Principles of Microeconomics

Economics 111

Mr. Beck

SUNY College at Oneonta
Review Questions for Chapter 7

Homepage

Review Questions for Economics 111


1. The absolute value of the price elasticity of demand between the 2 points, A and B on a demand curve is (using the midpoints formula and rounding off to 2 decimal places, if necessary)
 
Point
Price
Quantity
A
$12
10
B
$ 8
22

Q1 answer

2. Assume the demand for good X is inelastic. The price is changed and, as a result, total revenue (TR) increases. It can be concluded that the price was
  1. increased and the % decrease in quantity demanded is greater than the % increase in price.
  2. increased and the % decrease in quantity demanded is less than the % increase in price.
  3. decreased and the % increase in quantity demanded is greater than the % decrease in price.
  4. decreased and the % increase in quantity demanded is less than the % decrease in price.
  5. increased and the % increase in quantity demanded is less than the % increase in price.

    6. Q2 answer

3. If a firm increases the price of its product by 4% and discovers its total revenue (TR) decreases as a result, then it can conclude that (within this price range)
  1. quantity decreased by less than 4% and thus demand is elastic.
  2. quantity decreased by more than 4% and thus demand is elastic.
  3. quantity decreased by less than 4% and thus demand is inelastic.
  4. quantity decreased by more than 4% and thus demand is inelastic.

    5. Q3 answer

4. Assume the price elasticity of demand is greater than 1. If price is decreased by 8%, then
  1. total revenue (TR) will increase because the increase in quantity will be less than 8%.
  2. TR will decrease because the increase in quantity will be greater than 8%.
  3. TR will increase because the increase in quantity will be greater than 8%.
  4. TR will decrease because the increase in quantity will be less than 8%.
  5. TR will decrease because quantity will decrease by more than 8%.

    6. Q4 answer

5. A decrease in the price of good Y results in an increase in the demand for good X. It can be concluded that goods X and Y are
  1. complementary goods and their cross-elasticity of demand is positive.
  2. complementary goods and their cross-elasticity of demand is negative.
  3. substitute goods and their cross-elasticity of demand is positive.
  4. substitute goods and their cross-elasticity of demand is negative.

    5. Q5 answer

6. If consumers spend less money per day on good X after the price of good X is cut by 10%, then (within this price range) it is reasonable to assume that the
  1. demand curve for good x is positively sloped.
  2. % increase in quantity demanded is greater than the % decrease in price and thus demand is elastic.
  3. % increase in quantity demanded is greater than the % decrease in price and thus demand is inelastic.
  4. % increase in quantity demanded is less than the % decrease in price and thus demand is elastic.
  5. % increase in quantity demanded is less than the % decrease in price and thus demand is inelastic.

    6. Q6 answer

7. If the price of good X were raised by 9% and demand is elastic, it can be concluded that
  1. total revenue (TR) will increase because the decrease in quantity demanded will be greater than 9%.
  2. total revenue will increase because the decrease in quantity demanded will be less than 9%.
  3. total revenue will increase because quantity demanded will increase by more than 9%.
  4. total revenue will decrease because the decrease in quantity demanded will be greater than 9%.
  5. total revenue will decrease because the decrease in quantity demanded will be less than 9%.

    6. Q7 answer

8. Assume the elasticity of demand is less than 1. If price is decreased by 10%, then
  1. total revenue (TR) will increase because the increase in quantity demanded will be less than 10%.
  2. TR will decrease because the increase in quantity demanded will be greater than 10%.
  3. TR will increase because the increase in quantity demanded will be greater than 10%.
  4. TR will decrease because the increase in quantity demanded will be less than 10%.

    5. Q8 answer

9. In 1986 the Arab oil countries increased the quantity of oil sold, but as a result the total revenue (TR) received decreased. This was because
  1. the % decrease in price was greater than the % increase in quantity since demand for oil is elastic.
  2. the % decrease in price was greater than the % increase in quantity since demand for oil is inelastic.
  3. the % decrease in price was less than the % increase in quantity since demand for oil is elastic.
  4. the % decrease in price was less than the % increase in quantity since demand for oil is inelastic.

    5. Q9 answer

10. A firm raises the price of its product by 10% and notices that as a result quantity sold decreases by 14%. It can be concluded that
  1. total revenue (TR) will increase and demand is elastic.
  2. TR will increase and demand is inelastic.
  3. TR will decrease and demand is elastic.
  4. TR will decrease and demand is inelastic.

