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Page 1
1.
The price elasticity of demand measures the responsiveness of the change in the:
A)
quantity demanded to a change in the price.
B)
price to a change in the quantity demanded.
C)
slope of the demand curve to a change in the price.
D)
slope of the demand curve to a change in the quantity demanded.
2.
When the price goes down, the quantity demanded goes up. The price elasticity of
demand measures:
A)
how much the price goes down.
B)
how much the equilibrium price goes up.
C)
the responsiveness of the price change to an income change.
D)
the responsiveness of the quantity change to the price change.
3.
If the price of a good increases by 20% and the quantity demanded changes by 15%,
then the price elasticity of demand is equal to:
A)
0.75.
B)
approximately 0.33.
C)
approximately 1.33.
D)
1.
4.
The price elasticity of demand is computed as the percentage change in the _____
divided by the percentage change in _____.
A)
quantity demanded; the quantity supplied.
B)
price; the quantity demanded.
C)
quantity demanded; income.
D)
quantity demanded; the price.
5.
The price of gasoline rises 5% and the quantity of gasoline purchased falls 1%. The
price elasticity of demand is equal to _____, and demand is described as _____.
A)
0.2; inelastic
B)
5; inelastic
C)
0.2; elastic
D)
5; elastic
6.
The ratio of the percentage change in quantity demanded to the percentage change in
price is the _____ elasticity of demand.
A)
price
B)
quantity
C)
income
D)
cross-price
Page 2
7.
The price elasticity of demand measures the:
A)
responsiveness of the change in quantity demanded to a change in price.
B)
change in price versus a change in quantity demanded.
C)
responsiveness of the change in the slope of the demand curve to a change in price.
D)
change in the slope of the demand curve versus a change in the quantity demanded.
8.
The price elasticity of demand is measured by _____ the percentage change in _____
the percentage change in _____.
A)
dividing; price by; quantity demanded
B)
dividing; quantity demanded by; price
C)
subtracting; price from; quantity demanded
D)
adding; price to; quantity demanded
9.
For a normal demand curve, the price elasticity of demand will be:
A)
always positive.
B)
always greater than 1.
C)
usually equal to 1.
D)
always negative.
10.
The price elasticity of demand can be found by:
A)
examining only the slope of the demand curve.
B)
measuring absolute changes in price and quantity demanded.
C)
comparing the percentage change in quantity demanded to the percentage change
in price.
D)
knowing that when price changes, quantity demanded goes in the opposite
direction.
11.
If the price of a good increases by 15% and quantity demanded changes by 20%, then
the price elasticity of demand is equal to:
A)
0.75.
B)
approximately 0.33.
C)
approximately 1.33.
D)
1.
Page 3
12.
The price elasticity of demand measures the:
A)
responsiveness of quantity demanded to a change in price.
B)
responsiveness of price to a change in quantity demanded.
C)
extent to which prices are flexible and respond to market forces.
D)
responsiveness of demand when price is held constant and demand increases or
decreases.
13.
Suppose the price of gasoline increases 10% and quantity of gasoline demanded in
Orlando drops 5% per day. Demand for gasoline in Orlando is:
A)
price elastic.
B)
price inelastic.
C)
price unit-elastic.
D)
perfectly price inelastic.
14.
If the estimated price elasticity of demand for foreign travel is 4:
A)
a 20% decrease in the price of foreign travel will increase quantity demanded by
80%.
B)
the demand for foreign travel is inelastic.
C)
a 10% increase in the price of foreign travel will increase quantity demanded by
40%.
D)
a 20% increase in the price of foreign travel will increase quantity demanded by
80%.
15.
Egg producers know that the elasticity of demand for eggs is 0.1. If they want to
increase sales by 5%, they will have to lower price by:
A)
0.1%.
B)
1%.
C)
5%.
D)
50%.
16.
Gas prices recently increased by 25%. In response, purchases of gasoline decreased by
5%. According to this finding, the price elasticity of demand for gas is:
A)
5.
B)
2.
C)
0.2.
D)
0.5.
Page 4
17.
The only producer of chocolate bunnies in the world, Choco's Bunny Company, recently
expanded its production capacity from 1,000 to 2,000 bunnies per day. If the price
elasticity of demand for bunnies is 3.33, by how much will the company have to reduce
its price to sell the additional 1,000 bunnies (by the midpoint method)?
A)
2.5%
B)
25%
C)
125%
D)
20%
18.
The Cozy Chair Company believes it can sell 200 chairs at $200 per chair or 300 chairs
at $150 per chair. Using the midpoint formula, what do they think is the price elasticity
of demand?
A)
2.5.
B)
1.4.
C)
0.7.
D)
0.5.
19.
The publisher of an economics textbook finds that when the book's price is lowered
from $70 to $60, sales rise from 10,000 to 15,000. By the midpoint method, the price
elasticity of demand is:
A)
500.
B)
50.
C)
3.5.
D)
2.6.
Use the following to answer question 20:
Page 5
20.
(Table: Market for Pizza) Look at the table Market for Pizza and use the midpoint
method. The price elasticity of demand for pizza between $14 and $12 per pizza when
income is $1,000 per month is:
A)
0.6.
B)
1.
C)
1.6.
D)
2.
21.
Suppose at $10 the quantity demanded is 100. When the price falls to $8, the quantity
demanded increases to 130. The price elasticity of demand between $10 and $8, by the
midpoint method, is approximately:
A)
1.17.
B)
1.50.
C)
0.85.
D)
1.00.
22.
Use of the midpoint method to calculate the price elasticity of demand eliminates the
problem of computing:
A)
different elasticities, depending on whether price decreases or increases.
B)
different elasticities, because price and quantity are inversely related on the
demand curve.
C)
total revenue when price falls and demand is inelastic.
D)
total revenue when price falls and demand is elastic.
23.
A men's tie store sold an average of 30 ties per day at $5 per tie but sold 50 of the same
ties per day at $3 per tie. The price elasticity of demand, by the midpoint method, is:
A)
greater than zero but less than 1.
B)
equal to 1.
C)
greater than 1 but less than 3.
D)
greater than 3.
24.
A men's tie store sold an average of 30 ties per day at $5 per tie. The same store sold 60
of the same ties per day at $3 per tie. In this case, the price elasticity of demand (by the
midpoint method) is:
A)
greater than zero but less than 1.
B)
equal to 1.
C)
greater than 1 but less than 3.
D)
greater than 3.
Page 6
25.
A shirt manufacturer sold 10 dozen shirts per day at $4 per shirt but sold 15 dozen shirts
per day at $3 per shirt. The price elasticity of demand (by the midpoint method) is:
A)
greater than zero but less than 1.
B)
equal to 1.
C)
greater than 1 but less than 3.
D)
greater than 3.
26.
If the price of chocolate-covered peanuts decreases from $1.10 to $0.90 and the quantity
demanded increases from 190 bags to 210 bags, then the price elasticity of demand (by
the midpoint method) is:
A)
0.
B)
0.5.
C)
1.
D)
2.
27.
If the price of chocolate-covered peanuts decreases from $1.10 to $0.90 and the quantity
demanded increases from 180 bags to 220 bags, then the price elasticity of demand (by
the midpoint method) is:
A)
0.
B)
0.5.
C)
1.
D)
2.
28.
If the price of chocolate-covered peanuts decreases from $1.05 to $0.95 and the quantity
demanded increases from 180 bags to 220 bags, then the price elasticity of demand (by
the midpoint method) is:
A)
0.5.
B)
1.
C)
2.
D)
greater than 2.
29.
If the price of chocolate-covered peanuts decreases from $1.10 to $0.90 and the quantity
demanded does not change, then the price elasticity of demand (by the midpoint
method) is:
A)
0.
B)
0.5.
C)
1.
D)
2.
Page 7
30.
If the price of chocolate-covered peanuts decreases from $1.10 to $0.95 and the quantity
demanded increases from 190 bags to 215 bags, then the price elasticity of demand (by
the midpoint method) is:
A)
1.25.
B)
0.5.
C)
0.8.
D)
2.
31.
If the price of chocolate-covered peanuts decreases from $2.00 to $1.55 and the quantity
demanded increases from 180 bags to 220 bags, then the price elasticity of demand (by
the midpoint method) is:
A)
0.
B)
0.5.
C)
0.8.
D)
2.
32.
If the price of chocolate-covered peanuts decreases from $1.15 to $1.05 and the quantity
demanded increases from 190 bags to 220 bags, then the price elasticity of demand (by
the midpoint method) is:
A)
0.5.
B)
1.
C)
2.
D)
greater than 1.
33.
If the price of chocolate-covered peanuts decreases from $1.15 to $0.90 and the quantity
demanded increases from 0 bags to 400 bags, then the price elasticity of demand (by the
midpoint method) is:
A)
0.5.
B)
1.
C)
2.
D)
greater than 2.
34.
The price of notebooks is $5, and at that price consumers demand 12 notebooks. If the
price rises to $7, consumers will decrease consumption to 4 notebooks. Using the
midpoint formula, what is the price elasticity of demand for notebooks?
A)
0.33
B)
3
C)
0.17
D)
6
Page 8
35.
When the price of pencils decreases from $3 to $1, the quantity demanded increases
from 100 to 200 pencils. By the midpoint method, the price elasticity of demand equals:
A)
0.17.
B)
0.5.
C)
0.67.
D)
1.5.
36.
If the price of tacos increases from $1 to $2 and customers decrease their consumption
from 10 tacos to 8 tacos, what is the price elasticity of demand (by the midpoint
method)?
A)
1.5
B)
1
C)
0.33
D)
0.5
37.
If the price of burritos increases from $4 to $6 and customers decrease their
consumption from 20 to 10 burritos, what is the price elasticity of demand (by the
midpoint method)?
A)
1.67
B)
0.67
C)
3
D)
2
38.
Suppose at $10 the quantity demanded is 100. When the price falls to $8, the quantity
demanded increases to 130. The price elasticity of demand (using the midpoint formula)
between $10 and $8 is approximately:
A)
1.17.
B)
1.50.
C)
0.85.
D)
1.00.
Page 9
Use the following to answer questions 39-46:
Table: Price Elasticity
39.
(Table: Price Elasticity) Look at the table Price Elasticity. What is the price elasticity of
demand (using the midpoint formula) between $2.50 and $2.25?
A)
9
B)
19
C)
119
D)
0.5
40.
(Table: Price Elasticity) Look at the table Price Elasticity. What is the price elasticity of
demand between $2.25 and $2.00?
A)
4.00
B)
5.67
C)
9.00
D)
17.60
41.
