STUDY QUESTIONS TOPIC 04- Chapter 06
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
The price of old baseball cards rises rapidly with increases in demand because
A. the supply of old baseball cards is price inelastic
For an increase in demand, the price effect is smallest and the quantity effect is largest
B. in the long run
Suppose that as the price of Y falls from $2.00 to $1.90, the quantity of Y demanded increases from 110 to 118. Then the absolute value of the price elasticity (using the midpoint formula) is
C. 1.37
The price elasticity of demand for widgets is .80. Assuming no change in the demand curve for widgets, a 16 percent increase in sales implies a
C. 20 percent reduction in price
Which of the following is not characteristic of the demand for a commodity that is elastic?
C. Total revenue increases if price is increased
A supply curve that is a vertical straight line indicates that
C. a change in price will have no effect on the quantity supplied
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,
C. demand will become less price elastic
A perfectly inelastic demand curve
C. graphs as a line parallel to the vertical axis
If the price elasticity of demand for a product is 2.5, then a price cut from $2.00 to $1.80 will
C. increase the quantity demanded by about 25 percent
Refer to the information and assume the stadium capacity is 5,000. The supply of seats for the game
C. is perfectly inelastic
Refer to the table. Over the $10-$8 price range, the elasticity coefficient of supply is
C. less than 1
The supply curve of a one-of-a-kind original painting is
C. perfectly inelastic
A supply curve that is parallel to the horizontal axis suggests that
D. a change in demand will change the equilibrium quantity but not price
For a linear demand curve,
D. demand is elastic at relatively high prices
Suppose the total-revenue curve is derived from a particular linear demand curve. That demand curve must be
D. elastic for price increases that reduce quantity demanded from 4 units to 3 units
Most demand curves are relatively elastic in the upper-left portion because the original price
D. 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
If the price elasticity of demand for a product is unity, a decrease in price will
D. increase the quantity demanded, but total revenue will be unchanged
If the demand for product X is inelastic, a 4 percent decrease in the price of X will
D. increase the quantity of X demanded by less than 4 percent
Refer to the table. Over the $6-$4 price range, supply is
D. inelastic
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
D. is elastic
A leftward shift in the supply curve of product X will increase equilibrium price to a greater extent the
D. more inelastic the demand for the product
We would expect the cross elasticity of demand between dress shirts and ties to be
D. negative, indicating complementary goods
Assume that a 4 percent increase in income across the economy produces an 8 percent increase in the quantity demanded of good X. The coefficient of income elasticity of demand is
D. positive, and therefore X is a normal good
Assume that a 6 percent increase in income in the economy produces a 3 percent increase in the quantity demanded of good X. The coefficient of income elasticity of demand is
D. positive, and therefore X is a normal good
Gigantic State University raises tuition for the purpose of increasing its revenue so that more faculty can be hired. GSU is assuming that the demand for education at GSU is
D. relatively inelastic
The larger the coefficient of price elasticity of demand for a product, the
D. smaller the resulting price change for an increase in supply
The concept of price elasticity of demand measures
D. the sensitivity of consumer purchases to price changes
Suppose the supply of product X is perfectly inelastic. If there is an increase in the demand for this product, equilibrium price
D. will increase, but equilibrium quantity will be unchanged
The supply of product X is elastic if the price of X rises by
A. 5 percent and quantity supplied rises by 7 percent
Studies of the minimum wage suggest that the price elasticity of demand for teenage workers is relatively inelastic. This means that
A. an increase in the minimum wage increase the total incomes of teenage workers as a group
The price elasticity of demand coefficient measures
A. buyer responsiveness to price changes
The demand for a product is inelastic with respect to price if
A. consumers are largely unresponsive to a per unit price change
The price elasticity of demand of a straight-line demand curve is
A. elastic in high-price ranges and inelastic in low-price ranges
Price elasticity of demand is generally
A. greater in the long run than in the short run
An anti drug policy that reduces the supply of heroin might
A. increase street crime because the addict's demand for heroin is highly inelastic
Refer to the table. Over the $8-$6 price range, supply is
A. inelastic
Suppose that the total-revenue curve is derived from a particular linear demand curve. That demand curve must be
A. inelastic for price declines that increases quantity demanded from 6 units to 7 units
The demand for autos is likely to be
A. 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
A. negative, and therefore X is an inferior good
The price elasticity of demand is generally
A. negative, but the minus sign is ignored
If quantity demanded is completely unresponsive to price changes, demand is
A. perfectly inelastic
The supply curve of antique reproduction is
A. relatively elastic
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 $5to $6. Thus,
A. the demand for pizza is elastic above $5 and inelastic below $5
If a firm finds that it can sell $13,000 Wirth of a product when its price is $5 per unit and $11,000 worth of it when its price is $6, then
A. the demand for the product is elastic in the $6- $5 price range
The narrower the definition of a product,
A. the larger the number of substitutes and the greater the price elasticity of demand
Cross elasticity of demand measures how sensitive purchases of a specific product are to changes in
A. the price of some the product
Refer to the information. If the Mudhens' management wanted to maximize total ticket revenue from the game, it would set the ticket price at
B. $7
Suppose the price elasticity of demand for bread is .20. If the price of bread falls by 10 percent, the quantity demanded will increase by
B. 2 percent and total expenditures on bread will fall
Which type of goods is most adversely affected by recessions?
