econ 910 chapter 6

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1. The price elasticity of demand coefficient indicates:
A. buyer responsiveness to price changes.
B. the extent to which a demand curve shifts when incomes change.
C. the slope of the demand curve.
D. how far business executives can stretch their fixed costs.

A

2. The price of product X is reduced from $100 to $90 and, as a result, the quantity demanded increases from
50 to 60 units. From this we can conclude that the demand for X in this price range:
A. has declined.
B. is of unit elasticity.
C. is inelastic.
D. is elastic.

D

3. Suppose the price elasticity coefficients of demand are 1.43, 0.67, 1.11 and 0.29 for products W, X, Y and
Z respectively. A 1% decrease in price will result in an increase in total revenue in the case of:
A. W and Y.
B. Y and Z.
C. X and Z.
D. Z and W.

A

4. If the price elasticity of demand for a product is 2.5, then a price cut from $2.00 to $1.80 will:
A. increase the quantity demanded by 2.5%.
B. decrease the quantity demanded by 2.5%.
C. increase the quantity demanded by 25%.
D. do none of the above.

C

5. Suppose that, as the price of Y falls from $2.00 to $1.90, the demanded quantity of Y increases from 110 to
118. It can be concluded that the price elasticity of demand is:
A. 4.00.
B. 2.09.
C. 1.37.
D. 3.94.

C

6. A perfectly inelastic demand schedule:
A. rises upward and to the right, but has a constant slope.
B. can be represented by a line parallel to the vertical axis.
C. cannot be shown on a two-dimensional graph.
D. can be represented by a line parallel to the horizontal axis.

B

7. If the supply of product X is perfectly elastic, an increase in the demand for it will increase:
A. equilibrium quantity, but reduce equilibrium price.
B. equilibrium quantity, but equilibrium price will be unchanged.
C. equilibrium price, but reduce equilibrium quantity.
D. both equilibrium quantity and equilibrium price.

B

8. A given leftward shift in the supply curve of product X will increase equilibrium price to a greater extent the:
A. more elastic the supply curve.
B. larger the elasticity of demand coefficient.
C. more elastic the demand for the product.
D. more inelastic the demand for the product.
.

D

9. In which of the following instances will total revenue decline?
A. Price rises and supply is elastic.
B. Price falls and demand is elastic.
C. Price rises and supply is inelastic.
D. Price rises and demand is elastic.

D

10. In which of the following cases will total revenue increase?
A. Price falls and demand is inelastic.
B. Price falls and supply is elastic.
C. Price rises and demand is inelastic.
D. Price rises and demand is elastic

C

11. Price elasticity of demand is generally:
A. greater in the long run than in the short run.
B. greater in the short run than in the long run.
C. the same in both the short run and the long run.
D. greater for 'necessities' than it is for 'luxuries'.

A

12. The main determinant of elasticity of supply is the:
A. number of close substitutes for the product available to consumers.
B. amount of time the producer has to adjust inputs in response to a price change.
C. urgency of consumer wants for the product.
D. number of uses for the product.

B

13. Suppose the supply of product X is perfectly inelastic. If there is an increase in the demand for this product, equilibrium price:
A. will decrease, but equilibrium quantity will increase.
B. and quantity will both decrease.
C. will increase, but equilibrium quantity will decline.
D. will increase, but equilibrium quantity will be unchanged.

D

14. Suppose that the price of product X rises by 20%, and the quantity supplied of X increases by 18%. The
coefficient of price elasticity of supply for good X is:
A. negative and, therefore, X is an inferior good.
B. positive and, therefore, X is a normal good.
C. less than 1 and, therefore, supply is inelastic.
D. more than 1 and, therefore, supply is elastic.

C

15. Supply curves tend to be:
A.perfectly elastic in the long run, because consumer demand will have sufficient time to adjust fully to changes in supply.
B. more elastic in the long run, because there is time for firms to enter or leave the industry.
C. perfectly inelastic in the long run, because the law of scarcity imposes absolute limits upon production.
D. less elastic in the long run, because there is time for firms to enter or leave an industry.

B

16. The supply of Monet's paintings is:
A. perfectly elastic.
B. perfectly inelastic.
C. relatively elastic.
D. relatively inelastic.

B

17. Suppose the income elasticity of demand for toys is +2.00.This means that:
A. a 10% increase in income will increase the purchase of toys by 20%.
B. a 10% increase in income will increase the purchase of toys by 2%.
C. a 10% increase in income will decrease the purchase of toys by 2%.
D. toys are an inferior good.

