Exam
Name___________________________________
MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.
Pounds of Artisan Jars of
Period Income/Week Bread Sold Jam Sold
1 $250 210
2 $500 5 8
1)
Use the above table. Based on the information in the table, jam is a(n)
1)
A)
necessary good.
B)
negative good.
C)
inferior good.
D)
normal good.
2)
A 6 percent increase in the price of neckties leads to a 3 percent decrease in the quantity demanded
of neckties. The absolute price elasticity of demand is
2)
A)
3.
B)
2.
C)
0.5.
D)
0.33.
3)
A perfectly horizontal demand curve has
3)
A)
perfect elasticity.
B)
some positive finite elasticity.
C)
negative elasticity.
D)
zero elasticity.
4)
A 2 percent increase in the price of neckties leads to a 5 percent decrease in the quantity demanded
of neckties. The absolute price elasticity of demand is
4)
A)
0.2.
B)
2.5.
C)
0.4.
D)
1.
5)
Use the above figure. Which graph depicts an inferior good?
5)
A)
D
B)
C
C)
B
D)
A
6)
If the demand curve for a product is vertical, then
6)
A)
its price elasticity of demand is equal to zero.
B)
consumers may purchase all they want to at the established market price.
C)
the demand for the good is perfectly elastic.
D)
consumers are highly responsive to price changes.
7)
Other things being equal, demand is more elastic the
7)
A)
larger the percentage of a total budget that a family spends on the good.
B)
shorter the time period for adjustment.
C)
more unique the good is.
D)
less expensive the good.
8)
The absolute price elasticity of demand for good X is 1.2 when price is measured in dollars. If price
were measured in cents, the price elasticity elasticity of demand would equal
8)
A)
12
B)
1.2
C)
1200
D)
0.012
9)
Absolute price elasticities are calculated for four commodities, and the values are: 0.009; 1.0; 3.3;
and 4.1. Which indicates the most price–responsive situation?
9)
A)
4.1
B)
0.009
C)
3.3
D)
1.0
10)
In an extreme hypothetical instance in which the price change of a good elicited no change in
quantity demanded, we would say that the item is
10)
A)
perfectly inelastic.
B)
infinitely elastic.
C)
unitary elastic.
D)
perfectly elastic.
11)
The range to the right of the midpoint on a linear demand curve is
11)
A)
one.
B)
inelastic.
C)
elastic.
D)
infinite.
12)
While the slope of the perfectly inelastic supply curve ________, the slope of the perfectly elastic
supply curve ________.
12)
A)
approaches infinity, approaches infinity
B)
is zero, is zero
C)
is zero, approaches infinity
D)
approaches infinity, is zero
13)
Refer to the above figure. Demand is
13)
A)
perfectly elastic.
B)
unitary elastic.
C)
perfectly inelastic.
D)
undetermined without more information.
14)
Inelastic demand implies
14)
A)
that a one percent increase in price results in a smaller than one percent decrease in quantity
demanded.
B)
that a one percent cut in price results in a larger than one percent increase in quantity
demanded.
C)
that a one percent decrease or increase in price induces no change in total revenue.
D)
that a one percent increase in price results in a larger than one percent decrease in quantity
demanded.
15)
To say that demand is inelastic means that
15)
A)
relatively small changes in price lead to relatively large changes in quantity demanded.
B)
relatively small changes in quantity demanded lead to relatively small changes in price.
C)
people do not like the good very much.
D)
quantity demanded not very responsive to price changes.
16)
When two goods are complements,
16)
A)
cross price elasticity of demand will be positive.
B)
cross price elasticity of demand will be 0.
C)
the demands for both goods will be elastic.
D)
cross price elasticity of demand will be negative.
17)
If the price elasticity of supply is equal to 1, we would say the supply of the item is
17)
A)
perfectly elastic.
B)
elastic.
C)
inelastic.
D)
unit elastic.
18)
When the consumer spends a large portion of her income on a good, demand will be
18)
A)
inelastic.
B)
unit–elastic.
C)
elastic, unit–elastic or inelastic depending upon supply.
D)
elastic.
19)
An increase in total revenue will result if
19)
A)
demand is inelastic and price decreases.
B)
demand is inelastic and price increases.
C)
demand is elastic and price increases.
D)
demand is unitary elastic and price decreases.
20)
Which of the following is a determinant of the price elasticity of demand for an item?
