Question 1

The price elasticity of demand for a popular sporting event is 1.2. If the price of a ticket to this event increases by 10 percent, the quantity of tickets demanded will

Accepted Answer

A)  decrease by 8.3 percent.
B)  decrease by 12 percent.
C)  increase by 12 percent.
D)  increase by 8.3 percent.

Question 2

When the price of a product is increased 5 percent, the quantity demanded decreases 2 percent. The price-elasticity-of-demand coefficient for this product is

Accepted Answer

A)  0.4.
B)  4.
C)  2.5.
D)  25.

Question 3

Suppose that a 10 percent increase in the price of normal good Y causes a 5 percent decrease in the quantity demanded of normal good X. The coefficient of cross elasticity of demand is

Accepted Answer

A)  negative, and therefore these goods are substitutes.
B)  positive, and therefore these goods are substitutes.
C)  negative, and therefore these goods are complements.
D)  positive, and therefore these goods are complements.

Question 4

The price elasticity of demand for a textbook is estimated to be 1 no matter what the price or quantity demanded. In this case,

Accepted Answer

A)  a 10 percent increase in price will result in a 10 percent increase in total revenues.
B)  a 10 percent increase in price will result in a 10 percent decrease in the quantity demanded.
C)  a 10 percent increase in price will result in a 10 percent decrease in total revenues.
D)  a 10 percent increase in price will result in a 10 percent increase in quantity demanded.

Question 5

The Illinois Central Railroad once asked the Illinois Commerce Commission for permission to increase its commuter rates by 20 percent. The railroad argued that declining revenues made this rate increase essential. Opponents of the rate increase contended that the railroad's revenues would fall because of the rate hike. It can be concluded that

Accepted Answer

A)  both groups felt that the demand was elastic but for different reasons.
B)  both groups felt that the demand was inelastic but for different reasons.
C)  the railroad felt that the demand for passenger service was inelastic and opponents of the rate increase felt it was elastic.
D)  the railroad felt that the demand for passenger service was elastic and opponents of the rate increase felt it was inelastic.

Question 6

When the price of candy bars decreased from $0.50 to $0.40, the quantity demanded changed from 10,000 per day to 12,000 per day. In this price range, the price-elasticity coefficient (based on the midpoint formula) for candy bars is

Accepted Answer

A)  1.
B)  2.
C)  1.22.
D)  0.82.

Question 7

The price-elasticity of demand coefficient, Ed, is measured in terms of

Accepted Answer

A)  dollar change in price and unit change in quantity demanded.
B)  dollar change in price and amount of shift in demand.
C)  percentage change in price and percentage change in quantity demanded.
D)  percentage change in price and unit change in demand.

Question 8

Refer to the above graph. Consider a situation where price decreases from P₂ to P₁. In this price range, demand is relatively

Accepted Answer

A)  inelastic because the loss in total revenue (areas D + G + I + J) is greater than the gain in total revenue (areas C + F + H) .
B)  elastic because the loss in total revenue (areas C + F + H) is greater than the gain in total revenue (area J) .
C)  elastic because the loss in total revenue (area J) is less than the gain in total revenue (areas C + F + H) .
D)  inelastic because the gain in total revenue (area J) is less than the loss in total revenue (areas C + F + H) .

Question 9

Assume that a 6 percent increase in income in the economy produces a 3 percent increase in the quantity demanded of good X. The coefficient of income elasticity of demand is

Accepted Answer

A)  negative, and therefore X is an inferior good.
B)  positive but less than one; therefore X is an inferior good.
C)  positive, and therefore X is an inferior good.
D)  positive, and therefore X is a normal good.

Question 10

If the University Chamber Music Society decides to raise ticket prices to provide more funds to finance concerts, the Society is assuming that the demand for tickets is

Accepted Answer

A)  parallel to the horizontal axis.
B)  shifting to the left.
C)  inelastic.
D)  elastic.

Question 11

Refer to the graphs above. Which one shows a situation where buyers are all willing to pay one uniform price for the product?

