4 ELASTICITY. Chapter. Price Elasticity of Demand. A) more elastic. B) less elastic. C) neither more nor less elastic. D) undefined.

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4 ELASTICITY

Price Elasticity of Demand

Topic: The Price Elasticity of Demand Skill: Conceptual

1) The slope of a demand curve depends on A) the units used to measure price and the units

used to measure quantity.

B) the units used to measure price but not the units used to measure quantity.

C) the units used to measure quantity but not the units used to measure price.

D) neither the units used to measure price nor the units used to measure quantity.

Answer: A

Topic: The Price Elasticity of Demand Skill: Conceptual

2) The price elasticity of demand depends on A) the units used to measure price and the units

used to measure quantity.

B) the units used to measure price but not the units used to measure quantity.

C) the units used to measure quantity but not the units used to measure price.

D) neither the units used to measure price nor the units used to measure quantity.

Answer: D

Topic: The Price Elasticity of Demand Skill: Recognition

3) The price elasticity of demand measures A) how often the price of a good changes.

B) the slope of a budget curve.

C) how sensitive the quantity demanded is to changes in demand.

D) the responsiveness of the quantity demanded to changes in price.

Answer: D

Topic: Calculating Elasticity Skill: Conceptual

4) When the quantity of coal is measured in kilo- grams instead of pounds, the demand for coal becomes

A) more elastic.

B) less elastic.

C) neither more nor less elastic.

D) undefined.

Answer: C

Topic: Calculating Elasticity Skill: Recognition

5) The price elasticity of demand equals

A) the change in the price divided by the change in quantity demanded.

B) the change in the quantity demanded divided by the change in price.

C) the percentage change in the price divided by the percentage change in the quantity demanded.

D) the percentage change in the quantity demanded divided by the percentage change in the price.

Answer: D

Topic: Calculating Elasticity Skill: Analytical

6) If a rightward shift of the supply curve leads to a 6 percent decrease in the price and a 5 percent increase in the quantity demanded, the price elasticity of demand is

A) 0.30.

B) 0.60.

C) 0.83.

D) 1.20.

Answer: C

C h a p t e r

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7) A 10 percent increase in the quantity of spinach demanded results from a 20 percent decline in its price. The price elasticity of demand for spinach is

A) 0.5.

B) 2.0.

C) 10.0.

D) 20.0.

Answer: A

8) A 20 percent increase in the quantity of pizza demanded results from a 10 percent decline in its price. The price elasticity of demand for pizza is A) 0.5.

B) 2.0.

C) 10.0.

D) 20.0.

Answer: B

9) Suppose a rise in the price of peaches from $5.50 to $6.50 per bushel decreases the quantity demanded from 12,500 to 11,500 bushels. The price elasticity of demand is

A) 0.5.

B) 1.0.

C) 2.0.

D) 1000.0.

Answer: A

10) A fall in the price of lemons from $10.50 to

$9.50 per bushel increases the quantity demanded from 19,200 to 20,800 bushels. The price elasticity of demand is

A) 0.80.

B) 1.20.

C) 1.25.

D) 8.00.

Answer: A

11) A fall in the price of cabbage from $10.50 to

$9.50 per bushel increases the quantity demanded from 18,800 to 21,200 bushels. The price elasticity of demand is

A) 0.80.

B) 1.20.

C) 1.25.

D) 8.00.

Answer: B

12) Suppose that the quantity of root beer demanded declines from 103,000 gallons per week to 97,000 gallons per week as a consequence of a 10 percent increase in the price of root beer. The price elasticity of demand is

A) 0.60.

B) 1.40.

C) 1.66.

D) 6.00.

Answer: A

13) The price elasticity of demand is 5.0 if a 10 percent increase in the price results in a ____ decrease in the quantity demanded.

A) 2 percent B) 5 percent C) 10 percent D) 50 percent Answer: D

14) A shift of the supply curve of oil raises the price of oil from $9.50 a barrel to $10.50 a barrel and reduces the quantity demanded from 41 million to 39 million barrels a day. The price elasticity of demand for oil is

A) 2 million barrels a day per dollar.

B) $1 per 2 million barrels a day.

C) 0.5.

D) 2.0.

Answer: C

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15) Suppose the price elasticity of demand for oil is 0.1. In order to lower the price of oil by 20 percent, the quantity of oil supplied must be increased by

A) 200 percent.

B) 20 percent.

C) 2 percent.

D) 0.2 percent.

Answer: C

Topic: Calculating Elasticity Skill: Analytical*

16) The price elasticity of demand for cigarettes is 0.4. If government wants to reduce smoking by 10 percent, by how much should it raise the price of cigarettes?

A) By 10 percent.

B) By 20 percent.

C) By 25 percent.

D) By 50 percent.

Answer: C

Topic: Calculating Elasticity Skill: Analytical*

17) Teenagers have a higher price elasticity of demand for cigarettes than do adults. Suppose the price elasticity of teenager’s demand for cigarettes is 0.8, the price elasticity of adult’s demand for cigarettes is 0.8. If the government imposes a tax on cigarettes that raises the price by 10 percent, by how much will it reduce teenage smoking?

A) By 5 percent B) By 10 percent C) By 15 percent D) By 20 percent Answer: D

Price (dollars per bushel)

Quantity demanded (bushels)

8 2,000 7 4,000 6 6,000 5 8,000 4 10,000 3 12,000 Topic: Calculating Elasticity

Skill: Analytical

18) The table above gives the demand schedule for snow peas. The price elasticity of demand between $6.00 and $7.00 per bushel is A) 1.0.

