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Chapter 06 Elasticity Answer Key
Multiple Choice Questions
1.
The price elasticity of demand coefficient measures
D.
how far business executives can stretch their fixed costs.
2.
The basic formula for the price elasticity of demand coefficient is
A. absolute decline in quantity demanded/absolute increase in price.
3.
The demand for a product is inelastic with respect to price if
D.
a drop in price is accompanied by an increase in the quantity demanded.
6-2
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
Learning Objective: 06-01 Discuss price elasticity of demand and how it is calculated.
Test Bank: I
Topic:
Price Elasticity of Demand
4.
If the price elasticity of demand for a product is 2.5, then a price cut from $2.00 to $1.80
will
A.
increase the quantity demanded by about 2.5 percent.
B.
decrease the quantity demanded by about 2.5 percent.
5.
Suppose that as the price of Y falls from $2.00 to $1.90, the quantity of Y demanded
increases from 110 to 118. Then the absolute value of the price elasticity (using the midpoint
formula) is
A. 4.00.
B. 2.09.
6.
Which of the following is not characteristic of the demand for a commodity that is elastic?
A.
The relative change in quantity demanded is greater than the relative change in price.
B.
Buyers are relatively sensitive to price changes.
6-3
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
AACSB: Knowledge Application
Acc e s s i bili t y :
Keyboard Navigation
Blooms: Understand
Di ff ic ul t y :
02 Medium
Learning Objective: 06-01 Discuss price elasticity of demand and how it is calculated.
Test Bank: I
Topic:
Price Elasticity of Demand
7.
If the demand for product X is inelastic, a 4 percent decrease in the price of X will
A.
decrease the quantity of X demanded by more than 4 percent.
8.
If a firm can sell 3,000 units of product A at $10 per unit and 5,000 at $8, then
A.
the price elasticity of demand is 0.44.
9.
A perfectly inelastic demand schedule
A. rises upward and to the right but has a constant slope.
6-4
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
AACSB: Knowledge Application
Acc e s s i bili t y :
Keyboard Navigation
Blooms: Understand
Di ff ic ul t y :
02 Medium
Learning Objective: 06-01 Discuss price elasticity of demand and how it is calculated.
Test Bank: I
Topic:
Price Elasticity of Demand
10.
The larger the coefficient of price elasticity of demand for a product, the
A.
larger the resulting price change for an increase in supply.
B.
more rapid the rate at which the marginal utility of that product diminishes.
11.
Most demand curves are relatively elastic in the upper-left portion because the original
price
A.
and quantity from which the percentage changes in price and quantity are calculated are
both large.
B.
and quantity from which the percentage changes in price and quantity are calculated are
both small.
12.
The price elasticity of demand for widgets is 0.80. Assuming no change in the demand
curve for widgets, a 16 percent increase in sales implies a
A.
1 percent reduction in price.
B.
12 percent reduction in price.
13.
Suppose Aiyanna's Pizzeria currently faces a linear demand curve and is charging a very
high price per pizza and doing very little business. Aiyanna now decides to lower pizza
prices by 5 percent per week for an indefinite period of time. We can expect that each
successive week,
A.
demand will become more price elastic.
B.
price elasticity of demand will not change as price is lowered.
14.
The price elasticity of demand of a straight-line demand curve is
D.
1 at all points on the curve.
6-6
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
Di ff ic ul t y :
02 Medium
Learning Objective: 06-01 Discuss price elasticity of demand and how it is calculated.
Test Bank: I
Topic:
Price Elasticity of Demand
15.
A leftward shift in the supply curve of product X will increase equilibrium price to a
greater extent the
A.
more elastic the supply curve.
B.
larger the elasticity of demand coefficient.
16.
If the demand for bacon is relatively elastic, a 10 percent decline in the price of bacon
will
A. decrease the amount demanded by more than 10 percent.
17.
The price elasticity of demand is generally
D.
positive because price and quantity demanded are inversely related.
6-7
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
AACSB: Knowledge Application
Acc e s s i bili t y :
Keyboard Navigation
Blooms: Understand
Di ff ic ul t y :
02 Medium
Learning Objective: 06-01 Discuss price elasticity of demand and how it is calculated.
Test Bank: I
Topic:
Price Elasticity of Demand
18.
For a linear demand curve,
A.
elasticity is constant along the curve.
B.
elasticity is unity at every point on the curve.
19.
The price of product X is reduced from $100 to $90 and, as a result, the quantity
demanded increases from 50 to 60 units. Therefore, demand for X in this price range
A.
has declined.
B.
is of unit elasticity.
20.
