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56) If a 5 percent decrease in income leads to a 15 percent decrease in the demand for a good, the
income elasticity of demand equals
A) -1/3 and the good is an inferior good.
B) 1/3 and demand for the good is income elastic.
C) 3 and the good is a normal good.
D) -3 and the demand for the good is income inelastic.
E) 3 and the good is an inferior good
57) When income increases from $20,000 to $30,000 the quantity of inter-city bus trips taken per
year decreases from 10 to 8. Hence
A) inter-city bus trips are a normal good.
B) the income elasticity of demand for inter-city bus trips is -1.8.
C) the income elasticity of demand for inter-city bus trips is -0.56.
D) Both answers A and B are correct.
E) Both answers A and C are correct.
58) The income elasticity of demand for foreign travel
A) is likely to be smaller than the income elasticity of demand for food.
B) is likely to be larger than the income elasticity of demand for food.
C) cannot be compared to the income elasticity of demand for food.
D) is likely to be inelastic.
E) is likely to be negative.
59) The lower the level of income in a country, the
A) less income elastic is the demand for food.
B) more income elastic is the demand for food.
C) more negative the income elasticity of the demand for food.
D) Both answers A and C are correct.
E) Both answers A and B are correct.
60) The measure used to determine whether two products are complements or substitutes is
called the
A) price elasticity of supply.
B) cross elasticity of demand.
C) price elasticity of demand.
D) income elasticity.
E) substitute elasticity of demand.
61) If beef and pork are substitutes for consumers, the cross elasticity of demand between the
two products must be
A) negative.
B) positive.
C) indeterminate.
D) elastic.
E) greater than 1.
62) When the price of a pizza is $10, the quantity of soda demanded is 300 drinks. When the
price of a pizza is $15, the quantity soda demanded is 100 drinks. The cross elasticity of demand
is equal to
A) -0.25.
B) -0.40.
C) -2.50.
D) -25.00.
E) 4.00.
63) When the price of going to a movie rises 5 percent, the quantity of DVDs demanded
increases 10 percent. The cross elasticity of demand equals
A) 10.0.
B) 0.50.
C) -0.50.
D) -2.0.
E) 2.0.
64) If two goods have a cross elasticity of demand of -2, then when the price of one good
increases, the demand curve of the other good
A) shifts rightward.
B) shifts leftward.
C) remains unchanged and the supply curve also remains unchanged.
D) might shift rightward, leftward, or remain unchanged.
E) remains unchanged but the supply curve shifts leftward.
65) The income elasticity of demand is the percentage change in the ________ divided by the
percentage change in ________.
A) quantity demanded; the price of a substitute or complement
B) quantity supplied; price
C) quantity demanded; price
D) quantity demanded; income
E) quantity demanded when income changes; the quantity supplied
66) When income increases from $20,000 to $30,000 the number of home delivered pizzas per
year increases from 22 to 40. The income elasticity of demand for home delivered pizza equals
A) 1.45.
B) 0.69.
C) 0.58.
D) 0.40.
E) 2.86.
67) When income increases by 6 percent, the demand for potatoes decreases by 2 percent. The
income elasticity of demand for potatoes equals
A) -2.00.
B) 3.00.
C) -3.00.
D) 0.33.
E) -0.33.
68) When income increases from $30,000 a year to $40,000 a year, the quantity demanded of
weekend vacations by Sara increases from 2 a year to 5 a year. For Sara, the income elasticity of
demand of weekend vacations is ________ and weekend vacations are ________ good.
A) 3; a normal
B) 4.5 a normal
C) 1/3; an inferior
D) -4.5; an inferior
E) 1/3; a normal
69) If a product is a normal good, then its income elasticity of demand is
A) zero.
B) positive.
C) negative.
D) indeterminate.
E) greater than 1.
70) The income elasticity of demand for used cars is less than zero. So, used cars are
A) an inferior good.
B) a normal good.
C) an inelastic good.
D) a perfectly inelastic good.
