Question 1

Cross-price elasticity of demand measures how the quantity demanded of one good changes as the price of another good changes.

Accepted Answer

A) True 
 B)False  True

Question 2

Why is supply more likely to be inelastic in the short run especially during strong periods of economic growth?

Accepted Answer

Most businesses, in the short run, will ...

Question 3

The income elasticity of demand for luxury items, such as diamonds, tends to be large (greater than 1).

Accepted Answer

A) True 
 B)False  True

Question 4

In the market for oil in the short run, demand

Accepted Answer

A)   and supply are both elastic.
B)   and supply are both inelastic.
C)   is elastic and supply is inelastic.
D)   is inelastic and supply is elastic.E) B) and C)
F) None of the above

Question 5

The price elasticity of demand is defined as the percentage change in quantity demanded divided by the percentage change in price.

Accepted Answer

A) True 
 B)False

Question 6

The midpoint method is used to compute elasticity because it

Accepted Answer

A)   automatically computes a positive number instead of a negative number.
B)   results in an elasticity that is the same as the slope of the demand curve.
C)   gives the same answer regardless of the direction of change.
D)   automatically rounds quantities to the nearest whole unit.E) A) and B)
F) A) and D)

Question 7

If demand is elastic, how will an increase in price change total revenue?

Accepted Answer

If demand is price elastic, an increase ...

Question 8

Economists have observed that spending on restaurant meals declines more during economic downturns than does spending on food to be eaten at home. How might the concept of elasticities help explain this.

Accepted Answer

To explain the fact that spending on res...

Question 9

Suppose that at a price of R300 per month, there are 300 000 subscribers to a television service in Small Town. If Small Town Television raises its price to R400 per month, the number of subscribers will fall to 200 000. At which of the following prices does Small Town Television earn the greatest total revenue?

Accepted Answer

A)   R0 per month
B)   R300 per month
C)   R400 per month
D)   Either R300 or R400 per month because the price elasticity of demand is 1.0.E) A) and D)
F) None of the above

Question 10

Consider the following pairs of goods. For which of the two goods would you expect the demand to be more price elastic? Why?
a. Water or diamonds.
b. Insulin or nasal decongestant spray.
c. Food in general or breakfast cereal.
d. Petrol over the course of a week or petrol over the course of a year.

Accepted Answer

a. Diamonds are luxuries, and water is a...

Question 11

In general, a steeper supply curve is more likely to be

Accepted Answer

A)   price elastic.
B)   perfectly inelastic.
C)   unit price elastic.
D)   price inelastic.E) All of the above
F) A) and D)

Question 12

In general, demand curves for luxuries tend to be price elastic.

Accepted Answer

A) True 
 B)False

Question 13

Suppose that quantity demand falls by 30% as a result of a 5% increase in price. The price elasticity of demand for this good is

Accepted Answer

A)   inelastic and equal to 6.
B)   elastic and equal to 6.
C)   inelastic and equal to 0.17.
D)   elastic and equal to 0.17.E) All of the above
F) C) and D)

Question 14

A decrease in supply will cause the smallest increase in price when

Accepted Answer

A)   both supply and demand are inelastic.
B)   demand is elastic and supply is inelastic.
C)   both supply and demand are elastic.
D)   demand is inelastic and supply is elastic.E) A) and D)
F) B) and C)

Question 15

Total revenue

Accepted Answer

A)   always increases as price increases.
B)   increases as price increases, as long as demand is elastic.
C)   decreases as price increases, as long as demand is inelastic.
D)   remains unchanged as price increases when demand is unit elastic.E) All of the above
F) B) and C)

Question 16

If an increase in income results in a decrease in the quantity demanded of a good, then for that good, the

Accepted Answer

A)   cross-price elasticity of demand is negative.
B)   price elasticity of demand is elastic.
C)   income elasticity of demand is negative.
D)   income elasticity of demand is positive.E) B) and C)
F) A) and D)

Question 17

If price elasticity of demand for a good is 2.0, this implies that consumers would

Accepted Answer

A)   buy twice as much of the good if price falls by 10 per cent.
B)   require a 2 per cent cut in price to raise quantity demanded of the good by 1 per cent.
C)   buy 2 per cent more of the good in response to a 1 per cent cut in price.
D)   require at least a R2 increase in price before showing any response to the price increase.E) C) and D)
F) A) and C)

Question 18

If supply is price inelastic, the value of the price elasticity of supply must be

Accepted Answer

A)   infinite.
B)   zero.
C)   less than 1.
D)   unity.
E)   greater than 1.F) D) and E)
G) A) and D)

Question 19

If demand is linear (a straight line) , then price elasticity of demand is

Accepted Answer

A)   elastic in the upper portion and inelastic in the lower portion.
B)   inelastic in the upper portion and elastic in the lower portion.
C)   inelastic throughout.
D)   constant along the demand curve.
E)   elastic throughout.F) A) and B)
G) None of the above A

Question 20

Suppose that the price elasticity of supply of lawn mowers is 1.5. If the price of lawn mowers rises 5 per cent, the quantity supplied of lawn mowers would

Accepted Answer

A)   decline 7.5 per cent.
B)   rise 7.5 per cent.
C)   rise 1.5 per cent.
D)   rise 0.3 per cent.E) A) and B)
F) A) and C)

Exam 4: Elasticity and Its Applications

Cross-price elasticity of demand measures how the quantity demanded of one good changes as the price of another good changes.

