ECON Microeconomics 1st Edition by William A. McEachern - Test Bank

ECON Microeconomics 1st Edition by William A. McEachern – Test Bank

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Chapter 5—Elasticity of Demand and Supply

MULTIPLE CHOICE

The price elasticity of demand is equal to the slope of the demand curve.

a.	True
b.	False

ANS: B PTS: 1 DIF: Moderate NAT: Analytic

LOC: Elasticity TOP: Calculating Price Elasticity of Demand

Another word for elasticity is

a.	responsiveness
b.	happiness
c.	bonus
d.	profit
e.	surplus

ANS: A PTS: 1 DIF: Easy NAT: Analytic

LOC: Elasticity TOP: Calculating Price Elasticity of Demand

Price elasticity of demand is useful because it measures __________ responsiveness to changes in __________.

a.	taxpayers’; demand
b.	producers’; supply
c.	consumers’; price
d.	consumers’; demand
e.	producers’; income

ANS: C PTS: 1 DIF: Easy NAT: Analytic

LOC: Elasticity TOP: Calculating Price Elasticity of Demand

The price elasticity of demand helps determine the effect of price changes on a firm’s

a.	property taxes
b.	profits
c.	quantity supplied
d.	revenues
e.	total costs

ANS: D PTS: 1 DIF: Moderate NAT: Reflective Thinking

LOC: Elasticity TOP: Calculating Price Elasticity of Demand

A good synonym for elasticity would be

a.	stability
b.	volatility
c.	stickiness
d.	demand
e.	responsiveness

ANS: E PTS: 1 DIF: Easy NAT: Analytic

LOC: Elasticity TOP: Calculating Price Elasticity of Demand

Elasticity measures

a.	whether a price increase causes quantity demanded to increase or decrease
b.	the strength of an economy’s tendency to recover from recession
c.	the responsiveness of decision makers to changes in prices, income, or other variables
d.	the profitability of investment in an industry
e.	the long-run flexibility of prices in the economy

ANS: C PTS: 1 DIF: Easy NAT: Reflective Thinking

LOC: Elasticity TOP: Calculating Price Elasticity of Demand

“More elastic” means

a.	unchanging
b.	less desirable
c.	more desirable
d.	less responsive
e.	more responsive

ANS: E PTS: 1 DIF: Easy NAT: Reflective Thinking

LOC: Elasticity TOP: Calculating Price Elasticity of Demand

In calculating price elasticity of demand, which of the following is assumed to be constant?

a.	the price of the product itself
b.	the quantity demanded of the product
c.	total revenue received from the sale of the product
d.	the prices of all other products
e.	none of the above

ANS: D PTS: 1 DIF: Hard NAT: Reflective Thinking

LOC: Elasticity TOP: Calculating Price Elasticity of Demand

If a $1 increase in price leads to a 3-unit decrease in quantity demanded, then demand must be elastic.

a.	True
b.	False

ANS: B PTS: 1 DIF: Moderate NAT: Reflective Thinking

LOC: Elasticity TOP: Calculating Price Elasticity of Demand

The general term elasticity refers to a relationship between

a.	quantity demanded and price only
b.	quantity supplied and price only
c.	quantity supplied or demanded and price only
d.	quantity supplied or demanded and anything other than price
e.	percentage changes in any two variables

ANS: E PTS: 1 DIF: Easy NAT: Analytic

LOC: Elasticity TOP: Calculating Price Elasticity of Demand

Price elasticity of demand is defined as

a.	the percentage change in price divided by the percentage change in quantity demanded
b.	the percentage change in quantity demanded divided by the percentage change in price
c.	the change in quantity demanded divided by the change in price
d.	the change in price divided by the change in quantity demanded
e.	the quantity demanded divided by the price

ANS: B PTS: 1 DIF: Easy NAT: Analytic

LOC: Elasticity TOP: Calculating Price Elasticity of Demand

Price elasticity of demand is typically negative because

a.	as price decreases, quantity demanded decreases
b.	as price decreases, quantity demanded increases
c.	as price decreases, demand decreases
d.	as price decreases, demand increases
e.	consumers rarely respond to a change in price

ANS: B PTS: 1 DIF: Easy NAT: Reflective Thinking

LOC: Elasticity TOP: Calculating Price Elasticity of Demand

If an increase in the price of a product from $1 to $2 per unit leads to a decrease in the quantity demanded from 100 to 80 units, then the value of price elasticity of demand is

a.	elastic
b.	inelastic
c.	unit elastic
d.	suggestive of an inferior good
e.	equal to -20

ANS: B PTS: 1 DIF: Moderate NAT: Reflective Thinking

LOC: Elasticity TOP: Calculating Price Elasticity of Demand

If the price of Pepsi-Cola increases from 40 cents to 50 cents per can and the quantity demanded decreases from 100 cans to 50 cans, then, according to the midpoint formula, the value of price elasticity of demand for Pepsi-Cola is

a.	-0.5
b.	-0.25
c.	-1
d.	-3
e.	-2

ANS: D PTS: 1 DIF: Moderate NAT: Reflective Thinking

LOC: Elasticity TOP: Calculating Price Elasticity of Demand

If the value of the price elasticity of demand is -0.2, this means that a

a.	20 percent decrease in price causes a 1 percent increase in quantity demanded
b.	0.2 percent decrease in price causes a 1 percent increase in quantity demanded
c.	5 percent decrease in price causes a 1 percent increase in quantity demanded
d.	0.2 percent decrease in price causes a 0.2 percent increase in quantity demanded
e.	100 percent decrease in price causes a 200 percent increase in quantity demanded

ANS: C PTS: 1 DIF: Hard NAT: Reflective Thinking

LOC: Elasticity TOP: Calculating Price Elasticity of Demand

Elasticity is always

a.	measured in dollars
b.	measured in dollars per unit of quantity
c.	measured in units of quantity
d.	measured in units of quantity per dollar
e.	independent of the units of measurement

ANS: E PTS: 1 DIF: Easy NAT: Analytic

LOC: Elasticity TOP: Calculating Price Elasticity of Demand

When quantity is measured in gallons, the price elasticity of demand for milk will be __________ the price elasticity when quantity is measured in quarts.

a.	the same as
b.	four times
c.	one quarter
d.	two times
e.	less than

ANS: A PTS: 1 DIF: Moderate NAT: Reflective Thinking

LOC: Elasticity TOP: Calculating Price Elasticity of Demand

The midpoint price between $20 and $40 is

a.	$10
b.	$20
c.	$30
d.	$15
e.	$200

ANS: C PTS: 1 DIF: Easy NAT: Reflective Thinking

LOC: Elasticity TOP: Calculating Price Elasticity of Demand

The midpoint quantity between 100 and 300 units is

a.	100 units
b.	200 units
c.	300 units
d.	150 units
e.	20,000 units

ANS: B PTS: 1 DIF: Easy NAT: Reflective Thinking

LOC: Elasticity TOP: Calculating Price Elasticity of Demand

Exhibit 5-1

	Quantity	Price
Good A	100	$10
Good A	120	$ 9
Good B	200	$20
Good B	140	$35

Use the information in Exhibit 5-1 to calculate the price elasticity of demand for Good A.

a.	-5/2
b.	-11/3
c.	-3/10
d.	-10/3
e.	-19/11

ANS: E PTS: 1 DIF: Moderate NAT: Reflective Thinking

LOC: Elasticity TOP: Calculating Price Elasticity of Demand

Use the information in Exhibit 5-1 to calculate the value of price elasticity of demand for Good B.

a.	-2/3
b.	-1/6
c.	-1/2
d.	-11/17
e.	-17/11

ANS: D PTS: 1 DIF: Hard NAT: Reflective Thinking

LOC: Elasticity TOP: Calculating Price Elasticity of Demand

Exhibit 5-2

	Quantity	Price
Old	20	$40
New	10	$60

Use the information in Exhibit 5-2 to calculate the value of price elasticity of demand.

a.	-2/3
b.	-1/3
c.	-3/5
d.	-5/3
e.	0

ANS: D PTS: 1 DIF: Moderate NAT: Reflective Thinking

LOC: Elasticity TOP: Calculating Price Elasticity of Demand

Based on the information in Exhibit 5-2, the demand for the good is __________ and an increase in price from $40 to $60 per unit will __________ total revenue.

a.	unit elastic; increase
b.	elastic; decrease
c.	unit elastic; not change
d.	inelastic; increase
e.	elastic; decrease

ANS: B PTS: 1 DIF: Moderate NAT: Reflective Thinking

LOC: Elasticity TOP: Elasticity and Total Revenue

Exhibit 5-3

Restaurant Meals
Quantity supplied	Quantity demanded	Price
100	200	$10
150	150	$20

Use the information in Exhibit 5-3 to calculate the value of price elasticity of demand for restaurant meals.

a.	-1/2
b.	-5/3
c.	-3/5
d.	-3/7
e.	-7/3

ANS: D PTS: 1 DIF: Moderate NAT: Reflective Thinking

LOC: Elasticity TOP: Calculating Price Elasticity of Demand

If an increase in the price of a product from $1 to $2 per unit leads to a decrease in the quantity demanded from 100 to 80 units, then the value of price elasticity of demand is

a.	-1/3
b.	-2 1/3
c.	-1/4
d.	-3
e.	-2/3

ANS: A PTS: 1 DIF: Hard NAT: Reflective Thinking

LOC: Elasticity TOP: Calculating Price Elasticity of Demand

Price elasticity of demand is calculated as

a.	the percentage change in quantity demanded divided by the percentage change in price
b.	the percentage change in price divided by the percentage change in quantity demanded
c.	the absolute change in quantity demanded divided by the absolute change in price
d.	the absolute change in price divided by the absolute change in quantity demanded
e.	none of the above

ANS: A PTS: 1 DIF: Moderate NAT: Analytic

LOC: Elasticity TOP: Calculating Price Elasticity of Demand

If a 5% increase in price leads to an 8% decrease in quantity demanded, demand is

a.	perfectly elastic
b.	elastic
c.	unit elastic
d.	inelastic
e.	perfectly inelastic

ANS: B PTS: 1 DIF: Moderate NAT: Reflective Thinking

LOC: Elasticity TOP: Calculating Price Elasticity of Demand

If price elasticity of demand is -0.5,

a.	a 1% decrease in quantity demanded leads to a 0.5% decrease in price
b.	a 1% decrease in price leads to a 0.5% increase in quantity demanded
c.	a 50% decrease in price leads to a 1% increase in quantity demanded
d.	a 50% decrease in price leads to a 100% increase in quantity demanded
e.	demand is elastic

ANS: B PTS: 1 DIF: Moderate NAT: Reflective Thinking

LOC: Elasticity TOP: Calculating Price Elasticity of Demand

If demand is inelastic, the percentage change in price is greater than the resulting percentage change in quantity demanded.

a.	True
b.	False

ANS: A PTS: 1 DIF: Moderate NAT: Analytic

LOC: Elasticity TOP: Categories of Price Elasticity of Demand

If an increase in the price of a product from $100 to $200 per unit leads to a decrease in the quantity demanded from 10 to 8 units, then demand is

a.	elastic
b.	inelastic
c.	unit elastic
d.	0
e.	inferior

ANS: B PTS: 1 DIF: Moderate NAT: Reflective Thinking

LOC: Elasticity TOP: Categories of Price Elasticity of Demand

Demand is inelastic only if

a.	price elasticity has an absolute value of 1
b.	price elasticity has an absolute value greater than 1
c.	price elasticity has an absolute value less than 1
d.	price elasticity is negative
e.	consumers do not respond to a change in price

ANS: C PTS: 1 DIF: Moderate NAT: Analytic

LOC: Elasticity TOP: Categories of Price Elasticity of Demand

Demand is inelastic if

a.	the percentage change in price is greater than the percentage change in quantity demanded
b.	the percentage change in price is less than the percentage change in quantity demanded
c.	the percentage change in price is equal to the percentage change in quantity demanded
d.	the value of price elasticity is equal to -1
e.	the value of price elasticity is less than -1 (e.g., -3)

ANS: A PTS: 1 DIF: Moderate NAT: Analytic

LOC: Elasticity TOP: Categories of Price Elasticity of Demand

Demand is unit elastic whenever

a.	price elasticity has an absolute value of 1
b.	price elasticity has an absolute value greater than 1
c.	price elasticity has an absolute value less than 1
d.	price elasticity is negative
e.	consumers always respond to a one-dollar change in price by decreasing their quantity demanded by one unit

