Quiz 504
Related: Economics, Microeconomics
80 Questions
Instructor Verified Answers Included
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Quiz 504
True / False
1. Measures of elasticity enhance our ability to study the magnitudes of changes in quantities in
response to changes in prices or income.
a. True
b. False
2. Elasticity measures how responsive quantity is to changes in price.
a. True
b. False
3. The price elasticity of demand is defined as the percentage change in quantity demanded
divided by the percentage change in price.
a. True
b. False
4. The price elasticity of demand is defined as the percentage change in price divided by the
percentage change in quantity demanded.
a. True
b. False
5. The demand for bread is likely to be more elastic than the demand for solid-gold bread plates.
a. True
b. False
6. In general, demand curves for necessities tend to be price elastic.
a. True
b. False
7. In general, demand curves for luxuries tend to be price elastic.
a. True
b. False
8. Goods with close substitutes tend to have more elastic demands than do goods without close
substitutes.
a. True
b. False
9. The demand for Rice Krispies is more elastic than the demand for cereal in general.
a. True
b. False
10. The demand for soap is more elastic than the demand for Dove soap.
a. True
b. False
11. Necessities tend to have inelastic demands, whereas luxuries tend to have elastic demands.
a. True
b. False
12. The demand for desserts tends to be more inelastic than the demand for red velvet cake.
a. True
b. False
13. Demand is inelastic if the price elasticity of demand is greater than 1.
a. True
b. False
14. Demand for a good is said to be inelastic if the quantity demanded increases substantially
when the price falls by a small amount.
a. True
b. False
15. Demand for a good is said to be inelastic if the quantity demanded increases slightly when
the price falls by a large amount.
a. True
b. False
16. The demand for gasoline will respond more to a change in price over a period of five weeks
than over a period of five years.
a. True
b. False
17. Even the demand for a necessity such as gasoline will respond to a change in price,
especially over a longer time horizon.
a. True
b. False
18. Suppose that when the price rises by 20% for a particular good, the quantity demanded of
that good falls by 10%. The price elasticity of demand for this good is equal to 2.0.
a. True
b. False
19. Suppose that when the price rises by 10% for a particular good, the quantity demanded of
that good falls by 20%. The price elasticity of demand for this good is equal to 2.0.
a. True
b. False
20. If the price of calculators increases by 15% and the quantity demanded per week falls by
45% as a result, then the price elasticity of demand is 3.
a. True
b. False
21. If we observe that when the price of chocolate increases by 10%, quantity demanded falls by
5%, then the demand for chocolate is price inelastic.
a. True
b. False
22. If we observe that when the price of chocolate decreases by 10%, quantity demanded
increases by 25%, then the demand for chocolate is price elastic.
a. True
b. False
23. The flatter the demand curve that passes through a given point, the more inelastic the
demand.
a. True
b. False
24. The flatter the demand curve that passes through a given point, the more elastic the demand.
a. True
b. False
25. A linear, downward-sloping demand curve has a constant elasticity but a changing slope.
a. True
b. False
26. Price elasticity of demand along a linear, downward-sloping demand curve increases as price
falls.
a. True
b. False
27. Price elasticity of demand along a linear, downward-sloping demand curve decreases as price
falls.
a. True
b. False
28. The midpoint method is used to calculate elasticity between two points because it gives the
same answer regardless of the direction of the change.
a. True
b. False
29. An advantage of using the midpoint method to calculate the price elasticity of demand is that
it uses the metric system.
a. True
b. False
30. If demand is perfectly elastic, the demand curve is horizontal, and the price elasticity of
demand equals 1.
a. True
b. False
31. If demand is perfectly inelastic, the demand curve is vertical, and the price elasticity of
demand equals 0.
a. True
b. False
32. If the price elasticity of demand is equal to 0, then demand is unit elastic.
a. True
b. False
33. If the price elasticity of demand is equal to 1, then demand is unit elastic.
a. True
b. False
34. If we observe that when the price of chocolate increases by 10%, total revenue increases by
10%, then the demand for chocolate is unit price elastic.
a. True
b. False
35. Along the elastic portion of a linear demand curve, total revenue rises as price rises.
a. True
b. False
36. If a firm is facing elastic demand, then the firm should decrease price to increase revenue.
a. True
b. False
37. If a firm is facing inelastic demand, then the firm should decrease price to increase revenue.
a. True
b. False
38. When demand is inelastic, a decrease in price increases total revenue.
a. True
b. False
39. The income elasticity of demand is defined as the percentage change in quantity demanded
divided by the percentage change in income.
a. True
b. False
40. The income elasticity of demand is defined as the percentage change in quantity demanded
divided by the percentage change in price.
a. True
b. False
41. Normal goods have negative income elasticities of demand, while inferior goods have
positive income elasticities of demand.
a. True
b. False
42. If the income elasticity of demand for a good is negative, then the good must be an inferior
good.
a. True
b. False
43. If we observe that when consumers’ incomes rise by 10%, the quantity demanded of ice
cream increases by 5%, then ice cream is an inferior good.
a. True
b. False
44. If the cross-price elasticity of demand for two goods is negative, then the two goods are
substitutes.
a. True
b. False
45. If the cross-price elasticity of demand for two goods is negative, then the two goods are
complements.
