Question 1

What is price elasticity of supply?

Accepted Answer

A)  It is the percentage change in the quantity supplied of a good or service divided by the percentage change in the price of the good or service.
B)  It is a measure of consumers' responsiveness to a change in price.
C)  It is the absolute value of the quantity supplied of a good or service and is always a negative number.
D)  It is the percentage change in the price of a good or service divided by the percentage change in the quantity supplied of the good or service.E) B) and D)
F) A) and D)

Question 2

Suppose the price elasticity of demand for business air travel is −0.80 and the price elasticity of demand for leisure air travel is −1.60. Therefore, the demand for leisure air travel is:

Accepted Answer

A)  less elastic than the demand for business travel.
B)  inelastic.
C)  more elastic than the demand for business travel.
D)  unrelated to consumers' incomes.E) A) and B)
F) A) and C)

Question 3

Vevaan just got a raise at work, and he decides to splurge on a fancy dinner to celebrate. The change in Vevaan's demand for fancy dinners could be measured by the:

Accepted Answer

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

Question 4

Suppose a one percent change in the price of oil causes a −0.02 percent change in the quantity demanded of oil. Thus, −0.02 is the:

Accepted Answer

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

Question 5

Suppose when the price of coffee beans goes from $1 to $1.20 per pound, production increases from 90 million pounds of coffee beans to 110 million pounds per year. Using the mid-point method, what is the percentage change in quantity supplied?

Accepted Answer

A)  20 percent
B)  18 percent
C)  60 percent
D)  6 percentE) B) and D)
F) A) and C)

Question 6

A good with an income elasticity of 0.4 is:

Accepted Answer

A)  a luxury.
B)  normal.
C)  inferior.
D)  a substitute.E) A) and C)
F) None of the above

Question 7

Assuming price elasticity of demand is reported as an absolute value, a price elasticity of demand of 1.2 indicates an _____ demand, meaning the percentage change in quantity demanded will be _____ than the percentage change in price.

Accepted Answer

A)  elastic; greater
B)  inelastic; greater
C)  elastic; less
D)  inelastic; lessE) B) and C)
F) None of the above

Question 8

A vertical demand curve indicates that:

Accepted Answer

A)  the quantity demanded will drop to zero if the price increases by any amount.
B)  the quantity demanded will remain unchanged no matter what happens to the price.
C)  the quantity demanded will rise if the price increases by any amount.
D)  the quantity demanded will only react to large changes in price.E) B) and D)
F) None of the above

Question 9

Suppose the price of a cookie is $2.50 and the quantity demanded is 50. When the price drops to $1, the quantity demanded increases to 200. Using the midpoint method, what is the price elasticity of demand?

Accepted Answer

A)  −1.40
B)  −0.72
C)  −140
D)  −7.2E) All of the above
F) B) and C)

Question 10

If a good has an income elasticity of 0.18, then it is a(n) _____ good and a _____.

Accepted Answer

A)  normal; necessity
B)  normal; luxury
C)  inferior; necessity
D)  inferior; luxuryE) None of the above
F) B) and D)

Question 11

The amount that a firm receives from the sale of goods and services is:

Accepted Answer

A)  total profit.
B)  total revenue.
C)  total surplus.
D)  total benefit.E) All of the above
F) C) and D)

Question 12

An automobile manufacturing plant is likely to have a _____ price elasticity of supply than a bread bakery due to _____.

Accepted Answer

A)  more elastic; a more flexible production process
B)  more elastic; greater availability of inputs
C)  less elastic; a less flexible production process
D)  more elastic; lower availability of inputsE) B) and D)
F) C) and D)

Question 13

If two goods are substitutes, then their cross-price elasticity of demand is:

Accepted Answer

A)  positive.
B)  negative.
C)  zero.
D)  between zero and minus one.E) C) and D)
F) A) and D)

Question 14

If consumers' buying decisions are not very sensitive to changes in price, then their demand is:

Accepted Answer

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

Question 15

Which of the following is not a determinant of price elasticity of supply?

Accepted Answer

A)  Adjustment time
B)  Scope of the market
C)  Flexibility of the production process
D)  Availability of inputsE) A) and D)
F) B) and C) B

Question 16

Suppose a decrease in price increases quantity demanded from 8 to 12 units. Using the mid-point formula, what is the percentage change in quantity demanded?

Accepted Answer

A)  0.1 = 10 percent
B)  40 = 400 percent
C)  0.40 = 40 percent
D)  −0.40 = −40 percentE) A) and C)
F) A) and B)

Question 17

Suppose the price of a good is $6 and quantity demanded is 10 units. When price decreases to $5, quantity demanded increases to 13 units. What happened to total revenue and what does this indicate?

