Question 1

Suppose a rise in the price of peaches from $5.50 to $6.50 per kilogram decreases the quantity demanded from 12,500 to 11,500 kilograms. The price elasticity of demand is

Accepted Answer

A)   1000.0.
B)   2.0.
C)   1.0.
D)   0.5.E) C) and D)
F) A) and B)

Question 2

Which of the following leads a good to have a high elasticity of supply?
I. The good must be produced using unique resources.
II. The good is produced using commonly available resources.

Accepted Answer

A)   I only
B)   II only
C)   I and II
D)   Neither I nor IIE) C) and D)
F) None of the above

Question 3

If the supply curve is vertical then supply is

Accepted Answer

A)   relatively elastic.
B)   relatively inelastic.
C)   perfectly inelastic.
D)   perfectly elastic.E) B) and D)
F) C) and D)

Question 4

When the price of oranges increases from $4 to $6 per bag, the quantity demanded of oranges decreases from 800 bags to 700 bags. The price elasticity of demand over this price range is equal to

Accepted Answer

A)   1/4 or 0.25.
B)   3/7 or 0.4286.
C)   3.
D)   1/3 or 0.3333.E) B) and C)
F) None of the above

Question 5

Blue pens and black pens are close substitutes. The cross elasticity of demand for black pens with respect to the price of blue pens is

Accepted Answer

A)   zero.
B)   negative.
C)   equal to 1.
D)   positive.E) A) and B)
F) A) and C)

Question 6

When the price of milk rose 50 per cent, the quantity of milk sold fell 25 per cent and the sale of breakfast cereals also fell 25 per cent. This set of facts indicates that the

Accepted Answer

A)   cross elasticity between milk and cereal is negative so the two are complements.
B)   demand for breakfast cereals is price elastic.
C)   cross elasticity between milk and cereal is positive so the two are complements.
D)   demand for milk is price elastic.E) B) and C)
F) C) and D)

Question 7

Microsoft raises the price of its Office software by 10 per cent. As a result, the quantity of personal computers demanded at the current price decreases by 5 per cent. What is the cross elasticity of demand for personal computers with respect to the price of Microsoft Office software?

Accepted Answer

A)   2.0
B)   - 2.0
C)   0.5
D)   - 0.5E) A) and B)
F) B) and C)

Question 8

If the price of a burger decreases by 5 per cent and as a result the quantity of burgers demanded increases by 8 per cent, the price elasticity of demand equals

Accepted Answer

A)   0.40.
B)   0.625.
C)   1.60.
D)   0.60.E) None of the above
F) C) and D)

Question 9

The price elasticity of demand is defined as the magnitude of the

Accepted Answer

A)   percentage change in quantity demanded divided by the percentage change in price.
B)   change in quantity demanded divided by the change in price.
C)   change in price divided by the change in quantity demanded.
D)   percentage change in price divided by the percentage change in quantity demanded.E) None of the above
F) B) and C)

Question 10

If a 5 per cent increase in the price of good A leads to a 4 per cent decrease in the demand for good B, then

Accepted Answer

A)   both goods are normal goods.
B)   the goods are substitutes.
C)   the goods are complements.
D)   only one good is a normal good.E) All of the above
F) B) and C)

Question 11

-Consider the straight- line demand curve illustrated in the figure above. At a price of $6, demand

Accepted Answer

A)   is elastic.
B)   is inelastic.
C)   is unit elastic.
D)   More information is needed to determine if the demand is elastic, unit elastic or inelastic.E) A) and B)
F) A) and C)

Question 12

Joan's income has just risen from $940 per week to $1,060 per week. As a result, she decides to purchase 12 per cent more lettuce per week. The income elasticity of Joan's demand for lettuce is

Accepted Answer

A)   1.00.
B)   1.33.
C)   0.75.
D)   0.90.E) B) and C)
F) C) and D)

Question 13

If the cross elasticity of demand between coffee and tea is positive, an increase in the price of tea will shift the demand curve for

Accepted Answer

A)   tea leftward.
B)   coffee leftward.
C)   tea rightward.
D)   coffee rightward.E) A) and C)
F) A) and D)

Question 14

-The figure above represents the behaviour of total revenue as price falls along a straight- line demand curve. What is the price elasticity of demand if total revenue is given by point f?

Accepted Answer

A)   Demand is inelastic.
B)   Demand is elastic.
C)   Demand is unit elastic.
D)   It is impossible to determine.E) All of the above
F) A) and D)

Question 15

The supply of lettuce in the short run will be _______ than supply in the long run and _______ than supply today.

Accepted Answer

A)   more elastic; less elastic
B)   less elastic; more elastic
C)   less elastic; less elastic
D)   more elastic; more elasticE) A) and B)
F) B) and C)

Question 16

-In the above figure, which demand curve illustrates perfectly elastic demand?

