Economics Chapter 20—Consumer Choice and Elasticity
MULTIPLE CHOICE
1. If Santiago thinks the last dollar spent on jeans yields less satisfaction than the last dollar spent on
shoes, and Santiago is a utility-maximizing consumer, he should
a.
decrease his spending on shoes.
b.
decrease his spending on shoes and increase his spending on jeans.
c.
increase his spending on jeans.
d.
increase his spending on shoes and decrease his spending on jeans.
2. A 10 percent increase in the price of butter reduces butter consumption by about 5 percent. The
increase causes households to
a.
spend more on butter.
b.
spend less on butter.
c.
spend the same amount on butter.
d.
consume more goods like bread that are complements of butter.
3. Which of the following would be the best example of consumer surplus?
a.
Shaniqua does not get cell-phone service because she feels that it is worth less than the
$30 a month fee.
b.
Nicolas pays $8 for a haircut that is worth $10 to him.
c.
Diego buys a house for $104,000, the maximum amount that he would be willing to pay
for it.
d.
Isabella purchases a book for $20 and uses a credit card to pay for it.
4. “I like ice cream, but after eating homemade ice cream last night, I want to have something else for
dessert today.” This statement most clearly reflects
a.
the budget constraint.
b.
consumer irrationality.
c.
the second law of demand: price elasticity increases with time.
d.
the law of diminishing marginal utility.
5. If Camila’s income rises by 20 percent, and, as a result, she purchases 40 percent more dresses, her
income elasticity for dresses is
a.
0.5.
b.
1.0.
c.
2.0.
d.
Not enough information is given to answer this question.
6. Studies indicate that the demand for fresh tomatoes is much more elastic than the demand for salt.
These findings reflect that
a.
tomatoes are a necessity while salt is a luxury.
b.
it takes longer for consumers to adjust to a change in the price of salt than to a change in
the price of tomatoes.
c.
salt will not spoil as easily as fresh tomatoes.
d.
more good substitutes exist for fresh tomatoes than for salt.
7. Suppose the state of Colorado imposes a one dollar per pack tax on cigarettes, which increases their
price by 30 percent, and as a result, the quantity sold declines by 20 percent. The absolute value of the
price elasticity of demand for cigarettes is equal to
a.
0.20.
b.
0.67.
c.
1.50.
d.
3.00.
8. Suppose that the quantity of chain saws sold increased from 200 to 400 when the price fell from $225
to $175. Over this price range, the absolute value of the price elasticity of demand for chain saws is
a.
0.25.
b.
0.375.
c.
1.0.
d.
2.67.
e.
4.0.
9. If a sandwich shop near campus increases its prices by 5 percent, but revenues from its sales are
unchanged, the price elasticity of demand for the services offered by the sandwich shop must be
a.
elastic.
b.
of unitary elasticity.
c.
inelastic.
d.
equal to 0.5.
10. If the price of gasoline goes up, and Jacob now buys fewer candy bars because he has to spend more
on gas, this would best be explained by
a.
the substitution effect.
b.
the income effect.
c.
the highly elastic demand for gasoline.
d.
all of the above.
11. Samantha values the utility of her first cup of coffee at $1.00; a second cup, $0.75; and a third cup,
$0.50. If Samantha drinks three cups of coffee for breakfast, her marginal utility is equal to
a.
$0.50, the value of her last cup of coffee.
b.
$1.00, the value of her first cup of coffee.
c.
$2.25.
d.
$1.50.
12. Marginal utility is the change in
a.
total utility when an extra unit of output is produced.
b.
total utility when an extra unit of output is consumed.
c.
marginal utility when an extra unit of output is produced.
d.
average utility when an extra unit of output is consumed.
13. The principle of diminishing marginal utility says that
a.
as more of a good or service is consumed, demand will decrease.
b.
as more of a good or service is consumed, the price will rise.
c.
the marginal utility of additional units consumed will increase.
d.
the marginal utility of additional units consumed will decline.
