Ch. 5 Elasticity Quiz

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When the cross-price elasticity of demand between two products is positive, the two goods are said to be substitutes.

True

The total revenue from selling trucks is equal to ____

the price of a truck times the quantity sold.

Unit elastic

a given change in price causes a proportional change in quantity demanded

0<E<1

inelastic

As the economy recovers from a recession, we should expect that the _____

demand for inferior goods will fall and the demand for normal goods will rise.

The supply of a product will be more elastic if _____

the time the producer has to adjust to a price change is long.

E=1

unit elastic

If demand is elastic, a decrease in price leads to a decrease in total revenue.

False

Total revenue is maximized where demand is inelastic

False

The value of the price elasticity of demand for a good with no close substitutes tends to be _____

0<Ed<1; inelastic

1<e<infinity

elastic

Elastic

the change in price has a relatively large effect on quantity demanded.

Total Revenue Formula

TR = p x q

Cross-price elasticity of demand (XED)

A measure of the percentage change in the demand for one good divided by the percentage change in the price of another good

The ability of increasing quantity supplied in response to a higher price is identical across industries.

False

The availability of substitutes makes the demand for a good less elastic.

False

The demand for firewood is likely to be more elastic in summer than in winter.

True

The greater the availability of close substitutes for a product, the greater the price elasticity of demand for that product.

True

The larger the proportion of a consumer's budget that is spent on a product, the more the consumer will be affected by a change in the price of the product.

True

E=infinity

perfectly elastic

E=0

perfectly inelastic

The supply of paintings by Van Gogh is most likely to be _____

perfectly inelastic because supply is limited.

Inelastic

quantity demanded is relatively unresponsive to a change in price.

If an increase in the price of Pepsi prompts some consumers to buy close substitutes, the demand for Pepsi is _____ (what kind of elasticity?)

relatively price elastic.

If demand is unit elastic, a price reduction will ____

remains the same

What is the effect of a 10 percent price increase on total revenue if 1 is less than elasticity and elasticity is less than infinity?

revenue decreases

A normal good is defined as a product for which quantity demanded increases as price decreases.

False

Any supply curve that is a straight line passing through the graph's origin is unit elastic.

True

As price decreases along a linear demand curve, the price elasticity of demand decreases.

True

Both the income elasticity of demand and the cross-price elasticity of demand coefficients can take on negative, zero, or positive values.

True

If demand is inelastic, the percentage change in price is greater than the resulting percentage change in quantity demanded.

True

Substitutes are pairs of goods that have a positive cross-price elasticity of demand.

True

What is the effect of a 10 percent price increase on quantity demanded if 1 is less than elasticity and elasticity is less than infinity?

Quantity demanded drops by more than 10 percent.

What is the effect of a 10 percent price increase on quantity demanded if elasticity is infinite?

Quantity demanded drops to 0.

What is the effect of a 10 percent price increase on total revenue if elasticity is equal to 1?

Revenue does not change.

Wheat farmers in Kansas would benefit from a devastating crop failure in North Dakota (another major wheat-producing state) if the U.S. demand for wheat is _____

elastic.

If quantity increases by 15 percent when prices increase 5 percent then elasticity for this product is _____.

3

As consumers have a longer time period to respond, the demand for a product typically becomes more inelastic.

False

Cross-price elasticity measures the responsiveness of the price of Good A to a change in the price of Good B.

False

Elasticity rises as price falls along a linear downward-sloping demand curve.

False

If income rises and the demand for a product remains unchanged, the income elasticity of demand for that product is unit elastic.

False

If the demand curve shifts, but the supply curve does not, and the price remains the same, supply must be perfectly inelastic.

False

Luxury goods are ____

Income Elastic

What is the effect of a 10 percent price increase on quantity demanded if elasticity is equal to 1?

Quantity demanded drops by 10 percent.

Necessities and luxuries are both types of normal goods

True

Price elasticity is 1 at the midpoint of a linear downward-sloping demand curve.

True

Total revenue is the same for every price-quantity combination along a unit-elastic demand curve.

True

If an increase in the price of peanut butter causes a decline in the demand for jelly, then _____

the goods are complements.


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