    5. Q10 answer

11. If the price of good X were raised by 3% and demand is inelastic, it can be concluded that
  1. total revenue (TR) will increase because the decrease in quantity demanded will be less than 3%.
  2. TR will increase because the decrease in quantity demanded will be greater than 3%.
  3. TR will increase because quantity demanded will increase.
  4. TR will decrease because the decrease in quantity demanded will be less than 3%.
  5. TR will decrease because the decrease in quantity demanded will be greater than 3%.

    6. Q11 answer

12. Assume the price elasticity of demand is greater than 1. If price is decreased by 7%, then
  1. total revenue (TR) will increase because the increase in quantity will be less than 7%.
  2. TR will decrease because the increase in quantity will be less than 7%.
  3. TR will increase because the increase in quantity will be greater than 7%.
  4. TR will decrease because the increase in quantity will be greater than 7%.
  5. TR will decrease because quantity will decrease by less than 7%.
  6. TR will decrease because quantity will decrease by greater than 7%.

    7. Q12 answer

13. Assume the price of good Y decreases by 7% because of decreased costs of producing Y. As a result, the quantity demanded of good X decreases by 3%. It can be concluded that X and Y are
  1. substitute goods and their cross-elasticity of demand is positive.
  2. substitute goods and their cross-elasticity of demand is negative.
  3. complementary goods and their cross-elasticity of demand is positive.
  4. complementary goods and their cross-elasticity of demand is negative.

    5. Q13 answer

14. A firm decreases its price from $16 per unit to $10 per unit. As a result, its total revenue (TR) decreases from $96 to $80. Using the midpoints formula, the absolute value of the price elasticity of demand is (rounding off to 2 decimal places, if necessary)
Q14 answer

15. If goods X and Y are complements, then a decrease in the price of good Y (caused by improved technology in producing Y) will cause the entire demand curve for good X to shift to the
  1. left resulting in a negative cross-elasticity of demand.
  2. left resulting in a positive cross-elasticity of demand.
  3. right resulting in a negative cross-elasticity of demand.
  4. right resulting in a positive cross-elasticity of demand.

    5. Q15 answer

16. Assume the absolute value of the price elasticity of demand is less than 1. If price is decreased by 3%, then
  1. total revenue (TR) will increase because the increase in quantity will be less than 3%.
  2. total revenue will decrease because the increase in quantity will be greater than 3%.
  3. total revenue will increase because the increase in quantity will be greater than 3%.
  4. total revenue will decrease because the increase in quantity will be less than 3%.
  5. total revenue will decrease because quantity will decrease by more than 3%.
  6. total revenue will decrease because quantity will decrease by less than 3%.

    7. Q16 answer

17. A decrease in the price of good Y results in a decrease in the demand for good X. It can be concluded that goods X and Y are
  1. complementary goods and their cross-elasticity of demand is positive.
  2. complementary goods and their cross-elasticity of demand is negative.
  3. substitute goods and their cross-elasticity of demand is positive.
  4. substitute goods and their cross-elasticity of demand is negative.

    5. Q17 answer

18. Assume the absolute value of the elasticity of demand is less than 1. The price is changed and, as a result, total revenue received (TR) increases. It can be concluded that the price was
  1. increased and the % decrease in quantity demanded is greater than the % increase in price.
  2. increased and the % decrease in quantity demanded is less than the % increase in price.
  3. decreased and the % increase in quantity demanded is greater than the % decrease in price.
  4. decreased and the % increase in quantity demanded is less than the % decrease in price.

    5. Q18 answer

19. A firm can sell 100 units at $8/unit. If it raises its price to $10/unit it can sell 80 units. By increasing its price from $8 to $10, the firm realizes that, within this price range,
  1. total revenue (TR) would increase and demand is elastic.
  2. total revenue (TR) would decrease and demand is elastic.
  3. total revenue (TR) would stay constant and demand is inelastic.
  4. total revenue (TR) would stay constant and demand is of unitary elasticity.
  5. total revenue (TR) would increase and demand is inelastic.
  6. total revenue (TR) would decrease and demand is of unitary elasticity.

    7. Q19 answer

20. A firm knows that demand for its product is inelastic. If it were to increase its price by 5%, then its
  1. total revenue (TR) would increase because the quantity demanded would increase.
  2. total revenue (TR) would decrease because the quantity demanded would decrease by less than 5%.
  3. total revenue (TR) would decrease because the quantity demanded would decrease by more than 5%.
  4. total revenue (TR) would increase because the quantity demanded would decrease by less than 5%.
  5. total revenue (TR) would increase because the quantity demanded would decrease by more than 5%.