20)
A)
The amount of time available to adjust to a change in the price of the item
B)
The availability of a close substitute for the item
C)
The percentage of a consumers budget allocated to expenditures on the item
D)
All of the above are correct
21)
Which of the following is FALSE regarding inelastic demand?
21)
A)
Price elasticity of demand is less than 1 (Ep< 1).
B)
If a firm lowers price, total revenues will fall.
C)
If a firm raises price, total revenues will go up.
D)
Price elasticity of demand is greater than 1 (Ep> 1).
D
22)
The difference between price elasticity of demand and income elasticity of demand is that
22)
A)
income elasticity refers to the movement along the demand curve while price elasticity refers
to a horizontal shift of the demand curve.
B)
income elasticity of demand examines how an individual’s income changes when prices
change and the price elasticity of demand examines how quantity demand changes when
price changes.
C)
income elasticity measures the responsiveness of income to changes in supply while price
elasticity of demand measures the responsiveness of demand to a change in price.
D)
income elasticity refers to a horizontal shift of the demand curve while price elasticity of
demand refers to a movement along the demand curve.
D
23)
Moving down a straight–line demand curve, the absolute price elasticity of demand
23)
A)
is constant.
B)
varies in uncertain ways.
C)
increases.
D)
decreases.
D
D
24)
When the consumer spends a small portion of his income on a good, demand will be
24)
A)
elastic, unit–elastic or inelastic depending upon supply.
B)
elastic.
C)
inelastic.
D)
unit–elastic.
25)
When many substitutes exist for a good, demand will be
25)
A)
inelastic.
B)
unit–elastic.
C)
perfectly unit–elastic.
D)
elastic.
26)
If the absolute price elasticity of demand for a product is less than 1, then
26)
A)
the absolute price elasticity of demand is inelastic and consumers are relatively insensitive to
price changes.
B)
the absolute price elasticity of demand is elastic and consumers are relatively sensitive to
price changes.
C)
the absolute price elasticity of demand is elastic and consumers are relatively insensitive to
price changes.
D)
the absolute price elasticity of demand is inelastic and consumers are relatively sensitive to
price changes.
27)
Price elasticity of demand basically measures
27)
A)
the variability of price changes.
B)
the percentage change in market price as a result of a change in demand.
C)
the reliability of a product.
D)
the responsiveness of consumers to price changes.
28)
Robert must always have cream in his coffee. For Robert, the cross price elasticity of demand for
coffee and cream is
28)
A)
equal to 0.
B)
negative.
C)
positive.
D)
impossible to determine without more information.
29)
The price elasticity of supply is higher when
29)
A)
the number of buyers in the market increases.
B)
the product in question is a complementary good.
C)
the number of producers in the market increases over time.
D)
producers have less time to adjust to price changes.
30)
Income elasticity relates to
30)
A)
the percentage change in quantity demanded divided by the percentage change in the price.
B)
a movement up a demand curve.
C)
a horizontal shift in a demand curve.
D)
a movement down a demand curve.
31)
If your income rises by 15 percent and, as a result, you buy more steak, then steak is a(n)
31)
A)
inferior good.
B)
normal good.
C)
substitute.
D)
complement.
32)
Which of the following goods is most likely to have the lowest price elasticity?
32)
A)
Pasta
B)
Movie tickets
C)
DVD rentals
D)
Gasoline
33)
The price elasticity of supply is 0.6. This means that
33)
A)
a 150 percent increase in price would increase quantity supplied by 90 percent.
B)
a 50 percent increase in quantity will occur when price increases by 30 percent.
C)
a 10 percent increase in quantity will occur when price increases by 6 percent.
D)
a $10 increase in price would increase quantity supplied by 60.
34)
Suppose that the demand for pizza is inelastic. If a pizzeria decided to lower the price of pizza,
total revenue would
34)
A)
stay the same.
B)
increase.
C)
decrease.
D)
be maximized.
35)
The range to the left of the midpoint on a linear demand curve is
35)
A)
infinite.
B)
inelastic.
C)
elastic.
D)
one.
36)
A good’s price elasticity of demand can be calculated by using the formula of
36)
A)
absolute change in quantity demanded divided by absolute change in price.
B)
percentage change in price divided by percentage change in income.
C)
percentage change in quantity demanded divided by percentage change in price.
D)
percentage change in price divided by percentage change in quantity demanded.
