Economics Course

You have estimated the price elasticity of demand for an umbrella and found it to be inelastic. You can conclude that

a) if more umbrellas are sold as the result of a price decrease, total expenditures by consumers on umbrellas will decrease

b) changes in price do not affect the number of umbrellas demanded

c) the percentage change in price (in absolute value) is less than the percentage change in quantity demanded (in absolute value)

d) the percentage change in quantity demanded (in absolute value) is greater than the percentage change in price (in absolute value)

Products or services that have a calculated income elasticity that is negative are

a) producers’ goods

b) durable goods

c) inferior goods

d) nondurable goods

Which of the following events would NOT increase the quantity demanded of a normal good?

a) an increase in the price of substitute goods

b) an increase in the effective level of competitor advertising

c) an increase in the level of consumer income

d) a decrease in the price of complementary products

Which of the following reasons explains why the quantity demanded of a product decreases as the price of that product increases

a) as the price rises, the real income of the consumer decreases

b) as the price of the product rises, consumers tend to substitute away from it toward other substitute products

c) As the price of a product rises, its price elasticity of demand becomes more inelastic

d) both a and b

If the price of a complement to Product A decreases, with nothing else affecting the demand or supply of Product A,

a) quantity demanded of A will decrease

b) quantity supplied of A will decrease

c) demand for A will increase

d) demand for A will decrease

Marginal revenue is ____ at the level of output where total revenue is maximized.

a) equal to one

b) less than zero

c) equal to zero

d) equal to minus one

Consumers will be in equilibrium (maximize utility subject to income constraints) with respect to the consumption of two goods, A and B, if

a) the combination of A and B consumed is at a point on the consumer’s indifference curve that is tangent to the consumer’s budget constraint

b) the combination of A and B consumed is at a point on the consumer’s indifference curve where the slope of the indifference curve is greater than the slope of the budget constraint.

c) the combination of A and B consumed is at a point on the consumer’s indifference curve where the slope of the indifference curve is less than the slope of the budget constraint.

d) the marginal utility of both products is identical, regardless of the price

An income elasticity of 2.0 indicates that for a ____ increase in income, ____ will increase by ____.

a) one percent; quantity demanded; two percent

b) one percent; quantity supplied; two units

c) one unit; quantity supplied; two units

d) one unit; quantity demanded; two units

The factors that cause a movement along the demand curve include:

a) increase in level of advertising

b) decrease in price of complementary goods

c) increase in consumer disposable income

d) decrease in price of the good demanded

If the cross price elasticity between items A and B is positive, the two products are referred to as

a) substitutes

b) complements

c) inelastic as compared to each other

d) both b and c

The price elasticity of demand for industry demand is equal to -1.5 at the current price. If total industry output is expected to increase by 30 percent as a result of the supply increase, assuming price elasticity of demand remains the same, managers in this industry should expect the market price of the good to _________ by ___________ percent.

a) decrease, 20

b) increase, 20

c) decrease, 45

d) increase, 45

The market demand curve for a given good shifts when there is a change in any of the following factors EXCEPT

a) the price of the good

b) the level of consumer income

c) the price of goods related in consumption

d) the tastes of consumers

If a demand curve goes through the point P = $6 and Qd = 400, then

a) $6 is the highest price consumers will pay for 400 units

b) $6 is the lowest price consumers can be charged to induce them to buy 400 units

c) 400 units are the most consumers will buy if price is $6

d) both a and c

When demand is ____, a 10% percentage change in ____ is exactly offset by a 10% change (in the opposite direction) in ____ demanded. Consumer expenditures on the product remain constant.

a) elastic; price; quantity

b) unitary elastic; price; quantity

c) inelastic; quantity; price

d) inelastic; price; quantity

When price elasticity of demand is ____ in absolute value (or ____), an increase in price will result in a(n) ____ in total revenues.

a) less than 1; elastic; increase

b) more than 1; inelastic; decrease

c) less than 1; elastic; decrease

d) less than 1; inelastic; increase