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Microeconomics - Testbank 1 (Hubbard/O'Brien)

Try and try until you succeed1)

Price elasticity of demand measures:

A)

how responsive to price changes suppliers are.

B)

how responsive sales are to changes in the price of a related good.

C)

how responsive quantity demanded is to a change in price.

D)

how responsive sales are to a change in buyers' incomes.

2)

The price elasticity of demand is equal to:

A)

the slope value of the supply curve.

B)

the slope value of the demand curve.

C)

the percentage change in price divided by the percentage change in quantity demanded.

D)

the percentage change in quantity demanded divided by the percentage change in price.

3)

If the price of gasoline increases 30 percent and this causes the quantity demanded to fall 15 percent, the elasticity of demand is equal to:

A)

minus 450.

B)

minus 2.

C)

minus 0.5.

D)

minus 15.

4)

The elasticity of demand is always negative because:

A)

of the law of supply.

B)

of the law of demand.

C)

it depends on percentages.

D)

it depends on whether or not demand shifts or not when price changes.

5)

If the percentage change in price is 20 percent and the elasticity of demand value is minus 5, then quantity demanded:

A)

will increase 100 percent.

B)

will increase by 5 percent.

C)

will decrease by 100 percent.

D)

Impossible to determine without additional information.

6)

A horizontal demand curve is:

A)

perfectly inelastic.

B)

perfectly elastic.

C)

unit elastic.

D)

relatively elastic.

7)

A vertical demand curve is:

A)

perfectly inelastic.

B)

perfectly elastic.

C)

unit elastic.

D)

relatively elastic.

Refer to 6.1 for the questions below.

Figure 6.1

8)

In figure 6.1, the demand curve that is perfectly inelastic is:

A)

graph a.

B)

graph b.

C)

graph c.

D)

none of the above.

9)

In figure 6.1, the demand curve that is perfectly elastic is:

A)

graph a.

B)

graph b.

C)

graph c.

D)

none of the above.

10)

In figure 6.1, the demand curve on which elasticity changes at every point is:

A)

graph a.

B)

graph b.

C)

graph c.

D)

none of the above.

11)

If 20 units are sold at a price of $60 and 30 units are sold at a price of $40, then the elasticity of demand calculated using the midpoint formula is:

A)

minus 1.

B)

minus 1.8.

C)

minus .16.

D)

none of the above.

12)

If 20 units are sold at a price of $50 and 30 units are sold at a price of $40, then the elasticity of demand calculated using the midpoint formula is:

A)

minus 0.56.

B)

minus 1.8.

C)

minus 1.

D)

none of the above.

13)

If, when price changes by 50 percent, the quantity demanded changes by 15 percent, what is the elasticity of demand value?

A)

3.33

B)

minus 3.33

C)

0.30

D)

minus 0.30

14)

The range of possible values for the elasticity of demand value is:

A)

zero to infinity.

B)

positive infinity to negative infinity.

C)

zero to minus infinity

D)

minus one to minus infinity.

15)

Which of the following statements about elasticity of demand is INCORRECT?

A)

The elasticity of demand value is the reciprocal of the demand curve's slope value.

B)

If quantity demanded changes by a larger percentage than the percentage change in price, demand is elastic.

C)

The elasticity of demand value is always negative.

D)

A straight line demand curve has a varying elasticity of demand value.

16)

When there many good substitutes available for a good, demand tends to be:

A)

perfectly inelastic.

B)

perfectly elastic.

C)

relatively inelastic.

D)

relatively elastic.

17)

Which of the following statements about elasticity of demand is correct?

A)

The elasticity of demand for a good in general is equal to the elasticity of demand for a specific brand of the good.

B)

The absolute value of the elasticity of demand ranges from zero to one.

C)

Demand is more elastic in a long time period than it is in a short time period.

D)

Demand is more elastic the smaller percentage of the consumer's budget the item takes up.

18)

Which of the following types of goods has the most inelastic demand?

