question
Price elasticity of demand measures
A) how responsive suppliers are to price changes.
B) how responsive sales are to changes in the price of a related good.
C) how responsive quantity demanded is to a change in price.
D) how responsive sales are to a change in buyers' incomes.
A) how responsive suppliers are to price changes.
B) how responsive sales are to changes in the price of a related good.
C) how responsive quantity demanded is to a change in price.
D) how responsive sales are to a change in buyers' incomes.
answer
C) how responsive quantity demanded is to a change in price.
question
Suppose the value of the price elasticity of demand is -3. What does this mean?
A) A 1 percent increase in the price of the good causes quantity demanded to increase by 3 percent.
B) A 1 percent increase in the price of the good causes quantity demanded to decrease by 3 percent.
C) A 3 percent increase in the price of the good causes quantity demanded to decrease by 1 percent.
D) A $1 increase in price causes quantity demanded to fall by 3 units.
A) A 1 percent increase in the price of the good causes quantity demanded to increase by 3 percent.
B) A 1 percent increase in the price of the good causes quantity demanded to decrease by 3 percent.
C) A 3 percent increase in the price of the good causes quantity demanded to decrease by 1 percent.
D) A $1 increase in price causes quantity demanded to fall by 3 units.
answer
B) A 1 percent increase in the price of the good causes quantity demanded to decrease by 3 percent.
question
If demand is inelastic, the absolute value of the price elasticity of demand is
A) one.
B) less than one.
C) greater than one.
D) greater than the absolute value of the slope of the demand curve.
A) one.
B) less than one.
C) greater than one.
D) greater than the absolute value of the slope of the demand curve.
answer
B) less than one.
question
If demand is perfectly inelastic, the absolute value of the price elasticity of demand is
A) zero.
B) less than one.
C) more than one.
D) equal to the absolute value of the slope of the demand curve.
A) zero.
B) less than one.
C) more than one.
D) equal to the absolute value of the slope of the demand curve.
answer
A) zero.
question
In September 2012, the average price of gasoline in the United States was $3.91 per gallon and consumers bought 5 percent less gasoline than they had during September 2011, when the average price was $3.66 per gallon. Based on these numbers, what was the price elasticity of demand for gasoline from September 2011 to September 2012?
A) -0.33
B) -0.76
C) -2.96
D) -6.75
A) -0.33
B) -0.76
C) -2.96
D) -6.75
answer
B) -0.76
question
If 50 units are sold at a price of $20 and 80 units are sold at a price of $15, what is the absolute value of the price elasticity of demand? Use the midpoint formula.
A) 0.17
B) 0.62
C) 1.62
D) 5
A) 0.17
B) 0.62
C) 1.62
D) 5
answer
C) 1.62
question
Jaycee Jeans sold 40 pairs of jeans at a price of $40. When it lowered its price to $20, the quantity sold increased to 60 pairs. Calculate the absolute value of the price elasticity of demand. Use the midpoint formula.
A) 1.67
B) 1.0
C) 0.6
D) 0.53
A) 1.67
B) 1.0
C) 0.6
D) 0.53
answer
C) 0.6
question
Which of the following goods would have the most inelastic demand?
A) ski vacations
B) bread
C) luxury cars
D) big screen TVs
A) ski vacations
B) bread
C) luxury cars
D) big screen TVs
answer
B) bread
question
The demand for gasoline in the short run is
A) elastic because people can easily switch to public transportation.
B) perfectly inelastic because people have no choice but to buy gasoline.
C) unit-elastic because people tend to consume a stable amount of gasoline per period.
D) inelastic because there are no good substitutes for gasoline.
A) elastic because people can easily switch to public transportation.
B) perfectly inelastic because people have no choice but to buy gasoline.
C) unit-elastic because people tend to consume a stable amount of gasoline per period.
D) inelastic because there are no good substitutes for gasoline.
answer
D) inelastic because there are no good substitutes for gasoline.
question
f the market for a product is broadly defined, then
A) the good has many complements.
B) there are few substitutes for the product and the demand for the product is relatively inelastic.
C) there are many substitutes for the product and the demand for the product is relatively elastic.
D) the expenditure on the good is likely to make up a large share of one's budget.
A) the good has many complements.
B) there are few substitutes for the product and the demand for the product is relatively inelastic.
C) there are many substitutes for the product and the demand for the product is relatively elastic.
D) the expenditure on the good is likely to make up a large share of one's budget.
answer
B) there are few substitutes for the product and the demand for the product is relatively inelastic.
question
The larger the share of a good in a consumer's budget, holding everything else constant, the
A) more price elastic is a consumer's demand.
B) more vertical is a consumer's demand curve.
C) more price inelastic is a consumer's demand.
D) more unit-elastic is a consumer's demand.
A) more price elastic is a consumer's demand.
B) more vertical is a consumer's demand curve.
C) more price inelastic is a consumer's demand.
D) more unit-elastic is a consumer's demand.
answer
A) more price elastic is a consumer's demand.
question
The most important determinant of the price elasticity of demand for a good is
A) the definition of the market for a good.
B) the availability of substitutes for the good.
C) the share of the good in the consumer's budget.
D) whether the good is a necessity or a luxury.
A) the definition of the market for a good.
B) the availability of substitutes for the good.
C) the share of the good in the consumer's budget.
