978-0134078816 Chapter 5 Part 3

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33) At a price of $5, quantity demanded is 70; and at a price of $7, quantity demanded is 50. Since total

revenue ________ by the price increase, 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

34) At a price of $40, a store can sell 35 toasters a day. At a price of $35 the store can sell 39 toasters a day.

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

A) is increased; elastic

B) is decreased; inelastic

C) is increased; unit elastic

D) is decreased; elastic

Topic: Calculating Elasticities

Skill: Analytical

AACSB: Analytical Thinking

Learning Outcome: Micro-6

35) Price and total revenue move in the same direction 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

36) Price and total revenue are inversely related 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

22

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

A) falls; elastic

B) falls; unit elastic

C) rises; inelastic

D) rises; elastic

Topic: Calculating Elasticities

Skill: Conceptual

AACSB: Reflective Thinking

Learning Outcome: Micro-6

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

A) falls; inelastic

B) falls; unit elastic

C) rises; elastic

D) rises; inelastic

Topic: Calculating Elasticities

Skill: Conceptual

AACSB: Reflective Thinking

Learning Outcome: Micro-6

39) If a firm wants to increase revenue, it should decrease the selling price of its product if it is currently

producing in the ________ portion of its demand curve.

A) elastic

B) inelastic

C) unit elastic

D) perfectly inelastic

Topic: Calculating Elasticities

Skill: Conceptual

AACSB: Reflective Thinking

Learning Outcome: Micro-6

40) If a firm wants to increase revenue, it should increase the selling price of its product if it is currently

producing in the ________ portion of its demand curve.

A) elastic

B) inelastic

C) unit elastic

D) perfectly elastic

Topic: Calculating Elasticities

Skill: Conceptual

AACSB: Reflective Thinking

Learning Outcome: Micro-6

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41) When the slope of a demand curve is constant, price elasticity of demand is constant as well.

Topic: Calculating Elasticities

Skill: Conceptual

AACSB: Reflective Thinking

Learning Outcome: Micro-6

42) A demand curve with continuously changing slope over all quantity values will always have a

constant price elasticity of demand.

Topic: Calculating Elasticities

Skill: Conceptual

AACSB: Reflective Thinking

Learning Outcome: Micro-6

43) A demand curve with constant slope over all quantity values can have a continuously changing price

elasticity of demand.

Topic: Calculating Elasticities

Skill: Conceptual

AACSB: Reflective Thinking

Learning Outcome: Micro-6

44) How total revenue changes when a price changes can be predicted using price elasticity of demand.

Topic: Calculating Elasticities

Skill: Definition

Learning Outcome: Micro-6

45) When demand is elastic, an increase in price will result in an increase in total revenue.

Topic: Calculating Elasticities

Skill: Conceptual

AACSB: Reflective Thinking

Learning Outcome: Micro-6

46) When demand is elastic, a decrease in price will result in an increase in total revenue.

Topic: Calculating Elasticities

Skill: Conceptual

AACSB: Reflective Thinking

Learning Outcome: Micro-6

24

47) When demand is inelastic, an increase in price will result in an increase in total revenue.

Topic: Calculating Elasticities

Skill: Conceptual

AACSB: Reflective Thinking

Learning Outcome: Micro-6

48) When demand is inelastic, a decrease in price will result in an increase in total revenue.

Topic: Calculating Elasticities

Skill: Conceptual

AACSB: Reflective Thinking

Learning Outcome: Micro-6

49) When demand is unit elastic, an increase in price will result in an increase in total revenue.

Topic: Calculating Elasticities

Skill: Conceptual

AACSB: Reflective Thinking

Learning Outcome: Micro-6

50) When demand is unit elastic, a decrease in price will result in no change in total revenue.

Topic: Calculating Elasticities

Skill: Conceptual

AACSB: Reflective Thinking

Learning Outcome: Micro-6

51) When the slope of a demand curve is constant, price elasticity of demand can vary.

Topic: Calculating Elasticities

Skill: Conceptual

AACSB: Reflective Thinking

Learning Outcome: Micro-6

52) A demand curve with continuously changing slope over all quantity values will always have a price

elasticity of demand equal to infinity.

