Question 1

The price elasticity of demand coefficient measures

Accepted Answer

A)  buyer responsiveness to price changes.
B)  the extent to which a demand curve shifts as incomes change.
C)  the slope of the demand curve.
D)  how far business executives can stretch their fixed costs.E) A) and D)
F) C) and D)

Question 2

Suppose that the price of product X rises by 20 percent and the quantity supplied of X increases by 15 percent. The coefficient of price elasticity of supply for good X is

Accepted Answer

A)  negative, and therefore X is an inferior good.
B)  positive, and therefore X is a normal good.
C)  less than 1, and therefore supply is inelastic.
D)  more than 1, and therefore supply is elastic.E) All of the above
F) B) and D)

Question 3

If the elasticity coefficient of supply is 0.7, supply is elastic.

Accepted Answer

A) True 
 B)False

Question 4

Suppose the price of local cable TV service increased from$16.20 to$19.80 and as a result the number of cable subscribers decreased from 224,000 to 176,000. Along this portion of the demand curve, using the midpoint method, price elasticity of demand is approximately

Accepted Answer

A)  0.83.
B)  1.2.
C)  1.
D)  8.E) B) and D)
F) None of the above

Question 5

If the coefficient of income elasticity of demand is positive, the product is an inferior good.

Accepted Answer

A) True 
 B)False

Question 6

The supply curve of antique reproductions is

Accepted Answer

A)  relatively elastic.
B)  relatively inelastic.
C)  perfectly inelastic.
D)  unit elastic.E) A) and B)
F) A) and C)

Question 7

Refer to the graph above. The time horizon depicted in the graph

Accepted Answer

A)  must be the immediate market period.
B)  cannot be the immediate market period.
C)  must be the long run, not the short run.
D)  can be determined by focusing on the demand curve.E) A) and B)
F) C) and D)

Question 8

The supply of product X is elastic 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 remains the same.
D)  7 percent and quantity supplied rises by 5 percent.E) B) and D)
F) None of the above

Question 9

A consumer's weekly income is $300, and the consumer buys 5 bars of chocolate per week. When weekly income increases to $330, the consumer buys 6 bars per week. The income elasticity of demand for chocolate by this consumer is about

Accepted Answer

A)  0.
B)  0.52.
C)  2.
D)  1.91.E) A) and D)
F) B) and C)

Question 10

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) A) and B)
F) B) and C)

Question 11

Consider the demand curve above. If area 0ABC is smaller than area 0DEF, it suggests that if the price increases from OD to OA, then total revenues of sellers will

Accepted Answer

A)  increase.
B)  decrease.
C)  remain constant.
D)  equal zero.E) B) and C)
F) All of the above

Question 12

The price elasticity of demand for widgets is 0.8. Assuming no change in the demand curve for widgets, an increase in sales of 16 percent implies a(n)

Accepted Answer

A)  1 percent reduction in price.
B)  12 percent reduction in price.
C)  20 percent reduction in price.
D)  40 percent reduction in price.E) A) and D)
F) A) and C)

Question 13

Refer to the above table. Which product would be an inferior good?

Accepted Answer

A)  Product W
B)  Product X
C)  Product Y
D)  Both products W and YE) B) and C)
F) A) and C)

Question 14

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

Accepted Answer

A)  4 percent and quantity supplied rises by 6 percent.
B)  7 percent and quantity supplied rises by 7 percent.
C)  12 percent and quantity supplied stays the same.
D)  5 percent and quantity supplied rises by 2 percent.E) B) and D)
F) B) and C)

Question 15

You notice that whenever incomes rise by 5 percent, people buy 3 percent more of Good A. This suggests that Good A has a negative income elasticity of demand.

