question
The price elasticity of demand is a measure of
A) the responsiveness of the quantity demanded to price changes.
B) the quantity demanded at a given price.
C) the shift in the demand curve when price changes.
D) the demand for a product holding price constant.
A) the responsiveness of the quantity demanded to price changes.
B) the quantity demanded at a given price.
C) the shift in the demand curve when price changes.
D) the demand for a product holding price constant.
answer
A) the responsiveness of the quantity demanded to price changes.
question
The elasticity of demand for a product is likely to be greater
A) the smaller the number of substitute products available.
B) the smaller the proportion of one's income spent on the product.
C) the larger the number of substitute products available.
D) if the product is an imported good rather than a domestically produced good.
A) the smaller the number of substitute products available.
B) the smaller the proportion of one's income spent on the product.
C) the larger the number of substitute products available.
D) if the product is an imported good rather than a domestically produced good.
answer
C) the larger the number of substitute products available.
question
If OPEC increases its price of oil, and still the demand for oil decreases by a very small amount, we can conclude that the demand for oil is
A) relatively elastic.
B) relatively inelastic.
C) perfectly elastic.
D) perfectly inelastic.
A) relatively elastic.
B) relatively inelastic.
C) perfectly elastic.
D) perfectly inelastic.
answer
B) relatively inelastic.
question
If the consumption of sugar does not change at all following a price increase from 50 cents per pound to 65 cents per pound, the demand for sugar is considered to be
A) relatively inelastic.
B) perfectly elastic.
C) perfectly inelastic.
D) unitary elastic.
A) relatively inelastic.
B) perfectly elastic.
C) perfectly inelastic.
D) unitary elastic.
answer
C) perfectly inelastic.
question
If the demand for a product is said to be relatively inelastic, the "absolute" value of the elasticity coefficient will be
A) less than one.
B) greater than one.
C) equal to one.
D) zero.
A) less than one.
B) greater than one.
C) equal to one.
D) zero.
answer
A) less than one.
question
If an item has several good substitutes, the demand curve for that item is likely to be
A) relatively inelastic.
B) relatively elastic.
C) perfectly inelastic.
D) unit elastic.
A) relatively inelastic.
B) relatively elastic.
C) perfectly inelastic.
D) unit elastic.
answer
B) relatively elastic.
question
Remembering that demand elasticity is defined as the percentage change in quantity divided by the percentage change in price, if price decreases and, in percentage terms, quantity rises more than price has dropped, total revenue will
A) increase.
B) decrease.
C) remain the same.
D) either increase or decrease.
A) increase.
B) decrease.
C) remain the same.
D) either increase or decrease.
answer
A) increase.
question
Suppose the price of beans rises from $1.00 a pound to $2.00 a pound, quantity demanded falls from 10 units to 6 units, the coefficient of elasticity of demand for beans using the arc elasticity approach is
A) -1.33.
B) -0.75.
C) -0.4.
D) -0.25.
A) -1.33.
B) -0.75.
C) -0.4.
D) -0.25.
answer
B) -0.75.
question
Suppose the price of beans rises from $1.00 a pound to $2.00 a pound, quantity demanded falls from 10 units to 6 units. In this example, the demand for beans is said to be
A) relatively elastic.
B) relatively inelastic.
C) perfectly elastic.
D) perfectly inelastic.
A) relatively elastic.
B) relatively inelastic.
C) perfectly elastic.
D) perfectly inelastic.
answer
B) relatively inelastic.
question
A perfectly elastic demand curve
A) can be represented by a line parallel to the vertical axis.
B) is a 45-degree line.
C) can be represented by a line parallel to the horizontal axis.
D) cannot be represented on a two-dimensional graph.
A) can be represented by a line parallel to the vertical axis.
B) is a 45-degree line.
C) can be represented by a line parallel to the horizontal axis.
D) cannot be represented on a two-dimensional graph.
answer
C) can be represented by a line parallel to the horizontal axis.
question
The sensitivity of the change in quantity consumed of one good to a change in the price of a related good is called
A) cross-elasticity.
B) substitute elasticity.
C) complementary elasticity.
D) price elasticity of demand.
A) cross-elasticity.
B) substitute elasticity.
C) complementary elasticity.
D) price elasticity of demand.
answer
A) cross-elasticity.
question
The cross-price elasticity of demand for coffee and tea is likely to be
A) greater than zero.
B) less than zero.
C) zero.
D) infinity.
A) greater than zero.
B) less than zero.
C) zero.
D) infinity.
answer
A) greater than zero.
question
The cross-price elasticity of demand for coffee and coffee-cream is likely to be
A) greater than zero.
B) less than zero.
C) zero.
D) infinity.
A) greater than zero.
B) less than zero.
C) zero.
D) infinity.
answer
B) less than zero.
question
The cross-price elasticity of demand for coffee and caskets is likely to be
A) less than zero.
B) greater than zero.
C) zero.
D) infinity.
A) less than zero.
B) greater than zero.
C) zero.