37)
Over the inelastic range of a demand curve, there is
37)
A)
an increase in total revenues regardless of an increase or decrease in price.
B)
no relationship between changes in price and changes in total revenues.
C)
a positive relationship between a given percentage change in price and a change in total
revenues.
D)
a negative relationship between a given percentage change in price and a change in total
revenues.
38)
The local baseball stadium’s concession stands previously sold hot dogs for 80 cents apiece. At that
price, when a baseball fan went to watch a baseball game, he bought 2 hotdogs. But now that the
stadium has a “dime–a–dog night,” he has purchased 6 hot dogs. What is the approximate value of
this individual’s absolute price elasticity of demand for hot dogs?
38)
A)
0.80
B)
1.00
C)
1.56
D)
0.64
39)
If the price of apples went up by 25 percent, which of the following values of the cross price
elasticity for cars would be most reasonable to anticipate?
39)
A)
–1.0
B)
1.2
C)
–2.5
D)
0.0
40)
If demand for Rolls Royce automobiles rises in an area where incomes have increased, this tells us
that a Rolls Royce is
40)
A)
a complementary good.
B)
an inferior good.
C)
a substitute good.
D)
a normal good.
41)
Julie always purchases the soda with the lowest price. For Julie, the cross price elasticity of demand
for brand X and brand Y will be
41)
A)
equal to 0.
B)
negative.
C)
positive.
D)
impossible to determine without more information.
42)
Which of the following is a determinant of the price elasticity of demand for a product?
I. The existence of substitute goods
II. The percentage of a consumer’s total budget devoted to purchases of that commodity
42)
A)
I only
B)
II only
C)
Both I and II
D)
Neither I nor II
43)
The price elasticity of demand along a vertical demand curve is
43)
A)
infinite.
B)
one.
C)
zero.
D)
elastic at high prices and inelastic at low prices.
Pounds of Artisan Jars of
Period Income/Week Bread Sold Jam Sold
1 $250 210
2 $500 5 8
44)
Use the above table. Based on the information in the table, artisan bread is a(n)
44)
A)
normal good.
B)
necessary good.
C)
negative good.
D)
inferior good.
45)
When price is $5 per unit, quantity demanded is 12 units. When price is $6 per unit, quantity
demanded is 8 units. The value of the absolute price elasticity of demand is approximately
45)
A)
2.20.
B)
1.82.
C)
4.00.
D)
0.36.
46)
For which of the following purchases would the absolute price elasticity of demand be smallest?
46)
A)
Chewing gum
B)
Utilities
C)
A sports car
D)
A cell phone
47)
Suppose the price of X increases by 20 percent while the quantity demanded of Y does not change.
We would conclude that
47)
A)
the two goods are not related.
B)
the two goods are substitutes, but the cross elasticity of demand is not large.
C)
the two goods are perfect substitutes.
D)
the two goods are complements, but the cross elasticity of demand is not large.
48)
If demand is elastic and the price of a product decreases by 10 percent, then
48)
A)
the change in quantity demanded is less than 10 percent.
B)
the change in quantity demanded is equal to 10 percent.
C)
the decrease in quantity demanded is greater than 0 percent.
D)
the change in quantity demanded is greater than 10 percent.
49)
An inelastic demand indicates that
49)
A)
relatively large changes in quantity demanded lead to relatively large changes in price.
B)
relatively large changes in price are required to obtain a relatively small change in quantity
demanded.
C)
relatively small changes in price lead to relatively large changes in quantity demanded.
D)
quantity demanded does not vary with changes in the price.
50)
When demand is perfectly inelastic, the demand curve is
50)
A)
upward sloping.
B)
horizontal.
C)
vertical.
D)
downward sloping.
51)
If price decreases by 10 percent and quantity demanded increases by 30 percent, the price elasticity
of demand will be
51)
A)
0.333.
B)
3.
C)
300.
D)
30.
52)
If the absolute price elasticity of demand of a good is 1.46, then the total revenues will increase if its
market price
52)
A)
stays the same.
B)
increases.
C)
decreases.
D)
changes, but we can’t tell without more information if the price increases or decreases.
53)
The absolute price elasticity of demand for a vertical demand curve
53)
A)
is 0.
B)
is infinite.
C)
is 1.0.
D)
depends on where one is on the demand curve.
