Question 1

If two goods are substitutes,their cross-price elasticity will be

Accepted Answer

A)   positive.
B)   negative.
C)   zero.
D)   equal to the difference between the income elasticities of demand for the two goods.E) All of the above
F) B) and D)

Question 2

The flatter the demand curve through a given point,the

Accepted Answer

A)   greater the price elasticity of demand at that point.
B)   smaller the price elasticity of demand at that point.
C)   closer the price elasticity of demand will be to the slope of the curve.
D)   greater the absolute value of the change in total revenue when there is a movement from that point upward and to the left along the demand curve.E) A) and B)
F) A) and C)

Question 3

If we observe that when the price of ice cream rises by 10%,ice cream manufacturers increase the quantity supplied of ice cream by 20%,then the price elasticity of supply is 2.

Accepted Answer

A) True 
 B)False

Question 4

Sandra purchases 5 pounds of coffee and 10 gallons of milk per month when the price of coffee is $10 per pound.She purchases 6 pounds of coffee and 12 gallons of milk per month when the price of coffee is $8 per pound.Sandra's cross-price elasticity of demand for coffee and milk is

Accepted Answer

A)   0.82,and they are substitutes.
B)   -0.82,and they are complements.
C)   1.22,and they are substitutes.
D)   -1.22,and they are complements.E) A) and D)
F) A) and C)

Question 5

Figure 5-14 
-Refer to Figure 5-14.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) B) and C)
F) None of the above

Question 6

A manufacturer produces 1,000 units,regardless of the market price.For this firm,the price elasticity of supply is

Accepted Answer

A)   infinity.
B)   zero.
C)   one.
D)   negative one.E) B) and D)
F) A) and B)

Question 7

For which of the following goods is the income elasticity of demand likely lowest?

Accepted Answer

A)   subscriptions to premium movie channels through the local cable television provider
B)   hi-definition DVD players
C)   champagne
D)   housingE) B) and C)
F) A) and D)

Question 8

If two goods are complements,their cross-price elasticity will be

Accepted Answer

A)   positive.
B)   negative.
C)   zero.
D)   equal to the difference between the income elasticities of demand for the two goods.E) C) and D)
F) All of the above

Question 9

How does total revenue change as one moves downward and to the right along a linear demand curve?

Accepted Answer

A)   It always increases.
B)   It always decreases.
C)   It first increases,then decreases.
D)   It is unaffected by a movement along the demand curve.E) A) and B)
F) None of the above

Question 10

You have just been hired as a business consultant to determine what pricing policy would be appropriate in order to increase the total revenue of a bakery.The first step you would take would be to

Accepted Answer

A)   increase the price of every loaf of bread in the store.
B)   look for ways to cut costs and increase profit for the bakery.
C)   determine the price elasticity of demand for the bakery's products.
D)   determine the price elasticity of supply for the bakery's products.E) B) and C)
F) A) and D)

Question 11

The cross-price elasticity of demand for bacon and eggs likely would be negative because bacon and eggs are complements for many people.

Accepted Answer

A) True 
 B)False

Question 12

Assume that a 4 percent decrease in income results in a 6 percent increase in the quantity demanded of a good.The income elasticity of demand for the good is

Accepted Answer

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

Question 13

For a particular good,a 5 percent increase in price causes a 15 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 broadly defined.
D)   The relevant time horizon is short.E) None of the above
F) All of the above

Question 14

Suppose good X has a positive income elasticity of demand.This implies that good X could be (i) 
A normal good.
(ii) 
A necessity.
(iii) 
An inferior good.
(iv) 
A luxury.

