Microeconomics 9th Edition by William Boye - Test Bank

Microeconomics 9th Edition by William Boye – Test Bank

 

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Sample Questions Are Posted Below

 

Chapter 05  Elasticity: Demand and Supply

 

MULTIPLE CHOICE

 

1. Which of the following is explained by the price elasticity of demand?

a.	The effect of price changes on supply.
b.	The effect of quantity changes on supply.
c.	The effect of quantity changes on price.
d.	The effect of price changes on quantity demanded.
e.	The effect of price changes on quantity supplied.

 

 

ANS:  D                    DIF:    Easy               REF:   1                    OBJ:   ch. 05, 1

NAT:  Analytic | Elasticity                         TOP:   The Price Elasticity of Demand

MSC:  Knowledge

 

2. When the manager of a local movie theater raises the price of movie tickets from $7.50 to $8.50 total revenue falls. This means that:

a.	the demand for movie tickets is highly elastic.
b.	the supply of movie ticket is perfectly elastic.
c.	the supply of movie tickets is elastic.
d.	the demand for movie tickets is inelastic.
e.	the supply of movie tickets is inelastic.

 

 

ANS:  A                    DIF:    Moderate       REF:   1                    OBJ:   ch. 05, 1

NAT:  Reflective Thinking | Elasticity        TOP:   The Price Elasticity of Demand

MSC:  Application

 

3. Which of the following is true of price elasticity of demand?

a.	It measures the responsiveness of quantity demanded or quantity supplied to a change in one of the determinants of demand and/or supply.
b.	It is calculated as the percentage change in the quantity demanded of a product divided by the percentage change in the price of that product.
c.	It is calculated as the percentage change in the demand for a good divided by the percentage change in income, everything else held constant.
d.	It measures the responsiveness of demand to a change in the quantity supplied.
e.	It is calculated as the percentage change in the quantity demanded for one good divided by the percentage change in the price of a related good, everything else held constant.

 

 

ANS:  B                    DIF:    Easy               REF:   1.a                  OBJ:   ch. 05, 1

NAT:  Analytic | Elasticity                         TOP:   The Price Elasticity of Demand

MSC:  Knowledge

 

4. The less responsive consumers are to a change in the price of a product:

a.	the more price-elastic is the supply curve.
b.	the more income-elastic is the demand curve.
c.	the more price-inelastic is the demand curve.
d.	the more income-elastic is the supply curve.
e.	the more price-elastic is the demand curve.

 

 

ANS:  C                    DIF:    Easy               REF:   1.a                  OBJ:   ch. 05, 1

NAT:  Analytic | Elasticity                         TOP:   The Price Elasticity of Demand

MSC:  Knowledge

 

5. Price elasticity of demand is a measure of the:

a.	extent of competition in the market.
b.	change in the purchase of a product relative to a change in income.
c.	change in the quantity demanded due to factors other than price.
d.	degree of consumer responsiveness to changes in price.
e.	percentage change in the prices of two related products.

 

 

ANS:  D                    DIF:    Easy               REF:   1.a                  OBJ:   ch. 05, 1

NAT:  Analytic | Elasticity                         TOP:   The Price Elasticity of Demand

MSC:  Knowledge

 

6. If the price elasticity of demand is equal to 4, a 1 percent increase in price will cause the quantity demanded to _____ by _____ percent.

a.	increase; 0.25
b.	decrease; 0.25
c.	increase; 4
d.	decrease; 25
e.	decrease; 4

 

 

ANS:  E                    DIF:    Moderate       REF:   1.a                  OBJ:   ch. 05, 1

NAT:  Reflective Thinking | Elasticity        TOP:   The Price Elasticity of Demand

MSC:  Application

 

7. If a 50 percent increase in the price of pizza results in a 25 percent decrease in the quantity demanded of pizza, then the elasticity of demand for pizza:

a.	is equal to 0.5 and demand is inelastic.
b.	is equal to 0.5 and demand is elastic.
c.	is equal to 2 and is elastic.
d.	is equal to 2 and is inelastic.
e.	cannot be determined from the information provided.

 

 

ANS:  A                    DIF:    Moderate       REF:   Ch 5, 1.a         OBJ:   ch. 05, 1

NAT:  Reflective Thinking | Elasticity        TOP:   The Price Elasticity of Demand

MSC:  Application

 

8. Assume that the price elasticity of demand for a commodity is 0.20. A 10 percent increase in price will be followed by a:

a.	20 percent increase in the quantity demanded.
b.	2 percent decrease in the quantity demanded.
c.	20 percent decrease in the quantity demanded.
d.	0.2 percent decrease in the quantity demanded.
e.	2 percent increase in the quantity demanded.

 

 

ANS:  B                    DIF:    Moderate       REF:   1.a                  OBJ:   ch. 05, 1

NAT:  Reflective Thinking | Elasticity        TOP:   The Price Elasticity of Demand

MSC:  Application

 

9. If a 10 percent increase in the price of gasoline results in a 2 percent decrease in the quantity demanded of gasoline, then the elasticity of demand for gasoline is:

a.	equal to 0.2 and demand is inelastic.
b.	equal to 0.2 and demand is elastic.
c.	equal to 0.02 and demand is elastic.
d.	equal to 0.5 and demand is inelastic.
e.	equal to 0.5 and the demand is elastic.

 

 

ANS:  A                    DIF:    Moderate       REF:   1.a                  OBJ:   ch. 05, 1

NAT:  Reflective Thinking | Elasticity        TOP:   The Price Elasticity of Demand

MSC:  Application

 

10. If demand is unit-elastic, a 25 percent increase in price will result in:

a.	a 25 percent change in total revenue.
b.	no change in quantity demanded.
c.	a 1 percent decrease in quantity demanded.
d.	a 25 percent decrease in quantity demanded.
e.	a 100 percent change in quantity demanded.

 

 

ANS:  D                    DIF:    Moderate       REF:   1.a                  OBJ:   ch. 05, 1

NAT:  Reflective Thinking | Elasticity        TOP:   The Price Elasticity of Demand

MSC:  Application

 

11. If a 1 percent change in the price of a good causes a 1 percent change in the quantity demanded of that good, then demand is said t be:

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

 

 

ANS:  C                    DIF:    Easy               REF:   Ch 5, 1.a         OBJ:   ch. 05, 1

NAT:  Analytic | Elasticity                         TOP:   The Price Elasticity of Demand

MSC:  Knowledge

 

12. When the elasticity of demand for a particular good is less than 1:

a.	demand is elastic.
b.	demand is inelastic.
c.	the elasticity of demand is unit-elastic.
d.	the good is a substitute.
e.	the good is a normal good.

 

 

ANS:  B                    DIF:    Easy               REF:   1.a                  OBJ:   ch. 05, 1

NAT:  Analytic | Elasticity                         TOP:   The Price Elasticity of Demand

MSC:  Knowledge

 

13. If a product has an elastic demand, this means that:

a.	consumers are relatively sensitive to a change in the price of the product.
b.	consumers are relatively insensitive to a change in the quantity demanded.
c.	consumers are relatively insensitive to a change in the price of the product.
d.	producers are relatively insensitive to a change in the price of the product.
e.	producers are relatively sensitive to a change in the quantity demanded.

 

 

ANS:  A                    DIF:    Easy               REF:   1.a                  OBJ:   ch. 05, 1

NAT:  Analytic | Elasticity                         TOP:   The Price Elasticity of Demand

MSC:  Knowledge

 

14. What would be the consequences of a 10 percent decrease in the price of a good for which price elasticity of demand is 5?

a.	A 50 percent decrease in quantity demanded
b.	A 5 percent increase in quantity demanded
c.	A 50 percent increase in quantity demanded
d.	A decrease in quantity demanded by 0.2
e.	An increase in quantity demanded by 0.2

 

 

ANS:  C                    DIF:    Moderate       REF:   1.a                  OBJ:   ch. 05, 1

NAT:  Reflective Thinking | Elasticity        TOP:   The Price Elasticity of Demand

MSC:  Application

 

15. If the percentage change in quantity demanded of a good is greater than the percentage change in price that caused it, then demand for the good is _____.