D) infinity.
answer
C) zero.
question
When purchases of tennis socks decline following an increase in the price of tennis sneakers (other things remaining equal), the relationship between these two items can be described as
A) substitutable.
B) complementary.
C) unique.
D) ordinary.
A) substitutable.
B) complementary.
C) unique.
D) ordinary.
answer
B) complementary.
question
The owner of a produce store found that when the price of a head of lettuce was raised from 50 cents to $1, the quantity sold per hour fell from 18 to 8. The arc elasticity of demand for lettuce is
A) -0.56.
B) -1.15.
C) -0.8.
D) -1.57.
A) -0.56.
B) -1.15.
C) -0.8.
D) -1.57.
answer
B) -1.15.
question
Suppose the price of crude oil drops from $150 a barrel to $120 a barrel. The quantity bought remains unchanged at 100 barrels. The coefficient of price elasticity of demand in this example would be
A) -0.5.
B) infinity.
C) -1.0.
D) 0.
A) -0.5.
B) infinity.
C) -1.0.
D) 0.
answer
D) 0.
question
If a firm decreases the price of a good and total revenue decreases, then
A) the demand for this good is price elastic.
B) the demand for this good is price inelastic.
C) the cross elasticity is negative.
D) the income elasticity is less than 1.
A) the demand for this good is price elastic.
B) the demand for this good is price inelastic.
C) the cross elasticity is negative.
D) the income elasticity is less than 1.
answer
B) the demand for this good is price inelastic.
question
When total revenue reaches its peak (elasticity equals 1), marginal revenue reaches
A) 1.
B) zero.
C) -1.
D) Cannot be determined from the information provided
A) 1.
B) zero.
C) -1.
D) Cannot be determined from the information provided
answer
B) zero.
question
If the income elasticity of a particular good is negative 0.2, it would be considered
A) a superior good.
B) a normal good.
C) an inferior good.
D) an elastic good.
A) a superior good.
B) a normal good.
C) an inferior good.
D) an elastic good.
answer
C) an inferior good.
question
The following information is provided for Tony Romo's income and expenditures.
Quantity Purchased per Month
Monthly Income Steaks Pizzas
$2,000 2 8
$3,000 4 6
In Table 1, Tony's income elasticity of demand for steaks is
A) 1.0.
B) greater than 1.0.
C) less than 1.0.
D) zero.
Quantity Purchased per Month
Monthly Income Steaks Pizzas
$2,000 2 8
$3,000 4 6
In Table 1, Tony's income elasticity of demand for steaks is
A) 1.0.
B) greater than 1.0.
C) less than 1.0.
D) zero.
answer
B) greater than 1.0.
question
The following information is provided for Tony Romo's income and expenditures.
Quantity Purchased per Month
Monthly Income Steaks Pizzas
$2,000 2 8
$3,000 4 6
In Table 1, pizzas are classified as a(n)
A) normal good.
B) positive good.
C) inferior goods.
D) marginal good.
Quantity Purchased per Month
Monthly Income Steaks Pizzas
$2,000 2 8
$3,000 4 6
In Table 1, pizzas are classified as a(n)
A) normal good.
B) positive good.
C) inferior goods.
D) marginal good.
answer
C) inferior goods.
question
The following information is provided for Tony Romo's income and expenditures.
Quantity Purchased per Month
Monthly Income Steaks Pizzas
$2,000 2 8
$3,000 4 6
In Table 1, steaks are classified as a(n)
A) normal good.
B) positive good.
C) inferior good.
D) marginal good.
Quantity Purchased per Month
Monthly Income Steaks Pizzas
$2,000 2 8
$3,000 4 6
In Table 1, steaks are classified as a(n)
A) normal good.
B) positive good.
C) inferior good.
D) marginal good.
answer
A) normal good.
question
The following information is provided for Tony Romo's income and expenditures.
Quantity Purchased per Month
Monthly Income Steaks Pizzas
$2,000 2 8
$3,000 4 6
In Table 1, Tony's income elasticity of demand for pizzas is
A) 0.
B) less than zero.
C) greater than 1.0.
D) 1.0.
Quantity Purchased per Month
Monthly Income Steaks Pizzas
$2,000 2 8
$3,000 4 6
In Table 1, Tony's income elasticity of demand for pizzas is
A) 0.
B) less than zero.
C) greater than 1.0.
D) 1.0.
answer
C) greater than 1.0.
question
The government unit that wants to achieve "revenue enhancement" will find it considerably more favorable to enact an excise tax on goods whose demand is
A) highly elastic.
B) relatively elastic.
C) highly inelastic.
D) unitary elastic.
A) highly elastic.
B) relatively elastic.
C) highly inelastic.
D) unitary elastic.
answer
C) highly inelastic.
question
Which of the following instances will total revenue or receipts decline?
A) Price rises and demand is inelastic.
B) Price falls and demand is elastic.
C) Price rises and demand is elastic.
D) Price falls and demand is unit elastic.
A) Price rises and demand is inelastic.
