ECO 201test 2 SG1

The state legislature has cut Gigantic State University's appropriations. GSU's Board of Regents decides to increase tuition and fees to compensate for the loss of revenue. The board is assuming that the: A. demand for education at GSU is elastic. B. demand for education at GSU is inelastic. C. coefficient of price elasticity of demand for education at GSU is unity. D. coefficient of price elasticity of demand for education at GSU is greater than unity.

B.demand for education at GSU is inelastic

The main determinant of elasticity of supply is the: A. number of close substitutes for the product available to consumers. B. amount of time the producer has to adjust inputs in response to a price change. C. urgency of consumer wants for the product. D. number of uses for the product.

amount of time the producer has to adjust inputs in response to a price change.

The total revenue test for elasticity: A. is equally applicable to both demand and supply. B. does not apply to demand because price and quantity are inversely related. C. does not apply to supply because price and total revenue always move together. D. applies to the short-run supply curve but not to the long-run supply curve.

does not apply to supply because price and total revenue always move together.

Refer to the diagram. If price falls from $10 to $2, total revenue: A. rises from A + B to A + B + D + C and demand is elastic. B. falls from A + D to B + C and demand is inelastic. C. rises from C + D to B + A and demand is elastic. D. falls from A + B to B + C and demand is inelastic.

falls from A + B to B + C and demand is inelastic.

The larger the positive cross elasticity coefficient of demand between products X and Y, the: A. stronger their complementariness. B. greater their substitutability. C. smaller the price elasticity of demand for both products. D. the less sensitive purchases of each are to increases in income.

greater their substitutability.

We would expect the cross elasticity of demand between Pepsi and Coke to be: A. positive, indicating normal goods. B. positive, indicating inferior goods. C. positive, indicating substitute goods. D. negative, indicating substitute goods.

positive, indicating substitute goods.

The elasticity of supply of product X is unitary if the price of X rises by: A. 5 percent and quantity supplied rises by 7 percent. B. 8 percent and quantity supplied rises by 8 percent. C. 10 percent and quantity supplied stays the same. D. 7 percent and quantity supplied rises by 5 percent.

8 percent and quantity supplied rises by 8 percent.

In which of the following instances will total revenue decline? A. Price rises and supply is elastic. B. Price falls and demand is elastic. C. Price rises and demand is inelastic. D. Price rises and demand is elastic.

D.Price rises and demand is elastic.

If the price of hand calculators falls from $10 to $9 and, as a result, the quantity demanded increases from 100 to 125, then: A. demand is elastic. B. demand is inelastic. C. demand is of unit elasticity. D. not enough information is given to make a statement about elasticity.

A.demand is elastic.

The price elasticity of demand of a straight-line demand curve is: A. elastic in high-price ranges and inelastic in low-price ranges. B. elastic but does not change at various points on the curve. C. inelastic but does not change at various points on the curve. D. 1 at all points on the curve.

A.elastic in high-price ranges and inelastic in low-price ranges.

Suppose that the total revenue curve is derived from a particular linear demand curve. That demand curve must be: A. inelastic for price declines that increase quantity demanded from 6 units to 7 units. B. elastic for price declines that increase quantity demanded from 6 units to 7 units. C. inelastic for price increases that reduce quantity demanded from 4 units to 3 units. D. elastic for price increases that reduce quantity demanded from 8 units to 7 units.

A.inelastic for price declines that increase quantity demanded from 6 units to 7 units.

If the price elasticity of demand for a product is 2.5, then a price cut from $2.00 to $1.80 will: A. increase the quantity demanded by about 2.5 percent. B. decrease the quantity demanded by about 2.5 percent. C. increase the quantity demanded by about 25 percent. D. increase the quantity demanded by about 250 percent.

B.decrease the quantity demanded by about 2.5 percent

Suppose we find that the price elasticity of demand for a product is 3.5 when its price is increased by 2 percent. We can conclude that quantity demanded: A. increased by 7 percent. B. decreased by 7 percent. C. decreased by 9 percent. D. decreased by 1.75 percent.

