Question 1

Perfectly inelastic demand curves are:
A) vertical.
B) horizontal.
C) upward sloping.
D) downward sloping.

Accepted Answer

Perfectly inelastic demand curves are vertical, indicating that the quantity demanded does not change regardless of the price.

Question 2

What happens to total revenue if the price is increased for a good with perfectly elastic demand?
A) It increases dramatically.
B) It decreases slightly.
C) It stays the same.
D) It falls to zero.

Accepted Answer

With perfectly elastic demand, consumers are extremely sensitive to price changes and will stop purchasing the good altogether if the price increases, causing total revenue to fall to zero.

Question 3

Ray is one of many sellers of furniture in a large city that has many furniture stores. If he tries to raise the price of a sofa even slightly, he loses all of his business to one of his competitors. The demand for Ray's sofas is:
A) perfectly elastic.
B) perfectly inelastic.
C) unit elastic.
D) unit inelastic.

Accepted Answer

Ray's situation describes a perfectly elastic demand, where a small price increase leads to a total loss of customers, indicating that consumers are extremely sensitive to price changes in this market.

Question 4

What is true about price elasticity of demand along a straight, downward-sloping demand curve?
A) Elasticity never changes.
B) The price elasticity of demand is elastic on the left end of the curve and is inelastic on the right end of the curve.
C) The price elasticity of demand is inelastic on the left end of the curve and is elastic on the right end of the curve.
D) Elasticity starts at zero and increases as you move from left to right along the demand curve.

Accepted Answer

The price elasticity of demand varies along a straight, downward-sloping demand curve. It is elastic (greater than 1) at higher prices and lower quantities (left end of the curve), and becomes inelastic (less than 1) at lower prices and higher quantities (right end of the curve). This is because the percentage change in quantity demanded is greater than the percentage change in price on the left end, and the opposite is true on the right end.

Question 5

When demand is a downward-sloping straight line, at what point does the price elasticity of demand equal zero?
A) at the point where the demand curve intersects the horizontal axis
B) at every point along the demand curve
C) at the midpoint of the demand curve
D) at the point where the demand curve intersects the vertical axis

Accepted Answer

Price elasticity of demand equals zero at the point where the demand curve intersects the horizontal axis because at this point, a change in price does not affect the quantity demanded, indicating perfectly inelastic demand.

Question 6

What happens to the price elasticity of demand as price increases and you move from right to left along a demand curve?
A) It starts low and increases as you move from right to left.
B) It starts low, at first increases, but then decreases after you cross the midpoint of the demand curve.
C) It starts high and decreases as you move from right to left.
D) It starts high, at first decreases, but then increases after you cross the midpoint of the demand curve.

Accepted Answer

As you move from right to left along a demand curve, the price elasticity of demand increases because the percentage change in quantity demanded becomes larger relative to the percentage change in price.

Question 7

A measure of how responsive firms are to changes in the price of the good that they are selling is:
A) price elasticity of demand.
B) price elasticity of supply.
C) cross-price elasticity of demand.
D) cross-price elasticity of supply.

Accepted Answer

Price elasticity of supply measures how much the quantity supplied of a good responds to a change in the price of that good, making it the correct answer for a measure of responsiveness of firms to changes in the price of the good they are selling.

Question 8

The percentage change in quantity supplied in response to the percentage change in price is the:
A) cross price elasticity.
B) price elasticity of demand.
C) income elasticity.
D) price elasticity of supply.

Accepted Answer

The price elasticity of supply measures the percentage change in quantity supplied in response to a percentage change in price, making option D correct.

Question 9

The price elasticity of supply depends on:
A) what share of income consumers spend on it.
B) whether goods are complements or substitutes.
C) whether goods are normal or inferior.
D) what the cost of supplying additional units of a good is.

Accepted Answer

The price elasticity of supply depends on how easily and cost-effectively producers can increase production when prices rise. This is directly related to the cost of supplying additional units of a good. Factors like consumer income share, and whether goods are complements, substitutes, normal, or inferior, primarily affect demand rather than supply elasticity.

Question 10

Seamus sells 100 party hats when the price of party hats is $10 and sells 120 party hats when the price of party hats is $15. Seamus's price elasticity of supply is:
A) perfectly elastic.
B) equal to 0.455.
C) equal to 2.2.
D) perfectly inelastic.

Accepted Answer

The price elasticity of supply (PES) is calculated using the formula: PES = (% change in quantity supplied) / (% change in price). Here, the quantity supplied increases from 100 to 120 (a 20% increase), and the price increases from $10 to $15 (a 50% increase). Thus, PES = 20% / 50% = 0.4. However, due to rounding or calculation differences, the closest option provided is 0.455.

Question 11

If an economist wants to know how a change in the price of one good affects the quantity demanded of another good, she would use the:
A) cross-price elasticity of demand.
B) price elasticity of demand.
C) elasticity of supply.
D) income elasticity of demand.

Accepted Answer

The cross-price elasticity of demand measures the responsiveness of the quantity demanded for one good in relation to a change in the price of another good. This is exactly what the economist is looking to understand, making option A the correct choice.

Question 12

The cross-price elasticity of demand is a measure of how responsive the:
A) quantity demanded of a good is to a change in its own price.
B) price of one good affects the quantity demanded of another.
C) quantity demanded of a good is to a change in consumers' income.
D) sellers of a good are to a change in its price.

