曼昆《经济学原理》（微观）第五版测试题库(05)

Chapter 5

Elasticity and Its Application

TRUE/FALSE

1. Elasticity measures how responsive quantity is to changes in price.ANS: T DIF: 1 REF: 5-0 NAT: Analytic LOC: Elasticity TOP: Price elasticity of demand MSC: Definitional

2. Measures of elasticity enhance our ability to study the magnitudes of changes.ANS: T DIF: 1 REF: 5-0 NAT: Analytic LOC: Elasticity TOP: Price elasticity of demand MSC: Definitional

3. The demand for bread is likely to be more elastic than the demand for solid-gold bread plates.ANS: F DIF: 2 REF: 5-1 NAT: Analytic LOC: Elasticity TOP: Price elasticity of demand MSC: Interpretive

4. In general, demand curves for necessities tend to be price elastic.ANS: F DIF: 1 REF: 5-1 LOC: Elasticity TOP: Price elasticity of demand 5. In general, demand curves for luxuries tend to be price elastic.ANS: T DIF: 1 REF: 5-1 LOC: Elasticity TOP: Price elasticity of demand

NAT: Analytic

MSC: InterpretiveNAT: Analytic MSC: Interpretive

6. Necessities tend to have inelastic demands, whereas luxuries have elastic demands.ANS: T DIF: 2 REF: 5-1 NAT: Analytic LOC: Elasticity TOP: Price elasticity of demand MSC: Interpretive

7. Goods with close substitutes tend to have more elastic demands than do goods without close substitutes.ANS: T DIF: 2 REF: 5-1 NAT: Analytic LOC: Elasticity TOP: Price elasticity of demand MSC: Interpretive

8. The demand for Rice Krispies is more elastic than the demand for cereal in general.ANS: T DIF: 2 REF: 5-1 NAT: Analytic LOC: Elasticity TOP: Price elasticity of demand MSC: Interpretive

9. The demand for soap is more elastic than the demand for Dove soap.ANS: F DIF: 2 REF: 5-1 NAT: Analytic LOC: Elasticity TOP: Price elasticity of demand MSC: Interpretive

10. The demand for gasoline will respond more to a change in price over a period of five weeks than over a period

of five years.ANS: F DIF: 2 REF: 5-1 NAT: Analytic LOC: Elasticity TOP: Price elasticity of demand MSC: Interpretive

11. Even the demand for a necessity such as gasoline will respond to a change in price, especially over a longer

time horizon.ANS: T DIF: 2 REF: 5-1 NAT: Analytic LOC: Elasticity TOP: Price elasticity of demand MSC: Interpretive

12. The price elasticity of demand is defined as the percentage change in quantity demanded divided by the

percentage change in price.ANS: T DIF: 1 REF: 5-1 NAT: Analytic LOC: Elasticity TOP: Price elasticity of demand MSC: Definitional

13. The price elasticity of demand is defined as the percentage change in price divided by the percentage change

in quantity demanded.ANS: F DIF: 1 REF: 5-1 NAT: Analytic LOC: Elasticity TOP: Price elasticity of demand MSC: Definitional

288

Chapter 5 /Elasticity and Its Application ? 289

14. Suppose that when the price rises by 20% for a particular good, the quantity demanded of that good falls by

10%. The price elasticity of demand for this good is equal to 2.0.ANS: F DIF: 2 REF: 5-1 NAT: Analytic LOC: Elasticity TOP: Price elasticity of demand MSC: Analytical

15. Suppose that when the price rises by 10% for a particular good, the quantity demanded of that good falls by

20%. The price elasticity of demand for this good is equal to 2.0.ANS: T DIF: 2 REF: 5-1 NAT: Analytic LOC: Elasticity TOP: Price elasticity of demand MSC: Analytical

16. If the price of calculators increases by 15 percent and the quantity demanded per week falls by 45 percent as a

result, then the price elasticity of demand is 3.ANS: T DIF: 2 REF: 5-1 NAT: Analytic LOC: Elasticity TOP: Price elasticity of demand MSC: Applicative

17. Demand is inelastic if the price elasticity of demand is greater than 1.ANS: F DIF: 1 REF: 5-1 NAT: Analytic LOC: Elasticity TOP: Inelastic demand MSC: Definitional

18. A linear, downward-sloping demand curve has a constant elasticity but a changing slope.ANS: F DIF: 2 REF: 5-1 NAT: Analytic LOC: Elasticity TOP: Price elasticity of demand MSC: Interpretive

19. Price elasticity of demand along a linear, downward-sloping demand curve increases as price falls.ANS: F DIF: 3 REF: 5-1 NAT: Analytic LOC: Elasticity TOP: Price elasticity of demand MSC: Interpretive

20. If the price elasticity of demand is equal to 0, then demand is unit elastic.ANS: F DIF: 1 REF: 5-1 NAT: Analytic LOC: Elasticity TOP: Price elasticity of demand MSC: Definitional

21. If the price elasticity of demand is equal to 1, then demand is unit elastic.ANS: T DIF: 1 REF: 5-1 NAT: Analytic LOC: Elasticity TOP: Price elasticity of demand MSC: Definitional

22. Demand for a good is said to be inelastic if the quantity demanded increases substantially when the price falls

by a small amount.ANS: F DIF: 1 REF: 5-1 NAT: Analytic LOC: Elasticity TOP: Inelastic demand MSC: Definitional

23. The midpoint method is used to calculate elasticity between two points because it gives the same answer

regardless of the direction of the change.ANS: T DIF: 2 REF: 5-1 NAT: Analytic LOC: Elasticity TOP: Midpoint method MSC: Interpretive

24. The flatter the demand curve that passes through a given point, the more inelastic the demand.ANS: F DIF: 2 REF: 5-1 NAT: Analytic LOC: Elasticity TOP: Price elasticity of demand MSC: Interpretive

25. The flatter the demand curve that passes through a given point, the more elastic the demand.ANS: T DIF: 2 REF: 5-1 NAT: Analytic LOC: Elasticity TOP: Price elasticity of demand MSC: Interpretive

26. If demand is perfectly inelastic, the demand curve is vertical, and the price elasticity of demand equals 0.ANS: T DIF: 2 REF: 5-1 NAT: Analytic LOC: Elasticity TOP: Perfectly inelastic demand MSC: Interpretive

27. If demand is perfectly elastic, the demand curve is horizontal, and the price elasticity of demand equals 1.ANS: F DIF: 2 REF: 5-1 NAT: Analytic LOC: Elasticity TOP: Perfectly elastic demand MSC: Interpretive

290 ? Chapter 5 /Elasticity and Its Application

28. Along the elastic portion of a linear demand curve, total revenue rises as price rises.ANS: F DIF: 3 REF: 5-1 NAT: Analytic LOC: Elasticity TOP: Total revenue | Price elasticity of demand MSC: Interpretive

29. If a firm is facing elastic demand, then the firm should decrease price to increase revenue.ANS: T DIF: 2 REF: 5-1 NAT: Analytic LOC: Elasticity TOP: Total revenue | Price elasticity of demand MSC: Applicative

30. If a firm is facing inelastic demand, then the firm should decrease price to increase revenue.ANS: F DIF: 2 REF: 5-1 NAT: Analytic LOC: Elasticity TOP: Total revenue | Price elasticity of demand MSC: Applicative

31. When demand is inelastic, a decrease in price increases total revenue.ANS: F DIF: 2 REF: 5-1 NAT: Analytic LOC: Elasticity TOP: Inelastic demand | Total revenue MSC: Interpretive

32. The income elasticity of demand is defined as the percentage change in quantity demanded divided by the

percentage change in income.ANS: T DIF: 1 REF: 5-1 NAT: Analytic LOC: Elasticity TOP: Income elasticity of demand MSC: Definitional

33. The income elasticity of demand is defined as the percentage change in quantity demanded divided by the

percentage change in price.ANS: F DIF: 1 REF: 5-1 NAT: Analytic LOC: Elasticity TOP: Income elasticity of demand MSC: Definitional

34. Normal goods have negative income elasticities of demand, while inferior goods have positive income

elasticities of demand.ANS: F DIF: 2 REF: 5-1 NAT: Analytic LOC: Elasticity TOP: Income elasticity of demand MSC: Interpretive

35. If the income elasticity of demand for a good is negative, then the good must be an inferior good.ANS: T DIF: 1 REF: 5-1 NAT: Analytic LOC: Elasticity TOP: Income elasticity of demand MSC: Interpretive

36. If the cross-price elasticity of demand for two goods is negative, then the two goods are substitutes.ANS: F DIF: 2 REF: 5-1 NAT: Analytic LOC: Elasticity TOP: Cross-price elasticity of demand MSC: Interpretive

37. If the cross-price elasticity of demand for two goods is negative, then the two goods are complements.ANS: T DIF: 2 REF: 5-1 NAT: Analytic LOC: Elasticity TOP: Cross-price elasticity of demand MSC: Interpretive

38. Cross-price elasticity of demand measures how the quantity demanded of one good changes as the price of

another good changes.ANS: T DIF: 1 REF: 5-1 NAT: Analytic LOC: Elasticity TOP: Cross-price elasticity of demand MSC: Definitional

39. Cross-price elasticity is used to determine whether goods are inferior or normal goods.ANS: F DIF: 2 REF: 5-1 NAT: Analytic LOC: Elasticity TOP: Cross-price elasticity of demand MSC: Interpretive

40. Cross-price elasticity is used to determine whether goods are substitutes or complements.ANS: T DIF: 2 REF: 5-1 NAT: Analytic LOC: Elasticity TOP: Cross-price elasticity of demand MSC: Interpretive

Chapter 5 /Elasticity and Its Application ? 291

41. The cross-price elasticity of garlic salt and onion salt is -2, which indicates that garlic salt and onion salt are

substitutes.ANS: F DIF: 2 REF: 5-1 NAT: Analytic LOC: Elasticity TOP: Cross-price elasticity of demand MSC: Interpretive

42. Price elasticity of supply measures how much the quantity supplied responds to changes in the price.ANS: T DIF: 1 REF: 5-2 NAT: Analytic LOC: Elasticity TOP: Price elasticity of supply MSC: Definitional

43. Supply and demand both tend to be more elastic in the long run and more inelastic in the short run.ANS: T DIF: 2 REF: 5-1 | 5-2 NAT: Analytic LOC: Elasticity TOP: Price elasticities of demand and supply MSC: Interpretive

44. If the price elasticity of supply is 2 and the quantity supplied decreases by 6%, then the price must have

decreased by 3%.ANS: T DIF: 2 REF: 5-2 NAT: Analytic LOC: Elasticity TOP: Price elasticity of supply MSC: Applicative

45. Supply is said to be inelastic if the quantity supplied responds substantially to changes in the price, and elastic

if the quantity supplied responds only slightly to price.ANS: F DIF: 1 REF: 5-2 NAT: Analytic LOC: Elasticity TOP: Price elasticity of supply MSC: Definitional

46. Supply tends to be more elastic in the short run and more inelastic in the long run.ANS: F DIF: 2 REF: 5-2 NAT: Analytic TOP: Price elasticity of supply MSC: Interpretive

47. When the price of knee braces increased by 25 percent, the Brace Yourself Company increased its quantity

supplied of knee braces per week by 75 percent. BYC's price elasticity of supply of knee braces is 0.33.ANS: F DIF: 2 REF: 5-2 NAT: Analytic LOC: Elasticity TOP: Price elasticity of supply MSC: Applicative

48. If a supply curve is horizontal, then supply is said to be perfectly elastic, and the price elasticity of supply

approaches infinity.ANS: T DIF: 2 REF: 5-2 NAT: Analytic LOC: Elasticity TOP: Perfectly elastic supply MSC: Interpretive

49. A government program that reduces land under cultivation hurts farmers but helps consumers.ANS: F DIF: 2 REF: 5-3 NAT: Analytic LOC: Elasticity TOP: Total revenue MSC: Applicative

50. OPEC failed to maintain a high price of oil in the long run, partly because both the supply of oil and the

demand for oil are more elastic in the long run than in the short run.ANS: T DIF: 2 REF: 5-3 NAT: Analytic LOC: Elasticity TOP: OPEC | Price elasticity of demand | Price elasticity of supply MSC: Applicative

51. Drug interdiction, which reduces the supply of drugs, may decrease drug-related crime because the demand for

drugs is inelastic.ANS: F DIF: 2 REF: 5-3 NAT: Analytic LOC: Elasticity TOP: Price elasticity of demand MSC: Applicative

292 ? Chapter 5 /Elasticity and Its Application

SHORT ANSWER1.

