Question 1

Which of the following statements about the price elasticity of demand is correct?

Accepted Answer

A)   The price elasticity of demand for a good measures the willingness of buyers of the good to buy less of the good as its price increases.
B)   Price elasticity of demand reflects the many economic, psychological, and social forces that shape consumer tastes.
C)   Other things equal, if good x has close substitutes and good y does not have close substitutes, then the demand for good x will be more elastic than the demand for good y.
D)   All of the above are correct.E) A) and B)
F) A) and C)

Question 2

A decrease in supply will cause the largest increase in price when

Accepted Answer

A)   both supply and demand are inelastic.
B)   both supply and demand are elastic.
C)   demand is elastic and supply is inelastic.
D)   demand is inelastic and supply is elastic.E) All of the above
F) None of the above A

Question 3

The demand for which of the following is likely to be the most price inelastic?

Accepted Answer

A)   transportation
B)   taxi rides
C)   bus tickets
D)   airline ticketsE) A) and B)
F) B) and C) A

Question 4

If supply is price inelastic, the value of the price elasticity of supply must be

Accepted Answer

A)   infinite.
B)   zero.
C)   less than 1.
D)   unity
E)   greater than 1.F) C) and D)
G) B) and E)

Question 5

In general, a steeper supply curve is more likely to be

Accepted Answer

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

Question 6

If price elasticity of demand for a good is 2.0, this implies that consumers would

Accepted Answer

A)   buy twice as much of the good if price falls by 10 per cent.
B)   require a 2 per cent cut in price to raise quantity demanded of the good by 1 per cent.
C)   buy 2 per cent more of the good in response to a 1 per cent cut in price.
D)   require at least a €2 increase in price before showing any response to the price increase.E) B) and C)
F) None of the above

Question 7

If the cross-price elasticity between two goods is negative, the two goods are likely to be

Accepted Answer

A)   substitutes.
B)   complements.
C)   necessities.
D)   luxuries.E) A) and B)
F) B) and C)

Question 8

The income elasticity of demand for luxury items, such as diamonds, tends to be large (greater than 1).

Accepted Answer

A) True 
 B)False

Question 9

A government seeking to raise revenue would be most likely to tax a good with a

Accepted Answer

A)   high income elasticity of demand.
B)   low cross-price demand elasticity.
C)   high price elasticity of demand.
D)   low price elasticity of demand.E) A) and B)
F) A) and C)

Question 10

Why is supply more likely to be inelastic in the short run especially during strong periods of economic growth?

Accepted Answer

Most businesses, in the short run, will ...

Question 11

Suppose that quantity demand falls by 30% as a result of a 5% increase in price. The price elasticity of demand for this good is

Accepted Answer

A)   inelastic and equal to 6.
B)   elastic and equal to 6.
C)   inelastic and equal to 0.17.
D)   elastic and equal to 0.17.E) All of the above
F) A) and D)

Question 12

An advance in technology that shifts the market supply curve to the right always increases total revenue received by producers.

Accepted Answer

A) True 
 B)False

Question 13

A perfectly inelastic supply curve represents a

Accepted Answer

A)   product supply that is extremely responsive to a price change.
B)   product with a constant price, regardless of the quantity offered for sale.
C)   product in abundant supply.
D)   fixed supply of a good.E) All of the above
F) C) and D)

Question 14

If the price elasticity of demand within the price range from €1 to €1.25 per kilogram for carrots is 0.79 and for radishes is 1.6, then within that price range

Accepted Answer

A)   demand for carrots is more price elastic than that for radishes.
B)   demand for radishes is more price elastic than that for carrots.
C)   carrots and radishes must be substitute goods.
D)   carrots and radishes must be complementary goods.E) B) and C)
F) All of the above

Question 15

If the cross-price elasticity of demand for two goods is negative, then the two goods are complements.

Accepted Answer

A) True 
 B)False

Question 16

When studying how some event or policy affects a market, elasticity provides information on the

Accepted Answer

A)   government expenditures associated with the policy.
B)   costs and benefits of the effect.
C)   allocative efficiency of the effect.
D)   direction and magnitude of the effect.E) C) and D)
F) A) and B)

Question 17

The demand for Rice Krispies is less elastic than the demand for cereal in general.

Accepted Answer

A) True 
 B)False

Question 18

Suppose a producer is able to separate customers into two groups, one having an inelastic demand and the other having an elastic demand. If the producer's objective is to increase total revenue, she should

Accepted Answer

A)   increase the price charged to customers with the elastic demand and decrease the price charged to customers with the inelastic demand.
B)   decrease the price charged to customers with the elastic demand and increase the price charged to customers with the inelastic demand.
C)   decrease the price to both groups of customers.
D)   increase the price for both groups of customers.E) All of the above
F) B) and C)

Question 19

If a demand curve is linear, the price elasticity of demand is constant along it.

Accepted Answer

A) True 
 B)False

Question 20

The price elasticity of demand measures the

Accepted Answer

A)   magnitude of the response in quantity demanded to a change in price.
B)   direction of the shift in the demand curve in response to a market event.
C)   size of the shortage created by the increase in demand.
D)   responsiveness of quantity demanded to a change in income.E) B) and D)
F) All of the above A

Exam 4: Elasticity and Its Applications

Which of the following statements about the price elasticity of demand is correct?

Correct AnswerverifiedShow Answer

A decrease in supply will cause the largest increase in price when

Correct AnswerverifiedA

The demand for which of the following is likely to be the most price inelastic?

Correct AnswerverifiedA

If supply is price inelastic, the value of the price elasticity of supply must be

Correct AnswerverifiedShow Answer

In general, a steeper supply curve is more likely to be

Correct AnswerverifiedShow Answer

If price elasticity of demand for a good is 2.0, this implies that consumers would

Correct AnswerverifiedShow Answer

If the cross-price elasticity between two goods is negative, the two goods are likely to be

Correct AnswerverifiedShow Answer

The income elasticity of demand for luxury items, such as diamonds, tends to be large (greater than 1).

Correct AnswerverifiedShow Answer

A government seeking to raise revenue would be most likely to tax a good with a

Correct AnswerverifiedShow Answer

Why is supply more likely to be inelastic in the short run especially during strong periods of economic growth?

Correct AnswerverifiedMost businesses, in the short run, will ...View AnswerShow Answer

Suppose that quantity demand falls by 30% as a result of a 5% increase in price. The price elasticity of demand for this good is

Correct AnswerverifiedShow Answer

An advance in technology that shifts the market supply curve to the right always increases total revenue received by producers.

Correct AnswerverifiedShow Answer

A perfectly inelastic supply curve represents a

Correct AnswerverifiedShow Answer

If the price elasticity of demand within the price range from €1 to €1.25 per kilogram for carrots is 0.79 and for radishes is 1.6, then within that price range

Correct AnswerverifiedShow Answer

If the cross-price elasticity of demand for two goods is negative, then the two goods are complements.

Correct AnswerverifiedShow Answer

When studying how some event or policy affects a market, elasticity provides information on the

Correct AnswerverifiedShow Answer

The demand for Rice Krispies is less elastic than the demand for cereal in general.

Correct AnswerverifiedShow Answer

Suppose a producer is able to separate customers into two groups, one having an inelastic demand and the other having an elastic demand. If the producer's objective is to increase total revenue, she should

Correct AnswerverifiedShow Answer

If a demand curve is linear, the price elasticity of demand is constant along it.

Correct AnswerverifiedShow Answer

The price elasticity of demand measures the

Correct AnswerverifiedA

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Most businesses, in the short run, will ...
View Answer

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