Chapter 5 (most questions of exam 1)

Question 1

Price elasticity of demand refers to the

Answer 1

percentage change in the quantity demanded in response to a percentage change in the price of a good

Question 2

Demand price elasticity (the price elasticity of demand for good X) measures

Answer 2

how consumers change their purchases (in percentage terms) in response to a change in price brought about by a change in supply of a commodity

Question 3

If demand price elasticity measures 2, this implies that consumers would

Answer 3

buy 2% more of the product in response to a 1 % drop in price

Question 4

If the price elasticity of demand for a product measures .45,

Answer 4

this good is demand price elastic

Question 5

If the percentage change in the quantity demanded of a good is less than the percentage change in price, price elasticity of demand is

Answer 5

inelastic

Question 6

If the percentage change in the quantity demanded of a good is greater than the percentage change in price, price elasticity of demand is

Answer 6

elastic

Question 7

If the percentage change in the quantity demanded of a good equals the percentage change in price, price elasticity is

Answer 7

unitary elastic

Question 8

When demand is price inelastic

Answer 8

price and total revenue move in the same direction

Question 9

If demand is inelastic, an increase in the price of a good will cause total revenue to

Answer 9

rise

Question 10

If demand is price elastic, a decrease in price causes

Answer 10

an increase in total revenue

Question 11

Suppose the president of a college argues that a 50% tuition increase will raise revenues for the college. It can be concluded that the president thinks that demand to attain this college is

Answer 11

inelastic, but not perfectly elastic

Question 12

If a demand curve for a good was completely vertical, it would be considered

Answer 12

perfectly inelastic

Question 13

An economist estimates that .67 is the price elasticity of demand for disposable diapers. This suggests that disposable diaper producers could

Answer 13

raise the price of disposable diapers to raise more revenue

Question 14

The short-run price elasticity of demand for airline travel is .15, while the long-run elasticity is 2.36. This means that a significant increase in airline ticket prices will cause airline companies to

Answer 14

collect less revenue form travelers who book well in advance

Question 15

Firms would like to know the price of elasticity of demand for their products because it helps determine the effect of price changes on the firms’

Answer 15

revenues

Question 16

If New York City expects that an increase in bus fares will raise mass transit revenues, it must think that the demand for bus travel is

Answer 16

inelastic

Question 17

Which of the following describes a situation in which demand must be elastic?

Answer 17

Total revenue decreases by more than $15 when the price of corn dogs rises by 15%

Question 18

Consider the market for bicycles. If a dealer cuts prices by 10% and sells 20% more bikes, then demand for bicycles is

Answer 18

elastic, and total revenue will increase

Question 19

Governments can use price elasticity of demand to estimate how changes in excise tax rates will affect

Answer 19

tax revenues

Question 20

If the price elasticity of demand coefficient equals 2 then

Answer 20

a price decrease will increase total revenue

Question 21

The demand for a product is likely to be more elastic when

Answer 21

more substitutes for the product are available

Question 22

Other things constant, the price elasticity of demand for a product will be smaller (more inelastic) if

Answer 22

people spend an insignificant share of their income on the product

Question 23

A product would be more demand price elastic

Answer 23

the less the essential nature of the good

Question 24

A product would be more demand price inelastic

Answer 24

the shorter the time the consumer has to adjust to price changes

Question 25

The longer the time period under study,

Answer 25

the more elastic is the price elasticity of demand

Question 26

The long-run price elasticity of demand is usually larger than the short-run price elasticity of demand because

Answer 26

people have more time to find substitute goods

Question 27

The price elasticity of demand coefficient for a good will be inelastic

Answer 27

if there are few substitutes and if expenditure on it is small part of one’s budgets

Question 28

As the period for firms to expand output is lengthened, the elasticity of the market supply curve will

Answer 28

increase (more elastic)

Question 29

All things equal, the price elasticity of supply

Answer 29

will be greater in the long run than in the short run

Question 30

If the price elasticity of supply coefficient is greater than one, then supply is

Answer 30

elastic

Question 31

A perfectly elastic supply curve is expressed graphically as a

Answer 31

horizontal line

Question 32

In the very short-run period

Answer 32

the price elasticity of supply is very inelastic