Accepted Answer

A)   (i) only
B)   (i) and (ii) only
C)   (i) , (ii) ,and (iv) only
D)   (iii) onlyE) A) and B)
F) A) and C)

Question 15

Suppose that quantity demand rises by 10% as a result of a 15% decrease in price.The price elasticity of demand for this good is

Accepted Answer

A)   inelastic and equal to 0.67.
B)   elastic and equal to 0.67.
C)   inelastic and equal to 1.50.
D)   elastic and equal to 1.50.E) None of the above
F) All of the above

Question 16

A bakery would be willing to supply 500 donuts per day at a price of $0.50 each.At a price of $0.80,the bakery would be willing to supply 1,100 donuts.Using the midpoint method,the price elasticity of supply for donuts is about

Accepted Answer

A)   0.62,and supply is elastic.
B)   0.62,and supply is inelastic.
C)   1.63,and supply is elastic.
D)   1.63,and supply is inelastic.E) B) and C)
F) A) and D)

Question 17

For a good that is a necessity,

Accepted Answer

A)   quantity demanded tends to respond substantially to a change in price.
B)   demand tends to be inelastic.
C)   the law of demand does not apply.
D)   All of the above are correct.E) A) and B)
F) None of the above

Question 18

Figure 5-18 
-Refer to Figure 5-18.Which supply curve is most likely relevant over a very long period of time?

Accepted Answer

A)   S1
B)   S2
C)   S3
D)   All of the above are equally likely to be relevant over a very long period of time.E) B) and C)
F) A) and B)

Question 19

When a supply curve is relatively flat,the

Accepted Answer

A)   sellers are not at all responsive to a change in price.
B)   equilibrium price changes substantially when the demand for the good changes.
C)   supply is relatively elastic.
D)   supply is relatively inelastic.E) B) and D)
F) A) and D)

Question 20

If the cross-price elasticity of demand between two goods is positive,are the goods complements or substitutes?

Accepted Answer

The goods ...

Exam 5: Elasticity and Its Application

If two goods are substitutes,their cross-price elasticity will be

Correct AnswerverifiedShow Answer

You have just been hired as a business consultant to determine what pricing policy would be appropriate in order to increase the total revenue of a bakery.The first step you would take would be to

Correct AnswerverifiedShow Answer

If we observe that when the price of ice cream rises by 10%,ice cream manufacturers increase the quantity supplied of ice cream by 20%,then the price elasticity of supply is 2.

Correct AnswerverifiedShow Answer

A manufacturer produces 1,000 units,regardless of the market price.For this firm,the price elasticity of supply is

Correct AnswerverifiedShow Answer

Figure 5-18 -Refer to Figure 5-18.Which supply curve is most likely relevant over a very long period of time?

Correct AnswerverifiedShow Answer

When a supply curve is relatively flat,the

Correct AnswerverifiedShow Answer

A bakery would be willing to supply 500 donuts per day at a price of $0.50 each.At a price of $0.80,the bakery would be willing to supply 1,100 donuts.Using the midpoint method,the price elasticity of supply for donuts is about

Correct AnswerverifiedShow Answer

For which of the following goods is the income elasticity of demand likely lowest?

Correct AnswerverifiedShow Answer

The cross-price elasticity of demand for bacon and eggs likely would be negative because bacon and eggs are complements for many people.

Correct AnswerverifiedShow Answer

Suppose that quantity demand rises by 10% as a result of a 15% decrease in price.The price elasticity of demand for this good is

Correct AnswerverifiedShow Answer

How does total revenue change as one moves downward and to the right along a linear demand curve?

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Figure 5-14 -Refer to Figure 5-14.Using the midpoint method,what is the price elasticity of supply between points B and C?

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For a good that is a necessity,

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Sandra purchases 5 pounds of coffee and 10 gallons of milk per month when the price of coffee is $10 per pound.She purchases 6 pounds of coffee and 12 gallons of milk per month when the price of coffee is $8 per pound.Sandra's cross-price elasticity of demand for coffee and milk is

Correct AnswerverifiedShow Answer

Suppose good X has a positive income elasticity of demand.This implies that good X could be (i) A normal good. (ii) A necessity. (iii) An inferior good. (iv) A luxury.

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The flatter the demand curve through a given point,the

Correct AnswerverifiedShow Answer

For a particular good,a 5 percent increase in price causes a 15 percent decrease in quantity demanded.Which of the following statements is most likely applicable to this good?

Correct AnswerverifiedShow Answer

Assume that a 4 percent decrease in income results in a 6 percent increase in the quantity demanded of a good.The income elasticity of demand for the good is

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If the cross-price elasticity of demand between two goods is positive,are the goods complements or substitutes?

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If two goods are complements,their cross-price elasticity will be

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The goods ...
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