Question 1

Refer to the above data.What is the price elasticity of demand over the range of $8 to $10?

Accepted Answer

A)   0.11
B)   0.47
C)   1.93
D)   1.43Over this range the change in quantity is (40 - 36) /(40 + 36) = 0.053,and the change in price is (10 - 8) /(10 + 8) = 0.111.Thus,elasticity is 0.47.E) A) and D)
F) B) and C)

Question 2

To economists,the main differences between "the short run" and "the long run" are that:

Accepted Answer

A)   the law of diminishing returns applies in the long run,but not in the short run.
B)   in the short run all resources are fixed,while in the long run all resources are variable.
C)   in the long run all resources are variable,while in the short run at least one resource is fixed.
D)   fixed costs are less important to decision making in the long run than they are in the short run.E) A) and D)
F) None of the above

Question 3

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) A) and B)
F) B) and D)

Question 4

If a 5 percent fall in the price of a product causes the quantity demanded of the product to increase by 10 percent,the demand is:

Accepted Answer

A)   inelastic.
B)   elastic.
C)   unit elastic.
D)   perfectly elastic.E) A) and B)
F) None of the above

Question 5

In the price range where demand is inelastic,a decrease in price will result in a decrease in total revenue.

Accepted Answer

A) True 
 B)False

Question 6

A positive income elasticity of demand coefficient indicates that:

Accepted Answer

A)   a product is an inferior good.
B)   a product is a normal good.
C)   two products are substitute goods.
D)   two products are complementary goods.E) None of the above
F) B) and D)

Question 7

As price increases along a downsloping linear demand curve:

Accepted Answer

A)   price elasticity of demand increases.
B)   price elasticity of demand decreases.
C)   price elasticity of demand does not change.
D)   the behavior of price elasticity of demand cannot be determined.E) All of the above
F) A) and C)

Question 8

When the demand for a good is price-elastic at a given output level:

Accepted Answer

A)   total revenue is negative.
B)   total revenue for the good will increase if its price decreases.
C)   an increase in price will lead to an increase in total revenue for firms selling the good.
D)   a large change in price will result in a relatively small change in the quantity demanded.E) A) and C)
F) None of the above

Question 9

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 for good A to:

Accepted Answer

A)   increase,and total revenues for good B to decrease.
B)   increase,and total revenues for good B to increase.
C)   decrease,and total revenues for good B to increase.
D)   decrease,and total revenues for good B to decrease.E) A) and B)
F) A) and C)

Question 10

Suppose you are given the following data on demand for a product.The price elasticity of demand when price decreases from $9 to $7 is:

Accepted Answer

A)   0.63.
B)   1.16.
C)   1.60.
D)   2.27.The change in quantity is (60 - 40) /(60 + 40) = 0.20,and the change in price is (7 - 9) /(7 + 9) = 0.125.Thus,elasticity is 1.60 and the product is elastic.E) A) and B)
F) All of the above

Question 11

If in the short run the demand for mass transit is inelastic and in the long run the demand is elastic,then a price:

Accepted Answer

A)   increase will decrease total revenue in the short run but increase total revenue in the long run.
B)   increase will increase total revenue in the short run but decrease total revenue in the long run.
C)   decrease will increase total revenue in the short run but decrease total revenue in the long run.
D)   decrease will decrease total revenue in the short run and decrease total revenue in the long run.E) A) and B)
F) A) and C)

Question 12

A product priced at $5 has annual sales of 1,000 units.When price is reduced to $4,quantity increases to 1,250 units.Other things unchanged,the price elasticity of demand for the product is:

Accepted Answer

A)   unitary.
B)   elastic.
C)   inelastic.
D)   zero.The change in quantity is (1250 - 1000) /(1250 + 1000) = 0.111 and the change in price is (4 - 5) /(4 + 5) = 0.111.Thus,elasticity is 0.111/0.111 = 1.0,which is unit elastic.E) B) and C)
F) None of the above

Question 13

When the price of a product is increased 10 percent,the quantity demanded decreases 15 percent.In this range of prices,demand for this product is:

Accepted Answer

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

Question 14

A positive cross-price-elasticity of demand for two products indicates that they are:

Accepted Answer

A)   substitutes.
B)   complements.
C)   independent goods.
D)   normal goods.E) A) and D)
F) B) and C)

Question 15

Which product is most likely to be most price elastic?