B) 2.0.

C) 2.6.

D) 5.0.

Answer: C

Topic: Total Revenue and Elasticity Skill: Analytical

19) The table above gives the demand schedule for snow peas. If the price of snow peas falls from

$4.00 to $3.00 a bushel, total revenue will A) increase because demand is elastic in this range.

B) decrease because demand is elastic in this range.

C) increase because demand is inelastic in this range.

D) decrease because demand is inelastic in this range.

Answer: D

Topic: Elasticity Along a Straight-Line Demand Curve

20) The table above gives the demand schedule for snow peas. The demand curve for snow peas is a straight line and so the elasticity of demand is A) 1 at all prices.

B) the same at all prices but not 1.

C) higher at higher prices.

D) lower at higher prices.

Answer: C

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Price (dollars per bushel)

Quantity demanded (bushels)

A 10 0

B 8 4

C 6 8

D 4 12

E 2 16

21) The table above gives the demand schedule for peas. As you move from point A to point B, the price elasticity of demand equals

A) 0.11.

B) 0.50.

C) 0.22.

D) 9.09.

Answer: D

22) The table above gives the demand schedule for peas. As you move from point C to point D, the price elasticity of demand is

A) elastic.

B) unit elastic.

C) 0.75.

D) 3.00.

Answer: B

Topic: Calculating Elasticity Skill: Conceptual

23) The table above gives the demand schedule for peas. Which of the following statements correctly describes the price elasticity of demand?

A) The price elasticity of demand is larger at point A than at point B.

B) The price elasticity of demand is larger at point D than at point A.

C) The price elasticity of demand is constant because the slope is constant.

D) The price elasticity of demand increases moving from point A to point B to point C to point D to point E.

Answer: A

Topic: Inelastic and Elastic Demand Skill: Recognition

24) If demand is price elastic,

A) a 1 percent decrease in the price leads to an increase in the quantity demanded that exceeds 1 percent.

B) a 1 percent increase in the price leads to an increase in the quantity demanded that exceeds 1 percent.

C) a 1 percent decrease in the price leads to a decrease in the quantity demanded that is less than 1 percent.

D) the price is very sensitive to any shift of the supply curve.

Answer: A

Topic: Inelastic and Elastic Demand Skill: Conceptual

25) The price elasticity of demand can range between A) zero and one.

B) negative infinity and infinity.

C) zero and infinity.

D) negative one and one.

Answer: C

26) Demand is perfectly inelastic when

A) shifts in the supply curve results in no change in price.

B) the good in question has perfect substitutes.

C) shifts of the supply curve results in no change in quantity demanded.

D) shifts of the supply curve results in no change in the total revenue from sales.

Answer: C

27) If the price elasticity is between 0 and 1, demand is

A) elastic.

B) inelastic.

C) unit elastic.

D) perfectly elastic.

Answer: B

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28) Demand is inelastic if

A) a large change in quantity demanded results in a small change in price.

B) the quantity demanded is very responsive to changes in price.

C) the price elasticity of demand is less than 1.

D) the price elasticity of demand is greater than 1.

Answer: C

29) A good with a vertical demand curve has a demand with

A) unit elasticity.

B) infinite elasticity.

C) zero elasticity.

D) varying elasticity.

Answer: C

30) When the price elasticity of demand for a good equals

A) 0, the demand curve is vertical.

B) 0, the demand curve is horizontal.

C) 1, the demand curve is vertical.

D) 1, the demand curve is horizontal.

Answer: A

Topic: Inelastic and Elastic Demand Skill: Analytical

31) A straight-line demand curve along which the price elasticity of demand equals 0 is one that A) forms a 45 degree angle with the vertical axis.

B) forms a 60 degree angle with the horizontal axis.

C) is vertical.

D) is horizontal.

Answer: C

32) The demand for movies is unit elastic if

A) a 5 percent decrease in the price leads to an infinite increase in the quantity demanded.

B) a 5 percent increase in the price leads to a 5 percent decrease in the quantity demanded.

C) any increase in the price leads to a 1 percent decrease in the quantity demanded.

D) a 5 percent increase in the price leads to a 5 percent increase in total revenue.

Answer: B

33) Unit elastic demand

A) means that the ratio of a change in the quantity demanded to a change in the price equals 1.

B) means that the ratio of a percentage change in the quantity demanded to a percentage change in the price equals 1.

C) will be vertical.

D) will be horizontal.

Answer: B

34) A good with a horizontal demand curve has a demand

A) with an income elasticity of demand of 0.

B) with a price elasticity of demand of 0.

C) with a price elasticity of demand of infinity.

D) for which there are no substitute.

Answer: C

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35) The demand curve in the figure above illustrates the demand for a product with

A) zero price elasticity of demand at all prices.

B) infinite price elasticity of demand.

C) unit price elasticity of demand at all prices.

D) a price elasticity of demand that is different at all prices.

Answer: A

36) In the above figure, which demand curve illustrates perfectly elastic demand?

A) G B) H C) I D) J Answer: D

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37) The demand curve in the figure above illustrates a product whose demand has a price elasticity of demand equal to

A) zero at all prices.

B) infinity.

C) one at all prices.

D) a different amount at different prices.

Answer: B

Answer: C

39) On a linear demand curve that intersects both axes,

A) the elasticity exceeds 1.00 at all prices.

B) the elasticity is less than 1.00 at all prices.

C) the elasticity equals 1.00 at all prices.