ANS: A PTS: 1 DIF: Moderate NAT: Analytic

LOC: Elasticity TOP: Categories of Price Elasticity of Demand

If the price of Pepsi-Cola increases from 50 cents to 60 cents per can and the quantity demanded decreases from 100 cans to 50 cans, then the demand for Pepsi-Cola is

a.	unit elastic
b.	perfectly elastic
c.	perfectly inelastic
d.	relatively elastic
e.	relatively inelastic

ANS: D PTS: 1 DIF: Moderate NAT: Reflective Thinking

LOC: Elasticity TOP: Categories of Price Elasticity of Demand

Demand is elastic whenever

a.	price elasticity has an absolute value of 1
b.	price elasticity has an absolute value greater than 1
c.	price elasticity has an absolute value less than 1
d.	price elasticity is negative
e.	consumers respond to a change in price

ANS: B PTS: 1 DIF: Moderate NAT: Analytic

LOC: Elasticity TOP: Categories of Price Elasticity of Demand

Unit elastic demand occurs when

a.	a one-unit increase in price leads to a one-unit decrease in quantity demanded
b.	a 1% increase in price leads to a one-unit decrease in quantity demanded
c.	price elasticity of demand is positive
d.	price elasticity of demand is exactly zero
e.	price elasticity of demand is exactly -1

ANS: E PTS: 1 DIF: Easy NAT: Analytic

LOC: Elasticity TOP: Categories of Price Elasticity of Demand

A perfectly elastic demand curve is

a.	a vertical straight line
b.	a horizontal straight line
c.	a downward-sloping straight line
d.	an upward-sloping straight line
e.	not a straight line

ANS: B PTS: 1 DIF: Easy NAT: Analytic

LOC: Elasticity TOP: Categories of Price Elasticity of Demand

If a firm facing a perfectly elastic demand curve raises its price,

a.	it will still sell exactly the same amount of output as it did at the lower price
b.	it will lose some, but not all, of its sales
c.	its sales will decrease to zero
d.	its sales will increase
e.	it is impossible to predict what will happen to its sales

ANS: C PTS: 1 DIF: Easy NAT: Analytic

LOC: Elasticity TOP: Categories of Price Elasticity of Demand

A perfectly inelastic demand curve is

a.	a vertical straight line
b.	a horizontal straight line
c.	a downward-sloping straight line
d.	an upward-sloping straight line
e.	not a straight line

ANS: A PTS: 1 DIF: Easy NAT: Analytic

LOC: Elasticity TOP: Categories of Price Elasticity of Demand

Exhibit 5-4

Demand in Exhibit 5-4 is

a.	unit elastic
b.	somewhat elastic
c.	perfectly elastic
d.	somewhat inelastic
e.	perfectly inelastic

ANS: E PTS: 1 DIF: Easy NAT: Analytic

LOC: Elasticity TOP: Categories of Price Elasticity of Demand

What is the price elasticity of demand in Exhibit 5-4?

a.	0
b.	-1
c.	negative infinity
d.	1
e.	-100

ANS: A PTS: 1 DIF: Easy NAT: Analytic

LOC: Elasticity TOP: Categories of Price Elasticity of Demand

As price decreases along a linear demand curve, price elasticity of demand decreases.

a.	True
b.	False

ANS: A PTS: 1 DIF: Moderate NAT: Analytic

LOC: Elasticity TOP: Elasticity and Total Revenue

If demand is elastic, a decrease in price leads to a decrease in total revenue.

a.	True
b.	False

ANS: B PTS: 1 DIF: Moderate NAT: Analytic

LOC: Elasticity TOP: Elasticity and Total Revenue

Total revenue is the same for every price-quantity combination along a unit elastic demand curve.

a.	True
b.	False

ANS: A PTS: 1 DIF: Hard NAT: Analytic

LOC: Elasticity TOP: Elasticity and Total Revenue

Suppose that you allow yourself $50 per month to spend on compact disks. You spend exactly this much every month regardless of the price of compact disks. Therefore, your demand for CDs

a.	is elastic
b.	is inelastic
c.	is unit elastic
d.	cannot be characterized unless we know the price of a disk
e.	cannot be characterized unless we know the price and quantity of compact disks purchased

ANS: C PTS: 1 DIF: Hard NAT: Reflective Thinking

LOC: Elasticity TOP: Elasticity and Total Revenue

The price elasticity of demand

a.	is of no use to producers
b.	tells producers what will happen to total profit if they change product price
c.	tells producers what will happen to quantity supplied if they change product price
d.	tells producers what will happen to total revenue if they change product price
e.	tells producers what will happen to price in the following time period

ANS: D PTS: 1 DIF: Moderate NAT: Analytic

LOC: Elasticity TOP: Elasticity and Total Revenue

If a firm raises the price of its product, its total revenue will

a.	always increase
b.	increase only if demand is price inelastic
c.	increase only if demand is price elastic
d.	remain constant, regardless of price elasticity of demand
e.	never increase

ANS: B PTS: 1 DIF: Moderate NAT: Reflective Thinking

LOC: Elasticity TOP: Elasticity and Total Revenue

If a price reduction leads to larger total revenue, demand is

a.	perfectly inelastic
b.	inelastic
c.	unit elastic
d.	elastic
e.	perfectly elastic

ANS: D PTS: 1 DIF: Moderate NAT: Analytic

LOC: Elasticity TOP: Elasticity and Total Revenue

John spends exactly the same dollar amount on candy bars each week, regardless of their price. John’s demand curve for candy bars is

a.	upward-sloping
b.	backward-bending
c.	perfectly inelastic
d.	perfectly elastic
e.	unit elastic

ANS: E PTS: 1 DIF: Hard NAT: Reflective Thinking

LOC: Elasticity TOP: Elasticity and Total Revenue

If demand is price elastic, total revenue is

a.	directly related to quantity demanded
b.	inversely related to quantity demanded
c.	directly related to price
d.	directly related to price and inversely related to quantity demanded
e.	not related to either price or to quantity demanded

ANS: A PTS: 1 DIF: Hard NAT: Reflective Thinking

LOC: Elasticity TOP: Elasticity and Total Revenue

Elasticity rises as price falls along a linear, downward-sloping demand curve.

a.	True
b.	False

ANS: B PTS: 1 DIF: Moderate NAT: Reflective Thinking

LOC: Elasticity TOP: Price Elasticity and the Linear Demand Curve

Price elasticity is unit elastic at the midpoint of a linear, downward-sloping demand curve.

a.	True
b.	False

ANS: A PTS: 1 DIF: Moderate NAT: Analytic

LOC: Elasticity TOP: Price Elasticity and the Linear Demand Curve

Total revenue is maximized where demand is inelastic.

a.	True
b.	False

ANS: B PTS: 1 DIF: Moderate NAT: Analytic

LOC: Elasticity TOP: Price Elasticity and the Linear Demand Curve

The total revenue from selling trucks is equal to

a.	the price of a truck times the quantity sold
b.	the change in quantity sold divided by the change in price
c.	average cost times quantity produced
d.	the price of a truck times the quantity produced
e.	the price of a truck times the price elasticity of demand

ANS: A PTS: 1 DIF: Easy NAT: Reflective Thinking

LOC: Elasticity TOP: Price Elasticity and the Linear Demand Curve

Exhibit 5-5

In Exhibit 5-5, what is the total revenue at point a?

a.	$4
b.	$5
c.	$10
d.	$50
e.	$100

ANS: D PTS: 1 DIF: Easy NAT: Reflective Thinking

LOC: Elasticity TOP: Price Elasticity and the Linear Demand Curve

If the administration raises tuition on our campus in order to increase revenue, it will

a.	not be successful if the demand curve slopes downward
b.	be successful if demand is elastic
c.	be successful if demand is inelastic
d.	be successful if supply is elastic
e.	be successful if supply is inelastic

ANS: C PTS: 1 DIF: Easy NAT: Reflective Thinking

LOC: Elasticity TOP: Price Elasticity and the Linear Demand Curve

If the demand for a good is elastic, then total revenue

a.	increases as price increases
b.	remains constant as quantity demanded increases
c.	increases as price decreases
d.	decreases as quantity demanded increases
e.	decreases as price decreases

ANS: C PTS: 1 DIF: Moderate NAT: Analytic

LOC: Elasticity TOP: Price Elasticity and the Linear Demand Curve

Which of the following will cause demand to be relatively elastic?

a.	There are few substitutes
b.	The time interval is relatively long
c.	The good is considered a necessity
d.	The good involves a relatively small portion of the consumers’ budget
e.	The time interval is relatively short

ANS: B PTS: 1 DIF: Hard NAT: Analytic

LOC: Elasticity TOP: Price Elasticity and the Linear Demand Curve

If city officials expect that an increase in bus fares will raise mass transit revenues, they must think that the demand for bus travel is

a.	elastic
b.	unit elastic
c.	inelastic
d.	perfectly inelastic
e.	-10

ANS: C PTS: 1 DIF: Moderate NAT: Reflective Thinking

LOC: Elasticity TOP: Price Elasticity and the Linear Demand Curve

If demand is unit elastic, a price reduction will

a.	increase revenues
b.	reduce revenues
c.	reduce quantity demanded
d.	have no effect on revenues
e.	increase profits

ANS: D PTS: 1 DIF: Moderate NAT: Analytic

LOC: Elasticity TOP: Price Elasticity and the Linear Demand Curve

Suppose the price elasticity of demand for your economics textbook is -1. If the publisher raises the price by 5 percent,

a.	revenues will rise 5 percent
b.	quantity demanded will rise 5 percent
c.	total revenues will not change
d.	revenues will fall
e.	revenues will fall 5 percent

ANS: C PTS: 1 DIF: Moderate NAT: Reflective Thinking

LOC: Elasticity TOP: Price Elasticity and the Linear Demand Curve

The demand for a good is elastic if

a.	an increase in price leads to a decrease in total revenue
b.	an increase in price leads to an increase in total revenue
c.	an increase in price causes no change in total revenue
d.	total revenue is maximum
e.	total revenue is minimum

ANS: A PTS: 1 DIF: Moderate NAT: Reflective Thinking

LOC: Elasticity TOP: Price Elasticity and the Linear Demand Curve

If the price of Pepsi-Cola increases from 50 cents to 60 cents per can and the quantity demanded decreases from 100 cans to 50 cans, then the Pepsi-Cola Company could increase its total revenue by

a.	lowering price
b.	decreasing quantity supplied
c.	leaving price the same
d.	raising price
e.	decreasing supply

ANS: A PTS: 1 DIF: Moderate NAT: Reflective Thinking

LOC: Elasticity TOP: Price Elasticity and the Linear Demand Curve

If the demand for swordfish is price elastic and the price of swordfish increases, then

a.	the quantity of swordfish demanded will increase
b.	the total revenue from swordfish sales will decrease
c.	the total revenue from swordfish sales will increase
d.	the total revenue from swordfish sales will not change
e.	whether total revenue rises or falls depends on how much the price of swordfish increases

ANS: B PTS: 1 DIF: Moderate NAT: Reflective Thinking

LOC: Elasticity TOP: Price Elasticity and the Linear Demand Curve

If the demand for ptyalin is unit elastic, then

a.	total revenue decreases as quantity demanded increases
b.	total revenue increases as quantity demanded increases
c.	total revenue increases as price increases
d.	total revenue remains constant as price increases
e.	total revenue decreases as price increases

ANS: D PTS: 1 DIF: Hard NAT: Reflective Thinking

LOC: Elasticity TOP: Price Elasticity and the Linear Demand Curve

If the demand for airline tickets to Fort Lauderdale is price elastic,

a.	airline revenue will increase if supply increases
b.	airline revenue will increase if supply decreases
c.	a small change in price will cause a large shift in the demand curve
d.	a large change in price will cause a small shift in the demand curve
e.	a large change in price will cause a large shift in the demand curve

ANS: A PTS: 1 DIF: Hard NAT: Reflective Thinking

LOC: Elasticity TOP: Price Elasticity and the Linear Demand Curve

If the demand for a product is price inelastic,

a.	producers’ revenues will increase if supply increases
b.	producers’ revenues will increase if supply decreases
c.	a small change in price will cause a large shift in the demand curve
d.	a large change in price will cause a small shift in the demand curve
e.	a small change in price will cause a small shift in the demand curve

ANS: B PTS: 1 DIF: Hard NAT: Reflective Thinking

LOC: Elasticity TOP: Price Elasticity and the Linear Demand Curve

Wheat farmers in Kansas would benefit from a devastating crop failure in North Dakota (another major wheat-producing state) if the U.S. demand for wheat is

a.	inelastic
b.	elastic
c.	unit elastic
d.	downward sloping
e.	perfectly elastic

ANS: A PTS: 1 DIF: Hard NAT: Reflective Thinking

LOC: Elasticity TOP: Price Elasticity and the Linear Demand Curve

Which of the following describes a situation in which demand must be elastic?

a.	The price of pens rises by 10 cents, and quantity of pens demanded falls by 50.
b.	The price of pens rises by 10 cents, and total revenue rises.
c.	A 20 percent increase in the price of pens leads to a 20 percent decrease in the quantity of pens demanded.
d.	Total revenue does not change when the price of pens rises.
e.	Total revenue decreases when the price of pencils rises.

