QUIZ 3 EXAM 1

A) True

Income elasticity measures the effect of a change in income on the purchases of some good or service. A) True B) False

C) Positive, indicating substitute goods.

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.

D) Negative, indicating complementary goods.

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

B) Tea to be positive, but negative for cream.

Compared to coffee, we would expect the cross elasticity of demand for: A) Tea to be negative, but positive for cream. B) Tea to be positive, but negative for cream. C) Both tea and cream to be negative. D) Both tea and cream to be positive.

A) The price of some other product.

Cross elasticity of demand measures how sensitive purchases of a specific product are to changes in: A) The price of some other product. B) The price of that same product. C) Income. D) The general price level.

B) Greater than one.

If a demand for a product is elastic, the value of the price elasticity coefficient is: A) Zero. B) Greater than one. C) Equal to one. D) Less than one.

C) The price elasticity of demand is 2.25.

If a firm can sell 3,000 units of product A at $10 per unit and 5,000 at $8, then: A) The price elasticity of demand is 0.44. B) A is a complementary good. C) The price elasticity of demand is 2.25. D) A is an inferior good.

A) 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) W and Y.

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: A) W and Y. B) Y and Z. C) X and Z. D) Z and W.

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

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.

D) The sensitivity of consumer purchases to price changes.

The concept of price elasticity of demand measures: A) The slope of the demand curve. B) The number of buyers in a market. C) The extent to which the demand curve shifts as the result of a price decline. D) The sensitivity of consumer purchases to price changes.

A) Consumers are largely unresponsive to a per unit price change.

The demand for a product is inelastic with respect to price if: A) Consumers are largely unresponsive to a per unit price change. B) The elasticity coefficient is greater than 1. C) A drop in price is accompanied by a decrease in the quantity demanded. D) A drop in price is accompanied by an increase in the quantity demanded.

C) Relatively price inelastic.

The demands for such products as salt, bread, and electricity tend to be: A) Perfectly price elastic. B) Of unit price elasticity. C) Relatively price inelastic. D) Relatively price elastic.

C) Tends to be elastic in high-price ranges and inelastic in low-price ranges.

The elasticity of demand: A) Is infinitely large for a perfectly inelastic demand curve. B) Tends to be inelastic in high-price ranges and elastic in low-price ranges. C) Tends to be elastic in high-price ranges and inelastic in low-price ranges. D) Is the same at each price-quantity combination on a stable demand curve.

B) Amount of time the producer has to adjust inputs in response to a price change.

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.

B) The greater will be the price elasticity of demand.

The more time consumers have to adjust to a change in price: A) The smaller will be the price elasticity of demand. B) The greater will be the price elasticity of demand. C) The more likely the product is a normal good. D) The more likely the product is an inferior good.

A) Buyer responsiveness to changes in price.

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

A) Negative, but the minus sign is ignored.

The price elasticity of demand is: A) Negative, but the minus sign is ignored. B) Positive, but the plus sign is ignored. C) Positive for normal goods and negative for inferior goods. D) Positive because price and quantity demanded are inversely related.

B) Responsive the quantity supplied of X is to changes in the price of X.

The price elasticity of supply measures how: A) Easily labor and capital can be substituted for one another in the production process. B) Responsive the quantity supplied of X is to changes in the price of X. C) Responsive the quantity supplied of Y is to changes in the price of X. D) Responsive quantity supplied is to a change in incomes.

D) Is elastic.

The price of product X is reduced from $100 to $90 and, as a result, the quantity demanded increases from 50 to 60 units. Therefore demand for X in this price range: A) Has declined. B) Is of unit elasticity. C) Is inelastic. D) Is elastic.