B. Goods for which the income elasticity coefficient is relatively low or negative
The main determinant of elasticity of supply is the
B. amount of time the producer has to adjust inputs in response to a price change
A perfectly inelastic demand schedule
B. can be represented by a line parallel to the vertical axis
If the demand for farm products is price inelastic, a good harvest will cause farm revenues to
B. decrease
The price elasticity of demand for beef is about .60. Other things equal, this means that a 20 percent increase in the price of beef will cause the quantity of beef demanded to
B. decrease by approximately by 12 percent
Suppose we find that the price elasticity for demand for a product is 3.5 when its price is increased by 2 percent. We can conclude that quantity demanded
B. decreased by 7 percent
The state legislature has cut Gigantic State University's appropriations. GSU's Board of Regents decides to increase tuition and fees to compensate for the loss of revenue. The board is assuming that the
B. demand for education at GSU is inelastic.
If demand for a product is elastic, the value of the price elasticity coefficient is
B. greater than one
The larger the positive cross elasticity coefficient demand between products X and Y, the
B. greater their sustainability
If the demand for bacon is relatively elastic, a 10 percent decline in the price of bacon will
B. increase the amount demanded by more than 10 percent
Supposed that a 20 percent increase in the price of normal good Y causes a 10 percent decline in the quantity demanded of normal good X. The coefficient of cross elasticity of demand is
B. negative, and therefore these goods are complements
The basic formula for the price elasticity of demand coefficient is
B. percentage change in quantity demanded/percentage change in price
A demand curve that is parallel to the horizontal axis is
B. perfectly elastic
A firm can sell as much as it wants at a constant price. Demand is thus
B. perfectly elastic
Studies show that the demand fro gasoline is
B. price inelastic in both the short and long run
Other things the same, if a price change causes total revenue to change in the opposite direction, demand is
B. relatively elastic
Refer to the diagram, in the P3 P4 price range, demand is
B. relatively inelastic
The price elasticity of supply measures how
B. responsive the quantity supplied of X is to changes in the price of X
We would expect
B. the demand for Coca-Cola to be more price elastic than the demand for soft drinks in general
Suppose that the price of peanuts falls from $3 to $2 per bushel and that, as a result, the total revenue received by peanut farmers changes from $16 to $14 billion. Thus,
B. the demand for peanuts is inelastic
The elasticity of demand for a product is likely to be greater,
B. the greater the amount of time over which buyers adjust to a price change
The more time consumers have to adjust to a change in price,
B. the greater will be the price elasticity of demand
It takes a considerable amount of time to increase the production of pork. This implies that
B. the short-run supply curve for pork is less elastic than the long-run supply curve for pork
Refer to the diagram and assume that price increases from $2 to $10. The coefficient of the price elasticity of supply (midpoint formula) relating to this price change is about
C. .25, and supply is inelastic
Suppose that a 10 percent in the price of normal good Y causes a 20 percent increase in the quantity demanded of normal good X. The coefficient of cross elasticity of demand is
C. positive, and therefore these goods are substitutes
We would expect the cross elasticity of demand between Pepsi and Coke to be
C. positive, indicating substitute goods
In which of the following cases will total revenue increase?
C. price rises and demand is inelastic
The formula for cross elasticity of demand is percentage change in
C. quantity demanded of X/percentage change in price of Y
Refer to the diagram. In the P1 P2 price range, demand is
C. relatively elastic
The supply of known Monet paintings is
C. relatively elastic
Refer to the information and assume the stadium capacity is 5,000. If the Mudhens' management wanted a full house for the game, it would
C. set ticket prices at $5
If the income elasticity of demand for store brand macaroni and cheese is -3.00, this means that
C. store brand macaroni and cheese in an inferior good
Farmers often find that large bumper crops are associated with declines in their gross incomes . This suggests that
C. the price elasticity of demand for farm products is less than 1
If a firm can sell 3,000 units of product A at a $10 per unit and 5,000 at $8, then
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
C. the railroad felt that the demand for passenger service was inelastic and opponents of the rate increase felt it was elastic
Refer to the information and assume the stadium capacity is 5,000. If the Mudhens' management charges $7 per ticket,
C. there will be 1,000 empty seats
Suppose the total-revenue curve is derived from a particular linear demand curve. That demand curve must be
C. unit elastic for price increases that reduce quantity demanded from 5 units to 4 units
Refer to the diagram and assume the price decreases from $10 to $2. The coefficient of the price elasticity of supply (midpoint formula) relating to this price change is about
D. .25, and supply is inelastic