14. Diminishing marginal utility means that
a.
as you consume more of a good, other things constant, the total satisfaction you obtain
from consuming this good tends to fall.
b.
as you hire more labor, other things constant, the total amount produced begins to fall.
c.
as you consume more of a good, other things constant, the additional satisfaction you
obtain from each additional unit of the good tends to fall.
d.
as you consume more of a good, other things constant, the extra satisfaction you obtain
from each additional unit becomes negative.
15. After eating six chocolate candy bars in ten minutes, Mia says, “You would have to pay me to eat
another chocolate candy bar!” This statement best illustrates
a.
the law of demand.
b.
the substitutability among goods.
c.
the law of diminishing marginal utility.
d.
that chocolate candy bars are an inferior good.
16. A local restaurant offers an “all you can eat” barbeque special. You pay $9.00, and then you can eat as
many servings as you desire at no additional cost. It would follow that you will stop eating when
a.
your marginal utility (or value) derived from eating another serving is zero.
b.
your total utility (or value) derived from all of the servings consumed just equals $9.00.
c.
your marginal utility (or value) derived from another serving equals $9.00.
d.
it is physically impossible for you to eat any more.
17. If the price of a good is $0, a consumer will
a.
consume an infinite quantity.
b.
consume all units with positive marginal utility.
c.
consume the entire amount supplied.
d.
consume until total utility becomes 0.
18. The fact that a gallon of gasoline commands a higher market price than a gallon of water indicates that
a.
gasoline is an economic good but water is not.
b.
the marginal utility of gasoline is greater than the marginal utility of a gallon of water.
c.
the average utility of a gallon of gasoline is greater than the average utility of a gallon of
water.
d.
the total utility of gasoline exceeds the total utility of water.
19. The marginal value of a commodity to a consumer
a.
increases as more of the good is consumed.
b.
is exactly equal to price for all units purchased by the consumer.
c.
is measured by the height of the individual consumer’s demand curve.
d.
is equal to the area above the price and below the individual consumer’s demand curve.
20. Ceteris paribus, an increase in the price of a good will cause the
a.
quantity demanded of the good to increase.
b.
quantity supplied of the good to decrease.
c.
consumer surplus derived from the good to decrease.
d.
demand of the good to increase.
21. The difference between the amount consumers would be willing to pay and the amount they actually
pay for a good is called
a.
price elasticity of demand.
b.
consumer surplus.
c.
the substitution effect.
d.
income elasticity of demand.
22. John’s demand schedule for pizza is indicated below. If the current price of pizza is $1.10 per slice,
what is John’s consumer surplus if he buys five slices of pizza?
Price
Q
(dollars)
(slices)
1.50
1
1.40
2
1.30
3
1.20
4
1.10
5
1.00
6
a.
$0
b.
$1.00
c.
$1.10
d.
$6.50
23. If Mason’s marginal benefit derived from the consumption of another candy bar is greater than the
price of the candy bar,
a.
Mason will not purchase any more candy bars.
b.
Mason will increase his total satisfaction by purchasing the candy bar.
c.
the opportunity cost of the candy bar is lower than the price.
d.
Mason will decrease his total utility if he purchases the candy bar.
24. If Melanie’s marginal benefit as a consumer in the jeans market is larger than the price of a pair of
jeans,
a.
Melanie will not purchase any more jeans.
b.
Melanie can benefit by purchasing more jeans.
c.
the opportunity cost of a pair of jeans is lower than the price.
d.
Melanie will decrease her total utility by purchasing more jeans.
25. If Ethan thinks the last dollar spent on bowling yields more satisfaction than the last dollar spent on
hamburgers, and Ethan is a utility-maximizing consumer, he should
a.
bowl less, so the marginal satisfaction from expenditures in this area will increase.
b.
spend more on hamburgers, so total satisfaction from that activity will increase.
c.
eliminate spending on hamburgers.
d.
bowl more and spend less on hamburgers.
26. If Noah thinks the last dollar spent on belts yields more satisfaction than the last dollar spent on socks,
and Smith is a utility-maximizing consumer, he should
a.
decrease his spending on socks.
b.
decrease his spending on socks and increase his spending on belts.
c.
increase his spending on belts.
d.
increase his spending on socks and decrease his spending on belts.