D) the elasticity decreases as the price falls and quantity increases.

Answer: D

40) On a straight-line downward-sloping demand curve, the maximum elasticity of demand occurs A) at its vertical intercept.

B) at its midpoint.

C) at its horizontal intercept.

D) where it intersects the supply curve.

Answer: A

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41) A straight-line demand curve with negative slope intersects the horizontal axis at 100 tons per week.

At the midpoint on the demand curve (corre- sponding to 50 tons per week) the price elasticity of demand is

A) 0.

B) 0.5.

C) 1.0.

D) greater than 1.0.

Answer: C

Skill: Recognition

42) Which of the following statements is FALSE?

A) A good with a vertical demand curve has a perfectly inelastic demand.

B) A good with a straight line, downward sloping demand curve has a demand whose elasticity is constant.

C) A good with a horizontal demand curve has a perfectly elastic demand.

D) All of the above statements are false.

Answer: B

Skill: Conceptual*

43) Along a straight-line demand curve, as the price falls the

A) demand becomes more elastic.

B) demand becomes less elastic.

C) elasticity of demand is constant.

D) demand is always unitary elastic.

Answer: B

44) The price elasticity of demand ____ in value when moving downward along a ___ line demand curve.

A) falls; straight B) rises; curved C) falls, curved D) rises; straight Answer: A

Skill: Conceptual

45) The elasticity of demand along a straight line, negatively sloped, demand curve is

A) always equal to 1.0.

B) infinite.

C) changes continuously moving along the demand curve.

D) equal to 0.

Answer: C

46) If the demand curve for a good is a downward sloping straight line, the demand for the good will be more price elastic the higher is the

A) price of the good.

B) price of substitutes.

C) income of consumers.

D) income elasticity of demand for that good.

Answer: A

47) If the demand curve for a good is a downward sloping straight line, then at which of the following prices is demand most elastic?

A) $1/unit B) $2/unit C) $3/unit

D) It is impossible to determine at which price the demand will be most elastic without more information.

Answer: C

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48) The figure above illustrates a linear demand curve.

By comparing the price elasticity in the $2 to $4 price range with the elasticity in the $8 to $10 range, you can conclude that the elasticity is A) greater in the $8 to $10 range.

B) greater in the $2 to $4 range.

C) the same in both price ranges.

D) greater in the $8 to $10 range when the price rises but greater in the $2 to $4 range when the price falls.

Answer: A

If the price falls from $8 to $6, A) total revenue will increase.

B) total revenue will decrease.

C) total revenue will remain unchanged.

D) the quantity demanded will increase by less than 20 percent.

Answer: A

In the range from $8 to $6, A) the demand is price elastic.

B) the demand is unit elastic.

C) the demand is price inelastic.

D) more information is needed to determine if the demand is price elastic, unit elastic, or inelastic.

Answer: A

If the price falls from $6 to $4, A) total revenue will increase.

B) total revenue will decrease.

C) total revenue will remain unchanged.

D) quantity demanded will increase by more than 100 percent.

Answer: C

In the price range from $8 to $6, demand is ____

and in the price range $4 to $2, demand is ____.

A) elastic; elastic B) elastic; inelastic C) inelastic; elastic D) inelastic; inelastic Answer: B

If the price rises from $6 to $8 demand is ____

and if the price falls from $8 to $6 demand is ____.

A) elastic; elastic B) elastic; inelastic C) inelastic; elastic D) inelastic; inelastic Answer: A

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Answer: D

55) A straight-line demand curve with negative slope intersects the horizontal axis at 200 tons per week.

The point on the demand curve at which the price elasticity of demand is 1 corresponds to a quantity demanded

A) of 0 tons.

B) of 100 tons.

C) of 200 tons.

D) that would be negative if a negative quantity demanded were possible.

Answer: B

Topic: Total Revenue and Elasticity Skill: Conceptual

56) Demand is inelastic if

A) large shifts of the supply curve lead to only small changes in price.

B) the good in question has close substitutes.

C) a leftward shift of the supply curve raises the total revenue.

D) the smaller angle between the vertical axis and the demand curve is less than 45 degrees.

Answer: C

Topic: Total Revenue and Elasticity Skill: Recognition

57) Demand is unit elastic when

A) the slope of the demand curve is –1.

B) a shift of the supply curve leads to no change in price.

C) a shift of the supply curve leads to an equal shift of the demand curve.

D) a change in the price of the product leads to no change in the total revenue.

Answer: D

58) Producers’ total revenue will decrease if

A) income increases and the good is a normal good.

B) the price rises and demand is elastic.

C) the price rises and demand is inelastic.

D) income falls and the good is an inferior good.

Answer: B

59) Producers’ total revenue will increase if A) income increases and the good is an inferior

good.

B) the price rises and demand is elastic.

C) the price rises and demand is inelastic.

D) income falls and the good is a normal good.

Answer: C

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60) If the demand for a good is unit elastic, A) a 5 percent increase in price results in a 5 per-

cent increase in total revenue.

B) a 5 percent increase in price results in a 5 percent decrease in total revenue.

C) a 5 percent increase in price does not change total revenue.

D) the demand curve is a straight line with slope of –1.

Answer: C

Topic: Total Revenue and Elasticity Skill: Analytical*

61) If OPEC cuts oil production to increase the total revenue, they know that the demand for oil in the global market is

A) perfectly elastic B) unit elastic C) elastic D) inelastic Answer: D

62) A shift of the supply curve of oil raises the price from $10 a barrel to $30 a barrel and reduces the quantity demanded from 40 million to 23 million barrels a day. You can conclude that the

A) demand for oil is elastic.

