Quiz 4 AGB144

The price elasticity of demand is generally: "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.

"A. negative, but the minus sign is ignored."

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."

"C. positive, indicating substitute goods."

We would expect the cross elasticity of demand between dress shirts and ties to be: "A. positive, indicating normal goods." "B. positive, indicating complementary goods." "C. negative, indicating substitute goods." "D. negative, indicating complementary goods."

"D. negative, indicating complementary goods."

"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.

A. W and Y.

Suppose the income elasticity of demand for toys is +2.00. This means that: A. a 10 percent increase in income will increase the purchase of toys by 20 percent. B. a 10 percent increase in income will increase the purchase of toys by 2 percent. C. a 10 percent increase in income will decrease the purchase of toys by 2 percent. D. toys are an inferior good.

A. a 10 percent increase in income will increase the purchase of toys by 20 percent.

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

A. buyer responsiveness to price changes.

An antidrug policy which reduces the supply of heroin might: A. increase street crime because the addict's demand for heroin is highly inelastic. B. reduce street crime because the addict's demand for heroin is highly elastic. C. reduce street crime because the addict's demand for heroin is highly inelastic. D. increase street crime because the addict's demand for heroin is highly elastic.

A. increase street crime because the addict's demand for heroin is highly inelastic.

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.

A. the price of some other product.

"Suppose the price of local cable TV service increased from $16.20 to $19.80 and as a result the number of cable subscribers decreased from 224,000 to 176,000. Along this portion of the demand curve, price elasticity of demand is: " A. 0.8. B. 1.2. C. 1.6. D. 8.0

B. 1.2.

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. amount of time the producer has to adjust inputs in response to a price change.

"If the demand for product X is inelastic, a 4 percent increase in the price of X will: " A. decrease the quantity of X demanded by more than 4 percent. B. decrease the quantity of X demanded by less than 4 percent. C. increase the quantity of X demanded by more than 4 percent. D. increase the quantity of X demanded by less than 4 percent.

B. decrease the quantity of X demanded by less than 4 percent.

"If the demand for farm products is price inelastic, a good harvest will cause farm revenues to: " A. increase. B. decrease. C. be unchanged. "D. either increase or decrease, depending on what happens to supply."

B. decrease.

"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.

B. greater than one.

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.

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

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

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

"The demand schedules for such products as eggs, bread, and electricity tend to be: " A. perfectly price elastic. B. of unit price elasticity. C. relatively price inelastic. D. relatively price elastic.

C. relatively price inelastic.

"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.

C. the price elasticity of demand is 2.25.

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: A. both groups felt that the demand was elastic but for different reasons. B. both groups felt that the demand was inelastic but for different reasons. C. the railroad felt that the demand for passenger service was inelastic and opponents of the rate increase felt it was elastic. D. the railroad felt that the demand for passenger service was elastic and opponents of the rate increase felt it was inelastic.

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

Which of the following goods (with their respective income elasticity coefficients in parentheses) will most likely suffer a decline in demand during a recession? A. Dinner at a nice restaurant (+1.8) B. Chicken purchased at the grocery store for preparation at home (+0.25) C. Facial tissue (+0.6) D. Plasma screen and LCD TVs (+4.2)

D. Plasma screen and LCD TVs (+4.2)

In which of the following instances will total revenue decline? A. price rises and supply is elastic B. price falls and demand is elastic C. price rises and demand is inelastic D. price rises and demand is elastic

D. price rises and demand is elastic