Question 1

When price was 10, quantity demanded was 50. When price increased to 12, quantity demanded decreased to 40. Therefore, when price increased, total revenue

Accepted Answer

A)   decreased from 500 to 480, indicating that demand is inelastic.
B)   decreased from 500 to 480, indicating that demand is elastic.
C)   increased from 480 to 500, indicating that demand is inelastic.
D)   increased from 480 to 500, indicating that demand is elastic.E) C) and D)
F) A) and B)

Question 2

If increasing the admission charge for National Parks increases the National Park Service's total revenue, then the demand for National Park visits is:

Accepted Answer

A)   inelastic.
B)   elastic.
C)   perfectly elastic.
D)   a perfectly horizontal line.E) B) and D)
F) C) and D)

Question 3

The cross-price elasticity of two goods is 2. This tells us the two goods are:

Accepted Answer

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

Question 4

A linear demand curve:

Accepted Answer

A)   has a constant elasticity.
B)   will be more elastic when price is low and more inelastic when price is high.
C)   must be either perfectly inelastic or perfectly elastic.
D)   has a constant slope.E) B) and D)
F) None of the above

Question 5

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, the percentage change in quantity supplied is:

Accepted Answer

A)   20 percent
B)   18 percent
C)   0.6
D)   6.0E) All of the above
F) A) and B)

Question 6

If the price of a cup of coffee increases by 50 percent, the quantity demanded decreases by 50 percent. The price elasticity of demand is:

Accepted Answer

A)   elastic.
B)   inelastic.
C)   unit elastic.
D)   zero.E) A) and D)
F) B) and C)

Question 7

Which pair of goods is likely to have the largest positive cross-price elasticity?

Accepted Answer

A)   Peanut butter and jelly
B)   Butter and margarine
C)   Ramen noodles and a Rolex watch
D)   Cross-price elasticity is always negative, and simply reported in absolute value.E) A) and B)
F) A) and C)

Question 8

Price elasticity of supply:

Accepted Answer

A)   is the percentage change in the quantity supplied of a good or service divided by the percentage change in the price of the good or service.
B)   measures consumers' responsiveness to a change in price.
C)   is always a negative number.
D)   is the percentage change in the price of a good or service divided by the percentage change in the quantity supplied of the good or service.E) C) and D)
F) None of the above

Question 9

Suppose a decrease in price increases quantity demanded from 8 to 12. Using the mid-point formula, the percentage change in quantity demanded is:

Accepted Answer

A)   0.1, and is elastic.
B)   40 = 400 percent.
C)   0.40 = 40 percent.
D)   0.40 = 40 percentE) B) and C)
F) A) and B)

Question 10

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

Question 11

Assuming price elasticity of demand is reported as an absolute value, a good with unit elastic demand has an elasticity:

Accepted Answer

A)   between zero and one.
B)   greater than one.
C)   less than one, but greater than zero.
D)   equal to one.E) A) and B)
F) None of the above

Question 12

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 is true.E) A) and C)
F) A) and D)

Question 13

The concept of price elasticity is applied to changes in:

Accepted Answer

A)   quantity demanded, but not quantity supplied.
B)   quantity supplied, but not quantity demanded.
C)   both quantities supplied and quantity demanded.
D)   neither quantity supplied nor quantity demanded.E) A) and C)
F) B) and C)

Question 14

The demand for ice cream is _________________ than is the demand for frozen treats because ________________.

Accepted Answer

A)   less price elastic; ice cream requires a smaller portion of one's income
B)   more price elastic; ice cream requires a smaller portion of one's income
C)   less price elastic; the scope of the market for ice cream is less broadly defined
D)   more price elastic; the scope of the market for ice cream is less broadly definedE) All of the above
F) A) and D)

Question 15

If the quantity effect outweighs the price effect of a price increase, then demand is:

Accepted Answer

A)   elastic.
B)   inelastic.
C)   unit elastic.
D)   normal.E) B) and D)
F) B) and C)

Question 16

If two goods are substitutes, then their cross-price elasticity of demand is

Accepted Answer

A)   positive.
B)   negative.
C)   zero.
D)   between zero and minus one.E) C) and D)
F) A) and B)

Question 17

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

Accepted Answer

A)   2 = 200 percent.
B)   0.2 = 20 percent.
C)   0.2 = 20 percent
D)   0.1 = 10 percentE) None of the above
F) B) and D)

Question 18

The determinants of price elasticity of demand include:

Accepted Answer

A)   availability of substitutes, cost relative to benefit, and scope of market.
B)   degree of necessity, cost relative to income, scope of market, and adjustment time.
C)   availability of complements, cost relative to income, and scope of market.
D)   cost relative to income, scope of demand, and adjustment time.E) B) and C)
F) None of the above

Question 19

The change in the quantity demanded of gas because of increasing gas prices over the last decade:

Accepted Answer

A)   was more elastic than it has been in the last six months.
B)   was less elastic than it has been in the last six months.
C)   has been relatively the same over both time periods.
D)   has become a non-issue for people now that they are used to higher gas prices.E) C) and D)
F) A) and B)

Question 20

In general, the more elastic a demand curve is the:

Accepted Answer

A)   flatter it will be.
B)   steeper it will be.
C)   more bowed-in it will be.
D)   faster it will shift when price changes.E) A) and B)
F) C) and D)

Exam 4: Elasticity

The determinants of price elasticity of demand include:

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When price was 10, quantity demanded was 50. When price increased to 12, quantity demanded decreased to 40. Therefore, when price increased, total revenue

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If two goods are substitutes, then their cross-price elasticity of demand is

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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, the percentage change in quantity supplied is:

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The change in the quantity demanded of gas because of increasing gas prices over the last decade:

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If the price of a cup of coffee increases by 50 percent, the quantity demanded decreases by 50 percent. The price elasticity of demand is:

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A linear demand curve:

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In general, the more elastic a demand curve is the:

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A decrease in price causes:

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If the quantity effect outweighs the price effect of a price increase, then demand is:

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

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Demand for a good is inelastic if:

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The demand for ice cream is _________________ than is the demand for frozen treats because ________________.

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Price elasticity of supply:

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Suppose a decrease in price increases quantity demanded from 8 to 12. Using the mid-point formula, the percentage change in quantity demanded is:

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The concept of price elasticity is applied to changes in:

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Assuming price elasticity of demand is reported as an absolute value, a good with unit elastic demand has an elasticity:

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The cross-price elasticity of two goods is 2. This tells us the two goods are:

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Which pair of goods is likely to have the largest positive cross-price elasticity?

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If increasing the admission charge for National Parks increases the National Park Service's total revenue, then the demand for National Park visits is:

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The demand for ice cream is _ than is the demand for frozen treats because .

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