Question 1

Measuring the price of gasoline in dollars per quart, an economist calculates the price elasticity of demand to be 1. What would the price elasticity of demand be if the economist had chosen to measure the price in dollars per gallon?

Accepted Answer

A)   1
B)   4
C)   .25
D)   .5

Question 2

College students tend to eat more ramen noodles than do recent college graduates. A primary reason for this is that:

Accepted Answer

A)   ramen noodles are a normal good.
B)   ramen noodles are an inferior good.
C)   ramen noodles are a luxury good.
D)   ramen noodles are scarce.

Question 3

If the percentage increase in the quantity supplied equals the percentage increase in the price, the supply:

Accepted Answer

A)   is elastic.
B)   is inelastic.
C)   has unit elasticity.
D)   is perfectly elastic.

Question 4

If the price elasticity of supply is 0.5, a 10 percent increase in price will cause a:

Accepted Answer

A)   5 percent increase in quantity supplied.
B)   5 percent decrease in quantity supplied.
C)   20 percent increase in quantity supplied.
D)   20 percent decrease in quantity supplied.

Question 5

It is estimated that a 5 percent decline in income will reduce health care purchases by 2.5 percent and reduce dental service purchases by 8 percent. From this information, one can conclude that:

Accepted Answer

A)   health care is a necessity and dental services are a luxury.
B)   health care is a luxury and dental services are necessities.
C)   both health care and dental services are necessities.
D)   both health care and dental services are luxuries.

Question 6

If the supply curve intersects the vertical (price)  axis, the supply curve has an elasticity:

Accepted Answer

A)   less than 1.
B)   equal to 1.
C)   greater than 1.
D)   that is indeterminate.

Question 7

The supply of Russian caviar from the Caspian Sea diminished after the collapse of Soviet communism. The price of caviar rose from $395 a pound to $595 a pound. Still, revenue from the sale of caviar rose 30 percent. You can conclude that:

Accepted Answer

A)   an elastic supply curve for caviar has shifted to the left.
B)   an inelastic supply curve for caviar has shifted to the left.
C)   the supply curve for caviar has shifted to the left along an inelastic demand curve.
D)   the supply curve for caviar has shifted to the left along an elastic demand curve.

Question 8

If the supply of a product is inelastic, this implies that a specific percentage change in price leads to:

Accepted Answer

A)   an equal percentage change in the quantity supplied.
B)   a larger percentage change in the quantity supplied.
C)   a smaller percentage change in the quantity supplied.
D)   no percentage change in the quantity supplied. C

Question 9

An elasticity of supply of 2.7 means that:

Accepted Answer

A)   supply is inelastic.
B)   quantity supplied changes 2.7 units for each 1 percent change in price.
C)   quantity supplied changes 2.7 percent for each 1 percent change in price.
D)   price changes by 2.7 percent for each 1 percent change in quantity supplied.

Question 10

Cross-price elasticity of demand is defined as the:

Accepted Answer

A)   percentage change in quantity demanded divided by percentage change in the price of the same good.
B)   percentage change in demand divided by percentage change in the price of another good.
C)   change in the price of another good divided by the change in quantity demanded.
D)   percentage change in the price of another good divided by the percentage change in quantity demanded.

Question 11

For necessities, income elasticity is any value:

Accepted Answer

A)   greater than 0.
B)   greater than 1.
C)   less than 0.
D)   between 0 and 1.

Question 12

Refer to the following graph.  Elasticity is greatest at point:

Accepted Answer

A)   A.
B)   B.
C)   C.
D)   It is the same everywhere along this supply curve.

Question 13

Refer to the following table to answer the question. Demand is most elastic between:   Price  Quantity Demanded $2.0026$4.0022$6.0018$8.0014$10.0010\begin{array} { | c | c | } \hline 	ext { Price } & 	ext { Quantity Demanded } \\hline \$ 2.00 & 26 \\hline \$ 4.00 & 22 \\hline \$ 6.00 & 18 \\hline \$ 8.00 & 14 \\hline \$ 10.00 & 10 \\hline\end{array} Price $2.00$4.00$6.00$8.00$10.00​ Quantity Demanded 2622181410​​

Accepted Answer

A)   $2 and $4.
B)   $4 and $6.
C)   $6 and $8.
D)   $8 and $10.

Question 14

Refer to the graph shown. Which of the following curves demonstrates a perfectly inelastic demand curve?

Accepted Answer

A)   A
B)   B
C)   C
D)   None of the curves

Question 15

George Davis and Michael Wohlgenant estimate that for every 1 percent increase in the price of Christmas trees, quantity demanded falls by 0.6 percent. The demand for Christmas trees is:

Accepted Answer

A)   inelastic.
B)   elastic.
C)   perfectly inelastic.
D)   unit elastic.

