Chapter 6 Quiz

Suppose that as the price of Y falls from $2.00 to $1.90, the quantity of Y demanded increases from 110 to 118. Then the absolute value of the price elasticity (midpoint method) is:

1.37.

The supply of product X is inelastic (but not perfectly inelastic) if the price of X rises by:

7 percent and quantity supplied rises by 5 percent.

Suppose the income elasticity of demand for toys is +2.00. This means that:

a 10 percent increase in income will increase the purchase of toys by 20 percent.

Which of the following goods (with their respective income elasticity coefficients in parentheses) will most likely suffer a decline in demand during a recession?

Plasma screen and LCD TVs (+4.2)

Suppose the price elasticity coefficients of demand are 1.43, 0.67, 1.11, and 0.29 for products W, X, Y, and Z respectively. A 1 percent decrease in price will increase total revenue in the case(s) of:

W and Y.

When the percentage change in price is greater than the resulting percentage change in quantity demanded:

an increase in price will increase total revenue.

If the demand for product X is inelastic, a 4 percent increase in the price of X will:

decrease the quantity of X demanded by less than 4 percent.

Suppose Aiyanna's Pizzeria currently faces a linear demand curve and is charging a very high price per pizza and doing very little business. Aiyanna now decides to lower pizza prices by 5 percent per week for an indefinite period of time. We can expect that each successive week:

demand will become less price elastic.

The total revenue test for elasticity:

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

Most demand curves are relatively elastic in the upper-left portion because the original price:

from which the percentage price change is calculated is large and the original quantity from which the percentage change in quantity is calculated is small.

The larger the positive cross elasticity coefficient of demand between products X and Y, the:

greater their substitutability.

The demand for autos is likely to be:

less price elastic than the demand for Honda Accords.

Assume that a 3 percent increase in income across the economy produces a 1 percent decline in the quantity demanded of good X. The coefficient of income elasticity of demand for good X is:

negative and therefore X is an inferior good.

Compared to coffee, we would expect the cross elasticity of demand for:

tea to be positive, but negative for cream.

A manufacturer of frozen pizzas found that total revenue decreased when price was lowered from $5 to $4. It was also found that total revenue decreased when price was raised from $5 to $6. Thus,

the demand for pizza is elastic above $5 and inelastic below $5.

The elasticity of demand for a product is likely to be greater:

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

The Illinois Central Railroad once asked the Illinois Commerce Commission for permission to increase its commuter rates by 20 percent. The railroad argued that declining revenues made this rate increase essential. Opponents of the rate increase contended that the railroad's revenues would fall because of the rate hike. It can be concluded that:

the railroad felt that the demand for passenger service was inelastic and opponents of the rate increase felt it was elastic.

Suppose the supply of product X is perfectly inelastic. If there is an increase in the demand for this product, equilibrium price:

will increase, but equilibrium quantity will be unchanged.