Elasticity and Its Application 1177
148. Refer to Figure 5-3. Jenna says she would buy 10 gallons of gas per week regardless of the
price. If this is true, then Jenna’s demand for gas is represented by demand curve
a. A.
b. B.
c. C.
d. D.
149. Refer to Figure 5-3. Which demand curve is perfectly elastic?
a. A
b. B
c. C
d. D
1178 Elasticity and Its Application
150. Refer to Figure 5-3. Which demand curve is perfectly inelastic?
a. A
b. B
c. C
d. D
151. Refer to Figure 5-3. Which demand curve is unit elastic?
a. A
b. B
c. D
d. None of the above.
Elasticity and Its Application 1179
152. An increase in price causes an increase in total revenue when demand is
a. elastic.
b. inelastic.
c. unit elastic.
d. All of the above are possible.
153. Suppose that demand is inelastic within a certain price range. For that price range,
a. an increase in price would increase total revenue because the decrease in quantity demanded
is proportionately less than the increase in price.
b. an increase in price would decrease total revenue because the decrease in quantity demanded
is proportionately greater than the increase in price.
c. a decrease in price would increase total revenue because the increase in quantity demanded is
proportionately smaller than the decrease in price.
d. a decrease in price would not affect total revenue.
1180 Elasticity and Its Application
154. When demand is inelastic, the price elasticity of demand is
a. less than 1, and price and total revenue will move in the same direction.
b. less than 1, and price and total revenue will move in opposite directions.
c. greater than 1, and price and total revenue will move in the same direction.
d. greater than 1, and price and total revenue will move in opposite directions.
155. How does total revenue change as one moves downward and to the right along a linear demand
curve?
a. It always increases.
b. It always decreases.
c. It first increases, then decreases.
d. It is unaffected by a movement along the demand curve.
Elasticity and Its Application 1181
156. On a downward-sloping linear demand curve, total revenue reaches its maximum value at the
a. midpoint of the demand curve.
b. lower end of the demand curve.
c. upper end of the demand curve.
d. It is impossible to tell without knowing prices and quantities demanded.
157. When demand is inelastic, a decrease in price will cause
a. an increase in total revenue.
b. a decrease in total revenue.
c. no change in total revenue but an increase in quantity demanded.
d. no change in total revenue but a decrease in quantity demanded.
1182 Elasticity and Its Application
158. When demand is elastic, a decrease in price will cause
a. an increase in total revenue.
b. a decrease in total revenue.
c. no change in total revenue but an increase in quantity demanded.
d. no change in total revenue but a decrease in quantity demanded.
159. When demand is inelastic, an increase in price will cause
a. an increase in total revenue.
b. a decrease in total revenue.
c. no change in total revenue but an increase in quantity demanded.
d. no change in total revenue but a decrease in quantity demanded.
Elasticity and Its Application 1183
160. When demand is elastic, an increase in price will cause
a. an increase in total revenue.
b. a decrease in total revenue.
c. no change in total revenue but an increase in quantity demanded.
d. no change in total revenue but a decrease in quantity demanded.
161. If demand is price inelastic, then when price rises, total revenue
a. will fall.
b. will rise.
c. will remain unchanged.
d. may rise, fall, or remain unchanged. More information is need to determine the change in total
revenue with certainty.
1184 Elasticity and Its Application
162. If a change in the price of a good results in no change in total revenue, then
a. the demand for the good must be elastic.
b. the demand for the good must be inelastic.
c. the demand for the good must be unit elastic.
d. buyers must not respond very much to a change in price.
163. When demand is unit elastic, price elasticity of demand equals
a. 1, and total revenue and price move in the same direction.
b. 1, and total revenue and price move in opposite directions.
c. 1, and total revenue does not change when price changes.
d. 0, and total revenue does not change when price changes.
Elasticity and Its Application 1185
164. If the demand curve is linear and downward sloping, which of the following statements is not
correct?
a. Demand is more elastic on the lower part of the demand curve than on the upper part.
b. Different pairs of points on the demand curve can result in different values of the price
elasticity of demand.
c. Different pairs of points on the demand curve result in identical values of the slope of the
demand curve.
d. Starting from a point on the upper part of the demand curve, an increase in price leads to a
decrease in total revenue.
165. Total revenue
a. always increases as price increases.
b. increases as price increases, as long as demand is elastic.
c. decreases as price increases, as long as demand is inelastic.
d. remains unchanged as price increases when demand is unit elastic.
