Question 1

The price-elasticity coefficients are 2.6, 0.5, 1.4, and 0.18 for four different demand schedules,D₁, D₂, D₃, and D₄, respectively. A 2-percent increase in price will result in an increase in total revenues in which of the following cases?

Accepted Answer

A)  D₁ and D₃
B)  D₁ and D₄
C)  D₂ and D₄
D)  D₁, D₂, and D₃

Question 2

Refer to the diagrams. In which case would the coefficient of income elasticity be positive?

Accepted Answer

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

Question 3

Refer to the above graph. If the demand increased, then

Accepted Answer

A)  price and quantity would both increase.
B)  price and quantity would both decrease.
C)  price would stay the same and total revenues of sellers would stay the same.
D)  price would stay the same and total revenues of sellers would increase.

Question 4

The narrower the definition of a product,

Accepted Answer

A)  the larger the number of substitutes and the greater the price elasticity of demand.
B)  the smaller the number of substitutes and the greater the price elasticity of demand.
C)  the larger the number of substitutes and the smaller the price elasticity of demand.
D)  the smaller the number of substitutes and the smaller the price elasticity of demand.

Question 5

Refer to the table. Over the $10-$8 price range, the elasticity coefficient of supply is

Accepted Answer

A)  1.
B)  zero.
C)  less than 1.
D)  greater than 1.

Question 6

A cross elasticity of demand coefficient of +2.5 indicates that the two products are substitutes.

Accepted Answer

A) True 
 B)False

Question 7

The state legislature has cut Gigantic State University's appropriations. GSU's Board of Regents decides to increase tuition and fees to compensate for the loss of revenue. The board is assuming that the

Accepted Answer

A)  demand for education at GSU is elastic.
B)  demand for education at GSU is inelastic.
C)  coefficient of price elasticity of demand for education at GSU is unity.
D)  coefficient of price elasticity of demand for education at GSU is greater than unity.

Question 8

Consider the demand curve above. If area 0ABC is smaller than area 0DEF, we may conclude that demand in this range is

Accepted Answer

A)  price-inelastic.
B)  income-inelastic.
C)  price-elastic.
D)  income-elastic.

Question 9

A consumer's weekly income is $550, and the consumer buys 9 bars of chocolate per week. When weekly income increases to $600, the consumer buys 10 bars per week. The income elasticity of demand for chocolate by this consumer is about

Accepted Answer

A)  1.82.
B)  0.83.
C)  1.
D)  1.21.

Question 10

Refer to the diagram, which is a rectangular hyperbola, that is, a curve such that each rectangle drawn from any point on the curve will be of identical area. In comparing the price elasticity and the slope of this demand curve, we can conclude that the

Accepted Answer

A)  slope of a demand curve measures its elasticity.
B)  elasticity of a demand curve measures its slope.
C)  slope and elasticity of the curve are both constant throughout.
D)  slope of the curve varies, but its elasticity is constant.

Question 11

Suppose the income elasticity of demand for toys is -2.5. This means that

Accepted Answer

A)  a 3 percent increase in income will decrease the purchase of toys by 7.5 percent.
B)  a 3 percent increase in income will decrease the purchase of toys by 1.2 percent.
C)  a 3 percent increase in income will increase the purchase of toys by 7.5 percent.
D)  toys are a normal good.

Question 12

The demand for a product is inelastic with respect to price if

Accepted Answer

A)  consumers are largely unresponsive to a per unit price change.
B)  the elasticity coefficient is greater than 1.
C)  a drop in price is accompanied by a decrease in the quantity demanded.
D)  a drop in price is accompanied by an increase in the quantity demanded.

Question 13

Which of the following is correct?

Accepted Answer

A)  If the demand for a product is inelastic, a change in price will cause total revenue to change in the opposite direction.
B)  If the demand for a product is inelastic, a change in price will cause total revenue to change in the same direction.
C)  If the demand for a product is inelastic, a change in price may cause total revenue to change in either the opposite or the same direction.
D)  The price elasticity coefficient applies to demand, but not to supply.

Question 14

The diagram shows two product supply curves. It indicates that

Accepted Answer

A)  over range Q₁Q₂, price elasticity of supply is greater for S₁ than for S₂.
B)  over range Q₁Q₂, price elasticity of supply is greater for S₂ than for S₁.
C)  over range Q₁Q₂, price elasticity of supply is the same for the two curves.
D)  not enough information is given to compare price elasticities.

