Question 1

A corn farmer is likely to have a _____ price elasticity of supply than a tree farmer due to a _____ production process.

Accepted Answer

A)  more elastic; more flexible
B)  less elastic; more flexible
C)  less elastic; less flexible
D)  more elastic; less flexibleE) A) and B)
F) A) and C)

Question 2

Assuming price elasticity of demand is reported as an absolute value, the measured elasticity for an elastic demand would be:

Accepted Answer

A)  greater than one.
B)  less than one.
C)  exactly one.
D)  greater than zero and less than one.E) None of the above
F) A) and B)

Question 3

The demand for classical music overall is _____ price elastic than the demand for Beethoven's music because _____.

Accepted Answer

A)  less; classical music has more substitutes than Beethoven's music
B)  more; classical music has more substitutes than Beethoven's music
C)  less; the scope of the market for classical music is more broadly defined
D)  more; the scope of the market for classical music is more broadly definedE) C) and D)
F) A) and C)

Question 4

Suppose the price of jelly increases by 10 percent and the amount of peanut butter purchased decreases by 20 percent. What is the cross-price elasticity of demand between these two goods?

Accepted Answer

A)  0.5
B)  2
C)  −0.5
D)  −2E) B) and C)
F) A) and B)

Question 5

The demand for a subway ride is likely _____ price elastic than the demand for a car because _____.

Accepted Answer

A)  less; a subway ride requires a smaller portion of one's income
B)  more; a subway ride requires a smaller portion of one's income
C)  less; consumers will take a longer time to adjust to a change in the price of a subway ride
D)  more; consumers will take a longer time to adjust to a change in the price of a subway rideE) A) and D)
F) None of the above

Question 6

Suppose that the price of a good is $10 and quantity demanded is 50 units. When price decreases to $8, quantity demanded increases to 60 units. What happened to total revenue and what does this indicate?

Accepted Answer

A)  Total revenue decreased from $500 to $480, indicating that demand is inelastic.
B)  Total revenue decreased from $500 to $480, indicating that demand is elastic.
C)  Total revenue increased from $480 to $500, indicating that demand is inelastic.
D)  Total revenue increased from $480 to $500, indicating that demand is elastic.E) A) and B)
F) None of the above

Question 7

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) A) and D)
F) None of the above

Question 8

Income elasticity will be positive for:

Accepted Answer

A)  all normal goods.
B)  all inferior goods.
C)  only necessities.
D)  only luxury goods with substitutes.E) A) and D)
F) All of the above

Question 9

The demand for shoes is _____ price elastic than the demand for sneakers because the scope of the market for shoes is _____ broadly defined.

Accepted Answer

A)  less; less
B)  more; less
C)  less; more
D)  more; moreE) B) and C)
F) All of the above

Question 10

Which of the following is not a determinant of price elasticity of demand?

Accepted Answer

A)  Scope of the market
B)  Availability of complements
C)  Cost relative to income
D)  Adjustment timeE) All of the above
F) C) and D)

Question 11

If a small percentage change in price causes a larger percentage change in the quantity demanded, the good has:

Accepted Answer

A)  an inelastic demand.
B)  a low magnitude of response.
C)  an elastic demand.
D)  a high magnitude of response.E) A) and B)
F) All of the above

Question 12

Knowing the price elasticity of demand is important in business because it allows a manager to determine whether:

Accepted Answer

A)  a price increase will cause total revenue to rise or fall.
B)  an increase in supply will cause total profit to rise or fall.
C)  a price increase will cause the quantity demanded to rise or fall.
D)  a price increase will cause the demand to rise or fall.E) All of the above
F) B) and C)

Question 13

Suppose the price of a good is $10 and quantity demanded is 50 units. When price increases to $12, quantity demanded decreases to 40 units. What does this indicate?

Accepted Answer

A)  The quantity effect is larger than the price effect, indicating that demand is inelastic.
B)  The quantity effect is larger than the price effect, indicating that demand is elastic.
C)  The price effect is larger than the quantity effect, indicating that demand is inelastic.
D)  The price effect is larger than the quantity effect, indicating that demand is elastic.E) A) and B)
F) None of the above

Question 14

Perfectly inelastic demand occurs when:

Accepted Answer

A)  consumers are extremely sensitive to a change in price.
B)  consumers are quick to alter their demand when the price changes.
C)  the quantity demanded is unchanged when the price changes by any amount.
D)  only large changes in price affect the quantity demanded.E) None of the above
F) A) and C)

Question 15

An increase in price:

Accepted Answer

A)  cannot cause a quantity effect.
B)  always increases revenue due to the price effect.
C)  may increase or decrease revenue.
D)  always decreases revenue due to the quantity effect.E) C) and D)
F) A) and B)

Question 16

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) A) and D)

Question 17

Consider the demand curve in the graph shown. Suppose price is initially $6 and falls to $4. Which of the following statements is true?

