PRACTICE TEST!

THE CORRECT ANSWERS ARE MARKED BY A *

1. A firm wishing to increase revenue should lower the price of its product if

a) demand for the product is price-elastic.

b) the demand curve is downward sloping.
c) demand for the product has a unit price elasticity. ***
d) demand for the product is perfectly price-elastic.
e) demand for the product is price-inelastic.

2. If the supply curve of a product is relatively elastic and the price of a

compliment to the product rises, equilibrium quantity will ____ and equilibrium
price will ____, but equilibrium ____ will change proportionately more.

a) decrease; decrease; price

b) increase; decrease; price
c) decrease; decrease; quantity***
d) increase; decrease; quantity
e) increase; increase; price

3. A tax has been levied on a product. The more price-elastic the demand for
that product is,

a) the more likely it is that the tax is borne equally by consumers

and sellers.
b) the greater is the proportion of the tax borne by producers.***
c) the greater is the revenue that is raised by the tax.
d) the greater is the proportion of the tax borne by consumers.
e) the more likely it is that the tax will be reflected in a change
in price rather than a change in quantity.

4. If a firm lowers the price of its product and finds that total revenue has
fallen, this indicates that

a) demand for the product is price-inelastic.***

b) demand for the product is price-elastic.
c) demand for the product has unit price elasticity.
d) the demand curve for the product is downward sloping.
e) the price elasticity is greater than 1.

5. The formula for the price elasticity of supply is the

a) percentage change in quantity supplied divided by the percentage

change in price.***
b) change in quantity supplied divided by the change in price.
c) percentage change in price divided by the percentage change in
quantity supplied.
d) change in price divided by the change in quantity supplied.
e) percentage change in quantity supplied divided by the change in
price.

6. The demand for a product is said to be price-inelastic if the

 a) change in demand exceeds the change in price.
b) percentage change in price exceeds the percentage change in the
quantity demanded.***
c) percentage change in the quantity demanded exceeds the percentage
change in the price.
d) percentage change in the price equals the percentage change in
the quantity demanded.
e) change in price exceeds the change in demand.

7. If the demand for a product is price-elastic, total revenue will

a) be unchanged regardless of the direction of the price change.

b) fall if price is reduced.
c) increase if price is increased.
d) increase if price is reduced.***
e) increase regardless of the direction of the price change.

8. When there is a shortage,

a) consumers want to purchase more of the product at the going price

than is offered for sale at that price.**
b) sellers offer more of the product for sale at the going price
than they can sell at that price.
c) the going price is above the equilibrium price.
d) the quantity demanded at the going price is less than the
quantity supplied at that price.
e) the quantity actually traded at the going price is determined by
the demand curve.

9. If the price of a product changes by 5 percent, and as a result quantity

demanded changes by 10 percent,

a) demand for the product is price-inelastic.

b) revenue will rise if the price change was an increase.
c) revenue will fall if the price change was a reduction.
d) revenue will rise if the price change was a reduction.***
e) revenue will rise if price goes up or down.

10. A surplus occurs in a market when the going price is ____ the equilibrium
price, and as a result there is excess ____.

a) below; supply
b) above; demand
c) equal to; supply
d) above; supply***
e) below; demand