1186 Elasticity and Its Application
166. Moving downward and to the right along a linear demand curve, we know that total revenue
a. first increases, then decreases.
b. first decreases, then increases.
c. always increases.
d. always decreases.
167. Total revenue will be at its largest value on a linear demand curve at the
a. top of the curve, where prices are highest.
b. midpoint of the curve.
c. low end of the curve, where quantity demanded is highest.
d. None of the above is correct.
Elasticity and Its Application 1187
168. In which of the following situations will total revenue increase?
a. Price elasticity of demand is 1.2, and the price of the good decreases.
b. Price elasticity of demand is 0.5, and the price of the good increases.
c. Price elasticity of demand is 3.0, and the price of the good decreases.
d. All of the above are correct.
169. Which of the following is not possible?
a. Demand is elastic, and a decrease in price causes an increase in revenue.
b. Demand is unit elastic, and a decrease in price causes an increase in revenue.
c. Demand is inelastic, and an increase in price causes an increase in revenue.
d. Demand is perfectly inelastic, and an increase in price causes an increase in revenue.
1188 Elasticity and Its Application
170. Which of the following could be the price elasticity of demand for a good for which a decrease
in price would increase revenue?
a. 0
b. 0.4
c. 1
d. 4
171. Which of the following could be the price elasticity of demand for a good for which an increase
in price would increase revenue?
a. 0.3
b. 1
c. 1.8
d. None of the above could be correct.
Elasticity and Its Application 1189
172. Which of the following could be the price elasticity of demand for a good for which a decrease
in price would decrease revenue?
a. 0.8
b. 1
c. 1.8
d. 2.4
173. Which of the following could be the price elasticity of demand for a good for which an increase
in price would decrease revenue?
a. 0.6
b. 0.9
c. 1
d. 2.6
1190 Elasticity and Its Application
174. When the price of good A is $50, the quantity demanded of good A is 500 units. When the price
of good A rises to
$70, the quantity demanded of good A falls to 400 units. Using the midpoint method, the price
elasticity of demand for good A is
a. 1.50, and an increase in price will result in an increase in total revenue for good A.
b. 1.50, and an increase in price will result in a decrease in total revenue for good A.
c. 0.67, and an increase in price will result in an increase in total revenue for good A.
d. 0.67, and an increase in price will result in a decrease in total revenue for good A.
175. The local bakery makes such great cinnamon rolls that consumers do not respond much at all to
a change in the price. If the owner is only interested in increasing revenue, she should
a. lower the price of the cinnamon rolls.
b. leave the price of the cinnamon rolls unchanged.
c. raise the price of the cinnamon rolls.
d. reduce costs.
Elasticity and Its Application 1191
176. Consider luxury weekend hotel packages in Las Vegas. When the price is $250, the quantity
demanded is 2,000 packages per week. When the price is $280, the quantity demanded is 1,700
packages per week. Using the midpoint method, the price elasticity of demand is about
a. 1.43, and an increase in the price will cause hotels’ total revenue to decrease.
b. 1.43, and an increase in the price will cause hotels’ total revenue to increase.
c. 0.70, and an increase in the price will cause hotels’ total revenue to decrease.
d. 0.70, and an increase in the price will cause hotels’ total revenue to increase.
177. Skip’s Sealcoating Service increased its total monthly revenue from $12,000 to $13,500 when it
raised the price of driveway repairs from $600 to $750. The price elasticity of demand for Skip’s
Sealcoating Service is
a. 0.11.
b. 0.47.
c. 1.12.
d. 2.11.
1192 Elasticity and Its Application
178. Hilda’s Hair Hysteria earned $3,750 in total revenue last month when it sold 125 haircuts. This
month it earned
$3,600 in total revenue when it sold 90 haircuts. The price elasticity of demand for Hilda’s Hair
Hysteria is
a. 0.33.
b. 0.88.
c. 1.14.
d. 7.98.
179. Suppose that when the price of wheat is $2 per bushel, farmers can sell 10 million bushels. When
the price of wheat is $3 per bushel, farmers can sell 8 million bushels. Which of the following
statements is true? The demand for wheat is
a. income inelastic, so an increase in the price of wheat will increase the total revenue of wheat
farmers.
b. income elastic, so an increase in the price of wheat will increase the total revenue of wheat
farmers.
c. price inelastic, so an increase in the price of wheat will increase the total revenue of wheat
farmers.
d. price elastic, so an increase in the price of wheat will increase the total revenue of wheat
farmers.
