Question 1

-Refer to the above table. The price of Y decreases from $18 to $15. What is the cross price elasticity of demand between Y and X?

Accepted Answer

A)  -0.73
B)  -1.0
C)  +1.38
D)  +1.83E) A) and D)
F) All of the above

Question 2

The price elasticity of supply is 0.6. This means that

Accepted Answer

A)  a $10 increase in price would increase quantity supplied by 60.
B)  a 150 percent increase in price would increase quantity supplied by 90 percent.
C)  a 50 percent increase in quantity will occur when price increases by 30 percent.
D)  a 10 percent increase in quantity will occur when price increases by 6 percent.E) A) and B)
F) All of the above

Question 3

The price elasticity of demand is

Accepted Answer

A)  always positive, so there is no reason to consider the absolute value of the price elasticity of demand.
B)  always negative, but by convention, economists typically express the price elasticity of demand as an absolute value.
C)  always equal to -1, which by convention economists typically express as an absolute value, or 1.
D)  always equal to zero, so there is no reason to consider the absolute value of the price elasticity of demand.E) A) and C)
F) A) and D)

Question 4

Which of the following statements regarding price elasticity of supply and the length of time for adjustment is FALSE?

Accepted Answer

A)  The longer is the time period for adjustment, the greater is the price elasticity of supply.
B)  The longer is the time period for adjustment, the less is the extent to which resources flow into (or out of) an industry through expansion (or contraction) of existing firms.
C)  The longer is the time period for adjustment, the greater is the extent to which entry or (exit) of firms increases or (decreases) production in an industry.
D)  The shorter the time period for adjustment, the greater is the price elasticity of supply.E) A) and B)
F) B) and C)

Question 5

A 2 percent increase in the price of neckties leads to a 5 percent decrease in the quantity demanded of neckties. The absolute price elasticity of demand is

Accepted Answer

A)  2.5.
B)  1.
C)  0.4.
D)  0.2.E) B) and D)
F) A) and C)

Question 6

When the absolute price elasticity of demand equals 0.67, demand is

Accepted Answer

A)  elastic.
B)  unit-elastic.
C)  inelastic.
D)  undetermined without more information.E) None of the above
F) A) and B)

Question 7

We say that a good has elastic demand whenever the absolute value of the price elasticity of demand is greater than 1. A 1 percent change in price therefore causes

Accepted Answer

A)  exactly a 1 percent change in the quantity demanded.
B)  a change of less than 1 percent in the quantity demanded.
C)  a greater than 1 percent change in quantity demanded.
D)  a change that cannot be determined based on 1 percent.E) A) and D)
F) B) and D)

Question 8

The responsiveness of demand to changes in income holding the good's relative price constant is

Accepted Answer

A)  price elasticity of demand.
B)  income elasticity of demand.
C)  elasticity of supply.
D)  cross price elasticity of demand.E) None of the above
F) All of the above

Question 9

The range to the left of the midpoint on a linear demand curve is

Accepted Answer

A)  elastic.
B)  infinite.
C)  one.
D)  inelastic.E) None of the above
F) B) and C)

Question 10

Which of the following is NOT characteristic of a good with elastic demand?

Accepted Answer

A)  The absolute price elasticity of demand is less than 1.
B)  Total revenue decreases if price is increased.
C)  Buyers are relatively sensitive to price changes.
D)  The percentage change in quantity demanded is greater than the percentage change in price.E) A) and C)
F) A) and B)

Question 11

If the absolute price elasticity of demand for automobiles is equal to 0.75, we say

Accepted Answer

A)  that demand is inelastic.
B)  that demand is elastic.
C)  that there is a strong responsiveness of quantity demanded to automobiles price cuts.
D)  none of the above is correct.E) None of the above
F) All of the above

Question 12

The absolute price elasticity of demand for a product that has many good substitutes is probably

Accepted Answer

A)  less than 1.
B)  greater than 1.
C)  equal to 1.
D)  infinity.E) A) and B)
F) B) and C)