(Table: Price Elasticity) Look at the table Price Elasticity. What is the price elasticity of
demand between $2.00 and $1.75?
A)
2.33
B)
3.00
C)
4.00
D)
0.125
Page 10
42.
(Table: Price Elasticity) Look at the table Price Elasticity. What is the price elasticity of
demand between $1.75 and $1.50?
A)
0.42
B)
1.50
C)
1.86
D)
0.08
43.
(Table: Price Elasticity) Look at the table Price Elasticity. What is the price elasticity of
demand between $1.50 and $1.25?
A)
1.00
B)
1.22
C)
1.50
D)
1.75
44.
(Table: Price Elasticity) Look at the table Price Elasticity. What is the price elasticity of
demand between $1.25 and $1.00?
A)
0.60
B)
0.82
C)
1.00
D)
1.60
45.
(Table: Price Elasticity) Look at the table Price Elasticity. What is the price elasticity of
demand between $1.00 and $0.75?
A)
0.54
B)
0.66
C)
0.75
D)
1.00
46.
(Table: Price Elasticity) Look at the table Price Elasticity. What is the price elasticity of
demand between $0.75 and $0.50?
A)
0.25
B)
0.33
C)
0.43
D)
0.52
Page 11
47.
Each month Jacquelyn spends exactly $50 on ice cream regardless of the price of each
container. Jacquelyn's price elasticity of demand for ice cream is:
A)
0.
B)
1.
C)
greater than 1.
D)
less than 1 but greater than 0.
48.
Each month Jessica buys exactly 15 Big Macs regardless of the price. Jessica's price
elasticity of demand for Big Macs is:
A)
0.
B)
1.
C)
greater than 1.
D)
less than 1 but greater than 0.
49.
Suppose the price elasticity of demand for cheeseburgers equals 0.37. This means the
overall demand for cheeseburgers is:
A)
price elastic.
B)
price inelastic.
C)
price unit-elastic.
D)
perfectly price inelastic.
50.
The price elasticity of demand for skiing lessons in New Hampshire is over 1. This
means that the demand is _____ in New Hampshire.
A)
price elastic
B)
price inelastic
C)
price unit-elastic.
D)
perfectly price elastic
51.
A restaurant manager has estimated that the price elasticity of demand for meals is 2. If
the restaurant increases menu prices by 5%, she can expect the number of meals sold to
decrease by _____ and total revenue to _____.
A)
10%; increase
B)
5%; stay constant
C)
10%; fall
D)
2.5%; fall
Page 12
52.
You manage a nightclub, and lately revenues have been disappointing. Your bouncer
suggests that raising drink prices will increase revenues, but your bartender suggests
that decreasing drink prices will increase revenues. You aren't sure who is right, but you
do know that your bouncer thinks the demand for drinks is _____ and your bartender
thinks the demand for drinks is _____.
A)
elastic; inelastic
B)
inelastic; elastic
C)
elastic; elastic
D)
inelastic; inelastic
53.
A perfectly price-inelastic demand curve is:
A)
horizontal.
B)
downward-sloping.
C)
upward-sloping.
D)
vertical.
54.
A major state university in the South recently raised tuition by 12%. An economics
professor at this university asked his students, “How many of you will transfer to
another university because of the increase in tuition?” One student in about 300 said that
he or she would transfer. Based on this information, the price elasticity of demand for
education at this university is:
A)
1.
B)
highly elastic.
C)
highly inelastic.
D)
0.
55.
A rancher in Oklahoma decides to raise the price of her beef by 19% over the prevailing
market price. If the demand for beef is perfectly elastic, this rancher's quantity
demanded will:
A)
fall to 0.
B)
not change.
C)
fall slightly.
D)
increase slightly.
56.
Sonik, a wireless phone company, tested the effect of a price reduction for text
messaging. It lowered prices from $0.08 to $0.04 per message and found that the
number of messages sent tripled. This means:
A)
the demand for text messaging is inelastic in this price range.
B)
the demand curve for text messaging shifted to the right.
C)
the supply curve for text messaging shifted to the left.
D)
the demand for text messaging is elastic in this price range.
Page 13
57.
Sometimes airlines raise ticket prices as the flight departure date approaches in the hope
of increasing revenue on the assumption that consumer demand is:
A)
more price-elastic as departure time approaches.
B)
less price-elastic as departure time approaches.
C)
always unit elastic.
D)
very sensitive to price changes as the time of departure approaches.
58.
The university president believes that increasing student tuition by 5% will increase
revenues. If the president is correct that revenues will increase, then the tuition increase
will _____ the number of students enrolling by _____.
A)
reduce; less than 5%
B)
reduce; more than 5%
C)
reduce; exactly 5%
D)
increase; 5%
59.
The university hopes to raise more revenue by increasing parking fees. This plan will
work only if:
A)
the price effect is larger than the quantity effect.
B)
the price effect is smaller than the quantity effect.
C)
the price effect and quantity effect are the same.
D)
there is no price or quantity effect.
60.
Suppose the price elasticity of demand for fishing lures equals 1.5 in South Carolina and
0.63 in Alabama. To increase revenue, fishing lure manufacturers should:
A)
lower prices in each state.
B)
raise prices in each state.
C)
lower prices in South Carolina and raise prices in Alabama.
D)
leave prices unchanged in South Carolina and raise prices in Alabama.
61.
Total revenue is:
A)
total sales less total cost.
B)
the price of a good times the quantity of the good that is sold.
C)
the price effect times the quantity effect.
D)
the price of a good divided by the amount of the good sold.
Page 14
62.
When the price of chocolate-covered peanuts decreases from $1.10 to $0.95, the
quantity demanded increases from 190 bags to 215 bags. If the price is $1.10, total
revenue is _____, and if the price is $0.95, total revenue is _____.
A)
$209; $204.25
B)
$209; $236.50
C)
$236.50; $209
D)
$180.50; $209
63.
When the price of chocolate-covered peanuts decreases from $1.10 to $0.95, the
quantity demanded increases from 190 bags to 215 bags. In this price range, the demand
for chocolate covered peanuts is _____, and total revenue will _____ when price
decreases.
A)
elastic; increase
B)
elastic; decrease
C)
inelastic; increase
D)
inelastic; decrease
64.
When the price of chocolate-covered peanuts increases from $1.55 to $2.00, the quantity
demanded decreases from 220 to 180. If the price is $1.55, total revenue is _____, and if
the price is $2.00, total revenue is _____.
A)
$360; $440
B)
$341; $279
C)
$440; $279
D)
$341; $360
65.
When the price of chocolate-covered peanuts increases from $1.55 to $2.00, the quantity
demanded decreases from 220 to 160. In this price range, the demand for
chocolate-covered peanuts is _____, and total revenue will _____ when the price
increases.
A)
elastic; increase
B)
elastic; decrease
C)
inelastic; increase
D)
inelastic; decrease
66.
Suppose the price of barley increases by 16.53%. If breweries buy 3.28% less barley
after the price increase, the total revenue for barley producers will _____ because the
_____ effect is greater than the _____ effect.
A)
decrease; quantity; price
B)
increase; price; quantity
C)
not change; quantity; price
D)
increase; quantity; price
Page 15
67.
If demand is elastic, the _____ effect dominates the _____ effect, and a(n) _____ in
price will cause total revenue to rise.
A)
price; quantity; decrease
B)
price; quantity; increase
C)
quantity; price; increase.
D)
quantity; price; decrease
68.
Suppose the price elasticity of demand for oranges is 1.8. If a fall frost destroys
one-third of the nation's orange crop, how will that affect total revenue from oranges, all
other things unchanged?
A)
Total revenue will rise.
B)
Total revenue will fall.
C)
Total revenue will remain unchanged.
D)
The information is insufficient to answer the question.
69.
The price elasticity of demand for gasoline in the short run has been estimated to be 0.4.
If a war in the Middle East causes the price of oil (from which gasoline is made) to
increase, how will that affect total revenue from gasoline in the short run, all other
things unchanged?
A)
Quantity demanded will stay the same; total revenue will fall.
B)
Quantity demanded will decrease; total revenue will rise.
C)
Total revenue will remain unchanged.
D)
Quantity demanded will not change; total revenue will rise.
70.
The price elasticity of demand for lettuce has been estimated to be 2.58. If an insect
infestation destroys 10% of the nation's lettuce crop, how will that affect total revenue
from lettuce, all other things unchanged?
A)
Total revenue will remain unchanged.
B)
Total revenue will fall.
C)
Total revenue will rise.
D)
The information is insufficient to answer the question.
71.
The price elasticity of demand for fresh tomatoes has been estimated to be 2.22. If a new
insecticide and fertilizer treatment yields a 20% increase in the nation's fresh tomato
crop, how will that affect total revenue from fresh tomatoes, all other things unchanged?
A)
Total revenue will remain unchanged.
B)
Total revenue will fall.
C)
Total revenue will rise.
D)
The information is insufficient to answer the question.
Page 16
72.
Which of the following is NOT true regarding a price-elastic demand curve?
A)
Total revenue increases when the price falls.
B)
The absolute value of the price elasticity is a fraction less than 1.
C)
The absolute value of the price elasticity is greater than 1.
D)
The percent changes in the quantity demanded exceed the percent changes in the
price for any small change in price.
73.
The demand for agricultural output is price inelastic. This means that if farmers, taken
collectively, have a bumper crop, they will have _____ prices, _____ quantities sold,
and _____ incomes.
A)
lower; greater; lower
B)
lower; greater; higher
C)
lower; lower; lower
D)
higher; higher; higher
74.
When a public transit system (such as a subway or bus line) raises its fares, its total
revenue may increase. This suggests that demand is:
A)
unstable.
B)
price-inelastic.
C)
price-elastic.
D)
price unit-elastic.
75.
If a university decreases the price of tickets to football games to collect more revenue, it
is assuming that the demand for tickets is:
A)
unstable.
B)
price-inelastic.
C)
price-elastic.
D)
price unit-elastic.
76.
If the demand for golf is price-inelastic and your local public golf course increases the
greens fees for using the course, you expect:
A)
a decrease in total revenue received by the course.
B)
an increase in total revenue received by the course.
C)
an increase in the amount of golf played on the course.
D)
no change in the amount of golf played on the course.
Page 17
77.
If the demand for golf is unit-price elastic and your local public golf course increases
the greens fees for using the course, you expect:
A)
a decrease in total revenue received by the course.
B)
an increase in total revenue received by the course.
C)
a decrease in the amount of golf played on the course.
D)
no change in the amount of golf played on the course.
