Question

1. When demand is inelastic, a decrease in price will cause

 

a. an increase in total revenue.

b. a decrease in total revenue.

c. no change in total revenue but an increase in quantity demanded.

d.no change in total revenue but a decrease in quantity demanded.

 

2. For which of the following types of goods would the income elasticity of demand be positive and relatively large?

 

a. all inferior goods

b. all normal goods

c. goods for which there are many complements

d. luxuries

 

3. Which of the following should be held constant when calculating the income elasticity of demand?

 

a. the quantity of the good demanded

b. the price of the good

c. income

d. All of the above should be held constant.

 

4. Suppose goods A and B are substitutes for each other. We would expect the cross-price elasticity between these two goods to be

 

a. positive.

b. negative.

c. either positive or negative. It depends on whether A and B are normal goods or inferior goods.

d. either positive or negative. It depends on whether the current price level is on the elastic or inelastic portion of the demand curve.

 

5. As the price elasticity of supply increases, the supply curve

 

a. becomes flatter

b. becomes steeper

c. becomes downward sloping.

d. shifts to the right.