Question 1

For a particular good,a 12 percent increase in price causes a 3 percent decrease in quantity demanded.Which of the following statements is most likely applicable to this good?

Accepted Answer

A)   There are many substitutes for this good.
B)   The good is a necessity.
C)   The market for the good is narrowly defined.
D)   The relevant time horizon is long.E) A) and C)
F) A) and B)

Question 2

The demand for gasoline will respond more to a change in price over a period of five weeks than over a period of five years.

Accepted Answer

A) True 
 B)False

Question 3

Table 5-2
The following table shows a portion of the demand schedule for a particular good at various levels of income.
 
-Refer to Table 5-2.Using the midpoint method,at a price of $12,what is the income elasticity of demand when income rises from $5,000 to $10,000?

Accepted Answer

A)   0.00
B)   0.41
C)   1.00
D)   2.45E) All of the above
F) A) and B)

Question 4

If the price elasticity of demand for a good is 1.5,then a 3 percent decrease in price results in a

Accepted Answer

A)   0.5 percent increase in the quantity demanded.
B)   2 percent increase in the quantity demanded.
C)   4.5 percent increase in the quantity demanded.
D)   5 percent increase in the quantity demanded.E) None of the above
F) B) and C)

Question 5

If a 30 percent change in price causes a 15 percent change in quantity supplied,then the price elasticity of supply is

Accepted Answer

A)   0.5,and supply is elastic.
B)   0.5,and supply is inelastic.
C)   2,and supply is inelastic.
D)   2,and supply is elastic.E) C) and D)
F) A) and B)

Question 6

Table 5-3
The following table shows the demand schedule for a particular good.
 
-Refer to Table 5-3.Using the midpoint method,when price rises from $6 to $9,the price elasticity of demand is

Accepted Answer

A)   0.43
B)   0.67
C)   1.00
D)   1.5E) All of the above
F) None of the above

Question 7

Figure 5-1 
-Refer to Figure 5-1.The demand curve representing the demand for a luxury good with several close substitutes is

Accepted Answer

A)   A.
B)   B.
C)   C.
D)   D.E) A) and D)
F) None of the above

Question 8

Figure 5-5 
-Refer to Figure 5-5.At a price of $30 per unit,sellers' total revenue amounts to

Accepted Answer

A)   $150.
B)   $200.
C)   $288.
D)   $450.E) B) and D)
F) A) and C)

Question 9

Suppose goods A and B are substitutes for each other.We would expect the cross-price elasticity between these two goods to be

Accepted Answer

A)   positive.
B)   negative.
C)   either positive or negative.It depends whether A and B are normal goods or inferior goods.
D)   either positive or negative.It depends whether the current price level is on the elastic or inelastic portion of the demand curve.E) C) and D)
F) B) and D)

Question 10

On a downward-sloping linear demand curve,total revenue reaches its maximum value at the

Accepted Answer

A)   midpoint of the demand curve.
B)   lower end of the demand curve.
C)   upper end of the demand curve.
D)   It is impossible to tell without knowing prices and quantities demanded.E) B) and D)
F) A) and B)

Question 11

Figure 5-4 
-Refer to Figure 5-4.If the price increases in the region of the demand curve between points B and C,we can expect total revenue to

Accepted Answer

A)   increase.
B)   stay the same.
C)   decrease.
D)   first decrease,then increase until total revenue is maximized.E) A) and B)
F) A) and C)

Question 12

Figure 5-2 
-Refer to Figure 5-2.As price falls from Pa to Pb,we could use the three demand curves to calculate three different values of the price elasticity of demand.Which of the three demand curves would produce the smallest elasticity?

Accepted Answer

A)   D1
B)   D2
C)   D3
D)   All of the above are equally elastic.E) A) and D)
F) B) and C)

Question 13

Assume that a 4 percent increase in income results in a 2 percent increase in the quantity demanded of a good.The income elasticity of demand for the good is

Accepted Answer

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

Question 14

Figure 5-13 
-Refer to Figure 5-13.Using the midpoint method,what is the price elasticity of supply between points B and C?