Accepted Answer

A)  The quantity effect will outweigh the price effect, and total revenue will rise.
B)  The quantity effect will outweigh the price effect, and total revenue will fall.
C)  The price effect will outweigh the quantity effect, and total revenue will rise.
D)  The price effect will outweigh the quantity effect, and total revenue will fall.E) B) and D)
F) B) and C)

Question 18

If the price of a cup of Dunkin' Donuts coffee increases while the price of a Starbucks latte is unchanged, we expect the number of lattes purchased at Starbucks to _____ as some consumers _____.

Accepted Answer

A)  increase; switch from Dunkin' Donuts coffee to Starbucks lattes.
B)  decrease; switch from Dunkin' Donuts coffee to Starbucks lattes.
C)  decrease; have less money to spend on caffeinated beverages.
D)  decrease; switch from Starbucks lattes to Dunkin' Donuts coffee.E) C) and D)
F) A) and B)

Question 19

Gasoline and motel rooms are complements for many consumers. When the price of gasoline declines, consumers take longer vacations and rent more motel rooms. Therefore, the cross-price elasticity of demand between gasoline and motel rooms is

Accepted Answer

A)  positive.
B)  negative.
C)  less than one because neither is a luxury.
D)  more than one because both are luxuries.E) All of the above
F) C) and D)

Question 20

Demand tends to be more elastic when:

Accepted Answer

A)  price is high and more inelastic when price is low.
B)  price is low and more inelastic when price is high.
C)  demand is perfectly inelastic.
D)  the quantity demanded is larger.E) A) and B)
F) A) and C)

Exam 4: Elasticity

Gasoline and motel rooms are complements for many consumers. When the price of gasoline declines, consumers take longer vacations and rent more motel rooms. Therefore, the cross-price elasticity of demand between gasoline and motel rooms is

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Suppose that the price of a good is $10 and quantity demanded is 50 units. When price decreases to $8, quantity demanded increases to 60 units. What happened to total revenue and what does this indicate?

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If the price of a cup of Dunkin' Donuts coffee increases while the price of a Starbucks latte is unchanged, we expect the number of lattes purchased at Starbucks to _____ as some consumers _____.

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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:

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Demand tends to be more elastic when:

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The demand for shoes is _____ price elastic than the demand for sneakers because the scope of the market for shoes is _____ broadly defined.

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Which of the following is not a determinant of price elasticity of demand?

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Suppose the price of a good is $10 and quantity demanded is 50 units. When price increases to $12, quantity demanded decreases to 40 units. What does this indicate?

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A corn farmer is likely to have a _____ price elasticity of supply than a tree farmer due to a _____ production process.

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An increase in price:

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The demand for classical music overall is _____ price elastic than the demand for Beethoven's music because _____.

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The demand for a subway ride is likely _____ price elastic than the demand for a car because _____.

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Knowing the price elasticity of demand is important in business because it allows a manager to determine whether:

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Perfectly inelastic demand occurs when:

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If a small percentage change in price causes a larger percentage change in the quantity demanded, the good has:

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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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Assuming price elasticity of demand is reported as an absolute value, the measured elasticity for an elastic demand would be:

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Consider the demand curve in the graph shown. Suppose price is initially $6 and falls to $4. Which of the following statements is true?

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Suppose the price of jelly increases by 10 percent and the amount of peanut butter purchased decreases by 20 percent. What is the cross-price elasticity of demand between these two goods?

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Income elasticity will be positive for:

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Correct Answer
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If the price of a cup of Dunkin' Donuts coffee increases while the price of a Starbucks latte is unchanged, we expect the number of lattes purchased at Starbucks to _ as some consumers _.

Correct Answer
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Correct Answer
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Correct Answer
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The demand for shoes is _ price elastic than the demand for sneakers because the scope of the market for shoes is _ broadly defined.

Correct Answer
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Correct Answer
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A corn farmer is likely to have a _ price elasticity of supply than a tree farmer due to a _ production process.

Correct Answer
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Correct Answer
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The demand for classical music overall is _ price elastic than the demand for Beethoven's music because _.

Correct Answer
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The demand for a subway ride is likely _ price elastic than the demand for a car because _.

Correct Answer
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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 _.

Correct Answer
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Correct Answer
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