Use the following to answer questions 78-80:
Figure: The Demand for Notebook Computers
78.
(Figure: Demand for Notebook Computers) Look at the figure The Demand for
Notebook Computers. The change in total revenue resulting from a change in price from
P to T suggests that demand is:
A)
inelastic.
B)
price-elastic.
C)
price-inelastic.
D)
price unit-elastic.
79.
(Figure: Demand for Notebook Computers) Look at the figure The Demand for
Notebook Computers. Total revenue at point S equals the:
A)
distance 0P.
B)
distance MS.
C)
area 0TUM.
D)
area 0PSM.
Page 18
80.
(Figure: Demand for Notebook Computers) Look at the figure The Demand for
Notebook Computers. Total revenue at point V equals the:
A)
area 0TVN.
B)
area 0PSVN.
C)
distance 0T.
D)
distance NV.
81.
If a change in price causes total revenue to change in the same direction, we can
conclude that the demand is:
A)
price inelastic.
B)
price elastic.
C)
price unit-elastic.
D)
zero elastic.
82.
There is one gas station in a small rural town. The owner of the station claims that he
will sell the same quantity of gas no matter how high or low the price. If he is correct in
this assertion, the demand curve for gas at his station must be _____, with a price
elasticity of _____.
A)
vertical; zero
B)
vertical; infinity
C)
horizontal; zero
D)
horizontal; infinity
83.
Demand for vegetables at a small farmers' market is steady, but the supply of vegetables
has decreased because of a drought. This is good news for farmers if demand is _____
and the _____ effect outweighs the _____ effect.
A)
inelastic; price; quantity
B)
elastic; price; quantity
C)
inelastic; output; price
D)
elastic; output; price
84.
In the market for computers, if the demand curve is elastic and the price of a computer
decreases, we expect total revenue to _____. If the demand curve is inelastic and the
price of a computer decreases, we expect total revenue to _____.
A)
increase; decrease
B)
increase; increase
C)
decrease; increase
D)
decrease; decrease
Page 19
85.
If a 20% price increase generates a 20% decrease in quantity demanded, then this is
_____ response.
A)
an inelastic
B)
an elastic
C)
a unit-elastic
D)
a perfectly elastic
86.
If an increase in the price of cotton increases total revenue, then the price effect is _____
the quantity effect.
A)
equal to
B)
stronger than
C)
weaker than
D)
not comparable to
87.
After a price decrease, the quantity effect tends to:
A)
decrease total revenue.
B)
increase total revenue.
C)
make the price effect stronger.
D)
make the price effect weaker.
88.
Yovanka has diabetes, and she will pay any amount of money for insulin. What is likely
the best characterization of Yovanka's demand for insulin?
A)
price-inelastic
B)
price-elastic
C)
perfectly price-inelastic
D)
perfectly price-elastic
89.
When demand is _____, a rise in price leads to a(n) _____ in total revenue.
A)
perfectly inelastic; decrease
B)
perfectly elastic; increase
C)
inelastic; increase
D)
elastic; decrease
Page 20
Use the following to answer questions 90-92:
Figure: Demand Curves
90.
(Figure: Demand Curves) Look at the figure Demand Curves. Which graph shows a
perfectly elastic demand curve?
A)
A
B)
B
C)
C
D)
D
91.
(Figure: Demand Curves) Look at the figure Demand Curves. Which graph shows a
perfectly inelastic demand curve?
A)
A
B)
B
C)
C
D)
D
92.
(Figure: Demand Curves) Look at the figure Demand Curves. Gala apples have many
close but not perfect substitutes and are not very expensive. Which graph best represents
the demand schedule for Gala apples?
A)
A
B)
B
C)
C
D)
D
93.
Suppose that an increase in the price of a good leads to an increase in total revenue.
Ignoring other factors (like supply), at its current price the good must be:
A)
price-inelastic.
B)
price-elastic.
C)
perfectly price-elastic.
D)
inferior.
Page 21
94.
When the percentage change in quantity demanded is larger than the percentage change
in price, demand is said to be:
A)
price-inelastic.
B)
price unit-elastic.
C)
price-elastic.
D)
perfectly price-inelastic.
95.
If the price elasticity of demand is calculated to be 0.75, then demand is:
A)
price-inelastic.
B)
price-elastic.
C)
price unit-elastic.
D)
positively sloped.
96.
If the price elasticity of demand is found to be 6, then demand is:
A)
price-inelastic.
B)
price-elastic.
C)
price unit-elastic.
D)
horizontal.
97.
If the price of a good increases by 15% and the quantity demanded falls by 20%,
demand is:
A)
price-elastic.
B)
price-inelastic.
C)
price unit-elastic.
D)
normal.
98.
If total revenue goes up when the price falls, demand is said to:
A)
be price-inelastic.
B)
be price unit-elastic.
C)
be price-elastic.
D)
have positive price elasticity.
99.
If total revenue goes down when the price falls, demand is said to:
A)
be price-inelastic.
B)
be price unit-elastic.
C)
be price-elastic.
D)
have positive price elasticity.
Page 22
100.
If the quantity demanded of agricultural output is very unresponsive to a fall in price,
the demand for agricultural output is:
A)
price-elastic.
B)
price-inelastic.
C)
positively sloped.
D)
horizontal.
101.
Total revenue will decrease if the price goes _____ and demand is _____.
A)
up; perfectly price-inelastic
B)
up; price-inelastic
C)
down; price-elastic
D)
up; price-elastic
102.
If demand _____ and the University of Michigan increases the price of football tickets,
revenues will increase.
A)
is price-inelastic
B)
is price-elastic
C)
has price elasticity equal to 1
D)
is perfectly price-elastic
Use the following to answer questions 103-104:
Figure: Estimating Price Elasticity
103.
(Figure: Estimating Price Elasticity) Look at the figure Estimating Price Elasticity.
Between the two prices, P1 and P2, which demand curve has the lowest price elasticity?
A)
D1
B)
D2
C)
D3
D)
D4
Page 23
104.
(Figure: Estimating Price Elasticity) Look at the figure Estimating Price Elasticity.
Between the two prices, P1 and P2, which demand curve has the highest price elasticity?
A)
D1
B)
D2
C)
D3
D)
D4
105.
The price elasticity of demand along a demand curve with a constant slope:
A)
is equal to the slope.
B)
is greater than the slope.
C)
is less than the slope.
D)
increases in absolute value as the price rises.
106.
The price elasticity of demand along a demand curve with a constant slope:
A)
is equal to the slope.
B)
is greater than the slope.
C)
is less than the slope.
D)
decreases in absolute value as quantity demanded rises.
107.
On a linear demand curve:
A)
demand is elastic at high prices.
B)
demand is inelastic at high prices.
C)
elasticity is the same at all points on the demand curve.
D)
demand is elastic at low prices.
108.
A linear demand curve has:
A)
a constant price elasticity of demand.
B)
a price elasticity of demand equal to one at all prices.
C)
a calculated price elasticity of demand that is positive.
D)
both elastic and inelastic price elasticities of demand.
109.
On a linear demand curve, the price elasticity of demand at higher prices will be:
A)
price-inelastic.
B)
price-elastic.
C)
price unit-elastic.
D)
perfectly price-inelastic.
Page 24
110.
On a linear demand curve, demand at lower prices will be:
A)
price-inelastic.
B)
price-elastic.
C)
price unit-elastic.
D)
perfectly price-elastic.
111.
As you move down a linear demand curve, the price elasticity of demand will:
A)
increase.
B)
decrease.
C)
increase and then decrease.
D)
decrease and then increase.
112.
The demand for strawberry ice cream tends to be relatively price-elastic because:
A)
for most people there are many close substitutes for strawberry ice cream.
B)
it costs so little.
C)
it has to be consumed very quickly.
D)
for most people there are many close substitutes for strawberry ice cream and it
costs so little.
113.
Which of the following is NOT a factor in determining the price elasticity of demand?
A)
the number of available substitutes
B)
time
C)
the proportion of the budget spent on the item
D)
the slope of the supply curve
114.
If a good is a necessity with few substitutes, all others things equal, then demand will
tend to:
A)
be more price-elastic.
B)
be less price-elastic.
C)
have price elasticity equal to 1.
D)
be the same as that of a luxury good.
115.
If a good has a price-inelastic demand, then which of the following is NOT likely to be
characteristic of this good?
A)
It is a necessity and is relatively small proportion of the household budget.
B)
It has many substitutes.
C)
Consumers spend a small percentage of their income on it.
D)
Consumers do not have much time to adjust to market changes.
Page 25
116.
There are several close substitutes for Bayer aspirin but fewer substitutes for a complete
medical examination. Therefore, all other things equal, you would expect the demand
for:
A)
medical exams to be more price-elastic.
B)
Bayer aspirin to be more price-elastic.
C)
Bayer aspirin to be more price-inelastic.
D)
the two to be equally price-elastic.
117.
If the price of emergency visits to the doctor rose, we would expect:
A)
a large decline in the number of emergency visits to the doctor.
B)
only a slight decline in the number of emergency visits to the doctor.
C)
the number of emergency visits to the doctor to increase.
D)
the total income of doctors to fall dramatically.
118.
If someone did not regard health care as very important, often using home remedies and
other substitutes, his or her demand curve for health care would most likely be more
_____ than that of other people.
A)
price-elastic
B)
price-inelastic
C)
nearly horizontal
D)
nearly vertical
119.
The price elasticity of a good will tend to be larger:
A)
the longer the relevant time.
B)
the fewer number of substitute goods available.
C)
if it is a staple.
D)
if it is relatively inexpensive.
120.
Determining the price elasticity of demand involves all of the following factors
EXCEPT:
A)
the slope of the supply curve.
B)
the proportion of the budget spent on the item.
C)
time .
D)
the number of available substitutes.
121.
If a good is a necessity with few substitutes, then demand will tend to:
A)
be more price-elastic.
B)
be more price-inelastic.
C)
have price elasticity equal to 1.
D)
be the same as that of a luxury good.
Page 26
122.
If a good is a luxury item that looms large in the household budget, then demand will
tend to:
A)
be more price-elastic.
B)
be less price-elastic.
C)
have price elasticity equal to 1.
D)
be the same as that of a necessity.
123.
An important determinant of the price elasticity of demand is:
A)
time.
B)
the price of related goods.
C)
the level of technology.
D)
the quantity of the good supplied.
124.
An important determinant of the price elasticity of demand is the:
A)
price of related goods.
B)
level of technology.
C)
availability of substitutes.
D)
quantity of the good supplied.
125.
