Question 1

Suppose that the price of peanuts falls from $3 to $2 per bushel and that, as a result, the total revenue received by peanut farmers changes from $16 to $14 billion. Thus,

Accepted Answer

A)   the demand for peanuts is elastic.
B)   the demand for peanuts is inelastic.
C)   the demand curve for peanuts has shifted to the right.
D)   no inference can be made as to the elasticity of demand for peanuts.E) A) and B)
F) C) and D)

Question 2

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) B) and D)
F) C) and D)

Question 3

When universities announce a large tuition increase and follow it with an announcement that more financial aid will be available, they are assuming that students who pay full tuition

Accepted Answer

A)   have elastic demand and students who use financial aid have inelastic demand.
B)   have inelastic demand and students who use financial aid have elastic demand.
C)   view a college education as an inferior good and students who use financial aid view it as a normal good.
D)   view a college education as a normal good and students who use financial aid view it as an inferior good.E) None of the above
F) All of the above

Question 4

A state government wants to increase the taxes on cigarettes to increase tax revenue. Because cigarettes are addictive, we would expect its demand to be

Accepted Answer

A)   elastic. Thus, the government's cigarette-tax revenues would rise with a tax increase.
B)   elastic. Thus, the government's cigarette-tax revenues would fall with a tax increase.
C)   inelastic. Thus,the government's cigarette-tax revenues would fall with a tax increase.
D)   inelastic. Thus,the government's cigarette-tax revenues would rise with a tax increase.E) A) and C)
F) B) and D)

Question 5

The demand for a necessity whose cost is a small portion of one's total income is

Accepted Answer

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

Question 6

A negative income elasticity of demand coefficient indicates that

Accepted Answer

A)   the product is an inferior good.
B)   the product follows the law of demand.
C)   the product is a complementary good.
D)   the product is a substitute good.E) A) and B)
F) B) and C)

Question 7

We would expect the cross elasticity of demand between Pepsi and Coke to be

Accepted Answer

A)   positive, indicating normal goods.
B)   positive, indicating inferior goods.
C)   positive, indicating substitute goods.
D)   negative, indicating substitute goods.E) A) and B)
F) B) and C)

Question 8

We would expect

Accepted Answer

A)   the demand for Coca-Cola to be less price elastic than the demand for soft drinks in general.
B)   the demand for Coca-Cola to be more price elastic than the demand for soft drinks in general.
C)   no relationship between the price elasticity of demand for Coca-Cola and the price elasticity of demand for soft drinks in general.
D)   none of the other answers to hold true.E) B) and D)
F) B) and C)

Question 9

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 10

A leftward shift in the supply curve of product X will increase equilibrium price to a greater extent the

Accepted Answer

A)   more elastic the supply curve.
B)   larger the elasticity of demand coefficient.
C)   more elastic the demand for the product.
D)   more inelastic the demand for the product.E) B) and D)
F) B) and C)

Question 11

A firm produces and sells two goods, A and B. Good A is known to have many close substitutes; good B makes up a significant portion of most families' budgets. A price increase for each good would most likely cause total revenues from good A to

Accepted Answer

A)   increase and total revenues from good B to decrease
B)   increase and total revenues from good B to increase.
C)   decrease and total revenues from good B to increase.
D)   decrease and total revenues from good B to decrease.E) A) and B)
F) All of the above

Question 12

Suppose the income elasticity of demand for toys is +2.00. 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) None of the above
F) All of the above

Question 13

The state legislature has cut Gigantic State University's appropriations. GSU's Board of Regents decides to increase tuition and fees to compensate for the loss of revenue. The board is assuming that the

Accepted Answer

A)   demand for education at GSU is elastic.
B)   demand for education at GSU is inelastic.
C)   coefficient of price elasticity of demand for education at GSU is unity.
D)   coefficient of price elasticity of demand for education at GSU is greater than unity.E) A) and B)
F) B) and C)

