ECN 801: MANAGERIAL ECONOMICS – COMPREHENSIVE
FINAL EXAM COMPLETE QUESTIONS WITH 100% VERIFIED
ANSWERS
Section 1: Supply, Demand, and Elasticity (Questions 1–20)
1. If the price elasticity of demand is -2 and the price increases by 10%,
quantity demanded will:
A) Increase by 20%
B) Decrease by 20%
C) Increase by 5%
D) Decrease by 5%
Correct Answer: B
*Explanation: %ΔQ = elasticity × %ΔP = (-2) × (10%) = -20% (decrease).*
2. A vertical demand curve has price elasticity equal to:
A) -∞
B) -1
C) 0
D) 1
Correct Answer: C
*Explanation: Perfectly inelastic demand means quantity does not
change as price changes, so elasticity = 0.*
,3. If the cross-price elasticity between two goods is positive, the goods
are:
A) Substitutes
B) Complements
C) Inferior goods
D) Normal goods
Correct Answer: A
Explanation: Positive cross-price elasticity means price of good A up →
quantity of good B up, indicating substitutes.
4. Income elasticity of demand for an inferior good is:
A) > 1
B) Between 0 and 1
C) Negative
D) Zero
Correct Answer: C
Explanation: Inferior goods have negative income elasticity: as income
rises, demand falls.
5. If supply is perfectly elastic, a tax imposed on sellers will be borne:
A) Entirely by buyers
B) Entirely by sellers
C) Split equally
D) Mostly by sellers
Correct Answer: A
Explanation: Perfectly elastic supply means sellers cannot absorb any
tax; price rises by full tax amount, so buyers pay.
,6. A price ceiling below equilibrium creates:
A) Surplus
B) Shortage
C) No change
D) Increase in supply
Correct Answer: B
Explanation: Price below equilibrium → quantity demanded > quantity
supplied → shortage.
7. Consumer surplus is the area:
A) Above price and below demand
B) Below price and above supply
C) Above supply and below demand
D) Below demand and above price
Correct Answer: D
Explanation: CS = willingness to pay minus actual price, represented by
area under demand curve above market price.
8. If demand is elastic, a price increase will:
A) Increase total revenue
B) Decrease total revenue
C) Leave total revenue unchanged
D) Increase quantity demanded
Correct Answer: B
Explanation: Elastic demand means %ΔQ > %ΔP, so price ↑ → revenue
↓.
9. Which would likely have the most elastic demand?
A) Salt
, B) Cigarettes for an addict
C) A specific brand of cereal
D) Insulin
Correct Answer: C
Explanation: Many substitutes for a specific cereal brand → high
elasticity.
10. The substitution effect of a price change is:
A) Change in consumption due to change in real income
B) Change in consumption due to change in relative prices
C) Always positive for normal goods
D) Always negative for inferior goods
Correct Answer: B
Explanation: Substitution effect isolates the relative price change,
holding utility constant.
11. Giffen goods are:
A) Luxuries with high income elasticity
B) Inferior goods with a negative substitution effect
C) Inferior goods where income effect outweighs substitution effect
D) Veblen goods
Correct Answer: C
Explanation: For Giffen goods, price up → real income down → buy
more due to strong negative income effect dominating substitution
effect.
12. The law of diminishing marginal utility implies:
A) Demand curves slope upward
B) Marginal utility increases with consumption
FINAL EXAM COMPLETE QUESTIONS WITH 100% VERIFIED
ANSWERS
Section 1: Supply, Demand, and Elasticity (Questions 1–20)
1. If the price elasticity of demand is -2 and the price increases by 10%,
quantity demanded will:
A) Increase by 20%
B) Decrease by 20%
C) Increase by 5%
D) Decrease by 5%
Correct Answer: B
*Explanation: %ΔQ = elasticity × %ΔP = (-2) × (10%) = -20% (decrease).*
2. A vertical demand curve has price elasticity equal to:
A) -∞
B) -1
C) 0
D) 1
Correct Answer: C
*Explanation: Perfectly inelastic demand means quantity does not
change as price changes, so elasticity = 0.*
,3. If the cross-price elasticity between two goods is positive, the goods
are:
A) Substitutes
B) Complements
C) Inferior goods
D) Normal goods
Correct Answer: A
Explanation: Positive cross-price elasticity means price of good A up →
quantity of good B up, indicating substitutes.
4. Income elasticity of demand for an inferior good is:
A) > 1
B) Between 0 and 1
C) Negative
D) Zero
Correct Answer: C
Explanation: Inferior goods have negative income elasticity: as income
rises, demand falls.
5. If supply is perfectly elastic, a tax imposed on sellers will be borne:
A) Entirely by buyers
B) Entirely by sellers
C) Split equally
D) Mostly by sellers
Correct Answer: A
Explanation: Perfectly elastic supply means sellers cannot absorb any
tax; price rises by full tax amount, so buyers pay.
,6. A price ceiling below equilibrium creates:
A) Surplus
B) Shortage
C) No change
D) Increase in supply
Correct Answer: B
Explanation: Price below equilibrium → quantity demanded > quantity
supplied → shortage.
7. Consumer surplus is the area:
A) Above price and below demand
B) Below price and above supply
C) Above supply and below demand
D) Below demand and above price
Correct Answer: D
Explanation: CS = willingness to pay minus actual price, represented by
area under demand curve above market price.
8. If demand is elastic, a price increase will:
A) Increase total revenue
B) Decrease total revenue
C) Leave total revenue unchanged
D) Increase quantity demanded
Correct Answer: B
Explanation: Elastic demand means %ΔQ > %ΔP, so price ↑ → revenue
↓.
9. Which would likely have the most elastic demand?
A) Salt
, B) Cigarettes for an addict
C) A specific brand of cereal
D) Insulin
Correct Answer: C
Explanation: Many substitutes for a specific cereal brand → high
elasticity.
10. The substitution effect of a price change is:
A) Change in consumption due to change in real income
B) Change in consumption due to change in relative prices
C) Always positive for normal goods
D) Always negative for inferior goods
Correct Answer: B
Explanation: Substitution effect isolates the relative price change,
holding utility constant.
11. Giffen goods are:
A) Luxuries with high income elasticity
B) Inferior goods with a negative substitution effect
C) Inferior goods where income effect outweighs substitution effect
D) Veblen goods
Correct Answer: C
Explanation: For Giffen goods, price up → real income down → buy
more due to strong negative income effect dominating substitution
effect.
12. The law of diminishing marginal utility implies:
A) Demand curves slope upward
B) Marginal utility increases with consumption
