236.
Refer to the above graph. Consider a situation where price decreases from P2 to P1. In this
price range, demand is relatively
237.
Refer to the figure above. At the equilibrium point in this market, the sellers’ total revenues
are equal to
238.
In the figure above, if the equilibrium price of the product increased from $5 to the present
price of $6 due to a supply shift, then total revenue would have
A.
increased by $300.
239.
You are the sales manager for a software company and have been informed that the
price elasticity of demand for your most popular software is less than 1. In order to increase
total
revenues from that product, you should
D.
increase the supply of the software.
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Blooms: Understand
Di f f i cu l t y :
02 Medium
Learning Objective: 06–02 Explain the usefulness of the total-revenue test for price
elasticity of demand.
Test Bank: II
Topic: The Total-Revenue Test
240.
A firm produces and sells two goods, A and B. Good A is known to have many close
substitutes; good B makes up a significant portion of most families’ budgets. From these
facts,
we would expect that the demand for Good A would be _, while that of Good B
would be .
D.
inelastic; elastic
241.
A firm produces and sells two goods, A and B. Good A is known to have many close
substitutes; good B makes up a significant portion of most families’ budgets. A price increase
for each good would most likely cause total revenues from good A to
A.
increase and total revenues from good B to decrease
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242.
In some markets consumers may buy many different brands of a product. Which of the
statements below best represents a situation where demand for a particular brand would be
very elastic?
D.
“I pinch pennies in buying other products, but like most people, I feel I owe it to myself to
get the best brand of this product.“
243.
Which of the following is not characteristic of a product with relatively inelastic
demand?
A. The good is regarded by consumers as a necessity.
244.
What is the most likely effect of the development of rental movies and online movie
streaming on the movie theater (or cinema) industry?
A.
decreased costs of producing movies
B.
increased demand for movie theater tickets
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C.
movie theater tickets become an inferior good
D.
increased price elasticity of demand for movie theater tickets
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Blooms: Remember
Di f f i c u lty:
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: II
Topic: Determinants of Price Elasticity of Demand
245.
The demand for Cheerios cereal is more price-elastic than the demand for cereals as a
whole. This is best explained by the fact that
A.
Cheerios are a luxury.
246.
Which of the following factors will make the demand for a product relatively elastic?
A. There are few substitutes.
247.
The price elasticity of demand increases with the length of the period considered
because
A.
consumers‘ incomes will increase over time.
248.
You are the only seller of eggs in town, and the price-elasticity coefficient for eggs is
known to be 0.8. If you want to increase your sales quantity by 10 percent through a price
change, what should you do to price?
D.
reduce price by 8 percent
249.
Which product is most likely to be the most price elastic?
A.
milk
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Blooms: Remember
Di f f i c u lty:
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: II
Topic: Determinants of Price Elasticity of Demand
250.
If in the short run the demand for mass transit is inelastic and in the long run the demand
is elastic, then a price
A. increase will decrease total revenue in the short run but increase total revenue in the long
run.
251.
A study of mass-transit systems in American cities revealed that in the long run,
revenues generally decline after substantial fare increases. This would suggest that
D.
there are few good substitutes for such systems in urban areas.
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Topic: Determinants of Price Elasticity of Demand
252.
The Bear Corporation finds that its total spending on machine parts increases after the
price of machine parts falls, other things being equal. Which of the following is true about
the
Bear Corporation’s demand for machine parts with the price change?
253.
You are the newly appointed sales manager of the Rock Computer Tablets Company
and have been charged with the task of increasing revenues. Your economics consultants
have
informed you that at present price and output levels, price elasticity of demand for
your product is less than one. You should
A. decrease prices.
254.
If demand for farm crops is inelastic, a good harvest will cause farm revenues to
A.
increase because of the increase in the quantity that farmers can sell.
B.
increase because of a downward movement along the supply curve, encouraging an
increase in demand.
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C.
decrease because of a percentage fall in price that is greater than the percentage increase
in quantity sold.
D. remain unchanged, because the increase in quantity that can be sold will be matched by
an equal decrease in price.
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Blooms: Remember
Di f f i c u lty:
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: II
Topic: Determinants of Price Elasticity of Demand
255.
A union argues that a price cut will boost the revenues of the firm, while management
argues that the opposite is true. This suggests that the price elasticity of demand is
A.
unit-elastic from the union’s perspective and unit–inelastic from management‘s
256.
If the demand for a product is elastic, then
A. a higher tax on the product will generate more tax revenue.
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Learning Objective: 06–03 List the factors that affect price elasticity of demand and
describe some applications of price elasticity of demand.
Test Bank: II
Topic: Determinants of Price Elasticity of Demand
257.
Sony is considering a 10 percent price reduction on its HD TV sets. If the price-
elasticity coefficient for the sets in this price range is 0.75, then the price cut will cause
A. sales quantity to increase and revenues to also increase.
258.