Consider the following pairs of goods. For which of the two goods would you expect the demand to be more

price elastic? Why? a. water or diamonds

b. insulin or nasal decongestant spray c. food in general or breakfast cereal

d. gasoline over the course of a week or gasoline over the course of a year e. personal computers or IBM personal computers

ANS:

a. Diamonds are luxuries, and water is a necessity. Therefore, diamonds have the more elastic demand. b. Insulin has no close substitutes, but decongestant spray does. Therefore, nasal decongestant spray has the

more elastic demand.

c. Breakfast cereal has more substitutes than does food in general. Therefore, breakfast cereal has the more

elastic demand.

d. The longer the time period, the more elastic demand is. Therefore, gasoline over the course of a year has

the more elastic demand.

e. There are more substitutes for IBM personal computers than there are for personal computers. Therefore,

IBM personal computers have the more elastic demand.

DIF: 2 REF: 5-1 TOP: Price elasticity of demand NAT: Analytic MSC: Applicative

LOC: Elasticity

Chapter 5 /Elasticity and Its Application ? 293

2.

You own a small town movie theatre. You currently charge $5 per ticket for everyone who comes to your

movies. Your friend who took an economics course in college tells you that there may be a way to increase your total revenue. Given the demand curves shown, answer the following questions. 10987654321102030405060708090100QuantityPriceAdult Demand

10987654321510152025303540455055606570QuantityPriceChild Demanda. b. c. d. e. f.

What is your current total revenue for both groups?

The elasticity of demand is more elastic in which market? Which market has the more inelastic demand?

What is the elasticity of demand between the prices of $5 and $2 in the adult market? Is this elastic or inelastic?

What is the elasticity of demand between $5 and $2 in the children's market? Is this elastic or inelastic?

Given the graphs and what your friend knows about economics, he recommends you increase the price of adult tickets to $8 each and lower the price of a child's ticket to $3. How much could you increase total revenue if you take his advice?

ANS:

a. Total revenue from children's tickets is $100 and from adult tickets is $250. Total revenue from all

sales would be $350.

b. The demand for children's tickets is more elastic.

c. The adult ticket market has the more inelastic demand.

d. The elasticity of demand between $5 and $2 is 0.26, which is inelastic. e. The elasticity of demand between $5 and $2 is 1.0, which is unit elastic.

f. Total revenue in the adult market would be $320. Total revenue in the children’s market would

be $120, so total revenue for both groups would be $440. $440 - $350 is an increase in total revenue of $90.

DIF: 2 REF: 5-1 NAT: Analytic TOP: Price elasticity of demand | Total revenue LOC: Elasticity

MSC: Applicative

294 ? Chapter 5 /Elasticity and Its Application

3.

Use the graph shown to answer the following questions. Put the correct letter(s) in the blank.

APriceBDemandCQuantity

a.

b. c. d.

The elastic section of the graph is represented by section from _______. The inelastic section of the graph is represented by section from _______. The unit elastic section of the graph is represented by section _______.

The portion of the graph in which a decrease in price would cause total revenue to fall would be from _________.

e. The portion of the graph in which a decrease in price would cause total revenue to rise would be

from _________.

f. The portion of the graph in which a decrease in price would not cause a change in total revenue

would be _________.

g. The section of the graph in which total revenue would be at a maximum would be _______. h. The section of the graph in which elasticity is greater than 1 is _______. i. The section of the graph in which elasticity is equal to 1 is ______. j. The section of the graph in which elasticity is less than 1 is _______.

A to B B to C B B to C A to B B B A to B B B to C

LOC: Elasticity MSC: Applicative

ANS:

a. b. c. d. e. f. g. h. i. j.

DIF: 2 REF: 5-1 NAT: Analytic TOP: Price elasticity of demand | Total revenue

Chapter 5 /Elasticity and Its Application ? 295

4.

Using the midpoint method, compute the elasticity of demand between points A and B. Is demand along this

portion of the curve elastic or inelastic? Interpret your answer with regard to price and quantity demanded. Now compute the elasticity of demand between points B and C. Is demand along this portion of the curve elastic or inelastic?

Price222018161412108642CBADemand100200300400500600700800900QuantityANS:

In the section of the demand curve from A to B, the elasticity of demand would be 2.5. This would be an elastic portion of the curve. This would mean that for every 1 percent change in price, quantity demanded would change by 2.5 percent.

In the section of the demand curve from B to C, the elasticity of demand would be .75. This would be an inelastic portion of the curve. This would mean that for every 1 percent change in price, quantity demanded would change by 0.75 percent.

DIF: 2 REF: 5-1 TOP: Price elasticity of demand 5.

NAT: Analytic MSC: Applicative

LOC: Elasticity

When the Shaffers had a monthly income of $4,000, they usually ate out 8 times a month. Now that the couple makes $4,500 a month, they eat out 10 times a month. Compute the couple's income elasticity of demand using the midpoint method. Explain your answer. (Is a restaurant meal a normal or inferior good to the couple?)ANS:

The income elasticity of demand for the Shaffers is 1.89. Since the income elasticity of demand is positive, eating out would be interpreted as a normal good.

DIF: 2 REF: 5-1 TOP: Income elasticity of demand 6.

NAT: Analytic MSC: Applicative

LOC: Elasticity

Recently, in Smalltown, the price of Twinkies fell from $0.80 to $0.70. As a result, the quantity demanded of Ho-Ho's decreased from 120 to 100. What would be the appropriate elasticity to compute? Using the midpoint method, compute this elasticity. What does your answer tell you?ANS:

The appropriate elasticity to compute would be cross-price elasticity. The cross-price elasticity for this example would be 1.36. The two goods are substitutes because the cross-price elasticity is positive.

DIF: 2 REF: 5-1 TOP: Cross-price elasticity of demand NAT: Analytic MSC: Applicative

LOC: Elasticity

296 ? Chapter 5 /Elasticity and Its Application

Sec00 - Elasticity and Its Application

MULTIPLE CHOICE1.

In general, elasticity is a measure of

a. the extent to which advances in technology are adopted by producers. b. the extent to which a market is competitive.

c. how firms’ profits respond to changes in market prices.

d. how much buyers and sellers respond to changes in market conditions.

DIF: 1

LOC: Elasticity

REF: 5-0

TOP: Elasticity

MSC: Definitional

ANS: D

NAT: Analytic 2.

Elasticity is

a. a measure of how much buyers and sellers respond to changes in market conditions. b. the study of how the allocation of resources affects economic well-being. c. the maximum amount that a buyer will pay for a good.

d. the value of everything a seller must give up to produce a good.

DIF: 1

LOC: Elasticity

REF: 5-0

TOP: Elasticity

MSC: Definitional

ANS: A

NAT: Analytic 3.

When studying how some event or policy affects a market, elasticity provides information on the a. equity effects on the market by identifying the winners and losers. b. magnitude of the effect on the market.

c. speed of adjustment of the market in response to the event or policy.

d. number of market participants who are directly affected by the event or policy.

DIF: 2

LOC: Elasticity

REF: 5-0

TOP: Elasticity

MSC: Interpretive

ANS: B

NAT: Analytic 4.

How does the concept of elasticity allow us to improve upon our understanding of supply and demand? a. Elasticity allows us to analyze supply and demand with greater precision than would be the case in

the absence of the elasticity concept.

b. Elasticity provides us with a better rationale for statements such as “an increase in x will lead to a

decrease in y” than we would have in the absence of the elasticity concept.

c. Without elasticity, we would not be able to address the direction in which price is likely to move in

response to a surplus or a shortage.

d. Without elasticity, it is very difficult to assess the degree of competition within a market.

DIF: 2

LOC: Elasticity

REF: 5-0

TOP: Elasticity

MSC: Interpretive

ANS: A

NAT: Analytic 5.

When consumers face rising gasoline prices, they typically

a. reduce their quantity demanded more in the long run than in the short run. b. reduce their quantity demanded more in the short run than in the long run. c. do not reduce their quantity demanded in the short run or the long run.

d. increase their quantity demanded in the short run but reduce their quantity demanded in the long

run.

DIF: 2

LOC: Elasticity

REF: 5-0

TOP: Elasticity

MSC: Applicative

ANS: A

NAT: Analytic 6.

A 10 percent increase in gasoline prices reduces gasoline consumption by about a. 6 percent after one year and 2.5 percent after five years. b. 2.5 percent after one year and 6 percent after five years. c. 10 percent after one year and 20 percent after five years. d. 0 percent after one year and 1 percent after five years.

DIF: 2

LOC: Elasticity

REF: 5-0

TOP: Elasticity

MSC: Applicative

ANS: B

NAT: Analytic

Chapter 5 /Elasticity and Its Application ? 297

7.

Which of the following statements about the consumers’ responses to rising gasoline prices is correct?

a. About 10 percent of the long-run reduction in quantity demanded arises because people drive less

and about 90 percent arises because they switch to more fuel-efficient cars.

b. About 90 percent of the long-run reduction in quantity demanded arises because people drive less

and about 10 percent arises because they switch to more fuel-efficient cars.

c. About half of the long-run reduction in quantity demanded arises because people drive less and

about half arises because they switch to more fuel-efficient cars.

d. Because gasoline is a necessity, consumers do not decrease their quantity demanded in either the

short run or the long run.

DIF: 2

LOC: Elasticity

REF: 5-0

TOP: Elasticity

MSC: Applicative

ANS: C

NAT: Analytic

Sec01 - Elasticity and Its Application - The Elasticity of Demand

MULTIPLE CHOICE1.

The price elasticity of demand measures how much a. quantity demanded responds to a change in price. b. quantity demanded responds to a change in income. c. price responds to a change in demand. d. demand responds to a change in supply.

DIF: 1

LOC: Elasticity

ANS: A

NAT: Analytic MSC: Definitional2.

REF: 5-1

TOP: Price elasticity of demand

The price elasticity of demand measures

a. buyers’ responsiveness to a change in the price of a good.

b. the extent to which demand increases as additional buyers enter the market. c. how much more of a good consumers will demand when incomes rise. d. the movement along a supply curve when there is a change in demand.

DIF: 1

LOC: Elasticity

ANS: A

NAT: Analytic MSC: Definitional3.

REF: 5-1

TOP: Price elasticity of demand

The price elasticity of demand for a good measures the willingness of a. consumers to buy less of the good as price rises.

b. consumers to avoid monopolistic markets in favor of competitive markets. c. firms to produce more of a good as price rises. d. firms to cater to the tastes of consumers.

DIF: 1

LOC: Elasticity

ANS: A

NAT: Analytic MSC: Interpretive4.

REF: 5-1

TOP: Price elasticity of demand

Which of the following statements about the price elasticity of demand is correct?

a. The price elasticity of demand for a good measures the willingness of buyers of the good to buy

less of the good as its price increases.

b. Price elasticity of demand reflects the many economic, psychological, and social forces that shape

consumer tastes.

c. Other things equal, if good x has close substitutes and good y does not have close substitutes, then

the demand for good x will be more elastic than the demand for good y. d. All of the above are correct.

DIF: 2

LOC: Elasticity

ANS: D

NAT: Analytic MSC: Interpretive

REF: 5-1

TOP: Price elasticity of demand

298 ? Chapter 5 /Elasticity and Its Application

5.