B.decreased by 7 percent.

2. The basic formula for the price elasticity of demand coefficient is: A. absolute decline in quantity demanded/absolute increase in price. B. percentage change in quantity demanded/percentage change in price. C. absolute decline in price/absolute increase in quantity demanded. D. percentage change in price/percentage change in quantity demanded.

B.percentage change in quantity demanded/percentage change in price.

A demand curve that is parallel to the horizontal axis is: A. perfectly inelastic. B. perfectly elastic. C. relatively inelastic. D. relatively elastic.

B.perfectly elastic.

Suppose the total revenue curve is derived from a particular linear demand curve. That demand curve must be: A. inelastic for price declines that increase quantity demanded from 2 units to 3 units. B. elastic for price declines that increase quantity demanded from 5 units to 6 units. C. unit elastic for price increases that reduce quantity demanded from 5 units to 4 units. D. inelastic for price increases that reduce quantity demanded from 4 units to 3 units.

C.unit elastic for price increases that reduce quantity demanded from 5 units to 4 units.

5. Which of the following is not characteristic of the demand for a commodity that is elastic? A. The relative change in quantity demanded is greater than the relative change in price. B. Buyers are relatively sensitive to price changes. C. Total revenue declines if price is increased. D. The elasticity coefficient is less than one.

D.The elasticity coefficient is less than one.

1. The price elasticity of demand coefficient measures: A buyer responsiveness to price changes. B. the extent to which a demand curve shifts as incomes change. C. the slope of the demand curve. D. how far business executives can stretch their fixed costs...

buyer responsiveness to price changes.

If the income elasticity of demand for lard is -3.00, this means that: A. lard is a substitute for butter. B. lard is a normal good C. lard is an inferior good. D. more lard will be purchased when its price falls.

lard is an inferior good.

We would expect the cross elasticity of demand between dress shirts and ties to be: A. positive, indicating normal goods. B. positive, indicating complementary goods. C. negative, indicating substitute goods. D. negative, indicating complementary goods.

negative, indicating complementary goods.

The formula for cross elasticity of demand is percentage change in: A. quantity demanded of X/percentage change in price of X. B. quantity demanded of X/percentage change in income. C. quantity demanded of X/percentage change in price of Y. D. price of X/percentage change in quantity demanded of Y.

quantity demanded of X/percentage change in price of Y.

The diagram concerns supply adjustments to an increase in demand (D1 to D2) in the immediate market period, the short run, and the long run. Supply curves S1, S2, and S3 apply to the: A. immediate market period, long run, and short run respectively. B. immediate market period, short run, and long run respectively. C. long run, short run, and immediate market period respectively. D. short run, long run, and immediate market period respectively.

short run, long run, and immediate market period respectively.

The elasticity of demand for a product is likely to be greater: A. if the product is a necessity, rather than a luxury good. B. the greater the amount of time over which buyers adjust to a price change. C. the smaller the proportion of one's income spent on the product. D. the smaller the number of substitute products available.

the greater the amount of time over which buyers adjust to a price change.

Which of the following generalizations is not correct? A. The larger an item is in one's budget, the greater the price elasticity of demand. B. The price elasticity of demand is greater for necessities than it is for luxuries. C. The larger the number of close substitutes available, the greater will be the price elasticity of demand for a particular product. D. The price elasticity of demand is greater the longer the time period under consideration.

the price elasticity of demand is greater for necessities than it is for luxuries.

Suppose the supply of product X is perfectly inelastic. If there is an increase in the demand for this product, equilibrium price: A. will decrease but equilibrium quantity will increase. B. and quantity will both decrease. C. will increase, but equilibrium quantity will decline. D. will increase, but equilibrium quantity will be unchanged.

will increase, but equilibrium quantity will be unchanged.