Question 15

Assume that a 3 percent increase in income across the economy produces a 1 percent decline in the quantity demanded of good X. The coefficient of income elasticity of demand for good X is

Accepted Answer

A)  negative, and therefore X is an inferior good.
B)  negative, and therefore X is a normal good.
C)  positive, and therefore X is an inferior good.
D)  positive and therefore X is a normal good.

Question 16

If the demand for product X is inelastic, a 4 percent decrease in the price of X will

Accepted Answer

A)  decrease the quantity of X demanded by more than 4 percent.
B)  decrease the quantity of X demanded by less than 4 percent.
C)  increase the quantity of X demanded by more than 4 percent.
D)  increase the quantity of X demanded by less than 4 percent.

Question 17

Suppose the income elasticity of demand for toys is +2.4. This means that

Accepted Answer

A)  a 4 percent increase in income will increase the purchase of toys by 9.6 percent.
B)  a 4 percent increase in income will increase the purchase of toys by 1.67 percent.
C)  a 4 percent increase in income will decrease the purchase of toys by 9.6 percent.
D)  toys are an inferior good.

Question 18

Answer the question based on the following data.  Over which of the following price ranges is the demand unit-elastic?

Accepted Answer

A)  $18-16
B)  $16-$14
C)  $14-$12
D)  $12-$10

Question 19

A glass company making windows for houses also makes windows for other things (cars, boats, stores, etc.) . We would expect its supply curve for house windows to be

Accepted Answer

A)  dependent on the demand for boat and plane windows.
B)  no different from that of firms which make only house windows.
C)  relatively more elastic than those of firms that make only house windows
D)  relatively more inelastic than those of firms that make only house windows

Question 20

Refer to the above graph. If the price increases from P₁ to P₂, then the total revenue will gain area

Accepted Answer

A)  B + E, but it will lose area H + I + J.
B)  C + F + H, but it will lose area J.
C)  E + F + G, but it will lose area J.
D)  A + B + C, but it will lose area G + I + J.

Exam 6: Elasticity

A cross elasticity of demand coefficient of +2.5 indicates that the two products are substitutes.

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The demand for a product is inelastic with respect to price if

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The price-elasticity coefficients are 2.6, 0.5, 1.4, and 0.18 for four different demand schedules,D₁, D₂, D₃, and D₄, respectively. A 2-percent increase in price will result in an increase in total revenues in which of the following cases?

Correct AnswerverifiedShow Answer

Refer to the diagrams. In which case would the coefficient of income elasticity be positive?

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Which of the following is correct?

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Suppose the income elasticity of demand for toys is -2.5. This means that

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Assume that a 3 percent increase in income across the economy produces a 1 percent decline in the quantity demanded of good X. The coefficient of income elasticity of demand for good X is

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Refer to the above graph. If the demand increased, then

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The state legislature has cut Gigantic State University's appropriations. GSU's Board of Regents decides to increase tuition and fees to compensate for the loss of revenue. The board is assuming that the

Correct AnswerverifiedShow Answer

Refer to the table. Over the $10-$8 price range, the elasticity coefficient of supply is

Correct AnswerverifiedShow Answer

The narrower the definition of a product,

Correct AnswerverifiedShow Answer

Refer to the diagram, which is a rectangular hyperbola, that is, a curve such that each rectangle drawn from any point on the curve will be of identical area. In comparing the price elasticity and the slope of this demand curve, we can conclude that the

Correct AnswerverifiedShow Answer

Refer to the above graph. If the price increases from P₁ to P₂, then the total revenue will gain area

Correct AnswerverifiedShow Answer

A glass company making windows for houses also makes windows for other things (cars, boats, stores, etc.) . We would expect its supply curve for house windows to be

Correct AnswerverifiedShow Answer

The diagram shows two product supply curves. It indicates that

Correct AnswerverifiedShow Answer

Suppose the income elasticity of demand for toys is +2.4. This means that

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If the demand for product X is inelastic, a 4 percent decrease in the price of X will

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A consumer's weekly income is $550, and the consumer buys 9 bars of chocolate per week. When weekly income increases to $600, the consumer buys 10 bars per week. The income elasticity of demand for chocolate by this consumer is about

Correct AnswerverifiedShow Answer

Answer the question based on the following data. Over which of the following price ranges is the demand unit-elastic?

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Consider the demand curve above. If area 0ABC is smaller than area 0DEF, we may conclude that demand in this range is

Correct AnswerverifiedShow Answer

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