A

18. If the income elasticity of demand for lard is -3.00, this means that:
A. lard is a substitute for butter.
B. lard is a normal good.
C. lard is an inferior good.
D. more lard will be purchased when its price falls.

C

19. The larger the positive cross elasticity coefficient of demand between products X and Y, the:
A. stronger their complementariness.
B. greater their substitutability.
C. smaller the price elasticity of demand for both products.
D. the less sensitive purchases of each are to increases in income.

B

20. The formula for cross price elasticity of demand is:
A. percentage change in quantity demanded of X / percentage change in price of X.
B. percentage change in quantity demanded of X / percentage change in income.
C. percentage change in quantity demanded of X / percentage change in price of Y.
D. percentage change in price of X / percentage change in quantity demanded of Y.

C

21. Cross elasticity of demand measures how sensitive purchases of a given product are to changes in:
A. the price of some other product.
B. the price of that same product.
C. income.
D. the general price level.

A

22. Suppose that a 20% increase in the price of normal good Y causes a 10% decline in the quantity demanded
of normal good X. The coefficient of cross elasticity of demand is:
A. negative, and therefore, these goods are substitutes.
B. negative, and therefore, these goods are complements.
C. positive, and therefore, these goods are substitutes.
D. positive, and therefore, these goods are complements.

B

23. Assume that a 4% increase in income in the economy produces a 5% increase in the quantity demanded of
good X. The coefficient of income elasticity of demand is:
A. negative and, therefore, X is an inferior good.
B. negative and, therefore, X is a normal good.
C. positive and, therefore, X is an inferior good.
D. positive and, therefore, X is a normal good.

D

24. Other things being the same, the shortage associated with a price ceiling will be greater, the:
A. smaller the elasticity of both demand and supply.
B. greater the elasticity of both demand and supply.
C. greater the elasticity of supply and the smaller the elasticity of demand.
D. greater the elasticity of demand and the smaller the elasticity of supply.

B

25. 'Black markets' are associated with:
A. price floors and the resulting product surpluses.
B. price floors and the resulting product shortages.
C. ceiling prices and the resulting product shortages.
D. ceiling prices and the resulting product surpluses.

C

26. Assume the demand for a product is perfectly inelastic. If government establishes a price floor which is $2 above the equilibrium price, the resulting:
A. shortage will be greater, the more elastic the supply.
B. shortage will be greater, the less elastic the supply.
C. surplus will be greater, the more elastic the supply.
D. surplus will be greater, the less elastic the supply.

C

27. If an effective legal ceiling is imposed upon credit card interest rates, we would expect:
A. such credit would be less readily available.
B. annual credit card fees would rise.
C. the product prices of retailers, who issue credit cards, to rise.
D. that all of the above might possibly occur.

D

28. Assume a supply which is perfectly inelastic. If a sales tax is introduced:
A. the consumer will pay all the sales tax.
B. the market price of the product will increase.
C. the market price of the product will decrease.
D. the producer will pay all the tax.

D

29. If a legal ceiling price is set above the equilibrium price:
A. a shortage of the product will occur.
B. a surplus of the product will occur.
C. a black market will evolve.
D. neither the equilibrium price nor the equilibrium quantity will be affected.

D

30. An effective price floor on wheat will:
A. force otherwise profitable farmers out of business.
B. result in a shortage of wheat.
C. result in a surplus of wheat.
D. clear the market for wheat.

C

31. A price floor in a competitive market will result in persistent shortages of a product.
A. True
B. False

...

32. A ceiling price in a competitive market will result in persistent surpluses of a product.
A. True
B. False

...

33. The smaller the number of good substitutes for a product, the greater will be the price elasticity of demand
for the product.
A. True
B. False

...

34. If price and total revenue are directly related, it can be concluded that demand is inelastic.
A. True
B. False

...

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

...

36. Quantity demanded per month Price Quantity supplied per month
30 $8 44
36 $7 38
42 $6 30
50 $5 20
Refer to the above demand and supply data. The demand for this product is elastic in the $8-$7 price range.
A. True
B. False
True False

...

37. Quantity demanded per month Price Quantity supplied per month
30 $8 44
36 $7 38
42 $6 30
50 $5 20
Refer to the above demand and supply data. The supply of this product is inelastic in the $6-$5 price range.
A. True
B. False

...

38. Cross elasticity of demand measures the effect of a change in the price of one product upon the quantity
demanded of another product.
A. True
B. False

...

