Managerial Economics, 7e (Keat)
Chapter 4 Demand Elasticity (Appendix 4A)
Multiple-Choice Questions
1) The price elasticity of demand is a measure of
A) the responsiveness of the quantity demanded to price changes.
B) the quantity demanded at a given price.
C) the shift in the demand curve when price changes.
D) the demand for a product holding price constant.
2) The elasticity of demand for a product is likely to be greater
A) the smaller the number of substitute products available.
B) the smaller the proportion of one’s income spent on the product.
C) the larger the number of substitute products available.
D) if the product is an imported good rather than a domestically produced good.
3) If OPEC increases its price of oil, and still the demand for oil decreases by a very small
amount, we can conclude that the demand for oil is
A) relatively elastic.
B) relatively inelastic.
C) perfectly elastic.
D) perfectly inelastic.
4) If the consumption of sugar does not change at all following a price increase from 50 cents per
pound to 65 cents per pound, the demand for sugar is considered to be
A) relatively inelastic.
B) perfectly elastic.
C) perfectly inelastic.
D) unitary elastic.
5) If the demand for a product is said to be relatively inelastic, the “absolute” value of the
elasticity coefficient will be
A) less than one.
B) greater than one.
C) equal to one.
D) zero.
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6) If an item has several good substitutes, the demand curve for that item is likely to be
A) relatively inelastic.
B) relatively elastic.
C) perfectly inelastic.
D) unit elastic.
7) Remembering that demand elasticity is defined as the percentage change in quantity divided
by the percentage change in price, if price decreases and, in percentage terms, quantity rises
more than price has dropped, total revenue will
A) increase.
B) decrease.
C) remain the same.
D) either increase or decrease.
8) Suppose the price of beans rises from $1.00 a pound to $2.00 a pound, quantity demanded
falls from 10 units to 6 units, the coefficient of elasticity of demand for beans using the arc
elasticity approach is
A) -1.33.
B) -0.75.
C) -0.4.
D) -0.25.
9) Suppose the price of beans rises from $1.00 a pound to $2.00 a pound, quantity demanded
falls from 10 units to 6 units. In this example, the demand for beans is said to be
A) relatively elastic.
B) relatively inelastic.
C) perfectly elastic.
D) perfectly inelastic.
10) A perfectly elastic demand curve
A) can be represented by a line parallel to the vertical axis.
B) is a 45-degree line.
C) can be represented by a line parallel to the horizontal axis.
D) cannot be represented on a two-dimensional graph.
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11) The sensitivity of the change in quantity consumed of one good to a change in the price of a
related good is called
A) cross-elasticity.
B) substitute elasticity.
C) complementary elasticity.
D) price elasticity of demand.
12) The cross-price elasticity of demand for coffee and tea is likely to be
A) greater than zero.
B) less than zero.
C) zero.
D) infinity.
13) The cross-price elasticity of demand for coffee and coffee-cream is likely to be
A) greater than zero.
B) less than zero.
C) zero.
D) infinity.
14) The cross-price elasticity of demand for coffee and caskets is likely to be
A) less than zero.
B) greater than zero.
C) zero.
D) infinity.
15) When purchases of tennis socks decline following an increase in the price of tennis sneakers
(other things remaining equal), the relationship between these two items can be described as
A) substitutable.
B) complementary.
C) unique.
D) ordinary.
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16) The owner of a produce store found that when the price of a head of lettuce was raised from
50 cents to $1, the quantity sold per hour fell from 18 to 8. The arc elasticity of demand for
lettuce is
A) -0.56.
B) -1.15.
C) -0.8.
D) -1.57.
17) Suppose the price of crude oil drops from $150 a barrel to $120 a barrel. The quantity bought
remains unchanged at 100 barrels. The coefficient of price elasticity of demand in this example
would be
A) -0.5.
B) infinity.
C) -1.0.
D) 0.
18) If a firm decreases the price of a good and total revenue decreases, then
A) the demand for this good is price elastic.
B) the demand for this good is price inelastic.
C) the cross elasticity is negative.
D) the income elasticity is less than 1.
19) When total revenue reaches its peak (elasticity equals 1), marginal revenue reaches
A) 1.
B) zero.
C) -1.
D) Cannot be determined from the information provided
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20) If the income elasticity of a particular good is negative 0.2, it would be considered
A) a superior good.
B) a normal good.
C) an inferior good.
D) an elastic good.
Table 1
The following information is provided for Tony Romo’s income and expenditures.
Quantity Purchased per Month
Monthly Income Steaks Pizzas
$2,000 2 8
$3,000 4 6
21) In Table 1, Tony’s income elasticity of demand for steaks is
A) 1.0.
B) greater than 1.0.
C) less than 1.0.
D) zero.
22) In Table 1, pizzas are classified as a(n)
A) normal good.
B) positive good.
C) inferior goods.
D) marginal good.
23) In Table 1, steaks are classified as a(n)
A) normal good.
B) positive good.
C) inferior good.
D) marginal good.
24) In Table 1, Tony’s income elasticity of demand for pizzas is
A) 0.
B) less than zero.
C) greater than 1.0.
D) 1.0.
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25) The government unit that wants to achieve “revenue enhancement” will find it considerably
more favorable to enact an excise tax on goods whose demand is
A) highly elastic.
B) relatively elastic.
C) highly inelastic.
D) unitary elastic.
26) Which of the following instances will total revenue or receipts decline?
A) Price rises and demand is inelastic.
B) Price falls and demand is elastic.
C) Price rises and demand is elastic.
D) Price falls and demand is unit elastic.
27) If the price of a good is increased and total revenue received from the sale of this good
increases, then the price elasticity of demand for the good is
A) elastic.
B) inelastic.
C) unitary.
D) None of the above
28) If the price of a good is decreased and total revenue received from the sale of this good does
not change, then the price elasticity of demand for the good is
A) elastic.
B) inelastic.
C) unitary.
D) None of the above
29) If the demand for a good is price inelastic and the good price is increased, then the marginal
revenue (MR) received by the seller will
A) not change.
B) decrease.
C) increase.
D) Cannot be determined from this information
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