D) whether the good is a necessity or a luxury.
answer
B) the availability of substitutes for the good.
question
When demand is elastic, a fall in price causes total revenue to rise because
A) when price falls, quantity sold increases so total revenue automatically rises.
B) the increase in quantity sold is large enough to offset the lower price.
C) the percentage increase in quantity demanded is less than the percentage fall in price.
D) the demand curve shifts.
A) when price falls, quantity sold increases so total revenue automatically rises.
B) the increase in quantity sold is large enough to offset the lower price.
C) the percentage increase in quantity demanded is less than the percentage fall in price.
D) the demand curve shifts.
answer
B) the increase in quantity sold is large enough to offset the lower price.
question
When demand is unit-elastic, a change in price causes total revenue to stay the same because
A) the percentage change in quantity demanded exactly offsets the percentage change in price.
B) buyers are buying the same quantity.
C) total revenue never changes with price changes.
D) the change in profit is offset by the change in production cost.
A) the percentage change in quantity demanded exactly offsets the percentage change in price.
B) buyers are buying the same quantity.
C) total revenue never changes with price changes.
D) the change in profit is offset by the change in production cost.
answer
A) the percentage change in quantity demanded exactly offsets the percentage change in price.
question
A service station owner in Staten Island, New York, was worried that raising the price of gasoline would cause the quantity demanded to fall by so much that he would be in a worse situation than if he did not raise the price. If raising the price of gasoline would cause the owner to receive less total revenue from the sale of gasoline, the demand for gasoline is
A) elastic.
B) inelastic.
C) unit elastic.
D) perfectly inelastic.
A) elastic.
B) inelastic.
C) unit elastic.
D) perfectly inelastic.
answer
A) elastic.
question
Cross-price elasticity of demand is calculated as the
A) percentage change in quantity demanded divided by percentage change in price of a good.
B) percentage change in quantity demanded of one good divided by percentage change in price of a different good.
C) percentage change in quantity sold divided by percentage change in buyers' incomes.
D) percentage change in quantity supplied divided by percentage change in price of a good.
A) percentage change in quantity demanded divided by percentage change in price of a good.
B) percentage change in quantity demanded of one good divided by percentage change in price of a different good.
C) percentage change in quantity sold divided by percentage change in buyers' incomes.
D) percentage change in quantity supplied divided by percentage change in price of a good.
answer
B) percentage change in quantity demanded of one good divided by percentage change in price of a different good.
question
If the cross-price elasticity of demand for computers and software is negative, this means the two goods are
A) substitutes.
B) complements.
C) inferior.
D) normal.
A) substitutes.
B) complements.
C) inferior.
D) normal.
answer
B) complements.
question
The income elasticity of demand measures
A) the responsiveness of quantity demanded to changes in income.
B) how a consumer's purchasing power is affected by a change in the price of a product.
C) the percentage change in the price of a product divided by the percentage change in consumer income.
D) the income effect of a change in price.
A) the responsiveness of quantity demanded to changes in income.
B) how a consumer's purchasing power is affected by a change in the price of a product.
C) the percentage change in the price of a product divided by the percentage change in consumer income.
D) the income effect of a change in price.
answer
A) the responsiveness of quantity demanded to changes in income.
question
Price elasticity of supply is used to gauge
A) how responsive suppliers are to price changes.
B) how responsive suppliers are to changes in future prices.
C) how responsive suppliers are to a change in demand.
D) how responsive sales are to a change in input prices.
A) how responsive suppliers are to price changes.
B) how responsive suppliers are to changes in future prices.
C) how responsive suppliers are to a change in demand.
D) how responsive sales are to a change in input prices.
answer
A) how responsive suppliers are to price changes.
question
Suppose the value of the price elasticity of supply is 4. What does this mean?
A) A 4 percent increase in the price of the good causes quantity supplied to increase by 1 percent.
B) A 1 percent increase in the price of the good causes the supply curve to shift upward by 4 percent.
C) A 1 percent increase in the price of the good causes quantity supplied to increase by 4 percent.
D) For every $1 increase in price, quantity supplied increases by 4 units.
A) A 4 percent increase in the price of the good causes quantity supplied to increase by 1 percent.
B) A 1 percent increase in the price of the good causes the supply curve to shift upward by 4 percent.
C) A 1 percent increase in the price of the good causes quantity supplied to increase by 4 percent.
D) For every $1 increase in price, quantity supplied increases by 4 units.
answer
C) A 1 percent increase in the price of the good causes quantity supplied to increase by 4 percent.
question
Suppose when the price of jean-jackets increased by 10 percent, the quantity supplied increased by 16 percent. Based on this information the price elasticity of supply of jean-jackets is
A) 0.625.
B) 6%.
C) 1.6.
D) 1.6%.
A) 0.625.
B) 6%.
C) 1.6.
D) 1.6%.
answer
C) 1.6.
question
The price elasticity of supply of hot dog buns is estimated to be 1.5. Holding everything else constant, this means that a 10 percent decrease in the price of hot dog buns will cause the quantity of hot dog buns supplied to decrease by
A) 1.5 percent.
B) 15 percent.
C) approximately 25 percent.
D) approximately 5 percent.
A) 1.5 percent.
B) 15 percent.
C) approximately 25 percent.
D) approximately 5 percent.
answer
B) 15 percent.
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