A)

Necessities

B)

Luxuries

C)

Goods with many substitutes

D)

Goods whose price is high relative to consumers' budgets

19)

If the demand for a lifesaving drug were perfectly inelastic and the price doubled, the quantity demanded would:

A)

double also.

B)

decrease by 50 percent.

C)

be cut in half.

D)

remain constant.

20)

If a percentage change in price causes a smaller percentage change in quantity demanded, then demand is:

A)

unit elastic.

B)

perfectly elastic.

C)

relatively inelastic.

D)

more information is needed.

21)

Total revenue equals:

A)

price per unit times quantity sold.

B)

change in price per unit times quantity sold.

C)

price per unit times change in quantity quantity sold.

D)

price per unit divided by quantity sold.

22)

A demand curve that is horizontal indicates that the commodity:

A)

has few substitutes.

B)

must be very cheap.

C)

is a necessity.

D)

has a large number of substitutes.

23)

Which of the following goods would most likely have the most inelastic demand?

A)

Ski vacations

B)

Bread

C)

Luxury cars

D)

Big screen TVs

24)

A type of demand curve that does not have the same price elasticity of demand value at every point is:

A)

a vertical demand.

B)

a down sloping straight line demand.

C)

a horizontal demand.

D)

all of the above.

25)

For a profit-making seller, the best type of demand elasticity would be:

A)

highly elastic.

B)

highly inelastic.

C)

unit elastic.

D)

any elasticity as demand elasticity does not matter to the seller.

26)

When demand is price inelastic, a fall in price causes total revenue to fall, because:

A)

anytime price decreases, total revenue will decrease also.

B)

quantity sold remains the same and thus total revenue has to fall.

C)

the increase in quantity sold is not large enough to offset the drop in price.

D)

all of the above.

27)

When demand is unit price elastic, a change in price causes total revenue to stay the same because:

A)

the change in quantity demanded exactly offsets the opposite change in price.

B)

buyers are buying the same quantity.

C)

total revenue never changes with price changes.

D)

all of the above.

28)

If a firm raised its price and discovered that its total revenue fell, then the demand for its product is:

A)

perfectly inelastic.

B)

relatively inelastic.

C)

perfectly elastic.

D)

relatively elastic.

29)

If a firm raised its price and found that total revenue fell to zero, then the demand for its product is:

A)

perfectly inelastic.

B)

relatively inelastic.

C)

perfectly elastic.

D)

relatively elastic.

30)

If a firm lowered the price of the product it sells and found that total revenue did not change, then the demand for its product is:

A)

perfectly inelastic.

B)

perfectly elastic.

C)

unit-elastic.

D)

relatively elastic.

31)

If a firm wanted to know whether the demand for its product was elastic, unit elastic, or inelastic, then the firm could:

A)

survey competitors and ask them what they think demand elasticity for the product is.

B)

talk to its customers.

C)

change price a little bit and observe what happens to total revenue.

D)

do not do anything as there is no way to find an elasticity value.

32)

When a firm changes its price, the change in total revenue:

A)

depends on the elasticity of demand value and the direction of the price change.

B)

is zero.

C)

is positive.

D)

is negative.

33)

How does elasticity of demand behave on a down sloping straight line demand curve?

A)

It is inelastic at high prices and elastic at low prices.

B)

It is the same value at every point.

C)

It is elastic at high prices and inelastic at low prices.

D)

None of these is correct.

34)

On a down sloping, straight line demand curve, total revenue is the greatest:

A)

where demand is normal.

B)

where demand is the most inelastic.

C)

where demand is the most elastic.

D)

where demand is unit elastic.

35)

Which of the following does NOT affect the price elasticity of demand for a product?

A)

The number of close substitutes available for the product.

B)

Expenditures on the product relative to buyers' incomes.

C)

How long buyers have to respond to any price change.

D)

How much demand shifts when buyers' incomes change.