Accepted Answer

A)   Milk
B)   Gasoline
C)   Clothing
D)   AutomobilesE) C) and D)
F) B) and C)

Question 16

Refer to the above data.What is the elasticity of demand between the prices of $4 and $3?

Accepted Answer

A)   0.2
B)   0.5
C)   1
D)   2The change in quantity is (400 - 300) /(400 + 300) = 0.143 and the change in price is (3 - 4) /(3 + 4) = 0.143.Thus,elasticity is 0.143/0.143 = 1.0.E) A) and C)
F) None of the above

Question 17

Based on the information in the table,which product would be an inferior good?

Accepted Answer

A)   Product A
B)   Product B
C)   Product C
D)   Product DE) A) and C)
F) A) and B)

Question 18

What is the most likely effect of the development of television,videocassette players,and rental movies on the movie theater industry?

Accepted Answer

A)   Decreased costs of producing movies
B)   Increased demand for movie theater tickets
C)   Movie theater tickets become an inferior good
D)   Increased price elasticity of demand for movie theater ticketsE) A) and B)
F) A) and C)

Question 19

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

Question 20

Refer to the above graphs.A price increase from $20 to $40 causes quantity demanded to decrease from 100 units to 50 units.Which graph best illustrates the price elasticity of demand for this good?

Accepted Answer

A)   Graph A
B)   Graph B
C)   Graph C
D)   Graph DE) B) and D)
F) A) and D)

Exam 4: Elasticity of Demand and Supply

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 for good A to:

Correct AnswerverifiedShow Answer

If a 5 percent fall in the price of a product causes the quantity demanded of the product to increase by 10 percent,the demand is:

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In the price range where demand is inelastic,a decrease in price will result in a decrease in total revenue.

Correct AnswerverifiedShow Answer

What is the most likely effect of the development of television,videocassette players,and rental movies on the movie theater industry?

Correct AnswerverifiedShow Answer

Refer to the above data.What is the elasticity of demand between the prices of $4 and $3?

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The price of gold is often volatile because:

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As price increases along a downsloping linear demand curve:

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To economists,the main differences between "the short run" and "the long run" are that:

Correct AnswerverifiedShow Answer

When the price of a product is increased 10 percent,the quantity demanded decreases 15 percent.In this range of prices,demand for this product is:

Correct AnswerverifiedShow Answer

When the demand for a good is price-elastic at a given output level:

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If in the short run the demand for mass transit is inelastic and in the long run the demand is elastic,then a price:

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Which product is most likely to be most price elastic?

Correct AnswerverifiedShow Answer

Refer to the above graphs.A price increase from $20 to $40 causes quantity demanded to decrease from 100 units to 50 units.Which graph best illustrates the price elasticity of demand for this good?

Correct AnswerverifiedShow Answer

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

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A positive income elasticity of demand coefficient indicates that:

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A product priced at $5 has annual sales of 1,000 units.When price is reduced to $4,quantity increases to 1,250 units.Other things unchanged,the price elasticity of demand for the product is:

Correct AnswerverifiedShow Answer

Suppose you are given the following data on demand for a product.The price elasticity of demand when price decreases from $9 to $7 is:

Correct AnswerverifiedShow Answer

Refer to the above data.What is the price elasticity of demand over the range of $8 to $10?

Correct AnswerverifiedShow Answer

Based on the information in the table,which product would be an inferior good?

Correct AnswerverifiedShow Answer

A positive cross-price-elasticity of demand for two products indicates that they are:

Correct AnswerverifiedShow Answer

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