Question 1

When demand and income move in the same direction,a good is said to be:
A) a normal good.
B) an inferior good.
C) a complementary good.
D) a substitute good.

Accepted Answer

A normal good is a type of good for which demand increases as income increases, and vice versa. This means that if income and demand are moving in the same direction, the good is a normal good.

Question 2

The price of stadium seats at a baseball game increases from $20 to $30 and ticket sales fall from 45,000 per game to 35,000 per game.If other things remained constant,then it appears that the price elasticity of demand is:
A) elastic.
B) inelastic.
C) unit elastic.
D) unit inelastic.
E) equal to zero.

Accepted Answer

The answer of The price of stadium seats at a...

Question 3

If a small change in price will lead to an infinite change in the quantity demanded,then the demand curve is:
A) horizontal.
B) vertical.
C) inclined.
D) non-linear

Accepted Answer

A horizontal demand curve represents a situation where a small change in price leads to an infinite change in the quantity demanded, indicating perfectly elastic demand.

Question 4

The price of a new electronic toy increases from $16 to $24 and the quantity demanded decreases from 1,050 to 950 per month as a result.Based on this information,the price elasticity of demand (in absolute terms)is estimated to be equal to:
A) 5.00
B) 4.00
C) 0.75
D) 0.25

Accepted Answer

The answer of The price of a new electronic toy...

Question 5

What type of demand curve is depicted by the graph below? 
A) perfectly inelastic
B) perfectly elastic
C) unit elastic
D) relatively inelastic

Accepted Answer

The answer of What type of demand curve is depicted...

Question 6

A price cut will decrease the total revenue a firm receives if the demand for its product is:
A) elastic.
B) inelastic.
C) unit elastic.
D) unit inelastic.

Accepted Answer

When demand is inelastic, a price cut will decrease total revenue because the percentage decrease in price is not offset by a sufficiently large percentage increase in quantity demanded.

Question 7

Exhibit 6-2 Refer to Exhibit 6-2.Elasticity varies along a linear demand curve.Graph A represents the section of the curve where: A) the curve is inelastic. B) E_d is < 1. C) starting at P₂, a decrease in price will lead to a decrease in total revenue. D) all of the above are correct.

Accepted Answer

The answer of Exhibit 6-2  Refer to Exhibit 6-2.Elasticity...

Question 8

When a product's price increases from $800 to $1,200,the quantity demanded decreases from 11,000 to 9,000.Based on this information,the price elasticity of demand (in absolute terms)is estimated to be equal to:
A) 0.5.
B) 2.0.
C) 0.25.
D) 4.0.

Accepted Answer

The answer of When a product's price increases from $800...

Question 9

A recent study at a liberal arts college concluded that demand elasticity is 0.91 for college courses.The administration is considering a tuition increase to help balance the budget.An economist might advise the school to:
A) decrease tuition in order to increase revenue by boosting enrollment.
B) increase tuition in order to increase revenue.
C) leave tuition unchanged as a change in tuition is unlikely to enhance the school's budget by increasing revenue.
D) decrease tuition because demand for courses is elastic.

Accepted Answer

The demand elasticity of 0.91 indicates that a tuition increase would lead to a decrease in enrollment, but not enough to fully offset the increase in tuition revenue. Therefore, increasing tuition would likely result in an overall net increase in revenue for the college.

Question 10

The price elasticity of demand coefficient for gourmet coffee is estimated to be equal to 1.6.It is expected,therefore,that a 5% increase in price would lead to:
A) a 16% decrease in the quantity of gourmet coffee demanded.
B) a 16% increase in the quantity of gourmet coffee demanded.
C) an 8% decrease in the quantity of gourmet coffee demanded.
D) an 8% increase in the quantity of gourmet coffee demanded.

Accepted Answer

The price elasticity of demand coefficient of 1.6 indicates that gourmet coffee is relatively elastic, which means that a 5% increase in price would lead to a greater than proportionate decrease in the quantity of gourmet coffee demanded. The formula for calculating the percentage change in quantity demanded given a percentage change in price is:

% Change in Quantity Demanded = Price Elasticity of Demand * % Change in Price

Substituting the given values yields:

% Change in Quantity Demanded = 1.6 * 5% = 8%

Therefore, a 5% increase in price is expected to lead to an 8% decrease in the quantity of gourmet coffee demanded. Answer choice C is the only one that matches this result.

