Question 1

This summer the lobster catch in Maine has been especially large, but instead of celebrating the fisherman are suffering from a lower total revenue. (Source: New York Times, July 28, 2012) As the lobster catch increases, there is
A) a movement along the demand curve, resulting in a higher price and a decreased quantity.
B) a movement along the demand curve, resulting in a lower price and an increased quantity.
C) no change in either the price or the quantity.
D) a movement along the demand curve, resulting in a higher price and an increased quantity.

Accepted Answer

An increase in the lobster catch would shift the supply curve to the right, resulting in a lower price (as there is more supply) and an increased quantity (as fisherman are catching more lobsters). Therefore, choice B is the correct answer.

Question 2

The cross elasticity of demand measures the responsiveness of the quantity demanded of a particular good to changes in the prices of
A) its substitutes and its complements.
B) its substitutes but not its complements.
C) its complements but not its substitutes.
D) neither its substitutes nor its complements.

Accepted Answer

The cross elasticity of demand measures the responsiveness of the quantity demanded of a particular good to changes in the prices of its substitutes and its complements. If the cross elasticity of demand is positive, then the two goods are substitutes, and an increase in the price of one will lead to an increase in the quantity demanded of the other. If the cross elasticity of demand is negative, then the two goods are complements, and an increase in the price of one will lead to a decrease in the quantity demanded of the other.

Question 3

If a 4 percent rise in the price of peanut butter lowers the total revenue received by the producers of peanut butter by 4 percent, the demand for peanut butter
A) is elastic.
B) is inelastic.
C) is unit elastic.
D) has an elasticity of 2.0.

Accepted Answer

The answer of If a 4 percent rise in the...

Question 4

Business people often speak about price elasticity without actually using the term. Which statement describes a good with an elastic demand?
A) "A price cut won't help me. It won't increase my sales, and I'll just get less money for each unit."
B) "I don't think a price cut will help my bottom line any. Sure, I'll sell a bit more, but I'll more than lose because the price will be lower."
C) "My customers are real shoppers. After I cut my prices just a few cents below those my competitors charge, customers have been flocking to my store and sales are booming."
D) "The economic expansion has done wonders for my sales. With more people back at work, my sales are taking off!"

Accepted Answer

A good with an elastic demand means that a small change in price will result in a larger change in the quantity demanded. In statement C, the price cut resulted in an increase in sales, indicating that the demand for the good is elastic.

Question 5

-The above figure shows a linear (straight-line) demand curve. Starting at point A and then moving to point B and then point C, the price elasticity of demand
A) increases.
B) decreases.
C) increases and then decreases.
D) decreases and then increases.

Accepted Answer

The answer of 
-The above figure shows a linear (straight-line)...

Question 6

If the price elasticity of demand equals 1.0, then as the price falls, the
A) quantity demanded decreases.
B) total revenue falls.
C) quantity demanded does not change.
D) total revenue does not change.

Accepted Answer

The answer of If the price elasticity of demand equals...

Question 7

Which of the following is likely to have the smallest price elasticity of demand?
A) an automobile
B) a new automobile
C) a new Ford automobile
D) a new Ford Mustang

Accepted Answer

Automobiles are generally considered to be a necessity rather than a luxury, so their price elasticity of demand tends to be relatively low. In contrast, newer, more specific types of automobiles are likely to have higher price elasticity of demand, as consumers have more options and may be more price sensitive.

Question 8

A product is likely to have a price elasticity of demand that exceeds 1 when
A) its price falls.
B) the percentage of income spent on it decreases.
C) it is a necessity.
D) it has close substitutes.

Accepted Answer

A product with close substitutes tend to have more alternatives for consumers to choose from in the market. Hence, a small increase in price may cause a significant decrease in demand due to consumers switching to the substitutes, resulting in a price elasticity of demand that exceeds 1.

Question 9

Moving up (to the left) along a linear demand curve, the price elasticity of demand
A) decreases.
B) does not change.
C) increases.
D) at first increases and then decreases.

Accepted Answer

As we move up (to the left) along a linear demand curve, the price decreases, and consumers become more sensitive to price changes. Therefore, the price elasticity of demand increases.

Question 10

When the price of a hot dog rises 10 percent, your expenditure on hot dogs increases. Hence, it is certain that
A) hot dogs are a normal good for you.
B) hot dogs are an inferior good for you.
C) your demand for hot dogs is elastic.
D) your demand for hot dogs is inelastic.

Accepted Answer

If the expenditure on hot dogs increases after the price rises, it implies that the demand for hot dogs is not very responsive to changes in price. This indicates inelastic demand.

Question 11

By reviewing its sales records, Dell economists discover that when Dell lowers the price of its personal computers, the total revenue Dell obtains from the sale of its personal computers rises. Hence
A) supply of Dell personal computers is elastic.
B) demand for Dell personal computers is elastic.
C) supply of Dell personal computers is inelastic.
D) demand for Dell personal computers is inelastic.

Accepted Answer

If total revenue increases as price decreases, it indicates that demand is responsive to changes in price, meaning the demand for Dell personal computers is elastic.