54)
If a 10 percent increase in price causes a 5 percent increase in quantity supplied, then supply is
54)
A)
elastic.
B)
infinite.
C)
unit elastic.
D)
inelastic.
55)
In the above figure, along the section of the demand curve between point a and point b, demand is
55)
A)
inelastic.
B)
elastic.
C)
unit inelastic.
D)
unit elastic.
Px Qx Py Qy Pz Qz
$10 100 $20 50 $25 200
10 90 18 60 25 225
10 70 15 90 25 275
12 50 15 100 25 290
15 25 15 120 25 320
56)
Refer to the above table. The price of Y decreases from $18 to $15. What is the cross price elasticity
of demand between Y and X?
56)
A)
–0.73
B)
+1.38
C)
–1.0
D)
+1.83
57)
When total revenue and price are inversely related, demand is
57)
A)
unit–elastic.
B)
inelastic.
C)
elastic.
D)
not related.
58)
If the absolute value of the price elasticity of demand for a product is 1.5, and the price of a product
increased 30 percent, then the quantity demanded will decline by
58)
A)
10 percent.
B)
5 percent.
C)
45 percent.
D)
20 percent.
59)
A product that has an elastic demand curve has all of the following characteristics EXCEPT
59)
A)
it has few or no substitutes.
B)
it has many substitutes.
C)
it is a large part of a consumer’s income.
D)
a consumer can wait to buy the product.
60)
If the quantity supplied stays the same no matter what the price is, then supply is
60)
A)
unit elastic.
B)
perfectly inelastic.
C)
perfectly elastic.
D)
undefined.
Px Qx Py Qy Pz Qz
$10 100 $20 50 $25 200
10 90 18 60 25 225
10 70 15 90 25 275
12 50 15 100 25 290
15 25 15 120 25 320
61)
Refer to the above table. Suppose the price of Y rises from $18 to $20. What is the cross price
elasticity of demand between X and Y?
61)
A)
–2
B)
+1
C)
0
D)
–1
62)
Suppose that the absolute price elasticity for cookies equals 0.53. We could then say that the
demand for cookies is
62)
A)
elastic.
B)
unit–elastic.
C)
perfectly elastic.
D)
inelastic.
63)
A value of the absolute price elasticity of demand equal to 2.5 indicates that
63)
A)
a 2% decrease in price leads to a 25% increase in quantity demanded.
B)
a 5% decrease in price leads to a 2% increase in quantity demanded.
C)
a 1% decrease in price leads to a 2.5% increase in quantity demanded.
D)
a 0.25% decrease in price leads to a 1% increase in quantity.
C
64)
At a price of $10, quantity demanded is 30 units. When the price rises to $11, quantity demanded is
24 units. What is the absolute price elasticity of demand?
64)
A)
0.43
B)
2.33
C)
6.0
D)
0.5
B
65)
If the absolute price elasticity of demand for a product is greater than 1, then
65)
A)
consumers are relatively sensitive to price changes.
B)
producers are relatively insensitive to price changes.
C)
there is a positive relationship between price changes and total revenue.
D)
consumers are relatively insensitive to price changes.
A
66)
If a 1 percent increase in price causes a 2 percent increase in quantity supplied, then supply is
66)
A)
elastic.
B)
unit elastic.
C)
infinite.
D)
inelastic.
A
D
67)
Suppose the short–run supply curve is a straight line of slope +1 that intersects the origin. The
long–run supply curve will be
67)
A)
vertical.
B)
horizontal.
C)
shallower.
D)
steeper.
68)
The cross price elasticity between X and Y is –1.8. We can conclude that
68)
A)
goods X and Y are unrelated.
B)
perfect substitutes
C)
goods X and Y are complements.
D)
goods X and Y are substitutes.
69)
Suppose two goods are perfect substitutes. The price elasticity of demand of one of the goods is
69)
A)
1.
B)
0.
C)
1000.
D)
infinity.
70)
If the absolute value of the price elasticity of demand for a product is greater than 1, then
70)
A)
demand is elastic.
B)
demand is unit–elastic.
C)
demand is inelastic.
D)
quantity demanded is not very sensitive to price changes.
71)
A situation in which there is a reduction in quantity supplied to zero when there is the slightest
decrease in price is
71)
A)
perfectly inelastic demand.
B)
perfectly elastic demand.
C)
perfectly inelastic supply.
D)
perfectly elastic supply.