Microeconomics: Chapter 6 (Test)

A perfectly elastic demand curve is represented by a horizontal line

If you expect the economy is going to boom and average income in the economy will rise in the foreseeable future, the type of firm that would be able to increase its sales if your expectations are met is
a) one that sells an inferior good.

b) one that sells a necessity good.

c) one that sells a luxury good.

d) one that sells a price inelastic good.

Suppose the absolute value of the price elasticity of demand for meals at Fortune Buffet House is ∞. What happens to sales revenue if the restaurant increases its price by 5 percent?

a) Sales revenue falls by less than 5 percent.

b) Sales revenue remains unchanged.

c)Sales revenue falls by 100 percent.

d) It cannot be determined without information on prices.

The demand for all carbonated beverages is likely to be ________ the demand for Dr. Pepper.
Question 4 options:

a) more elastic than

b) perfectly elastic compared to

c) less elastic than

d) perfectly inelastic compared to

If a firm lowered the price of the product it sells and found that total revenue did not change, then the demand for its product is
Question 5 options:

a) perfectly inelastic.

b) perfectly elastic.

c) unit-elastic.

d) relatively elastic.

Refer to the figure above. At the midpoint of the demand curve, in absolute value,

a) the price elasticity coefficient is at a maximum.

b) the price elasticity coefficient is at a minimum.

c) the price elasticity coefficient is zero.

d) the price elasticity coefficient is one.

e) the price elasticity is the same as elswhere along this demand curve

Refer to the graph above. Using the midpoint formula, calculate the absolute value of the price elasticity of demand between e and f.


a) 0.32

b) 0.5

c) 2.5 XXX

d) 3.125

e) 2

When demand is unit-elastic, a change in price causes total revenue to stay the same because
Question 8 options:

a) the percentage change in quantity demanded exactly offsets the percentage change in price.

b) buyers are buying the same quantity.XXX

c) total revenue never changes with price changes.

d) the change in profit is offset by the change in production cost.

Using cross-sectional data from the two Housing Assistance Supply Experiment (HASE) sites--Brown County (WI) and St. Joseph County (IN)-- John Mulford estimates that the long-run "permanent" income elasticity of housing expenditures to be 0.45 for owners. Using this information, what is likely to happen to housing expenditures if the government increases income transfers to recipients in HASE sites?
Question 9 options:

a) Housing expenditures will increase significantly.

b) Housing expenditures in HASE sites will fall significantly as recipients moved out of these areas to higher-income areas.

c) Housing expenditures will increase, but not significantly.

d) Housing expenditures will decrease by a small amount.

Consider the following pairs of items:

a. shampoo and conditioner
b. iPhones and headphones
c. a laptop and a desktop computer
d beef and pork
e. air-travel and weed killer

Which of the pairs listed will have a negative cross-price elasticity?
Question 10 options:

a) a and b only

b) c and d only

c) e only

d) a, b, and c only XXX

Which of the following goods would have the most inelastic demand?
Question 11 options:

a) ski vacations

b) bread

c) luxury cars

d) big screen TVs

Assume that the price elasticity of demand for cocaine is -0.02. If legalization causes the price of cocaine to fall by 95 percent what will be the increase in the quantity of cocaine demanded?
Question 12 options:

a) 1.9 percent

b) 9 percent

c) 19 percent

d) 190 percent

Which of the following statements about price elasticity of demand is false?
Question 13 options:

a) The value of the price elasticity of demand is the reciprocal of the value of the demand curve's slope.

b) If quantity demanded changes by a larger percentage than the percentage change in price, demand is elastic. XXX

c) The value of the price elasticity of demand along a downward-sloping demand curve is always negative.

d) A linear downward-sloping demand curve has a varying price elasticity coefficient.

A perfectly inelastic supply curve is shown in

Question 14 options:

a) Panel A

b) Panel B

c) Panel C

d) Panel D

The demand curve on which panel changes elasticity at every point?

Question 15 options:

Panel A

Panel B

Panel C

None of the panels listed under this question presents a demand curve with elasticity being different at every point.

The price elasticity of demand for Stork ice cream is -4. Suppose you're told that following a price increase, quantity demanded fell by 10 percent. What was the percentage change in price that brought about this change in quantity demanded?
Question 16 options:

a) 40 percent

b) 25 percent

c) 2.5 percent

d) 0.4 percent

If demand is perfectly inelastic, the absolute value of the price elasticity of demand is
Question 17 options:

zero

less than one.

more than one

equal to the absolute value of the slope of the demand curve.

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.
Question 18 options:

0.17

0.62XXX

1.62

5

If the market for a product is narrowly defined, then there are likely to be many substitutes for the product and the demand for the product is relatively elastic.
Question 19 options:
True
False

If a firm is in an antitrust court case being accused of monopolizing a product, the firm would hire an economist to show
Question 20 options:

a) the cross-price elasticity of demand between the firm's good and another is negative.XXX

b) the cross-price elasticity of demand between the firm's good and another is positive.

c) the price elasticity of demand for the firm's good is highly elastic.

d) the income elasticity of the firm's good is inferior.

If, for a given percentage increase in price, quantity supplied increases by a larger percentage, then supply is
Question 21 options:

unit-elastic.

perfectly elastic.

relatively inelastic.

elastic.