Elasticity and Its Application 1193
180. Suppose that when the price of ginger ale is $2 per bottle, firms can sell 4 million bottles. When
the price of ginger ale is $3 per bottle, firms can sell 2 million bottles. Which of the following
statements is true?
a. The demand for ginger ale is income inelastic, so an increase in the price of ginger ale will
increase the total revenue of ginger ale producers.
b. The demand for ginger ale is income elastic, so an increase in the price of ginger ale will
increase the total revenue of ginger ale producers.
c. The demand for ginger ale is price inelastic, so an increase in the price of ginger ale will
increase the total revenue of ginger ale producers.
d. The demand for ginger ale is price elastic, so an increase in the price of ginger ale will
decrease the total revenue of ginger ale producers.
181. Suppose that 50 hot dogs are demanded at a particular price. If the price of hot dogs rises from
that price by 5 percent, the number of hot dogs demanded falls to 48. Using the midpoint
approach to calculate the price elasticity of demand, it follows that the
a. demand for hot dogs in this price range is unit elastic.
b. price increase will decrease the total revenue of hot dog sellers.
c. price elasticity of demand for hot dogs in this price range is about 1.22.
d. price elasticity of demand for hot dogs in this price range is about 0.82.
1194 Elasticity and Its Application
182. Suppose that 300 bottles of soda are demanded at a particular price. If the price of a bottle of
soda rises from that price by 6 percent, the number of bottles of soda demanded falls to 275.
Using the midpoint approach to calculate the price elasticity of demand, it follows that the
a. demand for bottles of soda in this price range is perfectly elastic.
b. price increase will increase the total revenue of soda sellers.
c. price elasticity of demand for bottles of soda in this price range is about 0.69.
d. price elasticity of demand for bottles of soda in this price range is about 1.45.
183. When a university bookstore prices chemistry textbooks at $200 each, it generally sells 120
books per month. If it lowers the price to $160, sales increase to 160 books per month. Given
this information, we know that the price elasticity of demand for chemistry books is about
a. 1.29, and a decrease in price from $200 to $160 results in an increase in total revenue.
b. 1.29, and a decrease in price from $200 to $160 results in a decrease in total revenue.
c. 0.78, and a decrease in price from $200 to $160 results in an increase in total revenue.
d. 0.78, and a decrease in price from $200 to $160 results in a decrease in total revenue.
Elasticity and Its Application 1195
184. A city wants to raise revenues to build a new municipal swimming pool next year. The mayor
suggests that the city raise the price of admission to the current municipal pools this year to raise
revenues. The city manager suggests that the city lower the price of admission to raise revenues.
Who is correct?
a. the mayor
b. the city manager
c. The answer depends on the price elasticity of demand.
d. The answer depends on the costs of construction of the new municipal swimming pool.
185. A city wants to raise revenues to build a new municipal swimming pool next year. The mayor
suggests that the city raise the price of admission to the current municipal pools this year to raise
revenues. The city manager suggests that the city lower the price of admission to raise revenues.
Who is correct?
a. Both the mayor and city manager would be correct if demand were price elastic.
b. Both the mayor and city manager would be correct if demand were price inelastic.
c. The mayor would be correct if demand were price elastic; the city manager would be correct
if demand were price inelastic.
d. The mayor would be correct if demand were price inelastic; the city manager would be
correct if demand were price elastic.
1196 Elasticity and Its Application
186. You have just been hired as a business consultant to determine what pricing policy would be
appropriate to increase the total revenue of a bakery. The first step you would take would be to
a. increase the price of every loaf of bread in the store.
b. look for ways to cut costs and increase profit for the bakery.
c. determine the price elasticity of demand for the bakery‘s products.
d. determine the price elasticity of supply for the bakery’s products.
187. You are in charge of the local city-owned aquatic center. You need to increase the revenue
generated by the aquatic center to meet expenses. The mayor advises you to increase the price
of a day pass. The city manager recommends reducing the price of a day pass. You realize that
a. the mayor thinks demand is elastic, and the city manager thinks demand is inelastic.
b. both the mayor and the city manager think that demand is elastic.
c. both the mayor and the city manager think that demand is inelastic.
d. the mayor thinks demand is inelastic, and the city manager thinks demand is elastic.