Seminar 2: Demand and Elasticity

Question 1

The demand curve’s usual slope implies that consumers

A. buy more as the price of a good is increased.
B. buy more as a good is advertised more.
C. buy more at higher average incomes.
D. buy less as the price of a good is increased.
E. have tastes that sometimes change.

Answer 1

buy less as the price of a good is increased

Question 2

A firm’s demand curve is usually:

A. to the right of the market demand curve.
B. more inelastic than the market demand curve.
C. the same as the market demand curve.
D. drawn holding supply constant.
E. more elastic than the market demand curve.

Answer 2

more elastic than the market demand curve

Question 3

The price elasticity of demand can be interpreted as the:

A. percentage change in the quantity demanded divided by the percentage change in the good’s price.
B. percentage change in the quantity demanded divided by the percentage change in a substitute good’s price.
C. percentage change in the good’s price divided by the percentage change in quantity demanded.
D. change in the quantity demanded of a good divided by the change in its price.
E. change in the quantity demanded of a good divided by the change in a related
good’s price.

Answer 3

percentage change in the quantity demanded divided by the percentage change in the good’s price

Question 4

If the elasticity of per capita demand with respect to population is zero, then a 10%
increase in the population will cause the quantity demanded to:

A. increase by 25%.
B. decrease by 10%.
C. remain constant.
D. increase by 10%.
E. decrease by 25%.

Answer 4

remain constant

Question 5

As we move down a linear demand curve, demand becomes

a. more elastic.
b. less elastic at first and then more elastic.
c. steeper.
d. more elastic at first and then less elastic.
e. less elastic.

Answer 5

less elastic

Question 6

The price elasticity of market demand primarily depends on the

a. number of firms in an industry.
b. cost of producing an industry’s output.
c. availability of substitutes.
d. substitutability of inputs in producing a product.
e. supply curves of inputs.

Answer 6

availability of substitutes

Question 7

The demand for a product is more elastic the

A. more broadly the product is defined.
B. longer the time period covered.
C. higher the average income of consumers.
D. smaller the share of a consumer’s income the item represents.
E. larger the number of firms in the market.

Answer 7

longer the time period covered

Question 8

Along a demand curve with unitary elasticity everywhere, total revenue

A. increases as output increases.
B. decreases as output increases.
C. remains constant as output increases.
D. increases and then decreases as output increases.
E. decreases and then increases as output increases.

Answer 8

remains constant as output increases

Question 9

Along a linear demand curve, total revenue is maximized:

A. where the slope of a line from the origin to the demand curve is equal to the
elasticity.
B. where the elasticity is –1.
C. near the quantity axis intercept.
D. near the price axis intercept.
E. where the elasticity is 0.

Answer 9

where the elasticity is -1

When elasticity is above one, price should be reduced. When below one it is inelastic and should increase price.

Question 10

The income elasticity of demand is defined as the:

A. percentage change in the quantity demanded divided by the percentage change in
the price level.
B. change in the quantity demanded divided by the change in per capita income.
C. percentage change in income divided by the percentage change in the quantity
demanded.
D. change in per capita income divided by the change in the quantity demanded.
E. percentage change in the quantity demanded divided by the percentage change in
per capita income.

Answer 10

percentage change in the quantity demanded divided by the percentage change in
per capita income

Question 11

The cross-price elasticity of demand is defined as the:

A. percentage change in the quantity demanded of a good divided by the percentage
change in the good’s price.
B. percentage change in the quantity demanded of a good divided by the percentage
change in a different good’s price.
C. percentage change in a good’s price divided by the percentage change in a different
good’s price.
D. change in the quantity demanded of a good divided by the change in its price.
E. change in the quantity demanded of a good divided by the change in income.

Answer 11

percentage change in the quantity demanded of a good divided by the percentage
change in a different good’s price