Question 1

Demand is said to be inelastic if:

Accepted Answer

A)  the price of the good responds only slightly to changes in demand
B)  demand shifts only slightly when the price of the good changes
C)  buyers respond substantially to changes in the price of the good
D)  the quantity demanded changes only slightly when the price of the good changesE) A) and C)
F) C) and D)

Question 2

Coffee and tea are likely to have:

Accepted Answer

A)  a negative cross-price elasticity of demand because they are substitutes
B)  a negative cross-price elasticity of demand because they are complements
C)  a positive cross-price elasticity of demand because they are substitutes
D)  a positive cross-price elasticity of demand because they are complementsE) B) and D)
F) All of the above

Question 3

Graph 5-1  
-In Graph 5-1, the point on the demand curve labelled B represents the:

Accepted Answer

A)  inelastic section of the demand curve
B)  unit elastic section of the demand curve
C)  elastic section of the demand curve
D)  perfectly elastic section of the demand curveE) A) and C)
F) A) and D)

Question 4

Supply is said to be inelastic if the quantity supplied responds substantially to changes in the price and elastic if the quantity supplied responds only slightly to price.

Accepted Answer

A) True 
 B)False

Question 5

While an increase in total agricultural production may benefit farmers as a group, it will not benefit an individual farmer to increase his production.

Accepted Answer

A) True 
 B)False

Question 6

A policy reducing the supply of drugs will be less effective for reducing drug-use and drug-related crime than a policy which reduces the quantity demanded of drugs.

Accepted Answer

A) True 
 B)False

Question 7

The president of the university is concerned about increasing operating costs and decides to raise tuition fees in an attempt to increase university revenue.Do you think the rise in tuition fees will accomplish the president's goal?

Accepted Answer

Whether the increase in fees will cause ...

Question 8

The elasticity of demand for toasted muesli would increase if:

Accepted Answer

A)  there was an increase in complements for toasted muesli
B)  the definition of the toasted muesli market was made very broad
C)  toasted muesli was considered a luxury product
D)  the effect of a price rise was measured over a long period of timeE) A) and B)
F) A) and C)

Question 9

The development of a new, more productive hybrid wheat would tend to decrease the total revenue of wheat farmers because:

Accepted Answer

A)  the demand for wheat tends to be elastic
B)  the supply of wheat tends to be elastic
C)  the demand for wheat tends to be inelastic
D)  the supply of wheat tends to be inelasticE) A) and D)
F) A) and C)

Question 10

If the cross-price elasticity of demand is 1.25, then the two goods are:

Accepted Answer

A)  complements
B)  luxuries
C)  normal goods
D)  substitutesE) A) and C)
F) B) and D)

Question 11

The demand curve for a market may be different depending on how widely the market is defined.

Accepted Answer

A) True 
 B)False

Question 12

If sellers do NOT respond at all to a change in price:

Accepted Answer

A)  supply must be perfectly inelastic
B)  supply must be perfectly elastic
C)  a long period of time must have elapsed
D)  the rate of technological advancement must be greatE) A) and B)
F) A) and C)

Question 13

How does total revenue change as one moves down a linear demand curve?

Accepted Answer

A)  it increases
B)  it decreases
C)  it first increases, then decreases
D)  it is unaffected by a movement along the demand curveE) A) and D)
F) B) and D)

Question 14

List the following goods in order of increasing price elasticity of demand and explain why they are ranked that way: a first class ticket to your dream holiday destination, a two-day ferry cruise, a local bus ticket to work, hiring a sports car for a day.

Accepted Answer

In order of increasing price elasticity ...

Question 15

Which of the following would you expect to have the lowest income elasticity of demand?

Accepted Answer

A)  a dinner at an expensive restaurant
B)  a ticket to a music festival
C)  a mobile phone
D)  a private jetE) B) and D)
F) B) and C)

Question 16

What is the price elasticity of supply?

Accepted Answer

The price elasticity of supply measures ...

Question 17

If price changes and total revenue changes in the opposite direction, we can conclude that demand is relatively elastic.

Accepted Answer

A) True 
 B)False

Question 18

A person who likes to be on the sea in a boat would tend to have what type of demand for boats?

Accepted Answer

A)  elastic
B)  inelastic
C)  unit elastic
D)  weakE) A) and D)
F) B) and C)

Question 19

Suppose that an increase in the price of jumping castles from $650 to $850 prompts party shops to increase the quantity of these jumping castles that they offer from 80 to 320.Using the midpoint method, what would be the elasticity of supply?

Accepted Answer

A)  0.50
B)  0.24
C)  0.34
D)  1.08E) B) and C)
F) A) and B)

Question 20

Assume that a four per cent decrease in income results in a two per cent increase in the quantity demanded of a good.The income elasticity of demand for the good is:

Accepted Answer

A)  negative and therefore the good is an inferior good
B)  negative and therefore the good is a normal good
C)  positive and therefore the good is an inferior good
D)  positive and therefore the good is a normal goodE) All of the above
F) C) and D)

Exam 5: Elasticity and Its Application

Assume that a four per cent decrease in income results in a two per cent increase in the quantity demanded of a good.The income elasticity of demand for the good is:

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How does total revenue change as one moves down a linear demand curve?

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Demand is said to be inelastic if:

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A policy reducing the supply of drugs will be less effective for reducing drug-use and drug-related crime than a policy which reduces the quantity demanded of drugs.

Correct AnswerverifiedShow Answer

What is the price elasticity of supply?

Correct AnswerverifiedThe price elasticity of supply measures ...View AnswerShow Answer

If price changes and total revenue changes in the opposite direction, we can conclude that demand is relatively elastic.

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The elasticity of demand for toasted muesli would increase if:

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The demand curve for a market may be different depending on how widely the market is defined.

Correct AnswerverifiedShow Answer

List the following goods in order of increasing price elasticity of demand and explain why they are ranked that way: a first class ticket to your dream holiday destination, a two-day ferry cruise, a local bus ticket to work, hiring a sports car for a day.

Correct AnswerverifiedIn order of increasing price elasticity ...View AnswerShow Answer

Graph 5-1 -In Graph 5-1, the point on the demand curve labelled B represents the:

Correct AnswerverifiedShow Answer

Suppose that an increase in the price of jumping castles from $650 to $850 prompts party shops to increase the quantity of these jumping castles that they offer from 80 to 320.Using the midpoint method, what would be the elasticity of supply?

Correct AnswerverifiedShow Answer

A person who likes to be on the sea in a boat would tend to have what type of demand for boats?

Correct AnswerverifiedShow Answer

Supply is said to be inelastic if the quantity supplied responds substantially to changes in the price and elastic if the quantity supplied responds only slightly to price.

Correct AnswerverifiedShow Answer

If sellers do NOT respond at all to a change in price:

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Coffee and tea are likely to have:

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The president of the university is concerned about increasing operating costs and decides to raise tuition fees in an attempt to increase university revenue.Do you think the rise in tuition fees will accomplish the president's goal?

Correct AnswerverifiedWhether the increase in fees will cause ...View AnswerShow Answer

The development of a new, more productive hybrid wheat would tend to decrease the total revenue of wheat farmers because:

Correct AnswerverifiedShow Answer

While an increase in total agricultural production may benefit farmers as a group, it will not benefit an individual farmer to increase his production.

Correct AnswerverifiedShow Answer

Which of the following would you expect to have the lowest income elasticity of demand?

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If the cross-price elasticity of demand is 1.25, then the two goods are:

Correct AnswerverifiedShow Answer

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The price elasticity of supply measures ...
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In order of increasing price elasticity ...
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Whether the increase in fees will cause ...
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