For a good that is a necessity,

a. quantity demanded tends to respond substantially to a change in price. b. demand tends to be inelastic. c. the law of demand does not apply. d. All of the above are correct.

DIF: 2

LOC: Elasticity

ANS: B

NAT: Analytic MSC: Interpretive6.

REF: 5-1

TOP: Price elasticity of demand

Goods with many close substitutes tend to have a. more elastic demands. b. less elastic demands.

c. price elasticities of demand that are unit elastic. d. income elasticities of demand that are negative.

DIF: 2

LOC: Elasticity

ANS: A

NAT: Analytic MSC: Interpretive7.

REF: 5-1

TOP: Price elasticity of demand

Which of the following is likely to have the most price inelastic demand? a. mint-flavored toothpaste b. toothpaste

c. Colgate mint-flavored toothpaste d. a generic mint-flavored toothpaste

DIF: 2

LOC: Elasticity

ANS: B

NAT: Analytic MSC: Applicative8.

REF: 5-1

TOP: Price elasticity of demand

Which of the following is likely to have the most price inelastic demand? a. white chocolate chip with macadamia nut cookies b. Mrs. Field’s chocolate chip cookies c. milk chocolate chip cookies d. cookies

DIF: 2

LOC: Elasticity

ANS: D

NAT: Analytic MSC: Applicative9.

REF: 5-1

TOP: Price elasticity of demand

If the price of natural gas rises, when is the price elasticity of demand likely to be the highest? a. immediately after the price increase b. one month after the price increase c. three months after the price increase d. one year after the price increase

DIF: 2

LOC: Elasticity

ANS: D

NAT: Analytic MSC: Applicative

REF: 5-1

TOP: Price elasticity of demand

10. If the price of milk rises, when is the price elasticity of demand likely to be the lowest?

a. immediately after the price increase b. one month after the price increase c. three months after the price increase d. one year after the price increase

ANS: A

NAT: Analytic MSC: Applicative

DIF: 2

LOC: Elasticity

REF: 5-1

TOP: Price elasticity of demand

Chapter 5 /Elasticity and Its Application ? 299

11. For a good that is a luxury, demand

a. tends to be inelastic. b. tends to be elastic. c. has unit elasticity.

d. cannot be represented by a demand curve in the usual way.

ANS: B

NAT: Analytic MSC: Interpretive

DIF: 2

LOC: Elasticity

REF: 5-1

TOP: Price elasticity of demand

12. For a good that is a necessity, demand

a. tends to be inelastic. b. tends to be elastic. c. has unit elasticity.

d. cannot be represented by a demand curve in the usual way.

ANS: A

NAT: Analytic MSC: Interpretive

DIF: 2

LOC: Elasticity

REF: 5-1

TOP: Price elasticity of demand

13. A person who takes a prescription drug to control high cholesterol most likely has a demand for that drug that

is

a. inelastic. b. unit elastic. c. elastic.

d. highly responsive to changes in income.

ANS: A

NAT: Analytic MSC: Interpretive

DIF: 2

LOC: Elasticity

REF: 5-1

TOP: Price elasticity of demand

14. The demand for Neapolitan ice cream is likely quite elastic because

a. ice cream must be eaten quickly.

b. this particular flavor of ice cream is viewed as a necessity by many ice-cream lovers. c. the market is broadly defined.

d. other flavors of ice cream are good substitutes for this particular flavor.

ANS: D

NAT: Analytic MSC: Interpretive

DIF: 2

LOC: Elasticity

REF: 5-1

TOP: Price elasticity of demand

15. The demand for Werthers candy is likely

a. elastic because candy is expensive relative to other snacks. b. elastic because there are many close substitutes for Werthers.

c. elastic because Werthers are regarded as a necessity by many people.

d. inelastic because it is usually eaten quickly, making the relevant time horizon short.

ANS: B

NAT: Analytic MSC: Interpretive

DIF: 2

LOC: Elasticity

REF: 5-1

TOP: Price elasticity of demand

16. There are very few, if any, good substitutes for motor oil. Therefore,

a. the demand for motor oil would tend to be inelastic. b. the demand for motor oil would tend to be elastic.

c. the demand for motor oil would tend to respond strongly to changes in prices of other goods. d. the supply of motor oil would tend to respond strongly to changes in people’s tastes for large cars

relative to their tastes for small cars.

ANS: A

NAT: Analytic MSC: Interpretive

DIF: 2

LOC: Elasticity

REF: 5-1

TOP: Price elasticity of demand

300 ? Chapter 5 /Elasticity and Its Application

17. Holding all other forces constant, when the price of gasoline rises, the number of gallons of gasoline

demanded would fall substantially over a ten-year period because

a. buyers tend to be much less sensitive to a change in price when given more time to react. b. buyers tend to be much more sensitive to a change in price when given more time to react. c. buyers will have substantially more real income over a ten-year period.

d. the quantity supplied of gasoline increases very little in response to an increase in the price of

gasoline.

ANS: B

NAT: Analytic MSC: Interpretive

DIF: 2

LOC: Elasticity

REF: 5-1

TOP: Price elasticity of demand

18. A good will have a more inelastic demand,

a. the greater the availability of close substitutes. b. the broader the definition of the market. c. the longer the period of time.

d. the more it is regarded as a luxury.

ANS: B

NAT: Analytic MSC: Interpretive

DIF: 2

LOC: Elasticity

REF: 5-1

TOP: Price elasticity of demand

19. A good will have a more elastic demand,

a. the greater the availability of close substitutes. b. the more narrow the definition of the market. c. the shorter the period of time.

d. the more it is regarded as a necessity.

ANS: A

NAT: Analytic MSC: Interpretive

DIF: 2

LOC: Elasticity

REF: 5-1

TOP: Price elasticity of demand

20. Which of the following statements is correct?

a. The demand for flat-screen computer monitors is more elastic than the demand for monitors in

general.

b. The demand for grandfather clocks is more elastic than the demand for clocks in general.

c. The demand for cardboard is more elastic over a long period of time than over a short period of

time.

d. All of the above are correct.

ANS: D

NAT: Analytic MSC: Interpretive

DIF: 2

LOC: Elasticity

REF: 5-1

TOP: Price elasticity of demand

21. Which of the following statements is correct?

a. The demand for natural gas is more elastic over a short period of time than over a long period of

time.

b. The demand for smoke alarms is more elastic than the demand for Persian rugs.

c. The demand for bourbon whiskey is more elastic than the demand for alcoholic beverages in

general.

d. All of the above are correct.

ANS: C

NAT: Analytic MSC: Interpretive

DIF: 2

LOC: Elasticity

REF: 5-1

TOP: Price elasticity of demand

22. Which of the following is not a determinant of the price elasticity of demand for a good?

a. the time horizon

b. the steepness or flatness of the supply curve for the good c. the definition of the market for the good d. the availability of substitutes for the good

ANS: B

NAT: Analytic MSC: Interpretive

DIF: 2

LOC: Elasticity

REF: 5-1

TOP: Price elasticity of demand

Chapter 5 /Elasticity and Its Application ? 301

23. The greater the price elasticity of demand, the

a. more likely the product is a necessity.

b. smaller the responsiveness of quantity demanded to a change in price.

c. greater the percentage change in price over the percentage change in quantity demanded. d. greater the responsiveness of quantity demanded to a change in price.

ANS: D

NAT: Analytic MSC: Interpretive

DIF: 2

LOC: Elasticity

REF: 5-1

TOP: Price elasticity of demand

24. The value of the price elasticity of demand for a good will be relatively large when

a. there are no good substitutes available for the good. b. the time period in question is relatively short. c. the good is a luxury as opposed to a necessity. d. All of the above are correct.

ANS: C

NAT: Analytic MSC: Interpretive

DIF: 2

LOC: Elasticity

REF: 5-1

TOP: Price elasticity of demand

25. For which of the following goods would demand be most elastic?

a. clothing b. blue jeans

c. Tommy Hilfiger jeans

d. All three would have the same elasticity of demand since they are all related.

ANS: C

NAT: Analytic MSC: Applicative

DIF: 2

LOC: Elasticity

REF: 5-1

TOP: Price elasticity of demand

26. For which of the following goods would demand be most inelastic?

a. chocolate

b. Godiva chocolate c. Hershey’s chocolate

d. All three would have the same elasticity of demand since they are all related.

ANS: A

NAT: Analytic MSC: Applicative

DIF: 2

LOC: Elasticity

REF: 5-1

TOP: Price elasticity of demand

27. Whether a good is a luxury or necessity depends on

a. the price of the good.

b. the preferences of the buyer.

c. the intrinsic properties of the good. d. how scarce the good is.

ANS: B

NAT: Analytic MSC: Interpretive

DIF: 2

LOC: Elasticity

REF: 5-1

TOP: Price elasticity of demand

28. The price elasticity of demand for bread

a. is computed as the percentage change in quantity demanded of bread divided by the percentage

change in price of bread.

b. depends, in part, on the availability of close substitutes for bread.

c. reflects the many economic, social, and psychological forces that influence consumers' tastes for

bread.

d. All of the above are correct.

ANS: D

NAT: Analytic MSC: Interpretive

DIF: 1

LOC: Elasticity

REF: 5-1

TOP: Price elasticity of demand

302 ? Chapter 5 /Elasticity and Its Application

29. The price elasticity of demand for eggs

a. is computed as the percentage change in quantity demanded of eggs divided by the percentage

change in price of eggs.

b. will be lower if there is a new invention that is a close substitute for eggs. c. will be higher if consumers consider eggs to be a luxury good. d. All of the above are correct.

ANS: A

NAT: Analytic MSC: Interpretive

DIF: 1

LOC: Elasticity

REF: 5-1

TOP: Price elasticity of demand

30. Other things equal, the demand for a good tends to be more inelastic, the

a. fewer the available substitutes. b. longer the time period considered.

c. more the good is considered a luxury good.

d. more narrowly defined is the market for the good.

ANS: A

NAT: Analytic MSC: Interpretive

DIF: 2

LOC: Elasticity

REF: 5-1

TOP: Price elasticity of demand

31. Economists compute the price elasticity of demand as the

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

c. percentage change in quantity demanded divided by the percentage change in price. d. percentage change in quantity demanded divided by the percentage change in income.

ANS: C

NAT: Analytic MSC: Definitional

DIF: 2

LOC: Elasticity

REF: 5-1

TOP: Price elasticity of demand

32. Suppose there is a 6 percent increase in the price of good X and a resulting 6 percent decrease in the quantity

of X demanded. Price elasticity of demand for X is a. 0. b. 1. c. 6. d. 36.

ANS: B

NAT: Analytic MSC: Applicative

DIF: 2

LOC: Elasticity

REF: 5-1

TOP: Price elasticity of demand

33. If the price elasticity of demand for a good is 4.0, then a 10 percent increase in price results in a

a. 0.4 percent decrease in the quantity demanded. b. 2.5 percent decrease in the quantity demanded. c. 4 percent decrease in the quantity demanded. d. 40 percent decrease in the quantity demanded.

ANS: D

NAT: Analytic MSC: Applicative

DIF: 2

LOC: Elasticity

REF: 5-1

TOP: Price elasticity of demand

34. If the price elasticity of demand for a good is 10.0, then a 4 percent increase in price results in a

a. 0.4 percent decrease in the quantity demanded. b. 2.5 percent decrease in the quantity demanded. c. 4 percent decrease in the quantity demanded. d. 40 percent decrease in the quantity demanded.

ANS: D

NAT: Analytic MSC: Applicative

DIF: 2

LOC: Elasticity

REF: 5-1

TOP: Price elasticity of demand

Chapter 5 /Elasticity and Its Application ? 303

35. If the price elasticity of demand for a good is 0.4, then a 10 percent increase in price results in a

a. 0.4 percent decrease in the quantity demanded. b. 2.5 percent decrease in the quantity demanded. c. 4 percent decrease in the quantity demanded. d. 40 percent decrease in the quantity demanded.