a. True
b. False
46. Cross-price elasticity of demand measures how the quantity demanded of one good changes
as the price of another good changes.
a. True
b. False
47. Cross-price elasticity is used to determine whether goods are inferior or normal goods.
a. True
b. False
48. Cross-price elasticity is used to determine whether goods are substitutes or complements.
a. True
b. False
49. The cross-price elasticity of garlic salt and onion salt is -2, which indicates that garlic salt
and onion salt are substitutes.
a. True
b. False
50. The cross-price elasticity of demand for bacon and eggs likely would be negative because
bacon and eggs are complements for many people.
a. True
b. False
51. Supply and demand both tend to be more elastic in the long run and more inelastic in the
short run.
a. True
b. False
52. Price elasticity of supply measures how much the quantity supplied responds to changes in
the price.
a. True
b. False
53. If the price elasticity of supply is 2 and the quantity supplied decreases by 6%, then the price
must have decreased by 3%.
a. True
b. False
54. Supply is said to be inelastic if the quantity supplied responds substantially to changes in the
price and elastic if the quantity supplied responds only slightly to price.
a. True
b. False
55. Supply tends to be more elastic in the short run and more inelastic in the long run.
a. True
b. False
56. When the price of knee braces increased by 25 percent, the Brace Yourself Company
increased its quantity supplied of knee braces per week by 75 percent. BYC's price elasticity of
supply of knee braces is 0.33.
a. True
b. False
57. If a supply curve is horizontal, then supply is said to be perfectly elastic, and the price
elasticity of supply approaches infinity.
a. True
b. False
58. If we observe that when the price of ice cream rises by 10%, ice cream manufacturers
increase the quantity supplied of ice cream by 20%, then the price elasticity of supply is 2.
a. True
b. False
59. If a t-shirt manufacturer supplies 1,000 t-shirts per week when the price of t-shirts is $10 and
supplies 1,200 t-shirts per week when the price of t-shirts is $12, the price elasticity of supply is
2.
a. True
b. False
60. A government program that reduces land under cultivation hurts farmers but helps
consumers.
a. True
b. False
61. A government program that pays farmers not to plant corn on part of their land can help
farmers not only through the subsidy payments to farmers who participate in the program but
also by raising the market price of corn.
a. True
b. False
62. A discovery that increases wheat yields per acre hurts farmers by increasing supply and
lowering their total revenues.
a. True
b. False
63. A discovery that increases wheat yields per acre helps farmers by increasing both supply and
total revenues.
a. True
b. False
64. OPEC failed to maintain a high price of oil in the long run, partly because both the supply of
oil and the demand for oil are more elastic in the long run than in the short run.
a. True
b. False
65. The OPEC oil cartel has difficulty maintaining high prices in the long run because the supply
of oil is more inelastic in the long run than in the short run.
a. True
b. False
66. Drug interdiction, which reduces the supply of drugs, may decrease drug-related crime
because the demand for drugs is inelastic.
a. True
b. False
67. Drug interdiction, which reduces the supply of drugs, will likely be a less effective policy
than educating consumers to reduce their demand for drugs because the drug interdiction policy
will lower drug prices and reduce the quantity of drugs demanded.
a. True
b. False
68. A “Just Say No” drug education policy that successfully educates consumers to reduce their
demand for drugs will lower drug prices and reduce the quantity of drugs demanded.
a. True
b. False
69. Necessities tend to have elastic demands, whereas luxuries tend to have inelastic demands.
a. True
b. False
70. Demand is elastic if the price elasticity of demand is greater than 1.
a. True
b. False
71. If we observe that when the price of chocolate candy bars increases by 10%, quantity
demanded decreases total by 10%, then the demand for chocolate candy bars is unit price elastic.
a. True
b. False
72. If a firm that produces honey is facing elastic demand, then the firm would decrease price to
increase revenue.
a. True
b. False
73. Normal goods have positive income elasticities of demand, while inferior goods have
negative income elasticities of demand.
a. True
b. False
74. If we observe that when a consumer's income rises by 10%, the quantity demanded of
chocolate candy bars increases by 15%, then chocolate candy bars are are a normal good for that
consumer.
a. True
b. False
75. If the cross-price elasticity of demand for two goods is negative, then the two goods are
substitutes.
a. True
b. False
76. If the price elasticity of supply is 0.5 and the quantity supplied decreases by 6%, then the
price must have decreased by 3%.
a. True
b. False
77. Helen's Honey Hut supplies 20 jars of honey per week when the price of honey is $6 per jar
and supplies 30 jars per week when the price of is $8 per jar, so the price elasticity of supply
over this price range is 1.4.
a. True
b. False
78. A government program that reduces land under cultivation can help farmers by raising prices
but hurts consumers.
a. True
b. False
79. Stock market fluctuations
a. often go hand in hand with fluctuations in the economy more broadly.
b. rarely have anything to do with fluctuations in the economy more broadly.
c. have few, if any, macroeconomic implications.
d. are attributable to the widespread belief that the efficient markets hypothesis is correct.
80. Economists disagree as to whether
a. the stock price of a company should reflect the company’s expected profitability.
b. the basic tools of finance reflect valid ideas.
c. stock prices reflect rational estimates of a company’s true worth.
d. there is any relationship between stock market fluctuations and fluctuations in the economy
more broadly.
