Question 1

You notice that whenever incomes rise by 5 percent, people buy 3 percent more of Good A. This suggests that Good A has a negative income elasticity of demand.

Accepted Answer

A) True 
 B)False

Question 2

When the percentage change in price is greater than the resulting percentage change in quantity demanded,

Accepted Answer

A)   a decrease in price will increase total revenue.
B)   demand may be either elastic or inelastic.
C)   an increase in price will increase total revenue.
D)   demand is elastic.E) B) and D)
F) C) and D)

Question 3

The supply of product X is inelastic (but not perfectly inelastic)  if the price of X rises by

Accepted Answer

A)   5 percent and quantity supplied rises by 7 percent.
B)   8 percent and quantity supplied rises by 8 percent.
C)   10 percent and quantity supplied remains the same.
D)   7 percent and quantity supplied rises by 5 percent.E) All of the above
F) A) and B)

Question 4

Assume that a 3 percent increase in income across the economy produces a 1 percent decline in the quantity demanded of good X. The coefficient of income elasticity of demand for good X is

Accepted Answer

A)   negative, and therefore X is an inferior good.
B)   negative, and therefore X is a normal good.
C)   positive, and therefore X is an inferior good.
D)   positive and therefore X is a normal good.E) All of the above
F) A) and B)

Question 5

The supply of tickets to a major sporting event held in an enclosed stadium, such as the Super Bowl or a World Series game, is perfectly inelastic.

Accepted Answer

A) True 
 B)False

Question 6

The concept of price elasticity of demand measures

Accepted Answer

A)   the slope of the demand curve.
B)   the number of buyers in a market.
C)   the extent to which the demand curve shifts as the result of a price decline.
D)   the sensitivity of consumer purchases to price changes.E) A) and D)
F) A) and C)

Question 7

Which of the following factors will make the demand for a product relatively elastic?

Accepted Answer

A)   There are few substitutes.
B)   The time interval considered is long.
C)   The good is considered a necessity.
D)   Purchases of the good require a small portion of consumers' budgets.E) A) and D)
F) A) and C)

Question 8

The price of gold is often volatile because

Accepted Answer

A)   demand is relatively inelastic, so changes in supply have a large effect on price.
B)   supply is relatively elastic, so changes in demand have a large effect on price.
C)   demand is relatively elastic, so changes in supply have a large effect on price.
D)   supply is relatively inelastic, so changes in demand have a large effect on price.E) C) and D)
F) A) and C)

Question 9

Which of the following statements is inconsistent with an elastic demand curve?

Accepted Answer

A)   The price-elasticity coefficient is greater than 1.
B)   Total revenue increases when price increases.
C)   Buyers are relatively sensitive to price changes.
D)   The relative change in quantity exceeds the relative change in price.E) None of the above
F) B) and C)

Question 10

The total revenue received by sellers of a good is the same amount as the

Accepted Answer

A)   total income earned by the buyers.
B)   total amount spent on the good by the buyers.
C)   price paid by the buyers for each unit of the good.
D)   profits earned by the sellers of the good.E) A) and C)
F) B) and C)

Question 11

If the demand for a product is elastic, then

Accepted Answer

A)   a higher tax on the product will generate more tax revenue.
B)   a higher tax on the product will generate less tax revenue.
C)   total revenue will decrease as price decreases.
D)   total revenue will remain constant as price increases.E) B) and C)
F) A) and D)

Question 12

The price elasticity of demand of a straight-line demand curve is

Accepted Answer

A)   elastic in high-price ranges and inelastic in low-price ranges.
B)   elastic but does not change at various points on the curve.
C)   inelastic but does not change at various points on the curve.
D)   1 at all points on the curve.E) B) and C)
F) A) and D)

Question 13

Given that the demand for grains is price-inelastic, we would expect that if the harvest of grains increases significantly, other factors constant, then grain farmers' total revenues would increase.

Accepted Answer

A) True 
 B)False

Question 14

A union argues that a price cut will boost the revenues of the firm, while management argues that the opposite is true. This suggests that the price elasticity of demand is

Accepted Answer

A)   unit-elastic from the union's perspective and unit-inelastic from management's perspective.
B)   perfectly inelastic from the union's perspective and perfectly elastic from management's perspective.
C)   elastic from the union's perspective, inelastic from management's perspective.
D)   inelastic from the union's perspective, elastic from management's perspective.E) None of the above
F) B) and D)

Question 15

The price elasticity of demand for a textbook is estimated to be 1 no matter what the price or quantity demanded. In this case,