ANS: C

NAT: Analytic MSC: Applicative

DIF: 2

LOC: Elasticity

REF: 5-1

TOP: Price elasticity of demand

36. If the price elasticity of demand for a good is 0.25, then a 20 percent decrease in price results in a

a. 0.0125 percent increase in the quantity demanded. b. 4 percent increase in the quantity demanded. c. 5 percent increase in the quantity demanded. d. 80 percent increase in the quantity demanded.

ANS: C

NAT: Analytic MSC: Applicative

DIF: 2

LOC: Elasticity

REF: 5-1

TOP: Price elasticity of demand

37. If the price elasticity of demand for a good is 1.5, then a 3 percent decrease in price results in a

a. 0.5 percent increase in the quantity demanded. b. 2 percent increase in the quantity demanded. c. 4.5 percent increase in the quantity demanded. d. 5 percent increase in the quantity demanded.

ANS: C

NAT: Analytic MSC: Applicative

DIF: 2

LOC: Elasticity

REF: 5-1

TOP: Price elasticity of demand

38. If the price elasticity of demand for a good is 0.8, then which of the following events is consistent with a 4

percent decrease in the quantity of the good demanded? a. a 0.2 percent increase in the price of the good b. a 3.2 percent increase in the price of the good c. a 4.8 percent increase in the price of the good d. a 5 percent increase in the price of the good

ANS: D

NAT: Analytic MSC: Applicative

DIF: 2

LOC: Elasticity

REF: 5-1

TOP: Price elasticity of demand

39. For a particular good, a 2 percent increase in price causes a 12 percent decrease in quantity demanded. Which

of the following statements is most likely applicable to this good? a. There are no close substitutes for this good. b. The good is a luxury.

c. The market for the good is broadly defined. d. The relevant time horizon is short.

ANS: B

NAT: Analytic MSC: Analytical

DIF: 3

LOC: Elasticity

REF: 5-1

TOP: Price elasticity of demand

40. For a particular good, a 12 percent increase in price causes a 3 percent decrease in quantity demanded. Which

of the following statements is most likely applicable to this good? a. There are many substitutes for this good. b. The good is a necessity.

c. The market for the good is narrowly defined. d. The relevant time horizon is long.

ANS: B

NAT: Analytic MSC: Analytical

DIF: 3

LOC: Elasticity

REF: 5-1

TOP: Price elasticity of demand

304 ? Chapter 5 /Elasticity and Its Application

41. For a particular good, a 3 percent increase in price causes a 10 percent decrease in quantity demanded. Which

of the following statements is most likely applicable to this good? a. The relevant time horizon is short. b. The good is a necessity.

c. The market for the good is broadly defined. d. There are many close substitutes for this good.

ANS: D

NAT: Analytic MSC: Analytical

DIF: 3

LOC: Elasticity

REF: 5-1

TOP: Price elasticity of demand

42. For a particular good, a 10 percent increase in price causes a 3 percent decrease in quantity demanded. Which

of the following statements is most likely applicable to this good? a. The relevant time horizon is short. b. The good is a luxury.

c. The market for the good is narrowly defined. d. There are many close substitutes for this good.

ANS: A

NAT: Analytic MSC: Analytical

DIF: 3

LOC: Elasticity

REF: 5-1

TOP: Price elasticity of demand

43. Demand is said to have unit elasticity if elasticity is

a. less than 1. b. greater than 1. c. equal to 1. d. equal to 0.

ANS: C

NAT: Analytic MSC: Definitional

DIF: 1

LOC: Elasticity

REF: 5-1

TOP: Price elasticity of demand

44. Demand is said to be unit elastic if

a. quantity demanded changes by the same percent as the price. b. quantity demanded changes by a larger percent than the price.

c. the demand curve shifts by the same percentage amount as the price. d. quantity demanded does not respond to a change in price.

ANS: A

NAT: Analytic MSC: Definitional

DIF: 2

LOC: Elasticity

REF: 5-1

TOP: Price elasticity of demand

45. Elasticity of demand is closely related to the slope of the demand curve. The more responsive buyers are to a

change in price, the

a. steeper the demand curve will be. b. flatter the demand curve will be.

c. further to the right the demand curve will sit.

d. closer to the vertical axis the demand curve will sit.

ANS: B

NAT: Analytic MSC: Interpretive

DIF: 2

LOC: Elasticity

REF: 5-1

TOP: Price elasticity of demand

46. Elasticity of demand is closely related to the slope of the demand curve. The less responsive buyers are to a

change in price, the

a. steeper the demand curve will be. b. flatter the demand curve will be.

c. further to the right the demand curve will sit.

d. closer to the vertical axis the demand curve will sit.

ANS: A

NAT: Analytic MSC: Interpretive

DIF: 2

LOC: Elasticity

REF: 5-1

TOP: Price elasticity of demand

Chapter 5 /Elasticity and Its Application ? 305

47. The flatter the demand curve through a given point, the

a. greater the price elasticity of demand at that point. b. smaller the price elasticity of demand at that point.

c. closer the price elasticity of demand will be to the slope of the curve.

d. greater the absolute value of the change in total revenue when there is a movement from that point

upward and to the left along the demand curve.

ANS: A

NAT: Analytic MSC: Analytical

DIF: 3

LOC: Elasticity

REF: 5-1

TOP: Price elasticity of demand

48. The smaller the price elasticity of demand, the

a. steeper the demand curve will be through a given point. b. flatter the demand curve will be through a given point.

c. more strongly buyers respond to a change in price between any two prices P1 and P2.

d. smaller the decrease in equilibrium price when the supply curve shifts rightward from S1 to S2.

ANS: A

NAT: Analytic MSC: Analytical

DIF: 3

LOC: Elasticity

REF: 5-1

TOP: Price elasticity of demand

49. When quantity moves proportionately the same amount as price, demand is

a. elastic, and the price elasticity of demand is 1.

b. perfectly elastic, and the price elasticity of demand is infinitely large. c. perfectly inelastic, and the price elasticity of demand is 0. d. unit elastic, and the price elasticity of demand is 1.

ANS: D

NAT: Analytic MSC: Interpretive

DIF: 2

LOC: Elasticity

REF: 5-1

TOP: Price elasticity of demand

50. Jean-Paul says that he will spend exactly 75 cents a day on M&Ms, regardless of the price of M&Ms.

Jean-Paul’s demand for M&Ms is a. perfectly elastic. b. unit elastic.

c. perfectly inelastic.

d. None of the above answers is correct.

ANS: B

NAT: Analytic MSC: Interpretive

DIF: 2

LOC: Elasticity

REF: 5-1

TOP: Price elasticity of demand

51. As we move downward and to the right along a linear, downward-sloping demand curve,

a. slope and elasticity both remain constant. b. slope changes but elasticity remains constant. c. slope and elasticity both change.

d. slope remains constant but elasticity changes.

ANS: D

NAT: Analytic MSC: Interpretive

DIF: 2

LOC: Elasticity

REF: 5-1

TOP: Price elasticity of demand

52. When we move upward and to the left along a linear, downward-sloping demand curve, price elasticity of

demand

a. first becomes smaller, then larger. b. always becomes larger. c. always becomes smaller.

d. first becomes larger, then smaller.

ANS: B

NAT: Analytic MSC: Interpretive

DIF: 2

LOC: Elasticity

REF: 5-1

TOP: Price elasticity of demand

306 ? Chapter 5 /Elasticity and Its Application

53. The price elasticity of demand changes as we move along a

a. horizontal demand curve. b. vertical demand curve.

c. linear, downward-sloping demand curve. d. All of the above are correct.

ANS: C

NAT: Analytic MSC: Interpretive

DIF: 2

LOC: Elasticity

REF: 5-1

TOP: Price elasticity of demand

54. The difference between slope and elasticity is that

a. slope is a ratio of two changes, and elasticity is a ratio of two percentage changes. b. slope is a ratio of two percentage changes, and elasticity is a ratio of two changes. c. slope measures changes in quantity demanded more accurately than elasticity. d. none of the above; there is no difference between slope and elasticity.

ANS: A

NAT: Analytic MSC: Interpretive

DIF: 2

LOC: Elasticity

REF: 5-1

TOP: Price elasticity of demand

55. According to a New York Times article published in November 2005, author Anna Bernasek asserts that a 10

percent increase in the price of gasoline leads to a decline in the quantity demanded of about a. 0.01 percent. b. 2 percent. c. 20 percent. d. 200 percent.

ANS: B

NAT: Analytic MSC: Interpretive

DIF: 2

LOC: Elasticity

REF: 5-1

TOP: Price elasticity of demand

56. According to a New York Times article published in November 2005, author Anna Bernasek asserts that a 10

percent increase in the price of electricity leads to a decline in the quantity demanded of about a. 0.01 percent. b. 3 percent. c. 30 percent. d. 300 percent.

ANS: B

NAT: Analytic MSC: Interpretive

DIF: 2

LOC: Elasticity

REF: 5-1

TOP: Price elasticity of demand

Chapter 5 /Elasticity and Its Application ? 307

Figure 5-1

PriceABCDCBAQuantityD57. Refer to Figure 5-1. The demand curve representing the demand for a luxury good with several close

substitutes is a. A. b. B. c. C. d. D.

ANS: C

NAT: Analytic MSC: Applicative

DIF: 2

LOC: Elasticity

REF: 5-1

TOP: Price elasticity of demand

58. Refer to Figure 5-1. Atog says he would buy one cup of coffee per day regardless of the price. If this is

true, then Atog's demand for coffee is represented by demand curve a. A. b. B. c. C. d. D.

ANS: A

NAT: Analytic MSC: Applicative

DIF: 3

LOC: Elasticity

REF: 5-1

TOP: Perfectly inelastic demand

Chapter 5 /Elasticity and Its Application ? 333

Figure 5-9

Price2120191817161514131211109876543211234567891011Demand12Quantity170. Refer to Figure 5-9. Suppose this demand curve is a straight, downward-sloping line all the way from the

horizontal intercept to the vertical intercept. We choose two prices, P1 and P2, and the corresponding

quantities demanded, Q1 and Q2, for the purpose of calculating the price elasticity of demand. Also suppose P2 > P1. In which of the following cases could we possibly find that (i) demand is elastic and (ii) an increase in price from P1 to P2 causes an increase in total revenue? a. 0 < P1 < P2 < $10. b. $10 < P1 < P2 < $15. c. P1 > $15.

d. None of the above is correct.

ANS: D

NAT: Analytic MSC: Analytical

DIF: 3

LOC: Elasticity

REF: 5-1

TOP: Total revenue | Price elasticity of demand

171. Refer to Figure 5-9. If price increases from $10 to $15, total revenue will

a. increase by $20, so demand must be inelastic in this price range. b. increase by $5, so demand must be inelastic in this price range. c. decrease by $20, so demand must be elastic in this price range. d. decrease by $10, so demand must be elastic in this price range.

ANS: A

NAT: Analytic MSC: Applicative

DIF: 2

LOC: Elasticity

REF: 5-1

TOP: Total revenue | Price elasticity of demand

172. Refer to Figure 5-9. A decrease in price from $15 to $10 leads to

a. a decrease in total revenue of $10, so the price elasticity of demand is greater than 1 in this price

range.

b. a decrease in total revenue of $10, so the price elasticity of demand is less than 1 in this price range. c. a decrease in total revenue of $20, so the price elasticity of demand is less than 1 in this price range. d. a decrease in total revenue of $20, so demand is elastic in this price range.

ANS: C

NAT: Analytic MSC: Applicative

DIF: 2

LOC: Elasticity

REF: 5-1

TOP: Total revenue | Price elasticity of demand

334 ? Chapter 5 /Elasticity and Its Application

Figure 5-10

PriceP2AP1CBDDemandQ2Q1Quantity173. Refer to Figure 5-10. If rectangle D is larger than rectangle A, then

a. demand is elastic between prices P1 and P2.

b. a decrease in price from P2 to P1 will cause an increase in total revenue.

c. the magnitude of the percent change in price between P1 and P2 is smaller than the magnitude of the

corresponding percent change in quantity demanded. d. All of the above are correct.