    6. Q20 answer

21. The price of good X goes down from $6 to $4. As a result, the total revenue received (TR) by the producers of good X increases from $18 to $28. What is the absolute value of the price elasticity of demand for good X between $6 and $4 (using the midpoints formula and rounding off to the nearest hundredth, if necessary)?
Q21 answer

22. When a firm increases the price of its product by 5%, the quantity demanded decreases by 3%. As a result of the price increase,
  1. total revenue (TR) increases because the price elasticity of demand is greater than 1.
  2. total revenue (TR) decreases because the price elasticity of demand is greater than 1.
  3. total revenue (TR) decreases because the price elasticity of demand is less than 1.
  4. total revenue (TR) increases because the price elasticity of demand is less than 1.

    5. Q22 answer

23. Assume the absolute value of the price elasticity of demand is greater than 1. The price is changed and, as a result, total revenue received (TR) increases. It can be concluded that the price was
  1. increased and the % decrease in quantity demanded is greater than the % increase in price.
  2. increased and the % decrease in quantity demanded is less than the % increase in price.
  3. decreased and the % increase in quantity demanded is greater than the % decrease in price.
  4. decreased and the % increase in quantity demanded is less than the % decrease in price.

    5. Q23 answer

24. Assume the price elasticity of demand is less than 1. If price is decreased by 8%, then
  1. total revenue (TR) will increase because the increase in quantity will be less than 8%.
  2. total revenue (TR) will decrease because the increase in quantity will be greater than 8%.
  3. total revenue (TR) will increase because the increase in quantity will be greater than 8%.
  4. total revenue (TR) will decrease because the increase in quantity will be less than 8%.
  5. total revenue (TR) will decrease because quantity will decrease by more than 8%.
  6. total revenue (TR) will decrease because quantity will decrease by less than 8%.

    7. Q24 answer

25. If a firm increases the price of its product by 8% and discovers that its total revenue (TR) increases as a result, then it can conclude that
  1. quantity decreased by less than 8% and thus demand is elastic.
  2. quantity decreased by more than 8% and thus demand is elastic.
  3. quantity increased by less than 8% and thus demand is inelastic.
  4. quantity decreased by less than 8% and thus demand is inelastic.
  5. quantity decreased by more than 8% and thus demand is inelastic.
  6. quantity increased by more than 8% and thus demand is elastic.

    7. Q25 answer

26. A firm decreases its price from $12 per unit to $8 per unit. As a result, its total revenue (TR) decreases from $96 to $80. Using the midpoints formula, the absolute value of the price elasticity of demand is [rounded off to the nearest hundredth (2 decimal places) if necessary]
Q26 answer

27. An increase in the price of good Y results in an increase in the demand for good X. It can be concluded that goods X and Y are
  1. complementary goods and their cross-elasticity of demand is positive.
  2. complementary goods and their cross-elasticity of demand is negative.
  3. substitute goods and their cross-elasticity of demand is positive.
  4. substitute goods and their cross-elasticity of demand is negative.

    5. Q27 answer

28. A firm can sell 100 units at $5/unit. If it raises its price to $12/unit it can sell 40 units. By increasing its price from $5 to $12, the firm realizes that, within this price range,
  1. total revenue (TR) would increase and demand is elastic.
  2. total revenue (TR) would decrease and demand is elastic.
  3. total revenue (TR) would stay constant and demand is of unitary elasticity.
  4. total revenue (TR) would increase and demand is inelastic.
  5. total revenue (TR) would decrease and demand is inelastic.

    6. Q28 answer

29. Given the following graphs:

Graph Question 29

If a movement from point A to B along the demand curve for good Y causes a shift from point F to G for good X, it can be concluded that goods X and Y are

  1. complementary goods and their cross-elasticity of demand is positive.
  2. complementary goods and their cross-elasticity of demand is negative.
  3. substitute goods and their cross-elasticity of demand is positive.
  4. substitute goods and their cross-elasticity of demand is negative.

    5. Q29 answer
Review Questions from Last Year's Exams


30.  The absolute value of the price elasticity of demand between the 2 points, A and B on a demand curve is (You may round off your answer to the nearest hundredth [2 decimal places], if necessary.)
 
Point
Price
Quantity
A
$ 5
10
B
$ 3
70

Q30 answer

31.  If consumers spend less money ($) per day on good X after the price of good X is decreased by 30%, then (within this price range) it is reasonable to assume that the
  1. demand curve for good x is positively sloped.
  2. percentage (%) increase in quantity demanded is less than the percentage (%) decrease in price and thus demand is elastic.
  3. percentage (%) increase in quantity demanded is less than the percentage (%) decrease in price and thus demand is inelastic.
  4. percentage (%) increase in quantity demanded is greater than the percentage (%) decrease in price and thus demand is elastic.
  5. percentage (%) increase in quantity demanded is greater than the percentage (%) decrease in price and thus demand is inelastic.

