B) and C)
F) A) and D)

Question 15

The cross-price elasticity of demand between which of the following pairs of goods is likely to be the largest in absolute value?

Accepted Answer

A)   Peanut butter and jelly
B)   Butter and margarine
C)   Ramen noodles and a Rolex watch
D)   Hot dogs and hot dog bunsE) A) and D)
F) B) and C)

Question 16

Suppose the price of a calculator is $18 and the quantity demanded is 90. When the price increases to $22, the quantity demanded drops to 70. Using the mid-point method, what is the price elasticity of demand for calculators?

Accepted Answer

A)   −1.25
B)   −25 percent
C)   −20 percent
D)   −25E) B) and C)
F) None of the above

Question 17

If supply and demand analysis is a measure of how, then elasticity is a measure of:

Accepted Answer

A)   how much.
B)   when.
C)   why.
D)   how quickly.E) None of the above
F) A) and B)

Question 18

Total revenue is the amount a firm:

Accepted Answer

A)   receives from the sale of goods and services.
B)   keeps after all expenses are paid.
C)   reinvests in itself from sales.
D)   receives from dividends.E) A) and C)
F) None of the above

Question 19

Suppose when the price of coffee beans goes from $1 to $1.20 per pound, production increases from 90 million pounds of coffee beans to 110 million pounds per year. Using the mid-point method, what is the percentage change in quantity supplied?

Accepted Answer

A)   20 percent
B)   18 percent
C)   60 percent
D)   6 percentE) B) and C)
F) All of the above

Question 20

Economists typically use the mid-point method of calculating elasticity because:

Accepted Answer

A)   it is easier to calculate.
B)   it is universally understood by all economists.
C)   the negative sign can then be ignored.
D)   the elasticity between two points is the same, regardless of the direction of the movement.E) B) and C)
F) A) and D)

Exam 4: Elasticity

The mid-point method of calculating price elasticity of demand measures the _____ changes in quantity demanded and price relative to a point midway between _____.

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The concept of price elasticity can be applied to:

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When consumers' incomes decline during a recession, they increase their consumption of instant coffee and reduce their consumption of other beverages. Therefore, instant coffee:

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Suppose the cross-price elasticity of demand between two goods is −2. This tells us the two goods are:

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Total revenue is the amount a firm:

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Suppose when the price of coffee beans goes from $1 to $1.20 per pound, production increases from 90 million pounds of coffee beans to 110 million pounds per year. Using the mid-point method, what is the percentage change in quantity supplied?

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The cross-price elasticity of demand between which of the following pairs of goods is likely to be the largest in absolute value?

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If the price of hairbrushes decreases by 20 percent and the quantity of hairbrushes demanded increases by 2 percent, the price elasticity of demand is _____ and is _____.

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Which of the following is a determinant of both price elasticity of supply and price elasticity of demand?

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Economists typically use the mid-point method of calculating elasticity because:

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If supply and demand analysis is a measure of how, then elasticity is a measure of:

Correct AnswerverifiedShow Answer

Suppose the price of butter increases by 5 percent and the amount of margarine purchased increases by 25 percent. What is the cross-price elasticity of demand between these two goods?

Correct AnswerverifiedShow Answer

Suppose the price of a calculator is $18 and the quantity demanded is 90. When the price increases to $22, the quantity demanded drops to 70. Using the mid-point method, what is the price elasticity of demand for calculators?

Correct AnswerverifiedShow Answer

Consider a market in which price is initially $6 and falls to $2. If we know that the price effect outweighed the quantity effect, we know the market is _____ and is more likely to be represented by _____.

Correct AnswerverifiedShow Answer

How much the demand for one good changes in response to a change in the price of a different good is measured by:

Correct AnswerverifiedShow Answer

If consumers' buying decisions are not very sensitive to changes in price, then their demand is:

Correct AnswerverifiedShow Answer

Assuming price elasticity of demand is reported as an absolute value, a price elasticity of demand greater than one indicates that demand for the good is:

Correct AnswerverifiedShow Answer

Suppose when the price of novels goes from $15 to $20 per book, production increases from 760 million books to 840 million books per year. Using the mid-point method, what is the price elasticity of supply?

Correct AnswerverifiedShow Answer

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?

Correct AnswerverifiedShow Answer

Suppose gas prices have steadily increased over the last decade. We would expect the price elasticity of demand for gas, when measured over the last decade, to:

Correct AnswerverifiedShow Answer

The mid-point method of calculating price elasticity of demand measures the _ changes in quantity demanded and price relative to a point midway between _.

Correct Answer
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If the price of hairbrushes decreases by 20 percent and the quantity of hairbrushes demanded increases by 2 percent, the price elasticity of demand is _ and is _.

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Consider a market in which price is initially $6 and falls to $2. If we know that the price effect outweighed the quantity effect, we know the market is _ and is more likely to be represented by _.

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