Accepted Answer

A)   H
B)   G
C)   J
D)   IE) B) and C)
F) B) and D)

Question 17

Marvin loves chocolate truffles. As the price of a chocolate truffle increases from $1 to $2 to $3, Marvin continues to buy a dozen chocolate truffles every week. Marvin's demand for chocolate truffles is _______.

Accepted Answer

A)   elastic
B)   illustrated by a horizontal demand curve
C)   unit elastic
D)   perfectly inelasticE) B) and C)
F) A) and D)

Question 18

If the price of milk increased by 5 per cent because of an increase in the demand for milk, and the quantity of milk supplied increased by 7 per cent,

Accepted Answer

A)   milk is more of a luxury than a necessity.
B)   milk is more of a necessity than a luxury.
C)   the supply curve of milk has shifted rightward.
D)   the price elasticity of supply of milk is greater than one.E) B) and C)
F) A) and B)

Question 19

The price elasticity of supply is calculated as the

Accepted Answer

A)   percentage change in price divided by the percentage change in quantity demanded.
B)   percentage change in quantity supplied divided by the percentage change in price.
C)   quantity supplied divided by the percentage change in quantity demanded.
D)   quantity supplied divided by the per unit cost of production.E) B) and C)
F) A) and B)

Question 20

A negative value for the cross elasticity of demand between two goods indicates that

Accepted Answer

A)   the goods are substitutes.
B)   the goods are complements.
C)   one of the goods is normal and the other is inferior.
D)   each good is price inelastic.E) A) and B)
F) A) and C)

Exam 4: Elasticity

Microsoft raises the price of its Office software by 10 per cent. As a result, the quantity of personal computers demanded at the current price decreases by 5 per cent. What is the cross elasticity of demand for personal computers with respect to the price of Microsoft Office software?

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Joan's income has just risen from $940 per week to $1,060 per week. As a result, she decides to purchase 12 per cent more lettuce per week. The income elasticity of Joan's demand for lettuce is

Correct AnswerverifiedShow Answer

-The figure above represents the behaviour of total revenue as price falls along a straight- line demand curve. What is the price elasticity of demand if total revenue is given by point f?

Correct AnswerverifiedShow Answer

The price elasticity of demand is defined as the magnitude of the

Correct AnswerverifiedShow Answer

Blue pens and black pens are close substitutes. The cross elasticity of demand for black pens with respect to the price of blue pens is

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A negative value for the cross elasticity of demand between two goods indicates that

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If the price of milk increased by 5 per cent because of an increase in the demand for milk, and the quantity of milk supplied increased by 7 per cent,

Correct AnswerverifiedShow Answer

When the price of milk rose 50 per cent, the quantity of milk sold fell 25 per cent and the sale of breakfast cereals also fell 25 per cent. This set of facts indicates that the

Correct AnswerverifiedShow Answer

Marvin loves chocolate truffles. As the price of a chocolate truffle increases from $1 to $2 to $3, Marvin continues to buy a dozen chocolate truffles every week. Marvin's demand for chocolate truffles is _______.

Correct AnswerverifiedShow Answer

-Consider the straight- line demand curve illustrated in the figure above. At a price of $6, demand

Correct AnswerverifiedShow Answer

Suppose a rise in the price of peaches from $5.50 to $6.50 per kilogram decreases the quantity demanded from 12,500 to 11,500 kilograms. The price elasticity of demand is

Correct AnswerverifiedShow Answer

When the price of oranges increases from $4 to $6 per bag, the quantity demanded of oranges decreases from 800 bags to 700 bags. The price elasticity of demand over this price range is equal to

Correct AnswerverifiedShow Answer

The supply of lettuce in the short run will be _______ than supply in the long run and _______ than supply today.

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If a 5 per cent increase in the price of good A leads to a 4 per cent decrease in the demand for good B, then

Correct AnswerverifiedShow Answer

If the cross elasticity of demand between coffee and tea is positive, an increase in the price of tea will shift the demand curve for

Correct AnswerverifiedShow Answer

Which of the following leads a good to have a high elasticity of supply? I. The good must be produced using unique resources. II. The good is produced using commonly available resources.

Correct AnswerverifiedShow Answer

If the price of a burger decreases by 5 per cent and as a result the quantity of burgers demanded increases by 8 per cent, the price elasticity of demand equals

Correct AnswerverifiedShow Answer

The price elasticity of supply is calculated as the

Correct AnswerverifiedShow Answer

-In the above figure, which demand curve illustrates perfectly elastic demand?

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If the supply curve is vertical then supply is

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The supply of lettuce in the short run will be _ than supply in the long run and _ than supply today.

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