Question 1

The cross elasticity of demand between Coca- Cola and Pepsi- Cola is _______ so that Coke and Pepsi are _______.
A) negative; substitutes
B) negative; normal goods
C) positive; complements
D) positive; substitutes

Accepted Answer

The cross elasticity of demand between two goods is positive when they are substitutes, meaning that an increase in the price of one leads to an increase in the demand for the other.

Question 2

As the price of mobile phones fell during the last decade, consumers' total expenditures on mobile phones increased. If the demand curve for mobile phones did not shift, this fact means that the demand for mobile phones
A) is elastic.
B) must have shifted leftward.
C) is inelastic.
D) must be upward- sloping.

Accepted Answer

The increase in total expenditures despite a fall in prices indicates that the quantity demanded increased more than proportionally to the price decrease, which is a characteristic of elastic demand.

Question 3

Deb's income has just risen from $950 per week to $1,050 per week. As a result, she decides to increase the number of movies she attends each month by 5 per cent. Her demand for movies is
A) represented by a vertical line.
B) income elastic.
C) income inelastic.
D) represented by a horizontal line.

Accepted Answer

Deb's demand for movies is income inelastic because the percentage increase in the number of movies she attends (5%) is less than the percentage increase in her income (approximately 10.5%).

Question 4

Blue pens and black pens are close substitutes. The cross elasticity of demand for black pens with respect to the price of blue pens is
A) zero.
B) negative.
C) equal to 1.
D) positive.

Accepted Answer

The cross elasticity of demand between two substitutes is positive, indicating that as the price of one good (blue pens) increases, the demand for the substitute good (black pens) also increases.

Question 5

A decrease in the supply of sugar increases the price of sugar from $1.00 a packet to $1.25 a packet. The quantity demanded decreases from 100 packets a day to 80 packets a day. The price elasticity of demand for sugar is _______.
A) 0.5
B) 0.75
C) 1.25
D) 1.0

Accepted Answer

The answer of A decrease in the supply of sugar...

Question 6

To maximise its revenue,
A) a firm facing elastic demand should always raise its price.
B) a firm should always charge the highest price possible regardless of the elasticity of demand.
C) a firm facing inelastic demand should always raise its price.
D) None of the above answers is correct.

Accepted Answer

When demand is inelastic, consumers are less sensitive to price changes, meaning a firm can raise prices without a significant drop in quantity sold, potentially increasing revenue.

Question 7

The price elasticity of demand for furniture is estimated at 1.3. This value means a one per cent increase in the
A) quantity of furniture demanded will decrease the price of furniture by 1.3 per cent.
B) price of furniture will increase the quantity of furniture demanded by 1.3 per cent.
C) price of furniture will decrease the quantity of furniture demanded by 1.3 per cent.
D) quantity of furniture demanded will increase the price of furniture by 1.3 per cent.

Accepted Answer

The price elasticity of demand measures how much the quantity demanded of a good responds to a change in the price of that good, with a positive value indicating the direction of change. A value of 1.3 means that for a 1% increase in price, the quantity demanded decreases by 1.3%.

Question 8

If the supply curve is vertical then supply is
A) relatively elastic.
B) relatively inelastic.
C) perfectly inelastic.
D) perfectly elastic.

Accepted Answer

A vertical supply curve indicates that the quantity supplied does not change regardless of the price, which is the definition of perfectly inelastic supply.

Question 9

-The elasticity of demand along the demand curve shown in the above figure is constant and equal to 1. Thus,
A) area 0BCF equals area FGDE.
B) area 0BCF equals area 0AGF.
C) area 0BCF equals area 0ADE.
D) area ABCG equals area 0AGF.

Accepted Answer

When the elasticity of demand is constant and equal to 1 (unitary elasticity), the expenditure on the product remains the same at all prices. This means the area representing total revenue (price × quantity) at any two points on the demand curve is the same. Therefore, the area under the demand curve from the origin to any point (representing total revenue) remains constant, making option C correct: area 0BCF equals area 0ADE.

Question 10

The price elasticity of demand for purses is measured in
A) dollars.
B) dollars per purse.
C) purses.
D) None of the above answers is correct because there are no units for elasticity of demand.

Accepted Answer

Price elasticity of demand is a dimensionless measure, meaning it has no units. It is calculated as the percentage change in quantity demanded divided by the percentage change in price, resulting in a unitless measure.

Question 11

The elasticity of supply equals _______ if the supply curve is vertical.
A) 1
B) 0
C) infinity
D) - 1

Accepted Answer

A vertical supply curve indicates that the quantity supplied is completely unresponsive to changes in price, meaning the elasticity of supply is zero.

Question 12

The income elasticity of demand is a measure of the responsiveness of the
A) quantity of a good demanded to changes in income.
B) quantity of a good demanded to changes in its price.
C) consumer's income to a change in the price of the goods he or she consumes.
D) quantity of a good demanded to changes in another good's price.

Accepted Answer

The income elasticity of demand measures how the quantity demanded of a good changes in response to a change in consumers' income. It does not relate to changes in the good's price (B), changes in consumer income due to price changes (C), or the effect of changes in the price of another good (D).

Question 13

-The figure shows the relationship between Moira's income and the quantity of macaroni that she demands. When income is less than $350 per month, macaroni
A) is a normal good.
B) has many substitutes.
C) has negative income elasticity.
D) is an inferior good.

