Homework 5
Suppose there is a 10 percent increase in the price of good X and it causes a 10 percent decrease in the quantity of X demanded. Price elasticity of demand for X is
1.
A tax is imposed on orange juice. Consumers will bear more of the burden of the tax: a. If the demand for orange juice is relatively inelastic and the supply is relatively elastic. b. If the demand for orange juice is relatively elastic and the supply is relatively inelastic. c. If the supply for orange juice is perfectly inelastic. d. none of the above
a. If the demand for orange juice is relatively inelastic and the supply is relatively elastic.
The elasticity of supply coefficient for lobster is estimated to be equal to 0.6. It is expected, therefore, that a 10% decrease in price would lead to: a. a 6% decrease in the quantity of lobsters supplied. b. a 10% decrease in the quantity of lobsters supplied. c. a 10% increase in the quantity of lobsters supplied. d. a 6% increase in the quantity of lobsters supplied.
a. a 6% decrease in the quantity of lobsters supplied.
Which of the following is associated with inelastic demand? a. a limited amount of time for consumers to respond to a price change b. availability of many close substitutes c. large percentage of income spent on the good in question d. all of the above
a. a limited amount of time for consumers to respond to a price change
If the supply curve for a product is horizontal, then the elasticity of supply is: a. equal to infinity. b. greater than one but less than infinity. c. equal to one. d. equal to zero.
a. equal to infinity.
The current supply of Rembrandt paintings: a. is perfectly inelastic. b. is unit elastic. c. is perfectly elastic. d. is elastic.
a. is perfectly inelastic.
What type of demand curve is depicted by the graph below? a. unit elastic b. perfectly elastic c. relatively elastic d. perfectly inelastic
b. perfectly elastic
Total revenue for a seller represents the amount that: a. sellers receive for a good or service which is computed as P*Q. b. sellers receive for a good or service which is computed as P ÷ Q. c. one buyer spends on a good or service which is computed as P*Q. d. one buyer spends on a good or service which is computed as P ÷ Q.
a. sellers receive for a good or service which is computed as P*Q.
If the elasticity of supply coefficient for a good is 6, we know: a. that for every 6% increase in quantity, there will be a 1% increase in price. b. that for every 1% increase in quantity, there will be a 6% increase in price. c. that for every 6% increase in quantity, there will be a 1% decrease in price. d. that for every 1% increase in quantity, there will be a 6% decrease in price.
a. that for every 6% increase in quantity, there will be a 1% increase in price.
A 25% decrease in the price of breakfast cereal leads to a 20% increase in the quantity of cereal demanded. As a result: a. total revenue will decrease. b. total revenue will increase. c. the elasticity of demand will increase. d. total revenue will remain constant.
a. total revenue will decrease.
When a product's price increases from $9 to $11, the quantity demanded decreases from 1200 to 800. Based on this information, the price elasticity of demand (in absolute terms) is estimated to be equal to: a. 0.25. b. 2.0. c. 0.5. d. 4.0.
b. 2.0.
A good is considered normal when its income elasticity of demand is ___ and inferior when the its income elasticity of demand is ___. a. Less than zero, greater than zero. b. Greater than zero, less than zero. c. Less than one, greater than one. d. Greater than one, less than one.
b. Greater than zero, less than zero.
Assume the price of widgets increases by 22 percent and the quantity supplied increases by 27 percent as a result. The elasticity of supply coefficient is: a. greater than 1, implying that widgets are normal goods. b. greater than 1, implying that supply is elastic. c. greater than 1, implying that supply is inelastic. d. less than 1, implying that widgets are inferior goods.
b. greater than 1, implying that supply is elastic.
A price cut will decrease the total revenue a firm receives if the demand for its product is: a. unit elastic. b. inelastic. c. elastic. d. unit inelastic.
b. inelastic.
A jeweler cut prices in his store by 20% and the dollar value of his sales fell by 20%. This is indicative of: a. perfectly elastic demand. b. perfectly inelastic demand. c. elastic demand. d. inelastic demand.
b. perfectly inelastic demand.
Ceteris paribus , if a 6% increase in price causes an 8% increase in quantity supplied, then: a. supply is inelastic. b. supply is elastic. c. supply is unit elastic. d. the supply curve is perfectly vertical.
b. supply is elastic.
When a product's price increases from $800 to $1,200, the quantity demanded decreases from 11,000 to 9,000. Based on this information, the price elasticity of demand (in absolute terms) is estimated to be equal to: a. 2.0. b. 4.0. c. 0.5. d. 0.25.
c. 0.5.
Refer to Exhibit 6-3. The graph that best illustrates a perfectly elastic demand curve is a. Graph D. b. Graph A. c. Graph B. d. Graph C.
c. Graph B.
Refer to Exhibit 6-3. The graph that best illustrates a perfectly inelastic demand curve is: a. Graph A. b. Graph C. c. Graph D. d. Graph B.
c. Graph D.
Two goods are considered substitutes when the cross elasticity of demand is ___ and complements when the cross elasticity of demand is ___. a. Greater than one, less than one. b. Less than zero, greater than zero. c. Greater than zero, less than zero. d. Less than one, greater than one.
c. Greater than zero, less than zero.
When two goods have positive cross elasticities of demand and positive income elasticities, they are: a. Inferior and substitutes. b. Inferior and complements. c. Normal and substitutes. d. Normal and complements.
c. Normal and substitutes.