Question 16

Suppose the demand for butter increases from 800 to 1,000 pounds when income falls from $40,000 to 30,000. Income elasticity is:

Accepted Answer

A)   0.02.
B)   50.
C)   -0.77.
D)   0.77.

Question 17

As the manager of a ski resort, you want to increase the number of lift tickets sold by 8 percent. Your staff economist has determined that the price elasticity of demand for lift tickets is 2. To increase sales by the desired amount, you should decrease the price of a lift ticket by:

Accepted Answer

A)   2 percent.
B)   4 percent.
C)   8 percent.
D)   16 percent. B

Question 18

Price elasticity of demand is the percentage change in price divided by the percentage change in quantity demanded.

Accepted Answer

A) True 
 B)False

Question 19

If frost in Florida reduces the quantity of vegetables sold by 20 percent and increases their retail price by 30 percent, one can conclude that:

Accepted Answer

A)   the demand has shifted to the right along a perfectly inelastic supply curve.
B)   the demand has shifted to the right along a perfectly elastic supply curve.
C)   the supply of vegetables has shifted to the left along an elastic demand curve.
D)   the supply of vegetables has shifted to the left along an inelastic demand curve.

Question 20

As the price of tomatoes fell from $2.50 to $2.00, the quantity imported from Mexico fell from 1,800 tons to 900 tons. The elasticity of supply of tomatoes imported from Mexico is:

Accepted Answer

A)   0.25.
B)   0.3.
C)   3.0.
D)   5. C

Exam 6: Describing Supply and Demand: Elasticities

Measuring the price of gasoline in dollars per quart, an economist calculates the price elasticity of demand to be 1. What would the price elasticity of demand be if the economist had chosen to measure the price in dollars per gallon?

Correct AnswerverifiedShow Answer

College students tend to eat more ramen noodles than do recent college graduates. A primary reason for this is that:

Correct AnswerverifiedShow Answer

If the percentage increase in the quantity supplied equals the percentage increase in the price, the supply:

Correct AnswerverifiedShow Answer

If the price elasticity of supply is 0.5, a 10 percent increase in price will cause a:

Correct AnswerverifiedShow Answer

It is estimated that a 5 percent decline in income will reduce health care purchases by 2.5 percent and reduce dental service purchases by 8 percent. From this information, one can conclude that:

Correct AnswerverifiedShow Answer

If the supply curve intersects the vertical (price) axis, the supply curve has an elasticity:

Correct AnswerverifiedShow Answer

The supply of Russian caviar from the Caspian Sea diminished after the collapse of Soviet communism. The price of caviar rose from $395 a pound to $595 a pound. Still, revenue from the sale of caviar rose 30 percent. You can conclude that:

Correct AnswerverifiedShow Answer

If the supply of a product is inelastic, this implies that a specific percentage change in price leads to:

Correct AnswerverifiedC

An elasticity of supply of 2.7 means that:

Correct AnswerverifiedShow Answer

Cross-price elasticity of demand is defined as the:

Correct AnswerverifiedShow Answer

For necessities, income elasticity is any value:

Correct AnswerverifiedShow Answer

Refer to the following graph. Elasticity is greatest at point:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Refer to the graph shown. Which of the following curves demonstrates a perfectly inelastic demand curve?

Correct AnswerverifiedShow Answer

George Davis and Michael Wohlgenant estimate that for every 1 percent increase in the price of Christmas trees, quantity demanded falls by 0.6 percent. The demand for Christmas trees is:

Correct AnswerverifiedShow Answer

Suppose the demand for butter increases from 800 to 1,000 pounds when income falls from $40,000 to 30,000. Income elasticity is:

Correct AnswerverifiedShow Answer

As the manager of a ski resort, you want to increase the number of lift tickets sold by 8 percent. Your staff economist has determined that the price elasticity of demand for lift tickets is 2. To increase sales by the desired amount, you should decrease the price of a lift ticket by:

Correct AnswerverifiedB

Price elasticity of demand is the percentage change in price divided by the percentage change in quantity demanded.

Correct AnswerverifiedShow Answer

If frost in Florida reduces the quantity of vegetables sold by 20 percent and increases their retail price by 30 percent, one can conclude that:

Correct AnswerverifiedShow Answer

As the price of tomatoes fell from $2.50 to $2.00, the quantity imported from Mexico fell from 1,800 tons to 900 tons. The elasticity of supply of tomatoes imported from Mexico is:

Correct AnswerverifiedC

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C

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B

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C