Question 11

Exhibit 6-2  Refer to Exhibit 6-2.Along a linear demand curve,price elasticity of demand is:
A) constant.
B) more elastic to the northwest than to the southeast.
C) less elastic to the northwest than to the southeast.
D) always equal to one.
E) always equal to zero.

Accepted Answer

Along a linear demand curve, the price elasticity of demand varies along the curve. The demand is more elastic (i.e., more responsive to price change) towards the northwest of the demand curve and less elastic (i.e., less responsive to price change) towards the southeast of the demand curve. Therefore, option B is correct. The option A, C, D and E are incorrect.

Question 12

Exhibit 6-3  Refer to Exhibit 6-3.The graph that best illustrates a relatively inelastic (but not perfectly inelastic)demand curve is:
A)Graph A.
B)Graph B.
C)Graph C.
D)Graph D.

Accepted Answer

The answer of Exhibit 6-3  Refer to Exhibit 6-3.The...

Question 13

A price cut will increase the total revenue a firm receives if the demand for its product is:
A) elastic.
B) inelastic.
C) unit elastic.
D) unit inelastic.

Accepted Answer

If demand for the product is elastic, a price cut will lead to an increase in total revenue because the percentage increase in quantity demanded will be greater than the percentage decrease in price, resulting in a net positive effect on revenue. Inelastic and unit elastic demand would result in a decrease in total revenue with a price cut. Unit inelastic demand would have no effect on revenue with a price cut.

Question 14

The price of a new toy increases from $5 to $7 and the quantity demanded decreases from 12,000 to 6,000 per month as a result.Based on this information,the price elasticity of demand (in absolute terms)is estimated to be equal to:
A) 0.5, indicating relatively elastic demand.
B) 0.5, indicating relatively inelastic demand.
C) 2.0, indicating relatively elastic demand.
D) 2.0, indicating relatively inelastic demand.

Accepted Answer

The price elasticity of demand can be calculated using the formula: (% change in quantity demanded) / (% change in price). Plugging in the values, we get:

% change in quantity demanded = [(12000-6000)/12000] * 100 = 50%
% change in price = [(7-5)/5] * 100 = 40%

Using these values in the formula, we get:

Elasticity = 50% / 40% = 1.25

Since the elasticity value is greater than 1, it indicates relatively elastic demand. However, the question asks for the answer in absolute terms, so we select the closest choice, which is C (2.0).

Question 15

Which of the following is not a major determinant of the price elasticity of demand?
A) availability of close substitutes
B) proportion of income spent on the good
C) quantity of goods available
D) amount of time that has elapsed since the price change

Accepted Answer

The quantity of goods available is not a major determinant of price elasticity of demand. The other options, availability of close substitutes, proportion of income spent on the good, and amount of time that has elapsed since the price change, are major determinants of the price elasticity of demand.

Question 16

When a product's price increases from $9 to $11,the quantity demanded decreases from 1200 to 800.Based on this information,the price elasticity of demand (in absolute terms)is estimated to be equal to:
A) 0.5.
B) 2.0.
C) 0.25.
D) 4.0.

Accepted Answer

Price elasticity of demand = % change in quantity demanded / % change in price

% change in quantity = (new quantity - old quantity) / old quantity * 100
% change in price = (new price - old price) / old price * 100

Using the given values:

% change in quantity demanded = (800-1200)/1200 * 100 = -33.3%
% change in price = (11-9)/9 * 100 = 22.2%

Plugging in the values:

Price elasticity of demand = -33.3% / 22.2% = -1.5 (in absolute terms)

Since the value is greater than 1, the demand is elastic. Therefore, a 22.2% increase in price leads to a 33.3% decrease in quantity demanded.

The closest option is B) 2.0, which is the reciprocal of -1.5 in absolute terms.

Question 17

Exhibit 6-2 Refer to Exhibit 6-2.Elasticity varies along a linear demand curve.Graph B represents the section of the curve where: A) the curve is elastic. B) E_d is > 1. C) starting at P₁, an increase in price will lead to a decrease in total revenue. D) all of the above are correct.