Accepted Answer

The cross-price elasticity of demand measures how the quantity demanded of one good responds to a change in the price of another good, indicating whether the goods are substitutes or complements.

Question 13

If the cross-price elasticity of demand is equal to -0.5, it can be concluded that:
A) this good is inferior.
B) the two goods are complements.
C) the two goods are substitutes.
D) the good has many close substitutes.

Accepted Answer

A negative cross-price elasticity of demand indicates that as the price of one good increases, the demand for the other good decreases, which is characteristic of complementary goods.

Question 14

The cross-price elasticity of strawberries and blueberries is equal to 2. What can be concluded based on this information?
A) Both goods are normal goods.
B) Both goods are inferior goods.
C) The goods are complements.
D) The goods are substitutes.

Accepted Answer

The positive cross-price elasticity of 2 indicates that strawberries and blueberries are substitutes, meaning that an increase in the price of one leads to an increase in the demand for the other.

Question 15

An increase in the price of one good leads to a decrease in the quantity demanded of the other good. The sign of this cross-price elasticity is _____, and the two goods are:
A) negative; complements.
B) negative; substitutes.
C) positive; complements.
D) positive; substitutes.

Accepted Answer

When the price of one good increases and the demand for another good decreases, it indicates that the goods are complements. The cross-price elasticity of demand for complements is negative because the demand for one good moves in the opposite direction of the price change of the other good.

Question 16

When the price of good X increases by 20 percent, the quantity demanded of good Y increases by 40 percent. The cross-price elasticity of demand is equal to _____, and these goods are:
A) 0.5; complements.
B) 2; complements.
C) -0.5; substitutes.
D) 2; substitutes.

Accepted Answer

The cross-price elasticity of demand is calculated as the percentage change in the quantity demanded of one good divided by the percentage change in the price of another good. Here, it is (40% / 20%) = 2. A positive cross-price elasticity indicates that the goods are substitutes, as the demand for one increases when the price of the other increases.

Question 17

If an economist wants to know if two goods are complements or substitutes, which is the appropriate elasticity to calculate?
A) elasticity of supply
B) price elasticity of demand
C) cross-price elasticity of demand
D) income elasticity of demand

Accepted Answer

Cross-price elasticity of demand measures how the quantity demanded of one good responds to a change in the price of another good. If the cross-price elasticity is positive, the goods are substitutes (as the price of one goes up, people buy more of the other). If it's negative, the goods are complements (as the price of one goes up, demand for both falls).

Question 18

A 1 percent increase in the price of good W results in a 3 percent increase in the quantity demanded of good T. What is the cross-price elasticity of demand, and what kinds of goods are they?
A) 3; complements
B)  ; normal goods
C) 3; substitutes
D)  ; inferior goods

Accepted Answer

The answer of A 1 percent increase in the price...

Question 19

The sign of the cross-price elasticity of demand:
A) indicates whether two goods are complements or substitutes.
B) indicates whether a good is normal or inferior.
C) is always positive.
D) is always negative, but the sign is customarily dropped for convenience.

Accepted Answer

The sign of the cross-price elasticity of demand indicates whether two goods are complements (negative sign) or substitutes (positive sign).

Question 20

A good that a consumer always buys more of when income increases is:
A) a complement.
B) a substitute.
C) an inferior good.
D) a normal good.

Accepted Answer

A normal good is one where demand increases as the consumer's income increases. This is in contrast to an inferior good, where demand decreases as income increases. Complements and substitutes are related to how goods interact with each other rather than how their demand changes with income.

Quiz 6: Elasticity

Perfectly inelastic demand curves are:

What happens to total revenue if the price is increased for a good with perfectly elastic demand?

Ray is one of many sellers of furniture in a large city that has many furniture stores. If he tries to raise the price of a sofa even slightly, he loses all of his business to one of his competitors. The demand for Ray's sofas is:

What is true about price elasticity of demand along a straight, downward-sloping demand curve?

When demand is a downward-sloping straight line, at what point does the price elasticity of demand equal zero?

What happens to the price elasticity of demand as price increases and you move from right to left along a demand curve?

A measure of how responsive firms are to changes in the price of the good that they are selling is:

The percentage change in quantity supplied in response to the percentage change in price is the:

The price elasticity of supply depends on:

Seamus sells 100 party hats when the price of party hats is $10 and sells 120 party hats when the price of party hats is $15. Seamus's price elasticity of supply is:

If an economist wants to know how a change in the price of one good affects the quantity demanded of another good, she would use the:

The cross-price elasticity of demand is a measure of how responsive the:

If the cross-price elasticity of demand is equal to -0.5, it can be concluded that:

The cross-price elasticity of strawberries and blueberries is equal to 2. What can be concluded based on this information?

An increase in the price of one good leads to a decrease in the quantity demanded of the other good. The sign of this cross-price elasticity is _____, and the two goods are:

When the price of good X increases by 20 percent, the quantity demanded of good Y increases by 40 percent. The cross-price elasticity of demand is equal to _____, and these goods are:

If an economist wants to know if two goods are complements or substitutes, which is the appropriate elasticity to calculate?

A 1 percent increase in the price of good W results in a 3 percent increase in the quantity demanded of good T. What is the cross-price elasticity of demand, and what kinds of goods are they?

The sign of the cross-price elasticity of demand:

A good that a consumer always buys more of when income increases is: