Chapter 6 For The United States Become Less

109. For the United States to become less dependent on foreign sources of oil,

110. In the article “After iPhone Price Cut, Sales Are Up by 200 Percent,”

A. The demand for iPhones is inelastic.

111. The In The News article “Play Station 3 Sales More Than Double after Price Cut” indicated that

A. The percentage change in price was greater than the percentage change in quantity demanded.

113. Nobel Prize-winning economist Gary Becker corrected President Clinton’s elasticity estimate for

cigarette smoking by

113. The In The News article “Recession Eats into Gator Market” states that

114. The article “Samsung Stung by Apple Moves” related to the price cuts for the iPhone indicates that

115. The article “SUV Sales Drop with Gasoline Price Rise” states

116. In the article on SUV sales titled “SUV Sales Drop with Gasoline Price Rise” suggests that

117. The World View “High Gold Price Swells Ranks of Illegal Miners”related to gold prices and gold

mining suggests

A. As the price of gold rises, the quantity supplied falls.

118. The World View article on the rise in gold prices indicates that

119. The price elasticity of demand is calculated by dividing the percentage change in quantity demanded by

the percentage change in price.

120. Demand is elastic if the consumer has only a few substitutes to choose from.

121. Demand is more inelastic for luxury goods.

122. The price elasticity number for necessities will be greater than 1.

123. Demand is more inelastic in the long run.

124. Along a linear or straight-line demand curve, demand is more elastic at higher prices.

125. If the elasticity of demand is 3, then a 10 percent increase in price will cause quantity demanded to fall by

3 percent.

126. If the price elasticity of demand is 0.4, a 5 percent increase in price will quantity demanded to fall by 2 percent.

127. If the elasticity number (E) is less than 1, a price increase will cause total revenue to fall.

128. If demand is elastic, a price reduction will lead to an increase in total revenue.

129. If demand is inelastic, a reduction in price will lead to a drop in total revenue.

130. The cross-price elasticity sign for substitute goods is negative.

131. Cross-price elasticity looks at the impact that income changes have on sales.

132. If the price of gasoline rises by 10 percent and new car sales fall by 5 percent, this indicates that these

two goods are complementary.

TRUE

133. If two goods are complementary, it means that when the price of one good increases, the demand for the

other rises.

FALSE

134. During a recession the sales of autos fall, and the best measure of this is to use cross-price elasticity.

135. For inferior goods, when incomes rise the demand for these goods falls.

136. The sign on the income elasticity formula will be positive for inferior goods and negative for normal goods.

137. Most goods are normal goods, and their demand shifts to the left when income rises.

138. Supply is very inelastic if the quantity supplied cannot respond quickly to an increase in price.

139. The formula for the elasticity of supply is the percentage change in quantity supplied divided by the

percentage change in price.

140. The price elasticity of supply will always be a negative number.

141. To increase U.S. energy independence, prices must be lowered on gasoline and electricity.

142. To reduce our dependence on foreign oil, policy makers must realize that the cross-price elasticity sign

for gasoline and fossil fuel-burning cars is negative.

143. Explain why it is so important for a business to understand the concept of price elasticity and be able

to measure this for its products.

because not all of their customers will switch to substitutes.

144. Explain why the concept of price elasticity of demand is important to government when deciding which goods to

tax in order to raise government tax revenues

145. You own your business, and your research indicates that the price elasticity of demand for your product is 3.5.

What pricing strategies should you follow, and why?

146. How does advertising influence the demand for goods and the shape of the demand curve?

147. Discuss how the concepts of cross-price elasticity of demand and income elasticity of demand can help

businesses plan production and pricing.

148. Explain under what conditions supply is very inelastic and elastic.

Chapter 06 Test Bank Summary