Accepted Answer

A) True 
 B)False

Question 16

We use the midpoint formula in computing the price elasticity of demand coefficient in order to

Accepted Answer

A)  make the coefficient value become independent of whether price goes up or down.
B)  convert absolute changes into percentage changes.
C)  eliminate the negative sign of the coefficient.
D)  make the coefficient become equal to the slope of the demand curve.E) C) and D)
F) A) and B)

Question 17

Over a longer time period after a price change, the price elasticity of supply tends to decrease.

Accepted Answer

A) True 
 B)False

Question 18

The following data table relates to the supply schedule of a product.  Over which of the following price ranges is the price-elasticity of supply greater than 1?

Accepted Answer

A)  $10 to $15
B)  $15 to $20
C)  $20 to $25
D)  $25 to $30E) All of the above
F) None of the above

Question 19

Refer to the diagram and assume a single good. If the price of the good decreases from $6.30 to $5.70, consumer expenditure would

Accepted Answer

A)  decrease if demand were D₁ only.
B)  decrease if demand were D₂ only.
C)  decrease if demand were either D₁ or D₂.
D)  increase if demand were either D₁ or D₂.E) C) and D)
F) None of the above

Question 20

Suppose that a 20 percent increase in the price of normal good Y causes a 10 percent decrease in the quantity demanded of normal good X. The coefficient of cross elasticity of demand is

Accepted Answer

A)  negative, and therefore these goods are substitutes.
B)  negative, and therefore these goods are complements.
C)  positive, and therefore these goods are substitutes.
D)  positive, and therefore these goods are complements.E) A) and B)
F) All of the above

Exam 6: Elasticity

If the coefficient of income elasticity of demand is positive, the product is an inferior good.

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The following data table relates to the supply schedule of a product. Over which of the following price ranges is the price-elasticity of supply greater than 1?

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Suppose that the price of product X rises by 20 percent and the quantity supplied of X increases by 15 percent. The coefficient of price elasticity of supply for good X is

Correct AnswerverifiedShow Answer

Suppose the price of local cable TV service increased from$16.20 to$19.80 and as a result the number of cable subscribers decreased from 224,000 to 176,000. Along this portion of the demand curve, using the midpoint method, price elasticity of demand is approximately

Correct AnswerverifiedShow Answer

If the elasticity coefficient of supply is 0.7, supply is elastic.

Correct AnswerverifiedShow Answer

The price elasticity of demand for widgets is 0.8. Assuming no change in the demand curve for widgets, an increase in sales of 16 percent implies a(n)

Correct AnswerverifiedShow Answer

Refer to the graph above. The time horizon depicted in the graph

Correct AnswerverifiedShow Answer

Over a longer time period after a price change, the price elasticity of supply tends to decrease.

Correct AnswerverifiedShow Answer

The supply curve of antique reproductions is

Correct AnswerverifiedShow Answer

Refer to the diagram and assume a single good. If the price of the good decreases from $6.30 to $5.70, consumer expenditure would

Correct AnswerverifiedShow Answer

Consider the demand curve above. If area 0ABC is smaller than area 0DEF, it suggests that if the price increases from OD to OA, then total revenues of sellers will

Correct AnswerverifiedShow Answer

A consumer's weekly income is $300, and the consumer buys 5 bars of chocolate per week. When weekly income increases to $330, the consumer buys 6 bars per week. The income elasticity of demand for chocolate by this consumer is about

Correct AnswerverifiedShow Answer

We use the midpoint formula in computing the price elasticity of demand coefficient in order to

Correct AnswerverifiedShow Answer

The supply of product X is elastic if the price of X rises by

Correct AnswerverifiedShow Answer

You notice that whenever incomes rise by 5 percent, people buy 3 percent more of Good A. This suggests that Good A has a negative income elasticity of demand.

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

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The price elasticity of demand coefficient measures

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

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Refer to the above table. Which product would be an inferior good?

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Suppose that a 20 percent increase in the price of normal good Y causes a 10 percent decrease in the quantity demanded of normal good X. The coefficient of cross elasticity of demand is

Correct AnswerverifiedShow Answer

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