Topic: Calculating Elasticities

Skill: Conceptual

AACSB: Reflective Thinking

Learning Outcome: Micro-6

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53) A demand curve with constant slope over all quantity values will always have a price elasticity of

demand equal to –1.

Topic: Calculating Elasticities

Skill: Conceptual

AACSB: Reflective Thinking

Learning Outcome: Micro-6

54) Point elasticity is a measure of elasticity that uses slope measurement.

Topic: Calculating Elasticities

Skill: Definition

AACSB: Reflective Thinking

Learning Outcome: Micro-6

55) When demand is elastic, an increase in price will result in a decrease in total revenue.

Topic: Calculating Elasticities

Skill: Conceptual

AACSB: Reflective Thinking

Learning Outcome: Micro-6

56) Every point on a linear demand curve has the same elasticity.

Topic: Calculating Elasticities

Skill: Conceptual

AACSB: Reflective Thinking

Learning Outcome: Micro-6

57) When demand is inelastic, a decrease in price will result in a decrease in total revenue.

Topic: Calculating Elasticities

Skill: Conceptual

AACSB: Reflective Thinking

Learning Outcome: Micro-6

58) When demand is elastic, an increase in price will result in an increase in total revenue.

Topic: Calculating Elasticities

Skill: Conceptual

AACSB: Reflective Thinking

Learning Outcome: Micro-6

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59) When demand is unit elastic, a change in price will result in total revenue falling to zero.

Topic: Calculating Elasticities

Skill: Conceptual

AACSB: Reflective Thinking

Learning Outcome: Micro-6

60) On a downward–sloping linear demand curve, demand becomes more inelastic as price decreases.

Answer: TRUE

Diff: 2

Topic: Calculating Elasticities

Skill: Conceptual

AACSB: Reflective Thinking

Learning Outcome: Micro-6

5.3 The Determinants of Demand Elasticity

1) When there are more substitutes for a product, the ________ for the product is ________.

A) demand; less price elastic

B) demand; more price elastic

C) income elasticity; greater

D) income elasticity; smaller

Topic: The Determinants of Demand Elasticity

Skill: Conceptual

AACSB: Reflective Thinking

Learning Outcome: Micro-6

2) The more time that elapses, the

A) less price elastic is the demand for the product.

B) more price elastic is the demand for the product.

C) greater the income elasticity of demand for a product.

D) smaller the income elasticity of demand for the product.

Topic: The Determinants of Demand Elasticity

Skill: Conceptual

AACSB: Reflective Thinking

Learning Outcome: Micro-6

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3) The determinants of elasticity include

A) availability of substitutes.

B) price relative to income.

C) time.

D) all of the above

Topic: The Determinants of Demand Elasticity

Skill: Conceptual

AACSB: Reflective Thinking

Learning Outcome: Micro-6

4) Related to the Economics in Practice on page 99: Which of the following best explains why demand is

often more elastic in the long run than it is in the short run?

A) When demand is elastic, price increases reduce revenue because a small price increase will lead to a

large decrease in quantity demanded.

B) In the long run, consumers have greater access to substitutes.

C) Consumers tend to postpone making purchasing decisions as long as possible.

D) In the short run, prices can change rapidly, but in the long run they are more stable.

Topic: The Determinants of Demand Elasticity: Economics in Practice

Skill: Analytical

AACSB: Analytical Thinking

Learning Outcome: Micro-6

5) Related to the Economics in Practice on page 99: Frank runs a corner delicatessen and one day decides to

raise his prices by 10 percent. Total revenue is likely to ________ at the end of the first month of the

higher prices since demand is relatively elastic in the ________ term.

A) rise; short

B) fall; short

C) rise; long

D) fall; long

Topic: The Determinants of Demand Elasticity: Economics in Practice

Skill: Conceptual

AACSB: Reflective Thinking

Learning Outcome: Micro-6

6) When there are fewer substitutes for a product, the ________ for the product is ________.