B) demand for oil is inelastic.

C) supply of oil is elastic.

D) supply of oil is inelastic.

Answer: B

63) A shift of the supply curve of oil raises the price from $10 a barrel to $15 a barrel and reduces the quantity demanded from 40 million to 15 million barrels a day. You can conclude that the

A) demand for oil is elastic.

B) demand for oil is inelastic.

C) supply of oil is elastic.

D) supply of oil is inelastic.

Answer: A

64) A leftward shift of the supply curve of cookies raises the price of a cookie from 10 cents to 20 cents and decreases the quantity demanded from 700,000 to 500,000. You can conclude that A) the demand for cookies is elastic.

B) the demand for cookies is inelastic.

C) the supply of cookies is elastic.

D) the supply of cookies is inelastic.

Answer: B

65) The demand for a good is elastic if

A) an increase in its price results in an increase in total revenue.

B) a decrease in its price results in a decrease in total revenue.

C) an increase in its price results in a decrease in total revenue.

D) the good is a necessity.

Answer: C

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66) The figure above represents the behavior of total revenue as price falls along a straight-line demand curve. What is the price elasticity of demand if to- tal revenue is given by point f?

A) Demand is inelastic.

B) Demand is unit elastic.

C) Demand is elastic.

D) It is impossible to determine.

Answer: C

67) The figure above represents the behavior of total revenue as price falls along a straight-line demand curve. Unit elasticity of demand occurs at A) point g.

B) point h.

C) point i.

D) point j.

Answer: B

Topic: Your Expenditure and Elasticity Skill: Analytical

68) As the price of camcorders fell during the 1990s, the amount of money spent on this good increased, that is, consumers’ total expenditures on camcorders increased. This fact suggests that the demand for camcorders

A) must have shifted leftward.

B) must be upward sloping.

C) is elastic.

D) is inelastic.

Answer: C

69) Assuming that your demand for gasoline is inelastic, when the price of gasoline falls, which of the following is most likely to occur?

A) Your demand curve for gasoline will shift leftward.

B) Your demand curve for gasoline will shift rightward.

C) Your total expenditure on gasoline will increase.

D) Your total expenditure on gasoline will decrease.

Answer: D

70) Starting at the top of a straight-line downward sloping demand curve, as the price rises, total expenditures will

A) initially increase and then decrease.

B) initially decrease and then increase.

C) increase along the entire demand curve.

D) decrease along the entire demand curve.

Answer: A

71) If a price decrease results in your expenditure on a good decreasing, your demand must be

A) inelastic.

B) elastic.

C) unit.

D) linear.

Answer: A

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Topic: Your Expenditure and Elasticity Skill: Conceptual

72) An increase in subway fares in New York City will boost your expenditures on subway rides if A) the supply of subway rides is elastic.

B) the supply of subway rides is inelastic.

C) your demand for subway rides is elastic.

D) your demand for subway rides is inelastic.

Answer: D

Topic: Factors That Influence the Price Elasticity of Demand

73) The more substitutes available for a good or ser- vice,

A) the larger is its price elasticity of demand.

B) the smaller is its income elasticity of demand.

C) the smaller is its price elasticity of demand.

D) the larger is its income elasticity of demand.

Answer: A

74) Of the following, demand is likely to be the least elastic for

A) Ford automobiles.

B) Toyota automobiles.

C) compact disc players.

D) toothpicks.

Answer: D

75) Of the following, demand is likely to be the least elastic for

A) diamonds.

B) insulin for diabetics.

C) iceberg lettuce.

D) pink grapefruit.

Answer: B

76) The demand for food is most elastic in countries A) with low income levels.

B) with intermediate income levels.

C) with high income levels.

D) that are highly urbanized.

Answer: A

77) The demand for Honda Accords is

A) probably inelastic but more elastic than the demand for automobiles.

B) probably elastic and more elastic than the demand for automobiles.

C) probably inelastic and less elastic than the demand for automobiles.

D) probably elastic but less elastic than the demand for automobiles.

Answer: B

78) The route from Dallas to Mexico City is served by more than one airline. The demand for tickets from American Airlines for that route is probably A) inelastic but more elastic than the demand for

all tickets for that route.

B) elastic and more elastic than the demand for all tickets for that route.

C) inelastic and less elastic than the demand for all tickets for that route.

D) elastic but less elastic than the demand for all tickets for that route.

Answer: B

79) The elasticity of demand for Gateway computers is probably

A) inelastic and smaller than the elasticity of demand for computers overall.

B) elastic and smaller than the elasticity of demand for computers overall.

C) inelastic but larger than the elasticity of demand for computers overall.

D) elastic and larger than the elasticity of demand for computers overall.

Answer: D

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80) Aglets are the metal or plastic tips on shoelaces that make it easier to lace your shoes. The demand for aglets is probably

A) inelastic.

B) unit elastic.

C) elastic but not perfectly elastic.

D) perfectly elastic.

Answer: A

More Elasticities of Demand

Topic: Cross Elasticity of Demand Skill: Recognition

81) The cross elasticity of demand measures the responsiveness of the quantity demanded of a par- ticular good to changes in the prices of

A) its substitutes and its complements.

B) its substitutes but not its complements.

C) its complements but not its substitutes.

D) neither its substitutes nor its complements.

Answer: A

82) If goods are complements, definitely their A) cross elasticities are positive.

B) income elasticities are positive.

C) income elasticities are negative.

