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Chapter 06 Test Bank Key
1. Price elasticity of demand shows how
2. Price elasticity of demand refers to
3. Price elasticity looks at
4. The basic formula for price elasticity is
5. Technically the elasticity number is negative because
A. When price falls quantity demanded will rise, but for simplicity economists take the absolute value of
6. To find the average percentage change in quantity demanded,
A. The change in price is divided by the percentage change in quantity demanded.
7. To find the average percentage change in price,
A. The change in price is divided by the average price.
8. If the price increases by 10 percent, and the quantity demanded falls by 5 percent, the absolute value of
the price elasticity will be
A. 0.5.
9. Assume the price elasticity of demand for U.S. Frisbee Co. Frisbees is 0.5. If the company increases the
price of each Frisbee from $12 to $16, the number of Frisbees demanded will
10. If the elasticity of demand is 3, and the price rises by 15 percent, then
11. If the price of sandals increases by 10 percent and the quantity demanded falls by 20 percent, then the
price elasticity of demand in absolute value is
12. If the price of cell phones increases by 5 percent and the quantity demanded falls by 2 percent, the absolute
value of the price elasticity of demand is
13. Assume the price elasticity of demand for JT Chip Co. chips is 4.0. If the company decreases the price of
each bag of chips from $1.89 to $1.49, the number of bags sold will
A. Decrease by 78 percent.
14. If the price elasticity of demand is 0.6, then a 10 percent increase in the price of the good will lead to a
________ in the quantity
demanded. A. 6 percent increase
15. For product XYZ, the price elasticity of demand has an absolute value of 3.5. This means that quantity
demanded will increase by
A. 1 percent for each 3.5 percent decrease in price, ceteris paribus.
16. Suppose the quantity demanded of ski boats falls from 4.0 million to 3.0 million as a result of an average price
increase from $20,000 to $25,000 per boat. The absolute value of the price elasticity of demand is closest
to
A. 0.20.
17. Suppose a university raises its tuition by 6 percent and as a result the enrollment of students decreases by
3 percent. The absolute value of the price elasticity of demand is
18. If the price of the iPod falls by 3 percent and the price elasticity of demand for iPods is 2.0, then
quantity demanded will fall by what percentage?
A. 5 percent.
19. If demand is price-elastic, then
A. The elasticity number E is greater than 1.
20. When demand is elastic, the absolute number for price elasticity will be
21. If the demand for a product is elastic, then
A. The percentage change in quantity demanded is greater than the percentage in price.
22. A demand curve that is perfectly inelastic is
23. When demand is inelastic
24. If demand is perfectly elastic,
A. The demand curve is vertical.
25. If demand is very inelastic,
A. The demand curve will be very flat.
26. The price elasticity of demand is equal to
27. When the percentage change in quantity demanded is less than the percentage change in price, ceteris
paribus,
28. If the price elasticity of demand for cigarettes is 0.4,
29. Which of the following products will have more inelastic demand?
A. New cars.
30. Which of the following products will have elastic demand?
31. A demand curve that is completely elastic is
A. Horizontal.
32. Which of the following would most likely have a price elasticity coefficient greater than 1?
would argue that very few if any substitutes exist to cigarettes and gasoline.
33. The demand will be _______________ if the consumer has _________ substitute goods to choose from
34. Which of the following is not a determinant of the price elasticity of demand?
35. Which of the following does not influence the price elasticity of demand?
36. Which of the following would most likely have a price elasticity coefficient less than 1?
37. Which of the following is likely to have the most inelastic price elasticity of demand?
38. Ceteris paribus, as the number of substitutes for a good increases,
the A. Price elasticity of demand should become smaller.
39. Which of the following causes demand to be more elastic with respect to price?
40. Ceteris paribus, the longer the time period, the
41. The demand is more price-elastic
42. If the price elasticity of demand is equal to 2, the good has _____ demand.
A. elastic
43. Total revenue is
44. Total revenue is equal to
45. If demand is elastic, then
A. An increase in price will reduce total revenue.
46. A price change will have no effect on total revenue if demand
is A. Elastic.
50. Sam owns a taco restaurant, and he conducted a consumer survey that indicates that the price elasticity of
demand for his restaurant is 3.5. You would advise Sam to
49. If the elasticity of demand for cigarettes is 0.4, a seller should
A. Increase price to increase total revenue.
51. The total revenue effect of a movement along a demand curve can best be predicted using the
51. The local baseball team owner hires you to help maximize the team's profits. You are told that costs are
constant because enough help is always hired for a full stadium, so assume your task is to maximize
revenues from ticket sales. Your advice to the owner should be to
52. Assume a good has a downward-sloping, linear demand curve. Starting at a price of zero, as the price of the
good increases, total revenue
53. If the price elasticity of demand is 1.0, and a firm raises its price by 10 percent, the total revenue will
54. If Carmen's Coffee Company wants to increase total revenue and the price elasticity of demand is 0.43,
the company should
A. Increase the price of its coffee.
55. Carter has budgeted $40 per month for candy bars. No matter how the price of candy bars changes, he spends
exactly $40 per month. Carter's price elasticity of demand for candy bars must
56. If the demand for cigarettes is inelastic,
A. Total revenue will rise if the price of cigarettes rises.
57. Assume the price elasticity of demand for MC Pretzel Co. pretzels is 0.8. If the company increases the price of
each bag of pretzels, total revenue will
58. When demand is price-inelastic, ceteris paribus, an increase in
59. A price decrease will cause total revenue to fall
if A. Demand is elastic.
60. If the price of Good X falls and total revenue rises, then
61.
Maximum total revenue occurs when
62. On a demand curve, demand is more elastic
63.
In Figure 20.1, total revenue is maximized at the unit price of
64.
In Figure 20.1, at what price is the elasticity of demand unitary?
65.
In the $80 to $40 price range in Figure 20.1, demand is
66.
In the $160 to $180 price range in Figure 20.1, the absolute value of the price elasticity of demand is closest to
67.
If the price is reduced from $100 to $80 in Figure 20.1, ceteris paribus,
68.
Over the price range from $180 to $120 in Figure 20.1, ceteris paribus,
69. A grocery store put salt on sale but found that total revenues fell. This can be explained by which of
the following?
A. The demand for salt is very elastic.