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

 

 

ANS:  B                    DIF:    Moderate       REF:   1.a                  OBJ:   ch. 05, 1

NAT:  Reflective Thinking | Elasticity        TOP:   The Price Elasticity of Demand

MSC:  Comprehension

 

16. Suppose 50 loaves of bread are demanded at a particular price. If that price rises by 2 percent, the quantity demanded decreases to 49.5 loaves of bread. This implies:

a.	demand is elastic.
b.	demand is unit-elastic.
c.	the price elasticity of demand is equal to 2.
d.	demand is inelastic.
e.	consumers are very responsive to a price change.

 

 

ANS:  D                    DIF:    Moderate       REF:   1.a                  OBJ:   ch. 05, 1

NAT:  Reflective Thinking | Elasticity        TOP:   The Price Elasticity of Demand

MSC:  Application

 

NARRBEGIN: Figure 5.1

The figure given below shows the demand curves for five products: A, B, C, D, and E.

Figure 5.1

NARREND

 

 

17. Refer to Figure 5.1. The demand curve B is:

a.	more elastic compared to demand curve E.
b.	less elastic compared to demand curve C.
c.	perfectly elastic.
d.	more elastic compared to demand curve D.
e.	an example of a unit-elastic demand curve.

 

 

ANS:  B                    DIF:    Moderate       REF:   Ch 5, 1.b        OBJ:   ch. 05, 1

NAT:  Reflective Thinking | Elasticity        TOP:   The Price Elasticity of Demand

MSC:  Application

 

18. Refer to Figure 5.1. The value of the coefficient of price elasticity of demand for E is:

a.	infinity.
b.	equal to 1.
c.	equal to zero.
d.	less than 1.
e.	greater than zero but less than one.

 

 

ANS:  A                    DIF:    Moderate       REF:   Ch 5, 1.b        OBJ:   ch. 05, 1

NAT:  Reflective Thinking | Elasticity        TOP:   The Price Elasticity of Demand

MSC:  Application

 

19. Refer to Figure 5.1. Which of the following is true of the demand curve for A?

a.	Consumers purchase any quantity regardless of the price.
b.	There is no change in quantity demanded as the price changes.
c.	A small price change will cause consumers to change their consumption by a much larger quantity.
d.	The smallest price increase will cause consumers to switch to the producer with a lower price.
e.	The price elasticity of demand for A is equal to 1.

 

 

ANS:  B                    DIF:    Moderate       REF:   Ch 5, 1.b        OBJ:   ch. 05, 1

NAT:  Reflective Thinking | Elasticity        TOP:   The Price Elasticity of Demand

MSC:  Application

 

20. Refer to Figure 5.1. Which of the following is true when prices increase from P₁ to P₂?

a.	The demand for D is relatively less elastic than the demand for C.
b.	The change in the quantity demanded following the price increase was the largest for C.
c.	The change in the quantity demanded following the price increase was the least for D.
d.	The demand for E is perfectly elastic as the price increase did not affect the quantity demanded.
e.	Since the change in quantity demanded was larger for C than A, the demand for C is more elastic than it is for C.

 

 

ANS:  E                    DIF:    Moderate       REF:   Ch 5, 1.b        OBJ:   ch. 05, 1

NAT:  Reflective Thinking | Elasticity        TOP:   The Price Elasticity of Demand

MSC:  Application

 

21. Refer to Figure 5.1. The demand curve E is most likely to represent the demand for:

a.	alcohol by an alcoholic.
b.	a life-saving drug.
c.	holiday travel packages.
d.	a particular brand of breakfast cereal.
e.	air conditioning during a hot summer.

 

 

ANS:  C                    DIF:    Moderate       REF:   Ch 5, 1.b        OBJ:   ch. 05, 1

NAT:  Reflective Thinking | Elasticity        TOP:   The Price Elasticity of Demand

MSC:  Application

 

22. In Figure 5-1, which demand curve is most likely to represent demand for insulin by diabetics?

a.	A
b.	B
c.	C
d.	D
e.	E

 

 

ANS:  A                    DIF:    Moderate       REF:   Ch 5, 1.b        OBJ:   ch. 05, 1

NAT:  Reflective Thinking | Elasticity        TOP:   The Price Elasticity of Demand

MSC:  Application

 

23. Which of the following is an example of inelastic demand?

a.	A 10 percent increase in the price of milk leads to a 20 percent decrease in the quantity demanded of milk.
b.	A 10 percent increase in the price of milk leads to a 10 percent decrease in the quantity demanded of milk.
c.	A 10 percent increase in the price of milk leads to a 5 percent decrease in the quantity demanded of milk.
d.	A 10 percent increase in the price of milk leads to no change in the quantity demanded of milk.
e.	A 10 percent increase in the price of milk leads to a 5 percent increase in the quantity demanded of milk.

 

 

ANS:  C                    DIF:    Moderate       REF:   1.a                  OBJ:   ch. 05, 1

NAT:  Reflective Thinking | Elasticity        TOP:   The Price Elasticity of Demand

MSC:  Application

 

24. If a price increase from $20 to $40 causes quantity demanded to decrease from 100 units to 50 units, one can conclude that demand for the product is _____.

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

 

 

ANS:  A                    DIF:    Moderate       REF:   1.a                  OBJ:   ch. 05, 1

NAT:  Reflective Thinking | Elasticity        TOP:   The Price Elasticity of Demand

MSC:  Application

 

25. If demand is perfectly inelastic, then:

a.	the elasticity of demand is 1.
b.	the elasticity of demand is -1.
c.	the demand curve will be nonexistent.
d.	the demand curve will be a horizontal line.
e.	quantity demanded does not change when price changes.

 

 

ANS:  E                    DIF:    Easy               REF:   1.b                 OBJ:   ch. 05, 1

NAT:  Analytic | Elasticity                         TOP:   The Price Elasticity of Demand

MSC:  Knowledge

 

26. Assume that the demand curve for a certain good is a vertical line. This vertical demand curve illustrates the idea that:

a.	consumers are unwilling to pay more than a certain price for the good.
b.	the good is a complement to another good.
c.	consumers are unwilling to pay less than a certain price for the good.
d.	there are many substitutes for this good.
e.	people will not change the quantity of the good when the price of the good is changed.

 

 

ANS:  E                    DIF:    Easy               REF:   1.b                 OBJ:   ch. 05, 1

NAT:  Analytic | Elasticity                         TOP:   The Price Elasticity of Demand

MSC:  Knowledge

 

27. If the demand for corn is elastic, then:

a.	there are not many substitutes in the consumption of corn.
b.	the price elasticity of demand for corn is greater than 1.
c.	a decrease in price will reduce total revenue for corn producers.
d.	a decrease in price will increase total revenue for corn producers.
e.	consumers will continue buying the same quantity even if price increases.

 

 

ANS:  B                    DIF:    Easy               REF:   1.b                 OBJ:   ch. 05, 1

NAT:  Analytic | Elasticity                         TOP:   The Price Elasticity of Demand

MSC:  Knowledge

 

28. An economic survey observed that, a 20 percent cut in the price of a certain line of women’s clothing, almost doubled the quantity demanded of the clothing. This led economists to conclude that the demand for this line of clothing is _____.

a.	very elastic
b.	very inelastic
c.	vertical
d.	horizontal
e.	inferior

 

 

ANS:  A                    DIF:    Moderate       REF:   1.b                 OBJ:   ch. 05, 1

NAT:  Reflective Thinking | Elasticity        TOP:   The Price Elasticity of Demand

MSC:  Application

 

29. A horizontal demand curve shows that demand for the good is _____.

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

 

 

ANS:  E                    DIF:    Easy               REF:   1.b                 OBJ:   ch. 05, 1

NAT:  Analytic | Elasticity                         TOP:   The Price Elasticity of Demand

MSC:  Knowledge

 

30. A 0.5% increase in the price of a particular product causes the quantity demanded of the product to drop to zero. This means that the price elasticity of demand for the product is:

a.	moderately inelastic.
b.	highly inelastic.
c.	unitary elastic.
d.	perfectly inelastic.
e.	perfectly elastic.

