Question 1

Refer to the graph above. If demand decreases, then total revenues will

Accepted Answer

A)  decrease.
B)  increase.
C)  stay the same.
D)  cause supply to decrease too.E) All of the above
F) A) and C)

Question 2

For a linear demand curve,

Accepted Answer

A)  elasticity is constant along the curve.
B)  elasticity is unity at every point on the curve.
C)  demand is elastic at relatively low prices.
D)  demand is elastic at relatively high prices.E) A) and B)
F) A) and C)

Question 3

Which of the following generalizations is not correct?

Accepted Answer

A)  The larger an item is in one's budget, the greater the price elasticity of demand.
B)  The price elasticity of demand is greater for necessities than it is for luxuries.
C)  The larger the number of close substitutes available, the greater will be the price elasticity of demand for a particular product.
D)  The price elasticity of demand is greater the longer the time period under consideration.E) None of the above
F) A) and B)

Question 4

The price-elasticity of demand is always negative because of

Accepted Answer

A)  the law of demand.
B)  percentage changes being used in the formula.
C)  the midpoint formula.
D)  scarcity.E) B) and C)
F) B) and D)

Question 5

A price increase from $43 to $49 results in an increase in quantity supplied from 220 units to 240 units. The price elasticity of supply in this price range is

Accepted Answer

A)  0.3.
B)  0.67.
C)  1.5.
D)  3.33.E) B) and C)
F) A) and D)

Question 6

Suppose the income elasticity of demand for toys is +2.0. This means that

Accepted Answer

A)  a 10 percent increase in income will increase the purchase of toys by 20 percent.
B)  a 10 percent increase in income will increase the purchase of toys by 2 percent.
C)  a 10 percent increase in income will decrease the purchase of toys by 2 percent.
D)  toys are an inferior good.E) B) and D)
F) All of the above

Question 7

A firm can sell as much as it wants at a constant price. Demand is thus

Accepted Answer

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

Question 8

Most goods can be classified as normal goods rather than inferior goods. The definition of a normal good suggests that

Accepted Answer

A)  the income elasticity of demand for the good is negative.
B)  the price elasticity of demand for the good is negative.
C)  the income elasticity for the good is greater than 0.
D)  the cross elasticity of demand for the good is positive.E) B) and C)
F) B) and D)

Question 9

In some markets consumers may buy many different brands of a product. Which of the statements below best represents a situation where demand for a particular brand would be very elastic?

Accepted Answer

A)  "The different brands are almost identical. I always buy the cheapest."
B)  "I use so little of that product that when I do buy it, I don't pay much attention to the price."
C)  "The brand I buy is so superior to other available brands that I hardly consider the others."
D)  "I pinch pennies in buying other products, but like most people, I feel I owe it to myself to get the best brand of this product."E) A) and D)
F) A) and B)

Question 10

Movie theaters charge lower prices to see a movie in the afternoon than in the evening because there is an

Accepted Answer

A)  inelastic supply of movies in the evening.
B)  elastic demand to see movies in the evening.
C)  elastic demand to see movies in the afternoon.
D)  inelastic demand to see movies in the afternoon.E) A) and D)
F) A) and C)

Question 11

Along a linear downward-sloping demand curve, the price elasticity of demand will be

Accepted Answer

A)  greater than one across each price range.
B)  less than one across each price range.
C)  equal to zero across each price range.
D)  different across each price range.E) A) and D)
F) None of the above

Question 12

A 3 percent increase in the price of tea causes 6 percent increase in the demand for coffee. The cross elasticity of demand for coffee with respect to the price of tea is

Accepted Answer

A)  −0.5.
B)  0.5.
C)  −2.
D)  2.E) B) and C)
F) All of the above

Question 13

Suppose the price of local cable TV service increased from$15.00 to$20.00 and as a result the number of cable subscribers decreased from 248,000 to 200,000. Along this portion of the demand curve, using the midpoint method, price elasticity of demand is approximately

Accepted Answer

A)  1.33.
B)  0.72.
C)  4.
D)  0.6.E) None of the above
F) A) and D)

Question 14

You are the sales manager for a software company and have been informed that the price elasticity of demand for your most popular software is less than 1. In order to increase total revenues from that product, you should

Accepted Answer

A)  increase the price of the software.
B)  decrease the price of the software.
C)  hold the price of the software constant.
D)  increase the supply of the software.E) All of the above
F) A) and B)

Question 15

Refer to the diagram. Total revenue at price P₁ is indicated by area(s)

Accepted Answer

A)  C + D.
B)  A + B.
C)  A + C.
D)  A.E) A) and D)
F) A) and C)

Question 16

In the price range where demand is elastic, if the seller of the good raises its price, then total revenues will increase.

