978-0134078816 Chapter 5 Part 2

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3) Refer to Figure 5.2. If the price of a hamburger increases from $2 to $4, the price elasticity of demand

equals ________. Use the midpoint formula.

A) –0.33

B) –2.0

C) –3.0

D) –5.0

Topic: Calculating Elasticities

Skill: Analytical

AACSB: Analytical Thinking

Learning Outcome: Micro-2

4) Refer to Figure 5.2. At Point C the price elasticity of demand is –1. Along line segment EC of the

demand curve, the demand is

A) elastic.

B) unit elastic.

C) inelastic.

D) either elastic or inelastic, depending on whether price increases or decreases.

Topic: Calculating Elasticities

Skill: Definition

AACSB: Analytical Thinking

Learning Outcome: Micro-2

5) Refer to Figure 5.2. At Point C the price elasticity of demand is –1. Along line segment AB of the

demand curve, the demand is

A) elastic.

B) unit elastic.

C) inelastic.

D) either elastic or inelastic, depending on whether price increases or decreases.

Topic: Calculating Elasticities

Skill: Definition

AACSB: Analytical Thinking

Learning Outcome: Micro-2

12

6) Refer to Figure 5.2. If the price of a hamburger decreases from $10 to $6, the price elasticity of demand

equals ________. Use the midpoint formula.

A) –0.5

B) –2.0

C) –20

D) –200

Topic: Calculating Elasticities

Skill: Analytical

AACSB: Analytical Thinking

Learning Outcome: Micro-2

7) Refer to Figure 5.2. If the price of a hamburger decreases from $6 to $4, the price elasticity of demand

equals ________. Use the midpoint formula.

A) –0.35

B) –0.71

C) –1.4

D) –2.4

Topic: Calculating Elasticities

Skill: Analytical

AACSB: Analytical Thinking

Learning Outcome: Micro-2

8) Refer to Figure 5.2. If the price of a hamburger decreases from $6 to $2, the price elasticity of demand

equals ________. Use the midpoint formula.

A) –0.25

B) –0.5

C) –2.0

D) –4.0

Topic: Calculating Elasticities

Skill: Analytical

AACSB: Analytical Thinking

Learning Outcome: Micro-2

9) Refer to Figure 5.2. At Point C the price elasticity of demand is –1. Along line segment ________ of the

demand curve, the demand is inelastic.

A) AC

B) BE

C) CF

D) AF

Topic: Calculating Elasticities

Skill: Analytical

AACSB: Analytical Thinking

Learning Outcome: Micro-2

13

10) Refer to Figure 5.2. At Point C the price elasticity of demand is –1. Along line segment ________ of the

demand curve, the demand is elastic.

A) AC

B) BE

C) CF

D) AF

Topic: Calculating Elasticities

Skill: Analytical

AACSB: Analytical Thinking

Learning Outcome: Micro-2

Refer to the information provided in Figure 5.3 below to answer the question(s) that follow.

Figure 5.3

11) Refer to Figure 5.3. Use the midpoint formula. If the price of a gardenburger increases from $8 to $10,

the price elasticity of demand equals ________ and demand is ________.

A) 4.5; elastic

B) –0.5; inelastic

C) –4.5; elastic

D) –9.0; inelastic

Topic: Calculating Elasticities

Skill: Analytical

AACSB: Analytical Thinking

Learning Outcome: Micro-2

14

12) Refer to Figure 5.3. Use the midpoint formula. If the price of a gardenburger increases from $6 to $8,

the price elasticity of demand equals ________ and demand is ________.

A) –0.57; inelastic

B) –1.75; elastic

C) –1.9; inelastic

D) –2.0; elastic

Topic: Calculating Elasticities

Skill: Analytical

AACSB: Analytical Thinking

Learning Outcome: Micro-2

13) Refer to Figure 5.3. Using the midpoint formula, if the price of a gardenburger decreases from $7 to

$6, the price elasticity of demand equals ________, and the decrease results in a(n) ________ in total

revenue.