E) a substitute good.
71) An inferior good has a ________ elasticity of demand.
A) positive income
B) negative income
C) negative cross
D) positive cross
E) negative price
5.4 Chapter Figures
1) The demand curve shown in the figure above reflects demand that is
A) perfectly elastic.
B) perfectly inelastic.
C) unit elastic.
D) elastic but not perfectly elastic.
E) inelastic but not perfectly inelastic.
2) The demand curve shown in the figure above reflects demand that is
A) perfectly elastic.
B) perfectly inelastic.
C) unit elastic.
D) elastic but not perfectly elastic.
E) inelastic but not perfectly inelastic.
3) The demand curve shown in the figure above is ________ over the price range from $95 to
$105 per trip.
A) perfectly elastic
B) perfectly inelastic
C) unit elastic
D) elastic but not perfectly elastic
E) inelastic but not perfectly inelastic
4) The demand curve shown in the figure above is ________ over the price range from $0.90 to
$1.10 per pack.
A) perfectly elastic
B) perfectly inelastic
C) unit elastic
D) elastic but not perfectly elastic
E) inelastic but not perfectly inelastic
5) The demand curve shown in the figure above is ________ over the price range from $95 to
$105 per unit.
A) perfectly elastic
B) perfectly inelastic
C) unit elastic
D) elastic but not perfectly elastic
E) inelastic but not perfectly inelastic
The figure above shows the demand curve for Starbucks latte.
6) Using the figure above, suppose Starbucks charges $4.50 per cup for its latte. Which of the
following is true?
i. At this price, the demand for Starbucks latte is elastic.
ii. If Starbucks lowers the price of its latte, its revenue will decrease.
iii. If Starbucks raises the price of its latte, the demand for it will become less elastic.
A) Only iii
B) Only i
C) Only ii
D) i and ii
E) i and iii
7) In the figure above, at the point where the price is $4 per cup the price elasticity of demand is
A) 2.
B) 0.5.
C) 1.
D) 1.5.
E) 0.
8) In in the figure above, when the price falls from $5 to $4, the price elasticity of demand is
A) 2.
B) 3.
C) 0.75
D) 1.5.
E) 0.33
9) In in the figure above, when the price rises from $3 to $4, the price elasticity of demand is
A) 1.4.
B) 2.
C) 0.71
D) 0.4.
E) 1
10) Refer to the figure above. Suppose Starbucks charges $3.50 per cup for its latte. Which of the
following is true?
i. At this price, the demand for Starbucks latte is inelastic.
ii. If Starbucks raises the price of its latte, its revenue will increase.
iii. If Starbucks lowers the price of its latte, it will increase its revenue.
A) Only iii
B) Only i
C) Only ii
D) i and ii
E) i and iii
The figure above shows the demand curve for Starbucks latte.
11) In the figure above, the demand is elastic in the range of prices between
A) $3.50 and $4.50 per cup.
B) $2.50 and $3.50 per cup.
C) $1.00 and $2.00 per cup.
D) $2.00 and $4.00 per cup.
E) $1.75 and $2.75 per cup.
12) In the figure above, the demand is unit elastic
A) at the point where the price is $3.00 per cup.
B) at the point where the price is $2.00 per cup.
C) at the point where the price is $4.00 per cup.
D) at the point where the price is $2.50 per cup.
E) at all points along the demand curve.
13) In the figure above, the demand is inelastic in the range of prices between
A) $3.50 and $4.50 per cup.
B) $2.50 and $3.50 per cup.
C) $1.00 and $2.00 per cup.
D) $2.25 and $4.50 per cup.
E) $2.75 and $3.75 per cup.
14) Suppose Starbucks currently charges $3.25 per cup for its latte. If Starbucks lowers the price
to $3.00 per cup, based on the demand curve in the figure above, its total revenue will ________
because the demand for Starbucks latte is ________ over this price range.