27. Consider a consumer who purchases two goods, X and Y. If the price of good Y falls, then the
substitution effect by itself will
a.
cause the consumer to buy more of good Y and less of good X.
b.
cause the consumer to buy more of good X and less of good Y.
c.
not affect the amount of goods X and Y that the consumer buys.
d.
result in an upward-sloping demand for good Y because of the substitution effect.
28. William likes Dr. Pepper and pork sandwiches. When the price of pork sandwiches rises, the
substitution effect causes Dr. Pepper to be relatively
a.
more expensive, so William buys more Dr. Pepper.
b.
more expensive, so William buys less Dr. Pepper.
c.
less expensive, so William buys more Dr. Pepper.
d.
less expensive, so William buys less Dr. Pepper.
29. Assume that a college student purchases only diet soda and potato chips. The substitution effect
associated with a decrease in the price of a potato chips will result in
a.
an increase in the consumption of diet soda only.
b.
a decrease in the consumption of diet soda only.
c.
an increase in the consumption of potato chips and a decrease in the consumption of diet
soda.
d.
a decrease in the consumption of potato chips and an increase in the consumption of diet
soda.
30. If the price of hamburger increases, the substitution effect works to
a.
decrease the quantity of hamburger supplied.
b.
increase the number of hamburger buns demanded.
c.
decrease the quantity of hamburger demanded.
d.
increase the number of hamburger buns supplied.
31. According to the income effect, when the price of automobiles rises, people buy fewer automobiles
because
a.
they substitute other forms of transportation for driving.
b.
the nominal amount of their paychecks is smaller.
c.
the purchasing power of their income is reduced.
d.
their demand for automobiles is very elastic.
32. When the price of a good falls, consumers buy more of the good because it is cheaper relative to
competing goods. This statement describes the
a.
consumer equilibrium effect.
b.
price effect.
c.
income effect.
d.
substitution effect.
33. An increase in the consumption of a good resulting from a reduction in price that makes the good
cheaper in relation to other goods is called the
a.
substitution effect.
b.
income effect.
c.
real balance effect.
d.
inelasticity effect.
34. An individual’s demand curve for a good is derived by
a.
varying the income level and observing the resulting total utility derived from both goods.
b.
varying the price of one good and observing the resulting quantities of the other good.
c.
shifting the budget line to the left and calculating the loss in total utility.
d.
varying the price of one good and observing the resulting quantities demanded of that
good.
35. The market demand for an item is
a.
the sum of individual demands.
b.
steeper for any given price change than the individual demand curves.
c.
independent of the number of individuals in the market.
d.
determined by dividing the quantity demanded by each individual by the number of
individuals in the market.
36. In economic theory, the word “demand” refers to
a.
the amount people are willing to purchase at various prices.
b.
those wants or needs that are urgent or pressing.
c.
wants that are economic in character rather than social, cultural, or spiritual.
d.
the desire of persons for a good, regardless of whether they’re willing to purchase the
good.
37. The schedule of the amount of a product that consumers would be willing to purchase at alternative
prices during a specific time period is the
a.
total utility schedule.
b.
marginal utility schedule.
c.
supply schedule.
d.
demand schedule.
38. Which of the following statements about demand is true?
a.
The demand curve for a group of consumers in a market is simply the horizontal
summation of each individual’s demand.
b.
The single demand curve shows the quantity of a good that people will buy, allowing all
factors (price, income, expected future prices, etc.) to vary.
c.
An increase in income will cause a person to move down and to the right along her
demand curve.
d.
All of the above are true.
39. How does the concept of elasticity allow us to improve upon our understanding of supply and
demand?
a.
Elasticity allows us to analyze supply and demand with greater precision than would be
the case in the absence of the elasticity concept.
b.
Without elasticity, we would not be able to address the direction in which price is likely to
move in response to a surplus.
c.
Without elasticity, we would not be able to address the direction in which price is likely to
move in response to a shortage.
d.
Without elasticity, it is very difficult to assess the degree of competition within a market.
40. Other things equal, the demand for a good tends to be more inelastic when
a.
there are fewer available substitutes.
b.
a longer time period is considered.
c.
the good is considered a luxury good.
d.
the market for the good is more narrowly defined.