D) cross elasticities are negative.

Answer: D

Topic: Cross Elasticity of Demand Skill: Analytical

83) If a rise in the price of good 1 decreases the quantity of good 2 demanded,

A) the cross elasticity of demand is negative.

B) the cross elasticity of demand is positive.

C) good 1 is an inferior good.

D) good 2 is an inferior good.

Answer: A

84) The cross elasticity of demand between apples and oranges is defined as

A) the percentage change in the quantity of apples demanded divided by the percentage change in the price of oranges.

B) the price elasticity of demand for apples divided by the price elasticity of demand for oranges.

C) the percentage change in the quantity of apples demanded divided by the percentage change in the quantity of oranges demanded.

D) the change in the quantity of apples demanded divided by the change in the quantity of oranges demanded.

Answer: A

Topic: Cross Elasticity of Demand Skill: Conceptual

85) If the cross elasticity of demand between goods A and B is positive,

A) the demands for A and B are both price elastic.

B) the demands for A and B are both price inelastic.

C) A and B are complements.

D) A and B are substitutes.

Answer: D

86) If the cross elasticity of demand between goods A and B is negative,

A) the demands for A and B are both price elastic.

B) the demands for A and B are both price inelastic.

C) A and B are complements.

D) A and B are substitutes.

Answer: C

87) The greater the substitutability between North- west timber and Southeast timber, the ____ is the cross elasticity of demand between timber from the two regions and the ____ is the elasticity of demand for Northwest timber.

A) smaller; smaller B) smaller; larger C) larger; smaller D) larger; larger Answer: D

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88) If goods A and B are complements,

A) the cross elasticity of demand between A and B is negative.

B) the cross elasticity of demand between A and B is positive.

C) their income elasticities of demand are both greater than 1.

D) their income elasticities of demand are both less than 1.

Answer: A

89) If a rise in the price of good B increases the quantity demanded of good A,

A) A and B are substitutes.

B) A and B are complements.

C) A is a substitute for B, but B is a complement to A.

D) B is a substitute for A, but A is a complement to B.

Answer: A

90) If a fall in the price of good A increases the quantity demanded of good B,

A) A and B are substitutes.

B) A and B are complements.

C) A is a substitute for B, but B is a complement to A.

D) B is a substitute for A, but A is a complement to B.

Answer: B

91) The cross elasticity of demand between Coca- Cola and Pepsi-Cola is

A) positive, that is, Coke and Pepsi are complements.

B) positive, that is, Coke and Pepsi are substitutes.

C) negative, that is, Coke and Pepsi are complements.

D) negative, that is, Coke and Pepsi are substitutes.

Answer: B

92) A rise in the price of good A will shift the A) demand curve for good B rightward if the cross

elasticity of demand between A and B is negative.

B) demand curve for good B rightward if the cross elasticity of demand between A and B is positive.

C) supply curve of good B rightward if the cross elasticity of demand between A and B is negative.

D) supply curve of good B rightward if the cross elasticity of demand between A and B is positive.

Answer: B

Topic: Income Elasticity of Demand Skill: Recognition

93) The income elasticity of demand is the percentage change in

A) the price divided by the percentage change in income.

B) the quantity demanded divided by the percentage change in income.

C) income divided by the percentage change in quantity demanded.

D) income divided by the percentage change in price.

Answer: B

94) Demand is income elastic if

A) a large percentage increase in income will result in a small percentage increase in quantity demanded.

B) a small percentage increase in income will result in a large percentage increase in quantity demanded.

C) an increase in income will not affect the quantity demanded.

D) the good in question has close substitutes.

Answer: B

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95) The income elasticity of demand is largest for A) food.

B) clothing.

C) shelter.

D) luxuries.

Answer: D

96) To say that turnips are inferior goods means that the income elasticity

A) is definitely greater than 1.

B) is definitely between 0 and 1.

C) is positive but could be greater than or less then (or equal to) 1.

D) is negative.

Answer: D

Topic: Income Elasticity of Demand Skill: Conceptual

97) An increase in Abigail’s income decreases her demand for cassette tapes. For her, cassette tapes are A) a normal good.

B) an inferior good.

C) a complement to any good.

D) a substitute good.

Answer: B

98) Goods whose income elasticities are negative are called

A) normal goods.

B) superior goods.

C) inferior goods.

D) complements.

Answer: C

Topic: Income Elasticity of Demand Skill: Analytical

99) A 10 percent increase in income has caused a 5 percent decrease in the quantity demanded. The income elasticity is

A) 0.5.

B) –0.5.

C) 2.0.

D) –2.0.

Answer: B

100) Deb’s income has just risen from $950 per week to $1,050 per week. As a result, she decides to increase the number of movies she attends each month by 5 percent. Her demand for movies is A) represented by a vertical line.

B) represented by a horizontal line.

C) income elastic.

D) income inelastic.

Answer: D

101) Fred’s income has just risen from $940 per week to $1,060 per week. As a result, he decides to purchase 9 percent more steak per week. The income elasticity of Fred’s demand for steak is

A) 0.75.

B) 0.90.

C) 1.00.

D) 1.33.

Answer: A

102) Joan’s income has just risen from $940 per week to $1,060 per week. As a result, she decides to purchase 12 percent more lettuce per week. The income elasticity of Joan’s demand for lettuce is A) 0.75.

B) 0.90.

C) 1.00.

D) 1.33.

Answer: C

103) A 10 percent increase in income causes the quantity of orange juice demanded to increase from 19,200 to 20,800 gallons. The income elasticity of demand for orange juice is

A) 0.5.