 

 

ANS:  E                    DIF:    Challenging    REF:   1.b                 OBJ:   ch. 05, 1

NAT:  Reflective Thinking | Elasticity        TOP:   The Price Elasticity of Demand

MSC:  Comprehension

 

31. If the demand for cream cheese produced by a dairy is perfectly elastic, then what will be the shape of the demand curve faced by the dairy?

a.	The demand curve will be vertical
b.	The demand curve will be horizontal
c.	The demand curve will be upward sloping
d.	The demand curve will be downward sloping
e.	The demand curve will be concave

 

 

ANS:  B                    DIF:    Easy               REF:   1.b                 OBJ:   ch. 05, 1

NAT:  Analytic | Elasticity                         TOP:   The Price Elasticity of Demand

MSC:  Knowledge

 

32. Consider a medical breakthrough that led to the discovery of a simple microchip which when inserted inside the human ear could prevent certain chronic diseases. The price elasticity of demand for that microchip would most likely be _____.

a.	very elastic
b.	very inelastic
c.	infinite
d.	negative only for high prices
e.	positive only for high prices

 

 

ANS:  B                    DIF:    Challenging    REF:   1.b                 OBJ:   ch. 05, 1

NAT:  Reflective Thinking | Elasticity        TOP:   The Price Elasticity of Demand

MSC:  Comprehension

 

33. If a 15 percent reduction in the price of electricity per kilowatt hour has no impact on the total electricity consumption, we can infer that in the short run, the demand for electricity is _____.

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

 

 

ANS:  A                    DIF:    Moderate       REF:   1.b                 OBJ:   ch. 05, 1

NAT:  Reflective Thinking | Elasticity        TOP:   The Price Elasticity of Demand

MSC:  Application

 

34. If  = 1.50, and price decreases by 20 percent, then:

a.	quantity demanded will decrease by 30 percent.
b.	quantity demanded will increase by 30 percent.
c.	total revenue will remain unchanged.
d.	total revenue will decrease.
e.	quantity demanded will increase by 3 percent.

 

 

ANS:  B                    DIF:    Moderate       REF:   1.c                  OBJ:   ch. 05, 1

NAT:  Reflective Thinking | Elasticity        TOP:   The Price Elasticity of Demand

MSC:  Application

 

35. Suppose that the absolute value of the price elasticity of demand for firms A, B, C, and D is 0, 0.8, 1, and 1.5 respectively. An increase in the price would reduce quantity demanded for:

a.	firms A, B, C, and D.
b.	firms B, C, and D only.
c.	only firm A.
d.	firms C and D only.
e.	only firm D.

 

 

ANS:  E                    DIF:    Moderate       REF:   Ch 5, 1.b        OBJ:   ch. 05, 1

NAT:  Reflective Thinking | Elasticity        TOP:   The Price Elasticity of Demand

MSC:  Application

 

36. Which of the following is a determinant of price elasticity of demand?

a.	Availability of substitute goods
b.	Excess capacity
c.	Scale of production
d.	Inventories
e.	Cost of production

 

 

ANS:  A                    DIF:    Easy               REF:   1.d                 OBJ:   ch. 05, 2

NAT:  Analytic | Elasticity                         TOP:   The Price Elasticity of Demand

MSC:  Knowledge

 

37. Demand becomes more elastic as:

a.	the number of substitutes available declines.
b.	the time period becomes shorter.
c.	a good makes up a larger percentage of a consumer’s budget.
d.	a product is defined more broadly.
e.	the producer has more time to respond to price changes.

 

 

ANS:  C                    DIF:    Easy               REF:   1.d                 OBJ:   ch. 05, 2

NAT:  Analytic | Elasticity                         TOP:   The Price Elasticity of Demand

MSC:  Application

 

38. In the opinion of many consumers, there are few, if any, substitutes for the popular search engine Google. If Google were to charge consumers for its services, it would face:

a.	a relatively inelastic demand curve.
b.	a relatively elastic demand curve.
c.	a negative income elasticity of demand.
d.	a positive cross elasticity of demand.
e.	a perfectly elastic demand curve.

 

 

ANS:  A                    DIF:    Moderate       REF:   Ch 5, 1.d        OBJ:   ch. 05, 2

NAT:  Reflective Thinking | Elasticity        TOP:   Other Demand Elasticities

MSC:  Application

 

39. Which of the following would most likely be highly price-elastic?

a.	The demand for milk by a household
b.	The demand for insulin by a diabetes patient
c.	The demand for water
d.	The demand for new houses
e.	The demand for coal over a period of one month

 

 

ANS:  D                    DIF:    Moderate       REF:   1.d                 OBJ:   ch. 05, 2

NAT:  Reflective Thinking | Elasticity        TOP:   The Price Elasticity of Demand

MSC:  Application

 

40. Which of the following is true with respect to the price elasticity of demand?

a.	The coefficient of price elasticity of demand will change with changes in the units of measurement (for instance, going from pounds to ounces).
b.	Elasticity of demand will be equal to the slope of the demand curve.
c.	Elasticity measures the sensitivity of total expenditure to a change in price.
d.	Elasticity will tend to be greater for a relatively expensive product than for a cheaper one.
e.	A coefficient of 1 means that the percentage change in total expenditure is equivalent to the percentage change in price.

 

 

ANS:  D                    DIF:    Moderate       REF:   1.d                 OBJ:   ch. 05, 2

NAT:  Analytic | Elasticity                         TOP:   The Price Elasticity of Demand

MSC:  Knowledge

 

41. If a product has an inelastic demand, then:

a.	there is probably a long time period under consideration.
b.	as price increases, total revenue to producers decreases.
c.	an increase in the price will decrease total consumer expenditures.
d.	there are probably many complements for the good.
e.	there are probably few substitutes for the good.

 

 

ANS:  E                    DIF:    Moderate       REF:   1.d                 OBJ:   ch. 05, 2

NAT:  Analytic | Elasticity                         TOP:   The Price Elasticity of Demand

MSC:  Knowledge

 

42. Since an expensive sports car constitutes a greater portion of the consumer’s budget than does laundry soap, the elasticity of demand for an expensive sports car is _____.

a.	relatively less elastic
b.	a vertical line
c.	a downward sloping straight line
d.	relatively more elastic
e.	not subject to elasticity because of the income level of the consumers who purchase expensive sports cars

 

 

ANS:  D                    DIF:    Moderate       REF:   1.d                 OBJ:   ch. 05, 2

NAT:  Reflective Thinking | Elasticity        TOP:   The Price Elasticity of Demand

MSC:  Application

 

43. Price elasticity of demand is more likely to be greater than one if:

a.	consumers have a long time to adjust to a price change.
b.	the product is a necessity.
c.	demand is inelastic.
d.	there are few close substitutes for the product.
e.	total revenue declines in response to a price reduction.

 

 

ANS:  A                    DIF:    Easy               REF:   1.d                 OBJ:   ch. 05, 2

NAT:  Analytic | Elasticity                         TOP:   The Price Elasticity of Demand

MSC:  Knowledge

 

44. A fall in the average income of consumers, say during a recession, is represented by:

a.	an upward movement along the demand curve for product A.
b.	a movement along the demand curve for product A that may be up or down, depending on the direction of the price change.
c.	a shift of the demand curve for product A.
d.	a rotation of the demand curve for product A.
e.	a shift of the demand curve for the related good or service.

