Micro Test #2

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 cases of -W and Y. -Y and Z. -X and Z. -Z and W.

W and Y.

When the percentage change in price is greater than the resulting percentage change in quantity demanded, -a decrease in price will increase total revenue. -demand may be either elastic or inelastic. -an increase in price will increase total revenue. -demand is elastic.

an increase in price will increase total revenue.

Suppose Aiyanna's Pizzeria currently faces a linear demand curve and is charging a very high price per pizza and doing very little business. Aiyanna now decides to lower pizza prices by 5 percent per week for an indefinite period of time. We can expect that each successive week, -demand will become more price elastic. -price elasticity of demand will not change as price is lowered. -demand will become less price elastic. -the elasticity of supply will increase.

demand will become less price elastic.

The total-revenue test for elasticity: is equally applicable to both demand and supply. does not apply to demand, because price and quantity are inversely related. does not apply to supply, because price and total revenue have a positive correlation. applies to the short-run supply curve but not to the long-run supply curve.

does not apply to supply, because price and total revenue have a positive correlation.

Most demand curves are relatively elastic in the upper-left portion because the original price: -and quantity from which the percentage changes in price and quantity are calculated are both large. -and quantity from which the percentage changes in price and quantity are calculated are both small. -from which the percentage price change is calculated is small and the original quantity from which the percentage change in quantity is calculated is large. -from which the percentage price change is calculated is large and the original quantity from which the percentage change in quantity is calculated is small.

from which the percentage price change is calculated is large and the original quantity from which the percentage change in quantity is calculated is small.

The larger the positive cross elasticity coefficient of demand between products X and Y, the stronger their complementariness. greater their substitutability. smaller the price elasticity of demand for both products. less sensitive purchases of each are to increases in income.

greater their substitutability.

The demand for autos is likely to be less price elastic than the demand for Honda Accords. more price elastic than the demand for Honda Accords. of the same price elasticity as the demand for Honda Accords. perfectly inelastic.

less price elastic than the demand for Honda Accords.

Assume that a 3 percent increase in income across the economy produces a 1 percent decline in the quantity demanded of good X. The coefficient of income elasticity of demand for good X is negative, and therefore X is an inferior good. negative, and therefore X is a normal good. positive, and therefore X is an inferior good. positive and therefore X is a normal good.

negative, and therefore X is an inferior good.

Which of the following goods (with their respective income elasticity coefficients in parentheses) will most likely suffer a decline in demand during a recession? dinner at a nice restaurant (+1.8) chicken purchased at the grocery store for preparation at home (+0.25) second-hand clothing (-0.6) plasma screen and LCD TVs (+4.2)

plasma screen and LCD TVs (+4.2)

Compared to coffee, we would expect the cross elasticity of demand for tea to be negative, but positive for cream. tea to be positive, but negative for cream. both tea and cream to be negative. both tea and cream to be positive.

tea to be positive, but negative for cream.

A manufacturer of frozen pizzas found that total revenue decreased when price was lowered from $5 to $4. It was also found that total revenue decreased when price was raised from $5 to $6. Thus, -the demand for pizza is elastic above $5 and inelastic below $5. -the demand for pizza is elastic both above and below $5. -the demand for pizza is inelastic above $5 and elastic below $5. -$5 is not the equilibrium price of pizza.

the demand for pizza is elastic above $5 and inelastic below $5.

The elasticity of demand for a product is likely to be greater, if the product is a necessity, rather than a luxury good. the greater the amount of time over which buyers adjust to a price change. the smaller the proportion of one's income spent on the product. the smaller the number of substitute products available.

the greater the amount of time over which buyers adjust to a price change.

The Illinois Central Railroad once asked the Illinois Commerce Commission for permission to increase its commuter rates by 20 percent. The railroad argued that declining revenues made this rate increase essential. Opponents of the rate increase contended that the railroad's revenues would fall because of the rate hike. It can be concluded that -both groups felt that the demand was elastic but for different reasons. -both groups felt that the demand was inelastic but for different reasons. -the railroad felt that the demand for passenger service was inelastic and opponents of the rate increase felt it was elastic. -the railroad felt that the demand for passenger service was elastic and opponents of the rate increase felt it was inelastic.

the railroad felt that the demand for passenger service was inelastic and opponents of the rate increase felt it was elastic.

Suppose the supply of product X is perfectly inelastic. If there is an increase in the demand for this product, equilibrium price -will decrease, but equilibrium quantity will increase. -and quantity will both decrease. -will increase, but equilibrium quantity will decline. -will increase, but equilibrium quantity will be unchanged.

will increase, but equilibrium quantity will be unchanged.