    6. Q31 answer

32.  Good X represents a small share of most consumers’ budgets and there are no close substitutes available for it. If the price of good X were increased by 40%, then the producers of good X can expect that
  1. total revenue (TR) would decrease because quantity demanded would decrease by more than 40%.
  2. total revenue (TR) would increase because quantity demanded would decrease by more than 40%.
  3. total revenue (TR) would decrease because quantity demanded would decrease by less than 40%.
  4. total revenue (TR) would increase because quantity demanded would decrease by less than 40%.
  5. total revenue (TR) would decrease because quantity demanded would increase by less than 40%.
  6. total revenue (TR) would increase because quantity demanded would increase by more than 40%.

    7.  Q32 answer

33.  Assume the demand for good X is elastic. The price is changed and, as a result, total revenue (TR) decreases. It can be concluded that the price was
  1. increased and the percentage (%) decrease in quantity demanded is greater than the percentage (%) increase in price.
  2. increased and the percentage (%) decrease in quantity demanded is less than the percentage (%)  increase in price.
  3. increased and the percentage (%) increase in quantity demanded is less than the percentage (%)   increase in price.
  4. decreased and the percentage (%) increase in quantity demanded is greater than the percentage (%) decrease in price.
  5. decreased and the percentage (%) increase in quantity demanded is less than the percentage (%) decrease in price.
  6. decreased and the percentage (%) decrease in quantity demanded is greater than the percentage (%) decrease in price.

    7. Q33 answer

34.  The price of good X is decreased from $12 to $8. As a result, the total revenue received (TR) by the producers of good X increases from $36 to $136. What is the absolute value of the price elasticity of demand for good X between $12 and $8? (You may round off your answer to the nearest hundredth [2 decimal places], if necessary)
Q34 answer

35.  Assume the absolute value of the price elasticity of demand is greater than 1. If price is decreased by 10%, then
  1. total revenue (TR) will increase because the increase in quantity demanded will be less than 10%.
  2. total revenue (TR) will decrease because the increase in quantity demanded will be greater than 10%.
  3. total revenue (TR) will increase because the increase in quantity demanded will be greater than 10%.
  4. total revenue (TR) will decrease because the increase in quantity demanded will be less than 10%.
  5. total revenue (TR) will decrease because quantity demanded will decrease by more than 10%.
  6. total revenue (TR) will decrease because quantity demanded will decrease by less than 10%.

    7. Q35 answer

36. A firm decreases the price of its product by 25% and notices that as a result quantity demanded increases by 14%. It can be concluded that
  1. total revenue (TR) will increase and demand is inelastic.
  2. total revenue (TR) will increase and demand is elastic.
  3. total revenue (TR) will decrease and demand is inelastic.
  4. total revenue (TR) will decrease and demand is elastic.

    5. Q36 answer

37. An increase in the price of good Y results in a decrease in the demand for good X. It can be concluded that goods X and Y are
  1. complementary goods and their cross-elasticity of demand is positive.
  2. complementary goods and their cross-elasticity of demand is negative.
  3. substitute goods and their cross-elasticity of demand is positive.
  4. substitute goods and their cross-elasticity of demand is negative.

    5. Q37 answer

38. In order to increase its total revenue (TR), a firm is planning on having a special sale for many of its products. In deciding which products to put on sale, the firm would decrease the price of those products for which
  1. demand is inelastic and the percentage (%) increase in quantity demanded is less than the percentage (%) decrease in price.
  2. demand is inelastic and the percentage (%) increase in quantity demanded is greater than the percentage (%) decrease in price.
  3. demand is inelastic and the percentage (%) decrease in quantity demanded is greater than the percentage (%) decrease in price.
  4. demand is elastic and the percentage (%) increase in quantity demanded is less than the percentage    (%) decrease in price.
  5. demand is elastic and the percentage (%) increase in quantity demanded is greater than the percentage (%) decrease in price.
  6. demand is elastic and the percentage (%) decrease in quantity demanded is greater than the percentage (%) decrease in price.

    7. Q38 answer

39. Assume that the cross elasticity of demand is negative between goods X and Y. The price of good Y is then increased. This would cause a
  1. movement up and to the left along the given demand curve for good Y and a shift in the entire demand curve for good X to the left.
  2. shift to the left in the entire demand curves for both goods X and Y
  3. movement up and to the left along the given demand curves for both goods X and Y .
  4. shift to the left in the entire demand curve for good Y and a shift to the right in the entire demand curve for good X.
  5. movement up and to the left along the demand curve for good Y and a shift in the entire demand curve for good X to the right.
  6. shift to the left in the entire demand curve for good Y and a movement up and to the left along a given demand curve for good X.

