Question 1

Since the slope of a downward sloping demand curve is constant,the price elasticity of demand does not change when moving along this line.

Accepted Answer

A) True 
 B)False

Question 2

The figure given below shows the demand curves for five products: A,B,C,D,andE. Figure 5.1

- In Figure 5-1,which demand curve is most likely to represent demand for insulin by diabetics?

Accepted Answer

A)  A
B)  B
C)  C
D)  D
E)  EF) A) and D)
G) A) and E) A

Question 3

The price elasticity of demand is the ratio of the change in quantity demanded to the change in price.

Accepted Answer

A) True 
 B)False

Question 4

The table below shows the quantities of automobiles,margarine,and coffee purchased by Ted at different levels of income. Table 5.2
 
-Based on the information given in Table 5.2,margarine is:

Accepted Answer

A)  an inferior good.
B)  a necessity.
C)  a normal good.
D)  a complementary good.
E)  a luxury good.F) B) and E)
G) A) and E)

Question 5

Suppose 50 loaves of bread are demanded at a particular price.If that price rises by 2 percent,the quantity demanded decreases to 49.5 loaves of bread.This implies:

Accepted Answer

A)  demand is elastic.
B)  demand is unit-elastic.
C)  the price elasticity of demand is equal to 2.
D)  demand is inelastic.
E)  consumers are very responsive to a price change.F) A) and E)
G) D) and E)

Question 6

The coefficient of the price elasticity of demand is always negative.

Accepted Answer

A) True 
 B)False  True

Question 7

Price elasticity of demand is the sole determinant of profit for a firm.

Accepted Answer

A) True 
 B)False

Question 8

Price elasticity of demand measured over a range of prices and quantities along the demand curve is _____.

Accepted Answer

A)  point elasticity
B)  arc elasticity
C)  income elasticity
D)  cross elasticity
E)  price elasticityF) A) and D)
G) D) and E)

Question 9

Cross-price elasticity is represented by the formula DQ/DP ´ P/Q; where P and DP represent the price and change in price of a related good respectively.

Accepted Answer

A) True 
 B)False  True

Question 10

If demand is unit-elastic,a 25 percent increase in price will result in:

Accepted Answer

A)  a 25 percent change in total revenue.
B)  no change in quantity demanded.
C)  a 1 percent decrease in quantity demanded.
D)  a 25 percent decrease in quantity demanded.
E)  a 100 percent change in quantity demanded.F) A) and B)
G) A) and C)

Question 11

When income elasticity of demand is a negative number,one can correctly conclude that:

Accepted Answer

A)  the good is a normal good.
B)  the good is an inferior good.
C)  the good is a substitute.
D)  the good is a complement.
E)  total revenue will decrease when the price increases.F) A) and E)
G) B) and E)

Question 12

If the price elasticity of supply is zero,the supply curve is a horizontal line parallel to the quantity axis.

Accepted Answer

A) True 
 B)False

Question 13

Which of the following is true of price elasticity of demand?

Accepted Answer

A)  It measures the responsiveness of quantity demanded or quantity supplied to a change in one of the determinants of demand and/or supply.
B)  It is calculated as the percentage change in the quantity demanded of a product divided by the percentage change in the price of that product.
C)  It is calculated as the percentage change in the demand for a good divided by the percentage change in income,everything else held constant.
D)  It measures the responsiveness of demand to a change in the quantity supplied.
E)  It is calculated as the percentage change in the quantity demanded for one good divided by the percentage change in the price of a related good,everything else held constant.F) None of the above
G) B) and E)

Question 14

A horizontal demand curve shows that demand for the good is _____.

Accepted Answer

A)  unit-elastic
B)  relatively inelastic
C)  perfectly inelastic
D)  relatively elastic
E)  perfectly elasticF) A) and B)
G) D) and E)

Question 15

If demand is unit-elastic,then a $5 decrease in price will lead to an increase in quantity demanded by 5 units.

Accepted Answer

A) True 
 B)False

Question 16

If a product has an inelastic demand,then:

Accepted Answer

A)  there is probably a long time period under consideration.
B)  as price increases,total revenue to producers decreases.
C)  an increase in the price will decrease total consumer expenditures.
D)  there are probably many complements for the good.
E)  there are probably few substitutes for the good.F) B) and E)
G) A) and B)

Question 17

If butter has an income elasticity equal to 0.75,then butter is an inferior good.