A) –.13; decrease

B) –.69; increase

C) –1.44; increase

D) –13; increase

Topic: Calculating Elasticities

Skill: Analytical

AACSB: Analytical Thinking

Learning Outcome: Micro-2

14) Refer to Figure 5.3. Use the midpoint formula. If the price of a gardenburger decreases from $9 to $8,

the price elasticity of demand equals ________ and demand is ________.

A) 6.33; elastic

B) –0.16; inelastic

C) –6.33; elastic

D) –19.0; inelastic

Topic: Calculating Elasticities

Skill: Analytical

AACSB: Analytical Thinking

Learning Outcome: Micro-2

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15) Refer to Figure 5.3. Use the midpoint formula. If the price of a gardenburger decreases from $8 to $7,

the price elasticity of demand equals ________ and demand is ________.

A) –0.47; inelastic

B) –2.14; elastic

C) –2.29; inelastic

D) –3.5; elastic

Topic: Calculating Elasticities

Skill: Analytical

AACSB: Analytical Thinking

Learning Outcome: Micro-2

16) Refer to Figure 5.3. Using the midpoint formula, if the price of a gardenburger increases from $7 to $9,

the price elasticity of demand equals ________ and the increase results in a(n) ________ in total revenue.

A) –0.375; increase

B) –0.5; decrease

C) –2.67; decrease

D) –8; decrease

Topic: Calculating Elasticities

Skill: Analytical

AACSB: Analytical Thinking

Learning Outcome: Micro-2

17) The owner of a local hot dog stand has estimated that if he lowers the price of hot dogs from $2.00 to

$1.50, he will increase sales from 400 to 500 hot dogs per day. Using the midpoint formula, the demand

for hot dogs is

A) elastic.

B) inelastic.

C) unit elastic.

D) perfectly elastic.

Topic: Calculating Elasticities

Skill: Definition

AACSB: Analytical Thinking

Learning Outcome: Micro-6

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18) At a price of $11, quantity demanded is 90; and at a price of $9, quantity demanded is 110. Since total

revenue ________ by the price decrease, demand must be ________.

A) is increased; elastic

B) is decreased; inelastic

C) is unchanged; unit elastic

D) is unchanged; elastic

Topic: Calculating Elasticities

Skill: Analytical

AACSB: Analytical Thinking

Learning Outcome: Micro-6

19) At a price of $20, a store can sell 24 picture frames a day. At a price of $18 the store can sell 33 picture

frames a day. Since total revenue ________ by the price decrease, demand must be ________.

A) is increased; elastic

B) is increased; inelastic

C) is increased; unit elastic

D) is decreased; elastic

Topic: Calculating Elasticities

Skill: Analytical

AACSB: Analytical Thinking

Learning Outcome: Micro-6

20) Price and total revenue move in inverse directions when demand is

A) price elastic.

B) price inelastic.

C) unit price elastic.

D) perfectly price inelastic.

Topic: Calculating Elasticities

Skill: Conceptual

AACSB: Reflective Thinking

Learning Outcome: Micro-6

21) Price and total revenue are directly related when demand is

A) price elastic.

B) price inelastic.

C) unit price elastic.

D) perfectly price elastic.

Topic: Calculating Elasticities

Skill: Conceptual

AACSB: Reflective Thinking

Learning Outcome: Micro-6

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22) Total revenue decreases if price ________ and demand is ________.

A) falls; elastic

B) falls; inelastic

C) rises; inelastic

D) rises; unit elastic

Topic: Calculating Elasticities

Skill: Conceptual

AACSB: Reflective Thinking

Learning Outcome: Micro-6

23) Total revenue increases if price ________ and demand is ________.

A) falls; inelastic

B) falls; elastic

C) rises; elastic

D) rises; unit elastic

Topic: Calculating Elasticities

Skill: Conceptual

AACSB: Reflective Thinking

Learning Outcome: Micro-6

18

Refer to the information provided in Figure 5.4 below to answer the question(s) that follow.