Accepted Answer

A)   1.67
B)   1.19
C)   0.84
D)   0.61E) C) and D)
F) All of the above

Question 15

Figure 5-6 
-Refer to Figure 5-6.If the price decreased from $18 to $6,

Accepted Answer

A)   total revenue would increase by $1,200,and demand is elastic between points A and C.
B)   total revenue would increase by $800,and demand is elastic between points A and C.
C)   total revenue would decrease by $1,200,and demand is inelastic between points A and C.
D)   total revenue would decrease by $800,and demand is inelastic between points A and C.E) B) and C)
F) None of the above

Question 16

Table 5-1
 
-If a 15% increase in price for a good results in a 20% decrease in quantity demanded,the price elasticity of demand is

Accepted Answer

A)   0.75.
B)   1.25.
C)   1.33.
D)   1.60.E) None of the above
F) A) and D)

Question 17

Table 5-2
The following table shows a portion of the demand schedule for a particular good at various levels of income.
 
-Refer to Table 5-2.Using the midpoint method,when income equals $5,000,what is the price elasticity of demand between $8 and $12?

Accepted Answer

A)   0.56
B)   0.75
C)   1.33
D)   1.80E) B) and C)
F) A) and D)

Question 18

Which of the following should be held constant when calculating an income elasticity of demand?

Accepted Answer

A)   the price of the good
B)   prices of related goods
C)   tastes
D)   All of the above should be held constant.E) C) and D)
F) A) and D)

Question 19

When small changes in price lead to infinite changes in quantity demanded,demand is perfectly

Accepted Answer

A)   elastic,and the demand curve will be horizontal.
B)   inelastic,and the demand curve will be horizontal.
C)   elastic,and the demand curve will be vertical.
D)   inelastic,and the demand curve will be vertical.E) A) and D)
F) C) and D)

Question 20

If the income elasticity of demand for a good is negative,then the good must be an inferior good.

Accepted Answer

A) True 
 B)False

Exam 5: Elasticity and Its Application

Assume that a 4 percent increase in income results in a 2 percent increase in the quantity demanded of a good.The income elasticity of demand for the good is

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Figure 5-1 -Refer to Figure 5-1.The demand curve representing the demand for a luxury good with several close substitutes is

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Which of the following should be held constant when calculating an income elasticity of demand?

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Table 5-2 The following table shows a portion of the demand schedule for a particular good at various levels of income. -Refer to Table 5-2.Using the midpoint method,when income equals $5,000,what is the price elasticity of demand between $8 and $12?

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Table 5-3 The following table shows the demand schedule for a particular good. -Refer to Table 5-3.Using the midpoint method,when price rises from $6 to $9,the price elasticity of demand is

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If a 30 percent change in price causes a 15 percent change in quantity supplied,then the price elasticity of supply is

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Figure 5-4 -Refer to Figure 5-4.If the price increases in the region of the demand curve between points B and C,we can expect total revenue to

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If the price elasticity of demand for a good is 1.5,then a 3 percent decrease in price results in a

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Table 5-2 The following table shows a portion of the demand schedule for a particular good at various levels of income. -Refer to Table 5-2.Using the midpoint method,at a price of $12,what is the income elasticity of demand when income rises from $5,000 to $10,000?

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Figure 5-5 -Refer to Figure 5-5.At a price of $30 per unit,sellers' total revenue amounts to

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On a downward-sloping linear demand curve,total revenue reaches its maximum value at the

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Figure 5-13 -Refer to Figure 5-13.Using the midpoint method,what is the price elasticity of supply between points B and C?

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If the income elasticity of demand for a good is negative,then the good must be an inferior good.

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The demand for gasoline will respond more to a change in price over a period of five weeks than over a period of five years.

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Figure 5-6 -Refer to Figure 5-6.If the price decreased from $18 to $6,

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For a particular good,a 12 percent increase in price causes a 3 percent decrease in quantity demanded.Which of the following statements is most likely applicable to this good?

Correct AnswerverifiedShow Answer

When small changes in price lead to infinite changes in quantity demanded,demand is perfectly

Correct AnswerverifiedShow Answer

Suppose goods A and B are substitutes for each other.We would expect the cross-price elasticity between these two goods to be

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Figure 5-2 -Refer to Figure 5-2.As price falls from Pa to Pb,we could use the three demand curves to calculate three different values of the price elasticity of demand.Which of the three demand curves would produce the smallest elasticity?

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Table 5-1 -If a 15% increase in price for a good results in a 20% decrease in quantity demanded,the price elasticity of demand is

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