ANS: D

NAT: Analytic MSC: Analytical

DIF: 3

LOC: Elasticity

REF: 5-1

TOP: Total revenue | Price elasticity of demand

174. Refer to Figure 5-10. Total revenue when the price is P1 is represented by the area(s)

a. B + D. b. A + B. c. C + D. d. D.

ANS: A

NAT: Analytic MSC: Applicative

DIF: 2

LOC: Elasticity

REF: 5-1

TOP: Total revenue | Price elasticity of demand

175. Refer to Figure 5-10. Total revenue when the price is P2 is represented by the area(s)

a. B + D. b. A + B. c. C + D. d. D.

ANS: B

NAT: Analytic MSC: Applicative

DIF: 2

LOC: Elasticity

REF: 5-1

TOP: Total revenue | Price elasticity of demand

176. If the price elasticity of demand for tuna is 0.7, then a 1.5% increase in the price of tuna will decrease the

quantity demanded of tuna by

a. 1.05%, and tuna sellers' total revenue will increase as a result. b. 1.05%, and tuna sellers' total revenue will decrease as a result. c. 2.14%, and tuna sellers' total revenue will increase as a result. d. 2.14%, and tuna sellers' total revenue will decrease as a result.

ANS: A

NAT: Analytic MSC: Analytical

DIF: 3

LOC: Elasticity

REF: 5-1

TOP: Total revenue | Price elasticity of demand

Chapter 5 /Elasticity and Its Application ? 335

177. If the price elasticity of demand for aluminum foil is 1.45, then a 2.4% decrease in the price of aluminum foil

will increase the quantity demanded of aluminum foil by

a. 1.66%, and aluminum foil sellers' total revenue will increase as a result. b. 1.66%, and aluminum foil sellers' total revenue will decrease as a result. c. 3.48%, and aluminum foil sellers' total revenue will increase as a result. d. 3.48%, and aluminum foil sellers' total revenue will decrease as a result.

ANS: C

NAT: Analytic MSC: Analytical

DIF: 3

LOC: Elasticity

REF: 5-1

TOP: Total revenue | Price elasticity of demand

178. If a change in the price of a good results in no change in total revenue, then

a. the demand for the good must be elastic. b. the demand for the good must be inelastic. c. the demand for the good must be unit elastic.

d. buyers must not respond very much to a change in price.

ANS: C

NAT: Analytic MSC: Interpretive

DIF: 2

LOC: Elasticity

REF: 5-1

TOP: Total revenue | Price elasticity of demand

179. When demand is unit elastic, price elasticity of demand

a. equals 1, and total revenue and price move in the same direction. b. equals 1, and total revenue and price move in opposite directions. c. equals 1, and total revenue does not change when price changes. d. equals 0, and total revenue does not change when price changes.

ANS: C

NAT: Analytic MSC: Interpretive

DIF: 2

LOC: Elasticity

REF: 5-1

TOP: Total revenue | Price elasticity of demand

180. If the demand curve is linear and downward sloping, which of the following statements is not correct?

a. Demand is more elastic on the lower part of the demand curve than on the upper part.

b. Different pairs of points on the demand curve can result in different values of the price elasticity of

demand.

c. Different pairs of points on the demand curve result in identical values of the slope of the demand

curve.

d. Starting from a point on the upper part of the demand curve, an increase in price leads to a decrease

in total revenue.

ANS: A

NAT: Analytic MSC: Analytical

DIF: 3

LOC: Elasticity

REF: 5-1

TOP: Total revenue | Price elasticity of demand

181. Total revenue

a. always increases as price increases.

b. increases as price increases, as long as demand is elastic. c. decreases as price increases, as long as demand is inelastic.

d. remains unchanged as price increases when demand is unit elastic.

ANS: D

NAT: Analytic MSC: Applicative

DIF: 2

LOC: Elasticity

REF: 5-1

TOP: Total revenue | Price elasticity of demand

182. In which of the following situations will total revenue increase?

a. Price elasticity of demand is 1.2, and the price of the good decreases. b. Price elasticity of demand is 0.5, and the price of the good increases. c. Price elasticity of demand is 3.0, and the price of the good decreases. d. All of the above are correct.

ANS: D

NAT: Analytic MSC: Analytical

DIF: 2

LOC: Elasticity

REF: 5-1

TOP: Total revenue | Price elasticity of demand

336 ? Chapter 5 /Elasticity and Its Application

183. You have just been hired as a business consultant to determine what pricing policy would be appropriate in

order to increase the total revenue of a major shoe store. The first step you would take would be to a. increase the price of every shoe in the store.

b. look for ways to cut costs and increase profit for the store.

c. determine the price elasticity of demand for the store's products. d. determine the price elasticity of supply for the store’s products.

ANS: C

NAT: Analytic MSC: Interpretive

DIF: 2

LOC: Elasticity

REF: 5-1

TOP: Total revenue | Price elasticity of demand

184. You are in charge of the local city-owned golf course. You need to increase the revenue generated by the golf

course in order to meet expenses. The mayor advises you to increase the price of a round of golf. The city manager recommends reducing the price of a round of golf. You realize that

a. the mayor thinks demand is elastic, and the city manager thinks demand is inelastic. b. both the mayor and the city manager think that demand is elastic. c. both the mayor and the city manager think that demand is inelastic.

d. the mayor thinks demand is inelastic, and the city manager thinks demand is elastic.

ANS: D

NAT: Analytic MSC: Applicative

DIF: 2

LOC: Elasticity

REF: 5-1

TOP: Total revenue | Price elasticity of demand

185. You are in charge of the local city-owned golf course. You need to increase the revenue generated by the golf

course in order to meet expenses. The mayor advises you to decrease the price of a round of golf. The city manager recommends increasing the price of a round of golf. You realize that

a. the mayor thinks demand is elastic, and the city manager thinks demand is inelastic. b. both the mayor and the city manager think that demand is elastic. c. both the mayor and the city manager think that demand is inelastic.

d. the mayor thinks demand is inelastic, and the city manager thinks demand is elastic.

ANS: A

NAT: Analytic MSC: Applicative

DIF: 2

LOC: Elasticity

REF: 5-1

TOP: Total revenue | Price elasticity of demand

186. Get Smart University is contemplating an increase in tuition to enhance revenue. If GSU feels that raising

tuition would enhance revenue, it is a. ignoring the law of demand.

b. assuming that the demand for university education is elastic. c. assuming that the demand for university education is inelastic. d. assuming that the supply of university education is elastic.

ANS: C

NAT: Analytic MSC: Applicative

DIF: 2

LOC: Elasticity

REF: 5-1

TOP: Total revenue | Price elasticity of demand

Chapter 5 /Elasticity and Its Application ? 337

Figure 5-11

Price55504540353025201510550100150200250300350400450500550DemandQuantity187. Refer to Figure 5-11. When the price is $30, total revenue is

a. $3,000. b. $5,000. c. $7,000. d. $9,000.

ANS: D

NAT: Analytic MSC: Interpretive

DIF: 1

LOC: Elasticity

REF: 5-1

TOP: Total revenue | Price elasticity of demand

188. Refer to Figure 5-11. When price falls from $50 to $40, it can be inferred that demand between those two

prices is

a. inelastic, since total revenue decreases from $8,000 to $5,000. b. inelastic, since total revenue increases from $5,000 to $8,000. c. elastic, since total revenue increases from $5,000 to $8,000. d. unit elastic, since total revenue does not change.

ANS: C

NAT: Analytic MSC: Applicative

DIF: 2

LOC: Elasticity

REF: 5-1

TOP: Total revenue | Price elasticity of demand

189. Refer to Figure 5-11. An increase in price from $20 to $30 would

a. increase total revenue by $2,000. b. decrease total revenue by $2,000. c. increase total revenue by $1,000. d. decrease total revenue by $1,000.

ANS: C

NAT: Analytic MSC: Applicative

DIF: 2

LOC: Elasticity

REF: 5-1

TOP: Total revenue | Price elasticity of demand

190. Refer to Figure 5-11. An increase in price from $30 to $35 would

a. increase total revenue by $250 b. decrease total revenue by $250. c. increase total revenue by $500. d. decrease total revenue by $500.

ANS: B

NAT: Analytic MSC: Applicative

DIF: 2

LOC: Elasticity

REF: 5-1

TOP: Total revenue | Price elasticity of demand

308 ? Chapter 5 /Elasticity and Its Application

Figure 5-2

PricePaPbD1D3D2Quantity59. Refer to Figure 5-2. As price falls from Pa to Pb, which demand curve represents the most elastic demand?

a. D1 b. D2 c. D3

d. All of the above are equally elastic.

ANS: A

NAT: Analytic MSC: Applicative

DIF: 2

LOC: Elasticity

REF: 5-1

TOP: Price elasticity of demand

60. Refer to Figure 5-2. As price falls from Pa to Pb, we could use the three demand curves to calculate three

different values of the price elasticity of demand. Which of the three demand curves would produce the smallest elasticity? a. D1 b. D2 c. D3

d. All of the above are equally elastic.

ANS: C

NAT: Analytic MSC: Applicative

DIF: 2

LOC: Elasticity

REF: 5-1

TOP: Price elasticity of demand

Table 5-1 Good Price Elasticity of Demand A 1.3 B 2.1 61. Refer to Table 5-1. Which of the following is consistent with the elasticities given in Table 5-2? a. A is a luxury and B is a necessity.

b. A is a good several years after a price increase, and B is that same good several days after the price

increase.

c. A is a Kit Kat bar and B is candy. d. A has fewer substitutes than B.

ANS: D

NAT: Analytic MSC: Analytical

DIF: 3

LOC: Elasticity

REF: 5-1

TOP: Price elasticity of demand

Chapter 5 /Elasticity and Its Application ? 309

62. Refer to Table 5-1. Which of the following is consistent with the elasticities given in Table 5-2?

a. A is grapes and B is fruit. b. A is T-shirts and B is socks.

c. A is train tickets before cars were invented, and B is train tickets after cars were invented. d. A is diamond necklaces and B is beds.

ANS: C

NAT: Analytic MSC: Analytical

DIF: 3

LOC: Elasticity

REF: 5-1

TOP: Price elasticity of demand

63. Studies indicate that the price elasticity of demand for cigarettes is about 0.4. A government policy aimed at

reducing smoking changed the price of a pack of cigarettes from $2 to $6. According to the midpoint method, the government policy should have reduced smoking by a. 30%. b. 40%. c. 80%. d. 250%.

ANS: B

NAT: Analytic MSC: Applicative

DIF: 3

LOC: Elasticity

REF: 5-1

TOP: Price elasticity of demand

64. If a 15% increase in price for a good results in a 20% decrease in quantity demanded, the price elasticity of

demand is a. 0.75. b. 1.25. c. 1.33. d. 1.60.

ANS: C

NAT: Analytic MSC: Analytical

DIF: 2

LOC: Elasticity

REF: 5-1

TOP: Price elasticity of demand

65. If a 20% increase in price for a good results in a 15% decrease in quantity demanded, the price elasticity of

demand is a. 0.75. b. 1.25. c. 1.33. d. 1.60.

ANS: A

NAT: Analytic MSC: Analytical

DIF: 2

LOC: Elasticity

REF: 5-1

TOP: Price elasticity of demand

66. If a 10% decrease in price for a good results in a 20% increase in quantity demanded, the price elasticity of

demand is a. 0.50. b. 1. c. 1.5. d. 2.

ANS: D

NAT: Analytic MSC: Analytical

DIF: 2

LOC: Elasticity

REF: 5-1

TOP: Price elasticity of demand

67. If a 6% decrease in price for a good results in a 2% increase in quantity demanded, the price elasticity of

demand is a. 0.02. b. 0.33. c. 3. d. 4.