 

 

ANS:  C                    DIF:    Moderate       REF:   2.a                  OBJ:   ch. 05, 2

NAT:  Reflective Thinking | Elasticity        TOP:   Other Demand Elasticities

MSC:  Application

 

45. _____ measures the percentage change in quantity demanded caused by a given percentage change in the price of a related good.

a.	Income elasticity of demand
b.	Cross-price elasticity of demand
c.	Advertising elasticity of demand
d.	Price elasticity of demand
e.	Point elasticity

 

 

ANS:  B                    DIF:    Easy               REF:   2                    OBJ:   ch. 05, 3

NAT:  Analytic | Elasticity                         TOP:   Other Demand Elasticities

MSC:  Knowledge

 

46. When product A is a good substitute for product B, the cross-price elasticity of demand for products A and B will be _____.

a.	unity
b.	negative
c.	positive
d.	decreasing
e.	increasing

 

 

ANS:  C                    DIF:    Easy               REF:   2.a                  OBJ:   ch. 05, 3

NAT:  Analytic | Elasticity                         TOP:   Other Demand Elasticities

MSC:  Knowledge

 

47. Assume that due to unfavorable conditions in a prime honey-producing area, the price of honey increases by 50 percent. The quantity consumed of herbal tea declines immediately by 25 percent. Everything else held constant, the:

a.	cross-price elasticity of demand for herbal tea and honey is negative, and therefore the two goods are substitutes.
b.	cross-price elasticity of demand for herbal tea and honey is negative, and therefore the two goods are complements.
c.	cross-price elasticity of demand for herbal tea and honey is positive, and therefore the two goods are substitutes.
d.	cross-price elasticity of demand for herbal tea and honey is positive, and therefore the two goods are complements.
e.	cross-price elasticity of demand cannot be determined from the information provided.

 

 

ANS:  B                    DIF:    Moderate       REF:   2.a                  OBJ:   ch. 05, 3

NAT:  Reflective Thinking | Elasticity        TOP:   Other Demand Elasticities

MSC:  Application

 

48. When the cross-price elasticity of demand is a large positive number, one can correctly conclude that:

a.	the goods are normal goods.
b.	the goods are inferior goods.
c.	the goods are substitutes.
d.	the goods are complements.
e.	total revenue will increase when the price increases.

 

 

ANS:  C                    DIF:    Easy               REF:   2.a                  OBJ:   ch. 05, 3

NAT:  Analytic | Elasticity                         TOP:   Other Demand Elasticities

MSC:  Knowledge

 

49. Since they are often used together, peanut butter and jelly are:

a.	substitutes and have a positive cross-price elasticity.
b.	complements and have a positive cross-price elasticity.
c.	substitutes and have a negative cross-price elasticity.
d.	complements and have a negative cross-price elasticity.
e.	inferior goods when the demand or goods is positive.

 

 

ANS:  D                    DIF:    Moderate       REF:   2.a                  OBJ:   ch. 05, 3

NAT:  Reflective Thinking | Elasticity        TOP:   Other Demand Elasticities

MSC:  Application

 

50. As the price of movie tickets increases, which of the following is most likely to take place?

a.	The quantity demanded for DVDs will increase
b.	The quantity of books demanded will decrease
c.	The number of Broadway tickets purchased will decrease
d.	The prices of popcorn and soda will increase
e.	The number of movies being produced will increase

 

 

ANS:  A                    DIF:    Moderate       REF:   Ch 5, 2.a         OBJ:   ch. 05, 3

NAT:  Reflective Thinking | Elasticity        TOP:   Other Demand Elasticities

MSC:  Application

 

51. When the price of hot dogs at the supermarket increases, the quantity demanded of hot dog buns declines. This situation describes:

a.	the income elasticity of demand for hot dogs.
b.	the income elasticity of demand for hot dog buns.
c.	the price elasticity of supply for hot dogs.
d.	the cross-price elasticity of demand for hot dogs and hot dog buns.
e.	the cross-price elasticity of supply for hot dogs and hot dog buns.

 

 

ANS:  D                    DIF:    Moderate       REF:   2.a                  OBJ:   ch. 05, 3

NAT:  Reflective Thinking | Elasticity        TOP:   Other Demand Elasticities

MSC:  Application

 

52. If the demand for product R increases as the price of product S increases, then _____.

a.	consumer preferences for S have increased
b.	R and S are not related goods
c.	R and S are substitutes
d.	R and S are complements
e.	R is an inferior good

 

 

ANS:  C                    DIF:    Moderate       REF:   2.a                  OBJ:   ch. 05, 3

NAT:  Reflective Thinking | Elasticity        TOP:   Other Demand Elasticities

MSC:  Application

 

53. Suppose the manager of a store wants to know whether the product of the store across the street is a substitute for her product. In other words, she would need to know if the cross-price elasticity of demand for the products _____.

a.	is positive
b.	is negative
c.	is unity
d.	is zero
e.	is infinite

 

 

ANS:  A                    DIF:    Moderate       REF:   2.a                  OBJ:   ch. 05, 3

NAT:  Reflective Thinking | Elasticity        TOP:   Other Demand Elasticities

MSC:  Application

 

54. Goods whose income elasticity of demand is greater than zero are _____.

a.	inferior goods
b.	normal goods
c.	luxury goods
d.	superior goods
e.	public goods

 

 

ANS:  B                    DIF:    Easy               REF:   2.b                 OBJ:   ch. 05, 3

NAT:  Analytic | Elasticity                         TOP:   Other Demand Elasticities

MSC:  Knowledge

 

55. As income levels rose moderately last year in the San Jose area, it was observed by local realtors that housing sales increased substantially. It is clear from this information that, everything else held constant, the income elasticity of demand for houses is _____.

a.	negative and relatively low
b.	negative and relatively high
c.	positive and relatively low
d.	positive and relatively high
e.	neither positive nor negative

 

 

ANS:  D                    DIF:    Easy               REF:   2.b                 OBJ:   ch. 05, 3

NAT:  Reflective Thinking | Elasticity        TOP:   Other Demand Elasticities

MSC:  Application

 

56. An inferior good or service is any good or service for which:

a.	an increase in price causes an increase in the quantity demanded.
b.	a decrease in price causes an increase in demand.
c.	an increase in price causes a decrease in the quantity demanded.
d.	an increase in the amount consumed causes a decrease in marginal utility.
e.	an increase in income causes a decrease in demand.

 

 

ANS:  E                    DIF:    Moderate       REF:   2.b                 OBJ:   ch. 05, 3

NAT:  Analytic | Elasticity                         TOP:   Other Demand Elasticities

MSC:  Knowledge

 

57. Income elasticity of demand is expected to be _____.

a.	relatively high for necessities
b.	positive for most products
c.	relatively low for luxuries
d.	negative for most products
e.	zero for most products

 

 

ANS:  B                    DIF:    Easy               REF:   2.b                 OBJ:   ch. 05, 3

NAT:  Analytic | Elasticity                         TOP:   Other Demand Elasticities

MSC:  Knowledge

 

58. Ceteris paribus, a 10 percent increase in income results in a 50 percent decline in the quantity of potatoes purchased. This implies potatoes can be categorized as _____.

a.	complements
b.	substitutes
c.	inferior goods
d.	normal goods
e.	luxurious goods

 

 

ANS:  C                    DIF:    Moderate       REF:   2.b                 OBJ:   ch. 05, 3

NAT:  Reflective Thinking | Elasticity        TOP:   Other Demand Elasticities

MSC:  Application

 

59. Last year, Alice bought 40 CDs when her income was $20,000. This year, her income increased to $25,000, and she purchased 48 CDs. We can conclude that:

a.	Alice’s price elasticity of demand for CDs is equal to 1.
b.	Alice’s demand for CDs is price-inelastic.
c.	Alice’s demand for CDs is price-elastic.
d.	the income elasticity of demand for CDs is negative.
e.	CDs are a normal good.