    7. Q39 answer

40. As the price of gasoline increased last year, total dollars spent by consumers on gasoline increased because
  1.  the absolute value of the elasticity of demand for gasoline is less than 1 and demand is inelastic.
  2. the absolute value of the elasticity of demand for gasoline is less than 1 and demand is elastic.
  3. the absolute value of the elasticity of demand for gasoline is greater than 1 and demand is inelastic.
  4. the absolute value of the elasticity of demand for gasoline is greater than 1 and demand is elastic.

    5. Q40 answer

41. A firm is selling its product at $10 per unit. It doubles the price of its product to $20 per unit and discovers that its quantity demanded is cut exactly in half as a result. The firm can conclude that between $10 and $20,
  1. total revenue (TR) will increase because demand is inelastic.
  2. total revenue (TR) will decrease because demand is elastic.
  3. total revenue (TR) will remain constant because demand is inelastic.
  4. total revenue (TR) will decrease because demand is of unitary elasticity (elasticity value = 1).
  5. total revenue (TR) will remain constant because demand is of unitary elasticity (elasticity value = 1).
  6. total revenue (TR) will increase because demand is elastic.

    7. Q41 answer

42. Given the following graphs:

Graph Question 42

If a movement from point A to B along the demand curve for good Y causes a shift from point F to G for good X, it can be concluded that goods X and Y are

  1. complementary goods and their cross-elasticity of demand is positive.
  2. complementary goods and their cross-elasticity of demand is negative.
  3. substitute goods and their cross-elasticity of demand is positive.
  4. substitute goods and their cross-elasticity of demand is negative.

    5. Q42 answer

43. The cross elasticity of demand for goods X and Y is equal to 0. This indicates that if the price of good Y were to increase by 10%, then
  1. the demand for good X would also increase by exactly 10%.
  2. the demand for good X would decrease by exactly 10%.
  3. the demand for good X would not change.
  4. the demand for good X would increase by more than 10%.
  5. the demand for good X would decrease by more than 10%.

    6. Q43 answer

44. A firm is selling its product at $10 per unit. It estimates that if it were to cut its price to $6 per unit, its quantity demanded would exactly triple. What is the absolute value of the price elasticity of demand between $10 and $6?
  1. 0.50
  2. 1.00
  3. 2.00
  4. 3.00
  5. Insufficient information provided to calculate the price elasticity of demand between $10 and $6.
  6. Sufficient information provided, but none of the numerical answers provided is correct.

    7. Q44 answer

45. The Arab oil countries realize that they can increase their total revenue (TR) received if they can all agree on reducing their quantity produced. This is true because
  1. demand for oil is inelastic and the percentage (%) increase in price will be greater than the percentage (%) decrease in quantity.
  2. demand for oil is elastic and the percentage (%) increase in price will be greater than the percentage (%) decrease in quantity.
  3. demand for oil is inelastic and the percentage (%) increase in price will be less than the percentage (%) decrease in quantity.
  4. demand for oil is elastic and the percentage (%) increase in price will be less than the percentage (%) decrease in quantity.
  5. demand for oil is inelastic and the percentage (%) decrease in price will be greater than the percentage (%) decrease in quantity.
  6. demand for oil is elastic and the percentage (%) decrease in price will be less than the percentage (%) decrease in quantity.

    7. Q45 answer

46. Although gasoline is a necessity, most consumers don’t care which brand of gasoline they buy. If Exxon gasoline were able to change the price of its brand of gasoline alone, ceteris paribus (without the price of any other brand of gasoline changing), then it is reasonable to believe that Exxon’s
  1. total revenue (TR) would increase if Exxon increased its price, but Exxon’s total revenue (TR) would decrease if Exxon decreased its price.
  2. total revenue (TR) would decrease if Exxon increased its price, but Exxon’s total revenue (TR) would increase if Exxon decreased its price.
  3. total revenue (TR) would increase if Exxon increased or decreased its price.
  4. total revenue (TR) would decrease if Exxon increased or decreased its price.
  5. total revenue (TR) would remain constant if Exxon increased its price, but Exxon’s total revenue (TR) would decrease if Exxon decreased its price.
  6. total revenue (TR) would increase if Exxon increased its price, but Exxon’s total revenue (TR) would remain constant if Exxon decreased its price.