ANS: E PTS: 1 DIF: Hard NAT: Reflective Thinking

LOC: Elasticity TOP: Price Elasticity and the Linear Demand Curve

Which of the following describes a situation in which demand must be inelastic?

a.	The price of pens rises by 10 cents, and quantity of pens demanded falls by 50.
b.	The price of pens rises by 10 cents, and total revenue rises.
c.	A 20 percent increase in the price of pens leads to a 20 percent decrease in the quantity of pens demanded.
d.	Total revenue does not change when the price of pens rises.
e.	Total revenue decreases when the price of pens rises.

ANS: B PTS: 1 DIF: Hard NAT: Reflective Thinking

LOC: Elasticity TOP: Price Elasticity and the Linear Demand Curve

Which of the following describes a situation in which demand must be inelastic?

a.	Total revenue decreases by 10 percent when the price of spats rises by 10 percent.
b.	Total revenue decreases by less than 10 percent when the price of spats rises by 10 percent.
c.	Total revenue increases by more than 10 percent when the price of spats rises by 10 percent.
d.	Total revenue decreases by $10 when the price of spats rises by $10.
e.	Total revenue decreases by more than $10 when the price of spats rises by $10.

ANS: C PTS: 1 DIF: Hard NAT: Reflective Thinking

LOC: Elasticity TOP: Price Elasticity and the Linear Demand Curve

Which of the following describes a situation in which demand must be elastic?

a.	Total revenue increases by 15 percent when the price of corndogs rises by 15 percent.
b.	Total revenue increases by less than 15 percent when the price of corndogs rises by 15 percent.
c.	Total revenue decreases by more than 15 percent when the price of corndogs rises by 15 percent.
d.	Total revenue increases by $15 when the price of corndogs rises by $15.
e.	Total revenue increases by more than $15 when the price of corndogs rises by $15.

ANS: C PTS: 1 DIF: Hard NAT: Reflective Thinking

LOC: Elasticity TOP: Price Elasticity and the Linear Demand Curve

One group of people uses New York City subways only during rush hour to travel to and from work. Another group uses them only in midday for leisure activity. If New York City wants to increase transit fares with the smallest possible reduction in revenue, for which group should it increase the fare?

a.	The rush-hour group because its demand for subway service is more elastic than that of the midday group.
b.	The rush-hour group because its demand for subway service is less elastic than that of the midday group.
c.	The midday group because its demand for subway service is more elastic than that of the rush-hour group.
d.	The midday group because its demand for subway service is less elastic than that of the rush-hour group.
e.	It doesn’t matter because both groups have the same elasticity of demand.

ANS: B PTS: 1 DIF: Hard NAT: Reflective Thinking

LOC: Elasticity TOP: Price Elasticity and the Linear Demand Curve

Along a linear demand curve,

a.	both the slope and price elasticity are constant
b.	the price elasticity is constant, but the slope varies
c.	total revenues are constant
d.	the slope is constant, but the price elasticity varies
e.	total revenues are negative

ANS: D PTS: 1 DIF: Moderate NAT: Analytic

LOC: Elasticity TOP: Price Elasticity and the Linear Demand Curve

Along a linear demand curve, as the price increases from zero,

a.	demand decreases
b.	demand increases
c.	quantity demanded increases
d.	total revenue first increases but eventually decreases
e.	total revenue first decreases but eventually increases

ANS: D PTS: 1 DIF: Moderate NAT: Reflective Thinking

LOC: Elasticity TOP: Price Elasticity and the Linear Demand Curve

The absolute value of the price elasticity of demand at the midpoint of a linear demand curve is always

a.	greater than one
b.	less than one
c.	one
d.	zero
e.	infinity

ANS: C PTS: 1 DIF: Moderate NAT: Reflective Thinking

LOC: Elasticity TOP: Price Elasticity and the Linear Demand Curve

Along a downward-sloping linear demand curve, total revenue is greatest if demand is

a.	inelastic
b.	elastic
c.	inelastic when prices are high
d.	elastic when prices are high
e.	unit elastic

ANS: E PTS: 1 DIF: Moderate NAT: Analytic

LOC: Elasticity TOP: Price Elasticity and the Linear Demand Curve

If the managers of a theater plan to raise ticket prices to increase ticket revenues, then they must believe that demand is

a.	elastic
b.	inelastic
c.	unit elastic
d.	perfectly elastic
e.	income elastic

ANS: B PTS: 1 DIF: Moderate NAT: Reflective Thinking

LOC: Elasticity TOP: Price Elasticity and the Linear Demand Curve

Along a straight-line downward-sloping demand curve, elasticity is

a.	constant, but its value cannot be determined without measurement
b.	constant and equal to an absolute value of one
c.	greater at higher prices
d.	greater at lower prices
e.	greater in the middle

ANS: C PTS: 1 DIF: Moderate NAT: Analytic

LOC: Elasticity TOP: Price Elasticity and the Linear Demand Curve

Along a downward-sloping linear demand curve,

a.	slope is constant and elasticity is changing
b.	slope is changing and elasticity is constant
c.	both slope and elasticity are constant
d.	both slope and elasticity are changing
e.	no generalizations can be made about slope

ANS: A PTS: 1 DIF: Moderate NAT: Analytic

LOC: Elasticity TOP: Price Elasticity and the Linear Demand Curve

The total revenue curve that corresponds to a downward-sloping linear demand curve

a.	slopes downward
b.	slopes upward
c.	is a horizontal line
d.	first rises, then falls
e.	first falls, then rises

ANS: D PTS: 1 DIF: Moderate NAT: Reflective Thinking

LOC: Elasticity TOP: Price Elasticity and the Linear Demand Curve

If the sellers in the cigarette industry formed a cartel and decided to set price along a straight-line downward-sloping demand curve, which point would they choose if they wanted to gain the highest total revenue?

a.	The point nearest the vertical axis, where the price is highest.
b.	The point nearest the horizontal axis, where quantity demanded is greatest.
c.	One of the points higher up on the demand curve, where demand is elastic.
d.	One of the points lower down on the demand curve, where demand is inelastic.
e.	The point of unit elasticity, in the middle of the demand curve.

ANS: E PTS: 1 DIF: Hard NAT: Reflective Thinking

LOC: Elasticity TOP: Price Elasticity and the Linear Demand Curve

Along a linear demand curve, as the price rises, demand becomes more

a.	steep
b.	elastic
c.	inelastic
d.	unit elastic
e.	variable

ANS: B PTS: 1 DIF: Hard NAT: Analytic

LOC: Elasticity TOP: Price Elasticity and the Linear Demand Curve

Along a linear demand curve, total revenue is maximized when demand is

a.	elastic
b.	inelastic
c.	unit elastic
d.	perfectly elastic
e.	perfectly inelastic

ANS: C PTS: 1 DIF: Hard NAT: Analytic

LOC: Elasticity TOP: Price Elasticity and the Linear Demand Curve

Dusty Rags, Inc. provides janitorial services to retail stores. Dusty had been charging $10 per hour and selling 400 hours of service per week at that rate. When he raised his price to $15 per hour, his customers cut back to 300 weekly hours of service. Which of the following is true?

a.	Revenue went from $4,000 per week to $4,500 per week, indicating that the demand curve for his services must have shifted to the right.
b.	Revenue went from $4,000 per week to $4,500 per week, indicating that the demand for his services must be elastic.
c.	Revenue went from $4,000 per week to $4,500 per week, indicating that the demand for his services must be inelastic.
d.	Revenue went from $400 to $300 per week, indicating that demand must be elastic.
e.	Revenue went from $10 to $15 per week, indicating that demand must be inelastic.

ANS: C PTS: 1 DIF: Moderate NAT: Reflective Thinking

LOC: Elasticity TOP: Price Elasticity and the Linear Demand Curve

Suppose consumers spent $42 million on Christmas trees last year when the average tree cost $30 and this year spent $42 million when the average tree costs $25. Assuming nothing else changed, this data suggests that

a.	consumers bought the same number of Christmas trees this year as last year
b.	the price of Christmas trees stayed the same
c.	total revenues to tree producers rose this year
d.	the demand for trees is unit elastic
e.	the demand for trees is inelastic

ANS: D PTS: 1 DIF: Moderate NAT: Reflective Thinking

LOC: Elasticity TOP: Price Elasticity and the Linear Demand Curve

A government-imposed price floor above the market price of milk would increase consumers’ expenditures on milk only if

a.	demand is elastic
b.	supply is inelastic
c.	demand falls
d.	demand is inelastic
e.	supply is unit elastic

ANS: D PTS: 1 DIF: Hard NAT: Reflective Thinking

LOC: Elasticity TOP: Price Elasticity and the Linear Demand Curve

Exhibit 5-6

We can tell that demand is elastic as price falls between point a and point b in Exhibit 5-6 because

a.	quantity demanded is increasing
b.	total revenue is increasing
c.	total revenue is decreasing
d.	total revenue is unchanged
e.	the demand curve slopes downward

ANS: B PTS: 1 DIF: Moderate NAT: Reflective Thinking

LOC: Elasticity TOP: Price Elasticity and the Linear Demand Curve

Exhibit 5-7

In Exhibit 5-7, demand is unit elastic

a.	between points a and d
b.	between points d and e
c.	between points e and g
d.	only at the top and bottom of the curve
e.	anywhere along the curve

ANS: B PTS: 1 DIF: Moderate NAT: Reflective Thinking

LOC: Elasticity TOP: Price Elasticity and the Linear Demand Curve

Between points b and c in Exhibit 5-7, price decreases by $1, quantity demanded increases by 10,

a.	total revenue decreases by $1, and demand is elastic
b.	total revenue decreases by $1, and demand is inelastic
c.	total revenue increases by $40, and demand is elastic
d.	total revenue increases by $40, and demand is inelastic
e.	and total revenue increases by $80

ANS: C PTS: 1 DIF: Moderate NAT: Reflective Thinking

LOC: Elasticity TOP: Price Elasticity and the Linear Demand Curve

Which of the following is true between points g and h in Exhibit 5-7?

a.	Total revenue remains constant at $180.
b.	Total revenue falls by $12.
c.	Total revenue falls by $60.
d.	Total revenue falls by $180.
e.	Demand is elastic.

ANS: C PTS: 1 DIF: Moderate NAT: Reflective Thinking

LOC: Elasticity TOP: Price Elasticity and the Linear Demand Curve

Exhibit 5-8

Which of the following statements is true in the range of the total revenue curve labeled A in Exhibit 5-8?

a.	Demand is elastic.
b.	Demand is inelastic.
c.	Demand is unit elastic.
d.	We cannot tell anything about elasticity of demand because this is a total revenue curve.
e.	Demand is perfectly elastic.

ANS: A PTS: 1 DIF: Hard NAT: Reflective Thinking

LOC: Elasticity TOP: Price Elasticity and the Linear Demand Curve

Which of the following statements is true in the range of the total revenue curve labeled B in Exhibit 5-8?

a.	Demand is elastic.
b.	Demand is inelastic.
c.	Demand is unit elastic.
d.	We cannot tell anything about elasticity of demand because this is a total revenue curve.
e.	Demand is perfectly elastic.