 

 

ANS:  E                    DIF:    Moderate       REF:   2.b                 OBJ:   ch. 05, 3

NAT:  Reflective Thinking | Elasticity        TOP:   Other Demand Elasticities

MSC:  Application

 

60. Which of the following goods is likely to have an income elasticity of demand that is less than zero?

a.	A luxury yacht
b.	A beach house
c.	A state-of-the-art cellular phone
d.	A box of generic macaroni and cheese dinner
e.	A dinner at a French restaurant

 

 

ANS:  D                    DIF:    Moderate       REF:   2.b                 OBJ:   ch. 05, 3

NAT:  Reflective Thinking | Elasticity        TOP:   Other Demand Elasticities

MSC:  Application

 

61. If the demand for beans tends to decline as incomes rise, everything else held constant, beans are _____.

a.	a luxury good
b.	a normal good
c.	price sensitive
d.	not price sensitive
e.	an inferior good

 

 

ANS:  E                    DIF:    Moderate       REF:   2.b                 OBJ:   ch. 05, 3

NAT:  Reflective Thinking | Elasticity        TOP:   Other Demand Elasticities

MSC:  Application

 

62. For a given product, income elasticity of demand relates the percentage change in:

a.	quantity demanded to the percentage change in income.
b.	quantity demanded to the absolute change in income.
c.	income to the percentage change in price.
d.	price to the absolute change in quantity demanded.
e.	income to the percentage change in quantity available for sale.

 

 

ANS:  A                    DIF:    Moderate       REF:   2.b                 OBJ:   ch. 05, 3

NAT:  Analytic | Elasticity                         TOP:   Other Demand Elasticities

MSC:  Knowledge

 

63. Which of the following items is likely to have the highest positive income elasticity of demand?

a.	Bread
b.	Jewelry
c.	Soap
d.	A plumber’s service
e.	Table salt

 

 

ANS:  B                    DIF:    Moderate       REF:   Ch 5, 2.b        OBJ:   ch. 05, 3

NAT:  Reflective Thinking | Elasticity        TOP:   Other Demand Elasticities

MSC:  Application

 

64. When income elasticity of demand is a negative number, one can correctly conclude that:

a.	the good is a normal good.
b.	the good is an inferior good.
c.	the good is a substitute.
d.	the good is a complement.
e.	total revenue will decrease when the price increases.

 

 

ANS:  B                    DIF:    Easy               REF:   2.b                 OBJ:   ch. 05, 3

NAT:  Reflective Thinking | Elasticity        TOP:   Other Demand Elasticities

MSC:  Comprehension

 

65. The income elasticity of demand _____.

a.	must be negative because of the law of diminishing marginal utility
b.	could be positive or negative or zero, depending on the nature of the good
c.	must be positive because consumers tend to buy more at higher incomes
d.	is usually zero because “you can only have so much”
e.	can never be zero

 

 

ANS:  B                    DIF:    Moderate       REF:   2.b                 OBJ:   ch. 05, 3

NAT:  Analytic | Elasticity                         TOP:   Other Demand Elasticities

MSC:  Knowledge

 

66. Price elasticity of demand measured over a range of prices and quantities along the demand curve is _____.

a.	point elasticity
b.	arc elasticity
c.	income elasticity
d.	cross elasticity
e.	price elasticity

 

 

ANS:  B                    DIF:    Easy               REF:   2.c                  OBJ:   ch. 05, 3

NAT:  Analytic | Elasticity                         TOP:   Other Demand Elasticities

MSC:  Knowledge

 

NARRBEGIN: Table 5.1

The table given below reports the price and quantity demanded of a commodity.

Table 5.1

Price	Quantity Demanded
$5	300
$6	200

 

NARREND

 

 

67. According to Table 5.1, when the price increases from $5 to $6, the price elasticity of demand is _____.

a.	0.25
b.	1.0
c.	1.3
d.	1.8
e.	1.67

 

 

ANS:  E                    DIF:    Moderate       REF:   2.c                  OBJ:   ch. 05, 3

NAT:  Reflective Thinking | Elasticity        TOP:   Other Demand Elasticities

MSC:  Application

 

NARRBEGIN: Table 5.2

The table below shows the quantities of automobiles, margarine, and coffee purchased by Ted at different levels of income.

Table 5.2

	Quantity Purchased
Income	Automobiles	Margarine	Coffee
$25,000	2	10	1
$50,000	3	8	3

 

NARREND

 

 

68. Refer to Table 5.2. What is the income elasticity of demand for automobiles?

a.	0.5
b.	0.35
c.	2
d.	0.2
e.	Zero

 

 

ANS:  A                    DIF:    Moderate       REF:   Ch 5, 2.b        OBJ:   ch. 05, 3

NAT:  Reflective Thinking | Elasticity        TOP:   Other Demand Elasticities

MSC:  Application

 

69. Based on the information given in Table 5.2, margarine is:

a.	an inferior good.
b.	a necessity.
c.	a normal good.
d.	a complementary good.
e.	a luxury good.

 

 

ANS:  A                    DIF:    Moderate       REF:   Ch 5, 2.b        OBJ:   ch. 05, 3

NAT:  Reflective Thinking | Elasticity        TOP:   Other Demand Elasticities

MSC:  Application

 

70. Based on the information given in Table 5.2, coffee would be considered:

a.	an inferior good.
b.	a necessity.
c.	a normal good.
d.	a negative good.
e.	a luxury good.

 

 

ANS:  C                    DIF:    Moderate       REF:   Ch 5, 2.b        OBJ:   ch. 05, 3

NAT:  Reflective Thinking | Elasticity        TOP:   Other Demand Elasticities

MSC:  Application

 

71. Suppose the price of a product is reduced from $10 to $6 and the quantity demanded increases from 40 to 60 units. From this we can conclude that the price elasticity of demand over this price range is equal to _____.

a.	1.2
b.	1.25
c.	0.80
d.	0.20
e.	0.5

 

 

ANS:  B                    DIF:    Moderate       REF:   2.c                  OBJ:   ch. 05, 3

NAT:  Reflective Thinking | Elasticity        TOP:   The Price Elasticity of Demand

MSC:  Application

 

72. If 12 candy bars are demanded at $0.30 each and 4 candy bars are demanded at $0.50 each, what is the elasticity of demand over the price range from $0.30 to $0.50?

a.	2
b.	1.67
c.	0.5
d.	7.5
e.	0.4

 

 

ANS:  A                    DIF:    Moderate       REF:   2.c                  OBJ:   ch. 05, 3

NAT:  Reflective Thinking | Elasticity        TOP:   Other Demand Elasticities

MSC:  Application

 

73. Arc elasticity is calculated as _____.

a.
b.
c.
d.
e.

 

 

ANS:  D                    DIF:    Easy               REF:   2.c.2               OBJ:   ch. 05, 3

NAT:  Analytic | Elasticity                         TOP:   Other Demand Elasticities

MSC:  Knowledge

 

NARRBEGIN: Scenario 5.1

Scenario 5.1

The demand for noodles is given by the following equation: Q = 20 – 4P + 0.2I – 2P_x. Assume that P = $8, I = 200, and P_x = $10.