B) 0.8.

C) 1.0.

D) 1.2.

Answer: B

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104) A 10 percent increase in income causes the quantity of apple juice demanded to increase from 18,800 to 21,200 gallons. The income elasticity of demand for apple juice is

A) 0.5.

B) 0.8.

C) 1.0.

D) 1.2.

Answer: D

105) The increase in the demand for widgets, shown in the figure above, is caused by an increase in the price of McBoover devices. Therefore,

A) widgets and McBoover devices are substitutes.

B) widgets and McBoover devices are complements.

C) widgets are a normal good.

D) McBoover devices are a normal good.

Answer: A

106) The increase in the demand for widgets, shown in the figure above, is caused by a decrease in the price of McBoover devices. Therefore,

A) widgets and McBoover devices are substitutes.

B) widgets and McBoover devices are complements.

C) widgets are a normal good.

D) McBoover devices are a normal good.

Answer: B

107) The increase in the demand for widgets, shown in the figure above, is caused by an increase in the price of McBoover devices from $9 to $11.

Therefore, the cross-price elasticity for these two products is

A) –2.0.

B) –0.5.

C) 0.5.

D) 2.0.

Answer: D

108) The increase in the demand for widgets, shown in the figure above, is caused by a decrease in the price of McBoover devices from $11 to $9.

Therefore, the cross-price elasticity for these two products is

A) –2.0.

B) –0.5.

C) 0.5.

D) 2.0.

Answer: A

109) The increase in the demand for widgets, shown in the figure above, is caused by an increase in aver- age incomes. Therefore, widgets

A) are a normal good.

B) are an inferior good.

C) are elastically demanded.

D) are inelastically demanded.

Answer: A

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110) The increase in the demand for widgets, shown in the figure above, is caused by an increase in aver- age incomes from $28,500 per year to $31,500 per year. Therefore, the income elasticity of demand for widgets is

A) 1/4.

B) 3/4.

C) 4/3.

D) 4.

Answer: D

Topic: Real-World Income Elasticity of Demand Skill: Conceptual

111) As income rises, the share of income spent on food in the United States

A) falls.

B) remains constant at 15 percent.

C) remains constant at 33 percent.

D) rises.

Answer: A

Elasticity of Supply

Topic: Elasticity of Supply Skill: Recognition

112) The elasticity of supply measures the responsiveness of

A) quantity demanded to changes in supply.

B) quantity supplied to changes in demand.

C) quantity supplied to changes in price.

D) quantity supplied to changes in income.

Answer: C

113) The elasticity of supply measures the sensitivity of A) supply to changes in costs.

B) quantity supplied to quantity demanded.

C) quantity supplied to a change in price.

D) price to changes in supply.

Answer: C

Topic: Calculating the Elasticity of Supply Skill: Conceptual

114) On most days the price of a rose is $1 and 80 roses are purchased. On Valentine’s Day the demand increases so that the price of a rose rises to

$2 and 320 roses are purchased. Therefore, the price elasticity of

A) demand for roses is about 1.8.

B) demand for roses is about 0.55.

C) supply of roses is about 1.8.

D) supply of roses is about 0.55.

Answer: C

Topic: Calculating the Elasticity of Supply Skill: Recognition

115) Supply is elastic if

A) a 1 percent change in price causes a larger percentage change in quantity supplied.

B) a 1 percent change in price causes a smaller percentage change in quantity supplied.

C) the slope of the supply curve is positive.

D) the good in question is a normal good.

Answer: A

116) If a 1 percent decrease in the price of a pound of oranges results in a smaller percentage decrease in the quantity supplied,

A) demand is elastic.

B) demand is inelastic.

C) supply is elastic.

D) supply is inelastic.

Answer: D

117) If a 1 percent decrease in the price of a pound of squash results in a larger percentage decrease in the quantity supplied,

A) demand is elastic.

B) demand is inelastic.

C) supply is elastic.

D) supply is inelastic.

Answer: C

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Topic: Calculating the Elasticity of Supply Skill: Analytical

118) If at a given moment, no matter what the price, producers cannot change the quantity supplied, the momentary supply

A) has zero elasticity.

B) has unit elasticity.

C) has infinite elasticity.

D) does not exist.

Answer: A

119) If a rise in the price of oranges from $7 to $9 a bushel, caused by a shift of the demand curve, increases the quantity of bushels supplied from 4,500 to 5,500 bushels, the

A) supply of oranges is elastic.

B) supply of oranges is inelastic.

C) demand for oranges is elastic.

D) demand for oranges is inelastic.

Answer: B

120) If a shift in the demand curve that raises the price of oranges from $7 to $9 a bushel increases the quantity of oranges supplied from 4,000 bushels to 6,000 bushels, the

A) supply of oranges is elastic.

B) supply of oranges is inelastic.

C) demand for oranges is elastic.

D) demand for oranges is inelastic.

Answer: A

121) A rise in the price of cabbage from $14 to $18 per bushel, caused by a shift of the demand curve, increases the quantity supplied from 4,000 to 6,000 bushels. The elasticity of supply is

A) 0.6.

B) 0.8.

C) 1.0.

D) 1.6.

Answer: D

122) If a 5 percent increase in the price results in a 9 percent increase in quantity supplied, the elasticity of supply is

A) 0.30.

B) 0.55.

C) 1.20.

D) 1.80.

Answer: D

123) If a 5 percent increase in price results in a 3 percent increase in the quantity supplied, the elasticity of supply is

A) 0.30.