Other things being equal, the price elasticity of demand for a product will be lower:
A)
if many substitutes are available.
B)
if it is a large part of the consumer's budget.
C)
in the long run than in the short run.
D)
if there are few or no substitutes available.
126.
There are several close substitutes for Quaker State oil but fewer substitutes for a
complete checkup of your car's engine. We can expect the demand for:
A)
Quaker State oil to be more price-inelastic.
B)
the two to be equally price-elastic.
C)
car checkups to be more price-elastic.
D)
Quaker State oil to be more price-elastic.
127.
An important determinant of the price elasticity of demand is the:
A)
proportion of the household budget spent on the good.
B)
level of technology.
C)
quantity of the good supplied.
D)
extent of government regulation.
Page 27
128.
A newspaper typically consumes a smaller fraction of a consumer's budget than a home
entertainment system. Therefore, you would expect the demand for:
A)
a home entertainment system to be more price-elastic.
B)
a home entertainment system to be more price-inelastic.
C)
newspapers to be more price-elastic.
D)
the two to be equally price-elastic.
129.
The demand for textbooks is price-inelastic. Which of the following would explain this?
A)
Many alternative textbooks can be used as substitutes.
B)
Students have a lot of time to adjust to price changes.
C)
Textbook purchases consume a large portion of most students' income.
D)
Textbooks are a necessity.
130.
After you graduate from college, you open a business selling computers. Many other
businesses in your city sell similar but not identical computers. Based on this
information, the price elasticity of demand for the computers that your business sells
will be:
A)
1.
B)
0.
C)
highly elastic.
D)
highly inelastic.
131.
The price elasticity of demand for a good such as water is likely to be very low because:
A)
the price is a small percentage of most budgets.
B)
water has some good substitutes.
C)
water is considered a luxury.
D)
the share of income spent on water is large.
132.
The price elasticity of a good will tend to be larger:
A)
the longer the relevant time.
B)
the fewer the number of substitute goods available.
C)
if it is a staple or necessity with few substitutes.
D)
if the share of income spent on the good is small.
133.
Which of the following goods is likely to have the largest price elasticity of demand?
A)
a bicycle
B)
a mountain bike
C)
a Cannondale mountain bike
D)
a green Cannondale mountain bike
Page 28
134.
A good is likely to have an inelastic demand curve if:
A)
the consumer has significant time to respond to the price change.
B)
the good has few available substitutes.
C)
the good is a luxury.
D)
the good accounts for a large share of consumer income.
135.
We predict the long-run price elasticity of demand for gasoline to be _____ the
short-run price elasticity of demand for it.
A)
less than
B)
larger than
C)
equal to
D)
not comparable to
136.
If a good is very inexpensive but is a necessity, you predict that demand for the good:
A)
is price-elastic.
B)
is price-inelastic.
C)
is price unit-elastic.
D)
has indeterminable price elasticity.
137.
In general, we predict demand for Gala apples to be:
A)
price-elastic.
B)
price-inelastic.
C)
perfectly price-elastic.
D)
perfectly price-inelastic.
138.
The cross-price elasticity of electricity with respect to the price of natural gas has been
estimated as being equal to 0.2. This implies that:
A)
natural gas and electricity are both normal goods.
B)
electricity and natural gas are complements.
C)
electricity and natural gas are substitutes.
D)
one of the two goods is inferior and the other is normal, but we need additional
information to determine which of them is normal.
139.
For which of the following is the cross-price elasticity of demand most likely a large
positive number?
A)
hockey pucks and hockey sticks
B)
DVDs and milk
C)
french fries and onion rings
D)
all of these, because the cross-price elasticity is always a positive number
Page 29
140.
Suppose the cross-price elasticity of demand for butter and margarine is equal to 0.96
but the cross-price elasticity for water and lemons is –0.13. This means that butter and
margarine are _____, while water and lemons are _____.
A)
complements; substitutes
B)
substitutes; complements
C)
inelastic goods; elastic goods
D)
elastic goods; complements
141.
Suppose the cross-price elasticity between demand for Burger King burgers and the
price of McDonald's burgers is 0.8. If McDonald's increases the price of its burgers by
10%:
A)
Burger King will sell 10% more burgers.
B)
Burger King will sell 8% more burgers.
C)
Burger King will sell 8% fewer burgers.
D)
We cannot tell what will happen to Burger King, but McDonald's will sell 8%
fewer burgers.
142.
Suppose the price of cereal rose by 25% and the quantity of milk sold decreased by
50%. We know that the:
A)
cross-price elasticity between cereal and milk is –2.
B)
cross-price elasticity between cereal and milk is –0.5.
C)
price elasticity of demand for milk is 2.
D)
cross-price elasticity of demand between cereal and milk is 2.
143.
If two goods are substitutes, their cross-price elasticity of demand should be:
A)
less than 0.
B)
negative but almost equal to 0.
C)
equal to 0.
D)
greater than 0.
144.
If two goods are complements, their cross-price elasticity of demand is:
A)
less than 0.
B)
equal to 0.
C)
positive but almost equal to 0.
D)
greater than 0.
Page 30
145.
If the price of chocolate-covered peanuts increases and the demand for strawberry
licorice twists increases, this indicates that these two goods are:
A)
complementary goods.
B)
normal goods.
C)
inferior goods.
D)
substitute goods.
146.
The pair of items that is likely to have the largest positive cross-price elasticity of
demand is:
A)
coffee and tea.
B)
skis and ski boots.
C)
pizza and pepperoni.
D)
milk and cookies.
147.
The cross-price elasticity of demand of complementary goods is:
A)
less than 0.
B)
equal to 0.
C)
greater than 0.
D)
between 0 and 1.
148.
If the price of chocolate-covered peanuts increases and the demand for
strawberry-flavored soft drinks decreases, this indicates that these two goods are:
A)
unrelated goods.
B)
complementary goods.
C)
inferior goods.
D)
substitute goods.
149.
The pair of items that is most likely to have a negative cross-price elasticity of demand
is:
A)
aspirin and hamburgers.
B)
hot dogs and mustard.
C)
margarine and butter.
D)
ketchup and coffee.
150.
If your purchases of shoes increase from 9 pairs per year to 11 pairs per year when the
price of shirts increases from $8 to $12, for you, shoes and shirts are considered:
A)
inferior goods.
B)
luxury goods.
C)
substitute goods.
D)
complementary goods.
Page 31
151.
If your purchases of shoes decrease from 11 pairs per year to 9 pairs per year when the
price of shirts increases from $8 to $12, for you, shoes and shirts are considered:
A)
inferior goods.
B)
luxury goods.
C)
substitute goods.
D)
complementary goods.
152.
If your purchases of shoes remain constant at 9 pairs per year when the price of shirts
increases from $8 to $12, for you, shoes and shirts are considered:
A)
inferior goods.
B)
unrelated goods.
C)
substitute goods.
D)
complementary goods.
153.
The cross-price elasticity of demand for Coke with respect to the price of Pepsi has been
estimated to be 0.61. If the price of Pepsi falls by 10%, all other things unchanged, the
quantity demanded of Coke will:
A)
decrease by less than 6.1%.
B)
decrease by 6.1%.
C)
not change, because many people prefer Coke to Pepsi.
D)
rise.
154.
Suppose that the cross-price elasticity of demand for Mountain Dew with respect to the
price of Coke is 0.7. This implies that the two goods are:
A)
substitutes.
B)
complements.
C)
inferior.
D)
normal.
155.
Which of the following pairs of goods are most likely to have a cross-price elasticity of
demand that is greater than zero?
A)
shoes and shoelaces
B)
apples and bananas
C)
pizza and bread sticks
D)
gasoline and cars
Page 32
156.
If you know the cross-price elasticity between two goods is positive, then you know the
two goods are:
A)
substitutes.
B)
complements.
C)
normal goods.
D)
inferior goods.
157.
Raina consumes 100% more mechanical pencils when the price of felt-tip pens increases
by 50%. For Raina, pencils and pens are _____, and the cross-price elasticity of demand
is _____.
A)
complements; 0.5
B)
substitutes; –0.5
C)
complements; 2
D)
substitutes; 2
158.
Goods are _____ when the cross-price elasticity of demand is positive and _____ when
the cross-price elasticity of demand is negative.
A)
substitutes; complements
B)
complements; substitutes
C)
elastic; inelastic
D)
inelastic; elastic
159.
The percentage change in quantity demanded of one good or service divided by the
percentage change in the price of a related good or service is the _____ of demand.
A)
price elasticity
B)
quantity elasticity
C)
income elasticity
D)
cross-price elasticity
160.
If two goods are substitutes, their cross-price elasticity of demand is:
A)
less than 0.
B)
negative but almost equal to 0.
C)
equal to 0.
D)
greater than 0.
161.
If two goods are complements, their cross-price elasticity of demand is:
A)
less than 0.
B)
equal to 0.
C)
positive but almost equal to 0.
D)
greater than 0.
Page 33
162.
The cross-price elasticity of demand of substitute goods is:
A)
between –1 and 0.
B)
less than 0.
C)
equal to 0.
D)
greater than 0.
163.
Since the price of walnuts increases as the demand for cashews increases, we can
assume that these two goods are:
A)
unrelated.
B)
superior.
C)
inferior.
D)
substitutes.
164.
The pair of items that is likely to have the highest cross-price elasticity of demand is:
A)
baseball and baseball glove.
B)
spaghetti and meatballs.
C)
coffee and tea.
D)
peanut butter and jelly.
165.
If two goods are complementary, we can assume that the cross-price elasticity of
demand for these goods is:
A)
between 0 and 1.
B)
equal to 0.
C)
greater than 1.
D)
less than 0.
166.
The price of pretzels increases and the demand for tortilla chips decreases, so we can
assume that these two goods are:
A)
unrelated.
B)
inferior.
C)
complementary.
D)
substitutes.
167.
The pair of items that is most likely to have a negative cross-price elasticity of demand
is:
A)
cashews and peanuts.
B)
hamburgers and ketchup.
C)
coffee and tea.
D)
mustard and aspirin.
Page 34
168.
The percent change in quantity demanded of a good divided by the percent change in
income, all other things unchanged, is the _____ elasticity of demand.
A)
price
B)
quantity
C)
income
D)
cross-price
169.
If the income elasticity of demand for a good is positive, the good is said to be:
A)
inferior.
B)
a substitute.
C)
normal.
D)
positive.
170.
The income elasticity of demand of a normal good is always:
A)
between 1 and 0.
B)
less than 0.
C)
equal to 0.
D)
greater than 0.
171.