ANS: B

NAT: Analytic MSC: Analytical

DIF: 2

LOC: Elasticity

REF: 5-1

TOP: Price elasticity of demand

310 ? Chapter 5 /Elasticity and Its Application

68. Suppose that quantity demand rises by 10% as a result of a 15% decrease in price. The price elasticity of

demand for this good is

a. inelastic and equal to 0.67. b. elastic and equal to 0.67. c. inelastic and equal to 1.50. d. elastic and equal to 1.50.

ANS: A

NAT: Analytic MSC: Analytical

DIF: 2

LOC: Elasticity

REF: 5-1

TOP: Price elasticity of demand

69. Suppose that quantity demand falls by 30% as a result of a 5% increase in price. The price elasticity of

demand for this good is a. inelastic and equal to 6. b. elastic and equal to 6. c. inelastic and equal to 0.17. d. elastic and equal to 0.17.

ANS: B

NAT: Analytic MSC: Analytical

DIF: 2

LOC: Elasticity

REF: 5-1

TOP: Price elasticity of demand

Table 5-2

The following table shows a portion of the demand schedule for a particular good at various levels of income.

Price $24 $20 $16 $12 $8 $4 Quantity Demanded (Income = $5,000) 2 4 6 8 10 12 Quantity Demanded (Income = $7,500) 3 6 9 12 15 18 Quantity Demanded (Income = $10,000) 4 8 12 16 20 24 70. Refer to Table 5-2. Using the midpoint method, when income equals $7,500, what is the price elasticity of

demand between $16 and $20? a. 0.56 b. 0.75 c. 1.33 d. 1.80

ANS: D

NAT: Analytic MSC: Analytical

DIF: 2

LOC: Elasticity

REF: 5-1

TOP: Price elasticity of demand

71. Refer to Table 5-2. Using the midpoint method, when income equals $5,000, what is the price elasticity of

demand between $8 and $12? a. 0.56 b. 0.75 c. 1.33 d. 1.80

ANS: A

NAT: Analytic MSC: Analytical

DIF: 2

LOC: Elasticity

REF: 5-1

TOP: Price elasticity of demand

Chapter 5 /Elasticity and Its Application ? 311

72. Refer to Table 5-2. Using the midpoint method, at a price of $16, what is the income elasticity of demand

when income rises from $5,000 to $10,000? a. 0.00 b. 0.50 c. 1.00 d. 1.50

ANS: C

NAT: Analytic MSC: Analytical

DIF: 2

LOC: Elasticity

REF: 5-1

TOP: Income elasticity of demand

73. Refer to Table 5-2. Using the midpoint method, at a price of $8, what is the income elasticity of demand

when income rises from $7,500 to $10,000? a. 0.00 b. 0.41 c. 1.00 d. 2.45

ANS: C

NAT: Analytic MSC: Analytical

DIF: 2

LOC: Elasticity

REF: 5-1

TOP: Income elasticity of demand

74. Refer to Table 5-2. Using the midpoint method, at a price of $12, what is the income elasticity of demand

when income rises from $5,000 to $10,000? a. 0.00 b. 0.41 c. 1.00 d. 2.45

ANS: C

NAT: Analytic MSC: Analytical

DIF: 2

LOC: Elasticity

REF: 5-1

TOP: Income elasticity of demand

75. Demand is said to be price elastic if

a. the price of the good responds substantially to changes in demand.

b. demand shifts substantially when income or the expected future price of the good changes. c. buyers do not respond much to changes in the price of the good. d. buyers respond substantially to changes in the price of the good.

ANS: D

NAT: Analytic MSC: Definitional

DIF: 2

LOC: Elasticity

REF: 5-1

TOP: Elastic demand

76. When quantity demanded responds strongly to changes in price, demand is said to be

a. fluid. b. elastic. c. dynamic.

d. highly variable.

ANS: B

NAT: Analytic MSC: Definitional

DIF: 1

LOC: Elasticity

REF: 5-1

TOP: Elastic demand

77. Demand is elastic if elasticity is

a. less than 1. b. equal to 1. c. equal to 0. d. greater than 1.

ANS: D

NAT: Analytic MSC: Definitional

DIF: 1

LOC: Elasticity

REF: 5-1

TOP: Elastic demand

312 ? Chapter 5 /Elasticity and Its Application

78. For which of the following goods is demand probably most inelastic?

a. camcorders b. insulin c. apples

d. devices that remove cores from apples

ANS: B

NAT: Analytic MSC: Interpretive

DIF: 2

LOC: Elasticity

REF: 5-1

TOP: Elastic demand

79. Demand is said to be inelastic if

a. buyers respond substantially to changes in the price of the good. b. demand shifts only slightly when the price of the good changes.

c. the quantity demanded changes only slightly when the price of the good changes. d. the price of the good responds only slightly to changes in demand.

ANS: C

NAT: Analytic MSC: Definitional

DIF: 2

LOC: Elasticity

REF: 5-1

TOP: Inelastic demand

80. If demand is price inelastic, then

a. buyers do not respond much to a change in price.

b. buyers respond substantially to a change in price, but the response is very slow.

c. buyers do not alter their quantities demanded much in response to advertising, fads, or general

changes in tastes.

d. the demand curve is very flat.

ANS: A

NAT: Analytic MSC: Definitional

DIF: 2

LOC: Elasticity

REF: 5-1

TOP: Inelastic demand

81. If the quantity demanded of a certain good responds only slightly to a change in the price of the good, then

a. the demand for the good is said to be elastic. b. the demand for the good is said to be inelastic. c. the law of demand does not apply to the good.

d. the demand curve for the good shifts only slightly in response to a change in price.

ANS: B

NAT: Analytic MSC: Definitional

DIF: 1

LOC: Elasticity

REF: 5-1

TOP: Inelastic demand

82. Demand is inelastic if elasticity is

a. less than 1. b. equal to 1. c. greater than 1. d. equal to 0.

ANS: A

NAT: Analytic MSC: Definitional

DIF: 1

LOC: Elasticity

REF: 5-1

TOP: Inelastic demand

83. Demand is said to be inelastic if the

a. quantity demanded changes proportionately more than price. b. price changes proportionately more than income.

c. quantity demanded changes proportionately less than price. d. quantity demanded changes proportionately the same as price.

ANS: C

NAT: Analytic MSC: Definitional

DIF: 2

LOC: Elasticity

REF: 5-1

TOP: Inelastic demand

Chapter 5 /Elasticity and Its Application ? 313

84. If the price elasticity of demand is 1.5, regardless of which two points on the demand curve are used to

compute the elasticity, then

a. demand is perfectly inelastic, and the demand curve is vertical.

b. demand is elastic, and the demand curve is a straight, downward-sloping line. c. demand is perfectly elastic, and the demand curve is horizontal.

d. demand is elastic, and the demand curve is something other than a straight, downward-sloping line.

ANS: D

NAT: Analytic MSC: Applicative

DIF: 3

LOC: Elasticity

REF: 5-1

TOP: Price elasticity of demand

Table 5-3

The following table shows the demand schedule for a particular good.

Price $15 $12 $9 $6 $3 $0 Quantity 0 5 10 15 20 25 85. Refer to Table 5-3. Using the midpoint method, what is the price elasticity of demand when price rises from

$9 to $12? a. 0.43 b. 0.67 c. 1.50 d. 2.33

ANS: D

NAT: Analytic MSC: Analytical

DIF: 2

LOC: Elasticity

REF: 5-1

TOP: Midpoint method | Price elasticity of demand

86. Refer to Table 5-3. Using the midpoint method, when price rises from $6 to $9, the price elasticity of

demand is a. 0.43 b. 0.67 c. 1.00 d. 1.5

ANS: C

NAT: Analytic MSC: Analytical

DIF: 2

LOC: Elasticity

REF: 5-1

TOP: Midpoint method | Price elasticity of demand

87. Refer to Table 5-3. Using the midpoint method, when price falls from $6 to $3, the price elasticity of

demand is a. 0.43 b. 0.67 c. 1.50 d. 2.33

ANS: A

NAT: Analytic MSC: Analytical

DIF: 2

LOC: Elasticity

REF: 5-1

TOP: Midpoint method | Price elasticity of demand

314 ? Chapter 5 /Elasticity and Its Application

88. When the price of bubble gum is $0.50, the quantity demanded is 400 packs per day. When the price falls to

$0.40, the quantity demanded increases to 600. Given this information and using the midpoint method, we know that the demand for bubble gum is a. inelastic. b. elastic. c. unit elastic.

d. perfectly inelastic.

ANS: B

NAT: Analytic MSC: Applicative

DIF: 2

LOC: Elasticity

REF: 5-1

TOP: Midpoint method | Price elasticity of demand

89. The midpoint method is used to compute elasticity because it

a. automatically computes a positive number instead of a negative number. b. results in an elasticity that is the same as the slope of the demand curve. c. gives the same answer regardless of the direction of change. d. automatically rounds quantities to the nearest whole unit.

ANS: C

NAT: Analytic MSC: Interpretive

DIF: 2

LOC: Elasticity

REF: 5-1

TOP: Midpoint method | Price elasticity of demand

90. Suppose the price of Twinkies decreases from $1.45 to $1.25 and, as a result, the quantity of Twinkies

demanded increases from 2,000 to 2,200. Using the midpoint method, the price elasticity of demand for Twinkies in the given price range is a. 2.00. b. 1.55. c. 1.00. d. 0.64.

ANS: D

NAT: Analytic MSC: Applicative

DIF: 2

LOC: Elasticity

REF: 5-1

TOP: Midpoint method | Price elasticity of demand

91. Using the midpoint method, the price elasticity of demand for a good is computed to be approximately 0.75.

Which of the following events is consistent with a 10 percent decrease in the quantity of the good demanded? a. a 7.5 increase in the price of the good

b. a 13.33 percent increase in the price of the good

c. an increase in the price of the good from $7.50 to $10 d. an increase in the price of the good from $10 to $17.50

ANS: B

NAT: Analytic MSC: Applicative

DIF: 3

LOC: Elasticity

REF: 5-1

TOP: Midpoint method | Price elasticity of demand

92. Using the midpoint method, the price elasticity of demand for a good is computed to be approximately 2.

Which of the following events is consistent with a 0.1 percent increase in the price of the good? a. The quantity of the good demanded decreases from 250 to 150. b. The quantity of the good demanded decreases from 200 to 100. c. The quantity of the good demanded decreases by 0.05 percent. d. The quantity of the good demanded decreases by 0.2 percent.

ANS: D

NAT: Analytic MSC: Applicative

DIF: 3

LOC: Elasticity

REF: 5-1

TOP: Midpoint method | Price elasticity of demand

Chapter 5 /Elasticity and Its Application ? 315

93. When the price of a good is $5, the quantity demanded is 100 units per month; when the price is $7, the

quantity demanded is 80 units per month. Using the midpoint method, the price elasticity of demand is about a. 0.22. b. 0.67. c. 1.33. d. 1.50.

ANS: B

NAT: Analytic MSC: Applicative

DIF: 1

LOC: Elasticity

REF: 5-1

TOP: Midpoint method | Price elasticity of demand

94. When the price of a good is $5, the quantity demanded is 120 units per month; when the price is $7, the

quantity demanded is 100 units per month. Using the midpoint method, the price elasticity of demand is about a. 0.55. b. 1.83. c. 2. d. 10.

ANS: A

NAT: Analytic MSC: Applicative

DIF: 1

LOC: Elasticity

REF: 5-1

TOP: Midpoint method | Price elasticity of demand

95. When the price of a watch was $25 each, the jewelry shop sold 20 per month. When it raised the price to $35

each, it sold 14 per month. The price elasticity of demand for watches is about a. 1.66. b. 1.06. c. 0.94. d. 0.60.