Accepted Answer

A) True 
 B)False

Question 17

If a 10 percent increase in the price of one good results in no change in the quantity demanded of another good, then it can be concluded that the two goods are

Accepted Answer

A)  complementary goods.
B)  substitute goods.
C)  independent goods.
D)  normal goods.E) All of the above
F) B) and C)

Question 18

A 10 percent increase in the price of tea causes 8 percent increase in the demand for coffee. The cross elasticity of demand for coffee with respect to the price of tea is

Accepted Answer

A)  -1.25.
B)  1.25.
C)  -0.8.
D)  0.8.E) A) and B)
F) C) and D)

Question 19

The supply of antiques is highly inelastic. Thus, increases in demand would have a small effect on price.

Accepted Answer

A) True 
 B)False

Question 20

An increase in the price of tickets to a popular sporting event will increase total revenue if

Accepted Answer

A)  there are many substitutes for this form of entertainment.
B)  the ticket is considered to be a luxury.
C)  the buyers of the tickets are fanatic about the event.
D)  the fans are price conscious.E) C) and D)
F) None of the above

Exam 6: Elasticity

Suppose the income elasticity of demand for toys is +2.0. This means that

Correct AnswerverifiedShow Answer

A firm can sell as much as it wants at a constant price. Demand is thus

Correct AnswerverifiedShow Answer

In the price range where demand is elastic, if the seller of the good raises its price, then total revenues will increase.

Correct AnswerverifiedShow Answer

For a linear demand curve,

Correct AnswerverifiedShow Answer

Most goods can be classified as normal goods rather than inferior goods. The definition of a normal good suggests that

Correct AnswerverifiedShow Answer

A price increase from $43 to $49 results in an increase in quantity supplied from 220 units to 240 units. The price elasticity of supply in this price range is

Correct AnswerverifiedShow Answer

If a 10 percent increase in the price of one good results in no change in the quantity demanded of another good, then it can be concluded that the two goods are

Correct AnswerverifiedShow Answer

Which of the following generalizations is not correct?

Correct AnswerverifiedShow Answer

Suppose the price of local cable TV service increased from$15.00 to$20.00 and as a result the number of cable subscribers decreased from 248,000 to 200,000. Along this portion of the demand curve, using the midpoint method, price elasticity of demand is approximately

Correct AnswerverifiedShow Answer

The price-elasticity of demand is always negative because of

Correct AnswerverifiedShow Answer

A 3 percent increase in the price of tea causes 6 percent increase in the demand for coffee. The cross elasticity of demand for coffee with respect to the price of tea is

Correct AnswerverifiedShow Answer

In some markets consumers may buy many different brands of a product. Which of the statements below best represents a situation where demand for a particular brand would be very elastic?

Correct AnswerverifiedShow Answer

An increase in the price of tickets to a popular sporting event will increase total revenue if

Correct AnswerverifiedShow Answer

A 10 percent increase in the price of tea causes 8 percent increase in the demand for coffee. The cross elasticity of demand for coffee with respect to the price of tea is

Correct AnswerverifiedShow Answer

Along a linear downward-sloping demand curve, the price elasticity of demand will be

Correct AnswerverifiedShow Answer

Refer to the graph above. If demand decreases, then total revenues will

Correct AnswerverifiedShow Answer

Refer to the diagram. Total revenue at price P₁ is indicated by area(s)

Correct AnswerverifiedShow Answer

Movie theaters charge lower prices to see a movie in the afternoon than in the evening because there is an

Correct AnswerverifiedShow Answer

You are the sales manager for a software company and have been informed that the price elasticity of demand for your most popular software is less than 1. In order to increase total revenues from that product, you should

Correct AnswerverifiedShow Answer

The supply of antiques is highly inelastic. Thus, increases in demand would have a small effect on price.

Correct AnswerverifiedShow Answer

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