Chapter 4 Test Bank Consumer Demand

Chapter 04 Test Bank KEY

1. The largest portion of the average U.S. consumer’s dollar is spent on:

A. Food.

B. Entertainment.

C. Health care.

D. Housing.

2. The second largest portion of the average U.S. consumer’s dollar is spent on:

A. Transportation.

B. Housing.

C. Insurance and pensions.

D. Food.

3. Which of the following ranks the top three components of U.S. consumption correctly from largest to smallest?

A. Housing, medical care, entertainment.

B. Housing, transportation, food.

C. Transportation, housing, clothing.

D. Transportation, health care, insurance and pensions.

4. Which of the following is about consumer spending over time?

A. Spending habits do not change.

B. Spending habits show no consistent pattern.

C. Spending habits are likely to change when new products enter the market.

D. Spending habits change monthly.

5. Which of the following does NOT influence an individual consumer’s demand?

A. The consumer's ability to pay.

B. The consumer's fears, psychological complexes, and anxieties.

C. The consumer’s ego and status.

D. Producer behavior.

6. Sociopsychiatric explanations of consumer demand for a good or service include the:

A. Desire for ego and status.

B. Level of income.

C. Level of wealth.

D. Prices of other goods.

7. The law of demand states that:

A. The greater the number of buyers in a marker, the lower the price.

B. Price and quantity demanded are directly related.

C. The lower the cost the lower the price.

D. Price and quantity demanded are inversely related.

8. Which of the following is about American spending habits?

A. Women spend more than men on alcohol and smoking.

B. Young men spend more than young women on clothing and personal care items.

C. Teenagers spend their money on electronics, cars, and clothes.

D. Young women are likely to go into debt because of their spending, but not young men.

9. Demand is defined as the:

A. Desire for goods and services.

B. Ability and willingness to sell goods at various prices.

C. Ability and willingness to buy specific quantities of a good or service at alternative prices in a given time period, ceteris paribus.

D. Sensitivity of buyers to a change in price.

10. If an individual currently demands a particular good, it means that he or she:

A. Is willing and able to purchase the good at the current price.

B. Has a strong desire for the good.

C. Must need the good.

D. Prefers the good over all other choices.

11. Which of the following is about demand?

A. Demand reflects the desire for a good but not necessarily the ability to buy it.

B. In order to demand a good, a person must be willing and able to buy the good.

C. When drawing a demand curve, influences such as price do not change.

D. Demand reflects the ability to buy a good but not necessarily the desire to do so.

12. Which of the following is NOT a determinant of demand for a good?

A. Tastes or preferences.

B. Income.

C. Prices of other goods.

D. Technological advances.

13. Which of the following is a determinant of demand for a good?

A. Consumer income.

B. The number of available workers.

C. Prices of factor inputs.

D. Technology.

14. Which of the following is NOT a determinant of demand?

A. Income.

B. Tastes.

C. The cost of factors of production.

D. Expectations of the future price.

15. The market demand curve is calculated by:

A. Summing the price from individual demand curves.

B. Averaging the price demanded from individual demand curves at all prices.

C. Summing the quantities demanded from individual demand curves at all prices.

D. Averaging the quantities demanded from individual demand curves at all prices.

16. Which of the following causes the market demand curve for a good to shift?

A. The cost of factors of production.

B. The number of buyers in the market.

C. The innovation in production process.

D. A producer's income.

17. Market demand represents the:

A. Sum of all individual demands for a product at each possible price.

B. Sum of all individual supply preferences.

C. Same thing as an individual's demand.

D. Satisfaction from consuming an additional unit of a good.

18. In economic theory, utility refers to the:

A. Additional satisfaction obtained from one more unit of a good or service.

B. Satisfaction obtained from a good or service.

C. Willingness to buy specific quantities of a good or service at a particular price.

D. Decrease in satisfaction as more of a good or service is consumed.

19. Which of the following refers to the satisfaction a consumer receives from the consumption of a good?

A. Price elasticity.

B. Law of demand.

C. Equilibrium price.

D. Utility.

20. The pleasure or satisfaction obtained from goods and services is known as:

A. Price elasticity of demand.

B. Total revenue.

C. Utility.

D. Ceteris paribus.

21. In economic theory, total utility refers to:

A. The additional utility from consuming the last unit of a good or service.

B. The amount of utility obtained from the consumption of a certain amount of a good or service.

C. The change in utility from the last unit sold.

D. How useful a good or service is to the consumer.

22. The amount of utility obtained from the entire consumption of a good is known as:

A. Marginal utility.

B. Diminishing utility.

C. Total utility.

D. Price elasticity.

23. Marginal utility refers to the:

A. Additional utility from consuming the last unit of a good or service.

B. Change in utility from the last unit consumed of a good or service.

C. Utility derived from consuming all of the good or service.

D. Opportunity cost of a good or service.

24. The law of demand and the law of diminishing marginal utility are related since both:

A. Predict that consumers will continue to buy unlimited amounts of goods.

B. Address the budget constraints that consumers face.

C. Assume that the first units consumed have more utility than subsequent units.

D. Assert that consumer preferences are not as significant as price and income.

25. Marginal utility is an important economic concept because it:

A. Indicates the budget limitations of the consumer.

B. Is the total utility a consumer receives from a good.

C. Can be used to predict the amount of a good a rational consumer will purchase.

D. Predicts the amount of a good a business will produce.

26. The difference between total utility and marginal utility is that:

A. Total utility is the satisfaction from consuming one additional unit of a product while marginal utility is the complete satisfaction from consuming a product.