41. The demand for Chocolate Chip Cookie Dough ice cream is likely quite elastic because
a.
ice cream must be eaten quickly.
b.
this particular flavor of ice cream is viewed as a necessity by many ice-cream lovers.
c.
the market is broadly defined.
d.
other flavors of ice cream are good substitutes for this particular flavor.
42. Along the inelastic portion of a demand curve,
a.
the change in price will always be less than the change in quantity demanded.
b.
the percentage change in price will be less than the percentage change in quantity
demanded.
c.
the change in price will always be more than the change in quantity demanded.
d.
the percentage change in price will be more than the percentage change in quantity
demanded.
43. If the elasticity of demand for cigarettes is 0.4, then an increase in the price of a pack of cigarettes
from $1.00 to $1.30 would reduce quantities demanded by about
a.
27 percent.
b.
40 percent.
c.
12 percent.
d.
95 percent.
44. If the price of apples decreases by 2 percent and causes apple consumption to increase by 4 percent,
the price elasticity of demand is ____, indicating the demand is ____.
a.
2; elastic
b.
2; inelastic
c.
0.5; elastic
d.
0.5; inelastic
45. If a 10 percent rise in price leads to a reduction in quantity demanded of more than 10 percent,
a.
demand is elastic.
b.
demand is inelastic.
c.
elasticity of demand is unitary.
d.
None of the above is correct.
46. For a particular good, a 3 percent increase in price causes a 10 percent decrease in quantity demanded.
Which of the following statements is most likely applicable to this good?
a.
The relevant time horizon is short.
b.
The good is a necessity.
c.
The market for the good is broadly defined.
d.
There are many close substitutes for this good.
47. When a good is more broadly defined (for example, Starbucks Caramel Macchiato versus coffee),
a.
it will have more available substitutes so demand will be more elastic.
b.
it will have more available substitutes so demand will be less elastic.
c.
it will have fewer available substitutes so demand will be more elastic.
d.
it will have fewer available substitutes so demand will be less elastic.
48. A successful advertising campaign would likely
a.
increase price elasticity of demand by stressing the uniqueness of the product.
b.
reduce price elasticity of demand by stressing the uniqueness of the product.
c.
reduce price elasticity of demand by informing consumers of the availability of substitutes.
d.
not alter the demand curve.
e.
generally make the demand curve shift inward.
49. When a good is more narrowly defined (for example, airline travel versus Delta Airlines travel),
a.
it will have fewer available substitutes so demand will be more elastic.
b.
it will have fewer available substitutes so demand will be less elastic.
c.
it will have more available substitutes so demand will be more elastic.
d.
it will have more available substitutes so demand will be less elastic.
50. A good that takes up a very large percentage of the consumer’s budget will tend to have
a.
an elastic demand.
b.
a perfectly elastic demand.
c.
an inelastic demand.
d.
an upward-sloping demand curve.
e.
very many substitutes.
51. The demand for salt is
a.
inelastic because there are few substitutes for salt and it represents a large percentage of a
consumer’s budget.
b.
inelastic because there are many substitutes for salt and it represents a large percentage of
a consumer’s budget.
c.
inelastic because there are few substitutes for salt and it represents a small percentage of a
consumer’s budget.
d.
elastic because there are no substitutes for salt and it represents a large percentage of a
consumer’s budget.
e.
elastic because there are many substitutes for salt and it represents a large percentage of a
consumer’s budget.
52. As people have more time to adjust to a price change,
a.
demand becomes more elastic, and supply becomes less elastic.
b.
demand becomes less elastic, and supply becomes more elastic.
c.
both supply and demand become less elastic.
d.
both supply and demand become more elastic.
e.
elasticity of both demand and supply tends toward unity.
53. If the price elasticity of demand is computed for two products, and product A measures 0.65, and
product B measures 1.3, then
a.
product A is more price elastic than product B.
b.
product B is more price elastic than product A.
c.
consumers are more sensitive to price changes in product A than in product B.
d.
product B is more price inelastic than product A.
e.
products A and B must be substitutes.
