Quiz- Chapter 4

1
If demand for a product is elastic with respect to price, this means the:
absolute change in quantity demanded will equal the absolute change in price.
A)

B)

C)

percentage change in quantity demanded will be less than the percentage change in
price.
percentage change in quantity demanded will be greater than the percentage change
in price.
absolute change in quantity demanded will be less than the absolute change in price.

D)

2
Suppose when the price of tennis balls increases by 5%, the quantity demanded decreases
by 4%. The price elasticity of demand for tennis balls equals:
1.25
A)
1.0
B)
0.8
C)
4.0
D)

3
All of the following characteristics influence the price elasticity of demand for a good except:
the safety of the good.
A)
the number of substitution possibilities.
B)
the budget share.
C)

time.
D)

Suppose 40 units of a good are sold when price equals $10. If the good faces a straight-line
demand curve with a slope of 2, the price elasticity of demand for this good equals:
(40/10)*(1/2) = 0.5.
A)
(40/10)*(2) = 8.
B)
(10/40)*(1/2) = 0.125.
C)
(40/40)*(1/2) = 0.5.
D)

5
Use the following diagram to answer the following question:

Given the straight-line demand curve above, the price elasticity of demand equals ____ at a
price of $10.
1/5.
A)
5.
B)
1.
C)
indeterminate.

D)

6
Use the following diagram to answer the following question:

For a seller facing the demand curve shown above, as price decreases from $10 to $0:
total revenue is always increasing.
A)
total revenue is always decreasing.
B)

C)

total revenue is initially increasing, then it begins to decrease after it reaches the
midpoint.
total revenue is not changing.

D)

7
A firm knows that the price elasticity of demand for the good they are selling equals 1.5. If
they increase the price they charge for their good:
total expenditure would increase.
A)
total expenditure would decrease.
B)
total expenditure would not change.
C)
We need more information to determine what will happen to total expenditure.
D)

Good A has an income elasticity of demand equal to -0.5 and it has a cross price
elasticity with good B equal to +0.5. This indicates that:

Good A is a normal good and it is a complement of good B.

A)
Good A is inferior and it is a complement of good B.
B)
Good A is a normal good and it is a substitute of good B.
C)
Good A is inferior and it is a substitute of good B.
D)

9
A perfectly inelastic supply curve is:
horizontal, and has a price elasticity of supply equal to zero.
A)
vertical, and has a price elasticity of supply equal to zero.
B)
upward sloping, and has a price elasticity of supply equal to infinity.
C)

vertical, and has a price elasticity of supply equal to infinity.

D)

1
0

Price volatility is common in markets in which:

demand curves fluctuate sharply and supply curves are highly inelastic.
A)
supply curves fluctuate sharply and demand curves are highly inelastic.
B)

C)

supply curves and demand curves do not fluctuate sharply and either curve is highly
elastic.
Both A and B.

D)