Figure 5.4

24) Refer to Figure 5.4. The demand for milkshakes is unit elastic at Point C. If a store reduces the price of

a milkshake from P3 to P4, its total revenue will

A) increase.

B) decrease.

C) remain constant.

D) either increase or decrease.

Topic: Calculating Elasticities

Skill: Analytical

AACSB: Analytical Thinking

Learning Outcome: Micro-2

25) Refer to Figure 5.4. The demand for milkshakes is unit elastic at Point C. If the milkshake price falls

from P1 to P2, total revenue will

A) increase.

B) decrease.

C) remain constant.

D) either increase or decrease.

Topic: Calculating Elasticities

Skill: Analytical

AACSB: Analytical Thinking

Learning Outcome: Micro-2

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26) Refer to Figure 5.4. Along the given demand curve, which of the following is true?

A) Demand is less elastic along the segment AB than the segment EF.

B) Demand is less elastic along the segment EF than the segment AB.

C) Since the demand curve is linear, the price elasticity of demand between each of the points is the same.

D) All of the above are true.

Topic: Calculating Elasticities

Skill: Analytical

AACSB: Analytical Thinking

Learning Outcome: Micro-2

27) Refer to Figure 5.4. The demand for milkshakes is unit elastic at Point C. If a store increases the price

of a milkshake from P4 to P3, its total revenue will

A) increase.

B) decrease.

C) remain constant.

D) either increase or decrease.

Topic: Calculating Elasticities

Skill: Analytical

AACSB: Analytical Thinking

Learning Outcome: Micro-2

28) Refer to Figure 5.4. The demand for milkshakes is unit elastic at Point C. If the milkshake price rises

from P2 to P1, total revenue will

A) increase.

B) decrease.

C) remain constant.

D) either increase or decrease.

Topic: Calculating Elasticities

Skill: Analytical

AACSB: Analytical Thinking

Learning Outcome: Micro-2

29) Refer to Figure 5.4. Along the given demand curve, which of the following is true?

A) Demand is more elastic along the segment AC than the segment CF.

B) Demand is more elastic along the segment CF than the segment AC.

C) Since the demand curve is linear, the price elasticity of demand between each of the points is the same.

D) All of the above are true.

Topic: Calculating Elasticities

Skill: Analytical

AACSB: Analytical Thinking

Learning Outcome: Micro-2

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30) A firm is currently producing in the inelastic portion of its demand curve. What course of action do

you recommend for it, assuming it wants to raise revenue?

A) Continue producing at the current output level, because it maximizes its total revenue by producing in

the inelastic portion of its demand curve.

B) Reduce price, because if it reduces price and demand is inelastic, total revenue will increase.

C) Increase price, because if it increases price and demand is inelastic, total revenue will increase.

D) Continue selling at the same price, but increase the amount it produces.

Topic: Calculating Elasticities

Skill: Conceptual

AACSB: Analytical Thinking

Learning Outcome: Micro-6

31) A firm is currently producing in the elastic portion of its demand curve. What course of action do you

recommend for it assuming it wants to raise revenue?

A) Continue producing at the current output level, because it maximizes its total revenue by producing in

the elastic portion of its demand curve.

B) Reduce price, because if it reduces price and demand is elastic, total revenue will increase.

C) Increase price, because if it increases price and demand is elastic, total revenue will increase.

D) Continue selling at the same price, but increase the amount it produces.

Topic: Calculating Elasticities

Skill: Conceptual

AACSB: Analytical Thinking

Learning Outcome: Micro-6

32) The owner of a local pretzel cart has estimated that if he lowers the price of pretzels from $4.00 to

$3.00, he will increase sales from 800 to 1,100 pretzels per day. Using the midpoint formula, the demand

for pretzels is

A) elastic.

B) inelastic.

C) unit elastic.

D) perfectly elastic.

Topic: Calculating Elasticities

Skill: Analytical

AACSB: Analytical Thinking

Learning Outcome: Micro-6