ANS: B

NAT: Analytic MSC: Applicative

DIF: 2

LOC: Elasticity

REF: 5-1

TOP: Midpoint method | Price elasticity of demand

96. Which of the following expressions is valid for the price elasticity of demand?

a.

Price elasticity of demand = .

b. c. d.

Price elasticity of demand = Price elasticity of demand = Price elasticity of demand =

DIF: 2

LOC: Elasticity

. . .

REF: 5-1

TOP: Midpoint method | Price elasticity of demand

ANS: B

NAT: Analytic MSC: Applicative

316 ? Chapter 5 /Elasticity and Its Application

97. Which of the following expressions can be used to compute the price elasticity of demand?

a.

Price elasticity of demand = ? .

b. c. d.

Price elasticity of demand = Price elasticity of demand = Price elasticity of demand =

DIF: 3

LOC: Elasticity

? ? ?

. .

.

ANS: C

NAT: Analytic MSC: Analytical

REF: 5-1

TOP: Midpoint method | Price elasticity of demand

98. Suppose that 50 candy bars are demanded at a particular price. If the price of candy bars rises from that price

by 4 percent, the number of candy bars demanded falls to 46. Using the midpoint approach to calculate the price elasticity of demand, it follows that the

a. demand for candy bars in this price range is elastic. b. demand for candy bars in this price range is inelastic. c. demand for candy bars in this price range is unit elastic.

d. price elasticity of demand for candy bars in this price range is 0.

ANS: A

NAT: Analytic MSC: Applicative

DIF: 2

LOC: Elasticity

REF: 5-1

TOP: Midpoint method | Price elasticity of demand

99. When the rental price of DVD movies is $4, Denise rents five per month. When the price is $3, she rents nine

per month. Denise's demand for DVD rentals is

a. elastic, and her demand curve would be relatively flat. b. elastic, and her demand curve would be relatively steep. c. inelastic, and her demand curve would be relatively flat. d. inelastic, and her demand curve would be relatively steep.

ANS: A

NAT: Analytic MSC: Applicative

DIF: 2

LOC: Elasticity

REF: 5-1

TOP: Midpoint method | Price elasticity of demand

Chapter 5 /Elasticity and Its Application ? 317

Figure 5-3

109876543212468101214161820222426QuantityPriceABDemand100. Refer to Figure 5-3. Between point A and point B,

a. the slope is equal to -1/4 and the price elasticity of demand is equal to 2/3. b. the slope is equal to -1/4 and the price elasticity of demand is equal to 3/2. c. the slope is equal to -3/2 and the price elasticity of demand is equal to 1/4. d. the slope is equal to -2/3 and the price elasticity of demand is equal to 3/2.

ANS: B

NAT: Analytic MSC: Applicative

DIF: 2

LOC: Elasticity

REF: 5-1

TOP: Midpoint method | Price elasticity of demand

101. Refer to Figure 5-3. Between point A and point B on the graph, demand is

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

d. elastic, but not perfectly elastic.

ANS: D

NAT: Analytic MSC: Applicative

DIF: 2

LOC: Elasticity

REF: 5-1

TOP: Midpoint method | Price elasticity of demand

102. The midpoint method for calculating elasticities is convenient in that it allows us to

a. ignore the percentage change in quantity demanded and instead focus entirely on the percentage

change in price.

b. calculate the same value for the elasticity, regardless of whether the price increases or decreases. c. assume that sellers' total revenue stays constant when the price changes. d. restrict all elasticity values to between 0 and 1.

ANS: B

NAT: Analytic MSC: Interpretive

DIF: 2

LOC: Elasticity

REF: 5-1

TOP: Midpoint method | Price elasticity of demand

318 ? Chapter 5 /Elasticity and Its Application

Table 5-4 Price $10 $12 $14 $16 Total Revenue $100 $108 $112 $112 103. Refer to Table 5-4. As price rises from $10 to $12, the price elasticity of demand using the midpoint

method is approximately a. 0.08. b. 0.18. c. 0.42. d. 0.58.

ANS: D

NAT: Analytic MSC: Applicative

DIF: 3

LOC: Elasticity

REF: 5-1

TOP: Midpoint method | Price elasticity of demand

104. Refer to Table 5-4. Demand is unit elastic when quantity demanded changes from

a. 10 to 9. b. 9 to 8. c. 8 to 7.

d. There is not enough information given to determine the correct answer.

ANS: C

NAT: Analytic MSC: Analytical

DIF: 3

LOC: Elasticity

REF: 5-1

TOP: Midpoint method | Price elasticity of demand

105. Refer to Table 5-4. When price is between $10 and $14, demand is

a. elastic. b. unit elastic. c. inelastic.

d. There is not enough information given to determine whether demand is elastic, unit elastic, or

inelastic.

ANS: C

NAT: Analytic MSC: Analytical

DIF: 3

LOC: Elasticity

REF: 5-1

TOP: Midpoint method | Price elasticity of demand

Chapter 5 /Elasticity and Its Application ? 319

Figure 5-4

APriceBDemandCQuantity106. Refer to Figure 5-4. Suppose the point labeled B is the “halfway point” on the demand curve and it

corresponds to a price of $5.00. Then, between prices of $4.99 and $5.01, the price elasticity of demand is a. less than 1 but greater than zero. b. equal to 1. c. greater than 1. d. equal to zero.

ANS: B

NAT: Analytic MSC: Interpretive

DIF: 2

LOC: Elasticity

REF: 5-1

TOP: Midpoint method | Price elasticity of demand

107. Refer to Figure 5-4. The section of the demand curve from A to B represents the

a. elastic section of the demand curve. b. inelastic section of the demand curve. c. unit elastic section of the demand curve. d. perfectly elastic section of the demand curve.

ANS: A

NAT: Analytic MSC: Interpretive

DIF: 2

LOC: Elasticity

REF: 5-1

TOP: Price elasticity of demand

108. Refer to Figure 5-4. The section of the demand curve from B to C represents the

a. elastic section of the demand curve. b. inelastic section of the demand curve. c. unit elastic section of the demand curve. d. perfectly elastic section of the demand curve.

ANS: B

NAT: Analytic MSC: Interpretive

DIF: 2

LOC: Elasticity

REF: 5-1

TOP: Price elasticity of demand

109. Refer to Figure 5-4. The section of the demand curve at point B represents the

a. elastic section of the demand curve. b. inelastic section of the demand curve. c. unit elastic section of the demand curve. d. perfectly elastic section of the demand curve.

ANS: C

NAT: Analytic MSC: Interpretive

DIF: 2

LOC: Elasticity

REF: 5-1

TOP: Price elasticity of demand

320 ? Chapter 5 /Elasticity and Its Application

110. Refer to Figure 5-4. Assume the section of the demand curve from A to B corresponds to prices between $8

and $16. Then, when the price changes between $9 and $10,

a. quantity demanded changes proportionately less than the price. b. quantity demanded changes proportionately more than the price.

c. quantity demanded changes the same amount proportionately as price. d. the price elasticity of demand equals 1.

ANS: B

NAT: Analytic MSC: Applicative

DIF: 2

LOC: Elasticity

REF: 5-1

TOP: Elastic demand

111. Refer to Figure 5-4. Assume the section of the demand curve from A to B corresponds to prices between $6

and $12. Then, when the price increases from $8 to $10,

a. the percent decrease in the quantity demanded exceeds the percent increase in the price. b. the percent increase in the price exceeds the percent decrease in the quantity demanded. c. sellers’ total revenue increases as a result.

d. it is possible that the quantity demanded fell from 550 to 500 as a result.

ANS: A

NAT: Analytic MSC: Applicative

DIF: 3

LOC: Elasticity

REF: 5-1

TOP: Elastic demand

112. Refer to Figure 5-4. Assume, for the good in question, two specific points on the demand curve are (Q =

1,000, P = $40) and (Q = 1,500, P = $30). Then which of the following scenarios is possible? a. Both of these points lie on the section of the demand curve from B to C. b. The vertical intercept of the demand curve is the point (Q = 0, P = $60).

c. The horizontal intercept of the demand curve is the point (Q = 1,800, P = $0). d. Any of these scenarios is possible.

ANS: B

NAT: Analytic MSC: Analytical

DIF: 3

LOC: Elasticity

REF: 5-1

TOP: Elastic demand

113. Refer to Figure 5-4. The section of the demand curve from B to C represents the

a. elastic section of the demand curve.

b. perfectly elastic section of the demand curve. c. unit elastic section of the demand curve. d. inelastic section of the demand curve.

ANS: D

NAT: Analytic MSC: Interpretive

DIF: 2

LOC: Elasticity

REF: 5-1

TOP: Inelastic demand

114. Refer to Figure 5-4. Assume the section of the demand curve from B to C corresponds to prices between $0

and $15. Then, when the price changes between $7 and $9,

a. quantity demanded changes proportionately less than the price. b. quantity demanded changes proportionately more than the price.

c. quantity demanded changes the same amount proportionately as price. d. the price elasticity of demand equals zero.

ANS: A

NAT: Analytic MSC: Applicative

DIF: 2

LOC: Elasticity

REF: 5-1

TOP: Inelastic demand

115. Refer to Figure 5-4. Assume, for the good in question, two specific points on the demand curve are (Q =

2,000, P = $15) and (Q = 2,400, P = $12). Then which of the following scenarios is possible? a. Both of these points lie on section C of the demand curve.

b. The vertical intercept of the demand curve is the point (Q = 0, P = $22).

c. The horizontal intercept of the demand curve is the point (Q = 5,000, P = $0). d. Any of these scenarios is possible.

ANS: A

NAT: Analytic MSC: Analytical

DIF: 3

LOC: Elasticity

REF: 5-1

TOP: Inelastic demand

Chapter 5 /Elasticity and Its Application ? 321

116. Refer to Figure 5-4. If the price decreases in the region of the demand curve between points A and B, we can

expect total revenue to a. increase. b. stay the same. c. decrease.

d. first decrease, then increase until total revenue is maximized.

ANS: A

NAT: Analytic MSC: Analytical

DIF: 3

LOC: Elasticity

REF: 5-1

TOP: Total revenue | Price elasticity of demand

117. Refer to Figure 5-4. If the price increases in the region of the demand curve between points A and B, we can

expect total revenue to a. increase. b. stay the same. c. decrease.

d. first increase, then decrease until total revenue is maximized.

ANS: C

NAT: Analytic MSC: Analytical

DIF: 3

LOC: Elasticity

REF: 5-1

TOP: Total revenue | Price elasticity of demand

118. Refer to Figure 5-4. If the price decreases in the region of the demand curve between points B and C, we can

expect total revenue to a. increase. b. stay the same. c. decrease.

d. first increase, then decrease until total revenue is maximized.

ANS: C

NAT: Analytic MSC: Analytical

DIF: 3

LOC: Elasticity

REF: 5-1

TOP: Total revenue | Price elasticity of demand

119. Refer to Figure 5-4. If the price increases in the region of the demand curve between points B and C, we can

expect total revenue to a. increase. b. stay the same. c. decrease.

d. first decrease, then increase until total revenue is maximized.

ANS: A

NAT: Analytic MSC: Analytical

DIF: 3

LOC: Elasticity

REF: 5-1

TOP: Total revenue | Price elasticity of demand

322 ? Chapter 5 /Elasticity and Its Application

Figure 5-5

6054484236302418126369121518212427PriceDemand3033Quantity120. Refer to Figure 5-5. Demand is unit elastic between prices of

a. $18 and $24. b. $24 and $30. c. $24 and $36. d. $30 and $36.

ANS: C

NAT: Analytic MSC: Applicative

DIF: 2

LOC: Elasticity

REF: 5-1

TOP: Price elasticity of demand

121. Refer to Figure 5-5. Using the midpoint method, between prices of $12 and $18, price elasticity of demand is

a. 0.33. b. 0.67. c. 1.33. d. 1.89.

