Question 1

Why do economists use percentages rather than absolute amounts in measuring the responsiveness of consumers to changes in price?

Accepted Answer

There are two reasons why we use percent...

Question 2

Considering the price-elasticity of demand for wheat, we would expect that if the supply of wheat increases, other factors constant, then wheat farmers' total revenues would

Accepted Answer

A)  increase because the demand is price-inelastic.
B)  decrease because the demand is price-inelastic.
C)  increase because the demand is price-elastic.
D)  decrease because the demand is price-elastic.E) None of the above
F) A) and B)

Question 3

The cross elasticity of demand between Quaker State motor oil and Texaco motor oil is likely to be

Accepted Answer

A)  zero.
B)  a positive number.
C)  a small negative number.
D)  a large negative number.E) B) and C)
F) A) and D)

Question 4

The relationship between a consumer's monthly income and monthly consumption of four products, A-D, is shown below.  Which product listed is an example of an inferior good?

Accepted Answer

A)  A
B)  B
C)  C
D)  DE) B) and C)
F) B) and D)

Question 5

The demand for a luxury good whose purchase would exhaust a big portion of one's income is

Accepted Answer

A)  perfectly price inelastic.
B)  perfectly price elastic.
C)  relatively price inelastic.
D)  relatively price elastic.E) A) and D)
F) None of the above

Question 6

The demand for autos is likely to be

Accepted Answer

A)  less price elastic than the demand for Honda Accords.
B)  more price elastic than the demand for Honda Accords.
C)  of the same price elasticity as the demand for Honda Accords.
D)  perfectly inelastic.E) B) and D)
F) None of the above

Question 7

Price elasticity of demand tends to be low for goods with few close substitutes.

Accepted Answer

A) True 
 B)False

Question 8

The smaller the number of good substitutes for a product, the greater will be the price elasticity of demand for it.

Accepted Answer

A) True 
 B)False

Question 9

Suppose that the price of peanuts falls from $3 to $2 per bushel and that, as a result, the total revenue received by peanut farmers changes from $16 to $14 billion. Thus,

Accepted Answer

A)  the demand for peanuts is elastic.
B)  the demand for peanuts is inelastic.
C)  the demand curve for peanuts has shifted to the left.
D)  no inference can be made as to the elasticity of demand for peanuts.E) A) and B)
F) A) and C)

Question 10

If the quantity demanded for Good A increases from 40 to 60 when price decreases from $9 to $7, price elasticity of demand in this price range is 1.6.

Accepted Answer

A) True 
 B)False

Question 11

The elasticity of supply of product X is unitary if the price of X rises by

Accepted Answer

A)  5 percent and quantity supplied rises by 7 percent.
B)  8 percent and quantity supplied rises by 8 percent.
C)  10 percent and quantity supplied stays the same.
D)  7 percent and quantity supplied rises by 5 percent.E) B) and C)
F) None of the above

Question 12

Farmers often find that large bumper crops are associated with declines in their gross incomes. This suggests that

Accepted Answer

A)  farm products are normal goods.
B)  farm products are inferior goods.
C)  the price elasticity of demand for farm products is less than 1.
D)  the price elasticity of demand for farm products is greater than 1.E) All of the above
F) C) and D)

Question 13

Suppose the price elasticity coefficients of demand are 1.43, 0.67, 1.11, and 0.29 for products W, X, Y, and Z, respectively. A 1 percent decrease in price will increase total revenue in the cases of

Accepted Answer

A)  W and Y.
B)  Y and Z.
C)  X and Z.
D)  Z and W.E) B) and D)
F) B) and C)

Question 14

Whenever a product is put on special sale at a discounted price, total revenue from the product increases. This indicates that the coefficient of elasticity for the product is greater than 1.

