Question 1

Figure 5-8. A demand curve is shown on the graph below. On the graph, Q represents quantity demanded and P represents price.
 
-Refer to Figure 5-8.Using the midpoint method,between prices of $48 and $54,price elasticity of demand is about

Accepted Answer

A)  0.92.
B)  3.89.
C)  4.33.
D)  5.67.E) B) and C)
F) A) and D)

Question 2

The midpoint method for calculating elasticities is convenient in that it allows us to

Accepted Answer

A)  ignore the percentage change in quantity demanded and instead focus entirely on the percentage change in price.
B)  calculate the same value for the elasticity, regardless of whether the price increases or decreases.
C)  assume that sellers' total revenue stays constant when the price changes.
D)  restrict all elasticity values to between 0 and 1.E) B) and C)
F) None of the above

Question 3

Total revenue

Accepted Answer

A)  always increases as price increases.
B)  increases as price increases, as long as demand is elastic.
C)  decreases as price increases, as long as demand is inelastic.
D)  remains unchanged as price increases when demand is unit elastic.E) A) and C)
F) A) and B)

Question 4

Holding all other forces constant,if raising the price of a good leads to a fall in total revenue,then the demand for the good must be

Accepted Answer

A)  unit elastic.
B)  inelastic.
C)  elastic.
D)  None of the above is correct, since a price increase always leads to an increase in total revenue.E) C) and D)
F) B) and C)

Question 5

Cross-price elasticity of demand measures how the quantity demanded of one good changes as the price of another good changes.

Accepted Answer

A) True 
 B)False

Question 6

Demand is elastic if elasticity is

Accepted Answer

A)  less than 1.
B)  equal to 1.
C)  equal to 0.
D)  greater than 1.E) A) and D)
F) B) and C)

Question 7

Assume that a 4 percent increase in income results in a 2 percent increase in the quantity demanded of a good.The income elasticity of demand for the good is

Accepted Answer

A)  negative and therefore the good is an inferior good.
B)  negative and therefore the good is a normal good.
C)  positive and therefore the good is a normal good.
D)  positive and therefore the good is an inferior good.E) A) and B)
F) A) and C)

Question 8

The greater the price elasticity of demand,the

Accepted Answer

A)  more likely the product is a necessity.
B)  smaller the responsiveness of quantity demanded to a change in price.
C)  greater the percentage change in price over the percentage change in quantity demanded.
D)  greater the responsiveness of quantity demanded to a change in price.E) All of the above
F) A) and D)

Question 9

On a certain supply curve,one point is (quantity supplied = 200,price = $4.00) and another point is (quantity supplied = 250,price = $4.50) .Using the midpoint method,the price elasticity of supply is about

Accepted Answer

A)  0.22.
B)  0.53.
C)  1.89.
D)  2.22.E) A) and B)
F) C) and D)

Question 10

An increase in price causes an increase in total revenue when

Accepted Answer

A)  demand is elastic.
B)  demand is inelastic.
C)  demand is unit elastic.
D)  All of the above are possible.E) B) and C)
F) A) and D)

Question 11

According to a Los Angeles Times article published in May 2005,John Felmy,chief economist at the American Petroleum Institute,asserts that the short-run price elasticity of demand for gasoline is about

Accepted Answer

A)  0.10.
B)  0.25.
C)  0.50.
D)  1.00.E) B) and C)
F) None of the above

Question 12

When the local used bookstore prices economics books at $15.00 each,they generally sell 70 books per month.If they lower the price to $7.00,sales increase to 90 books per month.Given this information,we know that the price elasticity of demand for economics books is about

Accepted Answer

A)  2.91, and an increase in price from $7.00 to $15.00 results in an increase in total revenue.
B)  2.91, and an increase in price from $7.00 to $15.00 results in a decrease in total revenue.
C)  0.34, and an increase in price from $7.00 to $15.00 results in an increase in total revenue.
D)  0.34, and an increase in price from $7.00 to $15.00 results in a decrease in total revenue.E) A) and B)
F) C) and D)

Question 13

The income elasticity of demand is defined as the percentage change in quantity demanded divided by the percentage change in income.

