LearnSmart Questions: Chapter 6

A 10 percent drop in the price of hot dogs has increased the demand for hot dog buns by 5 percent. What is the cross-price elasticity of demand between the goods? - 2 - -2 - 0.5 - -0.5

- -0.5

If the price of a good goes up by 40 percent and the quantity demanded falls by 20 percent, what is the price elasticity of demand? - 4 - 2 - 1/4 - 1/2

- 1/2

If the quantity of extra long twin bed sheets supplied increases 2 percent when the price goes up 8 percent, the elasticity of supply is: - 1/4 - 6 - 4 - 3/4

- 1/4

A microeconomics class estimates that with every 15 percent increase in income, the quantity of gold purchased increases by 30 percent. From this information one would conclude that the income elasticity of demand is: - 0.5 - 45 - 1 - 2

- 2

A college bookstore has estimated the elasticity of demand for its textbooks to be 1.89. Using this information, the college bookstore decides to look into how costs will change when they increase production before lowering price... Are they correct in their reasoning? - Yes, because while lowering prices when demand is elastic will raise revenue, costs will rise as well. The effect on profit is unclear. - No, because lowering prices when demand is inelastic will lower revenue regardless of costs. - Yes, because while lowering prices when demand is inelastic will raise revenue, costs will rise as well. The effect on profit is unclear. - No, because lowering prices when demand is elastic will lower total revenue regardless of costs.

- Yes, because while lowering prices when demand is elastic will raise revenue, costs will rise as well. The effect on profit is unclear.

Total revenue is maximized: - at the midpoint of a demand curve - where the demand curve intersects the quantity axis - where the demand curve intersects the price axis

- at the midpoint of a demand curve

Which of the following goods is an inferior good? - cheddar cheese, income elasticity = 0.89 - maple syrup, income elasticity = 1.9 - cabbage, income elasticity = -0.6 - red potatoes, income elasticity = 0.34

- cabbage, income elasticity = -0.6

A straight line supply curve that has a slope of 0.5: - is inelastic - is unit elastic - is elastic - can be elastic or inelastic

- can be elastic or inelastic

Which of the following markets likely has the least elastic demand? - jeans - dresses - slacks - clothing

- clothing

Goods that are used in conjunction with other goods are: - substitutes - complements - inferior goods - normal goods

- complements

If an economist observed that higher frozen yogurt prices lea to a sharp decrease in the demand for chocolate sprinkles, she most likely would conclude that frozen yogurt and chocolate sprinkles are: - substitutes - both inferior goods - both normal goods - complements

- complements

For complements: - price elasticity of income is positive - price elasticity of income is negative - cross-price elasticity of demand is positive - cross-price elasticity of demand is negative

- cross-price elasticity of demand is negative

Cross-price elasticity of demand is defined as the percentage change in: - demand for the good divided by percentage change in price of a related good - demand for the good divided by percentage change in demand of a related good - price of a related good divided by percentage change in demand of the good - price of a related good multiplied by percentage change in demand of the good

- demand for the good divided by percentage change in price of a related good

What is the relationship between the time period being considered and elasticity? - demand is more elastic in the short run than in the long run - elasticity does not typically change with time period considered - demand is less elastic in the short run than in the long run

- demand is less elastic in the short run than in the long run

Relative to necessities, demand for luxury goods tends to be: - unit elastic - inelastic - perfectly elastic - elastic

- elastic

A straight-line demand curve has a(n): - slope that changes along a demand curve - elasticity that remains constant along a demand curve - elasticity that changes along a demand curve

- elasticity that changes along a demand curve

When demand is highly inelastic and supply increases, price: - rises significantly while quantity hardly changes at all - falls significantly while quantity hardly changes at all - and quantity remain almost constant - remains relatively constant while quantity increases enormously

- falls significantly while quantity hardly changes at all

True or False: If demand is inelastic, the change in quantity demanded changes by a larger percentage than the change in price. - true - false

- false

True or False: Inelastic means that a percentage change in quantity is greater than the percentage change in price. - true - false

