Question 1

The supply of product X is perfectly inelastic 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 stays the same.
D)  7 percent and quantity supplied rises by 5 percent.E) A) and B)
F) B) and C)

Question 2

The price elasticity of demand for a textbook is estimated to be 1 no matter what the price or quantity demanded.In this case,

Accepted Answer

A)  a 10 percent increase in price will result in a 10 percent increase in total revenues.
B)  a 10 percent increase in price will result in a 10 percent decrease in the quantity demanded.
C)  a 10 percent increase in price will result in a 10 percent decrease in total revenues.
D)  a 10 percent increase in price will result in a 10 percent increase in quantity demanded.E) None of the above
F) C) and D)

Question 3

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, price elasticity of demand is

Accepted Answer

A)  0.8.
B)  1.2.
C)  1.6.
D)  8.0.E) A) and D)
F) A) and B)

Question 4

If a firm's demand for labor is elastic, a union-negotiated wage increase will

Accepted Answer

A)  necessarily be inflationary.
B)  cause the firm's total payroll to increase.
C)  cause the firm's total payroll to decline.
D)  cause a shortage of labor.E) A) and B)
F) B) and D)

Question 5

Generally speaking, the smaller the percentage of one's total budget devoted to a particular product, the more price elastic will be the demand for that product.

Accepted Answer

A) True 
 B)False

Question 6

Which of the following goods will least likely suffer a decline in demand during a recession?

Accepted Answer

A)  dinner at a nice restaurant
B)  iPods
C)  toothpaste
D)  plasma screen and LCD TVsE) All of the above
F) C) and D)

Question 7

The larger the positive cross elasticity coefficient of demand between products X and Y, the

Accepted Answer

A)  stronger their complementariness.
B)  greater their substitutability.
C)  smaller the price elasticity of demand for both products.
D)  less sensitive purchases of each are to increases in income.E) A) and D)
F) B) and C)

Question 8

Total revenue falls as the price of a good is raised, if the demand for the good is

Accepted Answer

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

Question 9

If the price elasticity of demand for orange juice is 0.8, then a reduction in the price of orange juice will cause buyers to buy

Accepted Answer

A)  fewer bottles of orange juice, and their total spending on orange juice will decrease.
B)  fewer bottles of orange juice, but their total spending on orange juice will increase.
C)  more bottles of orange juice, and their total spending on orange juice will increase.
D)  more bottles of orange juice, but their total spending on orange juice will decrease.E) B) and C)
F) All of the above

Question 10

Suppose the price elasticity coefficients of demand are 1.43, 0.67, 1.11, and 0.29 for products W, X, Y, and Z, respectively.A 1 percent decrease in price will increase total revenue in the cases of

Accepted Answer

A)  W and Y.
B)  Y and Z.
C)  X and Z.
D)  Z and W.E) None of the above
F) A) and B)

Question 11

Sony is considering a 10 percent price reduction on its HD TV sets.If the price-elasticity coefficient for the sets in this price range is 0.75, then the price cut will cause

Accepted Answer

A)  sales quantity to increase and revenues to also increase.
B)  sales quantity to increase but revenues to decrease.
C)  sales quantity to decrease and revenues to also decrease.
D)  sales quantity to decrease but revenues to increase.E) B) and C)
F) All of the above

Question 12

The price-elasticity coefficients are 2.6, 0.5, 1.4, and 0.18 for four different demand schedules,D1, D2, D3, and D4, respectively.A 2-percent increase in price will result in an increase in total revenues in which of the following cases?

Accepted Answer

A)  D1 and D3
B)  D1 and D4
C)  D2 and D4
D)  D1, D2, and D3E) B) and D)
F) B) and C)

Question 13

The main reason for the high price of antiques is that

Accepted Answer

A)  supply is relatively elastic and demand increases over time.
B)  supply is relatively inelastic and demand increases over time.
C)  demand is relatively elastic and supply increases over time.
D)  demand is relatively inelastic and supply increases over time.E) All of the above
F) A) and B)

Question 14

Assume that a 4 percent increase in income across the economy produces an 8 percent increase in the quantity demanded of good X.The coefficient of income elasticity of demand is

Accepted Answer

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

Question 15

If the demand for product X is inelastic, a 4 percent decrease in the price of X will

Accepted Answer

A)  decrease the quantity of X demanded by more than 4 percent.
B)  decrease the quantity of X demanded by less than 4 percent.
C)  increase the quantity of X demanded by more than 4 percent.
D)  increase the quantity of X demanded by less than 4 percent.E) All of the above
F) B) and C)