    7. Q46 answer

47. Of the following five values for cross elasticity of demand between goods X and Y, which value would indicate the strongest complementary relationship between the two goods?
  1. 0
  2. -0.5
  3. -2
  4. +0.5
  5. +2

    6. Q47 answer

48. A firm can sell 10 units per day at a price of $20 per unit. If it raises its price to $32 per unit, it would only be able to sell 4 units per day. By increasing its price from $20 to $32, the firm realizes that, within this price range,
  1. total revenue (TR) would increase and demand is elastic.
  2. total revenue (TR) would decrease and demand is elastic.
  3. total revenue (TR) would increase and demand is inelastic.
  4. total revenue (TR) would decrease and demand is inelastic.
  5. total revenue (TR) would increase and demand is of unitary elasticity (elasticity value = 1).
  6. total revenue (TR) would decrease and demand is of unitary elasticity (elasticity value = 1).

    7. Q48 answer

49. A firm is selling 12 units of its product per day at $40 per unit. It decides to raise the price to $60 per unit. If the slope of its demand curve is –10 and is constant, then the absolute value of the price elasticity of demand between $40 and $60 is
(You may round off your answer to the nearest hundredth [2 decimal places], if necessary.)
Q49 answer

50.  Assume the demand for a product is inelastic. If the price of the product is decreased by 10%, then
  1. total revenue (TR) will increase and the increase in quantity demanded will be greater than 10%.
  2. total revenue (TR) will increase and the increase in quantity demanded will be less than 10%.
  3. total revenue (TR) will decrease and the increase in quantity demanded will be greater than 10%.
  4. total revenue (TR) will decrease and the increase in quantity demanded will be less than 10%.
  5. total revenue (TR) will decrease and the decrease in quantity demanded will be greater than 10%.
  6. total revenue (TR) will decrease and the decrease in quantity demanded will be less than 10%.

    7. Q50 answer

51.   The absolute value of the price elasticity of demand between the 2 points, A and B, on a demand curve is (You should round off your answer to the nearest hundredth [2 decimal places], if necessary.)
Point
Price
Quantity
A
$ 36
4
B
$ 28
16
Q51 answer

52.  Assume that the cross elasticity of demand is positive between goods X and Y. The price of good Y is then increased. This would cause a
  1. movement up and to the left along the given demand curve for good Y and a shift in the entire demand curve for good X to the left.
  2. shift to the left in the entire demand curves for both goods X and Y
  3. movement up and to the left along the given demand curve for good Y and a movement down and to the right along the given demand curve for good X .
  4. shift to the left in the entire demand curve for good Y and a shift to the right in the entire demand curve for good X.
  5. movement up and to the left along the given demand curve for good Y and a shift in the entire demand curve for good X to the right.
  6. shift to the left in the entire demand curve for good Y and a movement down and to the right along the given demand curve for good X.

    7. Q52 answer

53.  Assume the absolute value of the price elasticity of demand for a product is greater than 1. If price is increased by 7%, then
  1. total revenue (TR) will increase because the decrease in quantity demanded will be less than 7%.
  2. total revenue (TR) will decrease because the decrease in quantity demanded will be less than 7%.
  3. total revenue (TR) will increase because the decrease in quantity demanded will be greater than 7%.
  4. total revenue (TR) will decrease because the decrease in quantity demanded will be greater than 7%.
  5. total revenue (TR) will increase because the increase in quantity demanded will be greater than 7%.
  6. total revenue (TR) will increase because the increase in quantity demanded will be less than 7%.

    7. Q53 answer

54. The price of good X is decreased from $44 to $36. As a result, the total revenue received (TR) by the producers of good X increases from $220 to $396. What is the absolute value of the price elasticity of demand for good X between $44 and $36? (You should round off your answer to the nearest hundredth [2 decimal places], if necessary)
Q54 answer

55. Recently, the Arab oil countries announced that they were planning on decreasing the quantity of oil sold by 4%. This would succeed in increasing their total revenue (TR) if
  1. demand for oil were elastic and the resulting percentage increase in price would be greater than 4%.
  2. demand for oil were elastic and the resulting percentage increase in price would be less than 4%.
  3. demand for oil were inelastic and the resulting percentage increase in price would be greater than 4%.
  4. demand for oil were inelastic and the resulting percentage increase in price would be less than 4%.
  5. demand for oil were elastic and the resulting percentage decrease in price would be greater than 4%.
  6. demand for oil were inelastic and the resulting percentage decrease in price would be less than 4%.