NARREND

 

 

74. Given the above equation, the quantity of noodles demanded at a price of $8 is _____.

a.	8
b.	10
c.	12
d.	4
e.	20

 

 

ANS:  A                    DIF:    Moderate       REF:   Ch 5, 2.c         OBJ:   ch. 05, 3

NAT:  Reflective Thinking | Elasticity        TOP:   Other Demand Elasticities

MSC:  Application

 

75. Given the above equation, the price elasticity of demand for noodles is _____.

a.	4
b.	0.5
c.	2
d.	2.5
e.	1.6

 

 

ANS:  A                    DIF:    Moderate       REF:   Ch 5, 2.c         OBJ:   ch. 05, 3

NAT:  Reflective Thinking | Elasticity        TOP:   Other Demand Elasticities

MSC:  Application

 

76. Given the above equation, the income elasticity of demand for noodles is _____.

a.	5
b.	0.5
c.	2
d.	2.5
e.	1.6

 

 

ANS:  A                    DIF:    Moderate       REF:   Ch 5, 2.c         OBJ:   ch. 05, 3

NAT:  Reflective Thinking | Elasticity        TOP:   Other Demand Elasticities

MSC:  Application

 

77. Which of the following statements correctly describe the elasticities of demand for gasoline and automobiles?

a.	The income elasticity of demand for gasoline and automobiles is negative.
b.	The price elasticity of demand for gasoline is elastic and the cross-price elasticity between gasoline and SUVs is positive.
c.	The price elasticity of demand for gasoline is inelastic and the cross-price elasticity between gasoline and SUVs is negative.
d.	The price elasticity of demand for gasoline is inelastic and the income elasticity between gasoline and SUVs is positive.
e.	The price elasticity of demand for gasoline is elastic and the income elasticity between gasoline and SUVs is negative.

 

 

ANS:  C                    DIF:    Moderate       REF:   Ch 5, 1.b | Ch 5, 2.a

OBJ:   ch. 05, 1 | ch. 05, 3                          NAT:  Reflective Thinking | Elasticity

TOP:   The Price Elasticity of Demand | Other Demand Elasticities

MSC:  Application

 

78. When the supply elasticity of a product is 2.5, a 10 percent decrease in price will _____ the quantity supplied of the product by _____ percent.

a.	increase; 25
b.	decrease; 25
c.	increase; 2.5
d.	decrease; 2.5
e.	decrease; 4

 

 

ANS:  B                    DIF:    Moderate       REF:   Ch 5, 3.a         OBJ:   ch. 05, 4

NAT:  Reflective Thinking | Elasticity        TOP:   The Price Elasticity of Supply

MSC:  Application

 

79. Acme Tools manufactures anvils, a forging tool. When the price of anvils was increased from $7 to $13, Acme Tools was willing and able to increase production from 1 to 4 units per day. Using the midpoint formula, what is Acme’s price elasticity of supply for anvils?

a.	2
b.	1
c.	0.5
d.	4
e.	3.5

 

 

ANS:  C                    DIF:    Moderate       REF:   Ch 5, 3.a         OBJ:   ch. 05, 4

NAT:  Reflective Thinking | Elasticity        TOP:   The Price Elasticity of Supply

MSC:  Application

 

80. A measure of the responsiveness of quantity supplied to changes in price is known as _____.

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

 

 

ANS:  C                    DIF:    Easy               REF:   3                    OBJ:   ch. 05, 4

NAT:  Analytic | Elasticity                         TOP:   The Price Elasticity of Supply

MSC:  Knowledge

 

81. There are some special types of goods for which supply cannot change irrespective of the length of time allowed for change, such as Beethoven symphonies. The price elasticity of supply for these goods is _____.

a.	infinite
b.	nonexistent
c.	negative
d.	zero
e.	unity

 

 

ANS:  D                    DIF:    Easy               REF:   3.a                  OBJ:   ch. 05, 4

NAT:  Analytic | Elasticity                         TOP:   The Price Elasticity of Supply

MSC:  Knowledge

 

82. Which of the following situations is represented by a nearly horizontal supply curve?

a.	Small price changes lead to small changes in quantity demanded of the good.
b.	Small price changes lead to small changes in quantity supplied of the good.
c.	Producers of the good are not operating efficiently.
d.	Producers of the good are not maximizing profit.
e.	Small changes in the price of the good lead to large changes in the quantity supplied of the good.

 

 

ANS:  E                    DIF:    Easy               REF:   3.a                  OBJ:   ch. 05, 4

NAT:  Analytic | Elasticity                         TOP:   The Price Elasticity of Supply

MSC:  Knowledge

 

83. When economists speak of the short run, they are referring to _____.

a.	a specific period of time, usually less than one year
b.	a specific period of time, more than one year, but less than two years
c.	a specific period of time just long enough that the quantities of all resources can be varied
d.	a period of time short enough that the quantities of at least one of the resources cannot be varied
e.	a period of time short enough that none of the quantities of the resources can be varied

 

 

ANS:  D                    DIF:    Easy               REF:   3.b                 OBJ:   ch. 05, 4

NAT:  Analytic | Elasticity                         TOP:   The Price Elasticity of Supply

MSC:  Knowledge

 

84. Supply curves applicable to shorter periods of time tend to:

a.	be represented by horizontal lines parallel to the quantity axis.
b.	be perfectly elastic.
c.	be more inelastic than supply curves that apply to longer periods of time.
d.	be more elastic than supply curves that apply to longer periods of time.
e.	have a price elasticity of supply that is approximately equal to 1.

 

 

ANS:  C                    DIF:    Moderate       REF:   3.b                 OBJ:   ch. 05, 4

NAT:  Analytic | Elasticity                         TOP:   The Price Elasticity of Supply

MSC:  Knowledge

 

85. Economists have said that deregulation of the electric utility industry might lead to increased prices in the short run but prices will fall in the long run. In this context:

a.	the short run means the middle of next year.
b.	the short run means after all adjustments have been made and the quantities of all resources have been varied as necessary.
c.	the long run means after all adjustments have been made, the quantities of all resources have been varied as necessary, and new market entrants begin producing electricity.
d.	the short run means after new firms begin producing electricity.
e.	the long run means approximately ten years.

 

 

ANS:  C                    DIF:    Challenging    REF:   3.b                 OBJ:   ch. 05, 4

NAT:  Reflective Thinking | Elasticity        TOP:   The Price Elasticity of Supply

MSC:  Comprehension

 

86. If the price elasticity of supply is 0.75, it would imply that a _____.

a.	a 100 percent increase in price would increase the quantity supplied by 75 percent
b.	doubling of the price would increase the quantity supplied by 175 percent
c.	50 percent increase in price would increase the quantity supplied by 25 percent
d.	75 percent increase in price would increase the quantity supplied by 100 percent
e.	120 percent increase in price would increase the quantity supplied by 90 percent

 

 

ANS:  E                    DIF:    Moderate       REF:   3.c                  OBJ:   ch. 05, 4

NAT:  Reflective Thinking | Elasticity        TOP:   The Price Elasticity of Supply

MSC:  Application

 

87. Ceteris paribus, if a 20 percent increase in the price of shoes leads to a 10 percent increase in the quantity supplied of shoes, then the price elasticity of supply is equal to _____.

a.	2
b.	20
c.	10
d.	0.5
e.	0.2

 

 

ANS:  D                    DIF:    Moderate       REF:   3.c                  OBJ:   ch. 05, 4

NAT:  Reflective Thinking | Elasticity        TOP:   The Price Elasticity of Supply

MSC:  Application

 

88. Ceteris paribus, if a 20 percent increase in the price of shoes leads to a 10 percent increase in the quantity supplied of shoes, then the price elasticity of supply is equal to _____.

a.	2
b.	20
c.	10
d.	0.5
e.	0.2

 

 

ANS:  D                    DIF:    Moderate       REF:   3.c                  OBJ:   ch. 05, 4

NAT:  Reflective Thinking | Elasticity        TOP:   The Price Elasticity of Supply

MSC:  Application

 

89. The social security tax, like any other tax, is shared by employers and employees based on elasticities of demand and supply. If the wage elasticity of demand for labor is zero and the wage elasticity of supply for labor is positive:

a.	most of the tax will be paid by the employer.
b.	most of the tax will be paid by the employee.
c.	all of the tax will be paid by the employer.
d.	all of the tax will be paid by the employee.
e.	the tax is split evenly between the employer and employee.

