Elasticities, Time And Efficiency

Question 1

If goods J and K are substitutes an increase in the price of J causes
A) quantity demanded of j to fall and the demand curve for k to shift towards the origin
B) a decrease in quantity demanded for j and an outward shift of Ks demand curve
C) quantity demanded for j remains constant, but the demand for K decreases
D) the demand curve for both J and K shift

Answer 1

B) a decrease in quantity demanded for J and an outward shift of Ks demand curve

Question 2

When a good is normal, an increase in income causes the
A) supply curve of the good to shift right
B) demand curve of the good to shift to the left
C) prices of complementary goods to fall
D) demand curve of the good to shift to the right

Answer 2

D) demand curve of the good to shift to the right

Question 3

An improvement in overall technology that allows more output to be produced
with the same level of inputs causes
A) a movement up the supply curve, resulting in both a higher
equilibrium price and quantity.
B) no movement of the supply curve but a fall in price and an increase in
quantity supplied.
C) a rightward shift of the supply curve so that more is offered for sale at
every price.
D) none of the above

Answer 3

C) a rightward shift of the supply curve so that more is offered for sale at
every price.

Question 4

Cross elasticity is
A) negative for a substitute.
B) positive for a substitute.
C) positive for a complement.
D) none of the above.

Answer 4

B) positive for a substitute.

Question 5

Which of the following formulas calculates a good’s price elasticity of demand?
A) percentage change in price divided by the percentage change in
quantity demanded.
B) percentage change in quantity demanded divided by the percentage
change in price.
C) percentage change in quantity demanded divided by the absolute
change in price.
D) absolute change in quantity demanded divided by the percentage
change in price.

Answer 5

B) percentage change in quantity demanded divided by the percentage

Question 6

Total revenue received by the seller of a good increases if
A) demand for the good is inelastic and the seller raises the good’s price
B) demand for the good is unitary elastic and the seller lowers the price
C) demand for the good is elastic and the seller lowers the price
D) A and B above
E) A and C above

Answer 6

E) A and C above
A) demand for the good is inelastic and the seller raises the good’s price
C) demand for the good is elastic and the seller lowers the price

Question 7

If the elasticity of supply is 1.2, in order to increase quantity supplied by 3.6
percent, price must
A) fall by 4 percent
B) rise by 3.6 percent
C) fall by 1.2 percent
D) rise by 3 percent

Answer 7

D) rise by 3 percent

Question 8

Income elasticity of demand allows us to distinguish between different kinds
of goods since
A) Inferior goods have a negative income elasticity
B) Luxury goods have an income elasticity greater than one
C) Necessities have an income elasticity between zero and 1
D) All of the above

Answer 8

A) Inferior goods have a negative income elasticity
B) Luxury goods have an income elasticity greater than one
C) Necessities have an income elasticity between zero and 1

Question 9

A recent Government survey shows that when the price of cigarettes rises by
10 percent, that the quantity sold falls by 17 percent. The price elasticity of
demand for cigarettes
A) elastic
B) inelastic
C) unit elastic
D) There is not enough information to answer the question.

Answer 9

A) elastic

Question 10

One reason that economists find the cross price elasticity of demand useful is
that it
A) permits us to tell whether or not goods are inferior;
B) indicates whether goods are substitutes or complements for each
other;
C) indicates the effect of changes in price on changes in the sellers’ total
revenue;
D) permits us to determine the revenue maximising price for different
goods.

Answer 10

B) indicates whether goods are substitutes or complements for each

Question 11

In comparison to the price a perfectly competitive firm charges, monopoly
pricing has the effect of causing
A) the level of output to be higher.
B) the price of output to be higher.
C) consumer surplus to be larger.
D) All of the above are correct

Answer 11

B) the price of output to be higher.

Question 12

Which of the options below presents the most plausible matching between
pairs of goods and cross elasticities?
A) petrol and cars (5): salt and petrol (0.25); Ford Escorts and Opel
Astras (-5).
B) petrol and cars (-5): salt and petrol (0); Ford Escorts and Opel Astras
(5).
C) petrol and cars (-5): salt and petrol (0.25); Ford Escorts and Opel
Astras (-5).
D) petrol and cars (5): salt and petrol (0); Ford Escorts and Opel Astras
(5).

Answer 12

B) petrol and cars (-5): salt and petrol (0); Ford Escorts and Opel Astras