A) increase; elastic
B) decrease; elastic
C) increase; inelastic
D) increase; elastic
E) not change; unit elastic
15) Suppose Starbucks currently charges $2.50 per cup for its latte. If Starbucks raises the price
to $3.00 per cup, based on the demand curve in the figure above its total revenue will ________
because the demand for Starbucks latte is ________ over this price range.
A) increase; elastic
B) decrease; elastic
C) increase; inelastic
D) increase; elastic
E) not change; unit elastic
The figure above shows the supply curve for roses.
16) In the figure above, at the point where the price is $60 per bunch, the price elasticity of
supply is
A) 1.8.
B) 0.56.
C) 1.
D) 1.5.
E) 0.
17) In the figure above, at the point where the price is $50 per bunch, the price elasticity of
supply is
A) 2.14.
B) 0.47.
C) 1.
D) 3.
E) 0.33.
5.5 Integrative Questions
1) Suppose an increase in supply lowers the price from $10 to $8 and increases the quantity
demanded from 100 units to 130 units. Using the midpoint method, the elasticity of demand
equals
A) 1.17.
B) 0.85.
C) 0.26.
D) 1.56.
E) None of the above answers is correct.
2) Suppose a decrease in supply raises the price from $4.00 to $5.50 and decreases the quantity
demanded from 2,000 to 1,500. Using the midpoint method, the elasticity of demand equals
A) 2.10.
B) 1.11.
C) 0.90.
D) 0.72.
E) None of the above answers is correct.
3) The total revenue test says that if a price decrease leads to
A) an increase in total revenue, demand is income elastic.
B) a decrease in total revenue, demand is income inelastic.
C) a decrease in total revenue, demand is price inelastic.
D) a decrease in total revenue, supply is price inelastic.
E) a decrease in total revenue, supply is price elastic.
4) The total revenue test says that if a price decrease leads to
A) an increase in total revenue, supply is elastic.
B) a decrease in total revenue, supply is unit elastic.
C) a decrease in total revenue, supply is inelastic.
D) an increase in total revenue, supply is inelastic
E) None of the above answers is correct.
5) If demand is ________, a price cut ________ the total revenue.
A) elastic; increases
B) unit elastic; decreases
C) inelastic; increases
D) inelastic; does not change
E) normal; decreases
6) If you spend a large portion of your income on a good,
A) supply of that good would be price elastic.
B) demand for that good is more elastic than if you spent a smaller portion of your income on the
good.
C) supply of that good is price inelastic.
D) demand for that good is less elastic than if you spent a smaller portion of your income on the
good.
E) the good must be able to be produced at a constant (or gently rising) opportunity cost.
7) A ________ curve means that ________.
A) horizontal demand; a change in price does not change total revenue
B) horizontal demand; the elasticity of demand is less than 1
C) horizontal supply; elasticity of supply is infinite
D) horizontal supply; elasticity of demand is infinite
E) vertical demand; a change in price does not change total revenue
8) The cross elasticity of demand
A) means that an increase in the demand for one good leads to a decrease in demand for another
good.
B) measures how a change in the price of one good impacts the demand for another good.
C) measures how a change in supply impacts the demand for the good.
D) means that an increase in the price of one good leads to an increase in the price of another
good.
E) measures how a change in income impacts the demand for the good.
9) Which of the following is true?
I. The demand for a good is elastic if when its price changes, the percentage change in the
quantity demanded exceeds the percentage change in price.
II. Price elasticity of demand equals the percentage change in price divided by the percentage
change in the quantity demanded.
III. If demand is price inelastic, a rise in price leads to a decrease in total revenue.
A) Only I
B) Only II
C) Only III
D) I and II
E) II and III
10) Which of the following is true?
I. The supply of a good is inelastic if when its price changes, the percentage change in the
quantity supplied exceeds the percentage change in price.
II. Price elasticity of supply equals the percentage change in the quantity supplied divided by the
percentage change in price.
III. If demand is price elastic, a rise in price leads to a decrease in total revenue.
A) Only I
B) Only II
C) Only III
D) I and II
E) II and III
