Economics Test Questions with Answers

Topics: Supply and demand, Price elasticity of demand, Elasticity Pages: 2 (361 words) Published: October 29, 2013
Top of Form
1 . Revenue increases when
A. producer surplus increases
B. producer surplus decreases
C. consumer surplus increases
D. consumer surplus decreases
Bottom of Form
Correct :
Producer surplus is the difference between the minimum price the producer is willing to receive and what they actually receive. The surplus is their profit, and the larger the surplus, the greater their profit on the good. When it decreases, the producer receives a price closer to the minimum acceptable. The consumer surplus measures what the consumer is willing to pay and that price’s difference from the market price. The closer to the market price, the higher the consumer surplus, as consumers are spending less than they are willing to, and the less spent, the lower the revenue will be for the good.

Producer Surplus
Top of Form
2 . An increase in the price of an inelastic good
A. decreases revenues
B. decreases the percentage change in quantity less than the percentage change in price C. increases revenues
D. increases the percentage change in quantity more than the percentage change in price Bottom of Form
Correct :
Inelastic goods are necessities that consumers continue to purchase even when the price increases. This increases the revenue, as more is paid for each good. The percentage change in price increases faster than the change in quantity, which may remain constant. When more is paid for a good or a service, revenue increases.

Price Elasticity and the Total-Revenue Curve
Inelastic Demand
Top of Form
3 . Price elasticity of Demand increases when
A. the number of complementary goods decreases
B. the number of substitute goods decreases
C. people become more price sensitive over time
D. people become less price sensitive over time
Bottom of Form
Correct :
Price elasticity of demand measures the percentage change in quantity demanded divided by the percentage change in price. Price elasticity is either inelastic or elastic....
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