The price elasticity of demand for a textbook is estimated to be 1 no matter what the
price or quantity demanded. In this case,
A. a 10 percent increase in price will result in a 10 percent increase in total revenues.
259.
An increase in the price of tickets to a popular sporting event will increase total
revenue if
A.
there are many substitutes for this form of entertainment.
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B.
the ticket is considered to be a luxury.
C.
the buyers of the tickets are fanatic about the event.
D. the fans are price conscious.
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Blooms: Remember
Di f f i c u lty:
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: II
Topic: Determinants of Price Elasticity of Demand
260.
A state government wants to increase the taxes on cigarettes to increase tax revenue.
Because cigarettes are addictive, we would expect its demand to be
A.
elastic. Thus, the government’s cigarette–tax revenues would rise with a tax increase.
261.
An auto rental company lowers the price of its rentals to increase its market share. The
price cut increases quantity demanded, but total revenue decreases. This result suggests that
over this price range, the demand for the auto rentals is
A. elastic.
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describe some applications of price elasticity of demand.
Test Bank: II
Topic: Determinants of Price Elasticity of Demand
262.
Considering the price-elasticity of demand for wheat, we would expect that if the
supply of wheat increases, other factors constant, then wheat farmers’ total revenues would
A. increase because the demand is price-inelastic.
263.
If the government imposes an excise tax on a good, it will collect the most tax revenues
from it if the demand for the good is
A. elastic.
264.
If the government tightens up on drug dealers and raises the costs of dealing illegal
drugs, then the drug addicts’ dollar expenditures to feed their addiction will tend to
A.
increase because their demand is price-elastic.
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D.
increase because their demand is price-Inelastic.
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Blooms: Remember
Di f f i c u lty:
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: II
Topic: Determinants of Price Elasticity of Demand
265.
If sellers could price-discriminate and charge two different prices to two different
groups of buyers in order to increase revenues, then the sellers would charge
A. a higher price to the buyers whose demand is elastic.
266.
Movie theaters charge lower prices to see a movie in the afternoon than in the evening
because there is an
6-135
267.
When universities announce a large tuition increase and follow it with an announcement
that more financial aid will be available, they are assuming that students who pay full tuition
A. have elastic demand and students who use financial aid have inelastic demand.
268.
The coefficient of price-elasticity of supply for a product is 2 if
A.
a 1 percent decrease in the price causes a 0.2 percent decrease in quantity supplied.
269.
The law of supply suggests that the price-elasticity of supply is
D.
always less than 1.
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Blooms: Understand
Di f f i cu l t y :
02 Medium
Learning Objective: 06–04 Describe price elasticity of supply and how it can be applied.
Test Bank: II
Topic: Price Elasticity of Supply
270.
Suppose the price elasticity of supply for crude oil is 2.5. How much would price have
to rise to increase production by 20 percent?
D.
45 percent
271.
In the graph above, what is the price elasticity of supply (using the midpoint formula)
between points A and B?
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C.
2
D. 1/3
AACSB: Knowledge Application
Blooms: Understand
Di f f i cu l t y :
02 Medium
Learning Objective: 06–04 Describe price elasticity of supply and how it can be applied.
Test Bank: II
Topic: Price Elasticity of Supply
272.
In the graph above, what would happen to price and to total revenue if the equilibrium
moved from point B to point A?
273.
If a product has a short-run elasticity of supply equal to zero, then an increase in the
demand for the product will
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A. have no effect on price or quantity sold.
B.
increase price and leave quantity sold unchanged.
C.
increase price and reduce the quantity sold to zero.
D.
leave the price unchanged and reduce the quantity sold.
274.
If a college admits only a fixed number of applicants every year, then the school’s
supply curve for admissions is
275.
In the immediate market period for a highly perishable crop like tomatoes, the
individual farmer‘s supply curve tends to be
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Di f f i cu l t y :
02 Medium
Learning Objective: 06–04 Describe price elasticity of supply and how it can be applied.
Test Bank: II
Topic: Price Elasticity of Supply
276.
The following data relate to the supply schedule of a product.
Price
($ Per
Unit)
Quantity Supplied
(Units Per Week)
5
100
10
200
15
250
20
300
25
350
30
500
Over which of the following price ranges is the price-elasticity of supply greater than 1?
A. $10 to $15
277.
At a price of $4 per unit, Gadgets Inc. is willing to supply 20,000 gadgets, while United
Gadgets is willing to supply 10,000 gadgets. If the price were to rise to $8 per unit, their
respective quantities supplied would rise to 45,000 and 25,000. If these are the only two
firms supplying gadgets, what is the elasticity of supply in the market for gadgets?
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Di f f i cu l t y :
02 Medium
Learning Objective: 06–04 Describe price elasticity of supply and how it can be applied.
Test Bank: II
Topic: Price Elasticity of Supply
278.
A price increase from $43 to $49 results in an increase in quantity supplied from 220
units to 240 units. The price elasticity of supply in this price range is
279.