Question 14

The price elasticity of demand is generally

Accepted Answer

A)   negative, but the minus sign is ignored.
B)   positive, but the plus sign is ignored.
C)   positive for normal goods and negative for inferior goods.
D)   positive because price and quantity demanded are inversely related.E) A) and B)
F) All of the above

Question 15

If the demand for bacon is relatively elastic, a 10 percent decline in the price of bacon will

Accepted Answer

A)   decrease the amount demanded by more than 10 percent.
B)   increase the amount demanded by more than 10 percent.
C)   decrease the amount demanded by less than 10 percent.
D)   increase the amount demanded by less than 10 percent.E) None of the above
F) A) and C)

Question 16

(Last Word)  Which of the following is not an example of pricing based on group differences in elasticity of demand?

Accepted Answer

A)   senior-citizen discounts at restaurants and motels
B)   cash rebates for purchases of automobiles
C)   child discounts for admission to theme parks
D)   discounted student prices for visits to museumsE) A) and D)
F) A) and C)

Question 17

Whenever a product is put on special sale at a discounted price, total revenue from the product increases. This indicates that the coefficient of elasticity for the product is greater than 1.

Accepted Answer

A) True 
 B)False

Question 18

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 C)
F) A) and B)

Question 19

If changes in demand cause significant changes in equilibrium price, then supply must be quite inelastic.

Accepted Answer

A) True 
 B)False

Question 20

When the price of a product is increases by 15 percent, the quantity demanded decreases by 10 percent. We can therefore conclude that the demand for this product is

Accepted Answer

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

Exam 6: Elasticity

When universities announce a large tuition increase and follow it with an announcement that more financial aid will be available, they are assuming that students who pay full tuition

Correct AnswerverifiedShow Answer

Which of the following generalizations is not correct?

Correct AnswerverifiedShow Answer

The demand for a necessity whose cost is a small portion of one's total income is

Correct AnswerverifiedShow Answer

Suppose the income elasticity of demand for toys is +2.00. This means that

Correct AnswerverifiedShow Answer

Suppose that the price of peanuts falls from $3 to $2 per bushel and that, as a result, the total revenue received by peanut farmers changes from $16 to $14 billion. Thus,

Correct AnswerverifiedShow Answer

A firm produces and sells two goods, A and B. Good A is known to have many close substitutes; good B makes up a significant portion of most families' budgets. A price increase for each good would most likely cause total revenues from good A to

Correct AnswerverifiedShow Answer

We would expect the cross elasticity of demand between Pepsi and Coke to be

Correct AnswerverifiedShow Answer

The state legislature has cut Gigantic State University's appropriations. GSU's Board of Regents decides to increase tuition and fees to compensate for the loss of revenue. The board is assuming that the

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

If changes in demand cause significant changes in equilibrium price, then supply must be quite inelastic.

Correct AnswerverifiedShow Answer

A state government wants to increase the taxes on cigarettes to increase tax revenue. Because cigarettes are addictive, we would expect its demand to be

Correct AnswerverifiedShow Answer

A negative income elasticity of demand coefficient indicates that

Correct AnswerverifiedShow Answer

The price elasticity of demand is generally

Correct AnswerverifiedShow Answer

We would expect

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Whenever a product is put on special sale at a discounted price, total revenue from the product increases. This indicates that the coefficient of elasticity for the product is greater than 1.

Correct AnswerverifiedShow Answer

When the price of a product is increases by 15 percent, the quantity demanded decreases by 10 percent. We can therefore conclude that the demand for this product is

Correct AnswerverifiedShow Answer

A leftward shift in the supply curve of product X will increase equilibrium price to a greater extent the

Correct AnswerverifiedShow Answer

If the demand for bacon is relatively elastic, a 10 percent decline in the price of bacon will

Correct AnswerverifiedShow Answer

(Last Word) Which of the following is not an example of pricing based on group differences in elasticity of demand?

Correct AnswerverifiedShow Answer

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