B) Price falls and demand is elastic.
C) Price rises and demand is elastic.
D) Price falls and demand is unit elastic.
answer
C) Price rises and demand is elastic.
question
If the price of a good is increased and total revenue received from the sale of this good increases, then the price elasticity of demand for the good is
A) elastic.
B) inelastic.
C) unitary.
D) None of the above
A) elastic.
B) inelastic.
C) unitary.
D) None of the above
answer
B) inelastic.
question
If the price of a good is decreased and total revenue received from the sale of this good does not change, then the price elasticity of demand for the good is
A) elastic.
B) inelastic.
C) unitary.
D) None of the above
A) elastic.
B) inelastic.
C) unitary.
D) None of the above
answer
C) unitary.
question
If the demand for a good is price inelastic and the good price is increased, then the marginal revenue (MR) received by the seller will
A) not change.
B) decrease.
C) increase.
D) Cannot be determined from this information
A) not change.
B) decrease.
C) increase.
D) Cannot be determined from this information
answer
C) increase.
question
If the price elasticity of supply of a good is elastic and the good price increases, then the increase in the good's supply should be
A) greater than the increase in price.
B) less than the increase in price.
C) the same as the increase in price.
D) Cannot be determined from this information
A) greater than the increase in price.
B) less than the increase in price.
C) the same as the increase in price.
D) Cannot be determined from this information
answer
A) greater than the increase in price.
question
Which of the following examples best illustrates the concept of derived demand?
A) An increase in the price of beef results in an increase in the demand for fish.
B) The higher the demand for automobiles, the greater the demand for steel.
C) The demand for Pepsi varies directly with the price of Coke.
D) The demand for a good varies inversely with its price.
A) An increase in the price of beef results in an increase in the demand for fish.
B) The higher the demand for automobiles, the greater the demand for steel.
C) The demand for Pepsi varies directly with the price of Coke.
D) The demand for a good varies inversely with its price.
answer
B) The higher the demand for automobiles, the greater the demand for steel.
question
The derived demand curve for a good component will be more inelastic
A) the larger is the fraction of total cost going to this component.
B) the more inelastic is the demand curve for the final good.
C) the more elastic are the supply curves of cooperating factors.
D) the less essential is the component in question.
A) the larger is the fraction of total cost going to this component.
B) the more inelastic is the demand curve for the final good.
C) the more elastic are the supply curves of cooperating factors.
D) the less essential is the component in question.
answer
B) the more inelastic is the demand curve for the final good.
question
The minimum wage is an example of a government imposed
A) price control.
B) price ceiling.
C) price floor.
D) Both A and B
E) Both A and C
A) price control.
B) price ceiling.
C) price floor.
D) Both A and B
E) Both A and C
answer
E) Both A and C
question
If government imposes a price ceiling on a good that is below the market equilibrium price
A) a surplus will develop.
B) a shortage will develop.
C) producers will reduce their sales price.
D) consumers will reduce their demand for the good.
A) a surplus will develop.
B) a shortage will develop.
C) producers will reduce their sales price.
D) consumers will reduce their demand for the good.
answer
B) a shortage will develop.
question
When a government imposes a price floor on a good that is above the market equilibrium price
A) a surplus will develop.
B) a shortage will develop.
C) producers will increase their sales price.
D) consumers will increase their demand for the good.
A) a surplus will develop.
B) a shortage will develop.
C) producers will increase their sales price.
D) consumers will increase their demand for the good.
answer
A) a surplus will develop.
question
A tax that is imposed as a specific amount per unit of a good is a(n)
A) excise or specific tax.
B) sales or ad valorem tax.
C) compound duty.
D) income tax.
A) excise or specific tax.
B) sales or ad valorem tax.
C) compound duty.
D) income tax.
answer
A) excise or specific tax.
question
If government imposes an excise tax on a good and the tax burden is borne equally by buyers and sellers, then
A) price elasticity of demand is unitary.
B) price elasticity of supply is unitary.
C) the absolute values of price elasticities of demand and supply are equal.
D) None of the above
A) price elasticity of demand is unitary.
B) price elasticity of supply is unitary.
C) the absolute values of price elasticities of demand and supply are equal.
D) None of the above
answer
C) the absolute values of price elasticities of demand and supply are equal.
question
Assuming mustard and burgers are complements, a decline in the price of burgers will
A) decrease the demand for burgers.
B) decrease in the quantity demanded of burgers.
C) increase the demand for mustard.
D) decrease the demand for mustard.
A) decrease the demand for burgers.
B) decrease in the quantity demanded of burgers.
C) increase the demand for mustard.
D) decrease the demand for mustard.
answer
C) increase the demand for mustard.
question
Other things remaining the same, an increase in the price of butter can be expected to
A) increase margarine sales.
B) decrease margarine sales.
C) increase butter sales.
D) None of the above
A) increase margarine sales.
B) decrease margarine sales.
C) increase butter sales.
D) None of the above
answer
A) increase margarine sales.
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