 

 

ANS:  D                    DIF:    Moderate       REF:   3.d                 OBJ:   ch. 05, 4

NAT:  Reflective Thinking | Elasticity        TOP:   The Price Elasticity of Supply

MSC:  Application

 

90. If the demand for liquor is elastic, and the government increases liquor tax, then _____.

a.	most of the tax will be paid by the consumer
b.	most of the tax will be paid by the producer
c.	all of the tax will be paid by the consumer
d.	all of the tax will be paid by the producer
e.	the tax will be paid by the retailer

 

 

ANS:  B                    DIF:    Moderate       REF:   3.d                 OBJ:   ch. 05, 4

NAT:  Reflective Thinking | Elasticity        TOP:   The Price Elasticity of Supply

MSC:  Application

 

91. In which of the following cases will an effective price floor lead to the largest surplus in a market?

a.	When demand is elastic and supply is inelastic
b.	When demand is inelastic and supply is elastic
c.	When both demand and supply are elastic
d.	When both demand and supply are inelastic
e.	When demand is inelastic and supply is perfectly inelastic

 

 

ANS:  C                    DIF:    Moderate       REF:   3.d

NAT:  Reflective Thinking | Elasticity        TOP:   Other Demand Elasticities

MSC:  Application

 

TRUE/FALSE

 

1. Price elasticity of demand measures the responsiveness of quantity demanded in a market to a change in price.

 

ANS:  T                    DIF:    Easy               REF:   1                    OBJ:   ch. 05, 1

NAT:  Analytic | Elasticity                         TOP:   The Price Elasticity of Demand

MSC:  Knowledge

 

2. Price elasticity of demand is the sole determinant of profit for a firm.

 

ANS:  F                    DIF:    Easy               REF:   1                    OBJ:   ch. 05, 1

NAT:  Reflective Thinking | Elasticity        TOP:   The Price Elasticity of Demand

MSC:  Comprehension

 

3. If a product has an elastic demand, it means that consumers are relatively insensitive to a change in the price of the product.

 

ANS:  F                    DIF:    Easy               REF:   1.a                  OBJ:   ch. 05, 1

NAT:  Analytic | Elasticity                         TOP:   The Price Elasticity of Demand

MSC:  Knowledge

 

4. The coefficient of the price elasticity of demand is always negative.

 

ANS:  T                    DIF:    Easy               REF:   1.a                  OBJ:   ch. 05, 1

NAT:  Analytic | Elasticity                         TOP:   The Price Elasticity of Demand

MSC:  Knowledge

 

5. If demand is unit-elastic, then a $5 decrease in price will lead to an increase in quantity demanded by 5 units.

 

ANS:  F                    DIF:    Moderate       REF:   1.a                  OBJ:   ch. 05, 1

NAT:  Reflective Thinking | Elasticity        TOP:   The Price Elasticity of Demand

MSC:  Application

 

6. If a 10 percent increase in the price of tomatoes leads to a 20 percent decrease in quantity demanded, then the price elasticity of demand for tomatoes, , equals 2.

 

ANS:  T                    DIF:    Moderate       REF:   1.a                  OBJ:   ch. 05, 1

NAT:  Reflective Thinking | Elasticity        TOP:   The Price Elasticity of Demand

MSC:  Application

 

7. If the price elasticity of demand is greater than 1, then demand is inelastic.

 

ANS:  F                    DIF:    Easy               REF:   1.a                  OBJ:   ch. 05, 1

NAT:  Analytic | Elasticity                         TOP:   The Price Elasticity of Demand

MSC:  Knowledge

 

8. Since demand curves are mostly downward sloping, economists tend to ignore the negative sign when calculating the price elasticity of demand.

 

ANS:  T                    DIF:    Easy               REF:   1.b                 OBJ:   ch. 05, 1

NAT:  Analytic | Elasticity                         TOP:   The Price Elasticity of Demand

MSC:  Knowledge

 

9. A perfectly elastic demand curve is represented by a vertical line.

 

ANS:  F                    DIF:    Easy               REF:   1.b                 OBJ:   ch. 05, 1

NAT:  Analytic | Elasticity                         TOP:   The Price Elasticity of Demand

MSC:  Knowledge

 

10. A perfectly inelastic demand curve is represented by an upward rising straight line.

 

ANS:  F                    DIF:    Easy               REF:   1.b                 OBJ:   ch. 05, 1

NAT:  Analytic | Elasticity                         TOP:   The Price Elasticity of Demand

MSC:  Knowledge

 

11. As the price is raised along a straight-line demand curve, the demand curve becomes more elastic.

 

ANS:  F                    DIF:    Easy               REF:   1.b.1              OBJ:   ch. 05, 1

NAT:  Analytic | Elasticity                         TOP:   The Price Elasticity of Demand

MSC:  Knowledge

 

12. Demand is price-elastic at the top portion of a straight-line downward-sloping demand curve.

 

ANS:  T                    DIF:    Easy               REF:   Ch 5, 1.b        OBJ:   ch. 05, 1

NAT:  Analytic | Elasticity                         TOP:   The Price Elasticity of Demand

MSC:  Knowledge

 

13. The price elasticity of demand is the ratio of the change in quantity demanded to the change in price.

 

ANS:  F                    DIF:    Moderate       REF:   1.c                  OBJ:   ch. 05, 1

NAT:  Analytic | Elasticity                         TOP:   The Price Elasticity of Demand

MSC:  Knowledge

 

14. By measuring the price elasticity of demand in terms of percentage changes, economists are able to compare the way consumers respond to changes in the prices of different products.

 

ANS:  T                    DIF:    Easy               REF:   1.c                  OBJ:   ch. 05, 1

NAT:  Analytic | Elasticity                         TOP:   The Price Elasticity of Demand

MSC:  Knowledge

 

15. Since the slope of a downward sloping demand curve is constant, the price elasticity of demand does not change when moving along this line.

 

ANS:  F                    DIF:    Moderate       REF:   Ch 5, 1.c         OBJ:   ch. 05, 1

NAT:  Analytic | Elasticity                         TOP:   The Price Elasticity of Demand

MSC:  Knowledge

 

16. If the price of chocolate increases by 15 percent and the quantity demanded of chocolate declines by 5 percent, the price elasticity of demand () is 3.

 

ANS:  F                    DIF:    Moderate       REF:   1.c                  OBJ:   ch. 05, 1

NAT:  Reflective Thinking | Elasticity        TOP:   The Price Elasticity of Demand

MSC:  Application

 

17. Everything else held constant, the greater the number of close substitutes there are for a good, the smaller the price elasticity of demand for that good.

 

ANS:  F                    DIF:    Easy               REF:   1.d                 OBJ:   ch. 05, 2

NAT:  Analytic | Elasticity                         TOP:   The Price Elasticity of Demand

MSC:  Knowledge

 

18. The demand for mansions is elastic because a small percentage change in price results in a large change in quantity demanded.

 

ANS:  T                    DIF:    Challenging    REF:   1.d                 OBJ:   ch. 05, 1

NAT:  Reflective Thinking | Elasticity        TOP:   The Price Elasticity of Demand

MSC:  Comprehension

 

19. If a consumer is spending a small portion of his or her income on a good, then the demand for the good is likely to be inelastic.

 

ANS:  T                    DIF:    Easy               REF:   1.d                 OBJ:   ch. 05, 2

NAT:  Analytic | Elasticity                         TOP:   The Price Elasticity of Demand

MSC:  Knowledge

 

20. The price elasticity of demand depends on how readily and easily consumers can switch their purchases from one product to another.