ANS: B PTS: 1 DIF: Hard NAT: Reflective Thinking

LOC: Elasticity TOP: Price Elasticity and the Linear Demand Curve

In Exhibit 5-8, which of the following statements is true at a quantity of 10?

a.	Demand is elastic.
b.	Demand is inelastic.
c.	Demand is unit elastic.
d.	We cannot tell anything about elasticity of demand because this is a total revenue curve.
e.	Demand is perfectly elastic.

ANS: C PTS: 1 DIF: Hard NAT: Reflective Thinking

LOC: Elasticity TOP: Price Elasticity and the Linear Demand Curve

Which of the following is not true in the range of the total revenue curve labeled A in Exhibit 5-8?

a.	Demand is inelastic.
b.	Total revenue is increasing.
c.	Total revenue is positive.
d.	Demand is elastic.
e.	Demand elasticity decreases as total revenue increases.

ANS: A PTS: 1 DIF: Hard NAT: Reflective Thinking

LOC: Elasticity TOP: Price Elasticity and the Linear Demand Curve

Exhibit 5-9

Between points a and b on the demand curve in Exhibit 5-9, demand is

a.	perfectly elastic
b.	elastic
c.	perfectly inelastic
d.	inelastic
e.	unit elastic

ANS: D PTS: 1 DIF: Moderate NAT: Reflective Thinking

LOC: Elasticity TOP: Price Elasticity and the Linear Demand Curve

It has been suggested that if NHL hockey teams would lower ticket prices, they could increase revenue from ticket sales. Which of the following assumptions forms the basis for this suggestion?

a.	Both d and e are correct.
b.	All of the following are correct.
c.	Demand for NHL hockey is income inelastic.
d.	Demand for NHL hockey is price elastic.
e.	There are many substitutes for NHL hockey.

ANS: A PTS: 1 DIF: Hard NAT: Reflective Thinking

LOC: Elasticity TOP: Price Elasticity and the Linear Demand Curve

Exhibit 5-10

In Exhibit 5-10, between the two equilibrium prices shown, demand is

a.	price elastic
b.	price inelastic
c.	unit elastic
d.	perfectly elastic
e.	perfectly inelastic

ANS: B PTS: 1 DIF: Moderate NAT: Reflective Thinking

LOC: Elasticity TOP: Price Elasticity and the Linear Demand Curve

Exhibit 5-11

Refer to Exhibit 5-11. What can be said of the price elasticity of demand for this good?

a.	Demand is inelastic.
b.	Demand is unit elastic.
c.	Demand is elastic.
d.	Demand is perfectly elastic.
e.	Not enough information is given to determine elasticity.

ANS: C PTS: 1 DIF: Moderate NAT: Reflective Thinking

LOC: Elasticity TOP: Price Elasticity and the Linear Demand Curve

Exhibit 5-12

Refer to Exhibit 5-12. What can be said of the price elasticity of demand for this good?

a.	Demand is inelastic.
b.	Demand is unit elastic.
c.	Demand is elastic.
d.	Demand is perfectly elastic.
e.	Not enough information is given to determine elasticity.

ANS: C PTS: 1 DIF: Moderate NAT: Reflective Thinking

LOC: Elasticity TOP: Price Elasticity and the Linear Demand Curve

When demand is elastic, an increase in price will lead to an increase in total revenue

a.	True
b.	False

ANS: B PTS: 1 DIF: Moderate NAT: Analytic

LOC: Elasticity TOP: Price Elasticity and the Linear Demand Curve

If the supply curve slopes upward and a $3 per unit tax on suppliers raises the profit-maximizing price by $3, demand must be perfectly inelastic.

a.	True
b.	False

ANS: A PTS: 1 DIF: Hard NAT: Reflective Thinking

LOC: Elasticity TOP: Constant-Elasticity Demand Curves

If there is no change in equilibrium price after a $1 per unit tax is imposed on suppliers, demand must be perfectly inelastic.

a.	True
b.	False

ANS: B PTS: 1 DIF: Hard NAT: Reflective Thinking

LOC: Elasticity TOP: Constant-Elasticity Demand Curves

Some demand curves have constant elasticity everywhere.

a.	True
b.	False

ANS: A PTS: 1 DIF: Easy NAT: Analytic

LOC: Elasticity TOP: Constant-Elasticity Demand Curves

Perfectly elastic demand curves are irrelevant, since real world demand curves are never perfectly elastic.

a.	True
b.	False

ANS: B PTS: 1 DIF: Hard NAT: Reflective Thinking

LOC: Elasticity TOP: Constant-Elasticity Demand Curves

Exhibit 5-13

Which of the following is true of the demand curve in Exhibit 5-13?

a.	Its slope is 0, and the value of elasticity is negative infinity.
b.	Its slope is infinite, and the value of elasticity is 0.
c.	Both its slope and the value of elasticity are 0.
d.	Both its slope and the value of elasticity are negative infinity.
e.	Its slope is 0, and demand is unit elastic.

ANS: A PTS: 1 DIF: Moderate NAT: Reflective Thinking

LOC: Elasticity TOP: Constant-Elasticity Demand Curves

Exhibit 5-14

Which of the following is true of the demand curve in Exhibit 5-14?

a.	Its slope is 0, and the value of elasticity is negative infinity.
b.	Its slope is infinite, and the value of elasticity is 0.
c.	Both its slope and the value of elasticity are 0.
d.	Both its slope and the value of elasticity are negative infinity.
e.	Its slope is 0, and demand is perfectly inelastic.

ANS: B PTS: 1 DIF: Moderate NAT: Reflective Thinking

LOC: Elasticity TOP: Constant-Elasticity Demand Curves

Exhibit 5-15

Which of the demand curves in Exhibit 5-15 is unit elastic?

a.	the curve in graph a
b.	the curve in graph b
c.	the curve in graph c
d.	the curve in graph d
e.	the curve in graph e

ANS: C PTS: 1 DIF: Easy NAT: Analytic

LOC: Elasticity TOP: Constant-Elasticity Demand Curves

Which demand curve in Exhibit 5-15 is perfectly elastic?

a.	the curve in graph a
b.	the curve in graph b
c.	the curve in graph c
d.	the curve in graph d
e.	the curve in graph e

ANS: B PTS: 1 DIF: Easy NAT: Analytic

LOC: Elasticity TOP: Constant-Elasticity Demand Curves

Which of the demand curves in Exhibit 5-15 has constant elasticity everywhere?

a.	the curve in graph c only
b.	the curves in graphs a and b
c.	the curves in graphs a, b, and c
d.	all of the curves shown
e.	the curves in graphs c, d, and e

ANS: C PTS: 1 DIF: Moderate NAT: Analytic

LOC: Elasticity TOP: Constant-Elasticity Demand Curves

For which of the following products is the consumer’s demand curve most likely to be vertical?

a.	lobster, for a seafood lover
b.	cars, for high school students
c.	insulin, for a diabetic
d.	compact disks, for a music lover
e.	beef, for a food lover

ANS: C PTS: 1 DIF: Easy NAT: Analytic

LOC: Elasticity TOP: Constant-Elasticity Demand Curves

A demand curve that is unit elastic everywhere is

a.	linear and slopes downward
b.	linear and slopes upward
c.	vertical
d.	horizontal
e.	nonlinear

ANS: E PTS: 1 DIF: Easy NAT: Reflective Thinking

LOC: Elasticity TOP: Constant-Elasticity Demand Curves

Exhibit 5-16

Between points a and b in Exhibit 5-16, the demand curve is

a.	relatively inelastic
b.	perfectly inelastic
c.	unit elastic
d.	perfectly elastic
e.	relatively elastic

ANS: C PTS: 1 DIF: Hard NAT: Reflective Thinking

LOC: Elasticity TOP: Constant-Elasticity Demand Curves

Perfectly elastic demand curves are

a.	downward sloping
b.	upward sloping
c.	vertical
d.	horizontal
e.	steep

ANS: D PTS: 1 DIF: Easy NAT: Reflective Thinking

LOC: Elasticity TOP: Constant-Elasticity Demand Curves

If Katherine claims that when it comes to buying shoes, “price is no object,” her demand curve for shoes is likely to be

a.	horizontal
b.	nonexistent
c.	upward sloping
d.	highly inelastic
e.	unit elastic

ANS: D PTS: 1 DIF: Moderate NAT: Reflective Thinking

LOC: Elasticity TOP: Constant-Elasticity Demand Curves

In the real world, demand is not likely to be perfectly inelastic at every price because

a.	no substitutes exist for some goods
b.	some consumers will be unable to afford very high prices with given incomes
c.	at low prices, consumers always want a lot
d.	consumers are willing to pay any price for certain goods
e.	the prices of certain goods don’t change

ANS: B PTS: 1 DIF: Hard NAT: Reflective Thinking

LOC: Elasticity TOP: Constant-Elasticity Demand Curves

The availability of substitutes makes the demand for a good less elastic.

a.	True
b.	False

ANS: B PTS: 1 DIF: Easy NAT: Analytic

LOC: Elasticity TOP: Availability of Substitutes

The demand for a particular brand of automobile is likely to be more inelastic than the demand for automobiles in general.

a.	True
b.	False

ANS: B PTS: 1 DIF: Moderate NAT: Reflective Thinking

LOC: Elasticity TOP: Availability of Substitutes

The demand for firewood is likely to be more elastic in the summer than in the winter.

a.	True
b.	False

ANS: A PTS: 1 DIF: Moderate NAT: Reflective Thinking

LOC: Elasticity TOP: Availability of Substitutes

The greater the availability of close substitutes for a product, the greater the price elasticity of demand for that product.

a.	True
b.	False

ANS: A PTS: 1 DIF: Easy NAT: Analytic

LOC: Elasticity TOP: Availability of Substitutes

The more narrowly a product is defined, the less elastic the demand for that product will be.

a.	True
b.	False

ANS: B PTS: 1 DIF: Moderate NAT: Analytic

LOC: Elasticity TOP: Availability of Substitutes

If Joe says that nothing comes close to a Pepsi, his demand for Pepsi is likely to be

a.	relatively price elastic
b.	relatively income elastic
c.	relatively price inelastic
d.	unit elastic
e.	infinitely elastic

ANS: C PTS: 1 DIF: Moderate NAT: Reflective Thinking

LOC: Elasticity TOP: Availability of Substitutes

For which of the following is demand most likely to be perfectly inelastic?

a.	BMW automobiles
b.	Pepsi Cola
c.	hot dogs
d.	insulin
e.	Tylenol

ANS: D PTS: 1 DIF: Easy NAT: Reflective Thinking

LOC: Elasticity TOP: Availability of Substitutes

Given the availability of California oranges, demand for Florida oranges will

a.	be less elastic than if there were no California oranges
b.	be more elastic than if there were no California oranges
c.	have the same elasticity as it would if there were no California oranges
d.	be perfectly elastic
e.	be perfectly inelastic

ANS: B PTS: 1 DIF: Easy NAT: Reflective Thinking

LOC: Elasticity TOP: Availability of Substitutes

The demand for flounder (a specific type of fish) is

a.	more elastic than the demand for fish because there are more substitutes for flounder than for fish in general
b.	less elastic than the demand for fish because there are more substitutes for flounder than for fish in general
c.	more elastic than the demand for fish because there are more substitutes for fish in general than for flounder
d.	less elastic than the demand for fish because there are more substitutes for fish in general than for flounder
e.	more elastic than the demand for fish because flounder is one of the less expensive kinds of fish

ANS: A PTS: 1 DIF: Easy NAT: Reflective Thinking

LOC: Elasticity TOP: Availability of Substitutes

The more broadly a good is defined,

a.	the more substitutes it has so the more elastic is its demand
b.	the fewer substitutes it has so the more elastic is its demand
c.	the more substitutes it has so the less elastic is its demand
d.	the fewer substitutes it has so the less elastic is its demand
e.	the more complements it has so the more elastic is its demand

ANS: D PTS: 1 DIF: Moderate NAT: Reflective Thinking

LOC: Elasticity TOP: Availability of Substitutes

For which of the following is demand most likely to be price inelastic?

a.	lamb
b.	meat
c.	veal
d.	pork
e.	beef

ANS: B PTS: 1 DIF: Moderate NAT: Reflective Thinking

LOC: Elasticity TOP: Availability of Substitutes

The value of price elasticity of demand for a good with no close substitutes

a.	will tend to be greater than -1 (e.g., -0.03)
b.	will tend to be less than -1 (e.g., -4)
c.	will tend to be equal to -1
d.	will tend to be equal to 0
e.	cannot be determined without more information