If your income increases and your consumption of bagels increases, other things equal,
bagels are considered:
A)
a negative good.
B)
a positive good.
C)
an inferior good.
D)
a normal good.
172.
If the income elasticity of demand for a good is negative, the good is said to be:
A)
inferior.
B)
negative.
C)
positive.
D)
normal.
173.
If your purchases of shoes increase from 9 pairs per year to 11 pairs per year when your
income increases from $19,000 to $21,000 a year, other things equal, for you, shoes are
considered:
A)
a normal good.
B)
an inferior good.
C)
a complementary good.
D)
a substitute good.
Page 35
174.
If your purchases of shoes decrease from 11 pairs per year to 9 pairs per year when your
income increases from $19,000 to $21,000 a year, other things equal, for you, shoes are
considered:
A)
a normal good.
B)
an inferior good.
C)
a complementary good.
D)
a substitute good.
175.
The income elasticity of demand for peaches has been estimated to be 1.43. If income
grows by 15%, all other things unchanged, total revenue will:
A)
rise.
B)
fall.
C)
remain unchanged.
D)
The information is insufficient to answer the question.
176.
The income elasticity of demand for eggs has been estimated to be 0.57. If income
grows by 5% in a period, all other things unchanged, demand will:
A)
increase by more than 5.7%.
B)
increase by about 2.9%.
C)
decrease by more than 5.7%.
D)
decrease by less than 5.7%.
177.
Eric's income increased from $40,000 to $50,000 per year. Eric's consumption of tickets
to pro football games increased from two to four per year. By the midpoint formula, his
income elasticity of demand for pro football game tickets is equal to _____, and football
game tickets are _____ goods.
A)
–0.33; inferior
B)
+0.67; normal
C)
–3; inferior
D)
+3; normal
178.
Nico rents 10% more DVDs when his income increases by 20%. Based on this
information, we know that DVDs:
A)
are a normal good.
B)
are an inferior good.
C)
have many substitutes.
D)
have come down in price.
Page 36
179.
If the income elasticity for hybrid cars is positive:
A)
there are many substitutes for hybrid cars.
B)
there are few substitutes for hybrid cars.
C)
hybrid cars are a normal good.
D)
hybrid cars are an inferior good.
180.
Kayla and Jada are roommates in New York City. Both Kayla and Jada recently
received raises. Kayla now buys more album downloads than before, but Jada buys
fewer. Kayla behaves as if album downloads are _____ goods, and Jada's income
elasticity of demand for album downloads is _____.
A)
normal; positive
B)
normal; negative
C)
inferior; positive
D)
inferior; negative
181.
When Joe's income is $100 per week, he spends $20 per week on pizza. When his
income rises to $110 per week, he spends $25 per week on pizza. If the price of pizza
remains constant, this information implies that for Joe:
A)
pizza is a normal good and a luxury.
B)
pizza is a normal good and a necessity.
C)
pizza is an inferior good, since his expenditure rose by less than the increase in
income.
D)
demand for pizza is price-elastic.
182.
Suppose you manage a convenience mart and are in charge of ordering products, but the
home office sets the prices. In your area, the income elasticity of demand for peanut
butter is –0.5. Because of local factory closings, you expect local incomes to decrease
by 20% on average in the next month. As a result, you should stock _____ peanut
butter.
A)
20% more
B)
5% more
C)
10% more
D)
10% less
Page 37
Use the following to answer questions 183-185:
183.
(Table: Market for Pizza) Look at the table Market for Pizza. When income changes
from $1,000 to $1,400 per month, the income elasticity of demand for pizza, by the
midpoint method, at a price of $14 per pizza is:
A)
–1.
B)
1.
C)
1.25.
D)
1.5.
184.
(Table: Market for Pizza) If income changes from $1,000 to $1,400 per month, by the
midpoint method, the income elasticity of demand at a price of $10 per pizza is:
A)
1.2
B)
–1.2
C)
0.825
D)
0.40
185.
(Table: Market for Pizza) If income changes from $1,000 to $1,400 per month, by the
midpoint method, the income elasticity of demand at a price of $10 per pizza is:
A)
0.33
B)
0.57
C)
0.95
D)
1.2
Page 38
186.
Which of the following statements is TRUE?
A)
When the income elasticity of demand is positive, the good is inferior.
B)
When the income elasticity of demand is negative, the good is normal.
C)
Income elasticity of demand measures how much the quantity demanded of a good
is affected by changes in consumers' incomes.
D)
Income elasticity of demand measures the effect of the change in one good's price
on the quantity demanded of the other good.
187.
If the income elasticity of demand for a good is _____, the good is said to be _____.
A)
positive; inferior
B)
negative; a substitute
C)
positive; normal
D)
positive; positive
188.
For a good to be considered normal, the _____ elasticity of demand must be _____.
A)
income; between 1 and 0
B)
cross-price; less than 0
C)
cross-price; equal to 0
D)
income; greater than 0
189.
If your income increases and your consumption of a good increases, for you that good is
considered:
A)
negative.
B)
positive.
C)
inferior.
D)
normal.
190.
If the income elasticity of demand for a good is _____, the good is said to be _____.
A)
negative; inferior
B)
negative; negative
C)
positive; positive
D)
negative; normal
191.
The income elasticity of demand of an inferior good:
A)
is less than 0.
B)
is equal to 0.
C)
is greater than 0.
D)
cannot be determined.
Page 39
192.
Assume that as your income increases, your consumption of burgers increases. We can
assume that you consider burgers a(n) _____ good.
A)
negative
B)
positive
C)
inferior
D)
normal
193.
The consumption of a(n) _____ good increases when income decreases.
A)
substitute
B)
complementary
C)
normal
D)
inferior
194.
The income elasticity of demand measures:
A)
how much the quantity demanded changes in response to a price change.
B)
how much a consumer can buy at given income levels.
C)
how much consumer purchasing power is affected when prices change.
D)
how the quantity demanded of a good changes in response to changes in income.
195.
If an increase in income leads to a decrease in the demand for a good, then the good is
said to be:
A)
normal.
B)
a luxury.
C)
inferior.
D)
a staple.
196.
If an increase in income leads to an increase in the demand for a good, then the good is
said to be:
A)
normal.
B)
a luxury.
C)
inferior.
D)
a staple.
197.
For a normal good, the income elasticity of demand will be:
A)
negative.
B)
positive.
C)
zero.
D)
determined by the direction of the change in income.
Page 40
198.
For an inferior good, the income elasticity of demand will be:
A)
negative.
B)
positive.
C)
zero.
D)
determined by the direction of the change in income.
Use the following to answer questions 199-204:
199.
(Table: Johnson's Income and Expenditures) Look at the table Johnson's Income and
Expenditures. Johnson's income elasticity of demand for steaks is:
A)
greater than 1.
B)
1.
C)
between 0 and 1.
D)
0.
200.
(Table: Johnson's Income and Expenditures) Look at the table Johnson's Income and
Expenditures. Johnson's income elasticity of demand for magazines is:
A)
negative.
B)
0.
C)
between 0 and 1.
D)
1.
201.
(Table: Johnson's Income and Expenditures) Look at the table Johnson's Income and
Expenditures. For Johnson, magazines are a(n) _____ good.
A)
negative
B)
inferior
C)
normal
D)
neutral
Page 41
202.
(Table: Johnson's Income and Expenditures) Look at the table Johnson's Income and
Expenditures. By the midpoint method, Johnson's income elasticity of demand for
movies is:
A)
infinite.
B)
1.
C)
0.
D)
–1.
203.
(Table: Johnson's Income and Expenditures) Look at the table Johnson's Income and
Expenditures. By the midpoint method, Johnson's income elasticity of demand for
pizzas is:
A)
–1.4.
B)
approximately –0.7.
C)
0.
D)
approximately 0.7.
204.
(Table: Johnson's Income and Expenditures) Look at the table Johnson's Income and
Expenditures. For Johnson, pizzas are a(n) _____ good.
A)
inferior
B)
positive
C)
neutral
D)
normal
205.
Suppose the income of canned pinto bean consumers rises. All else equal, we can
conclude that:
A)
the income elasticity of demand is positive if beans are a normal good.
B)
the income elasticity of demand is positive if beans are an inferior good.
C)
the cross-price elasticity between beans and other goods is positive.
D)
the cross-price elasticity between beans and other goods is negative.
206.
Which of the following is most likely to have a vertical supply curve?
A)
salt
B)
oil
C)
insulin
D)
paintings by Van Gogh
Page 42
207.
Suppose the price of university sweatshirts increases from $10 to $20 and the quantity
supplied increases from 20 to 30. The price elasticity of supply, using the midpoint
formula, is:
A)
0.66.
B)
1.50.
C)
0.60.
D)
1.66.
208.
A perfectly elastic supply curve is:
A)
horizontal.
B)
downward-sloping.
C)
upward-sloping.
D)
vertical.
209.
Suppose the price of real estate increases by 37.11% in Oakland next year. If the
quantity of new homes supplied does not change, this means that the price elasticity of
_____ will be perfectly _____ in Oakland next year.
A)
demand; elastic
B)
supply; inelastic
C)
demand; inelastic
D)
supply; elastic
210.
If quantity supplied responds substantially to a relatively small change in price, supply
is:
A)
price-elastic.
B)
price-inelastic.
C)
negatively sloped.
D)
insensitive to changes in price.
211.
If the price elasticity of supply is greater than 1:
A)
supply is price-elastic.
B)
supply is price-inelastic.
C)
supply is price unit-elastic.
D)
the quantity supplied is relatively unresponsive to price changes.
212.
If the price elasticity of supply is less than 1, then supply is:
A)
price-elastic.
B)
price-inelastic.
C)
price unit-elastic.
D)
very responsive to price changes.
Page 43
213.
The price elasticity of supply is computed as the percentage change in _____ divided by
the percentage change in _____.
A)
quantity supplied; quantity demanded
B)
quantity supplied; price
C)
price; quantity supplied
D)
quantity supplied; consumer income
214.
An attorney supplies 40 hours of work per week when her fee is $100 per hour but
supplies 60 hours of work per week when her fee rises to $120 per hour. Using the
midpoint formula, her elasticity of supply is equal to:
A)
1.
B)
0.8.
C)
2.2.
D)
0.45.
215.
A hotel has a capacity of 100 rooms in the short run. Which of the following statements
best describes the short-run elasticity of supply for rooms at this hotel?
A)
The supply is elastic at quantities above 100 rooms but inelastic at quantities below
100 rooms.
B)
The elasticity of supply is equal to 1 in the short run but infinitely elastic in the
long run.