Question 13

If the price of a cola increased by 12 % and consumers responded by purchasing 20 % less cola, the absolute value of price elasticity of demand for cola would be

Accepted Answer

A)  0.20.
B)  0.80.
C)  1.67.
D)  1.80.E) A) and B)
F) A) and C)

Question 14

For an addictive drug such as heroin, if the price of heroin increases, then

Accepted Answer

A)  the quantity demanded never changes.
B)  the quantity demanded will decrease by a relatively large amount.
C)  the quantity demanded will actually increase.
D)  the quantity demanded will decrease by a relatively small amount.E) B) and D)
F) C) and D)

Question 15

The price elasticity of supply

Accepted Answer

A)  is the slope of the supply curve.
B)  is the percentage change in quantity supplied divided by the percentage change in price.
C)  is always negative.
D)  does not vary between the long and the short run.E) A) and B)
F) A) and D)

Question 16

The demand for diet soft drinks (as a group) is relatively inelastic because

Accepted Answer

A)  there are many of them on the market.
B)  there are few substitutes.
C)  the purchase of a soft drink represents a large portion of a person's budget.
D)  none of the above.E) B) and C)
F) B) and D)

Question 17

The price of X falls by ten percent, and the quantity demanded of X increases by ten percent. Meanwhile, the quantity demanded of Y increases by ten percent too. We would conclude that

Accepted Answer

A)  demand for X is elastic, and X and Y are substitutes.
B)  demand for X is elastic, and X and Y are complements.
C)  demand for X is unit-elastic, and X and Y are complements.
D)  demand for X is inelastic, and X and Y are unrelated.E) None of the above
F) C) and D)

Question 18

Which of the following would NOT affect a good's price elasticity of demand?

Accepted Answer

A)  The ease of substitution between goods
B)  The cost of producing the good
C)  The number of substitute goods available
D)  The proportion of one's budget spent on an itemE) None of the above
F) B) and C)

Question 19

If one's demand for peanut butter decreases as income rises, the income elasticity of demand for the product is

Accepted Answer

A)  elastic.
B)  inelastic.
C)  unit elastic.
D)  negative.E) None of the above
F) All of the above

Question 20

When the absolute price elasticity of demand equals 2.5, demand is

Accepted Answer

A)  elastic.
B)  unit-elastic.
C)  inelastic.
D)  undetermined without more information.E) B) and C)
F) A) and D)

Exam 19: Demand and Supply Elasticity

The absolute price elasticity of demand for a product that has many good substitutes is probably

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The price elasticity of supply

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Which of the following would NOT affect a good's price elasticity of demand?

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If the price of a cola increased by 12 % and consumers responded by purchasing 20 % less cola, the absolute value of price elasticity of demand for cola would be

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-Refer to the above table. The price of Y decreases from $18 to $15. What is the cross price elasticity of demand between Y and X?

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Which of the following is NOT characteristic of a good with elastic demand?

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The range to the left of the midpoint on a linear demand curve is

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When the absolute price elasticity of demand equals 2.5, demand is

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The responsiveness of demand to changes in income holding the good's relative price constant is

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For an addictive drug such as heroin, if the price of heroin increases, then

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The demand for diet soft drinks (as a group) is relatively inelastic because

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Which of the following statements regarding price elasticity of supply and the length of time for adjustment is FALSE?

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The price elasticity of demand is

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We say that a good has elastic demand whenever the absolute value of the price elasticity of demand is greater than 1. A 1 percent change in price therefore causes

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If one's demand for peanut butter decreases as income rises, the income elasticity of demand for the product is

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When the absolute price elasticity of demand equals 0.67, demand is

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If the absolute price elasticity of demand for automobiles is equal to 0.75, we say

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A 2 percent increase in the price of neckties leads to a 5 percent decrease in the quantity demanded of neckties. The absolute price elasticity of demand is

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The price elasticity of supply is 0.6. This means that

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The price of X falls by ten percent, and the quantity demanded of X increases by ten percent. Meanwhile, the quantity demanded of Y increases by ten percent too. We would conclude that

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