Chapter 6: ELASTICITY AND DEMAND
6-40 If the price elasticity of demand for Harley-Davidson motorcycles is −1.2 and quantity demanded
increases by 24%, price must have
a. decreased by 20%.
b. increased by 20%.
c. decreased by 28.8%.
d. decreased by 0.05%.
6-41 Which of the following would tend to DECREASE the elasticity of demand for good X?
a. The cost of producing X decreases.
b. Several firms which used to produce substitutes for X go out of business.
c. Consumers begin spending a smaller percentage of their income on X.
d. both b and c
e. all of the above
6-42 If the demand for plastic surgery is price inelastic,
a. changes in price do not affect the number of operations.
b. then when more plastic surgery is performed, total expenditures on plastic surgery will
decrease.
c. the percentage change in price is less than the percentage change in quantity.
d. both b and c
e. both a and b
6-43 If a drought increases the price of corn by 10% and decreases the quantity of corn demanded by
5%, then demand for corn is
a. elastic and total revenue to corn farmers will decrease.
b. inelastic and total revenue to corn farmers will decrease.
c. elastic and total revenue to corn farmers will increase.
d. inelastic and total revenue to corn farmers will increase.
Chapter 6: ELASTICITY AND DEMAND
6-44 Which of the following would tend to INCREASE the elasticity of demand for good X?
a. a new discovery allows firms to produce X at a much lower cost.
b. the percent of a consumer’s income spent on good X declines.
c. a new product, Y, which can be used in place of X, is introduced.
d. both b and c
e. all of the above
6-45 If E1 is the demand elasticity for a product after a price change has been in effect one day, E2 is
the demand elasticity for that product after one week, and E3 is demand elasticity for that product
after one month,
a. |E1| > |E2| > |E3|
b. |E2| > |E3| > |E1|
c. |E3| > |E1| > |E2|
d. |E3|> |E2| > |E1|
6-46 E1 is demand elasticity for Minute Maid orange juice, E2 is demand elasticity for all orange juice,
and E3 is demand elasticity for all fruit drinks. Then
a. |E1| > |E2| > |E3|
b. |E2| > |E3| > |E1|
c. |E3| > |E1| > |E2|
d. |E3| > |E2| > |E1|
6-47 Consider the statement: “When the British government tripled university fees for foreign
students in Great Britain, about one-half of them left to study in other countries.” The
implied price elasticity of demand by foreigners for a British education is (in absolute
value)
Chapter 6: ELASTICITY AND DEMAND
a. less than 1.
b. equal to 1.
c. between 1.0 and 1.5.
d. greater than 1.5.
6-48 Consider the statement: “When the British government tripled university fees for foreign students
in Great Britain, about one-half of them left to study in other countries.” This move will
___________ university revenues from foreign students in Great Britain.
a. decrease
b. not change
c. increase
d. cannot determine without further information
6-49 The demand for good X will be more elastic than the demand for good Y when
a. good X has fewer substitutes than good Y.
b. good X accounts for a larger percentage of a typical consumer‘s budget than good Y.
c. consumers have more time to adjust to a change in the price of good X than they have
time to adjust to a change in the price of good Y.
d. both b and c
e. all of the above
Chapter 6: ELASTICITY AND DEMAND
6-50 Perfume industry statistics show that over the past five years, the number of bottles of perfume
sold decreased by 30%, but the total dollar amount spent by consumers was unchanged. This
means that
a. consumers were unresponsive to changes in price, i.e., the percentage change in quantity
demanded was less than the percentage change in price.
b. demand was elastic.
c. demand was inelastic.
d. demand was unitary elastic.
e. both a and c
6-51 The fact that the cross-price elasticity of natural gas with respect to the price of fuel oil is 0.4
implies that
a. natural gas and fuel oil are substitutes.
b. natural gas is a normal good.
c. the quantity of natural gas demanded will decrease by 1.6% when the price of fuel oil
decreases by 4%.
d. both a and c
6-52 Demand is (more elastic / less elastic) in the short run than in the long run
a. (more elastic) because goods account for a larger percentage of the consumer’s budget in
the short run than in the long run.
b. (less elastic) because goods account for a smaller percentage of the consumer’s budget in
the short run than in the long run.
c. (more elastic) because consumers have less time to adapt to a price change in the short
run than in the long run.
d. (less elastic) because consumers have less time to adapt to a price change in the short run
than in the long run.
6-53 Total revenue increased for a firm operating in the elastic range of its demand curve. Which of
the following statements is correct?
a. The firm must have raised price.
Chapter 6: ELASTICITY AND DEMAND
b. The firm must have lowered price.
c. Quantity demanded must have increased.
d. both a and c
e. both b and c
6-54 When demand is elastic,
a. marginal revenue is negative.
b. the percentage change in price exceeds the percentage change in quantity.
c. an increase in price causes total revenue to rise.
d. both b and c
e. none of the above
6-55 When marginal revenue is zero,
a. P < MR.
b. P = MR.
c. a small increase in price causes no change in total revenue.
d. a small decrease in price causes no change in total revenue.
e. both c and d
Chapter 6: ELASTICITY AND DEMAND
6-56 Refer to the following graph to answer the question:
The price elasticity of demand over the price interval $90 to $110 is
a. −0.5
b. −1.0
c. −1.5
d. −2.0
e. −0.4
Chapter 6: ELASTICITY AND DEMAND
6-57 Refer to the following graph to answer the question:
Suppose price rises from $90 to $110. Using representative arrows, the price effect is a relatively
________ (short, long) arrow pointing _______ (upward, downward).
a. short; upward
b. short; downward
c. long; upward
d. long; downward
Chapter 6: ELASTICITY AND DEMAND
6-58 Refer to the following graph to answer the question:
Suppose price rises from $90 to $110. Using representative arrows, the quantity effect is a
relatively ________ (short, long) arrow pointing _______ (upward, downward).
a. short; upward
b. short; downward
c. long; upward
d. long; downward
Chapter 6: ELASTICITY AND DEMAND
6-59 Refer to the following graph to answer the question:
Suppose price rises from $90 to $110. Total revenue moves in the ________ (same, opposite)
direction as the dominant effect. In this case, total revenue ____________ (increases, decreases,
stays the same) because the quantity effect is _________ (larger than, smaller than, the same as)
the price effect.
a. same; increases; larger than
b. same; decreases; smaller than
c. same; decreases; larger than
d. opposite; increases; larger than
e. opposite; decreases; smaller than
Chapter 6: ELASTICITY AND DEMAND
6-60 Refer to the following graph to answer the question:
Over the price range $90 to $110, marginal revenue is ________ and demand is ________.
a. greater than one; inelastic
b. positive; elastic
c. negative; inelastic
d. less than one; elastic
e. none of the above
Chapter 6: ELASTICITY AND DEMAND
6-61 Refer to the following figure. When price is $15 and quantity demanded is 1,000, what is the
point elasticity of demand?
a. −3
b. −1/3
c. −1
d. −5
e. −2/3
6-62 Refer to the following figure. What is the equation for marginal revenue?
a. MR = 4,000 − 0.005P
b. MR = 4,000 − 200Q