C)
The elasticity of supply is zero in the short run because the short-run supply curve
is vertical.
D)
The supply is infinitely elastic in the short run but perfectly inelastic in the long
run.
216.
Paolo owns a pizza shop. The price of pizza recently increased from $3 to $5 a slice.
Paolo responded by increasing the quantity of slices he supplied from 100 to 150 slices
per day. By the midpoint method, Paolo's price elasticity of supply is:
A)
1.25.
B)
0.8.
C)
0.75.
D)
2.5.
Page 44
Use the following to answer questions 217-218:
Figure: Supply Curves
217.
(Figure: Supply Curves) Look at the figure Supply Curves. Which graph shows a
perfectly inelastic supply curve?
A)
A
B)
B
C)
C
D)
D
218.
(Figure: Supply Curves) Look at the figure Supply Curves. Which graph shows a
perfectly elastic supply curve?
A)
A
B)
B
C)
C
D)
D
219.
The price elasticity of supply for a good is 3 if a _____ in price leads to a 3% decrease
in the quantity supplied.
A)
1% increase
B)
1% decrease
C)
9% decrease
D)
9% increase
220.
The price elasticity of supply measures:
A)
the response of a supply shift to changes in technology.
B)
how much supply changes when the prices of inputs change.
C)
the responsiveness of the quantity supplied to changes in the price of the good.
D)
the response of a supply shift to changes in technology and to changes in prices.
Page 45
221.
If the quantity supplied responds substantially to a relatively small change in price,
supply is:
A)
price-elastic.
B)
price-inelastic.
C)
negatively sloped.
D)
insensitive to changes in price.
222.
If the price elasticity of supply is:
A)
greater than 1, then the supply is price-elastic.
B)
greater than 1, then the supply is price-inelastic.
C)
zero, then the supply is price unit-elastic.
D)
greater than 1, then the quantity supplied is relatively unresponsive to price
changes.
223.
If the price elasticity of supply is:
A)
less than 1, then the supply is price-elastic.
B)
less than 1, then the supply is price-inelastic.
C)
zero, then price is unit-elastic.
D)
less than 1, then the supply is very responsive to price changes.
224.
Which of the following is likely to be associated with inelastic supply?
A)
The time under consideration is very short.
B)
The inputs necessary for production cannot readily be increased.
C)
The good is necessary for survival (e.g., a life-saving drug).
D)
The time under consideration is very short and the inputs necessary for production
cannot readily be increased.
225.
The long-run price elasticity of supply of crude oil is _____ the short-run price elasticity
of supply of crude oil.
A)
less than
B)
greater than
C)
equal to
D)
not comparable to
Page 46
226.
In the short run, the price elasticity of supply for foods low in carbohydrates is lower
than it will be in the long run because:
A)
in the short run, inputs are more available to produce these foods than in the long
run.
B)
in the short run, food producers do not have much time to respond to changes in
demand.
C)
in the short run, prices tend to stay constant.
D)
in the long run, the price elasticity of supply tends to be perfectly inelastic.
227.
Which factor is important in determining the price elasticity of supply?
A)
the time the producer has to adjust inputs and outputs
B)
the number of close substitutes
C)
the intensity of the need of consumers
D)
the number of alternative uses of the good
228.
Supply curves tend to be more _____ the more time producers have to adjust to price
changes.
A)
price-inelastic
B)
price-elastic
C)
steeply sloped
D)
inflexible
229.
The supply curve for a good will be more elastic if:
A)
spending on the good accounts for a large share of a consumer's income.
B)
the good is a luxury item.
C)
production inputs are readily available at a relatively low cost.
D)
there is very little time for producers to respond to a price change.
230.
It is very difficult for Julia to find inexpensive inputs for her business. Because of this,
we predict that Julia's price elasticity of supply is:
A)
elastic.
B)
inelastic.
C)
unit-elastic.
D)
perfectly elastic.
Page 47
Use the following to answer questions 231-233:
Figure: The Demand Curve for Crossings
231.
(Figure: The Demand Curve for Crossings) Look at the figure The Demand Curve for
Crossings. This graph examines the demand for crossing a bridge over a very large
river. By the midpoint method, the price elasticity of demand between $0.90 and $1.10
is approximately:
A)
0.1.
B)
0.2.
C)
1.
D)
1.9.
232.
(Figure: The Demand Curve for Bridge Crossings) Look at the figure The Demand
Curve for Bridge Crossings. By the midpoint method, the price elasticity of demand
between $0.90 and $1.10 in the figure is _____, since the price elasticity is _____.
A)
price-elastic; less than 1
B)
price unit-elastic; equal to 1
C)
price-elastic; a negative number
D)
price-inelastic; less than 1
233.
(Figure: The Demand Curve for Bridge Crossings) Look at the figure The Demand
Curve for Bridge Crossings. Demand is price_____ between $0.90 and $1.10, since total
revenue _____ when the price _____.
A)
elastic; increases; decreases
B)
inelastic; stays the same; decreases
C)
unit-elastic; stays the same; increases
D)
inelastic; increases; increases
Page 48
Use the following to answer questions 234-236:
Figure: The Demand Curve for Oil
234.
(Figure: The Demand Curve for Oil) Look at the figure The Demand Curve for Oil. The
price elasticity of demand between $20 and $21, by the midpoint method, is
approximately:
A)
0.21.
B)
0.49.
C)
2.1.
D)
4.9.
235.
(Figure: The Demand Curve for Oil) Look at the figure The Demand Curve for Oil. The
price elasticity of demand between $20 and $21 is _____, since the price elasticity is
_____.
A)
price-elastic; less than 1.
B)
price unit-elastic; equal to 1.
C)
price-elastic; a negative number.
D)
price-inelastic; less than 1.
236.
(Figure: The Demand Curve for Oil) Look at the figure The Demand Curve for Oil.
Demand is price _____ between $20 and $21, since total revenue _____ when the price
_____.
A)
elastic; increases; decreases
B)
inelastic; stays the same; decreases
C)
elastic; decreases; increases
D)
inelastic; increases; increases
Page 49
Use the following to answer questions 237-249:
Figure: The Demand for Shirts
237.
(Figure: The Demand for Shirts) Look at the figure The Demand for Shirts. The price
elasticity of demand for the segment AB, by the midpoint method, is:
A)
13.
B)
11.
C)
0.91.
D)
0.1.
238.
(Figure: The Demand for Shirts) Look at the figure The Demand for Shirts. The price
elasticity of demand for the segment BC, by the midpoint method, is:
A)
greater than 3.33.
B)
3.33.
C)
3.
D)
0.33.
239.
(Figure: The Demand for Shirts) Look at the figure The Demand for Shirts. The price
elasticity of demand for the segment EF, by the midpoint method, is:
A)
1.3.
B)
1.
C)
0.7.
D)
0.33.
Page 50
240.
(Figure: The Demand for Shirts) Look at the figure The Demand for Shirts. By the
midpoint method, the price elasticity of demand for the segment AB is:
A)
less than the price elasticity of demand for the segment BC.
B)
less than the price elasticity of demand for the segment EF.
C)
zero.
D)
greater than the price elasticity of demand for the segment BC.
241.
(Figure: The Demand for Shirts) Look at the figure The Demand for Shirts. By the
midpoint method, the price elasticity of demand for the segment BC is:
A)
less than the price elasticity of demand for the segment AB.
B)
zero.
C)
greater than 3.5.
D)
less than the price elasticity of demand for the segment CD.
242.
(Figure: The Demand for Shirts) Look at the figure The Demand for Shirts. By the
midpoint method, the price elasticity of demand for the segment CD is:
A)
0.71.
B)
1
C)
1.4.
D)
0.29.
243.
(Figure: The Demand for Shirts) Look at the figure The Demand for Shirts. By the
midpoint method, the price elasticity of demand for the segment DE is approximately:
A)
0.3.
B)
0.7.
C)
1.
D)
greater than 10.
244.
(Figure: The Demand for Shirts) Look at the figure The Demand for Shirts. By the
midpoint method, the price elasticity of demand for the segment EF is:
A)
greater than 1.
B)
less than the price elasticity of demand for segment FG.
C)
less than the price elasticity of demand for segment DE.
D)
greater than the price elasticity of demand for segment AB.
Page 51
245.
(Figure: The Demand for Shirts) Look at the figure The Demand for Shirts. The price
elasticity of demand, by the midpoint method, for the segment FG is approximately:
A)
0.
B)
0.09.
C)
0.5.
D)
greater than 1.
246.
(Figure: The Demand for Shirts) Look at the figure The Demand for Shirts. The
Demand for Shirts. At a price of $40, total revenue is:
A)
$40.
B)
$200.
C)
$4,000.
D)
$8,000.
247.
(Figure: The Demand for Shirts) Look at the figure The Demand for Shirts. At a price of
$30, total revenue is _____, and at a price of $10, total revenue is _____.
A)
$9,000; $12,000
B)
$3,000; $5,000
C)
$9,000; $5,000
D)
$5,000; $9,000
248.
(Figure: The Demand for Shirts) Look at the figure The Demand for Shirts. Total
revenue is maximized if the price is:
A)
$30.
B)
$40.
C)
$50.
D)
$60.
249.
(Figure: The Demand for Shirts) Look at the figure The Demand for Shirts. If the price
is below _____, demand is inelastic.
A)
$10
B)
$20
C)
$30
D)
$40
Page 52
Use the following to answer questions 250-254:
Figure: The Demand for e-Books
250.
(Figure: The Demand for e-Books) Look at the figure The Demand for e-Books. What is
the price elasticity of demand (by the midpoint method) when the price decreases from
$6 to $4?
A)
0.55
B)
0.5
C)
1
D)
0.67
251.
(Figure: The Demand for e-Books) Look at the figure The Demand for e-Books. What is
the price elasticity of demand (by the midpoint method) when the price increases from
$6 to $8?
A)
0.55
B)
0.5
C)
2.33
D)
0.67
252.
(Figure: The Demand for e-Books) Look at the figure The Demand for e-Books. The
demand schedule _____ when the price increases from $4 to $6 _____ when it increases
from $6 to $8.
A)
is less elastic; than
B)
is more elastic; than
C)
has the same elasticity;; as
D)
is unit-elastic; and
Page 53
253.
(Figure: The Demand for e-Books) If the price of e-Books decreases from $6 to $4, total
revenue _____, which means that demand is _____.
A)
changes from $60 to $90; elastic
B)
remains constant; unit-elastic
C)
changes from $240 to $360; elastic
D)
changes from $40 to $50; inelastic
254.