Accepted Answer

The answer of 
-The figure shows the relationship between Moira's...

Question 14

As time passes after a change in the price, the supply of a good or service
A) becomes less elastic.
B) initially becomes more elastic and then becomes less elastic.
C) initially becomes less elastic and then becomes more elastic.
D) becomes more elastic.

Accepted Answer

Over time, producers can adjust their production processes, find alternative inputs, or enter/exit the market, making the supply of a good or service more elastic.

Question 15

The price elasticity of demand is 5.0 if a 10 per cent increase in the price results in a _______ decrease in the quantity demanded.
A) 10 per cent
B) 50 per cent
C) 5 per cent
D) 2 per cent

Accepted Answer

The price elasticity of demand is calculated as the percentage change in quantity demanded divided by the percentage change in price. If a 10% increase in price leads to a 50% decrease in quantity demanded, the elasticity is 50%/10% = 5.0, matching the given elasticity.

Question 16

If the price of a burger decreases by 5 per cent and as a result the quantity of burgers demanded increases by 8 per cent, the price elasticity of demand equals
A) 0.40.
B) 0.625.
C) 1.60.
D) 0.60.

Accepted Answer

Price elasticity of demand is calculated as the percentage change in quantity demanded divided by the percentage change in price. Here, it is 8% / 5% = 1.60.

Question 17

If the demand for a good is elastic, the price elasticity of demand is
A) less than zero.
B) between 0 and 1.
C) greater than 1.
D) equal to 1.

Accepted Answer

When the demand for a good is elastic, the price elasticity of demand is greater than 1, indicating that a change in price leads to a proportionally larger change in quantity demanded.

Question 18

-The above figure illustrates the demand for hamburgers. When the price is $1 a hamburger, the elasticity of demand is _______ and a 1 per cent increase in the price will _______ the quantity of hamburgers demanded by _______ per cent.
A) 1.00; decrease; 0.40
B) 2.50; increase; 2.50
C) 5.00; decrease; 5.00
D) 0.40; decrease; 0.40

Accepted Answer

The answer of 
-The above figure illustrates the demand for...

Question 19

The concept of elasticity of supply measures the responsiveness of the
A) quantity supplied to a change in the price.
B) quantity demanded to a change in the quantity supplied.
C) quantity supplied to a change in the quantity demanded.
D) price to a change in the quantity supplied.

Accepted Answer

The concept of elasticity of supply measures how much the quantity supplied of a good responds to a change in the price of that good. It is a measure of the sensitivity of the quantity supplied to changes in price.

Question 20

The income elasticity of demand for restaurant meals is 1.61. So,
A) if income increases by 16.1 per cent, the quantity demanded of restaurant meals will increase by 10 per cent.
B) if income increases by 10 per cent, the quantity demanded of restaurant meals will increase by 16.1 per cent.
C) restaurant meals are an income elastic normal good.
D) Both answers B and C are correct.

Accepted Answer

The income elasticity of demand measures how the quantity demanded of a good responds to a change in income. A value greater than 1, as in this case (1.61), indicates that the good is income elastic and a normal good, meaning demand increases more than proportionally as income increases. Therefore, if income increases by 10%, the demand for restaurant meals increases by 16.1% (10% * 1.61), making both B and C correct.

Quiz 4: Elasticity

The cross elasticity of demand between Coca- Cola and Pepsi- Cola is _ so that Coke and Pepsi are _.

As the price of mobile phones fell during the last decade, consumers' total expenditures on mobile phones increased. If the demand curve for mobile phones did not shift, this fact means that the demand for mobile phones

Deb's income has just risen from $950 per week to $1,050 per week. As a result, she decides to increase the number of movies she attends each month by 5 per cent. Her demand for movies is

Blue pens and black pens are close substitutes. The cross elasticity of demand for black pens with respect to the price of blue pens is

A decrease in the supply of sugar increases the price of sugar from $1.00 a packet to $1.25 a packet. The quantity demanded decreases from 100 packets a day to 80 packets a day. The price elasticity of demand for sugar is _______.

To maximise its revenue,

The price elasticity of demand for furniture is estimated at 1.3. This value means a one per cent increase in the

If the supply curve is vertical then supply is

-The elasticity of demand along the demand curve shown in the above figure is constant and equal to 1. Thus,

The price elasticity of demand for purses is measured in

The elasticity of supply equals _______ if the supply curve is vertical.

The income elasticity of demand is a measure of the responsiveness of the

-The figure shows the relationship between Moira's income and the quantity of macaroni that she demands. When income is less than $350 per month, macaroni

As time passes after a change in the price, the supply of a good or service

The price elasticity of demand is 5.0 if a 10 per cent increase in the price results in a _______ decrease in the quantity demanded.

If the price of a burger decreases by 5 per cent and as a result the quantity of burgers demanded increases by 8 per cent, the price elasticity of demand equals

If the demand for a good is elastic, the price elasticity of demand is

-The above figure illustrates the demand for hamburgers. When the price is $1 a hamburger, the elasticity of demand is ___ and a 1 per cent increase in the price will _ the quantity of hamburgers demanded by _____ per cent.

The concept of elasticity of supply measures the responsiveness of the

The income elasticity of demand for restaurant meals is 1.61. So,