B) 0.60.

C) 1.20.

D) 1.66.

Answer: B

Topic: Inelastic and Elastic Supply Skill: Conceptual

124) A vertical supply curve indicates an elasticity of supply that equals

A) 0.

B) 1.

C) infinity.

D) –1.

Answer: A

Topic: Inelastic and Elastic Supply Skill: Recognition

125) A horizontal supply curve indicates an elasticity of supply that equals

A) 0.

B) 1.

C) infinity.

D) –1.

Answer: C

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126) In the above figure, the price elasticity of supply at any given quantity is

A) highest along S1, next highest along S2, and lowest along S3.

B) highest along S3, next highest along S2, and lowest along S1.

C) equal to zero on each of the three supply curves.

D) equal to one on each of the three supply curves.

Answer: D

Topic: Elasticity of Supply Skill: Conceptual

127) The elasticity of supply for paintings by Monet is A) perfectly elastic.

B) perfectly inelastic.

C) unit elastic.

D) inelastic.

Answer: B

128) If the elasticity of supply of a good is zero, then its A) supply curve is vertical.

B) supply curve is horizontal.

C) demand curve must be vertical.

D) supply curve is positively sloped.

Answer: A

Topic: Factors That Influence the Elasticity of Supply

129) Which of the following leads a good to have a high elasticity of supply?

I. The good that must be produced using unique resources.

II. The good that is produced using commonly available resources.

A) I only B) II only C) I and II D) Neither I nor II.

Answer: B

130) The elasticity of supply is

A) positive and more elastic in the long run.

B) positive and more elastic in the short run.

C) negative and more elastic in the long run.

D) negative and more elastic in the short run.

Answer: A

131) If a good is produced using inputs for which there are no substitutes, the good’s

A) elasticity of supply is likely to be small.

B) elasticity of supply is likely to be large.

C) elasticity of demand will be small.

D) elasticity of demand will be large.

Answer: A

132) A determinant of the price elasticity of supply is A) the extent to which consumers like the quality

of the good.

B) the extent to which the demand for the good is relatively elastic.

C) the extent to which the good has many con- sumer substitutes.

D) the extent to which production of the good uses commonly available resources.

Answer: D

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133) A given change in demand will yield a larger change in the quantity supplied

A) the more elastic is supply.

B) the longer the time frame under consideration.

C) the more plentiful are the resources necessary to produce the good of interest.

D) All of the above answers are correct.

Answer: D

134) The elasticity of the momentary supply curve for any good

A) is necessarily equal to zero.

B) is necessarily equal to one.

C) is necessarily equal to positive infinity.

D) None of the above answers is correct.

Answer: D

135) The momentary supply curve is ____ than the ____ supply curve.

A) less elastic; long-run B) flatter; short-run C) more elastic; long-run

D) None of the above answers is correct.

Answer: A

Study Guide Questions

Topic: Study Guide Question, Calculating Elasticity Skill: Analytical

136) Suppose a 10 percent increase in the price of textbooks decreases the quantity demanded by 20 percent. The elasticity of demand for textbooks is A) 0.2.

B) 2.0.

C) 5.0.

D) 10.0.

Answer: B

Topic: Study Guide Question, Calculating Elasticity Skill: Analytical

137) The quantity of new cars increases by 10 percent.

If the price elasticity of demand for new cars is 1.25, the price of new cars will fall by

A) 2.5 percent.

B) 8 percent.

C) 10 percent.

D) 12.5 percent.

Answer: B

Topic: Study Guide Question, Inelastic and Elastic Demand

Skill: Conceptual*

138) Along a perfectly vertical demand curve, the price elasticity of demand

A) equals 0.

B) is greater than 0 but less than 1.0.

C) equals 1.0.

D) is negative.

Answer: A

Topic: Study Guide Question, Inelastic and Elastic Demand

Skill: Conceptual*

139) Perfectly elastic demand is represented by a demand curve that

A) is vertical.

B) is horizontal.

C) has a 45° slope.

D) is a rectangular hyperbola.

Answer: B

Topic: Study Guide Question, Total Revenue and Elasticity

140) If the price elasticity of demand for a product equals 1, as its price rises the

A) quantity demanded increases.

B) total revenue increases.

C) quantity demanded does not change.

D) total revenue does not change.

Answer: D

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Topic: Study Guide Question, Factors That Influence the Elasticity of Demand

141) A product is likely to have a price elasticity of demand that exceeds 1 when

A) its price falls.

B) the percentage of income spent on it decreases.

C) it is a necessity.

D) it has close substitutes.

Answer: D

Skill: Recognition*

142) The demand for a good is more price inelastic if A) its price is higher.

B) the percentage of income spent on it is larger.

C) it is a luxury good.

D) it has no close substitutes.

Answer: D

143) Which of the following is likely to have the small- est price elasticity of demand?

A) An automobile B) A new automobile C) A new Ford automobile D) A new Ford Mustang Answer: A

Topic: Study Guide Question, Elastic Demand Skill: Conceptual*

144) Business people often speak about price elasticity without actually using the term. Which statement describes a good with an elastic demand?

A) “A price cut won’t help me. It won’t increase my sales, and I’ll just get less money for each unit.”

B) “I don’t think a price cut will help my bottom line any. Sure, I’ll sell a bit more, but I’ll more than lose because the price will be lower.”

C) “My customers are real shoppers. After I cut my prices just a few cents below those my competi- tors charge, customers have been flocking to my store and sales are booming.”