ANS: A PTS: 1 DIF: Moderate NAT: Reflective Thinking

LOC: Elasticity TOP: Availability of Substitutes

Demand is more elastic

a.	in the short run than in the long run
b.	for necessities than for luxuries
c.	for food than for hamburgers
d.	for goods with many substitutes than for goods with only a few
e.	for broadly defined goods than for narrowly defined ones

ANS: D PTS: 1 DIF: Moderate NAT: Analytic

LOC: Elasticity TOP: Availability of Substitutes

The demand for Olin skis is likely to be

a.	less elastic than the demand for skis in general
b.	more elastic than the demand for skis in general
c.	unit elastic relative to the demand for skis in general
d.	as elastic as the demand for skis in general
e.	greater than the demand for skis in general

ANS: B PTS: 1 DIF: Moderate NAT: Reflective Thinking

LOC: Elasticity TOP: Availability of Substitutes

The demand curve for a good that has many perfect substitutes in consumption is likely to be

a.	upward sloping
b.	steep
c.	highly inelastic
d.	horizontal
e.	vertical

ANS: D PTS: 1 DIF: Moderate NAT: Reflective Thinking

LOC: Elasticity TOP: Availability of Substitutes

A successful advertising campaign would likely

a.	increase price elasticity of demand by stressing the uniqueness of the product
b.	reduce price elasticity of demand by stressing the uniqueness of the product
c.	reduce price elasticity of demand by informing consumers of the availability of substitutes
d.	not alter the demand curve
e.	generally make the demand curve shift inward

ANS: B PTS: 1 DIF: Moderate NAT: Analytic

LOC: Elasticity TOP: Availability of Substitutes

Demand for clothing tends to be

a.	elastic because there are few substitutes for clothing
b.	inelastic because there are few substitutes for clothing
c.	elastic because expenditures for clothing represent a large part of the consumer’s budget
d.	inelastic because expenditures for clothing represent a large part of the consumer’s budget
e.	elastic because it is a broadly defined good

ANS: B PTS: 1 DIF: Moderate NAT: Reflective Thinking

LOC: Elasticity TOP: Availability of Substitutes

As DVDs become popular substitutes for video cassettes, demand for video cassettes is likely to

a.	become less price elastic
b.	become more price elastic
c.	increase
d.	stay the same
e.	become unit elastic

ANS: B PTS: 1 DIF: Moderate NAT: Reflective Thinking

LOC: Elasticity TOP: Availability of Substitutes

The more broadly a good is defined

a.	the more substitutes it has, so demand will be more price-elastic
b.	the less substitutes it has, so demand will be more price-elastic
c.	the more substitutes it has, so demand will be less price-elastic
d.	the less substitutes it has, so demand will be less price-elastic
e.	has no effect on the good’s price elasticity of demand

ANS: D PTS: 1 DIF: Moderate NAT: Analytic

LOC: Elasticity TOP: Availability of Substitutes

For which of the following is demand likely to be most price-elastic?

a.	steak
b.	beef (including steak, ribs, hamburger, etc.)
c.	meat (including beef, pork, chicken, lamb, etc.)
d.	protein foods (including meat, cheese, beans, eggs, fish, etc.)
e.	none of the above (they will all have the same elasticity)

ANS: A PTS: 1 DIF: Moderate NAT: Reflective Thinking

LOC: Elasticity TOP: Availability of Substitutes

The larger the proportion of the consumer’s budget that is spent on a product, the more elastic that consumer’s demand for the product will be.

a.	True
b.	False

ANS: A PTS: 1 DIF: Easy NAT: Analytic

LOC: Elasticity TOP: Share of the Consumer’s Budget Spent on the Good

A good that takes up a very large percentage of the consumer’s budget will tend to have

a.	an elastic demand
b.	a perfectly elastic demand
c.	an inelastic demand
d.	an upward-sloping demand curve
e.	very many substitutes

ANS: A PTS: 1 DIF: Easy NAT: Analytic

LOC: Elasticity TOP: Share of the Consumer’s Budget Spent on the Good

All other things constant, goods will have more __________ demand if their price uses up a __________ proportion of a consumer’s budget.

a.	price-elastic; greater
b.	unit-elastic; smaller
c.	price-elastic; smaller
d.	price-inelastic; greater
e.	stable; greater

ANS: A PTS: 1 DIF: Moderate NAT: Analytic

LOC: Elasticity TOP: Share of the Consumer’s Budget Spent on the Good

For which of the following is demand likely to be the most price inelastic?

a.	furniture
b.	automobiles
c.	hotel rooms
d.	airline travel
e.	candy bars

ANS: E PTS: 1 DIF: Moderate NAT: Reflective Thinking

LOC: Elasticity TOP: Share of the Consumer’s Budget Spent on the Good

The demand for flour is

a.	inelastic because there are few substitutes for flour and it represents a large percentage of a consumer’s budget
b.	inelastic because there are many substitutes for flour and it represents a large percentage of a consumer’s budget
c.	inelastic because there are few substitutes for flour and it represents a small percentage of a consumer’s budget
d.	elastic because there are no substitutes for flour and it represents a large percentage of a consumer’s budget
e.	elastic because there are many substitutes for flour and it represents a large percentage of a consumer’s budget

ANS: C PTS: 1 DIF: Moderate NAT: Reflective Thinking

LOC: Elasticity TOP: Share of the Consumer’s Budget Spent on the Good

As consumers have a longer time period to respond, the demand for a product typically becomes more inelastic.

a.	True
b.	False

ANS: B PTS: 1 DIF: Easy NAT: Analytic

LOC: Elasticity TOP: Length of Adjustment Period

If people have more time to adjust to a price change,

a.	demand becomes more elastic, and supply becomes less elastic
b.	demand becomes less elastic, and supply becomes more elastic
c.	both supply and demand become less elastic
d.	both supply and demand become more elastic
e.	elasticity of both demand and supply tends toward unity

ANS: D PTS: 1 DIF: Moderate NAT: Reflective Thinking

LOC: Elasticity TOP: Length of Adjustment Period

Which of the following tends to make demand for a good more elastic?

a.	A reduction in the number of substitutes for the good.
b.	Consumers have a long time to adjust to a price change.
c.	The amount spent on the good is a small proportion of the consumer’s budget.
d.	The good is broadly defined.
e.	The good is a necessity.

ANS: B PTS: 1 DIF: Moderate NAT: Analytic

LOC: Elasticity TOP: Length of Adjustment Period

If people have more time to adjust to a price change, the price elasticity of demand for that good is likely to

a.	increase
b.	decrease
c.	fall to zero
d.	become equal to -1
e.	remain unchanged

ANS: A PTS: 1 DIF: Moderate NAT: Analytic

LOC: Elasticity TOP: Length of Adjustment Period

Which of the following does not determine a good’s price elasticity of demand?

a.	the time interval considered
b.	the number of substitutes there are for the good
c.	expenditures on the good as a percentage of the total consumer budget
d.	the slope of the demand curve
e.	the more of a luxury a particular good is

ANS: D PTS: 1 DIF: Hard NAT: Reflective Thinking

LOC: Elasticity TOP: Length of Adjustment Period

The price elasticity of demand for cigarettes

a.	is about -0.4 for young smokers and -1.3 for adults
b.	has increased faster than the income elasticity of demand for cigarettes
c.	is larger for young smokers than for adult smokers
d.	shows that cigarettes are an inferior good, at least for young smokers
e.	is hard to estimate because no one knows how many cigarettes are sold each year

ANS: C PTS: 1 DIF: Moderate NAT: Analytic

LOC: Elasticity TOP: CASE STUDY: Deterring Young Smokers

One reason why the price elasticity of demand for cigarettes is large for young smokers is that

a.	they have large discretionary incomes
b.	the price of cigarettes increased recently
c.	they are no longer permitted to smoke in public
d.	cigarette advertising on television has been banned
e.	the proportion of income a young smoker spends on cigarettes is usually quite large

ANS: E PTS: 1 DIF: Hard NAT: Analytic

LOC: Elasticity TOP: CASE STUDY: Deterring Young Smokers

Exhibit 5-17

Restaurant Meals
Quantity supplied	Quantity demanded	Price
100	200	$10
150	150	$20

Use the information in Exhibit 5-17 to calculate the price elasticity of supply for restaurant meals.

a.	7/1
b.	2
c.	1/2
d.	3/5
e.	5/3

ANS: D PTS: 1 DIF: Moderate NAT: Reflective Thinking

LOC: Elasticity TOP: Price Elasticity of Supply

If a tripling of price triples the quantity of a good supplied, the price elasticity of supply is

a.	3
b.	300
c.	1
d.	-1
e.	-3

ANS: C PTS: 1 DIF: Moderate NAT: Reflective Thinking

LOC: Elasticity TOP: Price Elasticity of Supply

If an increase in price from $1 to $2 per unit leads to an increase in quantity supplied from 20 to 100 units, then the value of price elasticity of supply is

a.	0.38
b.	2
c.	2.67
d.	4
e.	8

ANS: B PTS: 1 DIF: Hard NAT: Reflective Thinking

LOC: Elasticity TOP: Price Elasticity of Supply

If price increases from $45 to $55, the market quantity supplied increases from 20 units per week to 30 units per week. The price elasticity of supply is

a.	1/2 = 0.5
b.	1.0
c.	11/6 = 1.8333
d.	9/4 = 2.25
e.	2.0

ANS: E PTS: 1 DIF: Hard NAT: Reflective Thinking

LOC: Elasticity TOP: Price Elasticity of Supply

If the demand curve shifts but the supply curve does not and price remains the same, supply must be perfectly inelastic.

a.	True
b.	False

ANS: B PTS: 1 DIF: Moderate NAT: Reflective Thinking

LOC: Elasticity TOP: Price Elasticity of Supply

Any supply curve that is a straight line passing through the graph’s origin is unit elastic.

a.	True
b.	False

ANS: A PTS: 1 DIF: Moderate NAT: Reflective Thinking

LOC: Elasticity TOP: Price Elasticity of Supply

If supply is perfectly elastic, the supply curve is

a.	vertical
b.	horizontal
c.	any straight-line supply curve
d.	any supply curve intersecting a perfectly elastic demand curve
e.	any supply curve intersecting a demand curve which is unit elastic

ANS: B PTS: 1 DIF: Easy NAT: Analytic

LOC: Elasticity TOP: Price Elasticity of Supply

If the price elasticity of supply in the kiwi fruit industry equals 1, supply is

a.	perfectly elastic
b.	relatively elastic
c.	unit elastic
d.	relatively inelastic
e.	perfectly inelastic

ANS: C PTS: 1 DIF: Easy NAT: Reflective Thinking

LOC: Elasticity TOP: Price Elasticity of Supply

If an increase in price from $1.20 to $2 per unit leads to an increase in quantity supplied from 20 to 100 units,

a.	demand is elastic
b.	demand is inelastic
c.	demand is unit elastic
d.	supply is elastic
e.	supply is inelastic

ANS: D PTS: 1 DIF: Moderate NAT: Reflective Thinking

LOC: Elasticity TOP: Price Elasticity of Supply

The supply of paintings by Van Gogh is most likely to be

a.	of infinite elasticity because supply is limited
b.	of high elasticity because supply is limited
c.	elastic because the paintings are luxury goods
d.	inelastic because supply is limited
e.	unit elastic

ANS: D PTS: 1 DIF: Moderate NAT: Reflective Thinking

LOC: Elasticity TOP: Price Elasticity of Supply

If the price of a good doubles and quantity supplied triples, then

a.	demand is elastic
b.	demand is inelastic
c.	supply is inelastic
d.	supply is elastic
e.	there is insufficient information to reach any conclusion about the price elasticity of supply

ANS: D PTS: 1 DIF: Moderate NAT: Reflective Thinking

LOC: Elasticity TOP: Price Elasticity of Supply

Exhibit 5-18

The curve shown in Exhibit 5-18 could represent

a.	perfectly elastic demand or supply
b.	perfectly inelastic supply or perfectly elastic demand
c.	perfectly elastic supply or perfectly inelastic demand
d.	perfectly inelastic supply or demand
e.	perfectly inelastic supply or demand which is unit elastic