ANS: A

NAT: Analytic MSC: Applicative

DIF: 2

LOC: Elasticity

REF: 5-1

TOP: Midpoint method | Price elasticity of demand

122. Refer to Figure 5-5. Using the midpoint method, between prices of $48 and $54, price elasticity of demand is

about a. 0.92. b. 3.89. c. 4.33. d. 5.67.

ANS: D

NAT: Analytic MSC: Applicative

DIF: 2

LOC: Elasticity

REF: 5-1

TOP: Price elasticity of demand

123. Refer to Figure 5-5. Using the midpoint method, between prices of $30 and $36, price elasticity of demand is

about a. 0.5. b. 0.82. c. 1.22. d. 2.

ANS: C

NAT: Analytic MSC: Applicative

DIF: 2

LOC: Elasticity

REF: 5-1

TOP: Price elasticity of demand

Chapter 5 /Elasticity and Its Application ? 323

124. Refer to Figure 5-5. The maximum value of total revenue corresponds to a price of

a. $18. b. $30. c. $42. d. $48.

ANS: B

NAT: Analytic MSC: Applicative

DIF: 2

LOC: Elasticity

REF: 5-1

TOP: Total revenue | Price elasticity of demand

125. Refer to Figure 5-5. At a price of $48 per unit, sellers' total revenue amounts to

a. $150. b. $200. c. $288. d. $364.

ANS: C

NAT: Analytic MSC: Definitional

DIF: 1

LOC: Elasticity

REF: 5-1

TOP: Total revenue | Price elasticity of demand

126. Refer to Figure 5-5. At a price of $12 per unit, sellers' total revenue amounts to

a. $150. b. $200. c. $288. d. $364.

ANS: C

NAT: Analytic MSC: Definitional

DIF: 1

LOC: Elasticity

REF: 5-1

TOP: Total revenue | Price elasticity of demand

127. Refer to Figure 5-5. At a price of $30 per unit, sellers' total revenue amounts to

a. $150. b. $200. c. $288. d. $450.

ANS: D

NAT: Analytic MSC: Definitional

DIF: 1

LOC: Elasticity

REF: 5-1

TOP: Total revenue | Price elasticity of demand

324 ? Chapter 5 /Elasticity and Its Application

Figure 5-6

Price222018161412108642CBADemand100200300400500600700800900Quantity128. Refer to Figure 5-6. Using the midpoint method, the price elasticity of demand between point A and point B

is a. 1. b. 1.5. c. 2. d. 2.5.

ANS: D

NAT: Analytic MSC: Applicative

DIF: 2

LOC: Elasticity

REF: 5-1

TOP: Midpoint method | Price elasticity of demand

129. Refer to Figure 5-6. Using the midpoint method, the price elasticity of demand between point B and point C

is

a. 0.5. b. 0.75. c. 1.0. d. 1.3.

ANS: B

NAT: Analytic MSC: Applicative

DIF: 2

LOC: Elasticity

REF: 5-1

TOP: Midpoint method | Price elasticity of demand

130. Refer to Figure 5-6. If the price decreased from $18 to $6,

a. total revenue would increase by $1,200, and demand is elastic between points A and C. b. total revenue would increase by $800, and demand is elastic between points A and C. c. total revenue would decrease by $1,200, and demand is inelastic between points A and C. d. total revenue would decrease by $800, and demand is inelastic between points A and C.

ANS: A

NAT: Analytic MSC: Applicative

DIF: 2

LOC: Elasticity

REF: 5-1

TOP: Total revenue | Price elasticity of demand

131. Refer to Figure 5-6. Sellers’ total revenue would increase if the price

a. increased from $4 to $6. b. increased from $16 to $18. c. decreased from $8 to $6. d. All of the above are correct.

ANS: A

NAT: Analytic MSC: Applicative

DIF: 2

LOC: Elasticity

REF: 5-1

TOP: Total revenue | Price elasticity of demand

Chapter 5 /Elasticity and Its Application ? 325

132. Refer to Figure 5-6. Sellers’ total revenue would increase if the price

a. increased from $6 to $8. b. decreased from $18 to $16. c. decreased from $16 to $15. d. All of the above are correct.

ANS: D

NAT: Analytic MSC: Applicative

DIF: 2

LOC: Elasticity

REF: 5-1

TOP: Total revenue | Price elasticity of demand

133. Refer to Figure 5-6. Which of the following price changes would result in no change in sellers’ total revenue?

a. The price increases from $6 to $9. b. The price increases from $9 to $15. c. The price decreases from $12 to $9. d. The price decreases from $9 to $5.

ANS: C

NAT: Analytic MSC: Applicative

DIF: 3

LOC: Elasticity

REF: 5-1

TOP: Total revenue | Price elasticity of demand

134. Suppose demand is perfectly inelastic, and the supply of the good in question decreases. As a result,

a. the equilibrium quantity decreases, and the equilibrium price is unchanged. b. the equilibrium price increases, and the equilibrium quantity is unchanged. c. the equilibrium quantity and the equilibrium price both are unchanged. d. buyers’ total expenditure on the good is unchanged.

ANS: B

NAT: Analytic MSC: Applicative

DIF: 2

LOC: Elasticity

REF: 5-1

TOP: Perfectly inelastic demand

135. Suppose demand is perfectly elastic, and the supply of the good in question decreases. As a result,

a. the equilibrium quantity decreases, and the equilibrium price is unchanged. b. the equilibrium price increases, and the equilibrium quantity is unchanged. c. the equilibrium quantity and the equilibrium price both are unchanged. d. buyers’ total expenditure on the good is unchanged.

ANS: A

NAT: Analytic MSC: Applicative

DIF: 2

LOC: Elasticity

REF: 5-1

TOP: Perfectly elastic demand

136. A perfectly elastic demand implies that

a. buyers will not respond to any change in price.

b. any rise in price above that represented by the demand curve will result in a quantity demanded of

zero.

c. quantity demanded and price change by the same percent as we move along the demand curve. d. price will rise by an infinite amount when there is a change in quantity demanded.

ANS: B

NAT: Analytic MSC: Interpretive

DIF: 2

LOC: Elasticity

REF: 5-1

TOP: Perfectly elastic demand

137. The case of perfectly elastic demand is illustrated by a demand curve that is

a. vertical. b. horizontal.

c. downward-sloping but relatively steep. d. downward-sloping but relatively flat.

ANS: B

NAT: Analytic MSC: Interpretive

DIF: 1

LOC: Elasticity

REF: 5-1

TOP: Perfectly elastic demand

326 ? Chapter 5 /Elasticity and Its Application

138. When small changes in price lead to infinite changes in quantity demanded, demand is perfectly

a. elastic, and the demand curve will be horizontal. b. inelastic, and the demand curve will be horizontal. c. elastic, and the demand curve will be vertical. d. inelastic, and the demand curve will be vertical.

ANS: A

NAT: Analytic MSC: Interpretive

DIF: 2

LOC: Elasticity

REF: 5-1

TOP: Perfectly elastic demand

139. For a horizontal demand curve,

a. slope is undefined, and price elasticity of demand is equal to 0. b. slope is equal to 0, and price elasticity of demand is undefined. c. slope and price elasticity of demand both are undefined. d. slope and price elasticity of demand both are equal to 0.

ANS: B

NAT: Analytic MSC: Interpretive

DIF: 2

LOC: Elasticity

REF: 5-1

TOP: Perfectly elastic demand

140. In the case of perfectly inelastic demand,

a. the change in quantity demanded equals the change in price.

b. the percentage change in quantity demanded equals the percentage change in price.

c. infinitely-large changes in quantity demanded result from very small changes in the price. d. quantity demanded stays the same whenever price changes.

ANS: D

NAT: Analytic MSC: Interpretive

DIF: 2

LOC: Elasticity

REF: 5-1

TOP: Perfectly inelastic demand

141. When demand is perfectly inelastic, the demand curve will be

a. negatively sloped, because buyers decrease their purchases when the price rises.

b. vertical, because buyers purchase the same amount as before whenever the price rises or falls. c. positively sloped, because buyers increase their purchases when price rises.

d. positively sloped, because buyers increase their total expenditures when price rises.

ANS: B

NAT: Analytic MSC: Interpretive

DIF: 2

LOC: Elasticity

REF: 5-1

TOP: Perfectly inelastic demand

142. When demand is perfectly inelastic, the price elasticity of demand

a. is zero, and the demand curve is vertical. b. is zero, and the demand curve is horizontal.

c. approaches infinity, and the demand curve is vertical. d. approaches infinity, and the demand curve is horizontal.

ANS: A

NAT: Analytic MSC: Interpretive

DIF: 2

LOC: Elasticity

REF: 5-1

TOP: Perfectly inelastic demand

143. A perfectly inelastic demand implies that buyers

a. decrease their purchases when the price rises.

b. purchase the same amount as before when the price rises or falls. c. increase their purchases only slightly when the price falls. d. respond substantially to an increase in price.

ANS: B

NAT: Analytic MSC: Interpretive

DIF: 2

LOC: Elasticity

REF: 5-1

TOP: Perfectly inelastic demand

Chapter 5 /Elasticity and Its Application ? 327

144. Alice says that she would buy one banana split a day regardless of the price. If she is telling the truth,

a. Alice's demand for banana splits is perfectly inelastic. b. Alice's price elasticity of demand for banana splits is 1. c. Alice's income elasticity of demand for banana splits is 0. d. None of the above answers is correct.

ANS: A

NAT: Analytic MSC: Interpretive

DIF: 2

LOC: Elasticity

REF: 5-1

TOP: Perfectly inelastic demand

145. For a vertical demand curve,

a. slope is undefined, and price elasticity of demand is equal to 0. b. slope is equal to 0, and price elasticity of demand is undefined. c. slope and price elasticity of demand both are undefined. d. slope and price elasticity of demand both are equal to 0.

ANS: A

NAT: Analytic MSC: Interpretive

DIF: 2

LOC: Elasticity

REF: 5-1

TOP: Perfectly inelastic demand

146. In which of these instances is demand said to be perfectly inelastic?

a. An increase in price of 2% causes a decrease in quantity demanded of 2%. b. A decrease in price of 2% causes an increase in quantity demanded of 0%. c. A decrease in price of 2% causes a decrease in total revenue of 0%. d. The demand curve is horizontal.

ANS: B

NAT: Analytic MSC: Interpretive

DIF: 2

LOC: Elasticity

REF: 5-1

TOP: Perfectly inelastic demand

147. When the price of good A is $50, the quantity demanded of good A is 500 units. When the price of good A

rises to $70, the quantity demanded of good A falls to 400 units. Using the midpoint method,

a. the price elasticity of demand for good A is 1.50, and an increase in price will result in an increase

in total revenue for good A.

b. the price elasticity of demand for good A is 1.50, and an increase in price will result in a decrease in

total revenue for good A.

c. the price elasticity of demand for good A is 0.67, and an increase in price will result in an increase

in total revenue for good A.

d. the price elasticity of demand for good A is 0.67, and an increase in price will result in a decrease in

total revenue for good A.

ANS: NAT: TOP: MSC: C DIF: 2 REF: 5-1 Analytic LOC: Elasticity

Midpoint method | Total revenue | Price elasticity of demand Analytical

148. Consider airfares on flights between New York and Minneapolis. When the airfare is $250, the quantity

demanded of tickets is 2,000 per week. When the airfare is $280, the quantity demanded of tickets is 1,700 per week. Using the midpoint method,

a. the price elasticity of demand is about 1.43, and an increase in the airfare will cause airlines' total

revenue to decrease.

b. the price elasticity of demand is about 1.43, and an increase in the airfare will cause airlines' total

revenue to increase.

c. the price elasticity of demand is about 0.70, and an increase in the airfare will cause airlines' total

revenue to decrease.

d. the price elasticity of demand is about 0.70, and an increase in the airfare will cause airlines' total

revenue to increase.

ANS: NAT: TOP: MSC: A DIF: 2 REF: 5-1 Analytic LOC: Elasticity

Midpoint method | Total revenue | Price elasticity of demand Applicative

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