 QUESTION 1

A demand curve that is parallel to the horizontal axis is

• relatively inelastic.
• perfectly inelastic.
• perfectly elastic.
• relatively elastic.

10 Points

QUESTION 2

A manufacturer of frozen pizzas found that total revenue decreased when price was lowered from \$5 to \$4. It was also found that total revenue decreased when price was raised from \$5 to \$6. Thus,

• the demand for pizza is inelastic above \$5 and elastic below \$5
• the demand for pizza is elastic both above and below \$5
• the demand for pizza is elastic above \$5 and inelastic below \$5
• \$5 is not the equilibrium price of pizza

10 points

QUESTION 3

A perfectly inelastic demand schedule

• rises upward and to the right but has a constant slope.
• can be represented by a line parallel to the horizontal axis.
• can be represented by a line parallel to the vertical axis.
• cannot be shown on a two-dimensional graph.

10 points

QUESTION 4

A state government wants to increase the taxes on cigarettes to increase tax revenue. Because cigarettes are addictive, we would expect its demand to be

• elastic. Thus, the governments cigarette-tax revenues would rise with a tax increase.
• inelastic. Thus, the governments cigarette-tax revenues would fall with a tax increase.
• elastic. Thus, the governments cigarette-tax revenues would fall with a tax increase.
• inelastic. Thus, the governments cigarette-tax revenues would rise with a tax increase.

10 points

QUESTION 5

Airlines charge business travelers more than leisure travelers because there is a more

• inelastic demand for business travel.
• elastic demand for business travel.
• elastic supply of business travel.
• inelastic supply of business travel.

10 points

QUESTION 6

Cross elasticity of demand is

• negative for substitute goods.
• negative for complementary goods.
• unitary for inferior goods.
• positive for inferior goods.

10 points

QUESTION 7

Gigantic State University raises tuition for the purpose of increasing its revenue so that more faculty can be hired. GSU is assuming that the demand for education at GSU is

• decreasing.
• perfectly elastic.
• relatively elastic.
• relatively inelastic.

10 points

QUESTION 8

If a 5 percent decrease in the price of Good A results in an increase of 8 percent in the quantity demanded of Good B, then it can be concluded that Goods A and B are

• independent goods.
• complementary goods.
• substitutes goods.
• normal goods.

10 points

QUESTION 9

If demand for farm crops is inelastic, a good harvest will cause farm revenues to

• decrease because of a percentage fall in price that is greater than the percentage increase in quantity sold.
• increase because of a downward movement along the supply curve, encouraging an increase in demand.
• increase because of the increase in the quantity that farmers can sell.
• remain unchanged, because the increase in quantity that can be sold will be matched by an equal decrease in price.

10 points

QUESTION 10

If the price elasticity of demand for a product is unity, a decrease in price will

• increase the quantity demanded but decrease total revenue.
• have no effect upon the amount purchased.
• increase the quantity demanded, but total revenue will be unchanged.
• increase the quantity demanded and increase total revenue.

10 points

QUESTION 11

If the price elasticity of demand for a product is equal to 1.5, then a decrease in price of 4 percent will increase quantity demanded by

• 0.6 percent.
• 2.67 percent.
• 6 percent.
• 0.375 percent.

10 points

QUESTION 12

In which of the following instances will total revenue decline?

• Price rises and demand is inelastic.
• Price rises and demand is elastic.
• Price rises and supply is elastic.
• Price falls and demand is elastic.

10 points

QUESTION 13

Movie theaters charge lower prices to see a movie in the afternoon than in the evening because there is an

• inelastic demand to see movies in the afternoon.
• elastic demand to see movies in the afternoon.
• elastic demand to see movies in the evening.
• inelastic supply of movies in the evening.

10 points

QUESTION 14

The elasticity of supply of product X is unitary if the price of X rises by

• 5 percent and quantity supplied rises by 7 percent.
• 8 percent and quantity supplied rises by 8 percent.
• 7 percent and quantity supplied rises by 5 percent.
• 10 percent and quantity supplied stays the same.

10 points

QUESTION 15

The demand for autos is likely to be

• less price elastic than the demand for Honda Accords.
• of the same price elasticity as the demand for Honda Accords.
• perfectly inelastic.
• more price elastic than the demand for Honda Accords.

10 points

QUESTION 16

The more time consumers have to adjust to a change in price,

• the more likely the product is a normal good.
• the smaller will be the price elasticity of demand.
• the greater will be the price elasticity of demand.
• the more likely the product is an inferior good.

10 points

QUESTION 17

The narrower the definition of a product,

• the larger the number of substitutes and the greater the price elasticity of demand.
• the smaller the number of substitutes and the greater the price elasticity of demand.
• the larger the number of substitutes and the smaller the price elasticity of demand.
• the smaller the number of substitutes and the smaller the price elasticity of demand.

10 points

QUESTION 18

Which of the following goods (with their respective income elasticity coefficients in parentheses) will most likely suffer a decline in demand during a recession?

• second-hand clothing (-0.6)
• dinner at a nice restaurant (+1.8)
• chicken purchased at the grocery store for preparation at home (+0.25)
• plasma screen and LCD TVs (+4.2)

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