Accepted Answer

A)   a 10 percent increase in price will result in a 10 percent increase in total revenues.
B)   a 10 percent increase in price will result in a 10 percent decrease in the quantity demanded.
C)   a 10 percent increase in price will result in a 10 percent decrease in total revenues.
D)   a 10 percent increase in price will result in a 10 percent increase in quantity demanded.E) B) and C)
F) A) and B)

Question 16

The elasticity of supply of product X is unitary if the price of X rises by

Accepted Answer

A)   5 percent and quantity supplied rises by 7 percent.
B)   8 percent and quantity supplied rises by 8 percent.
C)   10 percent and quantity supplied stays the same.
D)   7 percent and quantity supplied rises by 5 percent.E) C) and D)
F) A) and B)

Question 17

You are the only seller of eggs in town, and the price-elasticity coefficient for eggs is known to be 0.8. If you want to increase your sales quantity by 10 percent through a price change, what should you do to price?

Accepted Answer

A)   increase price by 12.5 percent
B)   reduce price by 12.5 percent
C)   increase price by 8 percent
D)   reduce price by 8 percentE) None of the above
F) A) and D)

Question 18

Total revenue falls as the price of a good is raised, if the demand for the good is

Accepted Answer

A)   elastic.
B)   inelastic.
C)   unitary elastic.
D)   perfectly elastic.E) A) and B)
F) A) and C)

Question 19

Assume that pizza and hamburgers are the only food items available to consumers. If the price of pizza increases, other factors constant, then which of the following will definitely happen?

Accepted Answer

A)   Total revenues received by pizza sellers will increase.
B)   Total revenues received by pizza sellers will decrease.
C)   Total revenues received by hamburger sellers will increase.
D)   Total revenues received by hamburger sellers will decrease.E) None of the above
F) C) and D)

Question 20

Generally speaking, the smaller the percentage of one's total budget devoted to a particular product, the more price elastic will be the demand for that product.

Accepted Answer

A) True 
 B)False

Exam 6: Elasticity

Assume that pizza and hamburgers are the only food items available to consumers. If the price of pizza increases, other factors constant, then which of the following will definitely happen?

Correct AnswerverifiedShow Answer

Given that the demand for grains is price-inelastic, we would expect that if the harvest of grains increases significantly, other factors constant, then grain farmers' total revenues would increase.

Correct AnswerverifiedShow Answer

You notice that whenever incomes rise by 5 percent, people buy 3 percent more of Good A. This suggests that Good A has a negative income elasticity of demand.

Correct AnswerverifiedShow Answer

Total revenue falls as the price of a good is raised, if the demand for the good is

Correct AnswerverifiedShow Answer

The supply of tickets to a major sporting event held in an enclosed stadium, such as the Super Bowl or a World Series game, is perfectly inelastic.

Correct AnswerverifiedShow Answer

The concept of price elasticity of demand measures

Correct AnswerverifiedShow Answer

The price elasticity of demand of a straight-line demand curve is

Correct AnswerverifiedShow Answer

A union argues that a price cut will boost the revenues of the firm, while management argues that the opposite is true. This suggests that the price elasticity of demand is

Correct AnswerverifiedShow Answer

The supply of product X is inelastic (but not perfectly inelastic) if the price of X rises by

Correct AnswerverifiedShow Answer

Which of the following statements is inconsistent with an elastic demand curve?

Correct AnswerverifiedShow Answer

The price of gold is often volatile because

Correct AnswerverifiedShow Answer

If the demand for a product is elastic, then

Correct AnswerverifiedShow Answer

Which of the following factors will make the demand for a product relatively elastic?

Correct AnswerverifiedShow Answer

When the percentage change in price is greater than the resulting percentage change in quantity demanded,

Correct AnswerverifiedShow Answer

The total revenue received by sellers of a good is the same amount as the

Correct AnswerverifiedShow Answer

Assume that a 3 percent increase in income across the economy produces a 1 percent decline in the quantity demanded of good X. The coefficient of income elasticity of demand for good X is

Correct AnswerverifiedShow Answer

The elasticity of supply of product X is unitary if the price of X rises by

Correct AnswerverifiedShow Answer

You are the only seller of eggs in town, and the price-elasticity coefficient for eggs is known to be 0.8. If you want to increase your sales quantity by 10 percent through a price change, what should you do to price?

Correct AnswerverifiedShow Answer

The price elasticity of demand for a textbook is estimated to be 1 no matter what the price or quantity demanded. In this case,

Correct AnswerverifiedShow Answer

Generally speaking, the smaller the percentage of one's total budget devoted to a particular product, the more price elastic will be the demand for that product.

Correct AnswerverifiedShow Answer

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