Which of the following is associated with a less elastic demand curve? a. availability of many close substitutes b. a greater amount of time for consumers to respond to a price change c. a smaller percentage of income spent on the good in question d. all of the above
c. a smaller percentage of income spent on the good in question
A perfectly elastic supply curve is: a. vertical. b. downward sloping to the left. c. horizontal. d. upward sloping to the right.
c. horizontal.
A steel mill raises the price of steel by 20%, which results in a 7% reduction in the quantity of steel demanded. The demand curve facing this firm is: a. elastic. b. unit elastic. c. inelastic. d. unit inelastic.
c. inelastic.
A positive income elasticity of demand for a good means: a. it is a substitute. b. it is a complement. c. it is a normal good. d. it is an inferior good.
c. it is a normal good.
What type of demand curve is depicted by the graph below? a. relatively inelastic b. unit elastic c. perfectly inelastic d. perfectly elastic
c. perfectly inelastic
If the estimated elasticity of supply coefficient equals 0.85, then: a. supply is unit elastic. b. the supply curve is vertical. c. supply is relatively inelastic. d. the demand curve is horizontal.
c. supply is relatively inelastic.
Which of the following is associated with a more elastic demand curve? a. availability of many close substitutes b. a greater amount of time for consumers to respond to a price change c. a large percentage of income spent on the good in question d. all of the above
d. all of the above
A tax is imposed on orange juice. Consumers will bear the full burden of this tax if the: a. price elasticity of demand for orange juice equals 1.0. b. demand for orange juice is unit elastic. c. demand for orange juice is perfectly elastic. d. demand curve for orange juice is perfectly inelastic.
d. demand curve for orange juice is perfectly inelastic.
Demand is said to be ____ when the quantity demanded is very responsive to changes in price. a. unit elastic b. independent c. inelastic d. elastic
d. elastic
If the measured elasticity of supply coefficient equals 0.6, then supply is: a. perfectly elastic. b. unit elastic. c. elastic. d. inelastic
d. inelastic
Shaina and Mariah have a business that provides personal fitness training services. They know that after raising their prices from $50 to $75 per hour, the quantity of hours they spent delivering training services fell from 90 to 80 hours per week. The demand for their services is: a. elastic, with a price elasticity coefficient less than one. b. elastic, with a price elasticity coefficient greater than one. c. inelastic, with a price elasticity coefficient greater than one. d. inelastic, with a price elasticity coefficient less than one.
d. inelastic, with a price elasticity coefficient less than one.
A positive income elasticity of demand for a good a. means it is a complement. b. it is an inferior good. c. means it is a substitute. d. it is a normal good.
d. it is a normal good.
A tax is imposed on orange juice. Consumers will bear no burden from this tax if the: a. demand for orange juice is unit elastic. b. demand for orange juice is perfectly inelastic. c. supply curve for orange juice is unit elastic. d. supply curve for orange juice is perfectly inelastic.
d. supply curve for orange juice is perfectly inelastic.
A movie theatre raises its admission prices by 10%, which results in a 10% reduction in the quantity of tickets demanded. The demand curve facing this firm is: a. inelastic. b. elastic. c. unit inelastic. d. unit elastic.
d. unit elastic.
The price of stadium seats at a baseball game increases from $20 to $30 and ticket sales fall from 45,000 per game to 35,000 per game. If other things remained constant, then it appears that the price elasticity of demand is: a. elastic. b. unit inelastic. c. equal to zero. d. unit elastic. e. inelastic.
e. inelastic.
If the supply curve for a product is vertical, then the elasticity of supply is:
equal to zero.
Demand is said to be ____ when the quantity demanded changes the same proportion as the price.
unit elastic
The price of a new electronic toy increases from $16 to $24 and the quantity demanded decreases from 1,050 to 950 per month as a result. Based on this information, the price elasticity of demand (in absolute terms) is estimated to be equal to:
0.25
Fantastic Cuts Hair Salon knows that a 15% increase in the price of their haircuts will result in a 5% decrease in the number of haircuts sold. What is the elasticity of demand facing Fantastic Cuts?
0.33
The price of a new toy increases from $5 to $7 and the quantity demanded decreases from 12,000 to 6,000 per month as a result. Based on this information, the price elasticity of demand (in absolute terms) is estimated to be equal to:
2.0, indicating relatively elastic demand.
Refer to Exhibit 6-3. The graph that best illustrates a relatively inelastic (but not perfectly inelastic) range along a demand curve is:
Graph C.
A 10% decrease in the price of energy bars leads to a 20% increase in the quantity of energy bars demanded. It appears that:
demand is elastic and total revenue will increase.
Shari and Mary have a business that provides personal fitness training services. They know that after raising their prices from $40 to $60 per hour, the quantity of hours they spent delivering training services fell from 90 to 50 hours per week. The demand for their services is:
elastic, with a price elasticity coefficient greater than one.
Shaina and Mariah have a business that provides personal fitness training services. They know that after raising their prices from $100 to $150 per hour, the quantity of hours they spent delivering training services fell from 45 to 40 hours per week. The demand for their services is:
inelastic, with a price elasticity coefficient less than one.
Chicken and fish are substitutes. Therefore, the cross elasticity of demand between chicken and fish should be:
positive.
If the cross elasticity of demand coefficient for potato chips and pretzels equals 1.5:
potato chips and pretzels must be substitutes.
A tax is imposed on wine. Sellers will bear the full burden of this tax if the:
supply for wine is perfectly inelastic.
Ceteris paribus , if a 4% increase in price leads to a 6% increase in the quantity supplied, then:
supply is elastic.
A perfectly inelastic supply curve is:
vertical.