54. If demand price elasticity measures 2, this implies that consumers would
a.
buy twice as much of the product if the price drops 10 percent.
b.
require a 2 percent drop in price to increase their purchases by 1 percent.
c.
buy 2 percent more of the product in response to a 1 percent drop in price.
d.
require at least a $2 increase in price before showing any response to the price increase.
e.
buy twice as much of the product if the price drops 1 percent.
55. If the price elasticity of demand for opera tickets is estimated to be 4.5, then a 10 percent increase in
opera ticket prices would be expected to cause a
a.
4.5 percent decrease in quantity demanded.
b.
4.5 percent increase in quantity demanded.
c.
45 percent decrease in quantity demanded.
d.
45 percent increase in quantity demanded.
e.
450 percent increase in quantity demanded
56. Suppose the Pleasant Corporation cuts the price of its American Girl dolls by 10 percent, and as a
result, the quantity of the dolls sold increases by 25 percent. This indicates that the price elasticity of
demand for the dolls over this range is
a.
2.5.
b.
0.4.
c.
0.5.
d.
5.
e.
inelastic.
57. When the price of running shoes goes from $100 to $80, the quantity demanded increases from 20 to
30 million. Over this price range, the absolute value of the price elasticity of demand is
a.
0.55.
b.
1.
c.
1.25.
d.
1.80.
e.
2.50.
58. Suppose that Starbucks reduces the price of its premium coffee from $2.20 to $1.80 per cup, and as a
result, the quantity sold per day increased from 350 to 450. Over this price range, the absolute value of
the price elasticity of demand for Starbucks coffee is
a.
0.40.
b.
0.80.
c.
1.25.
d.
2.50.
e.
4.
59. If an increase in the excise tax imposed on cigarettes pushes the price per pack up by 20 percent, and
the quantity sold declines by 8 percent as a result, the price elasticity of demand for cigarettes is equal
to
a.
−0.2.
b.
−0.4.
c.
−0.8.
d.
−5.
60. If the quantity of cookies purchased decreases by 30 percent as the result of a 15 percent increase in
the price of oranges, the absolute value of the price elasticity of demand for cookies is
a.
0.25.
b.
0.50.
c.
1.25.
d.
2.0.
61. Suppose you are the manager of a local water company, and you are instructed to get consumers to
reduce their water consumption by 10 percent. If the price elasticity of demand for water is −.25, by
how much would you have to raise the price of water?
a.
10 percent
b.
25 percent
c.
40 percent
d.
100 percent
62. If the price of tickets to Disney World increases 10 percent, and as a result, attendance falls by 15
percent, the demand for the tickets is
a.
elastic.
b.
inelastic.
c.
of unitary elasticity.
d.
indeterminate.
63. If the quantity demanded increases by 20 percent in response to a 10 percent decrease in price, demand
is classified as
a.
unstable.
b.
relatively inelastic.
c.
relatively elastic.
d.
of unitary elasticity.
64. The price of soccer balls increases from $35 to $40, and as a result, the quantity demanded decreases
from 250 to 200. Over this price range,
a.
demand is elastic.
b.
demand is inelastic.
c.
demand is of unitary elasticity.
d.
there is insufficient information to determine the price elasticity of demand.
65. A local Krispy Kreme doughnut shop reduced the price of its doughnuts from $4 per dozen to $3.50
per dozen, and as a result, the daily sales increased from 300 to 400 dozen. This indicates that the price
elasticity of demand for the doughnuts was
a.
elastic.
b.
inelastic.
c.
of unitary elasticity.
d.
indeterminate; more information is needed to determine the price elasticity of demand.
66. If a demand curve for a good were completely vertical, it would be considered
a.
perfectly elastic.
b.
perfectly inelastic.
c.
of unitary elasticity.
d.
relatively inelastic.
67. If consumers would be willing to purchase the same quantity of a good no matter what its price was,
the demand curve would
a.
be a vertical line, and demand would be perfectly inelastic.
b.
be a horizontal line, and the demand would be perfectly elastic.
c.
not exist.
d.
be identical to the supply curve for the good.
68. The demand curve for a good is very unlikely to be perfectly vertical because
a.
scarcity and limited income restrict the ability of consumers to afford goods as they
become very expensive.
b.
as the price of a good rises to high enough levels, the incentive for other suppliers to
invent new substitutes for the good increases.
c.
consumers generally do not care about the price of the goods they consume.
d.
both a and b are true.