Accepted Answer

A)  graph A
B)  graph B
C)  graph C
D)  graph D

Question 12

The demand for Cheerios cereal is more price-elastic than the demand for cereals as a whole. This is best explained by the fact that

Accepted Answer

A)  Cheerios are a luxury.
B)  Cereals are a necessity.
C)  there are more substitutes for Cheerios than for cereals as a whole.
D)  consumption of cereals as a whole is greater than consumption of Cheerios.

Question 13

The main determinant of elasticity of supply is the

Accepted Answer

A)  number of close substitutes for the product available to consumers.
B)  amount of time the producer has to adjust inputs in response to a price change.
C)  urgency of consumer wants for the product.
D)  number of uses for the product.

Question 14

In which of the following cases will total revenue increase?

Accepted Answer

A)  Price falls and demand is inelastic.
B)  Price falls and supply is elastic.
C)  Price rises and demand is inelastic.
D)  Price rises and demand is elastic.

Question 15

An auto rental company lowers the price of its rentals to increase its market share. The price cut increases quantity demanded, but total revenue decreases. This result suggests that over this price range, the demand for the auto rentals is

Accepted Answer

A)  elastic.
B)  inelastic.
C)  unit elastic.
D)  perfectly elastic.

Question 16

If a college admits only a fixed number of applicants every year, then the school's supply curve for admissions is

Accepted Answer

A)  perfectly elastic.
B)  perfectly inelastic.
C)  quite flat.
D)  downward-sloping.

Question 17

A manufacturer of frozen pizzas found that total revenue decreased when price was lowered from $5 to $4. It was also found that total revenue decreased when price was raised from $5 to $6. Thus,

Accepted Answer

A)  the demand for pizza is elastic above $5 and inelastic below $5.
B)  the demand for pizza is elastic both above and below $5.
C)  the demand for pizza is inelastic above $5 and elastic below $5.
D)  $5 is not the equilibrium price of pizza.

Question 18

If the price-elasticity coefficient for a good is 1.75, the demand for that good is described as

Accepted Answer

A)  normal.
B)  elastic.
C)  inferior.
D)  inelastic.

Question 19

Suppose that as the price of Y falls from $9 to $8, the quantity of Y demanded increases from 1,000 to 1,250. Then the absolute value of the price elasticity (using the midpoint formula) is approximately

Accepted Answer

A)  250.
B)  2.25.
C)  1.89.
D)  0.53.

Question 20

If a 10 percent increase in the price of Good A results in an increase of 5 percent in the quantity demanded of Good B, then it can be concluded that Goods A and B are

Accepted Answer

A)  complementary goods.
B)  substitutes goods.
C)  independent goods.
D)  normal goods.

Exam 6: Elasticity

In which of the following cases will total revenue increase?

Correct Answer
verified

When the price of a product is increased 5 percent, the quantity demanded decreases 2 percent. The price-elasticity-of-demand coefficient for this product is

Correct Answer
verified

A manufacturer of frozen pizzas found that total revenue decreased when price was lowered from $5 to $4. It was also found that total revenue decreased when price was raised from $5 to $6. Thus,

Correct Answer
verified

When the price of candy bars decreased from $0.50 to $0.40, the quantity demanded changed from 10,000 per day to 12,000 per day. In this price range, the price-elasticity coefficient (based on the midpoint formula) for candy bars is

Correct Answer
verified

The price-elasticity of demand coefficient, Ed, is measured in terms of

Correct Answer
verified

Suppose that a 10 percent increase in the price of normal good Y causes a 5 percent decrease in the quantity demanded of normal good X. The coefficient of cross elasticity of demand is

Correct Answer
verified

If the University Chamber Music Society decides to raise ticket prices to provide more funds to finance concerts, the Society is assuming that the demand for tickets is

Correct Answer
verified

If a 10 percent increase in the price of Good A results in an increase of 5 percent in the quantity demanded of Good B, then it can be concluded that Goods A and B are

Correct Answer
verified

The demand for Cheerios cereal is more price-elastic than the demand for cereals as a whole. This is best explained by the fact that

Correct Answer
verified

Refer to the above graph. Consider a situation where price decreases from P₂ to P₁. In this price range, demand is relatively

Correct Answer
verified

Suppose that as the price of Y falls from $9 to $8, the quantity of Y demanded increases from 1,000 to 1,250. Then the absolute value of the price elasticity (using the midpoint formula) is approximately