Correct Answer
verified
True

Why is supply more likely to be inelastic in the short run especially during strong periods of economic growth?

Correct Answer
verified
Most businesses, in the short run, will ...
View Answer

The income elasticity of demand for luxury items, such as diamonds, tends to be large (greater than 1).

Correct Answer
verified
True

In the market for oil in the short run, demand

Correct Answer
verified

The price elasticity of demand is defined as the percentage change in quantity demanded divided by the percentage change in price.

Correct Answer
verified

The midpoint method is used to compute elasticity because it

Correct Answer
verified

If demand is elastic, how will an increase in price change total revenue?

Correct Answer
verified
If demand is price elastic, an increase ...
View Answer

Economists have observed that spending on restaurant meals declines more during economic downturns than does spending on food to be eaten at home. How might the concept of elasticities help explain this.

Correct Answer
verified
To explain the fact that spending on res...
View Answer

Correct Answer
verified

Consider the following pairs of goods. For which of the two goods would you expect the demand to be more price elastic? Why? a. Water or diamonds. b. Insulin or nasal decongestant spray. c. Food in general or breakfast cereal. d. Petrol over the course of a week or petrol over the course of a year.

Correct Answer
verified
a. Diamonds are luxuries, and water is a...
View Answer

In general, a steeper supply curve is more likely to be

Correct Answer
verified

In general, demand curves for luxuries tend to be price elastic.

Correct Answer
verified

Suppose that quantity demand falls by 30% as a result of a 5% increase in price. The price elasticity of demand for this good is

Correct Answer
verified

A decrease in supply will cause the smallest increase in price when

Correct Answer
verified

Total revenue

Correct Answer
verified

If an increase in income results in a decrease in the quantity demanded of a good, then for that good, the

Correct Answer
verified

If price elasticity of demand for a good is 2.0, this implies that consumers would

Correct Answer
verified

If supply is price inelastic, the value of the price elasticity of supply must be

Correct Answer
verified

If demand is linear (a straight line) , then price elasticity of demand is

Correct Answer
verified
A

Suppose that the price elasticity of supply of lawn mowers is 1.5. If the price of lawn mowers rises 5 per cent, the quantity supplied of lawn mowers would

Correct Answer
verified

Exam 4: Elasticity and Its Applications

Cross-price elasticity of demand measures how the quantity demanded of one good changes as the price of another good changes.

Correct AnswerverifiedTrue

Why is supply more likely to be inelastic in the short run especially during strong periods of economic growth?

Correct AnswerverifiedMost businesses, in the short run, will ...View AnswerShow Answer

The income elasticity of demand for luxury items, such as diamonds, tends to be large (greater than 1).

Correct AnswerverifiedTrue

In the market for oil in the short run, demand

Correct AnswerverifiedShow Answer

The price elasticity of demand is defined as the percentage change in quantity demanded divided by the percentage change in price.

Correct AnswerverifiedShow Answer

The midpoint method is used to compute elasticity because it

Correct AnswerverifiedShow Answer

If demand is elastic, how will an increase in price change total revenue?

Correct AnswerverifiedIf demand is price elastic, an increase ...View AnswerShow Answer

Economists have observed that spending on restaurant meals declines more during economic downturns than does spending on food to be eaten at home. How might the concept of elasticities help explain this.

Correct AnswerverifiedTo explain the fact that spending on res...View AnswerShow Answer

Correct AnswerverifiedShow Answer

Consider the following pairs of goods. For which of the two goods would you expect the demand to be more price elastic? Why? a. Water or diamonds. b. Insulin or nasal decongestant spray. c. Food in general or breakfast cereal. d. Petrol over the course of a week or petrol over the course of a year.

Correct Answerverifieda. Diamonds are luxuries, and water is a...View AnswerShow Answer

In general, a steeper supply curve is more likely to be

Correct AnswerverifiedShow Answer

In general, demand curves for luxuries tend to be price elastic.

Correct AnswerverifiedShow Answer

Suppose that quantity demand falls by 30% as a result of a 5% increase in price. The price elasticity of demand for this good is

Correct AnswerverifiedShow Answer

A decrease in supply will cause the smallest increase in price when

Correct AnswerverifiedShow Answer

Total revenue

Correct AnswerverifiedShow Answer

If an increase in income results in a decrease in the quantity demanded of a good, then for that good, the

Correct AnswerverifiedShow Answer

If price elasticity of demand for a good is 2.0, this implies that consumers would

Correct AnswerverifiedShow Answer

If supply is price inelastic, the value of the price elasticity of supply must be

Correct AnswerverifiedShow Answer

If demand is linear (a straight line) , then price elasticity of demand is

Correct AnswerverifiedA

Suppose that the price elasticity of supply of lawn mowers is 1.5. If the price of lawn mowers rises 5 per cent, the quantity supplied of lawn mowers would

Correct AnswerverifiedShow Answer

Correct Answer
verified
True

Correct Answer
verified
Most businesses, in the short run, will ...
View Answer

Correct Answer
verified
True

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
If demand is price elastic, an increase ...
View Answer

Correct Answer
verified
To explain the fact that spending on res...
View Answer

Correct Answer
verified

Correct Answer
verified
a. Diamonds are luxuries, and water is a...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
A

Correct Answer
verified