ANS: A PTS: 1 DIF: Moderate NAT: Reflective Thinking

LOC: Elasticity TOP: Constant Elasticity Supply Curves

If output in the calculator market increases by 5 percent when the price increases by more than 5 percent, then

a.	supply is inelastic
b.	supply is elastic
c.	a small increase in price will cause a leftward shift of the supply curve
d.	a small increase in price will cause a rightward shift of the supply curve
e.	a large increase in price will cause a large shift of the supply curve

ANS: A PTS: 1 DIF: Moderate NAT: Reflective Thinking

LOC: Elasticity TOP: Constant Elasticity Supply Curves

Today’s supply curve of dorm rooms on campus is likely to be

a.	downward sloping
b.	relatively flat
c.	vertical
d.	horizontal
e.	price elastic

ANS: C PTS: 1 DIF: Moderate NAT: Reflective Thinking

LOC: Elasticity TOP: Constant Elasticity Supply Curves

A perfectly elastic supply curve

a.	has no relevance, since real-world supply curves are never perfectly elastic
b.	is a horizontal straight line
c.	is a vertical straight line
d.	is an upward-sloping straight line
e.	is not a straight line

ANS: B PTS: 1 DIF: Easy NAT: Analytic

LOC: Elasticity TOP: Constant Elasticity Supply Curves

The supply curve will be more elastic if

a.	the good has few substitutes
b.	the time the producer has to adjust is long
c.	the time frame for adjusting to price changes is short
d.	demand is elastic
e.	demand is inelastic

ANS: B PTS: 1 DIF: Moderate NAT: Analytic

LOC: Elasticity TOP: Determinants of Supply Elasticity

As producers have more time to adjust to a price change, price elasticity of supply

a.	increases
b.	decreases
c.	remains the same
d.	rises and then falls
e.	falls and then rises

ANS: A PTS: 1 DIF: Moderate NAT: Analytic

LOC: Elasticity TOP: Determinants of Supply Elasticity

The price elasticity of today’s supply curve of classrooms on campus is likely to

a.	be greater than 1
b.	be less than 1
c.	be equal to 1
d.	approach zero
e.	be infinity

ANS: D PTS: 1 DIF: Hard NAT: Reflective Thinking

LOC: Elasticity TOP: Determinants of Supply Elasticity

Exhibit 5-19

Consider Exhibit 5-19. Between the prices of $5 and $6, which supply curve is most elastic and which is least elastic?

a.	S₁ is most elastic; S₂ is least elastic.
b.	S₁ is most elastic; S₃ is least elastic.
c.	S₃ is most elastic; S₁ is least elastic.
d.	S₃ is most elastic; S₂ is least elastic.
e.	S₂ is most elastic; S₃ is least elastic.

ANS: B PTS: 1 DIF: Moderate NAT: Analytic

LOC: Elasticity TOP: Determinants of Supply Elasticity

Price elasticity of demand and price elasticity of supply are both influenced by

a.	the availability of close substitutes for the product
b.	the proportion of the consumer’s budget spend on the product
c.	the length of the adjustment period considered
d.	technological conditions such as the additional costs of increasing production
e.	none of the above

ANS: C PTS: 1 DIF: Easy NAT: Analytic

LOC: Elasticity TOP: Determinants of Supply Elasticity

The most important determinant of price elasticity of supply is

a.	price elasticity of demand
b.	technological conditions such as how rapidly costs increase when a firm increases its output
c.	whether the production process relies heavily on capital or on labor
d.	the number and closeness of available substitutes
e.	whether the product is a normal good or an inferior good

ANS: B PTS: 1 DIF: Moderate NAT: Reflective Thinking

LOC: Elasticity TOP: Determinants of Supply Elasticity

Exhibit 5-20

What is the price elasticity of supply between $10 and $20 on supply curve S in Exhibit 5-20?

a.	0
b.	infinity
c.	1
d.	2
e.	10

ANS: C PTS: 1 DIF: Moderate NAT: Analytic

LOC: Elasticity TOP: Determinants of Supply Elasticity

What is the price elasticity of supply between $20 and $40 on supply curve S’ in Exhibit 5-20?

a.	0
b.	infinity
c.	1
d.	2
e.	10

ANS: C PTS: 1 DIF: Moderate NAT: Analytic

LOC: Elasticity TOP: Determinants of Supply Elasticity

Which supply curve is more elastic in Exhibit 5-20?

a.	Both S and S’ have the same elasticity.
b.	S is more elastic at lower prices and S’ is more elastic at higher prices.
c.	S is more elastic at higher prices and S’ is more elastic at lower prices.
d.	S
e.	S’

ANS: A PTS: 1 DIF: Moderate NAT: Reflective Thinking

LOC: Elasticity TOP: Determinants of Supply Elasticity

Both income elasticity of demand and cross-price elasticity of demand coefficients can take on negative, zero, or positive values.

a.	True
b.	False

ANS: A PTS: 1 DIF: Moderate NAT: Analytic

LOC: Elasticity TOP: Other Elasticity Measures

If income rises and the demand for toothbrushes stays the same, income elasticity of toothbrushes is said to be unit elastic.

a.	True
b.	False

ANS: B PTS: 1 DIF: Moderate NAT: Reflective Thinking

LOC: Elasticity TOP: Income Elasticity of Demand

Necessities and luxuries are both types of normal goods.

a.	True
b.	False

ANS: A PTS: 1 DIF: Moderate NAT: Analytic

LOC: Elasticity TOP: Income Elasticity of Demand

A normal good is defined as a product for which quantity demanded increases as price decreases.

a.	True
b.	False

ANS: B PTS: 1 DIF: Moderate NAT: Reflective Thinking

LOC: Elasticity TOP: Income Elasticity of Demand

If income rises and the demand for a product remains unchanged, the income elasticity of demand for that product is unit elastic.

.	True
b.	False

ANS: B PTS: 1 DIF: Hard NAT: Reflective Thinking

LOC: Elasticity TOP: Income Elasticity of Demand

Inferior goods have an income elasticity of demand that is

a.	positive
b.	negative
c.	0
d.	greater than 1 in absolute value
e.	equal to 1 in absolute value

ANS: B PTS: 1 DIF: Easy NAT: Analytic

LOC: Elasticity TOP: Income Elasticity of Demand

For which of the following goods is the value of income elasticity most likely to be negative?

a.	macaroni and cheese
b.	champagne
c.	airline tickets
d.	clothes
e.	toothpaste

ANS: A PTS: 1 DIF: Moderate NAT: Reflective Thinking

LOC: Elasticity TOP: Income Elasticity of Demand

Exhibit 5-21

	Quantity	Income
Good A	100	$1,000
Good A	120	$2,000
Good B	200	$20
Good B	140	$35

Use the information in Exhibit 5-21 to calculate the value of income elasticity of demand for Good A.

a.	1
b.	2/9
c.	3/11
d.	11/3
e.	9/2

ANS: C PTS: 1 DIF: Hard NAT: Reflective Thinking

LOC: Elasticity TOP: Income Elasticity of Demand

Use the information in Exhibit 5-21 to calculate the value of income elasticity of demand for Good B.

a.	-11/17
b.	17/9
c.	10/3
d.	-3/10
e.	1

ANS: A PTS: 1 DIF: Hard NAT: Reflective Thinking

LOC: Elasticity TOP: Income Elasticity of Demand

Goods with an income elasticity of demand greater than 1 are called

a.	necessities
b.	inferior goods
c.	normal goods
d.	luxuries
e.	complements

ANS: D PTS: 1 DIF: Easy NAT: Analytic

LOC: Elasticity TOP: Income Elasticity of Demand

For which of the following goods is the income elasticity of demand likely to be largest?

a.	paperback mystery stories
b.	best-selling hardcover novels
c.	used textbooks
d.	children’s books
e.	leather-bound editions of Shakespeare

ANS: E PTS: 1 DIF: Moderate NAT: Reflective Thinking

LOC: Elasticity TOP: Income Elasticity of Demand

For which of the following medical goods or services is the income elasticity of demand likely to be largest?

a.	emergency services after a car accident
b.	measles shots
c.	physical examinations for life insurance applications
d.	medical tests to diagnose specific symptoms
e.	face-lifts

ANS: E PTS: 1 DIF: Easy NAT: Reflective Thinking

LOC: Elasticity TOP: Income Elasticity of Demand

Suppose the income elasticity of demand for a private college education is equal to 1.5. This means that

a.	every $1 increase in income provides an incentive for a $1.50 increase in expenditures on private college education
b.	every $1.50 increase in income provides an incentive for a $1 increase in expenditures on private college education
c.	a 10 percent increase in income causes a 15 percent increase in the demand for a private college education
d.	a 15 percent increase in income causes a 10 percent increase in the demand for a private college education
e.	a 10 percent decrease in private college tuition will have a large enough income effect to increase spending on private college education by 15 percent

ANS: C PTS: 1 DIF: Moderate NAT: Reflective Thinking

LOC: Elasticity TOP: Income Elasticity of Demand

An inferior good is

a.	any good of low quality
b.	one that consumers buy less of as the price rises
c.	one that consumers buy less of as their income rises
d.	one that has few substitutes
e.	any good made with inexpensive labor

ANS: C PTS: 1 DIF: Easy NAT: Analytic

LOC: Elasticity TOP: Income Elasticity of Demand

An indication that the economy is in recession, e.g., a rise in the number of used clothing stores for babies, suggests that

a.	used clothes for babies are a necessity
b.	used clothes for babies are an inferior good
c.	used clothes for babies are a normal good
d.	new clothes for babies are a luxury
e.	used clothes for babies have price-elastic demand

ANS: B PTS: 1 DIF: Moderate NAT: Reflective Thinking

LOC: Elasticity TOP: Income Elasticity of Demand

As the economy recovers from a recession, we should expect that

a.	demand for inferior goods will fall and demand for normal goods will rise
b.	demand for both inferior and normal goods will rise
c.	demand for inferior goods will rise and demand for normal goods will fall
d.	demand for both inferior and normal goods will fall
e.	demand for complements will fall

ANS: A PTS: 1 DIF: Moderate NAT: Reflective Thinking

LOC: Elasticity TOP: Income Elasticity of Demand

Demand for a necessity, such as food, is

a.	both income and price inelastic
b.	income inelastic and price elastic
c.	income elastic and price inelastic
d.	both income and price elastic
e.	income elastic and perfectly price inelastic

ANS: A PTS: 1 DIF: Moderate NAT: Analytic

LOC: Elasticity TOP: Income Elasticity of Demand

If we wanted to prove that macaroni is an inferior good, we would test the __________ of macaroni and get a __________.

a.	cross-price elasticity; negative number
b.	income elasticity; number less than 1
c.	income elasticity; positive number
d.	price elasticity of demand; number greater than negative 1
e.	income elasticity; negative number

ANS: E PTS: 1 DIF: Moderate NAT: Reflective Thinking

LOC: Elasticity TOP: Income Elasticity of Demand

If a good is inferior, then the income elasticity of demand for that good is

a.	positive and greater than 1
b.	negative
c.	positive and less than 1
d.	0
e.	perfectly elastic

ANS: B PTS: 1 DIF: Moderate NAT: Analytic

LOC: Elasticity TOP: Income Elasticity of Demand

A 5 percent increase in income leads to a 10 percent decrease in quantity demanded for a service. This service is a(n) __________ good and demand is __________.

a.	normal; elastic
b.	normal; inelastic
c.	normal; unit elastic
d.	inferior; elastic
e.	inferior; inelastic

ANS: D PTS: 1 DIF: Moderate NAT: Reflective Thinking

LOC: Elasticity TOP: Income Elasticity of Demand

If the income elasticity of demand for a service is 0.6, then a 5 percent increase in income will generate a __________ in quantity demanded

a.	3 percent decrease
b.	3 percent increase
c.	8.33 percent decrease
d.	8.33 percent increase
e.	0.12 percent decrease

ANS: B PTS: 1 DIF: Moderate NAT: Reflective Thinking

LOC: Elasticity TOP: Income Elasticity of Demand

Economists distinguish between normal and inferior goods using

a.	price elasticity of demand
b.	price elasticity of supply
c.	income elasticity of demand
d.	cross-price elasticity of demand
e.	tax incidence