    7. Q55 answer

56. Recent studies have confirmed that the demand for cigarettes is inelastic. This information is consistent with the fact that, as the price of cigarettes has increased,
  1. total $ spent by consumers on cigarettes has increased and the percentage increase in quantity demanded is greater than the percentage increase in price.
  2. total $ spent by consumers on cigarettes has increased and the percentage increase in quantity demanded is less than the percentage increase in price.
  3. total $ spent by consumers on cigarettes has increased and the percentage decrease in quantity demanded is greater than the percentage increase in price.
  4. total $ spent by consumers on cigarettes has increased and the percentage decrease in quantity demanded is less than the percentage increase in price.
  5. total $ spent by consumers on cigarettes has decreased and the percentage decrease in quantity demanded is greater than the percentage increase in price.
  6. total $ spent by consumers on cigarettes has decreased and the percentage decrease in quantity demanded is less than the percentage increase in price.

    7. Q56 answer

57.  A firm is selling its product at $15 per unit. It estimates that if it were to increase its price to $25 per unit, its quantity demanded would be exactly cut in half. The firm can conclude that from $15 to $25
  1. demand is elastic and total revenue (TR) will increase.
  2. demand is elastic and total revenue (TR) will decrease.
  3. demand is inelastic and total revenue (TR) will increase.
  4. demand is inelastic and total revenue (TR) will decrease.
  5. total revenue (TR) will increase, but insufficient information is provided to determine if demand is elastic or inelastic from $15 to $25.
  6. total revenue (TR) will decrease, but insufficient information is provided to determine if demand is elastic or inelastic from $15 to $25.

    7. Q57 answer

58.  Of the following five values for cross elasticity of demand between goods X and Y, which value would represent a situation in which goods X and Y are totally unrelated?
  1. 0
  2. - 1
  3. + 1
  4. +0.5
  5. - 10

    6. Q58 answer

59. A firm is selling 6 units of its product per day at $20 per unit. It decides to increase the price to $35 per unit. If the slope of its demand curve is –5 and is constant, then, from $20 to $35,
  1. demand is elastic and total revenue (TR) will decrease.
  2. demand is elastic and total revenue (TR) will increase.
  3. demand is of unitary elasticity (=1) and total revenue (TR) will remain constant.
  4. demand is of unitary elasticity (=1) and total revenue (TR) will increase.
  5. demand is inelastic and total revenue (TR) will decrease.
  6. demand is inelastic and total revenue (TR) will increase.

    7. Q59 answer

60. Given the following graphs:

Gaph question 60

If a movement from point A to B along the demand curve for good Y causes a shift from point F to G for good X, it can be concluded that goods X and Y are

  1. complementary goods and their cross-elasticity of demand is positive.
  2. complementary goods and their cross-elasticity of demand is negative.
  3. substitute goods and their cross-elasticity of demand is positive.
  4. substitute goods and their cross-elasticity of demand is negative.

    5. Q60 answer

61. Assume the demand for good X is inelastic. The price is changed and, as a result, total revenue (TR) decreases. It can be concluded that the price was
  1. increased and the % decrease in quantity demanded is greater than the % increase in price.
  2. increased and the % decrease in quantity demanded is less than the % increase in price.
  3. decreased and the % increase in quantity demanded is greater than the % decrease in price.
  4. decreased and the % increase in quantity demanded is less than the % decrease in price.
  5. increased and the % increase in quantity demanded is less than the % increase in price.
  6. decreased and the % decrease in quantity demanded is greater than the % decrease in price.

    7. Q61 answer

62. Which one of the following combinations of characteristics would tend to make the demand for good X most inelastic?
  1. Good X is a necessity which represents a small percent of the typical consumer’s budget and there are no close substitutes for good X.
  2. Good X is a necessity which represents a large percent of the typical consumer’s budget and there are no close substitutes for good X.
  3. Good X is a necessity which represents a large percent of the typical consumer’s budget and there are many close substitutes for good X.
  4. Good X is a luxury good which represents a small percent of the typical consumer’s budget and there are no close substitutes for good X.
  5. Good X is a luxury good which represents a small percent of the typical consumer’s budget and there are many close substitutes for good X.
  6. Good X is a luxury good which represents a large percent of the typical consumer’s budget and there are many close substitutes for good X.

    7. Q62 answer

63. If a firm increases the price of its product by 8% and discovers that its total revenue (TR) decreases as a result, then it can conclude that
  1. quantity demanded decreased by less than 8% and thus demand is elastic.
  2. quantity demanded decreased by more than 8% and thus demand is elastic.
  3. quantity demanded increased by less than 8% and thus demand is inelastic.
  4. quantity demanded decreased by less than 8% and thus demand is inelastic.
  5. quantity demanded decreased by more than 8% and thus demand is inelastic.
  6. quantity demanded increased by more than 8% and thus demand is elastic.