B. Total utility is the complete satisfaction from consuming a product while marginal utility is the satisfaction from consuming one additional unit of a product.

C. Both represent the satisfaction obtained from goods and services.

D. Total utility is the satisfaction from consuming a good while marginal utility is the satisfaction from consuming services.

27. Which of the following best represents the law of diminishing marginal utility?

A. Total utility from consuming a good always rises.

B. Total utility from consuming one more unit of a good eventually falls.

C. Marginal utility of a good eventually declines as more of it is consumed in a given time period.

D. Marginal product of labor declines as more of a variable input is used.

28. When the additional satisfaction from a good or service declines as more of it is consumed, this illustrates the law of:

A. Diminishing marginal utility.

B. Exceptional marginal utility.

C. Declining demand.

D. Increasing opportunity costs.

29. At some point during a meal, each extra bite provides less and less additional satisfaction. This can be explained by:

A. The law of demand.

B. The law of diminishing marginal utility.

C. The law of increasing opportunity cost.

D. A shift in the demand curve.

30. Javier goes to an all-you-can-eat buffet and consumes three plates of food. Which of the following explains why the third plate of food does not provide as much satisfaction as the second plate?

A. The law of expanding externalities.

B. The rule of total utility.

C. The law of supply.

D. The law of diminishing marginal utility.

31. The law of diminishing marginal utility helps to explain the:

A. Upward-sloping supply curve.

B. Equilibrium price.

C. Downward-sloping demand curve.

D. Equilibrium quantity of a good in the marketplace.

32. Which of the following is the best reason why we typically pay a relatively low price for water?

A. Additional units of water are normally not worth much to us.

B. Because water is abundant, the total utility we receive from water is relatively low.

C. Because water is abundant, the marginal utility we receive from water is relatively high.

D. Although additional units of water are normally worth a lot to us, the supply of water is so great we refuse to pay a high price for these additional units.