ANS: C PTS: 1 DIF: Easy NAT: Analytic

LOC: Elasticity TOP: Income Elasticity of Demand

An inferior good is one for which demand increases as

a.	price decreases
b.	price increases
c.	income increases
d.	income decreases
e.	the price of a related good decreases

ANS: D PTS: 1 DIF: Moderate NAT: Analytic

LOC: Elasticity TOP: Income Elasticity of Demand

Luxury goods are

a.	price inelastic
b.	income inelastic
c.	income elastic
d.	goods with negative income elasticity
e.	goods with positive price elasticity

ANS: C PTS: 1 DIF: Moderate NAT: Analytic

LOC: Elasticity TOP: Income Elasticity of Demand

Farm income has fallen in part because demand for farm products is price inelastic and income inelastic.

a.	True
b.	False

ANS: A PTS: 1 DIF: Moderate NAT: Analytic

LOC: Elasticity TOP: CASE STUDY: The Market for Food and “The Farm Problem”

The demands for wheat, soybeans, milk, and eggs tend to be

a.	price inelastic
b.	price elastic
c.	price inelastic only in the long run
d.	price elastic only in the short run
e.	price elastic only in the long run

ANS: A PTS: 1 DIF: Easy NAT: Analytic

LOC: Elasticity TOP: CASE STUDY: The Market for Food and “The Farm Problem”

When agricultural production increases, the total amount paid for agricultural products tends to

a.	increase because demand is price elastic
b.	decrease because demand is price elastic
c.	increase because demand is price inelastic
d.	decrease because demand is price inelastic
e.	remain constant because demand is price inelastic

ANS: D PTS: 1 DIF: Moderate NAT: Analytic

LOC: Elasticity TOP: CASE STUDY: The Market for Food and “The Farm Problem”

The demand for most agricultural products tends to be

a.	both price and income elastic
b.	both price and income inelastic
c.	price inelastic and income elastic
d.	price elastic and income inelastic
e.	unit elastic in terms of price elasticity and income elastic

ANS: B PTS: 1 DIF: Easy NAT: Analytic

LOC: Elasticity TOP: CASE STUDY: The Market for Food and “The Farm Problem”

Farm output per worker in the United States has increased since 1950 because

a.	of technological improvements
b.	there are more farms
c.	there are fewer acres of land per farm
d.	the supply of farm products is inelastic
e.	of a decrease in government subsidies

ANS: A PTS: 1 DIF: Moderate NAT: Analytic

LOC: Elasticity TOP: CASE STUDY: The Market for Food and “The Farm Problem”

Which of the following is true of U.S. farm products over the past few decades?

a.	The increase in supply has been greater than the increase in demand, which has led to an increase in price.
b.	The increase in supply has been less than the increase in demand, which has led to an increase in price.
c.	The increase in supply has been greater than the increase in demand, which has led to a decrease in price.
d.	The increase in supply has been less than the increase in demand, which has led to a decrease in price.
e.	The increase in supply has been greater than the decrease in demand, which has led to an increase in price.

ANS: C PTS: 1 DIF: Moderate NAT: Analytic

LOC: Elasticity TOP: CASE STUDY: The Market for Food and “The Farm Problem”

Cross-price elasticity measures the responsiveness of the price of good A to a change in the price of good B.

a.	True
b.	False

ANS: B PTS: 1 DIF: Moderate NAT: Analytic

LOC: Elasticity TOP: Cross-Price Elasticity of Demand

If its value of cross-price elasticity is negative, a good must be a necessity.

a.	True
b.	False

ANS: B PTS: 1 DIF: Moderate NAT: Analytic

LOC: Elasticity TOP: Cross-Price Elasticity of Demand

Substitutes are pairs of goods that have a positive cross-price elasticity of demand.

a.	True
b.	False

ANS: A PTS: 1 DIF: Easy NAT: Analytic

LOC: Elasticity TOP: Cross-Price Elasticity of Demand

The value of cross-price elasticity of demand between golf balls and golf clubs is

a.	negative
b.	positive
c.	0
d.	greater than 1
e.	less than 1

ANS: A PTS: 1 DIF: Easy NAT: Reflective Thinking

LOC: Elasticity TOP: Cross-Price Elasticity of Demand

The value of cross-price elasticity of demand between orange soda and grape soda is

a.	negative
b.	positive
c.	0
d.	between -1 and 0
e.	less than -1

ANS: B PTS: 1 DIF: Easy NAT: Reflective Thinking

LOC: Elasticity TOP: Cross-Price Elasticity of Demand

Cross-price elasticity of demand measures

a.	elasticity of demand at the intersection of the supply and demand curves
b.	elasticity of supply at the intersection of supply and demand curves
c.	the relative elasticity of supply and demand at the intersection of the two curves
d.	the relationship between the demand for one good and the price of another
e.	the relationship between the demand for one good and the supply of another

ANS: D PTS: 1 DIF: Easy NAT: Analytic

LOC: Elasticity TOP: Cross-Price Elasticity of Demand

The percentage change in the demand for film divided by the percentage change in the price of cameras indicates

a.	the cross-price elasticity of demand between film and cameras
b.	the cross-price elasticity of demand for photographs
c.	the price elasticity of demand for film
d.	the price elasticity of demand for cameras
e.	nothing because the two goods fall into the broadly defined category of photographic equipment

ANS: A PTS: 1 DIF: Moderate NAT: Reflective Thinking

LOC: Elasticity TOP: Cross-Price Elasticity of Demand

The cross-price elasticity of demand between pancakes and waffles is positive. This indicates all of the following except one. Which is the exception?

a.	Pancakes and waffles are substitutes.
b.	An increase in the price of pancakes will shift the demand curve for waffles to the right.
c.	An increase in the price of waffles will shift the demand curve for pancakes to the right.
d.	A decrease in the supply of waffles will shift the demand curve for pancakes to the right.
e.	Pancake demand and waffle demand are price elastic.

ANS: E PTS: 1 DIF: Moderate NAT: Reflective Thinking

LOC: Elasticity TOP: Cross-Price Elasticity of Demand

If the cross-price elasticity of demand between two goods is 0,

a.	a price change for one good will be exactly offset by a price change for the other
b.	neither demand curve would shift following a change in the price of one of the goods
c.	there is no income effect between the two goods
d.	the demand for each good is price inelastic
e.	the demand for each good is price elastic

ANS: B PTS: 1 DIF: Moderate NAT: Reflective Thinking

LOC: Elasticity TOP: Cross-Price Elasticity of Demand

The cross-price elasticity of demand between rifles and bullets is likely to be

a.	negative because the goods are complements
b.	positive because the goods are complements
c.	negative because the goods are substitutes
d.	positive because the goods are substitutes
e.	0 because the goods are not substitutes

ANS: A PTS: 1 DIF: Easy NAT: Analytic

LOC: Elasticity TOP: Cross-Price Elasticity of Demand

The cross-price elasticity of demand between milk and soft drinks is likely to be

a.	negative because the goods are complements
b.	positive because the goods are complements
c.	negative because the goods are substitutes
d.	positive because the goods are substitutes
e.	0 because the goods are not usually consumed by the same person at one time

ANS: D PTS: 1 DIF: Easy NAT: Reflective Thinking

LOC: Elasticity TOP: Cross-Price Elasticity of Demand

Suppose the cross-price elasticity of demand between quinces and muskmelons is 5. Which of the following must be true?

a.	Quinces are normal goods.
b.	Muskmelons are normal goods.
c.	If the price of quinces rises by $5, the demand for muskmelons will increase by 1.
d.	If the price of muskmelons rises by $5, the demand for quinces will increase by 1.
e.	Quinces and muskmelons are substitutes.

ANS: E PTS: 1 DIF: Moderate NAT: Reflective Thinking

LOC: Elasticity TOP: Cross-Price Elasticity of Demand

If the cross-price elasticity of demand is -3, then

a.	the goods are substitutes
b.	one good is price inelastic
c.	one good is an inferior good
d.	one good is a luxury good
e.	the goods are complements

ANS: E PTS: 1 DIF: Moderate NAT: Analytic

LOC: Elasticity TOP: Cross-Price Elasticity of Demand

Computers and software programs are

a.	inferior goods
b.	complementary goods
c.	goods with a cross-price elasticity of demand of 0
d.	substitute goods
e.	perfectly elastic goods

ANS: B PTS: 1 DIF: Easy NAT: Reflective Thinking

LOC: Elasticity TOP: Cross-Price Elasticity of Demand

In order to prove that Coca Cola and 7-Up are substitutes, one should test the __________ and get a __________.

a.	price elasticity of demand; number less than negative 1
b.	income elasticity; positive number
c.	cross-price elasticity; negative number
d.	price elasticity of demand; number greater than negative 1
e.	cross-price elasticity; positive number

ANS: E PTS: 1 DIF: Hard NAT: Reflective Thinking

LOC: Elasticity TOP: Cross-Price Elasticity of Demand

If an increase in the price of peanut butter causes a decline in the demand for jelly, then

a.	the goods are substitutes
b.	jelly is an inferior good
c.	the goods are complements
d.	both goods are inelastic
e.	peanut butter is an inferior good

ANS: C PTS: 1 DIF: Easy NAT: Reflective Thinking

LOC: Elasticity TOP: Cross-Price Elasticity of Demand

If the cross-price elasticity of demand between two goods is positive, then

a.	consumers are being irrational
b.	supply is elastic
c.	the goods may have similar uses
d.	the goods may go well together in consumption
e.	one good must be a necessity

ANS: C PTS: 1 DIF: Moderate NAT: Reflective Thinking

LOC: Elasticity TOP: Cross-Price Elasticity of Demand

A 10 percent increase in the price of root beer causes a 5 percent increase in the quantity demanded of orange soda. This means that

a.	root beer and orange soda are substitutes
b.	root beer and orange soda are complements
c.	the cross-price elasticity of demand is elastic
d.	the cross-price elasticity of demand is equal to 2
e.	the cross-price elasticity of demand is equal to -2

ANS: A PTS: 1 DIF: Moderate NAT: Reflective Thinking

LOC: Elasticity TOP: Cross-Price Elasticity of Demand

If the cross-price elasticity of demand between good x and good y is 0.4, then

a.	the demand for good x is highly responsive to changes in the price of good y
b.	a 10 percent increase in the price of good y leads to a 0.4 percent increase in the quantity demanded of good x
c.	a 10 percent decrease in the price of good y leads to a 4 percent decrease in the demand for good y
d.	good x and good y are complements
e.	good x is a normal good and good y is an inferior good

ANS: C PTS: 1 DIF: Moderate NAT: Reflective Thinking

LOC: Elasticity TOP: Cross-Price Elasticity of Demand

If the cross-price elasticity of demand is -3, then the goods are __________ and the consumers’ responsiveness would be characterized as __________.

a.	substitutes; inelastic
b.	substitutes; elastic
c.	substitutes; unit elastic
d.	complements; inelastic
e.	complements; elastic

ANS: E PTS: 1 DIF: Moderate NAT: Analytic

LOC: Elasticity TOP: Cross-Price Elasticity of Demand

Cross-price elasticity of demand is used to determine whether

a.	a product is an inferior or normal good
b.	a product is a necessity or a luxury
c.	two products are substitutes or complements
d.	price and total revenue are directly or inversely related
e.	the product’s demand curve is linear

ANS: C PTS: 1 DIF: Easy NAT: Analytic

LOC: Elasticity TOP: Cross-Price Elasticity of Demand

Substitutes are pairs of products with

a.	positive cross-price elasticity of demand
b.	negative cross-price elasticity of demand
c.	positive income elasticity of demand
d.	negative income elasticity of demand
e.	positive price elasticity of demand

ANS: A PTS: 1 DIF: Moderate NAT: Analytic

LOC: Elasticity TOP: Cross-Price Elasticity of Demand

Negative cross-price elasticity of demand indicates that

a.	the product is an inferior good
b.	the product is a necessity
c.	the product is a luxury
d.	the two products are substitutes
e.	the two products are complements

ANS: E PTS: 1 DIF: Moderate NAT: Analytic

LOC: Elasticity TOP: Cross-Price Elasticity of Demand

To ensure that we get the same result for price elasticity no matter which direction we move on the demand curve, we must take the average of the

a.	initial price and the initial quantity demanded and the average of the new price and the new quantity demanded
b.	new price and the initial quantity demanded and the average of the new quantity demanded and the initial price
c.	initial price and the new price and the average of the initial quantity demanded and the new quantity demanded
d.	initial price and the new price only
e.	new quantity demanded and the initial quantity demanded only