69. If a large percentage increase in the price of a good results in a small percentage reduction in the
quantity demanded of the good, demand is said to be
a.
of unitary elasticity.
b.
relatively inelastic.
c.
relatively elastic.
d.
perfectly elastic.
70. When economists say the demand for a good is highly inelastic, they mean that
a.
even if the price rose substantially, suppliers would be unwilling to offer much more of the
good.
b.
the facilities utilized by producers of the good are inflexible; producers cannot easily
expand their facilities, even in the long run.
c.
consumers will respond to a change in the price of the good by purchasing substantially
more of it.
d.
a large (percentage) change in the price of a good will result in only a small (percentage)
change in the quantity demanded.
71. If the demand for flashlights is highly inelastic, this indicates that
a.
higher flashlight prices will increase the demand for flashlights.
b.
the price elasticity of demand for flashlights is greater than 1.
c.
the price elasticity of demand for flashlights equals 1.
d.
the quantity of flashlights purchased by consumers is not very responsive to a change in
the price of flashlights.
72. The price elasticity of demand for gasoline measures the
a.
responsiveness of gasoline producers to changes in the quality of gasoline.
b.
responsiveness of customers to changes in the price of gasoline.
c.
responsiveness of consumer preferences to changes in the quality of gasoline.
d.
both a and c above.
73. Why do economists use the concept of elasticity in addition to measurement of the slope of the
demand curve?
a.
Mathematical equations are favored over graphical analysis.
b.
Elasticities are independent of the units of measure.
c.
The concept of elasticity can be used in other areas of economics, whereas the slope of the
demand curve is only useful in demand analysis.
d.
These terms are interchangeable, but elasticity has the more professional sound.
74. Holding all other forces constant, when the price of gasoline rises, the number of gallons of gasoline
demanded would fall substantially over a ten-year period because
a.
buyers tend to be much less sensitive to a change in price when given more time to react.
b.
buyers tend to be much more sensitive to a change in price when given more time to react.
c.
buyers will have substantially more income over a ten-year period.
d.
the quantity supplied of gasoline increases very little in response to an increase in the price
of gasoline.
75. When the price elasticity of demand is large, then
a.
the product is more likely to be a necessity.
b.
the responsiveness of quantity demanded to a change in price is small.
c.
the percentage change in price divided by the percentage change in quantity demanded is
large.
d.
the responsiveness of quantity demanded to a change in price is large.
76. Residents of Leon County have developed a strong liking for barbeque pork sandwiches. Residents of
Bay County buy the same amount of barbeque pork sandwiches but believe beef sandwiches are just
about as good. From this, we can infer that
a.
residents of Leon County will not care what the price of barbeque pork sandwiches is.
b.
compared to residents of Leon County, residents of Bay County will have a smaller price
elasticity of demand for barbeque pork sandwiches.
c.
compared to residents of Leon County, residents of Bay County will have a larger price
elasticity of demand for barbeque pork sandwiches.
d.
residents of Leon County will increase their purchases by a larger amount for beef
sandwiches than residents of Bay County in response to a “50 cents off” sale on beef
sandwiches.
77. The price elasticity of demand for a commodity is determined primarily by the
a.
size of the consumer surplus.
b.
attractiveness of the substitutes for the good.
c.
incomes of consumers.
d.
availability of complementary goods.
78. Demand will be more inelastic when
a.
the time the consumer has to adjust to price changes is short.
b.
the price of the good is high.
c.
the number of good substitutes is large.
d.
the consumption of the good is not very essential.
79. Compared to the long run, consumers typically ____ to price changes in the short run.
a.
are very responsive
b.
are more demand sensitive
c.
are less demand sensitive
d.
do not respond at all
e.
overreact
80. Demand will be more elastic when
a.
the time the consumer has to adjust to price changes is short.
b.
the price of the good is low.
c.
the number of good substitutes is large.
d.
the consumption of the good is essential.