Accepted Answer

A)  Total revenue decreased from $65 to $60, indicating that demand is inelastic.
B)  Total revenue decreased from $65 to $60, indicating that demand is elastic.
C)  Total revenue increased from $60 to $65, indicating that demand is inelastic.
D)  Total revenue increased from $60 to $65, indicating that demand is elastic.E) A) and D)
F) A) and B)

Question 18

An example of a good that likely has an income elasticity less than one is _____, while an example of a good that likely has an income elasticity greater than one is _____.

Accepted Answer

A)  coffee; sailboats
B)  sailboats; cars
C)  vacations; cell phones
D)  filet mignon; chickenE) A) and B)
F) A) and C) A

Question 19

The cross-price elasticity of demand between which of the following pairs of goods is likely to be the largest in absolute value?

Accepted Answer

A)  Peanut butter and jelly
B)  Butter and margarine
C)  Ramen noodles and a Rolex watch
D)  Hot dogs and hot dog bunsE) A) and B)
F) C) and D)

Question 20

Suppose the price of a good is $5 and quantity demanded is 10 units. When price increases to $6, quantity demanded decreases to 9 units. What does this indicate?

Accepted Answer

A)  The quantity effect is larger than the price effect, indicating that demand is inelastic.
B)  The quantity effect is larger than the price effect, indicating that demand is elastic.
C)  The price effect is larger than the quantity effect, indicating that demand is inelastic.
D)  The price effect is larger than the quantity effect, indicating that demand is elastic.E) B) and C)
F) C) and D)

Exam 4: Elasticity

What is price elasticity of supply?

Correct AnswerverifiedShow Answer

Suppose the price elasticity of demand for business air travel is −0.80 and the price elasticity of demand for leisure air travel is −1.60. Therefore, the demand for leisure air travel is:

Correct AnswerverifiedShow Answer

Vevaan just got a raise at work, and he decides to splurge on a fancy dinner to celebrate. The change in Vevaan's demand for fancy dinners could be measured by the:

Correct AnswerverifiedShow Answer

Suppose a one percent change in the price of oil causes a −0.02 percent change in the quantity demanded of oil. Thus, −0.02 is the:

Correct AnswerverifiedA

Suppose when the price of coffee beans goes from $1 to $1.20 per pound, production increases from 90 million pounds of coffee beans to 110 million pounds per year. Using the mid-point method, what is the percentage change in quantity supplied?

Correct AnswerverifiedShow Answer

A good with an income elasticity of 0.4 is:

Correct AnswerverifiedShow Answer

Assuming price elasticity of demand is reported as an absolute value, a price elasticity of demand of 1.2 indicates an _____ demand, meaning the percentage change in quantity demanded will be _____ than the percentage change in price.

Correct AnswerverifiedShow Answer

A vertical demand curve indicates that:

Correct AnswerverifiedShow Answer

Suppose the price of a cookie is $2.50 and the quantity demanded is 50. When the price drops to $1, the quantity demanded increases to 200. Using the midpoint method, what is the price elasticity of demand?

Correct AnswerverifiedShow Answer

If a good has an income elasticity of 0.18, then it is a(n) _____ good and a _____.

Correct AnswerverifiedShow Answer

The amount that a firm receives from the sale of goods and services is:

Correct AnswerverifiedShow Answer

An automobile manufacturing plant is likely to have a _____ price elasticity of supply than a bread bakery due to _____.

Correct AnswerverifiedShow Answer

If two goods are substitutes, then their cross-price elasticity of demand is:

Correct AnswerverifiedShow Answer

If consumers' buying decisions are not very sensitive to changes in price, then their demand is:

Correct AnswerverifiedShow Answer

Which of the following is not a determinant of price elasticity of supply?

Correct AnswerverifiedB

Suppose a decrease in price increases quantity demanded from 8 to 12 units. Using the mid-point formula, what is the percentage change in quantity demanded?

Correct AnswerverifiedShow Answer

Suppose the price of a good is $6 and quantity demanded is 10 units. When price decreases to $5, quantity demanded increases to 13 units. What happened to total revenue and what does this indicate?

Correct AnswerverifiedShow Answer

An example of a good that likely has an income elasticity less than one is _____, while an example of a good that likely has an income elasticity greater than one is _____.

Correct AnswerverifiedA

The cross-price elasticity of demand between which of the following pairs of goods is likely to be the largest in absolute value?

Correct AnswerverifiedShow Answer

Suppose the price of a good is $5 and quantity demanded is 10 units. When price increases to $6, quantity demanded decreases to 9 units. What does this indicate?

Correct AnswerverifiedShow Answer

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A

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Assuming price elasticity of demand is reported as an absolute value, a price elasticity of demand of 1.2 indicates an _ demand, meaning the percentage change in quantity demanded will be _ than the percentage change in price.

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If a good has an income elasticity of 0.18, then it is a(n) _ good and a _.

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An automobile manufacturing plant is likely to have a _ price elasticity of supply than a bread bakery due to _.

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B

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An example of a good that likely has an income elasticity less than one is _, while an example of a good that likely has an income elasticity greater than one is _.

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A

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