Accepted Answer

A) True 
 B)False

Question 18

The table below shows the quantities of automobiles,margarine,and coffee purchased by Ted at different levels of income. Table 5.2

- Based on the information given in Table 5.2,coffee would be considered:

Accepted Answer

A)  an inferior good.
B)  a necessity.
C)  a normal good.
D)  a negative good.
E)  a luxury good.F) C) and D)
G) C) and E)

Question 19

Assume that due to unfavorable conditions in a prime honey-producing area,the price of honey increases by 50 percent.The quantity consumed of herbal tea declines immediately by 25 percent.Everything else held constant,the:

Accepted Answer

A)  cross-price elasticity of demand for herbal tea and honey is negative,and therefore the two goods are substitutes.
B)  cross-price elasticity of demand for herbal tea and honey is negative,and therefore the two goods are complements.
C)  cross-price elasticity of demand for herbal tea and honey is positive,and therefore the two goods are substitutes.
D)  cross-price elasticity of demand for herbal tea and honey is positive,and therefore the two goods are complements.
E)  cross-price elasticity of demand cannot be determined from the information provided.F) A) and B)
G) A) and E)

Question 20

Everything else held constant,the greater the number of close substitutes there are for a good,the smaller the price elasticity of demand for that good.

Accepted Answer

A) True 
 B)False

Exam 5: Elasticity: Demand and Supply

Since the slope of a downward sloping demand curve is constant,the price elasticity of demand does not change when moving along this line.

Correct AnswerverifiedShow Answer

The figure given below shows the demand curves for five products: A,B,C,D,andE. Figure 5.1 - In Figure 5-1,which demand curve is most likely to represent demand for insulin by diabetics?

Correct AnswerverifiedA

The price elasticity of demand is the ratio of the change in quantity demanded to the change in price.

Correct AnswerverifiedShow Answer

The table below shows the quantities of automobiles,margarine,and coffee purchased by Ted at different levels of income. Table 5.2 -Based on the information given in Table 5.2,margarine is:

Correct AnswerverifiedShow Answer

Suppose 50 loaves of bread are demanded at a particular price.If that price rises by 2 percent,the quantity demanded decreases to 49.5 loaves of bread.This implies:

Correct AnswerverifiedShow Answer

The coefficient of the price elasticity of demand is always negative.

Correct AnswerverifiedTrue

Price elasticity of demand is the sole determinant of profit for a firm.

Correct AnswerverifiedShow Answer

Price elasticity of demand measured over a range of prices and quantities along the demand curve is _____.

Correct AnswerverifiedShow Answer

Cross-price elasticity is represented by the formula DQ/DP ´ P/Q; where P and DP represent the price and change in price of a related good respectively.

Correct AnswerverifiedTrue

If demand is unit-elastic,a 25 percent increase in price will result in:

Correct AnswerverifiedShow Answer

When income elasticity of demand is a negative number,one can correctly conclude that:

Correct AnswerverifiedShow Answer

If the price elasticity of supply is zero,the supply curve is a horizontal line parallel to the quantity axis.

Correct AnswerverifiedShow Answer

Which of the following is true of price elasticity of demand?

Correct AnswerverifiedShow Answer

A horizontal demand curve shows that demand for the good is _____.

Correct AnswerverifiedShow Answer

If demand is unit-elastic,then a $5 decrease in price will lead to an increase in quantity demanded by 5 units.

Correct AnswerverifiedShow Answer

If a product has an inelastic demand,then:

Correct AnswerverifiedShow Answer

If butter has an income elasticity equal to 0.75,then butter is an inferior good.

Correct AnswerverifiedShow Answer

The table below shows the quantities of automobiles,margarine,and coffee purchased by Ted at different levels of income. Table 5.2 - Based on the information given in Table 5.2,coffee would be considered:

Correct AnswerverifiedShow Answer

Assume that due to unfavorable conditions in a prime honey-producing area,the price of honey increases by 50 percent.The quantity consumed of herbal tea declines immediately by 25 percent.Everything else held constant,the:

Correct AnswerverifiedShow Answer

Everything else held constant,the greater the number of close substitutes there are for a good,the smaller the price elasticity of demand for that good.

Correct AnswerverifiedShow Answer

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