Question 12

This summer the lobster catch in Maine has been especially large, but instead of celebrating the fisherman are suffering from a lower total revenue. (Source: New York Times, July 28, 2012) We learn from the article that despite the larger quantity of lobster caught, the total revenue of the fisherman has decreased. This fact means that the demand for lobster is
A) unit elastic.
B) elastic.
C) inelastic.
D) perfectly elastic.

Accepted Answer

The decrease in total revenue despite an increase in quantity indicates that the demand for lobster is inelastic. This means that consumers are not willing to pay a higher price for the larger quantity of lobster, leading to a decrease in revenue for the fishermen.

Question 13

The cross elasticity of demand is calculated as the percentage change in the
A) quantity demanded of one good divided by the percentage change in the price of another good
B) price of one good divided by the percentage change in the quantity demanded of another good.
C) quantity demanded of one good divided by the percentage change in the quantity demanded of another good.
D) price of one good divided by the percentage change in the price of another good.

Accepted Answer

The cross elasticity of demand measures the responsiveness of the quantity demanded of one good to a change in the price of another good. Therefore, it is calculated as the percentage change in the quantity demanded of one good divided by the percentage change in the price of another good. Choice A is the only option that matches this definition.

Question 14

-The above figure illustrates the demand curve for a good. The good has
A) no substitutes.
B) only one substitute.
C) only a few substitutes.
D) many substitutes.

Accepted Answer

The answer of 
-The above figure illustrates the demand curve...

Question 15

-The elasticity of demand along the demand curve shown in the above figure is constant and equal to 1. Thus,
A) area 0BCF equals area 0AGF.
B) area 0BCF equals area FGDE.
C) area 0BCF equals area 0ADE.
D) area ABCG equals area 0AGF.

Accepted Answer

The answer of 
-The elasticity of demand along the demand...

Question 16

-In the figure above, when the price of a disk is $B, total revenue is shown in the graph by area
A) BCF0.
B) AGF0.
C) FCDE.
D) ADE0.

Accepted Answer

The answer of 
-In the figure above, when the price...

Question 17

Toothpaste and toothbrushes are complements, so the ________ elasticity of demand is ________.
A) cross; positive
B) income; negative
C) cross; negative
D) income; positive

Accepted Answer

The answer of Toothpaste and toothbrushes are complements, so the...

Question 18

If the price elasticity of demand for a product equals 1, as its price rises the
A) quantity demanded increases.
B) total revenue increases.
C) quantity demanded does not change.
D) total revenue does not change.

Accepted Answer

The answer of If the price elasticity of demand for...

Question 19

A rise in the price of a product lowers the total revenue from the product if the
A) income elasticity of demand exceeds 1.
B) good is an inferior product.
C) demand for the product is inelastic.
D) demand for the product is elastic.

Accepted Answer

When the demand for a product is elastic, a rise in price will lead to a proportionally greater decrease in quantity demanded, resulting in a decrease in total revenue. Therefore, a rise in price will lower the total revenue from the product if the demand for the product is elastic.

Question 20

The demand for a good is more price inelastic if
A) its price is higher.
B) the percentage of income spent on it is larger.
C) it is a luxury good.
D) it has no close substitutes.

Accepted Answer

If a good has no close substitutes, consumers may be willing to pay a higher price for it despite the price increase. This makes the demand for the good more price inelastic. A higher price (A) or the percentage of income spent on a good (B) can also affect price elasticity, but not as significantly as the availability of substitutes. Luxury goods (C) often have more elastic demand since they are not necessities and consumers can easily cut back on purchases if the price increases.

Quiz 4: Elasticity

This summer the lobster catch in Maine has been especially large, but instead of celebrating the fisherman are suffering from a lower total revenue. (Source: New York Times, July 28, 2012) As the lobster catch increases, there is

The cross elasticity of demand measures the responsiveness of the quantity demanded of a particular good to changes in the prices of

If a 4 percent rise in the price of peanut butter lowers the total revenue received by the producers of peanut butter by 4 percent, the demand for peanut butter

Business people often speak about price elasticity without actually using the term. Which statement describes a good with an elastic demand?

-The above figure shows a linear (straight-line) demand curve. Starting at point A and then moving to point B and then point C, the price elasticity of demand

If the price elasticity of demand equals 1.0, then as the price falls, the

Which of the following is likely to have the smallest price elasticity of demand?

A product is likely to have a price elasticity of demand that exceeds 1 when

Moving up (to the left) along a linear demand curve, the price elasticity of demand

When the price of a hot dog rises 10 percent, your expenditure on hot dogs increases. Hence, it is certain that

By reviewing its sales records, Dell economists discover that when Dell lowers the price of its personal computers, the total revenue Dell obtains from the sale of its personal computers rises. Hence

The cross elasticity of demand is calculated as the percentage change in the

-The above figure illustrates the demand curve for a good. The good has

-The elasticity of demand along the demand curve shown in the above figure is constant and equal to 1. Thus,

-In the figure above, when the price of a disk is $B, total revenue is shown in the graph by area

Toothpaste and toothbrushes are complements, so the elasticity of demand is .

If the price elasticity of demand for a product equals 1, as its price rises the

A rise in the price of a product lowers the total revenue from the product if the

The demand for a good is more price inelastic if