ECON chpt 3 practice test

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

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

A

The basic formula for the price elasticity of demand coefficient is:
A. absolute decline in quantity demanded/absolute increase in price.
B. percentage change in quantity demanded/percentage change in price.
C. absolute decline in price/absolute increase in quantity demanded.
D. percentage change in price/percentage change in quantity demanded.

B

The demand for a product is inelastic with respect to price if:
A. consumers are largely unresponsive to a per unit price change.
B. the elasticity coefficient is greater than 1.
C. a drop in price is accompanied by a decrease in the quantity demanded.
D. a drop in price is accompanied by an increase in the quantity demanded.

A

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 about 2.5 percent.
B. decrease the quantity demanded by about 2.5 percent.
C. increase the quantity demanded by about 25 percent.
D. increase the quantity demanded by about 250 percent.

C

Suppose that as the price of Y falls from $2.00 to $1.90 the quantity of Y demanded increases from 110 to 118. Then the price elasticity of demand is:
A) 4.00. B) 2.09. C) 1.37. D) 3.94.

c

Which of the following is not characteristic of the demand for a commodity that is elastic?
A. The relative change in quantity demanded is greater than the relative change in price.
B. Buyers are relatively sensitive to price changes.
C. Total revenue declines if price is increased.
D. The elasticity coefficient is less than one.

D

If the demand for product X is inelastic, a 4 percent increase in the price of X will:
A. decrease the quantity of X demanded by more than 4 percent.
B. decrease the quantity of X demanded by less than 4 percent.
C. increase the quantity of X demanded by more than 4 percent.
D. increase the quantity of X demanded by less than 4 percent.

B

If a firm can sell 3,000 units of product A at $10 per unit and 5,000 at $8, then:
A) the price elasticity of demand is 0.44.
C) the price elasticity of demand is 2.25.
B) A is a complementary good.
D) A is an inferior good.

c

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

The larger the coefficient of price elasticity of demand for a product, the:
A. larger the resulting price change for an increase in supply.
B. more rapid the rate at which the marginal utility of that product diminishes.
C. less competitive will be the industry supplying that product.
D. smaller the resulting price change for an increase in supply.

d

Most demand curves are relatively elastic in the upper-left portion because the original price:
A .and quantity from which the percentage changes in price and quantity are calculated are both large.
B. and quantity from which the percentage changes in price and quantity are calculated are both small.
C. from which the percentage price change is calculated is small and the original quantity from which the percentage change in quantity is calculated is large.
D. from which the percentage price change is calculated is large and the original quantity from which the percentage change in quantity is calculated is small.

d

The price elasticity of demand for widgets is 0.80. Assuming no change in the demand curve for widgets, a 16 percent increase in sales implies a:
A) 1 percent reduction in price.
C) 40 percent reduction in price.
B) 12 percent reduction in price.
D) 20 percent reduction in price.

D

Suppose Aiyanna's pizzeria currently faces a linear demand curve and is charging a very high price per pizza and doing very little business. Aiyanna now decides to lower pizza prices by 5 percent per week for an indefinite period of time. We can expect that each successive week:
A. demand will become more price elastic.
B. price elasticity of demand will not change as price is lowered.
C. demand will become less price elastic.
D. the elasticity of supply will increase.

C

The price elasticity of demand of a straight-line demand curve is:
A. elastic in high-price ranges and inelastic on low-price ranges.
B. elastic, but does not change at various points on the curve.
C. inelastic, but does not change at various points on the curve.
D. 1 at all points on the curve.

