Chapter 3 Self-test questions

If a supply curve is vertical it is said to have:

a zero elasticity.

an infinite elasticity.

unit elasticity.

a positive elasticity.

Which of the following is not a determinant of the elasticity of supply?

How easily producers can shift from the production of other products to the one whose price has risen.

The length of time over which the response is measured

How costs respond to output changes

The law of demand

If the average quantity of tea consumed per head in the UK falls from 2.0 kg to 1.9 kg per year when the price of coffee falls from £3 to £2.70 per 100g jar, the cross-elasticity between tea and coffee is what?

–0.5

+0.33

+0.5

+2.0

The demand for a product is said to be income-elastic if ____________

The percentage change in quantity demanded resulting from a percentage change in income is less than unity

The percentage change in quantity demanded resulting from a percentage change in income is greater than unity

The percentage change in quantity demanded resulting from a percentage change in income is equal to unity

The percentage change in quantity demanded resulting from a percentage change in income is zero

The income elasticity of demand for an inferior good is negative because ____________.

as income decreases, quantity demanded of the product also falls

as income increases, quantity demanded of the product also rises

as income increases, quantity demanded of the product also is unchanged

as income increases, quantity demanded of the product falls

If a 20 per cent fall in the price of Hello magazine coincides with a 4 per cent fall in the sales of OK! magazine, then:

the cross-elasticity of demand is 0.20

the price elasticity of demand is 0.20

the cross-elasticity of demand is −0.20

the price elasticity of demand is −0.20

The identification problem exists because ____________

Econometric software cannot estimate demand and supply curves

We are unable to estimate demand and supply curves by simply observing people's choices in the market

Demand curves tend to exceed supply curves

None of the above

Given an inelastic demand curve for rice, a dry season that results in a poor crop will also result in:

a reduction in producers' revenues

an increase in consumers' surplus

an increase in producers' revenues.

a reduction in total surplus

The total revenue of sellers does not change as the quantity sold changes when demand is:

inelastic.

elastic.

unit elastic.

perfectly inelastic.

As nations get richer we generally observe that ____________.

both income and price elasticities of the demand for food fall

the income elasticity of the demand for food falls and the price elasticity of the demand for food rises.

the income elasticity of the demand for food rises and the price elasticity of the demand for food falls.

both income and price elasticities of the demand for food rise.

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