(Figure: The Demand for e-Books) If the price of e-Books increases from $6 to $8, total
revenue _____, which means that demand is _____.
A)
increases; elastic
B)
decreases; inelastic
C)
remains constant; elastic
D)
decreases; elastic
Use the following to answer questions 255-263:
Figure: The Demand Curve
255.
(Figure: The Demand Curve) Look at the figure The Demand Curve. By the midpoint
method, the price elasticity of demand between $8 and $9 is approximately:
A)
0.18.
B)
0.56.
C)
1.80.
D)
5.67.
Page 54
256.
(Figure: The Demand Curve) Look at the figure The Demand Curve. By the midpoint
method, the price elasticity of demand between $1 and $2 is approximately:
A)
0.16.
B)
0.56.
C)
1.80.
D)
5.67.
257.
(Figure: The Demand Curve) Look at the figure The Demand Curve. By the midpoint
method the price elasticity of demand between $3 and $4 is approximately:
A)
0.19.
B)
0.54.
C)
1.00
D)
1.86.
258.
(Figure: The Demand Curve) Look at the figure The Demand Curve. By the midpoint
method, the price elasticity of demand between $6 and $8 is approximately:
A)
0.23.
B)
0.45.
C)
2.33.
D)
4.50.
259.
(Figure: The Demand Curve) Look at the figure The Demand Curve. By the midpoint
method, the price elasticity of demand between $6 and $7 is approximately:
A)
0.19.
B)
1.00.
C)
1.86.
D)
5.40.
260.
(Figure: The Demand Curve) Look at the figure The Demand Curve. If the price is $5,
total revenue is:
A)
$5.
B)
$10.
C)
$20.
D)
$25.
Page 55
261.
(Figure: The Demand Curve) Look at the figure The Demand Curve. If the price is $8,
total revenue is _____. If the price is $7, total revenue is _____.
A)
$24; $16
B)
$14; $21
C)
$16; $21
D)
$10; $10
262.
(Figure: The Demand Curve) Look at the figure The Demand Curve. If the price is $3,
total revenue is _____. If the price is $4, total revenue is _____.
A)
$21; $24
B)
$21; $18
C)
$12; 28
D)
$7; $13
263.
(Figure: The Demand Curve) Look at the figure The Demand Curve. Between prices $4
and $5, demand is _____, and total revenue will _____ if price increases.
A)
elastic; increase
B)
elastic; decrease
C)
inelastic; increase
D)
inelastic; decrease
264.
Consider the market for strawberries. Which of the following statements most likely
applies to the strawberry market?
A)
The income elasticity of demand for strawberries is negative.
B)
The price elasticity of supply of strawberries is greater in the short run than in the
long run.
C)
The price elasticity of demand for strawberries is lower in the long run than in the
short run.
D)
The cross-price elasticity of demand for strawberries with respect to the price of
raspberries is positive.
Page 56
Use the following to answer questions 265-266:
Figure: The Market for Lattes
265.
(Figure: The Market for Lattes) Look at the figure The Market for Lattes. What is the
price elasticity of demand between $2 and $2.50 per cup, using the midpoint formula?
A)
1.00
B)
1.29
C)
2.51
D)
3.00
266.
(Figure: The Market for Lattes) Look at the figure The Market for Lattes. What is the
price elasticity of supply between the prices of $2 and $2.50 per cup, using the midpoint
formula?
A)
1.00
B)
1.29
C)
1.51
D)
3.00
Page 57
267.
Suppose the price of Vanilla Coke increases by 9% and quantity demanded falls by 13%
overall but only by 4% for loyal Coca-Cola customers. This means that for the general
public there are _____ for Vanilla Coke, but for loyal Coca-Cola customers, Vanilla
Coke is more of a _____ item. This means that Coca-Cola will enjoy an increase in total
revenue only from _____.
A)
several substitutes; necessity; loyal Coca-Cola customers
B)
few substitutes; luxury; the general public
C)
no substitutes; necessity; the general public
D)
several substitutes; necessity; the general public
268.
A group of dairy farmers is trying to raise milk prices by 10%. If the price elasticity of
demand for milk is 0.75 and the price elasticity of supply for milk is 0, by how much
should farmers reduce their milk production to obtain the 10% increase?
A)
10%
B)
7.5%
C)
15%
D)
13%
269.
If an increase in the price of a good leads to an increase in total revenue, the _____
curve is price _____.
A)
supply; inelastic
B)
demand; inelastic
C)
supply; elastic
D)
demand; elastic
270.
Suppose the price elasticity of demand for blueberries is 1.5. If climate change destroys
one-fourth of the nation's blueberry crop, how will that affect total revenue, all other
things unchanged?
A)
Total revenue will rise.
B)
Total revenue will fall.
C)
Total revenue will remain unchanged.
D)
The information is insufficient to answer the question.
271.
The price elasticity of demand for gasoline in the short run has been estimated to be 0.1.
If a war in the Middle East causes the price of oil (from which gasoline is made) to
increase, how will that affect total expenditures on gasoline in the short run, all other
things equal?
A)
Quantity demanded will stay the same, but total expenditures will fall.
B)
Quantity demanded will decrease, but total expenditures will rise.
C)
Total expenditures will remain unchanged.
D)
Quantity demanded will not change much, but total expenditures will rise.
Page 58
272.
The price elasticity of demand for cabbage has been estimated to be 0.25. If an insect
infestation destroys 20% of the nation's cabbage crop (and thus reduces supply), how
will that affect total expenditures on cabbage, all other things equal?
A)
Total expenditures will rise.
B)
Total expenditures will fall.
C)
Total expenditures will remain unchanged.
D)
The information is insufficient to answer the question.
273.
The price elasticity of demand for soft drinks has been estimated to be 0.55. If the
government enacts a major increase in the tax on imported sugar (a major ingredient in
soft drink manufacturing), how will that affect total expenditures on soft drinks, all
other things equal?
A)
Total expenditures will remain unchanged.
B)
Total expenditures will fall.
C)
Total expenditures will rise.
D)
People will buy Pepsi instead of Coke.
274.
The price elasticity of demand for ground beef has been estimated to be 1.0. If mad cow
disease strikes the United States and a large percentage of the cattle are removed from
the market, how will that affect total expenditures on ground beef, all other things
equal?
A)
Total expenditures will remain unchanged.
B)
Total expenditures will fall by more than 1%.
C)
Demand will fall by 1%, but total expenditures will fall by less than 1%.
D)
Total expenditures will rise.
275.
Assume the price elasticity of demand for corn has been estimated to be 2.33. Flash
floods destroy 10% of the nation's crop of corn. Which of the following best describes
how this will affect total expenditures on corn, all other things equal?
A)
Total expenditures will remain unchanged.
B)
Total expenditures will fall.
C)
Total expenditures will rise.
D)
The information is insufficient to answer the question.
Page 59
276.
The price elasticity of demand for fresh zucchini has been estimated to be 2.25. A new
irrigation system yields a 25% increase in the nation's crop of fresh zucchini. Which of
the following best describes how this will affect total expenditures on zucchini, all other
things equal?
A)
Total expenditures will remain unchanged.
B)
Total expenditures will fall.
C)
Total expenditures will rise.
D)
The information is insufficient to answer the question.
277.
The price elasticity of demand for milk has been estimated to be somewhere between
0.49 and 0.63. If a new system of feeding and milking cows yields a 15% increase in the
production of milk throughout the country, how will that affect total expenditures on
milk, all other things equal?
A)
Total expenditures will remain unchanged.
B)
Total expenditures will fall.
C)
Total expenditures will rise.
D)
The information is insufficient to answer the question.
278.
The price elasticity of demand for gasoline in the long run has been estimated to be 1.5.
If an extended war in the Middle East caused the price of oil (from which gasoline is
made) to increase and remain high for a decade, how would that affect total
expenditures on gasoline in the long run, all other things equal?
A)
Total expenditures would rise.
B)
Total expenditures would fall.
C)
Total expenditures would remain unchanged.
D)
The information is insufficient to answer the question.
279.
If the price elasticity of demand for tobacco is 0.5 and the income elasticity of demand
for tobacco is 0.4:
A)
an increase in the price of tobacco will decrease total revenue from sales of
tobacco.
B)
a 20% increase in the price of tobacco will decrease the quantity demanded of
tobacco by 8%.
C)
tobacco is an inferior good.
D)
a 50% increase in income will increase the quantity demanded of tobacco by 20%.
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280.
A price floor above equilibrium will cause a larger surplus when demand is _____ and
supply is _____.
A)
elastic; inelastic
B)
inelastic; inelastic
C)
elastic; elastic
D)
perfectly inelastic; elastic
281.
A price ceiling below equilibrium will cause a larger shortage when demand is _____
and supply is _____.
A)
elastic; inelastic
B)
inelastic; inelastic
C)
elastic; elastic
D)
perfectly inelastic; elastic
282.
There is NO total revenue test for price elasticity of supply because:
A)
price and quantity supplied are usually inversely related.
B)
price and quantity supplied are usually positively related.
C)
total revenue will not usually change in the direction of a supply price change.
D)
price and quantity supplied are always negatively related.
283.
Assume the supply curve shifts to the right by a given amount at each price. The price in
the market will decline the most if demand is more _____ and supply is more _____.
A)
price-elastic; price-elastic
B)
price-inelastic; price-elastic
C)
price-elastic; price-inelastic
D)
price-inelastic; price-inelastic
284.
The price elasticity of demand is the ratio of the percent change in quantity demanded to
the percent change in price as one moves along the demand curve.
A)
True
B)
False
285.
A perfectly inelastic demand curve for insulin would mean that the quantity demanded
does NOT respond at all to changes in the price of insulin.
A)
True
B)
False
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286.
If funeral homes discover that the price elasticity of demand for caskets equals 0.55 at
the current price, funeral homes should increase prices to increase revenue.
A)
True
B)
False
287.
Sarah has been told she has only one week to finish some pottery for a show. Sarah has
exhausted her supply of clay, and new clay is absolutely necessary for finishing her
products. For Sarah, the price elasticity of demand for new clay is elastic.
A)
True
B)
False
288.
If demand is perfectly inelastic, changes in price leave total revenue unchanged.
A)
True
B)
False
289.
The director of River City Public Transport recently stated, “The last seven times we
increased bus fares, revenues dropped.” This remark suggests the demand for bus
service is elastic.
A)
True
B)
False
290.
The mayor advocates raising the entrance fee at the city's pools to increase revenue for
the city. The mayor is right only if the price effect dominates the quantity effect.
A)
True
B)
False
291.