81. The demand for a product is likely to be more elastic when
a.
the share of the total budget spent on the product is small.
b.
more complementary products are available.
c.
the consumer has a short time to adjust to price changes.
d.
more good substitutes for the product are available.
82. Other things constant, the price elasticity of demand for a product will tend to be smaller (more
inelastic) if
a.
people spend a large share of their income on the product.
b.
people spend an insignificant share of their income on the product.
c.
the population in the market area is large.
d.
there are many good substitutes for the product.
83. If you compared the short-run demand and long-run demand for education at your college, you would
almost certainly find that
a.
the long-run demand curve was steeper than the short-run demand curve.
b.
a tuition increase would reduce enrollment more in the long run than in the short run.
c.
a reduction in tuition would increase enrollment in the short run but not in the long run.
d.
the short-run and long-run demand curves were identical.
84. If the demand for a good is elastic, then total revenue
a.
increases as price increases.
b.
remains constant as quantity demanded increases.
c.
increases as price decreases.
d.
decreases as quantity demanded increases.
e.
decreases as price decreases.
85. If the price of tuna fish increases from 50 cents to 60 cents per can and the quantity demanded
decreases from 100 cans to 50 cans, then the tuna fish producer could increase its total revenue by
a.
lowering price.
b.
decreasing quantity supplied.
c.
leaving price the same.
d.
raising price.
e.
decreasing supply.
86. Which of the following describes a situation in which demand must be elastic?
a.
The price of dish soap rises by 10 cents, and quantity of dish soap demanded falls by 50.
b.
The price of dish soap rises by 10 cents, and total revenue rises.
c.
A 20 percent increase in the price of dish soap leads to a 20 percent decrease in the
quantity of dish soap demanded.
d.
Total revenue does not change when the price of dish soap rises.
e.
Total revenue decreases when the price of dish soap rises.
87. Which of the following describes a situation in which demand must be inelastic?
a.
The price of vitamins rises by 10 cents, and quantity of vitamins demanded falls by 50.
b.
The price of vitamins rises by 10 cents, and total revenue rises.
c.
A 20 percent increase in the price of vitamins leads to a 20 percent decrease in the quantity
of vitamins demanded.
d.
Total revenue does not change when the price of vitamins rises.
e.
Total revenue decreases when the price of vitamins rises.
88. Which of the following describes a situation in which demand must be inelastic?
a.
Total revenue decreases by 10 percent when the price of jeans rises by 10 percent.
b.
Total revenue decreases by less than 10 percent when the price of jeans rises by 10
percent.
c.
Total revenue increases by more than 10 percent when the price of jeans rises by 10
percent.
d.
Total revenue decreases by $10 when the price of jeans rises by $10.
e.
Total revenue decreases by more than $10 when the price of jeans rises by $10.
89. If the price of gloves increases, total expenditures on gloves will decline if
a.
the demand for gloves is inelastic.
b.
the demand for gloves is elastic.
c.
the quantity of gloves purchased is unresponsive to changes in price.
d.
there are few good substitutes for gloves.
90. If a Pizza Hut restaurant near campus reduces its pizza prices by 15 percent, and as a result, its total
revenue from pizza sales increases, this indicates that the price elasticity of demand was
a.
elastic.
b.
of unitary elasticity.
c.
inelastic.
d.
equal to 0.15.
91. A 20 percent increase in the price of flour reduces flour consumption by about 10 percent. Such a price
increase causes households to
a.
spend less on flour.
b.
spend more on flour.
c.
spend the same amount on flour as before.
d.
consume more goods like salt and baking powder, which are flour complements.
92. Suppose a city that operates local electric and natural gas companies wants to raise revenues by
increasing its rates for electricity and natural gas. The price rise will increase city revenues if the
elasticity of demand for electricity and natural gas is
a.
inelastic.
b.
elastic.
c.
negative.
d.
equal to −1.
93. A recent study on enrollment at a liberal arts college concluded that demand elasticity is 0.65. The
administration is considering a tuition increase to help balance the budget. The revenue-maximizing
decision is to
a.
decrease tuition, which should boost enrollment enough to balance the budget.
b.
decrease tuition, which would bring in more revenue.
c.
leave tuition as is-an increase would not help balance the budget.