Accepted Answer

The answer of Exhibit 6-2  Refer to Exhibit 6-2.Elasticity...

Question 18

The nation's largest cable TV company tested the effect of a price reduction for premium movie channels.It increased prices from $9.95 to $12 and found virtually no change in the number of customers.This means:
A) the demand curve for the premium movie channels shifted to the right.
B) the supply curve for premium movie channels shifted to the left.
C) the demand for premium movie channels is very elastic in this price range.
D) the demand for premium movie channels is very inelastic in this price range.

Accepted Answer

Since there was virtually no change in the number of customers despite a price increase from $9.95 to $12, this implies that the demand for premium movie channels is very inelastic in this price range, meaning that customers are willing to pay higher prices for the product, which results in no significant change in the quantity demanded. Therefore, option D is the best choice.

Question 19

Exhibit 6-3  Refer to Exhibit 6-3.The graph that best illustrates a perfectly elastic demand curve is
A)Graph A.
B)Graph B.
C)Graph C.
D)Graph D.

Accepted Answer

The answer of Exhibit 6-3  Refer to Exhibit 6-3.The...

Question 20

Exhibit 6-3  Refer to Exhibit 6-3.The graph that best illustrates a perfectly inelastic demand curve is:
A)Graph A.
B)Graph B.
C)Graph C.
D)Graph D.

Accepted Answer

The answer of Exhibit 6-3  Refer to Exhibit 6-3.The...

Quiz 6: Elasticities

When demand and income move in the same direction,a good is said to be:

The price of stadium seats at a baseball game increases from $20 to $30 and ticket sales fall from 45,000 per game to 35,000 per game.If other things remained constant,then it appears that the price elasticity of demand is:

If a small change in price will lead to an infinite change in the quantity demanded,then the demand curve is:

The price of a new electronic toy increases from $16 to $24 and the quantity demanded decreases from 1,050 to 950 per month as a result.Based on this information,the price elasticity of demand (in absolute terms) is estimated to be equal to:

What type of demand curve is depicted by the graph below?

A price cut will decrease the total revenue a firm receives if the demand for its product is:

Exhibit 6-2 Refer to Exhibit 6-2.Elasticity varies along a linear demand curve.Graph A represents the section of the curve where:

When a product's price increases from $800 to $1,200,the quantity demanded decreases from 11,000 to 9,000.Based on this information,the price elasticity of demand (in absolute terms) is estimated to be equal to:

A recent study at a liberal arts college concluded that demand elasticity is 0.91 for college courses.The administration is considering a tuition increase to help balance the budget.An economist might advise the school to:

The price elasticity of demand coefficient for gourmet coffee is estimated to be equal to 1.6.It is expected,therefore,that a 5% increase in price would lead to:

Exhibit 6-2 Refer to Exhibit 6-2.Along a linear demand curve,price elasticity of demand is:

Exhibit 6-3 Refer to Exhibit 6-3.The graph that best illustrates a relatively inelastic (but not perfectly inelastic) demand curve is:

A price cut will increase the total revenue a firm receives if the demand for its product is:

The price of a new toy increases from $5 to $7 and the quantity demanded decreases from 12,000 to 6,000 per month as a result.Based on this information,the price elasticity of demand (in absolute terms) is estimated to be equal to:

Which of the following is not a major determinant of the price elasticity of demand?

When a product's price increases from $9 to $11,the quantity demanded decreases from 1200 to 800.Based on this information,the price elasticity of demand (in absolute terms) is estimated to be equal to:

Exhibit 6-2 Refer to Exhibit 6-2.Elasticity varies along a linear demand curve.Graph B represents the section of the curve where:

The nation's largest cable TV company tested the effect of a price reduction for premium movie channels.It increased prices from $9.95 to $12 and found virtually no change in the number of customers.This means:

Exhibit 6-3 Refer to Exhibit 6-3.The graph that best illustrates a perfectly elastic demand curve is

Exhibit 6-3 Refer to Exhibit 6-3.The graph that best illustrates a perfectly inelastic demand curve is: