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Elasticity Review

Elasticity Review. Question 1. Suppose the income elasticity of demand for toys is +2.00. This means that: a 10 percent increase in income will increase the purchase of toys by 20 percent. a 10 percent increase in income will increase the purchase of toys by 2 percent.

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Elasticity Review

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  1. Elasticity Review

  2. Question 1 Suppose the income elasticity of demand for toys is +2.00. This means that: • a 10 percent increase in income will increase the purchase of toys by 20 percent. • a 10 percent increase in income will increase the purchase of toys by 2 percent. • a 10 percent increase in income will decrease the purchase of toys by 2 percent. • toys are an inferior good.

  3. Question 2 The demands for such products as salt, bread, and electricity tend to be: • perfectly price elastic. • of unit price elasticity. • relatively price inelastic. • relatively price elastic.

  4. Question 3 Which of the following statements is correct? • Supply is more elastic in the short run than in the long run. • Demand is more elastic in the short run than in the long run. • Demand is more elastic when a large number of substitute goods are available. • Supply is more elastic when there are a small number of producers in the industry.

  5. Question 4 Which of the following statements is not correct? • If the relative change in price is greater than the relative change in the quantity demanded associated with it, demand is inelastic. • In the range of prices in which demand is elastic, total revenue will diminish as price decreases. • Total revenue will not change if price varies within a range where the elasticity coefficient is unity. • Demand tends to be elastic at high prices and inelastic at low prices.

  6. Question 5 The total-revenue test for elasticity: • is equally applicable to both demand and supply. • does not apply to demand because price and quantity are inversely related. • does not apply to supply because price and quantity are directly related. • applies to the short-run supply curve, but not to the long-run supply curve.

  7. Question 6 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 vertical axis. • cannot be shown on a two-dimensional graph. • can be represented by a line parallel to the horizontal axis.

  8. Question 7 The larger the coefficient of price elasticity of demand for a product, the: • larger the resulting price change for an increase in supply. • more rapid the rate at which the marginal utility of that product diminishes. • less competitive will be the industry supplying that product. • smaller the resulting price change for an increase in supply.

  9. Question 8 The price elasticity of demand of a straight-line demand curve is: • elastic in high-price ranges and inelastic on low-price ranges. • elastic, but does not change at various points on the curve. • inelastic, but does not change at various points on the curve. • 1 at all points on the curve.

  10. Question 9 For a linear demand curve: • elasticity is constant along the curve. • elasticity is unity at every point on the curve. • demand is elastic at low prices. • demand is elastic at high prices.

  11. Question 10 Moving upward on a downward-sloping straight-line demand curve, we find that price elasticity: • is constant. • increases continuously. • decreases continuously. • may either increase or decrease.

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