Accepted Answer

A) True 
 B)False

Question 14

Which of the following statements about the price elasticity of demand is correct?

Accepted Answer

A)  The price elasticity of demand for a good measures the willingness of buyers of the good to move away from the good as its price increases.
B)  Price elasticity of demand reflects the many economic, psychological, and social forces that shape consumer tastes.
C)  Other things equal, if good x has close substitutes and good y does not have close substitutes, then the demand for good x will be more elastic than the demand for good y.
D)  All of the above are correct.E) None of the above
F) All of the above

Question 15

When demand is inelastic,a decrease in price increases total revenue.

Accepted Answer

A) True 
 B)False

Question 16

Figure 5-1
 
-Refer to Figure 5-1.The section of the demand curve labeled A represents the

Accepted Answer

A)  elastic section of the demand curve.
B)  inelastic section of the demand curve.
C)  unit elastic section of the demand curve.
D)  perfectly elastic section of the demand curve.E) B) and D)
F) B) and C)

Question 17

Demand is inelastic if elasticity is

Accepted Answer

A)  less than 1.
B)  equal to 1.
C)  greater than 1.
D)  equal to 0.E) A) and B)
F) A) and C)

Question 18

Demand for a good is said to be inelastic if the quantity demanded increases substantially when the price falls by a small amount.

Accepted Answer

A) True 
 B)False

Question 19

Which of the following expressions represents a cross-price elasticity of demand?

Accepted Answer

A)  percentage change in quantity demanded of apples divided by percentage change in quantity supplied of apples
B)  percentage change in quantity demanded of apples divided by percentage change in price of pears
C)  percentage change in price of apples divided by percentage change in quantity demanded of apples
D)  percentage change in quantity demanded of apples divided by percentage change in incomeE) All of the above
F) B) and D)

Question 20

If the price elasticity of supply for wheat is less than 1,then the supply of wheat is

Accepted Answer

A)  inelastic.
B)  elastic.
C)  unit elastic.
D)  quite sensitive to change in price.E) None of the above
F) All of the above

Exam 5: Elasticity and Its Applications

Demand is elastic if elasticity is

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Cross-price elasticity of demand measures how the quantity demanded of one good changes as the price of another good changes.

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Which of the following expressions represents a cross-price elasticity of demand?

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Figure 5-1 -Refer to Figure 5-1.The section of the demand curve labeled A represents the

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When the local used bookstore prices economics books at $15.00 each,they generally sell 70 books per month.If they lower the price to $7.00,sales increase to 90 books per month.Given this information,we know that the price elasticity of demand for economics books is about

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The midpoint method for calculating elasticities is convenient in that it allows us to

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According to a Los Angeles Times article published in May 2005,John Felmy,chief economist at the American Petroleum Institute,asserts that the short-run price elasticity of demand for gasoline is about

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When demand is inelastic,a decrease in price increases total revenue.

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Which of the following statements about the price elasticity of demand is correct?

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Demand is inelastic if elasticity is

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Demand for a good is said to be inelastic if the quantity demanded increases substantially when the price falls by a small amount.

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Figure 5-8. A demand curve is shown on the graph below. On the graph, Q represents quantity demanded and P represents price. -Refer to Figure 5-8.Using the midpoint method,between prices of $48 and $54,price elasticity of demand is about

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The greater the price elasticity of demand,the

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Holding all other forces constant,if raising the price of a good leads to a fall in total revenue,then the demand for the good must be

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Total revenue

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The income elasticity of demand is defined as the percentage change in quantity demanded divided by the percentage change in income.

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Assume that a 4 percent increase in income results in a 2 percent increase in the quantity demanded of a good.The income elasticity of demand for the good is

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On a certain supply curve,one point is (quantity supplied = 200,price = $4.00) and another point is (quantity supplied = 250,price = $4.50) .Using the midpoint method,the price elasticity of supply is about

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If the price elasticity of supply for wheat is less than 1,then the supply of wheat is

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An increase in price causes an increase in total revenue when

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