 

ANS:  T                    DIF:    Easy               REF:   1.d                 OBJ:   ch. 05, 2

NAT:  Analytic | Elasticity                         TOP:   The Price Elasticity of Demand

MSC:  Knowledge

 

21. Other things remaining unchanged, the longer the time period under consideration the greater will be the price elasticity of demand.

 

ANS:  T                    DIF:    Easy               REF:   1.d                 OBJ:   ch. 05, 2

NAT:  Analytic | Elasticity                         TOP:   The Price Elasticity of Demand

MSC:  Knowledge

 

22. The cross-price elasticity between movie tickets and video rentals is positive.

 

ANS:  T                    DIF:    Moderate       REF:   2.a                  OBJ:   ch. 05, 3

NAT:  Reflective Thinking | Elasticity        TOP:   Other Demand Elasticities

MSC:  Application

 

23. If the quantity demanded of product S increases as the price of product T decreases, then S and T are complements.

 

ANS:  T                    DIF:    Moderate       REF:   2.a                  OBJ:   ch. 05, 3

NAT:  Reflective Thinking | Elasticity        TOP:   Other Demand Elasticities

MSC:  Application

 

24. The cross-price elasticity between baseballs and tennis balls is likely to be a large positive number.

 

ANS:  F                    DIF:    Moderate       REF:   2.a                  OBJ:   ch. 05, 3

NAT:  Reflective Thinking | Elasticity        TOP:   Other Demand Elasticities

MSC:  Application

 

25. When the income elasticity of demand for a good is negative, the good is called a luxury good.

 

ANS:  F                    DIF:    Moderate       REF:   2.b                 OBJ:   ch. 05, 3

NAT:  Analytic | Elasticity                         TOP:   Other Demand Elasticities

MSC:  Knowledge

 

26. If butter has an income elasticity equal to 0.75, then butter is an inferior good.

 

ANS:  F                    DIF:    Moderate       REF:   2.b                 OBJ:   ch. 05, 3

NAT:  Reflective Thinking | Elasticity        TOP:   Other Demand Elasticities

MSC:  Application

 

27. An inferior good or service is any good or service for which an increase in income causes a decrease in demand.

 

ANS:  T                    DIF:    Easy               REF:   2.b                 OBJ:   ch. 05, 3

NAT:  Analytic | Elasticity                         TOP:   Other Demand Elasticities

MSC:  Knowledge

 

28. Jen considers smoking an inferior good. In other words, for Jen to quit smoking she would require a significant increase in income.

 

ANS:  T                    DIF:    Moderate       REF:   Ch 5, 2.b        OBJ:   ch. 05, 3

NAT:  Reflective Thinking | Elasticity        TOP:   Other Demand Elasticities

MSC:  Comprehension

 

29. If consumer income increases, then the demand shifts right for an inferior good.

 

ANS:  F                    DIF:    Easy               REF:   2.b                 OBJ:   ch. 05, 3

NAT:  Analytic | Elasticity                         TOP:   Other Demand Elasticities

MSC:  Knowledge

 

30. The point elasticity is a measure of the sensitivity of consumers to a larger price change – a range from one price to another.

 

ANS:  F                    DIF:    Easy               REF:   2.c                  OBJ:   ch. 05, 3

NAT:  Analytic | Elasticity                         TOP:   Other Demand Elasticities

MSC:  Knowledge

 

31. Cross-price elasticity is represented by the formula DQ/DP ´ P/Q; where P and DP represent the price and change in price of a related good respectively.

 

ANS:  T                    DIF:    Moderate       REF:   2.c.3               OBJ:   ch. 05, 3

NAT:  Analytic | Elasticity                         TOP:   Other Demand Elasticities

MSC:  Knowledge

 

32. Assume that as the price of wheat falls from $10 to $8, the quantity demanded of wheat increases from 100 bushels to 150 bushels. This implies the price elasticity of demand for wheat is 0.5.

 

ANS:  F                    DIF:    Moderate       REF:   3.c                  OBJ:   ch. 05, 3

NAT:  Reflective Thinking | Elasticity        TOP:   Other Demand Elasticities

MSC:  Application

 

33. In order to avoid problems involved with calculating percentage changes over a wide range, economists use the base or midpoint formula to calculate percent changes when measuring the price elasticity of demand.

 

ANS:  T                    DIF:    Moderate       REF:   3.c                  OBJ:   ch. 05, 3

NAT:  Analytic | Elasticity                         TOP:   Other Demand Elasticities

MSC:  Knowledge

 

34. If the price elasticity of supply is zero, the supply curve is a horizontal line parallel to the quantity axis.

 

ANS:  F                    DIF:    Moderate       REF:   3.a                  OBJ:   ch. 05, 4

NAT:  Analytic | Elasticity                         TOP:   The Price Elasticity of Supply

MSC:  Knowledge

 

35. In the long run, the quantity of capital available to a firm is fixed.

 

ANS:  F                    DIF:    Easy               REF:   Ch 5, 3.b        OBJ:   ch. 05, 4

NAT:  Analytic | Elasticity                         TOP:   Other Demand Elasticities

MSC:  Knowledge

 

36. The actual or chronological time for the short and the long run does not vary from industry to industry.

 

ANS:  F                    DIF:    Moderate       REF:   3.b                 OBJ:   ch. 05, 4

NAT:  Analytic | Elasticity                         TOP:   The Price Elasticity of Supply

MSC:  Knowledge

 

37. If firms have to change their production techniques in order to change the quantities they supply, they can respond less in a year to a price change than they could in a month.

 

ANS:  F                    DIF:    Easy               REF:   3.b                 OBJ:   ch. 05, 4

NAT:  Analytic | Elasticity                         TOP:   The Price Elasticity of Supply

MSC:  Knowledge

 

38. Supply tends to be more elastic in the long run than in the short run.

 

ANS:  T                    DIF:    Easy               REF:   3.b                 OBJ:   ch. 05, 4

NAT:  Analytic | Elasticity                         TOP:   The Price Elasticity of Supply

MSC:  Knowledge

 

39. If a 10 percent increase in price leads to a 20 percent increase in quantity supplied, then the elasticity of supply is 0.5.

 

ANS:  F                    DIF:    Moderate       REF:   3.c                  OBJ:   ch. 05, 4

NAT:  Reflective Thinking | Elasticity        TOP:   The Price Elasticity of Supply

MSC:  Application

 

40. Tax incidence explains how taxes are shared between producers and consumers.

 

ANS:  T                    DIF:    Easy               REF:   Ch 5, 1.b | Ch 5, 3.a

OBJ:   ch. 05, 4         NAT:  Analytic | Elasticity                         TOP:   Other Demand Elasticities

MSC:  Knowledge

 

41. If supply is price-inelastic and demand is price-elastic, then the firm can earn positive profits by increasing the price.

 

ANS:  F                    DIF:    Moderate       REF:   3.d                 OBJ:   ch. 05, 4

NAT:  Reflective Thinking | Elasticity        TOP:   The Price Elasticity of Supply

MSC:  Comprehension

 

42. If price elasticity of supply is large and demand is price-inelastic, then the firm can earn positive profits by increasing the price.

 

ANS:  T                    DIF:    Challenging    REF:   3.d                 OBJ:   ch. 05, 4

NAT:  Reflective Thinking | Elasticity        TOP:   The Price Elasticity of Supply

MSC:  Comprehension

 

43. If demand is relatively elastic and supply is relatively inelastic, then the incidence of a tax will fall mainly on consumers.

 

ANS:  F                    DIF:    Moderate       REF:   3.d                 OBJ:   ch. 05, 4

NAT:  Reflective Thinking | Elasticity        TOP:   The Price Elasticity of Supply

MSC:  Comprehension