Microeconomics ECO 122
Practice Test for Selected Topics
Chapter 7
Demand and Supply Elasticity

The following questions have been altered and are the property of William Walstad in connection with the text of McConnell and Brue, Microeconomics, 12th edition, McGraw Hill, 1993.

If you can answer the following questions, you are on your way to a successful exam.

  1. Suppose you are given the following data on demand for a product. The price elasticity of demand when price decreases from $9 to $7 is

    PriceQuantity Demanded
    $1030
    940
    850
    760
    670

    a. .63
    b. 1.16
    c. 1.60
    d. 2.27

    The next three questions refer to the following graph.

  2. When the quantity of product X increases from 14,000 to 16,000, the price elasticity of demand for product X is
    a. elastic
    b. inelastic
    c. unit-elastic
    d. perfectly inelastic

  3. Demand is price-elastic between points
    a. A and B
    b. D and E
    c. F and G
    d. G and H

  4. At total revenue of $8,000, the price elasticity of demand is
    a. elastic
    b. inelastic
    c. unit-elastic
    d. perfectly inelastic

  5. If 100 units of product K are sold at a unit price of $10 and 75 units of product K are sold at a unit price of $15, one can conclude that in this price range
    a. demand for product K is elastic
    b. demand for product K is inelastic
    c. demand for product K has shifted to the right
    d. consumers are sensitive to price changes of product K

  6. Which of the following is not characteristic of a product with relatively inelastic demand?
    a. the good is regarded by consumers as a necessity
    b. there are a large number of good substitutes for the good
    c. buyers spend a small percentage of their total income on the product
    d. consumers have had only a short time period to adjust to changes in price

  7. As price increases along a downsloping linear demand curve
    a. price elasticity of demand increases
    b. price elasticity of demand decreases
    c. price elasticity of demand does not change
    d. the behavior of price elasticity of demand cannot be determined

  8. If a union agrees that a price cut will boost revenues of the firm and management argues that the opposite is true, then the price elasticity of demand is
    a. unit-elastic from the union's perspective and unit-inelastic from management's perspective
    b. perfectly inelastic from the union's perspective and perfectly elastic from management's perspective
    c. elastic from the union's perspective; inelastic from management's perspective
    d. inelastic from the union's perspective; elastic from management's perspective

  9. The price elasticity of demand will increase with the length of the period to which the demand curve pertains because
    a. consumers' incomes will increase
    b. the demand curve will shift outward
    c. all prices will increase over time
    d. consumers will be better able to find substitutes

  10. A positive cross elasticity of demand coefficient indicates that
    a. a product is an inferior good
    b. a product is a normal good
    c. two products are substitute goods
    d. two products are complementary goods

  11. A positive income elasticity of demand coefficient indicates that
    a. a product is an inferior good
    b. a product is a normal good
    c. two products are substitute goods
    d. two products are complementary goods

  12. An inferior good is best defined as a product for which the
    a. cross elasticity of demand is negative
    b. income elasticity of demand is negative
    c. cross elasticity of demand is zero
    d. income elasticity of demand is zero

  13. If a 10 percent increase in the price of one good results in an increase of 5 percent in the quanity demanded of another good, then it can be concluded that the two goods are
    a. complements
    b. substitutes
    c. independent
    d. normal

  14. A given increase in demand will increase equilibrium price to a greater extent
    a. if the product is a normal good
    b. if the product is an inferior good
    c. the less elastic the supply curve
    d. the more elastic the supply curve

  15. Suppose the price elasticity coefficients of demand are 1.43, 0.67, 1.11, and 0.29 for products W, X, Y, and Z respectively. A 1 percent decrease in price will result in an increase in total revenue in the case(s) of
    a. W and Y
    b. Y and Z
    c. X and Z
    d. Z and W

  16. The demand for a product is said to be inelastic with respect to price if
    a. consumers are largely unresponsive to a per unit price change
    b. the elasticity coefficient is greater than 1
    c. a drop in price is accompanied by a decrease in the quantity demanded
    d. a drop in price is accompanied by an increase in the quantity demanded

  17. If a 10 percent increase in the price of one good results in no change in the quantity demanded of another good, then it can be concluded that the two goods are
    a. complements
    b. substitutes
    c. independent
    d. normal

  18. The basic formula for the price elasticity of demand coefficient is
    a. absolute decline in quantity demanded/absolute increase in price
    b. percentage change in quantity demanded/percentage change in price
    c. absolute decline in price/absolute increase in quantity demanded
    d. percentage change in price/percentage change in quantity demanded

    Answer the next two questions on the basis of the following diagram.

  19. In the P1P2 price range demand is
    a. of unit elasticity
    b. relatively inelastic
    c. relatively elastic
    d. perfectly elastic
    e. perfectly inelastic

  20. In the P3P4 price range demand is
    a. of unit elasticity
    b. relatively inelastic
    c. relatively elastic
    d. perfectly elastic
    e. perfectly inelastic

    Product% Change in Income% Change in Quantity Demanded
    A-10-10
    B+5+5
    C-3+3
    D-3-3

  21. According to the table of information above, which good is an inferior good?
    a. Product A
    b. Product B
    c. Product C
    d. Product D


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