The diagram shows two product demand curves. On the basis of this diagram, we can say
that
D.
not enough information is given to compare price elasticities.
21.
Suppose we find that the price elasticity of demand for a product is 3.5 when its price is
increased by 2 percent. We can conclude that quantity demanded
A. increased by 7 percent.
6-9
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
Topic:
Price Elasticity of Demand
22.
The price elasticity of demand for beef is about 0.60. Other things equal, this means that
a 20 percent increase in the price of beef will cause the quantity of beef demanded to
A. increase by approximately 12 percent.
23.
If demand for a product is elastic, the value of the price elasticity coefficient is
A. zero.
24.
The concept of price elasticity of demand measures
A.
the slope of the demand curve.
B.
the number of buyers in a market.
6-10
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
Learning Objective: 06-01 Discuss price elasticity of demand and how it is calculated.
Test Bank: I
Topic:
Price Elasticity of Demand
25.
Refer to the diagram. Between prices of $5.70 and $6.30,
D.
D2 is more elastic than D1.
26.
Refer to the diagram and assume a single good. If the price of the good decreases from $6.30
to $5.70, consumer expenditure would
A. decrease if demand were D1 only.
27.
Refer to the diagram and assume a single good. If the price of the good increased from $5.70
to $6.30 along D1, the price elasticity of demand along this portion of the demand curve
would be
A. 0.8.
B. 1.0.
28.
Suppose the price of local cable TV service increased from $16.20 to $19.80 and as a
result the number of cable subscribers decreased from 224,000 to 176,000. Along this
portion
of the demand curve, price elasticity of demand is
A. 0.8.
6-13
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
29.
If the price of hand calculators falls from $10 to $9 and, as a result, the quantity
demanded increases from 100 to 125, then
D.
not enough information is given to make a statement about elasticity.
30.
A perfectly inelastic demand curve
A.
has a price elasticity coefficient greater than unity.
B.
has a price elasticity coefficient of unity throughout.
31.
If quantity demanded is completely unresponsive to price changes, demand is
D.
relatively elastic.
6-14
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
AACSB: Knowledge Application
Acc e s s i bili t y :
Keyboard Navigation
Blooms: Understand
Di ff ic ul t y :
02 Medium
Learning Objective: 06-01 Discuss price elasticity of demand and how it is calculated.
Test Bank: I
Topic:
Price Elasticity of Demand
32.
A firm can sell as much as it wants at a constant price. Demand is thus
A. perfectly inelastic.
33.
A demand curve that is parallel to the horizontal axis is
A. perfectly inelastic.
34.
Answer the question on the basis of the following demand schedule.
Price
Quantity
Demanded
$6
1
5
2
4
3
3
4
2
5
1
6
If this demand schedule were graphed, we would find that
A.
its slope diminishes as we move southeast down the curve.
B.
its slope diminishes as we move northwest up the curve.
35.
Answer the question on the basis of the following demand schedule.
Price
Quantity
Demanded
$6
1
5
2
4
3
3
4
2
5
1
6
The price elasticity of demand is relatively elastic
D.
in the $6–$5 price range only.
36.
Answer the question on the basis of the following demand schedule.
Price
Quantity
Demanded
$6
1
5
2
4
3
3
4
2
5
1
6
The price elasticity of demand is relatively inelastic
A.
in the $6–$4 price range.
B.
over the entire $6–$1 price range.
Type: Table
37.
Answer the question on the basis of the following demand schedule.
Price
Quantity
Demanded
$6
1
5
2
4
3
3
4
2
5
1
6
The price elasticity of demand is unity
A. throughout the entire price range, because the slope of the demand curve is constant.
38.
Answer the question on the basis of the following demand schedule.
Price
Quantity
Demanded
$6
1
5
2
4
3
3
4
2
5
1
6
Which of the following is correct?
D.
A steep slope means demand is inelastic; a flat slope means demand is elastic.
39.
In which price range of the accompanying demand schedule is demand elastic?
Price
Quantity
Demanded
4
2
3
4
2
6
1
8
D. below $1
6-19
40.
When the percentage change in price is greater than the resulting percentage change in
quantity demanded,
A.
a decrease in price will increase total revenue.
B.
demand may be either elastic or inelastic.
41.
Suppose the price elasticity coefficients of demand are 1.43, 0.67, 1.11, and 0.29 for
products W, X, Y, and Z, respectively. A 1 percent decrease in price will increase total
revenue
in the cases of
C.
X and Z.
D.
Z and W.
42.
Suppose that the total-revenue curve is derived from a particular linear demand curve. That
demand curve must be
D.
elastic for price increases that reduce quantity demanded from 8 units to 7 units.
