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for the initial purchase of the software. This implies that Microsoft views the demand curve
for the software upgrade to be
D.
of less value than the original software.
159.
(Last Word) Which of the following is not an example of pricing based on group
differences in elasticity of demand?
160.
(Last Word) Based on the concept of price elasticity of demand, which of the following
cases is most likely to occur?
A.
golf courses charging higher prices for golf during the week than on weekends
6-82
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
Blooms: Remember
Di f fi c ult y :
01 Easy
Learning Objective: 06-03 List the factors that affect price elasticity of demand and
describe some applications of price elasticity of demand.
Test Bank: I
Topic:
Price Elasticity of Demand
True / False Questions
161.
A linear demand curve has a constant elasticity over the full range of the curve.
162.
The greater the ease of shifting resources from product X to product Y in the production
process, the greater is the elasticity of supply of product Y.
163.
If the elasticity coefficient of supply is 0.7, supply is elastic.
6-83
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 Supply
164.
Antiques tend to have highly inelastic supply curves.
165.
The smaller the number of good substitutes for a product, the greater will be the price
elasticity of demand for it.
166.
If the demand for wheat is highly price inelastic, an extraordinarily large crop may
reduce farm incomes.
6-84
167.
Generally speaking, the demand for luxury goods is more price elastic than is the
demand for necessities.
168.
Generally speaking, the smaller the percentage of one's total budget devoted to a
particular product, the more price elastic will be the demand for that product.
169.
If price and total revenue are directly related, demand is inelastic.
170.
If price changes and total revenue changes in the opposite direction, demand is
relatively elastic.
6-85
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
TRUE
AACSB: Knowledge Application
Acc e s s i bi l i t y :
Keyboard Navigation
Blooms: Understand
Di f f i cu lt y :
02 Medium
Learning Objective: 06-02 Explain the usefulness of the total-revenue test for price
elasticity of demand.
Test Bank: I
Topic:
The Total-Revenue Test
171.
Quantity Demanded Per
Month
Price
Quantity Supplied Per Month
30
$8
44
36
7
38
42
6
30
50
5
20
On the basis of the above demand and supply data, the demand for this product is elastic in
the $8–$7 price range.
172.
Quantity Demanded Per
Month
Price
Quantity Supplied Per Month
30
$8
44
36
7
38
42
6
30
50
5
20
On the basis of the above demand and supply data, the supply of this product is inelastic in
the $6–$5 price range.
173.
Cross elasticity of demand measures the effect of a change in the price of one product
on the quantity demanded of another product.
174.
Income elasticity measures the effect of a change in income on the purchases of some
good or service.
175.
If the coefficient of income elasticity of demand is positive, the product is an inferior
good.
176.
If the coefficient of cross elasticity of demand is positive, the two products are
complementary goods.
177.
An income elasticity coefficient of −1.8 means the product is a normal good.
178.
A cross elasticity of demand coefficient of +2.5 indicates that the two products are
substitutes.
6-88
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 bi l i t y :
Keyboard Navigation
Blooms: Apply
Di f f ic u l t y :
03 Hard
Learning Objective: 06-05 Apply cross elasticity of demand and income elasticity of
demand.
Topic: Cross Elasticity and Income Elasticity of Demand
179.
We would expect the coefficient of cross elasticity of demand for DVD players and
DVDs to be positive.
Multiple Choice Questions
180.
The price elasticity of demand is a measure of the
A.
effect of changes in demand on the price.
181.
The price-elasticity of demand coefficient, Ed, is measured in terms of
6-89
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 bi l i t y :
Keyboard Navigation
Blooms: Understand
Di f f i cu lt y :
02 Medium
Learning Objective: 06-01 Discuss price elasticity of demand and how it is calculated.
Test Bank: II
Topic: Price Elasticity of Demand
182.
We use the midpoint formula in computing the price elasticity of demand coefficient in
order to
183.
The price-elasticity of demand is always negative because of
184.
We use percentage changes in the formula for estimating the price elasticity of demand
coefficient in order to
A.
make the coefficient's value become independent of whether price goes up or down.
B.
take the midpoints of P and of Q in the computation.
