Quiz 1

When the Gizmo Company could sell a gizmo for $10, it produced 2,500 per month. More recently, the price of a gizmo has fallen to $9 and so Gizmo is only producing 2,000 units per month. What is the price elasticity of supply for gizmos? A) 2.11 B) -2.11 C) -0.47 D) 0.47

A) 2.11

If the price elasticity of supply of tablets is constant and equal to 2.5, a 10 percent increase in price will result in a change in quantity supplied equal to A) 25 percent. B) -20 percent. C) 20 percent. D) 2.5 percent.

A) 25 percent.

Suppose two goods are perfect substitutes. The price elasticity of demand of one of the goods is A) infinity. B) 0. C) 10. D) 1.

A) infinity.

If tablets have an absolute price elasticity of 1, the demand for tablets is A) unit elastic. B) inelastic. C) perfectly elastic. D) elastic.

A) unit elastic.

A perfectly inelastic demand would imply what kind of demand curve? A) vertical B) downward sloping C) horizontal D) upward sloping

A) vertical

A perfectly inelastic demand curve exhibits A) zero responsiveness to changes in price. B) a change in quantity demanded that is proportional to the change in price. C) a change in quantity demanded that is always twenty percent of the change in price. D) zero quantity demanded when there is a slight change in price.

A) zero responsiveness to changes in price.

Refer to the above table. What is the absolute price elasticity of demand if a price falls from $7 to $6.50? A) 0.85 B) 1.17 C) 0.92 D) 1.08

B) 1.17

In the above figure, along the section of the demand curve between point a and point b, demand is A) inelastic. B) elastic. C) unit elastic. D) unit inelastic.

B) elastic.

When total revenue and price are directly related, demand is A) unit-elastic. B) inelastic. C) elastic. D) not related.

B) inelastic.

The cross elasticity of demand is A) the percentage change in the quantity demanded of one good divided by the percentage change in the quantity demanded of another good. B) the percentage change in the demand of one good divided by the percentage change in price of another good. C) the change in the price of one good divided by the change of quantity demanded of another good. D) the percentage change in the price of one good divided by the percentage change in the price of another good.

B) the percentage change in the demand of one good divided by the percentage change in price of another good.

Suppose that the cross-price elasticity of demand between goods Y and Z equals 1.5. Which of the following is TRUE? A) Goods Y and Z are complements because the cross-price elasticity is positive. B) Goods Y and Z are complements because the cross-price elasticity is greater than one. C) Goods Y and Z are substitutes because the cross-price elasticity is positive. D) Goods Y and Z are substitutes because the cross-price elasticity is greater than one.

C) Goods Y and Z are substitutes because the cross-price elasticity is positive.

Suppose that the demand for movie tickets is price inelastic for the range of prices between $10 and $12. If a movie theater raises the price of tickets from $10 to $12, what will happen to total revenues? A) Total revenues will decrease. B) Total revenues will not change. C) Total revenues will increase. D) Total revenues will have no relationship to the quantity of ties demanded.

C) Total revenues will increase.

Suppose that when the price of root beer rises 1%, the quantity of hotdogs demanded falls 0.5%. This would mean that hotdogs and root beer are A) substitutes, with a cross price elasticity of -2.0. B) complements, with a cross price elasticity of -2.0. C) complements, with a cross price elasticity of -0.5. D) substitutes, with a cross price elasticity of 0.5.

C) complements, with a cross price elasticity of -0.5.

Suppose that the cross-price elasticity of demand between good X and good Y is -1.55. This indicates that the two goods are A) both inferior. B) substitutes. C) complements. D) completely unrelated in the minds of consumers.

C) complements.

When a particular product has numerous but imperfect substitutes, the demand for that product will tend to be A) inelastic. B) perfectly elastic. C) elastic. D) unitary.

C) elastic.

When total revenue and price are inversely related, demand is A) unit-elastic. B) inelastic. C) elastic. D) not related.

C) elastic.

In the above figure, over the price range P5P6, demand is A) unit elastic. B) perfectly inelastic. C) inelastic. D) elastic.

C) inelastic.

When the absolute price elasticity of demand equals 0.9, demand is A) elastic. B) unit-elastic. C) inelastic. D) undetermined without more information.

C) inelastic.

A perfectly elastic demand curve exhibits A) zero responsiveness to changes in price. B) a change in quantity demanded that is proportional to the change in price. C) that quantity demanded will decrease to zero when there is a slight increase in the price level. D) a change in quantity demanded that is always twenty percent of the change in price.

C) that quantity demanded will decrease to zero when there is a slight increase in the price level.

When two goods are substitutes for each other, the cross-price elasticity of demand A) will be zero. B) may be either positive or negative. C) will be positive. D) will be negative.

C) will be positive.

If the supply of a good is perfectly inelastic, the price elasticity of supply will equal A) one. B) positive infinity. C) zero. D) none of the above.

C) zero.

Use the above table. The income elasticity of artisan bread is A) 8.330. B) 0.780. C) 0.012. D) 1.285.

D) 1.285.

Suppose that the number of units of good A consumed falls 12 percent when the price of good B falls 8 percent. The cross-price elasticity of demand between goods A and B is A) 1.75. B) 2.0. C) 0.66. D) 1.5.

D) 1.5.

Which of the following is a determinant of the price elasticity of demand for an item? A) the amount of time available to adjust to a change in the price of the item B) the percentage of a consumer's budget allocated to expenditures on the item C) the availability of a close substitute for the item D) All of the above are correct.

D) All of the above are correct.

If demand for a good is perfectly inelastic, then A) a price increase would cause a fall in total revenue. B) a price increase would cause an increase in quantity demanded. C) a price increase would cause a fall in quantity demanded. D) a price increase would cause no change in quantity demanded.

D) a price increase would cause no change in quantity demanded.

An increase in total revenue will result if A) demand is elastic and price increases. B) demand is inelastic and price decreases. C) demand is unitary elastic and price increases. D) demand is elastic and price decreases.

D) demand is elastic and price decreases.

In the above figure, over the price range P1P2, demand is A) perfectly elastic. B) inelastic. C) unit elastic. D) elastic.

D) elastic.

Use the above figure. When the price increases from $2 to $10, total revenue A) increases from areas B + C to areas A + D and demand is elastic. B) increases from areas A + B to areas B + C and demand is inelastic. C) increases from areas C + D to areas B + A and demand is elastic. D) increases from areas B + C to areas A + B and demand is inelastic.

D) increases from areas B + C to areas A + B and demand is inelastic.

------ Refer to the above figure. The supply curve is A) perfectly inelastic. B) unitary for all prices. C) elastic at high prices and inelastic at low prices. D) perfectly elastic.

D) perfectly elastic.

When demand is unit elastic, a 7 percent change in the price of the good A) will cause a change in quantity demanded greater than 7 percent. B) will cause a change in quantity demanded of less than 7 percent. C) will not cause any change in quantity demanded. D) will cause a change in quantity demanded equal to 7 percent.

D) will cause a change in quantity demanded equal to 7 percent.