    7. Q63 answer


Formula Sheet






Price Elasticity of Demand = (%DQ/%DP) = [(DQ/Average Q) / (DP/Average P)]

If price elasticity is greater than 1, then demand is elastic.

If price elasticity is equal to 1, then demand is of unitary elasticity.

If price elasticity is less than 1, then demand is inelastic.
 

Total Revenue (TR) = Price (P) x Quantity (Q)

If demand is elastic (elasticity >1), P & TR vary in opposite directions because the %DQ > %DP.

If demand is of unitary elasticity (elasticity =1), P & TR are independent of each other (TR doesn't change as P changes) because the %DQ = %DP.

If demand is inelastic (elasticity <1), P & TR vary in the same direction because the %DQ < %DP.
 

Cross-Elasticity of Demand = (%DQ of X / %DP of Y)

DY/DX  =  slope.     Y is the variable measured on the vertical axis.  X is the variable measured on the horizontal axis.
 (D represents change.)

For supply and demand curves, price (measured in $ per unit) is measured on the Y axis and quantity (measured in units per time) is measured on the X axis. Therefore, the slope of a demand curve = DP/DQ
 
 

ANSWERS









 

1. 1.88  Return to Q1
Solution to Q1

 

2. b  Return to Q2
Solution to Q2

 

3. b  Return to Q3
Solution to Q3

 

4. c  Return to Q4
Solution to Q4

 

5. b  Return to Q5
Solution to Q5

 

6. e  Return to Q6
Solution to Q6

 

7. d  Return to Q7
Solution to Q7

 

8. d  Return to Q8
Solution to Q8

 

9. b  Return to Q9
Solution to Q9

 

10. c  Return to Q10
Solution to Q10

 

11. a  Return to Q11
Solution to Q11

 

12. c  Return to Q12
Solution to Q12

 

13. a  Return to Q13
Solution to Q13

 

14. 0.62  Return to Q14
Solution to Q14

 

15. c  Return to Q15
Solution to Q15

 

16. d  Return to Q16
Solution to Q16

 

17. c  Return to Q17
Solution to Q17

 

18. b  Return to Q18
Solution to Q18

 

19. d  Return to Q19
Solution to Q19

 

20. d  Return to Q20
Solution to Q20

 

21. 2.00  Return to Q21
Solution to Q21

 

22. d  Return to Q22
Solution to Q22

 

23. c  Return to Q23
Solution to Q23

 

24. d  Return to Q24
Solution to Q24

 

25. d  Return to Q25
Solution to Q25

 

26. 0.56  Return to Q26
Solution to Q26

 

27. c  Return to Q27
Solution to Q27

 

28. b  Return to Q28
Solution to Q28

 

29. c  Return to Q29
Solution to Q29

 

30. 3.00  Return to Q30
Solution to Q30

 

31. c  Return to Q31
Solution to Q31

 

32. d  Return to Q32
Solution to Q32

 

33. a  Return to Q33
Solution to Q33

 

34. 3.50  Return to Q34
Solution to Q34

 

35. c  Return to Q35
Solution to Q35

 

36. c  Return to Q36
Solution to Q36

 

37. b  Return to Q37
Solution to Q37

 

38. e  Return to Q38
Solution to Q38

 

39. a  Return to Q39
Solution to Q39

 

40. a  Return to Q40
Solution to Q40

 

41. e  Return to Q41
Solution to Q41

 

42. b  Return to Q42
Solution to Q42

 

43. c  Return to Q43
Solution to Q43

 

44. c  Return to Q44
Solution to Q44

 

45. a  Return to Q45
Solution to Q45

 

46. b  Return to Q46
Solution to Q46

 

47. c  Return to Q47
Solution to Q47

 

48. b  Return to Q48
Solution to Q48

 

49. 0.45  Return to Q49
Solution to Q49

 

50. d  Return to Q50
Solution to Q50

 

51. 4.80  Return to Q51
Solution to Q51

 

52. e  Return to Q52
Solution to Q52

 

53. d  Return to Q53
Solution to Q53

 

54. 3.75  Return to Q54
Solution to Q54

 

55. c  Return to Q55
Solution to Q55

 

56. d  Return to Q56
Solution to Q56

 

57. b  Return to Q57
Solution to Q57

 

58. a  Return to Q58
Solution to Q58

 

59. a  Return to Q59
Solution to Q59

 

60. c  Return to Q60
Solution to Q60

 

61. d  Return to Q61
Solution to Q61

 

62. a  Return to Q62
Solution to Q62

 

63. b  Return to Q63
Solution to Q63

Return to top of page