Local cable companies recently increased the price of basic services. A news expert
reporting on the increase stated, “While prices have increased 40%, the cable company
reports only a 20% increase in revenue.” This remark suggests the demand for basic
cable service is elastic.
A)
True
B)
False
292.
Given a price increase for any good, the price effect on revenue is always larger than the
quantity effect on revenue.
A)
True
B)
False
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293.
The price elasticity of demand for gasoline is likely to be higher in the long run than in
the short run.
A)
True
B)
False
294.
A major determinant of the price elasticity of demand is the availability of substitutes.
A)
True
B)
False
295.
Demand for Wendy's hamburgers is more inelastic than the demand for all fast food.
A)
True
B)
False
296.
Since for most people, eating in restaurants is a luxury and eating at home is a necessity,
the price elasticity of demand for food eaten at home is less than the price elasticity of
demand for eating in restaurants.
A)
True
B)
False
297.
You are the manager of a supermarket, and you know that the cross-price elasticity of
peanut butter to jelly is exactly –2.0.Because of a bad grape harvest, grape jelly prices
are expected to rise by 10% next year. To account for the change in demand, you should
stock 10% more peanut butter.
A)
True
B)
False
298.
If the cross-price elasticity of demand between hamburgers and cheese is positive, these
two goods must be complements.
A)
True
B)
False
299.
If the cross-price elasticity of demand between rice and beans is –0.25, rice and beans
are complements.
A)
True
B)
False
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300.
The income elasticity of demand for an inferior good, such as a macaroni and cheese
dinner, is negative.
A)
True
B)
False
301.
The price elasticity of the supply of paintings by Rembrandt is greater than 1.
A)
True
B)
False
302.
If the quantity demanded is 5,000 gallons at $3.00 per gallon, the price elasticity of
demand for gasoline is 0.5, and the price rises to $3.15 per gallon, how many gallons of
gas will be sold at this higher price? (Use the conventional method, not the midpoint
method, of calculating price elasticity of demand.)
303.
A university bookstore decreased the price of a sweatshirt from $20 to $18 and
discovered that sweatshirt sales increased from 100 per week to 120 per week. Use the
midpoint formula to compute the price elasticity of demand for sweatshirts.
304.
The city government is losing millions of dollars on its buses and subways. The
government proposes to increase the fare by 20% to raise revenue and has asked your
advice. You know that the price elasticity of demand for mass transit in the city is
approximately equal to 0.75. What do you think of the proposal to increase the fare to
raise revenue for the city? Be as specific as possible.
305.
Suppose the price elasticity of demand for electricity is equal to 0.15 in the short run but
is equal to 0.5 in the long run. What explains this difference, and what does this imply
about the demand curve for electricity in the short run versus the long run?
306.
Suppose the cross-price elasticity of demand for pork with respect to the price of
chicken is equal to +0.4. What does this tell you about the relation between pork and
chicken? What will happen to consumption of pork if the price of chicken falls by 20%?
307.
Suppose the cross-price elasticity between two goods is zero. What does this tell you
about these two goods?
308.
Suppose the income elasticity for cross-country bus trips is –2 and the income elasticity
for cross-country plane trips is +2. Does this make sense? Explain your answer.
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309.
Suppose you are told that the short-run price elasticity of supply for a movie theater is
zero. Does this make sense?
310.
All else equal, when the demand for oil increases, the price will increase. Some
economists say that this is only a short-run worry because in the long run a more elastic
supply curve will benefit consumers. Do you agree? Explain.
311.
You have hired a student intern to calculate some elasticity measures so that you can
present the findings at a prestigious economics conference. For the measures that
follow, provide a quick interpretation, and then determine whether you should trust the
intern's work or not. After all, it will be you in front of that critical audience of
professionals, not the intern.
A) “The income elasticity of demand for movie theatre tickets is –1.5.”
B) “The price elasticity of demand for milk is 0.4 in the short run and 0.9 in the long
run.”
C) “The cross-price elasticity of demand for Cheerios with respect to the price of
Wheaties is –2.”
312.
When the absolute value of the percentage change in quantity demanded is less than the
absolute value of the percentage change in price, demand is:
A)
inelastic.
B)
elastic.
C)
unit-elastic.
D)
unknown.
313.
If the price elasticity of demand between two points on a demand curve is 0.75, then the
demand between those two points is:
A)
price unit-elastic.
B)
price-inelastic.
C)
price-elastic.
D)
unknown.
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314.
If the absolute value of the price elasticity of demand is greater than 1:
A)
small percentage changes in the price will lead to much larger percentage changes
in the quantity demanded.
B)
small percentage changes in the price will lead to even smaller changes in the
percentage change in the quantity demanded.
C)
percentage changes in the price will lead to equal percentage changes in the
quantity demanded.
D)
changes in the price will have no impact on changes in the quantity demanded.
315.
Suppose the price of e-books is initially $20 but decreases to $15. The absolute value of
the percentage change in price (by the midpoint method) is approximately:
A)
28%.
B)
10%.
C)
5%.
D)
15%.
316.
If you wanted to make sure that your calculation of elasticity between two points was
the same regardless of your initial point, you would use:
A)
the absolute value of elasticity.
B)
supply elasticity.
C)
the midpoint formula calculation of elasticity.
D)
the point formula calculation of elasticity.
317.
A demand curve that is perfectly inelastic is:
A)
horizontal.
B)
vertical.
C)
downward-sloping.
D)
upward-sloping.
318.
If the price elasticity of demand equals 0, the demand curve is:
A)
horizontal.
B)
vertical.
C)
upward-sloping.
D)
unit-elastic.
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319.
The price of a gallon of gasoline increases 10% this year. As a result, which of the
following events is MOST likely to occur?
A)
More people will drive their cars.
B)
Public transportation usage will decrease.
C)
Gasoline expenditures will increase if gasoline is an inelastic good.
D)
Fewer people will ride bicycles, a substitute for car travel.
Use the following to answer questions 320-322:
Figure: The Linear Demand Curve
320.
(Figure: The Linear Demand Curve) Look at the figure The Linear Demand Curve. If
the price is initially $10, then falls to $9, this will result in a(n) _____ in quantity
demanded and a(n) _____ in total revenue.
A)
decrease; decrease
B)
decrease; increase
C)
increase; decrease
D)
increase; increase
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321.
(Figure: The Linear Demand Curve) Look at the figure The Linear Demand Curve. As a
producer, you are interested in maximizing your total revenues in this market. At what
price should you sell your good? What is the corresponding total revenue?
A)
$10; $100
B)
$20; $200
C)
$0; $100
D)
$5; $100
322.
(Figure: The Linear Demand Curve) Look at the figure The Linear Demand Curve. If
you increase the price of your scarves from $7 to $8, your total revenue will _____, and
you notice that your price elasticity of demand is _____.
A)
increase; elastic
B)
decrease; elastic
C)
increase; inelastic
D)
decrease; inelastic
Use the following to answer questions 323-324:
Figure: The Linear Demand Curve II
323.
(Figure: The Linear Demand Curve II) Look at the figure Linear Demand Curve II. At
prices greater than $7, demand is _____; at prices below $7 demand is _____; and at $7
demand is _____.
A)
elastic; inelastic; unit-elastic
B)
inelastic; elastic; unit-elastic
C)
unit-elastic; inelastic; elastic
D)
equal to 0; elastic; inelastic
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324.
(Figure: The Linear Demand Curve II) Look at the figure Linear Demand Curve II. If
price was initially set at $8 and then increased to $10, total revenue would:
A)
decrease, as the price effect is dominated by the quantity effect.
B)
increase, as the price effect dominates the quantity effect.
C)
stay the same, as both the price and quantity effects remain unchanged.
D)
stay the same, but the price effect is dominated by the quantity effect.
325.
All of the following are characteristics of a good with elastic demand EXCEPT:
A)
a short time to adjust to price changes.
B)
a large number of substitutes.
C)
luxury.
D)
specific brands.
326.
Goods A and B have a positive cross-price elasticity of demand. This means goods A
and B are:
A)
normal.
B)
substitutes.
C)
complements.
D)
inferior.
327.
Suppose the cross-price elasticity between two goods is 1.5. If the price of one good
increases by 10%, then the quantity demanded of the other good will:
A)
decrease by 15%.
B)
increase by 15%.
C)
decrease by 1.5%.
D)
increase by 1.5%.
328.
Jessica's income increased by 10% this year. In the same year, Jessica's quantity
demanded of milk increased by 10% and her quantity demanded for bread increased by
5%. This means that for Jessica:
A)
both milk and bread are inferior goods.
B)
both milk and bread are normal goods.
C)
milk is an inferior good, but bread is a normal good.
D)
milk is a normal good, but bread is an inferior good.
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329.
If the percentage change in the quantity demanded of a good is greater than the
percentage change in income and in the same direction, then this good will have an
income elasticity _____1, and it is a(n) _____ good.
A)
greater than; normal
B)
less than; normal
C)
equal to; normal
D)
less than; inferior
Use the following to answer question 330:
Table: Prices, Quantity Demanded, and Income for Jeremy
Year
Good
Price
Quantity Demanded
Income
2008
Coffee
$4
12
2008
Doughnuts
2
20
2008
$100
2009
Coffee
$4
13
2009
Doughnuts
2
18
2009
150
330.
(Table: Prices, Quantity Demanded, and Income for Jeremy) Look at the table Prices,
Quantity Demanded, and Income for Jeremy. Between the two years listed, by the
midpoint method, Jeremy's income elasticity of demand for coffee equals _____ and
doughnuts are a(n) _____ good.
A)
0.20; inferior
B)
2; normal
C)
2; inferior
D)
0.20; normal
331.
The price of coffee increases by 10%, and as a result, Alex purchases fewer doughnuts.
For Alex, coffee and doughnuts are:
A)
complements.
B)
substitutes.
C)
inferior goods.
D)
normal goods.
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332.
Tomas produces 100 cartons of free range eggs when the price is $5 and 150 cartons of
free range eggs when the price is $7. What is the value of Tomas's price elasticity of
supply?
A)
1.2
B)
2.0
C)
1.0
D)
3.2
333.
One would expect to see the supply become more price _____ as harvest season
approaches and crops are being brought in from the fields.
A)
elastic
B)
inelastic
C)
unit-elastic
D)
inferior
334.
Decreases in input costs and a longer time since a price change will tend to:
A)
increase the price elasticity of supply.
B)
decrease price elasticity of supply.
C)
have no impact on the price elasticity of supply.
D)
increase price elasticity of supply with decreases in input costs but decrease price
elasticity of supply with length of time.
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