ANS: C PTS: 1 DIF: Moderate NAT: Analytic

LOC: Elasticity TOP: Calculating Price Elasticity of Demand

Exhibit 5-22

Refer to Exhibit 5-22. Demand curve D is an example of a(n)

a.	curvilinear demand curve
b.	linear demand curve
c.	linear supply curve
d.	unit-elastic demand curve
e.	total revenue curve

ANS: B PTS: 1 DIF: Easy NAT: Analytic

LOC: Elasticity TOP: Price Elasticity and the Linear Demand Curve

Luis wonders why commercials appear more frequently at the end of a TV movie than at the beginning. Carol says that this pattern can be explained by the

a.	share of the viewer’s budget spent on TV watching
b.	length of the adjustment period
c.	cost of supplying additional minutes of the movie
d.	high elasticity of demand for watching the end of a TV movie
e.	availability of substitutes

ANS: E PTS: 1 DIF: Moderate NAT: Reflective Thinking

LOC: Elasticity TOP: Availability of Substitutes

Exhibit 5-23

Refer to Exhibit 5-23. The best illustration of how a demand curve responds to a very long adjustment period is

a.	curve D(1)
b.	curve D(2)
c.	curve D(4)
d.	curve D(3)
e.	either curve D(1) or D(4)

ANS: D PTS: 1 DIF: Moderate NAT: Reflective Thinking

LOC: Elasticity TOP: Length of Adjustment Period

The ability of increasing quantity supplied in response to a higher price is identical across industries.

a.	True
b.	False

ANS: B PTS: 1 DIF: Easy NAT: Analytic

LOC: Elasticity TOP: Determinants of Supply Elasticity

Income elasticity of demand is greater than zero for all of the following except

a.	restaurant meals
b.	beer
c.	owner-occupied housing
d.	food
e.	rental housing

ANS: B PTS: 1 DIF: Easy NAT: Analytic

LOC: Elasticity TOP: Income Elasticity of Demand

Exhibit 5-24

Exhibit 5-24 shows a hypothetical demand curve for soybeans. The vertical axis measures the average price per bushel in dollars. The horizontal axis measures billions of bushels per year. If perfect weather boosts the harvest from 3.5 billion bushels to 4.0 billion bushels (a 13 percent increase), what must happen to average price in order for the increased production to be sold?

a.	The average price must increase by $1 per bushel, a 22 percent increase.
b.	The average price will remain at $5 per bushel.
c.	The average price must fall by $0.58 per bushel, a 13 percent decrease.
d.	The average price must fall by $1 per bushel, a 22 percent decrease.
e.	It is not possible to answer without knowing exactly how much supply decreases.

ANS: D PTS: 1 DIF: Moderate NAT: Reflective Thinking

LOC: Elasticity TOP: CASE STUDY: The Market for Food and “The Farm Problem”

All of the following are examples of a constant-elasticity demand curve except a(n)

a.	perfectly elastic demand curve
b.	linear demand curve with a slope of -4
c.	perfectly inelastic demand curve
d.	unit-elastic demand curve
e.	vertical demand curve

ANS: B PTS: 1 DIF: Moderate NAT: Analytic

LOC: Elasticity TOP: Constant-Elasticity Demand Curves

Chapter 5 Appendix—Price Elasticity and Tax Incidence

MULTIPLE CHOICE

1.The more price elastic is demand, the larger the portion of a tax that is paid by sellers

a. True

b. False

ANS: A PTS: 1 DIF: Moderate NAT: Analytic

LOC:ElasticityTOP:Demand Elasticity and Tax Incidence

2.If demand is price inelastic, a tax will largely be paid by consumers.

a. True

b. False

ANS: A PTS: 1 DIF: Easy NAT: Analytic

LOC:ElasticityTOP:Demand Elasticity and Tax Incidence

3.The more price inelastic is demand, the more likely it is that a tax will fall on sellers.

a. True

b. False

ANS: B PTS: 1 DIF: Moderate NAT: Reflective Thinking

LOC:ElasticityTOP:Demand Elasticity and Tax Incidence

4.If demand is elastic, a tax increase will shift the demand curve to the right.

a. True

b. False

ANS: B PTS: 1 DIF: Moderate NAT: Reflective Thinking

LOC:ElasticityTOP:Demand Elasticity and Tax Incidence

5.Levying a tax on a good when demand is very elastic will generate a large amount of tax revenue for the government.

a. True

b. False

ANS: B PTS: 1 DIF: Moderate NAT: Analytic

LOC:ElasticityTOP:Demand Elasticity and Tax Incidence

6.Levying a tax on a good when demand is very inelastic will generate a large amount of tax revenue for the government.

a. True

b. False

ANS: A PTS: 1 DIF: Moderate NAT: Analytic

LOC:ElasticityTOP:Demand Elasticity and Tax Incidence

7.If the government is interested in generating a large revenue from placing a tax on the consumption of a particular good, it should choose a good for which

a. the demand is price elastic

b. the demand is unit elastic with respect to price

c. the supply is perfectly elastic

d. the demand is price inelastic

e. there are many good substitutes

ANS: D PTS: 1 DIF: Moderate NAT: Analytic

LOC:ElasticityTOP:Demand Elasticity and Tax Incidence

8.On which of the following goods would you expect the revenue generated from the imposition of a tax to be the greatest?

a. milk

b. gasoline

c. bread

d. a specific brand of beer

e. all beer

ANS: B PTS: 1 DIF: Moderate NAT: Reflective Thinking

LOC:ElasticityTOP:Demand Elasticity and Tax Incidence

9.Historically salt has been one of the most commonly taxed items. Which of the following do you think best explains this fact?

a. Since salt is a necessity, levying a tax on it imposed a hardship on no one

b. The burden of the tax will be shared by everyone since everyone uses salt

c. Because salt is used more by those with higher incomes, a tax will decrease their consumption

d. The demand for salt is inelastic

e. The demand for salt is elastic

ANS: D PTS: 1 DIF: Moderate NAT: Analytic

LOC:ElasticityTOP:Demand Elasticity and Tax Incidence

10.If the demand for a good is very price inelastic, the imposition of a tax on that good

a. places the burden of the tax equally on buyers and sellers

b. permits sellers to pass most of the cost increase resulting from the tax on to the consumers of the product

c. reduces the profits earned by sellers since they must write the check to pay the tax

d. makes the demand more inelastic

e. makes the demand more elastic

ANS: B PTS: 1 DIF: Moderate NAT: Reflective Thinking

LOC:ElasticityTOP:Demand Elasticity and Tax Incidence

11.For which of the following goods would you expect the demand to be most price elastic?

a. Cigarettes

b. Meat

c. Vegetables

d. Beer

e. Coors Lite Beer

ANS: E PTS: 1 DIF: Moderate NAT: Reflective Thinking

LOC:ElasticityTOP:Demand Elasticity and Tax Incidence

12.If the demand for a good is very price elastic, the imposition of a tax on that good

a. places the largest portion of the burden on the sellers of that product

b. places the burden of the tax equally on buyers and sellers

c. places the largest portion of the tax on consumers

d. will make demand more elastic than it was before the tax

e. will make demand more inelastic than it was before the tax

ANS: A PTS: 1 DIF: Easy NAT: Analytic

LOC:ElasticityTOP:Demand Elasticity and Tax Incidence

13.On which of the following goods would you expect the revenue generated from the imposition of a tax to be the greatest?

a. A prescription drug ordered by your doctor

b. Bayer aspirin

c. An over-the-counter cough medicine

d. A specific brand of vitamin pills

e. Rubbing alcohol

ANS: A PTS: 1 DIF: Moderate NAT: Reflective Thinking

LOC:ElasticityTOP:Demand Elasticity and Tax Incidence

14.The more elastic is the supply, the less of a tax is paid by producers

a. True

b. False

ANS: A PTS: 1 DIF: Moderate NAT: Analytic

LOC:ElasticityTOP:Supply Elasticity and Tax Incidence

15.The more inelastic the supply, the less of a tax is paid by producers

a. True

b. False

ANS: B PTS: 1 DIF: Moderate NAT: Reflective Thinking

LOC:ElasticityTOP:Supply Elasticity and Tax Incidence

16.The more elastic is the supply, the less of a tax is paid by consumers

a. True

b. False

ANS: B PTS: 1 DIF: Easy NAT: Analytic

LOC:ElasticityTOP:Supply Elasticity and Tax Incidence

17.If there is a $1 per box tax imposed on the sale of tea and the price paid by consumers increases by $0.50, what may we conclude about the price elasticities of demand and supply?

a. The elasticity of supply must be less than the price elasticity of demand

b. The amount exchanged in the market will remain the same

c. The elasticity of supply must be greater than the price elasticity of demand

d. The elasticity of supply must be equal to the elasticity of demand

e. We need more information to answer the question

ANS: D PTS: 1 DIF: Moderate NAT: Reflective Thinking

LOC:ElasticityTOP:Supply Elasticity and Tax Incidence

18.If supply is inelastic, the imposition of a tax will

a. fall more heavily on producers

b. fall more heavily on consumers

c. fall more heavily on profit making firms relative to non-profit firms

d. be equally distributed between buyers and sellers

e. change consumer expectations because they do not know what sellers will do

ANS: A PTS: 1 DIF: Easy NAT: Reflective Thinking

LOC:ElasticityTOP:Supply Elasticity and Tax Incidence

19.If supply is elastic, the imposition of a tax

a. falls more heavily on consumers

b. falls more heavily on producers

c. falls more heavily on monopoly sellers than competitive sellers

d. will alter both buyer and seller plans equally

e. change seller expectations about consumer tastes

ANS: A PTS: 1 DIF: Easy NAT: Analytic

LOC:ElasticityTOP:Supply Elasticity and Tax Incidence

20.If demand is more elastic than supply is, the

a. smaller the portion of the tax that will be paid by producers

b. larger the portion of the tax that will be paid by consumers

c. more likely it is that the tax will be spread equally between producers and consumers

d. more likely it will be subject to tax evasion by those in the underground economy

e. larger the portion of the tax that will be paid by producers

ANS: E PTS: 1 DIF: Easy NAT: Reflective Thinking

LOC:ElasticityTOP:Supply Elasticity and Tax Incidence

21.If demand is more inelastic than supply is, the

a. larger the portion of the tax that will be paid by producers

b. larger the portion of the tax that will be paid by consumers

c. more likely it is that the tax will be spread equally between producers and consumers

d. smaller the portion of the tax that will be paid by consumers

e. smaller the impact that an income tax will have on consumer preferences

ANS: B PTS: 1 DIF: Moderate NAT: Analytic

LOC:ElasticityTOP:Supply Elasticity and Tax Incidence

22.If supply is more elastic than demand is, the

a. less the impact it will have on the consumers before tax income

b. more likely it is to lead to tax avoidance

c. less likely it will have any impact on market transactions

d. more the tax will fall on consumers

e. more the tax will fall on producers

ANS: D PTS: 1 DIF: Hard NAT: Analytic

LOC:ElasticityTOP:Supply Elasticity and Tax Incidence

23.If supply is more inelastic than demand is, the

a. more the tax will fall on producers

b. more the tax will fall on consumers

c. less likely that a tax will have an impact on market transactions

d. less likely it a tax will lead to tax avoidance

e. greater the impact that a tax has on consumer expectations

ANS: A PTS: 1 DIF: Hard NAT: Reflective Thinking

LOC:ElasticityTOP:Supply Elasticity and Tax Incidence

Exhibit 5-25

24.Refer to Exhibit 5-25. The supply curve decreases from S to S(t) because a tax is imposed. Under demand curve D’ as opposed to demand curve D, consumers will pay more of the tax.

a. True

b. False

ANS: B PTS: 1 DIF: Moderate NAT: Reflective Thinking

LOC:ElasticityTOP:Demand Elasticity and Tax Incidence

Exhibit 5-26

25.Refer to Exhibit 5-26. Consumers will pay a greater share of a new tax under supply curve S’ than under supply curve S.

a. True

b. False

ANS: A PTS: 1 DIF: Moderate NAT: Reflective Thinking

LOC:ElasticityTOP:Supply Elasticity and Tax Incidence

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ECON Microeconomics 1st Edition by William A. McEachern - Test Bank

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