39. Income elasticity measures the effect of a change in income upon the purchases of some good or service.
A. True
B. False

...

40. If the coefficient of income elasticity of demand is positive, the product is an inferior good.
A. True
B. False

...

41. Price elasticity over any range of a demand curve is measured by the slope of the demand curve over that range.
A. True
B. False

...

42. The price elasticity of demand measures how responsive:
A. buyers are to a change in income.
B. sellers are to a change in price.
C. buyers are to a change in price.
D. sellers are to a change in buyers' incomes.

C

43. Demand for a good would tend to be more inelastic the:
A. fewer the available substitutes.
B. longer the time period considered.
C. more the good is considered a luxury good.
D. more narrowly defined the market is.

A

44. There are very few, if any, good substitutes for motor oil. Therefore:
A. the supply of motor oil would tend to be price elastic.
B. the demand for motor oil would tend to be price elastic.
C. the demand for motor oil would tend to be price inelastic.
D. the demand for motor oil would tend to be income elastic.

C

45. Economists compute the price elasticity of demand as the:
A. percentage change in the price divided by the percentage change in quantity demanded.
B. change in quantity demanded divided by the change in the price.
C. percentage change in the quantity demanded divided by the percentage change in price.
D. percentage change in the quantity demanded divided by the percentage change in income.

C

46. Suppose there is a 6 per cent increase in the price of good X and a resulting 6per cent decrease in the quantity of X demanded. Price elasticity of demand for X is:
A. 1.
B. 6.
C. 0.
D. infinite.

A

47. The main reason for using the midpoints formula to calculate elasticity is that it:
A. gives the same answer regardless of the direction of change.
B. uses fewer numbers.
C. rounds prices to the nearest dollar.
D. rounds quantities to the nearest whole unit.

A

48. Demand is unit elastic if elasticity is:
A. less than 1.
B. greater than 1.
C. equal to 1.
D. equal to 0.

C

49. You produce jewellery boxes. If the demand for jewellery boxes is elastic and you want to increase your total revenue, you should:
A. increase the price of your jewellery boxes.
B. decrease the price of your jewellery boxes.
C. not change the price of your jewellery boxes.
D. None of the above answers are correct.

B

50. If the cross-price elasticity of demand is 1.25, then the two goods would be:
A. complements.
B. luxuries.
C. normal goods.
D. substitutes.

D

51. If the elasticity of supply is zero, then:
A. supply is very elastic.
B. the supply curve is horizontal.
C. the quantity supplied is the same regardless of price.
D.we are likely to be considering a long run situation, where producers have considerable time to adjust to
changes in demand.

C

52. If the elasticity of supply of a product is 2.5, we know that supply is:
A. inelastic.
B. elastic.
C. unit elastic.
D. perfectly inelastic.

B

53. Rent control is:
A. a common example of a price floor.
B. a common example of a price ceiling.
C. the most effective way to provide affordable housing.
D. the most efficient way to allocate housing.

B

54. When government imposes price ceilings and floors in a market:
A. price no longer serves as a rationing device.
B. efficiency in the market is increased.
C. shortages and surpluses are eliminated.
D. buyers and sellers are both better off.

A

55. Assume that the demand and supply curves for cars are elastic. If the government imposed a $500 sales tax on each car, we can assume that the:
A. equilibrium price of a car would increase by less than $500.
B. price of a car would increase by exactly $500.
C. price of a car would increase by more than $500.
D. price of a car would not change if both curves were elastic.

A

56. A tax placed on the seller of a good:
A. raises the price buyers pay and lowers the price sellers receive.
B. lowers the price buyers pay and raises the price sellers receive.
C. raises both the price buyers pay and the price sellers receive.
D. lowers both the price buyers pay and the price sellers receive.

A

57. A tax on the sellers of TVs:
A. causes the supply curve to shift to the right.
B. leads buyers to demand a smaller quantity at every price.
C. leads sellers to supply a larger quantity at every price.
D. leads sellers to supply a smaller quantity at every price.

D

58. A $2.00 tax placed on the sellers of mailboxes will shift the supply curve:
A. left (upward) by exactly $2.00.
B. left (upward) by less than $2.00.
C. right (downward) by exactly $2.00.
D. right (downward) by less than $2.00.

A

59. If a sales tax is imposed on a market with inelastic demand and elastic supply:
A. the burden of the tax will be shared equally between buyers and sellers.
B. sellers will bear most of the burden of the tax.
C. buyers will bear most of the burden of the tax.
D. it is impossible to determine how the burden of the tax will be shared.

C

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