Question 1

Which of the following statements best describes the own-price elasticity of demand for a perfectly vertical demand curve?

Accepted Answer

It is equal to zero.

Question 2

Suppose the demand for a good is given by $D = 240 - 20p$ and supply is $S = 20p$. Between prices $p = 2$ and $p = 6$, what is the own-price elasticity of demand?

Accepted Answer

$2.0$

Question 3

If the price of a product increases from $4.00$ to $5.00$ per unit and the quantity supplied rises from $500$ to $1000$ units per month, what is the price elasticity of supply for this product?

Accepted Answer

$2.0$

Question 4

With a downward-sloping straight-line demand curve, price elasticity of demand is:

Accepted Answer

Increasing to the midpoint of the curve and then decreasing.

Question 5

The demand curve for a good is $D = 160 - 2p$. Total expenditures on this good are at a maximum when sellers charge a price of:

Accepted Answer

$40$

Question 6

Suppose demand and supply are $S = 2p - 40$ and $D = 40 - 2p + m$ where income is initially $m = 40$. Now income increases to $m = 80$. Calculate the income elasticity of demand at the original equilibrium price. Is this a luxury good?

Accepted Answer

Income elasticity is $0.5$, so it is not a luxury good.

Question 7

When sellers offer price reductions to their customers, they will realize an increase in revenue if:

Accepted Answer

The elasticity of demand is greater than $1$.

Question 8

If supply of good X is inelastic and demand for Y is elastic, today's equilibrium price of good Y will have the biggest impact if:

Accepted Answer

Supply of X is inelastic, and Demand for Y is elastic.

Question 9

The incidence of a per unit subsidy is least favourable for buyers when supply is ____ and demand is ____.

Accepted Answer

Elastic; inelastic

Question 10

Consumers will bear a larger burden of an excise tax if:

Accepted Answer

Demand is relatively inelastic, and supply is relatively elastic.

Question 11

Suppose the market supply curve for some good is upward sloping. If the imposition of an excise tax causes no change in the equilibrium quantity sold in the market, the good's demand curve must be:

Accepted Answer

Vertical

Question 12

If the income elasticity of demand for a necessity good is:

Accepted Answer

Less than $1$

Question 13

Good W has an income elasticity of $-2.00$. Good X has an income elasticity of $0$. Good Y has an income elasticity of $0.6$. Good Z has an income elasticity of $1.0$. Which good is a necessity?

Accepted Answer

Good Y

Question 14

When the price of good X rose from $3$ to $8$, quantities demanded for good X decreased from $55$ to $45$ and the demand for good Y increased from $80$ to $120$. The cross-price elasticity of demand for good Y is equal to:

Accepted Answer

$0.8$

Question 15

The relationship between elasticity and expenditure is given by $E = p 	imes q$. If demand is $D = 12 - 2p$, at what price is total expenditure maximized?

Accepted Answer

$p = 3$

Question 16

If the own-price elasticity of demand is $-0.5$, a 10% increase in price will result in:

Accepted Answer

A 5% decrease in quantity demanded.

Question 17

A perfectly horizontal demand curve shows that the own-price elasticity of demand is:

Accepted Answer

Infinity

Question 18

If the price elasticity of demand for a good is $-1$, then a 5% increase in price will:

Accepted Answer

Decrease quantity demanded by 5%.

Question 19

If both supply and demand are highly elastic, the revenue associated with a per unit tax will be:

Accepted Answer

Lowest

Question 20

If the government introduces a $2$ per unit tax and supply and demand are given by $D = 12 - 2p$ and $S = 2p$, who will bear the greater burden of the tax if demand is relatively inelastic and supply is relatively elastic?

Accepted Answer

Consumers

Microeconomics Study Guide: Elasticity, Supply & Demand, and Incidence

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