Correct Answer
verified

If a college admits only a fixed number of applicants every year, then the school's supply curve for admissions is

Correct Answer
verified

An auto rental company lowers the price of its rentals to increase its market share. The price cut increases quantity demanded, but total revenue decreases. This result suggests that over this price range, the demand for the auto rentals is

Correct Answer
verified

The main determinant of elasticity of supply is the

Correct Answer
verified

The price elasticity of demand for a textbook is estimated to be 1 no matter what the price or quantity demanded. In this case,

Correct Answer
verified

If the price-elasticity coefficient for a good is 1.75, the demand for that good is described as

Correct Answer
verified

The price elasticity of demand for a popular sporting event is 1.2. If the price of a ticket to this event increases by 10 percent, the quantity of tickets demanded will

Correct Answer
verified

Assume that a 6 percent increase in income in the economy produces a 3 percent increase in the quantity demanded of good X. The coefficient of income elasticity of demand is

Correct Answer
verified

Refer to the graphs above. Which one shows a situation where buyers are all willing to pay one uniform price for the product?

Correct Answer
verified

Correct Answer
verified

Exam 6: Elasticity

In which of the following cases will total revenue increase?

Correct AnswerverifiedShow Answer

When the price of a product is increased 5 percent, the quantity demanded decreases 2 percent. The price-elasticity-of-demand coefficient for this product is

Correct AnswerverifiedShow Answer

A manufacturer of frozen pizzas found that total revenue decreased when price was lowered from $5 to $4. It was also found that total revenue decreased when price was raised from $5 to $6. Thus,

Correct AnswerverifiedShow Answer

When the price of candy bars decreased from $0.50 to $0.40, the quantity demanded changed from 10,000 per day to 12,000 per day. In this price range, the price-elasticity coefficient (based on the midpoint formula) for candy bars is

Correct AnswerverifiedShow Answer

The price-elasticity of demand coefficient, Ed, is measured in terms of

Correct AnswerverifiedShow Answer

Suppose that a 10 percent increase in the price of normal good Y causes a 5 percent decrease in the quantity demanded of normal good X. The coefficient of cross elasticity of demand is

Correct AnswerverifiedShow Answer

If the University Chamber Music Society decides to raise ticket prices to provide more funds to finance concerts, the Society is assuming that the demand for tickets is

Correct AnswerverifiedShow Answer

If a 10 percent increase in the price of Good A results in an increase of 5 percent in the quantity demanded of Good B, then it can be concluded that Goods A and B are

Correct AnswerverifiedShow Answer

The demand for Cheerios cereal is more price-elastic than the demand for cereals as a whole. This is best explained by the fact that

Correct AnswerverifiedShow Answer

Refer to the above graph. Consider a situation where price decreases from P₂ to P₁. In this price range, demand is relatively

Correct AnswerverifiedShow Answer

Suppose that as the price of Y falls from $9 to $8, the quantity of Y demanded increases from 1,000 to 1,250. Then the absolute value of the price elasticity (using the midpoint formula) is approximately

Correct AnswerverifiedShow Answer

If a college admits only a fixed number of applicants every year, then the school's supply curve for admissions is

Correct AnswerverifiedShow Answer

An auto rental company lowers the price of its rentals to increase its market share. The price cut increases quantity demanded, but total revenue decreases. This result suggests that over this price range, the demand for the auto rentals is

Correct AnswerverifiedShow Answer

The main determinant of elasticity of supply is the

Correct AnswerverifiedShow Answer

The price elasticity of demand for a textbook is estimated to be 1 no matter what the price or quantity demanded. In this case,

Correct AnswerverifiedShow Answer

If the price-elasticity coefficient for a good is 1.75, the demand for that good is described as

Correct AnswerverifiedShow Answer

The price elasticity of demand for a popular sporting event is 1.2. If the price of a ticket to this event increases by 10 percent, the quantity of tickets demanded will

Correct AnswerverifiedShow Answer

Assume that a 6 percent increase in income in the economy produces a 3 percent increase in the quantity demanded of good X. The coefficient of income elasticity of demand is

Correct AnswerverifiedShow Answer

Refer to the graphs above. Which one shows a situation where buyers are all willing to pay one uniform price for the product?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

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