Question 16

(Consider This)  The supply of higher education in the United States is

Accepted Answer

A)  highly price elastic.
B)  highly price inelastic.
C)  unitary elastic with respect to price.
D)  perfectly price elastic.E) All of the above
F) A) and B)

Question 17

Assume that a 3 percent increase in income across the economy produces a 1 percent decline in the quantity demanded of good X.The coefficient of income elasticity of demand for good X is

Accepted Answer

A)  negative, and therefore X is an inferior good.
B)  negative, and therefore X is a normal good.
C)  positive, and therefore X is an inferior good.
D)  positive and therefore X is a normal good.E) None of the above
F) A) and B)

Question 18

If the demand for a product increases proportionately faster than the increase in consumers' incomes, then the income elasticity of demand for the product is

Accepted Answer

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

Question 19

Which of the following is not characteristic of the demand for a commodity that is elastic?

Accepted Answer

A)  The relative change in quantity demanded is greater than the relative change in price.
B)  Buyers are relatively sensitive to price changes.
C)  Total revenue increases if price is increased.
D)  The elasticity coefficient is greater than one.E) All of the above
F) C) and D)

Question 20

A union argues that a price cut will boost the revenues of the firm, while management argues that the opposite is true.This suggests that the price elasticity of demand is

Accepted Answer

A)  unit-elastic from the union's perspective and unit-inelastic from management's perspective.
B)  perfectly inelastic from the union's perspective and perfectly elastic from management's perspective.
C)  elastic from the union's perspective, inelastic from management's perspective.
D)  inelastic from the union's perspective, elastic from management's perspective.E) B) and D)
F) A) and C)

Exam 6: Elasticity

If the demand for a product increases proportionately faster than the increase in consumers' incomes, then the income elasticity of demand for the product is

Correct AnswerverifiedShow Answer

If a firm's demand for labor is elastic, a union-negotiated wage increase will

Correct AnswerverifiedShow Answer

A union argues that a price cut will boost the revenues of the firm, while management argues that the opposite is true.This suggests that the price elasticity of demand is

Correct AnswerverifiedShow Answer

Which of the following goods will least likely suffer a decline in demand during a recession?

Correct AnswerverifiedShow Answer

Assume that a 4 percent increase in income across the economy produces an 8 percent increase in the quantity demanded of good X.The coefficient of income elasticity of demand is

Correct AnswerverifiedShow Answer

(Consider This) The supply of higher education in the United States is

Correct AnswerverifiedShow Answer

If the demand for product X is inelastic, a 4 percent decrease in the price of X will

Correct AnswerverifiedShow Answer

Which of the following is not characteristic of the demand for a commodity that is elastic?

Correct AnswerverifiedShow Answer

The price-elasticity coefficients are 2.6, 0.5, 1.4, and 0.18 for four different demand schedules,D1, D2, D3, and D4, respectively.A 2-percent increase in price will result in an increase in total revenues in which of the following cases?

Correct AnswerverifiedShow Answer

Total revenue falls as the price of a good is raised, if the demand for the good is

Correct AnswerverifiedShow Answer

The larger the positive cross elasticity coefficient of demand between products X and Y, the

Correct AnswerverifiedShow Answer

If the price elasticity of demand for orange juice is 0.8, then a reduction in the price of orange juice will cause buyers to buy

Correct AnswerverifiedShow Answer

Generally speaking, the smaller the percentage of one's total budget devoted to a particular product, the more price elastic will be the demand for that product.

Correct AnswerverifiedShow Answer

Sony is considering a 10 percent price reduction on its HD TV sets.If the price-elasticity coefficient for the sets in this price range is 0.75, then the price cut will cause

Correct AnswerverifiedShow Answer

The price elasticity of demand for a textbook is estimated to be 1 no matter what the price or quantity demanded.In this case,

Correct AnswerverifiedShow Answer

The main reason for the high price of antiques is that

Correct AnswerverifiedShow Answer

Assume that a 3 percent increase in income across the economy produces a 1 percent decline in the quantity demanded of good X.The coefficient of income elasticity of demand for good X is

Correct AnswerverifiedShow Answer

Suppose the price elasticity coefficients of demand are 1.43, 0.67, 1.11, and 0.29 for products W, X, Y, and Z, respectively.A 1 percent decrease in price will increase total revenue in the cases of

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, price elasticity of demand is

Correct AnswerverifiedShow Answer

The supply of product X is perfectly inelastic if the price of X rises by

Correct AnswerverifiedShow Answer

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