36)

If at a price of $15, 20 units are sold while at $20, 10 units are sold, then the price elasticity of demand for this good is:

A)

elastic.

B)

inelastic.

C)

unit elastic.

D)

perfectly elastic.

37)

If at a price of $50, 20 units are sold and at a price of $60, 0 units are sold, the price elasticity of demand of the good is:

A)

elastic.

B)

perfectly elastic.

C)

unit elastic.

D)

perfectly inelastic.

38)

If at a price of $10, five units are sold while at a price of $80, five units are sold, then the elasticity of demand for this good is:

A)

perfectly elastic.

B)

inelastic.

C)

perfectly inelastic.

D)

unit elastic.

39)

If at a price of $50, 20 units are sold while at a price of $40, 25 units are sold, then the elasticity of demand for this good is:

A)

elastic.

B)

inelastic.

C)

perfectly inelastic.

D)

unit elastic.

40)

Cross-price elasticity of demand is calculated as the:

A)

percentage change in quantity demanded divided by percentage change in price of a good.

B)

percentage change in quantity demanded of one good divided by percentage change in price of a different good.

C)

percentage change in quantity sold divided by percentage change in buyers' incomes.

D)

percentage change in quantity supplied divided by percentage change in price of a good.

41)

If the cross-price elasticity of demand for goods A and B is a negative value, this means the two goods are:

A)

substitutes.

B)

complements.

C)

inferior.

D)

normal.

42)

If a firm is in an anti-trust court case accused of monopolizing a product, the firm would hire an economist to show:

A)

the cross-price elasticity of demand between the firm's good and another is negative.

B)

the cross-price elasticity of demand between the firm's good and another is positive.

C)

the price elasticity of demand for the firm's good is highly inelastic.

D)

the income elasticity of the firm's good is inferior.

43)

If the cross-price elasticity of demand for goods A and B is zero, this means the two goods are:

A)

substitutes.

B)

complements.

C)

inferior.

D)

unrelated.

44)

Income elasticity measures:

A)

how a good's quantity demanded responds to change in the goods price.

B)

how a good's quantity demanded responds to change in the price of another good.

C)

how a good's sales responds to change in buyers' incomes.

D)

how a good's sales respond to producers' incomes.

45)

If a good's income elasticity of demand is positive, this means:

A)

sales of the good are responsive to changes in price.

B)

sales of the good are responsive to changes in the price of another good.

C)

sales of the good fall when buyers' income increase.

D)

sales of the good increase when buyers' incomes increase.

46)

If a good has a negative income elasticity of demand, this indicates the good is:

A)

a substitute with another good.

B)

a complement with another good.

C)

inferior.

D)

normal.

47)

If you expect the economy is going to be in a recession for several years., you should look for a job in an industry with an income elasticity of:

A)

positive five.

B)

positive three.

C)

negative five.

D)

none of above.

48)

Why has income of small family farms decreased over time?

A)

Technology has increase farm productivity and market supply.

B)

The demand for farm products is price inelastic.

C)

The demand for farm products is income inelastic.

D)

All of above.

49)

The income elasticity for inferior goods is always:

A)

positive in value.

B)

negative in value.

C)

impossible to determine.

D)

equal to one.

50)

The price elasticity of supply is always:

A)

positive.

B)

negative.

C)

greater than one.

D)

impossible to determine.

51)

Price inelastic supply occurs whenever the elasticity of supply value is:

A)

negative.

B)

positive and greater than five.

C)

positive and greater than one.

D)

positive and less than one.

52)

Price elastic supply occurs whenever the elasticity of supply value is:

A)

negative.

B)

positive and greater than five.

C)

positive and greater than one.

D)

positive and less than one.

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Try and try until you succeed 1) Price elasticity of demand measures: A ) how responsive to price changes suppliers are. B ) how responsive sales are to changes in the price of a related good. C ) how responsive quantity demanded is to a change in price. D ) how responsive sales are to a change in buyers' incomes. 2)

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