1.
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.


2.
Suppose 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:
A.
negative and therefore these goods are substitutes.
B.
negative and therefore these goods are complements.
C.
positive and therefore these goods are substitutes.
D.
positive and therefore these goods are complements.


3.
Supply curves tend to be:
A.
perfectly elastic in the long run because consumer demand will have sufficient time to adjust fully to changes in supply.
B.
more elastic in the long run because there is time for firms to enter or leave the industry.
C.
perfectly inelastic in the long run because the law of scarcity imposes absolute limits on production.
D.
less elastic in the long run because there is time for firms to enter or leave an industry.



Reference: F20134

4.
Refer to the above diagrams. The case of a normal good is represented by figure(s):
A.
A.
B.
B.
C.
C.
D.
D.


5.
If a firm finds that it can sell $13,000 of a product when its price is $5 per unit and $11,000 of it when its price is $6, then:
A.
the demand for the product is elastic in the $6-$5 price range.
B.
the demand for the product must have increased.
C.
elasticity of demand is 0.74.
D.
the demand for the product is inelastic in the $6-$5 price range.


6.
An income elasticity coefficient of -1.8 means the product is a normal good.
A. True
B. False


7.
Assume that a 3 percent increase in income in 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.
B.
negative and therefore X is a normal good.
C.
positive and therefore X is an inferior good.
D.
positive and therefore X is a normal good.


8.
We would expect the cross elasticity of demand for Pepsi in relation to other soft drinks to be greater than that for soft drinks generally because:
A.
soft drinks are normal goods.
B.
the income effect always exceeds the substitution effect.
C.
there are fewer good substitutes for soft drinks generally than for Pepsi.
D.
there are more good substitutes for soft drinks generally than for Pepsi.


9.
The larger the coefficient of price elasticity of demand for a product, the:
A.
larger the resulting price change for an increase in supply.
B.
more rapid the rate at which the marginal utility of that product diminishes.
C.
less competitive will be the industry supplying that product.
D.
smaller the resulting price change for an increase in supply.



Reference: REF20094

10.
Refer to the above information and assume the stadium capacity is 5000. The supply of seats for the game:
A.
varies inversely with ticket prices.
B.
varies directly with ticket prices.
C.
is perfectly inelastic.
D.
is perfectly elastic.


11.
If a price reduction reduces a firm's total revenue:
A.
the demand for the product is inelastic in this price range.
B.
the product is an inferior good.
C.
in this price range the elasticity coefficient of demand is greater than 1.
D.
this price decline will increase the firm's profits.


Answer the next question(s) on the basis of the following demand and supply data:

Reference: REF20178

12.
Refer to the above data. The equilibrium price of this product is somewhere between $6 and $7.
A. True
B. False


13.
A linear demand curve has a constant elasticity over the full range of the curve.
A. True
B. False


14.
Suppose the price of a product rises and the total revenue of sellers increases.
A.
It can be concluded that the demand for the product is elastic.
B.
It can be concluded that the supply of the product is elastic.
C.
It can be concluded that the supply of the product is inelastic.
D.
No conclusion can be reached with respect to the elasticity of supply.


Answer the next question(s) on the basis of the following demand schedule:

Reference: REF20037

15.
Refer to the above data. The price elasticity of demand is unity:
A.
throughout the entire price range because the slope of the demand curve is constant.
B.
in the $4-$3 price range only.
C.
over the entire $3-$1 price range.
D.
over the entire $6-$4 price range.



Reference: REF20094

16.
Refer to the above information. Over the $11-$9 price range, demand is:
A.
perfectly elastic.
B.
perfectly inelastic.
C.
elastic.
D.
inelastic.


17.
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:
A.
decreasing.
B.
relatively elastic.
C.
perfectly elastic.
D.
relatively inelastic.


18.
Suppose we find that the price elasticity of demand for a product is 3.5 when its price is increased by 2 percent. We can conclude that quantity demanded:
A.
increased by 7 percent.
B.
decreased by 7 percent.
C.
decreased by 9 percent.
D.
decreased by 12 percent.


Reference: F20108

19.
The above diagram concerns supply adjustments to an increase in demand (D1 to D 2) in the immediate market period, the short run, and the long run. Supply curves S1 , S2, and S3 apply to the:
A.
immediate market period, long run, and short run respectively.
B.
immediate market period, short run, and long run respectively.
C.
long run, short run, and immediate market period respectively.
D.
short run, long run, and immediate market period respectively.


20.
Most demand curves are relatively elastic in the upper-left portion because the original price:
A.
and quantity from which the percentage changes in price and quantity are calculated are both large.
B.
and quantity from which the percentage changes in price and quantity are calculated are both small.
C.
from which the percentage price change is calculated is small and the original quantity from which the percentage change in quantity is calculated is large.
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.


Reference: F20108

21.
The above diagram concerns supply adjustments to an increase in demand (D1 to D 2) in the immediate market period, the short run, and the long run. On the basis of this illustration we can conclude that:
A.
short-run adjustments are more economically efficient than are long-run adjustments.
B.
the amount of time producers have to adjust to a change in demand is not a determinant of supply elasticity.
C.
supply is more elastic the greater the amount of time producers have to adjust to a change in demand.
D.
supply is less elastic the greater the amount of time producers have to adjust to a change in demand.


22.
A firm can sell more or less output at a constant price. Demand is thus:
A.
perfectly inelastic
B.
perfectly elastic
C.
relatively inelastic
D.
relatively elastic


23.
Suppose the price elasticity of demand for bread is 0.20. If the price of bread falls by 10 percent, the quantity demanded will increase by:
A.
2 percent and total expenditures on bread will rise.
B.
2 percent and total expenditures on bread will fall.
C.
20 percent and total expenditures on bread will fall.
D.
20 percent and total expenditures on bread will rise.


Reference: F20108

24.
The above diagram concerns supply adjustments to an increase in demand (D1 to D 2) in the immediate market period, the short run, and the long run. In the long run the increase in demand will:
A.
have no effect on either equilibrium price or quantity.
B.
increase equilibrium price, but not equilibrium quantity.
C.
increase equilibrium quantity, but not equilibrium price.
D.
increase both equilibrium price and quantity.


25.
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.


Answer the next question(s) on the basis of the following demand and supply data:

Reference: REF20178

26.
Refer to the above data. The demand for this product is elastic in the $8-$7 price range.
A. True
B. False



Reference: REF20094

27.
Refer to the above information. If the Mudhens' management wanted to maximize total revenue from the game, it would set the ticket price at:
A.
$5.
B.
$7.
C.
$9.
D.
$13.


Reference: REF20139

28.
Refer to the above data. Suppose quantity supplied declined by 23 units at each price, changing the equilibrium price in a direction and amount for you to determine. Over that price range, demand is:
A.
elastic.
B.
inelastic.
C.
perfectly elastic.
D.
perfectly inelastic.


29.
The larger the positive cross elasticity coefficient of demand between products X and Y, the:
A.
stronger their complementariness.
B.
greater their substitutability.
C.
smaller the price elasticity of demand for both products.
D.
the less sensitive purchases of each are to increases in income.


30.
The more time consumers have to adjust to a change in price:
A.
the smaller will be the price elasticity of demand.
B.
the greater will be the price elasticity of demand.
C.
the more likely the product is a normal good.
D.
the more likely the product is an inferior good.


ECON 231
Chapter 7 Study Quiz


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