Test 2- Chapters 5 & 6

Question 1

The ratio of the percentage change in quantity demanded to the percentage change in price is called _______ ?

Answer 1

Price of Elasticity of Demand

Question 2

________ is more than 1 percent change in quantity demanded in response to a 1 percent change in price.

Answer 2

Elastic Demand

Question 3

_______ is less than 1 percent change in quantity demanded in respone to a 1 percent change in price.

Answer 3

Inelastic Demand

Question 4

_______ is a 1 percent change in quantity demanded in response to a 1 percent change in price.

Answer 4

Unitary Elastic Demand

Question 5

An extreme case in which the demand curve is horizontal and the elasticity coefficient equals infinity is called __________.

Answer 5

Perfectly Elastic Demand

Question 6

An extreme case in which the demand curve is vertical and the elasticity coefficient equals zero is called _________.

Answer 6

Perfectly Inelastic Demand

Question 7

The total number of dollars a firms earns from the sale of good or service, which is equal to its price multiplied by the quantity demanded is called ________.

Answer 7

Total Revenue

Question 8

________ is the ratio of the percentage change in the quantity demanded of a good or service to a given percentage change in income.

Answer 8

Income Elasticity of Demand

Question 9

_______ is the ratio of the change in the quantity supplied of a product to the percentage change in its price.

Answer 9

Price Elasticity of Supply

Question 10

The share of a tax ultimately paid by consumers and sellers is called ________.

Answer 10

Tax Incidence

Question 11

The ratio of the percentage in quantity demanded of a good or service to aa given percentage change in the price of another good or service is called ________.

Answer 11

Cross Elasticity of Demand

Question 12

If a decrease in the price of football tickets increases the total revenue of the athletic department, this is evidence that demand is:

a. price elastic.
b. price inelastic.
c. unit elastic with respect to price.
d. perfectly inelastic.

Answer 12

A.

Question 13

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

a. elastic.
b. inelastic.
c. perfectly inelastic.
d. perfectly elastic.

Answer 13

A.

Question 14

Suppose the president of a textbook publisher argues that a 10 percent increase in the price of textbooks will raise total revenue for the publisher. It can be concluded that the company president thinks that demand for textbooks is:

a. unitary elastic.
b. inelastic.
c. elastic.
d. perfectly inelastic.

Answer 14

B.

Question 15

If the quantity of tickets to the fair sold decreases by 10 percent when the price increases by 5 percent, the price elasticity of demand over this range of the demand curve is:

a. price elastic.
b. price inelastic.
c. perfectly inelastic.
d. unitary elastic.

Answer 15

A.

Question 16

There is no change in total revenue when the demand curve for a good is:

a. unitary elastic.
b. perfectly inelastic.
c. elastic.
d. inelastic.
e. perfectly elastic.

Answer 16

A.

Question 17

Which of the following is true for a lower price elasticity of demand coefficient?

a. The quantity demanded is less responsive.
b. Few substitutes exist.
c. Many substitutes exist.
d. All of the answers above are correct.

Answer 17

B.

Question 18

The number of CDs purchased increased by 50 percent when consumer income increased by 10 percent. Assuming other factors are held constant, CDs would be classified as:

a. social goods.
b. normal goods.
c. Giffen goods.
d. inferior goods.

Answer 18

B.

Question 19

The number of computers bought increased by 20 percent when the price of on-line services declined by 10 percent. Assuming other factors are held constant, computers and on-line services are classified as:

a. complements.
b. unrelated goods.
c. substitutes.
d. social goods

Answer 19

A.

Question 20

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

a. buy twice as much of the product if the price drops 10 percent.
b. require a 2 percent drop in price to increase their purchases by 1 percent.
c. buy 2 percent more of the product in response to a 1 percent drop in price.
d. require at least a $2 increase in price before showing any response to the price increase.
e. buy twice as much of the product if the price drops 1 percent.

Answer 20

C.

Question 21

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

a. this good has many available substitutes.
b. this good must be a nonessential good.
c. this good is a high-priced good
d. a decrease in price will increase total revenue.
e. this good is demand price inelastic.

Answer 21

E.

Question 22

If the government wants to raise tax revenue and shift most of the tax burden to the sellers, it would impose a tax on a good with a:

a. steep (inelastic) demand curve and steep (inelastic) demand curve.
b. steep (inelastic) demand curve and a flat (elastic) supply curve.
c. flat (elastic) demand curve and a steep (inelastic) supply curve.
d. flat (elastic) demand curve and a flat (elastic) supply curve.

Answer 22

C.

Question 23

Suppose that when price is $10, quantity supplied is 20. When price is $6, quantity supplied is 12. The price elasticity of supply is:

a. 0.5.
b. 0.8.
c. 1.0.
d. 1.5.
e. 2.0.

Answer 23

C.

Question 24

The Smith family buys much more macaroni when someone in the family is laid off. This means that the Smiths’ ___________ is negative.

a. demand curve for macaroni
b. income elasticity for macaroni
c. Engel’s law
d. income
e. price elasticity of demand for macaroni

Answer 24

B.

Question 25

The cross elasticity of demand between two goods is 2.5. These goods are: a. perfect complements. b. imperfect complements. c. unrelated. d. substitutes. e. inferior.

Answer 25

D.

Question 26

Which of the following statements is true? a. If the income elasticity of demand is less than zero, the good is an inferior good. b. Only if the demand curve is vertical will sellers raise the price by the full amount of a tax. c. Two goods are substitutes if the cross-elasticity of demand coefficient is positive. d. A price elasticity of supply coefficient equal to 1.5 means the product exhibits an elastic supply and a 10 percent increase in the price will increase the quantity supplied by 15 percent. e. All of the answers above are correct

Answer 26

E.

Question 27

T or F | If a 10 percent price increase causes the quantity demanded for a good to decrease by 20 percent, demand is elastic.

Answer 27

True

Question 28

T or F | If a 10 percent price increase causes the quantity demanded for a good to decrease by 5 percent, demand is elastic.

Answer 28

False

Question 29

T or F If a 10 percent price increase causes the quantity demanded for a good to decrease by 10 percent, demand is unitary elastic.

Answer 29

True

Question 30

T or F | If the demand curve for a good is elastic, consumers will spend more on that good when its price increases.

Answer 30

False

Question 31

T or F Suppose an economist found that total revenues increased for the bus system when fares were raised. The conclusion is that the price elasticity demand for subway services over the range of fare increase is inelastic.

Answer 31

True

Question 32

T or F | A horizontal demand curve is perfectly elastic.

Answer 32

True

Question 33

T or F If a good has a price elasticity of demand coefficient greater than 1, total revenue can be increased by raising the price

Answer 33

False

Question 34

T or F | Other factors held constant, if there are few close substitutes for a good, demand is more elastic for it.

Answer 34

False

Question 35

T or F | If demand for a good is price elastic, it must also be income elastic.

Answer 35

False

Question 36

T or F In response to a price change for good Y, if the cross-elasticity of demand for good Y is positive, good X and good Y are complements.

Answer 36

False

Question 37

T or F If a supply curve has a constant slope throughout its length, it must have a constant price elasticity throughout its length.

Answer 37

False

Question 38

T or F Applying supply and demand analysis, other factors held constant, the steeper the supply curve (less elastic), the larger the burden of a sales tax that is borne by the sellers.

Answer 38

False

Question 39

The responsiveness, or sensitivity, to a change in price

Answer 39

Elasticity