A

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

d

If the demand for bacon is relatively elastic, a 10 percent decline in the price of bacon will:
A. decrease the amount demanded by more than 10 percent.
B. increase the amount demanded by more than 10 percent.
C. decrease the amount demanded by less than 10 percent.
D. increase the amount demanded by less than 10 percent.

b

The price elasticity of demand is:
A. negative, but the minus sign is ignored.
B. positive, but the plus sign is ignored.
C. positive for normal goods and negative for inferior goods.
D. positive because price and quantity demanded are inversely related.

a

For a linear demand curve:
A) elasticity is constant along the curve. C) demand is elastic at low prices.
B) elasticity is unity at every point on the curve.
D) demand is elastic at high prices.

d

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

d

Suppose we find that the price elasticity of demand for a product is 3.5 when its price is increased by 2 percent. We can conclude that quantity demanded:
A) increased by 7 percent. C) decreased by 9 percent.
B) decreased by 7 percent. D) decreased by 12 percent.

b

The price elasticity of demand for beef is about 0.60. Other things equal, this means that a 20 percent increase in the price of beef will cause the quantity of beef demanded to:
A) increase by approximately 12 percent. C) decrease by approximately 32 percent.
B) decrease by approximately 12 percent. D) decrease by approximately 26 percent.

b

The elasticity of demand:
A. is infinitely large for a perfectly inelastic demand curve.
B. tends to be inelastic in high-price ranges and elastic in low-price ranges.
C. tends to be elastic in high-price ranges and inelastic in low-price ranges.
D. is the same at each price-quantity combination on a stable demand curve.

C

If a demand for a product is elastic, the value of the price elasticity coefficient is:
A) zero.
B) greater than one.
C) equal to one.
D) less than one.

b

The concept of price elasticity of demand measures:
A. the slope of the demand curve.
B. the number of buyers in a market.
C. the extent to which the demand curve shifts as the result of a price decline.
D. the sensitivity of consumer purchases to price changes.

d

Suppose the price of local cable TV service increased from $16.20 to $19.80 and as a result the number of cable subscribers decreased from 224,000 to 176,000. Along this portion of the demand curve, price elasticity of demand is:
A. 0.8. B) 1.2. C) 1.6. D) 8.0

b

If the price of hand calculators falls from $10 to $9 and, as a result, the quantity demanded increases from 100 to 125, then:
a. demand is elastic.
b. demand is inelastic.
c. demand is of unit elasticity.
d. not enough information is given to make a statement about elasticity.

a

A perfectly inelastic demand curve:
d. has a price elasticity coefficient greater than unity.
a. has a price elasticity coefficient of unity throughout.
b. graphs as a line parallel to the vertical axis.
c. graphs as a line parallel to the horizontal axis.

b

Moving upward on a downward-sloping straight-line demand curve, we find that price elasticity:
A) is constant.
C) decreases continuously.
B) increases continuously.
D) may either increase or decrease.

b

If the price elasticity of demand for gasoline is 0.20:
A the demand for gasoline is linear.
B. a rise in the price of gasoline will reduce total revenue.
C. a 10 percent rise in the price of gasoline will decrease the amount purchased by 2 percent.
D. a 10 percent fall in the price of gasoline will increase the amount purchased by 20 percent.

c

In which price range of the accompanying demand schedule is demand elastic?


A) $4-$3 B) $3-$2 C) $2-$1
D) below $1

a

When the percentage change in price is greater than the resulting percentage change in quantity demanded:
A) a decrease in price will increase total revenue.
C) an increase in price will increase total revenue.
B) demand may be either elastic or inelastic.
D) demand is elastic.

c

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 percent decrease in price will increase total revenue in the case(s) of:
A) W and Y.
B) Y and Z.
C) X and Z.
D) Z and W.

a

Which of the following statements is not correct?
A. If the relative change in price is greater than the relative change in the quantity demanded associated with it, demand is inelastic.
B. In the range of prices in which demand is elastic, total revenue will diminish as price decreases.
C. Total revenue will not change if price varies within a range where the elasticity coefficient is unity.
D. Demand tends to be elastic at high prices and inelastic at low prices.

b

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

D

If a firm's demand for labor is elastic, a union-negotiated wage increase will:
A) necessarily be inflationary.
C) cause the firm's total payroll to decline.
B) cause the firm's total payroll to increase. D) cause a shortage of labor.

C

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