- false

True or False: Perfectly elastic reflects the situation in which quantity does not respond to changes in price. - true - false

- false

When you move up a straight line demand curve, starting where the demand curve intersects the quantity axis, total revenue: - first increases then decreases - first decreases then increases - always increases - always decreases

- first increases then decreases

For a normal good, income elasticity must be: - less than 0 - greater than 1 - equal to 1 - greater than 0

- greater than 0

Luxuries are goods that have an income elasticity: - less than one - that are negative - greater than one

- greater than one

Elasticity is: - independent of units - depends on units of the price - depends of units of the quantity

- independent of units

A supply curve that has an elasticity of 0.25 is: - inelastic - elastic - unit elastic

- inelastic

A good whose consumption decreases when income increases is considered a(n): - luxury - necessity - inferior good - normal good

- inferior good

If your consumption of music increases 2 percent when your income increases 1 percent, music is considered a(n): - luxury - inferior good - necessity

- luxury

Which of the following goods is luxury good? - maple syrup, income elasticity = 1.9 - red potatoes, income elasticity = 0.34 - cabbage, income elasticity = -0.6 - cheddar cheese, income elasticity = 0.89

- maple syrup, income elasticity = 1.9

A good whose consumption increases with an increase in income is known as a(n): - normal good - scarce good - luxury good - inferior good

- normal good

Income elasticity is defined as the _________. - change in demand divided by the change in income - percentage change in income divided by the percentage change in demand - change in income divided by the change in demand - percentage change in quantity demanded divided by the percentage change in income

- percentage change in quantity demanded divided by the percentage change in income

Demand is said to be elastic when the: - change in quantity demanded is less than the change in price - percentage change in quantity demanded is less than the percentage change in price - change in quantity demanded is greater than the change in price - percentage change in quantity demanded is greater than the percentage change in price

- percentage change in quantity demanded is greater than the percentage change in price

What does the percentage change in quantity demanded divided by the percentage change in price measure? - income elasticity of demand - price elasticity of demand - cross price elasticity of demand - supply elasticity of demand

- price elasticity of demand

Price elasticity of supply is the percentage change in: - price divided by the percentage change in quantity supplied - quantity supplied multiplied by the percentage change in price - quantity supplied divided by the percentage change in price - price divided by the percentage change in quantity supplied

- quantity supplied divided by the percentage change in price

A club has estimated the elasticity of demand for baseball tickets to be 0.32. Using this information, a club that wants to raise revenues should: - lower ticket prices - raise ticket prices - keep ticket prices the same - give up trying to raise revenue

- raise ticket prices

When supply is highly inelastic and demand increases, price: - falls significantly while quantity hardly changes at all - and quantity remain almost constant - remains relatively constant while quantity increases enormously - rises significantly while quantity hardly changes at all

- rises significantly while quantity hardly changes at all

Goods that can be used in place of one another are called: - complements - normal goods - substitutes - inferior goods

- substitutes

If the cross-price elasticity of pencils in relation to pens is 0.5., pens and pencils are: - complements - substitutes - inferior goods - normal goods

- substitutes

Which of the following factors affect the number of substitutes a good has? - the quantity of other goods purchased - the degree to which a good is a luxury - the market definition - the importance of a good in one's budget - the time period being considered

- the degree to which a good is a luxury - the market definition - the importance of a good in one's budget - the time period being considered

True or False: A firm knows that it faces inelastic demand. It should consider increasing its price. - true - false

- true

True or False: Because pencils represent a small portion of one's budget, its demand is relatively inelastic. - true - false

- true

True or False: If demand is elastic, the change in quantity demanded changes by a larger percentage than the change in price. - true - false

- true

True or False: Perfectly inelastic reflects the situation in which quantity does not respond to changes in price. - true - false

- true

If the percentage change in price is 20% and the percentage change in quantity demanded is 20%, demand is: - unit elastic - elastic - inelastic

- unit elastic

Total revenue is maximized when demand is: - inelastic - unit elastic - elastic

- unit elastic