6-90
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
C.
eliminate the negative sign of the coefficient.
D.
make it irrelevant how we measure price: be it in cents, in dollars, or in thousands of
dollars.
AACSB: Knowledge Application
Acc e s s i bi l i t y :
Keyboard Navigation
Blooms: Understand
Di f f i cu lt y :
02 Medium
Learning Objective: 06-01 Discuss price elasticity of demand and how it is calculated.
Test Bank: II
Topic: Price Elasticity of Demand
185.
When the price of a product is increased 10 percent, the quantity demanded decreases
15 percent. The price-elasticity of demand coefficient for this product is
186.
In interpreting the Ed value as either elastic or inelastic, we look at the
187.
If the price-elasticity coefficient for a good is 1.75, the demand for that good is
described as
188.
When the price of a product is increases by 15 percent, the quantity demanded
decreases by 10 percent. We can therefore conclude that the demand for this product is
189.
Blossom, Inc., sells 500 bottles of perfume a month when the price is $7. A huge
increase in resource costs forces Blossom to raise the price to $9, and the firm only manages
to sell
460 bottles of perfume. Using the midpoint formula, the price elasticity of demand
coefficient is
6-92
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
Di f f i cu lt y :
02 Medium
Learning Objective: 06-01 Discuss price elasticity of demand and how it is calculated.
Test Bank: II
Topic: Price Elasticity of Demand
190.
If the price elasticity of demand for a product is equal to 0.5, then a 10 percent decrease
in price will increase quantity demanded by
191.
The price of season tickets to a performing arts theater decreases by 3 percent. As a
result, the quantity demanded increases by 6 percent. The price elasticity of demand for
season
tickets is
192.
The price elasticity of demand for a popular sporting event is 1.2. If the price of a ticket
to this event increases by 10 percent, the quantity of tickets demanded will
D.
increase by 8.3 percent.
193.
Refer to the graph above. Which demand curve is relatively most elastic between P1 and
P2?
6-94
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written consent of McGraw-Hill Education.
Test Bank: II
Topic: Price Elasticity of Demand
194.
Refer to the graph above. Which demand curve is perfectly inelastic?
195.
Suppose you are given the following data on demand for a product. The price elasticity
of demand (based on the midpoint formula) when price decreases from $9 to $7 is
Price
Quantity Demanded
6-95
$10
30
9
40
8
50
7
60
6
70
A. 0.63.
196. When the price of candy bars decreased from $0.55 to $0.45, the quantity demanded
changed from 19,000 per day to 21,000 per day. In this price range, the price-elasticity
coefficient (based on the midpoint formula) for candy bars is
A.
1.
197.
Refer to the graphs above. A price increase from $20 to $40 causes quantity demanded to
decrease from 100 units to 50 units. Which graph best illustrates the demand for this good?
198.
Refer to the graphs above. Which one shows a perfectly elastic demand?
199.
Refer to the graphs above. Which one shows demand with a price-elasticity coefficient equal
to zero?
200.
Refer to the graphs above. Which one shows a situation where buyers are all willing to pay
one uniform price for the product?
6-98
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written consent of McGraw-Hill Education.
C.
graph C
D.
graph D
201. If an increase in the supply of a product in the market results in a decrease in price, but
no change in the quantity traded, then
202.
Answer the question based on the following data.
Price
Per
Unit
Quantity Demanded
Per
Unit of Time
$20
12
18
17
16
20
14
24
12
30
10
36
8
40
6
44
4
48
Over which of the following price ranges is the demand unit-elastic?
203.
Answer the question based on the following data.
Price
Per
Unit
Quantity Demanded
Per
Unit of Time
$20
12
18
17
16
20
14
24
12
30
10
36
8
40
6
44
4
48
What is the price elasticity of demand over the range of $8 to $10?
A. 0.11
6-100
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written consent of McGraw-Hill Education.
Topic: Price Elasticity of Demand
204.
A straight-line downward-sloping demand curve has a price elasticity of demand which
205.
Along a linear downward-sloping demand curve, the price elasticity of demand will be
A.
greater than one across each price range.
