If the demand curve for a product is vertical, then the elasticity of demand is:

Question

If the demand curve for a product is vertical, then the elasticity of demand is:

Select one:

a. equal to zero.

b. equal to one.

c. greater than one, but less than infinity.

d. equal to infinity.

Question 2

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Select one:

a. $200.

b. $400.

c. $500.

d. $1,000.

Question 3

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The longer the time period considered, the elasticity of supply tends to:

Select one:

a. decrease.

b. remain constant.

c. increase.

d. converge to zero.

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If the cross price elasticity between Goods A and B equals -1.3, then a reduction in the price of Good B will:

Select one:

a. increase the demand for Good A and increase Good A's price as a result.

b. increase the demand for Good A and decrease Good A's price as a result.

c. decrease the demand for Good A and increase Good A's price as a result.

d. decrease the demand for Good A and decrease Good A's price as a result.

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Exhibit 6-1

The elasticity in the vicinity of five different points along a demand curve varies as follows:

A

B

C

D

E

1.25

0.3

1.0

0.2

2.1

Refer to Exhibit 6-1. In the vicinity of which of these points would a price decrease be accompanied by an increase in total revenue?

Select one:

a. B and D

b. A and E

c. A and D

d. B, C, and D

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When a product's price increases from $800 to $1,200, the quantity demanded decreases from 11,000 to 9,000. Based on this information, the price elasticity of demand (in absolute terms) is estimated to be equal to:

Select one:

a. 0.5.

b. 2.0.

c. 0.25.

d. 4.0.

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A steel mill raises the price of steel by 20%, which results in a 7% reduction in the quantity of steel demanded. The demand curve facing this firm is:

Select one:

a. elastic.

b. inelastic.

c. unit elastic.

d. unit inelastic.

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Fantastic Cuts Hair Salon knows that a 15% increase in the price of their haircuts will result in a 5% decrease in the number of haircuts sold. What is the elasticity of demand facing Fantastic Cuts?

Select one:

a. 0.05

b. 0.10

c. 0.33

d. 3.0

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If one is interested in knowing whether or not a pair of products are substitutes, one would be interested in the value of the:

Select one:

a. elasticity of supply.

b. price elasticity of demand.

c. income elasticity of demand.

d. cross-price elasticity of demand.

Question 10

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Price elasticity of demand is defined as:

Select one:

a. the slope of the demand curve.

b. the slope of the demand curve divided by the price.

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.

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Which of the following is the most important determinant of the elasticity of supply?

Select one:

a. The number of uses for the product.

b. The number of close substitutes to the product available to consumers.

c. The amount of time producers have to adjust their behavior in response to a price change.

d. The percentage of their incomes consumers spend on the product.

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If the elasticity of demand coefficient for a good is one-sixth (in absolute terms), we know:

Select one:

a. that for every 1% increase in quantity, there will be a 6% increase in price.

b. that for every 1% increase in quantity, there will be a 6% decrease in price.

c. that for every 6% increase in quantity, there will be a 1% increase in price.

d. that for every 6% increase in quantity, there will be a 1% decrease in price.

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For a given decrease in demand, the effect on price is largest and the effect on quantity exchanged smallest when:

Select one:

a. supply is perfectly elastic.

b. supply is elastic.

c. supply is unit elastic.

d. supply is perfectly inelastic.

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The formula for calculating the cross price elasticity of demand is:

Select one:

a. the change in the quantity demanded of one good divided by the change in the price of another good.

b. the percentage change in demand of one good divided by the percentage change in the price of another good.

c. the percentage change in the quantity supplied of one good divided by the percentage change in the price of another good.

d. the percentage change in the price of one good divided by the percentage change in the quantity demanded of another good.

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A steel mill raises the price of steel by 20%, which results in a 7% reduction in the quantity of steel demanded. The demand curve facing this firm is:

Select one:

a. elastic.

b. inelastic.

c. unit elastic.

d. unit inelastic.

Question 16

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To determine whether or not a pair of goods are complements, economists are interested in the cross price elasticity of demand between the two goods.

Select one:

True

False

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The elasticity of supply coefficient for bicycles is estimated to be equal to 1.5. It is expected, therefore, that a 4% increase in price would lead to:

Select one:

a. a 4% decrease in the quantity of bicycles supplied.

b. a 4% increase in the quantity of bicycles supplied.

c. a 6% decrease in the quantity of bicycles supplied.

d. a 6% increase in the quantity of bicycles supplied.

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If the price of a product is lowered from $300 to $270, and as a result the quantity demanded increases from 25 to 30 units, we know that in that range:

Select one:

a. demand has declined.

b. demand is elastic.

c. demand is unit elastic.

d. demand is inelastic.

e. demand is perfectly elastic.

Question 19

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The widespread availability of e-mail has likely increased the price elasticity of demand for the services of the U.S. Postal Service.

Select one:

True

False

Question 20

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A perfectly elastic supply curve is:

Select one:

a. upward sloping to the right.

b. downward sloping to the left.

c. horizontal.

d. vertical.

Point

A

B

C

D

E

Elasticity

1.25

0.3

1.0

0.2

2.1

Explanation / Answer

ANS1. A) EQUAL TO ZERO

ANS 2. Exhibit 6-4 IS NOT VISIBLE

ANS 3. C) INCREASE

ANS 4. a. increase the demand for Good A and increase Good A's price as a result.

ANS 5 b. A and E

ANS 6. NONE OF THE OPTION. IT IS COMING OUT TO BE 0.3636

ANS 7 b. inelastic

ANS 8 c. 0.33

ANS 9 d. cross-price elasticity of demand.

ANS 10 d. the percentage change in quantity demanded divided by the percentage change in price

ANS11 c. The amount of time producers have to adjust their behavior in response to a price change.

ANS 12 b. that for every 1% increase in quantity, there will be a 6% decrease in price.

ANS 13 d. supply is perfectly inelastic.

ANS 14 b. the percentage change in demand of one good divided by the percentage change in the price of another good.

ANS 15 b. inelastic.

ANS16 True

ANS 17 c. a 6% decrease in the quantity of bicycles supplied.

ANS 18 b. demand is elastic.

ANS 19 True

ANS 20 c. horizontal.

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