A) demand; less price elastic

B) demand; more price elastic

C) income elasticity; greater

D) income elasticity; smaller

Topic: The Determinants of Demand Elasticity

Skill: Conceptual

AACSB: Reflective Thinking

Learning Outcome: Micro-6

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7) The less time that elapses, the

A) less price elastic is the demand for the product.

B) more price elastic is the demand for the product.

C) greater the income elasticity of demand for a product.

D) smaller the income elasticity of demand for the product.

Topic: The Determinants of Demand Elasticity

Skill: Conceptual

AACSB: Reflective Thinking

Learning Outcome: Micro-6

8) Luxury items tend to have ________ demand, and necessities tend to have ________ demand.

A) relatively elastic; inelastic

B) relatively inelastic; elastic

C) perfectly elastic; perfectly inelastic

D) unit elastic; perfectly inelastic

Topic: The Determinants of Demand Elasticity

Skill: Conceptual

AACSB: Reflective Thinking

Learning Outcome: Micro-6

9) Related to the Economics in Practice on page 99: Which of the following best explains why demand is

often less elastic in the short run than it is in the long run?

A) When demand is elastic, price increases reduce revenue because a small price increase will lead to a

large decrease in quantity demanded.

B) In the short run, consumers have less access to substitutes.

C) Consumers tend to postpone making purchasing decisions as long as possible.

D) In the short run, prices can change rapidly, but in the long run they are more stable.

Topic: Determinants of Demand Elasticity: Economics in Practice

Skill: Analytical

AACSB: Analytical Thinking

Learning Outcome: Micro-6

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10) Related to the Economics in Practice on page 99: Harriet runs a corner delicatessen and one day decides

to raise her prices by 20 percent. Total revenue is likely to ________ when she first raises prices since

demand is relatively ________ in the short term.

A) rise; inelastic

B) fall; inelastic

C) rise; elastic

D) fall; elastic

Topic: Determinants of Demand Elasticity: Economics in Practice

Skill: Conceptual

AACSB: Reflective Thinking

Learning Outcome: Micro-6

11) Demand is more elastic for an item for which few substitutes are available.

Topic: The Determinants of Demand Elasticity

Skill: Conceptual

AACSB: Reflective Thinking

Learning Outcome: Micro-6

12) Demand is more elastic for an item which represents a relatively large part of a person’s total budget.

Topic: The Determinants of Demand Elasticity

Skill: Conceptual

AACSB: Reflective Thinking

Learning Outcome: Micro-6

13) Demand is more inelastic for an item which is a luxury as compared to an item which is a necessity.

Topic: The Determinants of Demand Elasticity

Skill: Conceptual

AACSB: Reflective Thinking

Learning Outcome: Micro-6

14) The demand for gasoline is likely to be more inelastic than the demand for sushi.

Topic: The Determinants of Demand Elasticity

Skill: Conceptual

AACSB: Reflective Thinking

Learning Outcome: Micro-6

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5.4 Other Important Elasticities

1) For perfectly price inelastic supply,

A) price is solely determined by supply.

B) price is solely determined by demand.

C) only a government can set the price.

D) either supply or demand may set the price.

Topic: Other Important Elasticities

Skill: Conceptual

AACSB: Reflective Thinking

Learning Outcome: Micro-6

2) A perfectly price elastic supply curve will be a(n) ________ line.

A) horizontal

B) vertical

C) upward–sloping

D) downward–sloping

Topic: Other Important Elasticities

Skill: Conceptual

AACSB: Reflective Thinking

Learning Outcome: Micro-6

3) An increase in demand caused no change in the equilibrium price. Thus, supply must be

A) perfectly inelastic.

B) inelastic.

C) elastic.

D) perfectly elastic.

Topic: Other Important Elasticities

Skill: Conceptual

AACSB: Reflective Thinking

Learning Outcome: Micro-6

4) If the supply of oranges is unit elastic, the price elasticity of supply of oranges is

A) 1.0.

B) 0.0.

C) –1.0.

D) –100.0.

Topic: Other Important Elasticities

Skill: Analytical

AACSB: Analytical Thinking

Learning Outcome: Micro-6