D) “The economic expansion has done wonders for my sales. With more people back at work, my sales are taking off!”

Answer: C

Topic: Study Guide Question, Elasticity Along a Straight-Line Demand Curve

145) Moving up (to the left) along a linear demand curve, the price elasticity of demand

A) decreases.

B) does not change.

C) increases.

D) at first increases and then decreases.

Answer: C

Skill: Conceptual*

146) If the price elasticity of demand equals 1.0, then as the price falls the

A) quantity demanded decreases.

B) total revenue falls.

C) quantity demanded does not change.

D) total revenue does not change.

Answer: D

147) A rise in the price of a product lowers the total revenue from the product if the

A) income elasticity of demand exceeds 1.

B) good is an inferior product.

C) demand for the product is inelastic.

D) demand for the product is elastic.

Answer: D

Skill: Conceptual*

148) By reviewing its sales records, IBM economists discover that when it lowers the price of its personal computers, the total revenue IBM obtains from the sale of its personal computers rises.

Hence

A) supply of IBM personal computers is elastic.

B) demand for IBM personal computers is elastic.

C) supply of IBM personal computers is inelastic.

D) demand for IBM personal computers is inelastic.

Answer: B

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149) If a 4 percent rise in the price of peanut butter lowers the total revenue received by the producers of peanut butter by 4 percent, the demand for peanut butter

A) is elastic.

B) is inelastic.

C) is unit elastic.

D) has an elasticity of 2.0.

Answer: A

Skill: Analytical*

150) When the price of a hot dog rises 10 percent, your expenditure on hot dogs increases. Hence, it is certain that

A) hot dogs are a normal good for you.

B) hot dogs are an inferior good for you.

C) your demand for hot dogs is elastic.

D) your demand for hot dogs is inelastic.

Answer: D

Topic: Study Guide Question, Cross Elasticity of Demand

Skill: Conceptual*

151) For which of the following pairs of goods is the cross elasticity of demand positive?

A) Tennis balls and tennis rackets B) Videotapes and laundry detergent C) Airline trips and textbooks D) Beef and chicken

Answer: D

152) A 10 percent decrease in the price of a Pepsi decreases the demand for a Coca-Cola by 50 percent. The cross elasticity of demand between a Pepsi and Coca-Cola is

A) 50.

B) 10.

C) 5.

D) 0.20.

Answer: C

153) A fall in the price of X from $12 to $8 causes an increase in the quantity of Y demanded from 900 to 1,100 units. What is the cross elasticity of demand between X and Y?

A) 0.5.

B) –0.5.

C) 2.

D) –2.

Answer: B

Topic: Study Guide Question, Income Elasticity of Demand

154) A 10 percent decrease in income decreases the quantity demanded of compact discs by 3 percent. The income elasticity of demand for compact discs is

A) –0.3.

B) 0.3.

C) 3.3.

D) 10.0.

Answer: B

Topic: Study Guide Question, Income Elasticity of Demand

Skill: Conceptual*

155) All normal goods have

A) income elasticities of demand greater than 1.0.

B) price elasticities of demand greater than 1.0.

C) negative price elasticities of demand.

D) positive income elasticities of demand.

Answer: D

Topic: Study Guide Question, Elasticity of Supply Skill: Analytical*

156) Suppose that the price elasticity of supply for oil is 0.1. Then, if the price of oil rises by 20 percent, the quantity of oil supplied will increase

A) by 200 percent.

B) by 20 percent.

C) by 2 percent.

D) by 0.2 percent.

Answer: C

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Topic: Study Guide Question, Elasticity of Supply Skill: Analytical*

157) When the price of a CD is $13 per CD,

39,000,000 CDs per year are supplied. When the price is $15 per CD, 41,000,000 CDs per year are supplied. What is the elasticity of supply for CDs?

A) 2.86 B) 0.35 C) 0.14 D) 0.05 Answer: B

Topic: Study Guide Question, Elasticity of Supply Skill: Conceptual*

158) If the long-run supply of rice is perfectly elastic, then

A) as people’s incomes rise, the quantity of rice supplied decreases.

B) as the price of corn falls, the quantity of rice de- manded decreases.

C) in the long run, a large rise in the price of rice causes no change in the quantity of rice supplied.

D) in the long run, an increase in the demand for rice leaves the price of rice unchanged.

Answer: D

Topic: Study Guide Question, Elasticity of Supply Skill: Conceptual*

159) The elasticity of supply does NOT depend on A) resource substitution possibilities.

B) the fraction of income spent on the product.

C) the time elapsed since the price change.

D) None of the above because all of the factors listed affect the elasticity of supply.

Answer: B

MyEconLab Questions

Topic: Parallel MyEconLab Questions Skill: Analytical

160) In the figure above, when the price of a disk is $B, total revenue is shown in the graph by area A) BCF0.

B) AGF0.

C) FCDE.

D) ADE0.

Answer: A

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Topic: Parallel MyEconLab Questions, Elastic and Inelastic Demand

161) The above figure illustrates the demand curve for a good. The good has

A) no substitutes.

B) only one substitute.

C) only a few substitutes.

D) many substitutes.

Answer: A

Topic: Parallel MyEconLab Questions, Elastic and Inelastic Demand

162) The elasticity of demand along the demand curve shown in the above figure is constant and equal to 1. Thus,

A) area 0BCF equals area 0AGF.

B) area 0BCF equals area FGDE.

C) area 0BCF equals area 0ADE.

D) area ABCG equals area 0AGF.

Answer: C