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INSTRUCTION: Select the BEST answer for each question by marking the circle next to your selection
1.
| A perfectly inelastic demand schedule:
A.
| rises upward and to the right, but has a constant slope.
|
B.
| can be represented by a line parallel to the vertical axis.
|
C.
| cannot be shown on a two-dimensional graph.
|
D.
| can be represented by a line parallel to the horizontal axis.
|
|
2.
| If the demand for bacon is relatively elastic, a 10 percent decline in the price of bacon will:
A.
| decrease the amount demanded by more than 10 percent.
|
B.
| increase the amount demanded by more than 10 percent.
|
C.
| decrease the amount demanded by less than 10 percent.
|
D.
| increase the amount demanded by less than 10 percent.
|
|
3.
| The price elasticity of demand for beef is about 0.60. Other things equal, this means that a 20 percent increase in the price of beef will cause the quantity of beef demanded to:
A.
| increase by approximately 12 percent.
|
B.
| decrease by approximately 12 percent.
|
C.
| decrease by approximately 32 percent.
|
D.
| decrease by approximately 26 percent.
|
|
4.
|
Refer to the above diagram and assume a single good. If the price of the good increased from $5.70 to $6.30 along D1, the price elasticity of demand along this portion of the demand curve would be:
|
5.
| 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.
|
|
6.
| 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:
|
7.
| We would expect:
A.
| the demand for Coca-Cola to be less elastic than the demand for soft drinks in general.
|
B.
| the demand for Coca-Cola to be more elastic than the demand for soft drinks in general.
|
C.
| no relationship between the elasticity of demand for Coca-Cola and the elasticity of demand for soft drinks in general.
|
D.
| none of the above to hold true.
|
|
8.
| Which of the following generalizations is not correct?
A.
| The larger an item is in one's budget, the greater the price elasticity of demand.
|
B.
| The price elasticity of demand is greater for necessities than it is for luxuries.
|
C.
| The larger the number of close substitutes available, the greater will be the price elasticity of demand for a particular product.
|
D.
| The price elasticity of demand is greater the longer the time period under consideration.
|
|
9.
| Farmers often find that large bumper crops are associated with declines in their gross incomes. This suggests that:
A.
| farm products are normal goods.
|
B.
| farm products are inferior goods.
|
C.
| the price elasticity of demand for farm products is less than 1.
|
D.
| the price elasticity of demand for farm products is greater than 1.
|
|
10.
| The price elasticity of supply measures how:
A.
| easily labor and capital can be substituted for one another in the production process.
|
B.
| responsive the quantity supplied of X is to changes in the price of X.
|
C.
| responsive the quantity supplied of Y is to changes in the price of X.
|
D.
| responsive quantity supplied is to a change in incomes.
|
|
11.
| Assume that the price of product X rises by 5 percent and the quantity supplied of X increases by 15 percent. The coefficient of price elasticity of supply for good X is:
A.
| negative and therefore X is an inferior good.
|
B.
| positive and therefore X is a normal good.
|
C.
| less than 1 and therefore supply is inelastic.
|
D.
| more than 1 and therefore supply is elastic.
|
|
12.
|
Refer to the above diagram and assume that price increases from $2 to $10. The coefficient of the price elasticity of supply (midpoints formula) relating to this price change is about:
A.
| 5 and supply is elastic.
|
B.
| 1 and supply is unit elastic.
|
C.
| .25 and supply is inelatic.
|
D.
| 2.5 and supply is elastic.
|
|
13.
| If the income elasticity of demand for lard is -3.00, this means that:
A.
| lard is a substitute for butter.
|
B.
| lard is a normal good.
|
C.
| lard is an inferior good.
|
D.
| more lard will be purchased when its price falls.
|
|
14.
| We would expect the cross elasticity of demand between dress shirts and ties to be:
A.
| positive, indicating normal goods.
|
B.
| positive, indicating inferior goods.
|
C.
| negative, indicating substitute goods.
|
D.
| negative, indicating complementary goods.
|
|
15.
| The price elasticity of demand is:
A.
| negative, but the minus sign is ignored.
|
B.
| positive, but the plus sign is ignored.
|
C.
| positive for normal goods and negative for inferior goods.
|
D.
| positive because price and quantity demanded are inversely related.
|
|
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