Micro Chapter 5

Assume that demand decreases by 3 percent, the absolute value of price elasticity of demand is 1.0, and price elasticity of supply is 1.0. What is the percentage price change in this case? a) -1.5 b) -0.5 c) 0.5 d) 1.5

a) -1.5

Good X and Good Y are related goods. When the price of Good X rises by 5 percent, the quantity demanded for Good Y rises by 15 percent. Calculate the cross-price elasticity. a) 3 b) -3 c) -0.3 d) 0.3

a) 3

Are there more substitutes for Cheerios or for cereal in general? For which good is demand more elastic? a) Cheerios; Cheerios b) Cheerios; cereal c) cereal; Cheerios d) cereal; cereal

a) Cheerios; Cheerios

Demand for a specific brand ______ demand for the corresponding product category. a) is more elastic than b) is less elastic than c) is equally elastic to d) differs indeterminately from

a) is more elastic than

A cross-price elasticity value that is positive will indicate goods that are substitutes. a) true b) false

a) true

A firm's revenue is price per unit times the quantity sold, so an increase in price decreases revenue if demand is elastic. a) true b) false

a) true

Assume a product has a rather elastic demand. If the producer of the good raises the price of the product, that producer's total revenue will decrease. a) true b) false

a) true

Both the elasticities of demand and supply tend to be more elastic in the long-run. a) true b) false

a) true

Demand for necessities is inelastic, while demand for luxuries is elastic. a) true b) false

a) true

Drug prohibition is likely to increase drug-industry revenue because the demand for drugs is inelastic. a) true b) false

a) true

If a rising price leads to falling revenues, then demand is elastic. a) true b) false

a) true

A good with an absolute value of the price elasticity of demand of 0.5 has: a) an elastic demand. b) an inelastic demand. c) unit elastic demand. d) perfectly inelastic demand.

b) an inelastic demand

A cross-price elasticity value that is negative will always indicate goods that are substitutes. a) true b) false

b) false

Assume a product has an inelastic demand. If the producer of the good raises the price of the product, that producer's total revenue will decrease. a) true b) false

b) false

Demand for necessities is elastic, while demand for luxuries is inelastic. a) true b) false

b) false

Goods tend to be more elastic in the short run than in the long run. a) true b) false

b) false

For a price increase from $100 to $110, supply is the most elastic when quantity supplied: a) increases from 20 to 30. b) increases from 20 to 40. c) does not change. d) increases from 20 to 22.

b) increases from 20 to 40

A higher income tends to make demand for a given good ______ elastic. a) more b) less c) equally d) indeterminately

b) less

A perfectly inelastic supply curve is a: a) vertical line indicating that a very large increase in price will increase the quantity supplied. b) vertical line indicating that even a very large increase in price won't increase the quantity supplied. c) horizontal line indicating that a very small increase in price will increase the quantity supplied. d) horizontal line indicating that even a very small increase in price won't increase the quantity supplied.

b) vertical line indicating that even a very large increase in price won't increase the quantity supplied

Assume that demand increases by 1 percent, the absolute value of price elasticity of demand is 1.0, and price elasticity of supply is 1.0. What is the percentage price change in this case? a) -1.5 b) -0.5 c) 0.5 d) 1.5

c) 0.5

A 4 percent increase in the price of beer will cause a 1 percent decline in the quantity of beer demanded. The demand for beer is: a) elastic. b) unitary elastic. c) inelastic. d) elastic at 4 (in absolute value).

c) inelastic

A good with an absolute value of the price elasticity of demand of 1.0 is classified as: a) elastic. b) inelastic. c) unit elastic. d) perfectly inelastic.

c) unit elastic

Good X and Good Y are related goods. When the price of Good X rises by 20 percent, the quantity demanded for Good Y falls by 40 percent. What is the cross-price elasticity? a) 2 b) 4 c) -0.5 d) -2

d) -2

If a 4 percent increase in the price of pepper results in a 1 percent decrease in pepper sales, what is the absolute value of the price elasticity of demand for pepper? Is it elastic or inelastic? a) 4; elastic b) 0.25; elastic c) 4; inelastic d) 0.25; inelastic

d) 0.25; inelastic

A good with many substitutes will have a _____ curve that is relatively _____ elastic than a good with few substitutes. a) supply; less b) supply; more c) demand; less d) demand; more

d) demand; more

A perfectly elastic supply curve is: a) downward sloped. b) vertical. c) upward sloped. d) horizontal.

d) horizontal