Accepted Answer

A) True 
 B)False  True

Question 15

Suppose the price elasticity of demand for beef is about 0.6. Other things equal, this means that a 20 percent increase in the price of beef will cause the quantity of beef demanded to

Accepted Answer

A)  increase by approximately 12 percent.
B)  decrease by approximately 12 percent.
C)  decrease by approximately 32 percent.
D)  decrease by approximately 26 percent.E) A) and C)
F) B) and C)

Question 16

Suppose the income elasticity of demand for jewelry is 2. Other things equal, a 10 percent increase in consumer income will

Accepted Answer

A)  decrease the quantity of jewelry purchased by 20 percent.
B)  increase the quantity of jewelry purchased by 5 percent.
C)  decrease the quantity of jewelry purchased by 5 percent.
D)  increase the quantity of jewelry purchased by 20 percent.E) B) and C)
F) A) and D) D

Question 17

For an increase in demand, the price effect is smallest and the quantity effect is largest

Accepted Answer

A)  when supply is least elastic.
B)  in the long run.
C)  in the short run.
D)  in the immediate market period.E) B) and C)
F) None of the above

Question 18

The supply of product X is perfectly inelastic if the price of X rises by

Accepted Answer

A)  2 percent and quantity supplied rises by 3 percent.
B)  10 percent and quantity supplied rises by 10 percent.
C)  6 percent and quantity supplied stays the same.
D)  12 percent and quantity supplied rises by 10 percent.E) All of the above
F) A) and C)

Question 19

If price and total revenue are directly related, demand is inelastic.

Accepted Answer

A) True 
 B)False  True

Question 20

If the demand for product X is inelastic, a 10 percent decrease in the price of X will

Accepted Answer

A)  decrease the quantity of X demanded by more than 10 percent.
B)  decrease the quantity of X demanded by less than 10 percent.
C)  increase the quantity of X demanded by more than 10 percent.
D)  increase the quantity of X demanded by less than 10 percent.E) C) and D)
F) None of the above

Exam 6: Elasticity

Why do economists use percentages rather than absolute amounts in measuring the responsiveness of consumers to changes in price?

Correct AnswerverifiedThere are two reasons why we use percent...View AnswerShow Answer

Considering the price-elasticity of demand for wheat, we would expect that if the supply of wheat increases, other factors constant, then wheat farmers' total revenues would

Correct AnswerverifiedShow Answer

The cross elasticity of demand between Quaker State motor oil and Texaco motor oil is likely to be

Correct AnswerverifiedShow Answer

The relationship between a consumer's monthly income and monthly consumption of four products, A-D, is shown below. Which product listed is an example of an inferior good?

Correct AnswerverifiedShow Answer

The demand for a luxury good whose purchase would exhaust a big portion of one's income is

Correct AnswerverifiedShow Answer

The demand for autos is likely to be

Correct AnswerverifiedShow Answer

Price elasticity of demand tends to be low for goods with few close substitutes.

Correct AnswerverifiedShow Answer

The smaller the number of good substitutes for a product, the greater will be the price elasticity of demand for it.

Correct AnswerverifiedShow Answer

Suppose that the price of peanuts falls from $3 to $2 per bushel and that, as a result, the total revenue received by peanut farmers changes from $16 to $14 billion. Thus,

Correct AnswerverifiedShow Answer

If the quantity demanded for Good A increases from 40 to 60 when price decreases from $9 to $7, price elasticity of demand in this price range is 1.6.

Correct AnswerverifiedShow Answer

The elasticity of supply of product X is unitary if the price of X rises by

Correct AnswerverifiedShow Answer

Farmers often find that large bumper crops are associated with declines in their gross incomes. This suggests that

Correct AnswerverifiedShow Answer

Suppose the price elasticity coefficients of demand are 1.43, 0.67, 1.11, and 0.29 for products W, X, Y, and Z, respectively. A 1 percent decrease in price will increase total revenue in the cases of

Correct AnswerverifiedShow Answer

Whenever a product is put on special sale at a discounted price, total revenue from the product increases. This indicates that the coefficient of elasticity for the product is greater than 1.

Correct AnswerverifiedTrue

Suppose the price elasticity of demand for beef is about 0.6. Other things equal, this means that a 20 percent increase in the price of beef will cause the quantity of beef demanded to

Correct AnswerverifiedShow Answer

Suppose the income elasticity of demand for jewelry is 2. Other things equal, a 10 percent increase in consumer income will

Correct AnswerverifiedD

For an increase in demand, the price effect is smallest and the quantity effect is largest

Correct AnswerverifiedShow Answer

The supply of product X is perfectly inelastic if the price of X rises by

Correct AnswerverifiedShow Answer

If price and total revenue are directly related, demand is inelastic.

Correct AnswerverifiedTrue

If the demand for product X is inelastic, a 10 percent decrease in the price of X will

Correct AnswerverifiedShow Answer

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