33. Maximum total utility is achieved where:

A. Total revenue equals zero.

B. The price elasticity of demand is 1.0.

C. Marginal utility equals zero.

D. Marginal revenue equals zero.

34. Total utility is maximized where:

A. Price is less than marginal utility.

B. Price is equal to marginal utility.

C. Marginal utility is maximized.

D. Marginal utility is zero.

35. With a greater amount of consumption, total utility:

A. Always decreases.

B. Increases as long as marginal utility is positive.

C. Increases only if marginal utility increases.

D. Always increases.

36. If the marginal utility for slices of pizza is decreasing but positive, then:

A. The total utility for slices of pizza is increasing.

B. The total utility for slices of pizza is decreasing.

C. The total utility for slices of pizza is negative.

D. Additional slices of pizza yield zero satisfaction.

37. If the marginal utility of one more piece of candy is positive, then the:

A. Total utility is at a maximum.

B. Total utility will decrease with additional consumption.

C. Candy is an inferior good.

D. Total utility will increase with additional consumption.

38. If marginal utility is positive, then total utility must be:

A. Decreasing.

B. Increasing.

C. Zero.

D. Less than zero.

39. If marginal utility is negative, then:

A. Total utility is at a minimum.

B. Total utility will increase with additional consumption.

C. Total utility will decrease with additional consumption.

D. The good in question is an inferior good.

40. The assumption of ceteris paribus is important because it:

A. Allows us to focus on the effects of a change in one variable at a time on another variable of interest.

B. Explains the concept of diminishing marginal utility.

C. Determines the point where total utility is maximized.

D. Explains the reason for government failure.

41. Ceteris paribus means:

A. Nothing is allowed to change.

B. The determinants of demand may change, but all else must be held constant.

C. Only one variable is allowed to change while all others remain constant.

D. Consumers try to keep all things constant so that prices will be lower.

42. According to the law of demand:

A. If consumer's income increases, the demand curve will shift to the right.

B. As the price of a good rises, the quantity demanded will increase in a given time period, ceteris paribus.

C. As the price of a good falls, the quantity supplied will increase in a given time period, ceteris paribus.

D. As the price of a good falls, the quantity demanded will increase in a given time period, ceteris paribus.

43. The Law of Demand states that quantity demanded increases in a given time period if:

A. The price of the good falls.

B. Incomes increase.

C. Preferences change.

D. Expectations improve.

44. The law of demand explains why people:

A. Crave certain goods.

B. Are willing to buy more of a good or services as the price falls.

C. Are willing to pay more for a good or services as marginal utility diminishes.

D. Are able to buy more of a good or service as supply increases.

45. Ceteris paribus, a demand curve shows the:

A. Quantity of a good or service that producers are willing to bring to market.

B. Prices a consumer and producer can both agree upon.

C. Quantity of a good or service consumers are willing and able to purchase at alternative prices.

D. Change in quantity demanded divided by the change in price.

46. The downward slope of the demand curve is related to the:

A. Law of diminishing total returns.

B. Law of diminishing marginal utility.

C. Upward sloping supply curve.

D. Opportunity cost of producing the good.

47. The demand curve is downward-sloping because:

A. Producers are willing to supply more of the good only at higher prices.

B. Consumers are willing to buy less of the good only at lower prices.

C. Producers are willing to supply more of the good only at lower prices.

D. Consumers are willing to buy more of the good only at lower prices.

48. Price elasticity of demand shows how:

A. To compute the slope of the demand curve.

B. Quantity demanded responds to price changes.

C. Quantity demanded responds to changes in the price of other goods.

D. Price responds to demand changes.

49. The response of quantity demanded to price changes is shown by:

A. The price elasticity of demand.

B. The determinants of demand.

C. Opportunity cost.

D. Income elasticity of demand.

50. Which of the following statements is NOT correct?

A. If demand is unitary elastic, an increase in the price of a good will not change total revenue.

B. If demand is elastic, a higher price will actually decrease total revenue.

C. Total revenue will fall if consumer’s response to a price cut is relatively smaller than the price cut.

D. If the relative change in price is greater than the relative change in the quantity demanded associated with it, demand is inelastic.

51. Price elasticity of demand indicates the consumer’s response to changes in:

A. Quantity.

B. Demand.

C. Price.

D. Supply.

52. The price elasticity of demand is defined as the:

A. Percentage change in quantity demanded times the percentage change in price.

B. Unit change in price divided by the unit change in quantity demanded.

C. Percentage change in quantity demanded divided by the percentage change in price.

D. Unit change in quantity demanded times the unit change in price.

53. Suppose the price elasticity of demand for tacos is 0.80. If the price of tacos increases by 10 percent, then the quantity demanded of tacos should, ceteris paribus:

A. Decrease by 8 percent.

B. Increase by 8 percent.

C. Decrease by 1.25 percent.

D. Increase by 1.25 percent.

54. If the price elasticity of demand for a product is 2.3, this means that quantity demanded will increase by _______ for each _______ decrease in price, ceteris paribus.

A. 1 percent; 2.3 percent

B. 1 unit; $2.30

C. 2.3 percent; 1 percent

D. 2.3 units; $1

55. Assume that we are using the midpoint method of calculating the price elasticity of demand. If a firm finds that it can sell 20,000 units at a price of $5 per unit and 25,000 units at a price of $4 per unit, then demand in this price range is:

A. Elastic

B. Inelastic

C. Unitary elastic

D. Cannot be determined with the information given.

56. Assume a price elasticity of demand of 0.50. If the tobacco lobby is successful in reducing a tax on the price of cigarettes by 10 percent, the quantity demanded will:

A. Decrease by 5 percent.

B. Decrease by 2 percent.

C. Increase by 5 percent.

D. Increase by 2 percent.

57. If the price elasticity of demand is 1.5, and the prices rise by 20 percent, the quantity sold will, ceteris paribus:

A. Rise by 13.3 percent.

B. Fall by 13.3 percent.

C. Rise by 30.0 percent.

D. Fall by 30.0 percent.

58. If the price elasticity of demand is 2.5, then a 40 percent decrease in the price of the good will lead to a _______ percent increase in the quantity demanded.

A. 150.00

B. 100.00

C. 66.7

D. 22.5

59. If the price elasticity of demand is 1.8, then a 30 percent decrease in the price of the good will lead to a _______ percent increase in the quantity demanded.

A. 0.60

B. 0.55

C. 54.00

D. 16.67

60. Suppose a university raises its tuition by 8 percent and as a result the enrollment of students drops by 4 percent. The price elasticity of demand for this circumstance would be:

A. 8.0.

B. 4.0.

C. 2.0.

D. 0.5.

61. Suppose Suzuki increases the price of a particular motorcycle model by 12 percent and as a result the quantity demanded for that model decreases by 4 percent. The price elasticity of demand for that model is:

A. 0.33.

B. 3.0.

C. 4.0.

D. 12.0.

62. Suppose a cosmetics company increases the price of eyeliner by 10 percent and as a result the quantity demanded of eyeliner decreases by 2.5 percent. The price elasticity of demand for eyeliner is:

A. 4.0.

B. 2.5.

C. 0.4.

D. 0.25.

63. If demand is elastic, then:

A. Quantity demanded is not very responsive to changes in price.

B. Quantity demanded is very responsive to changes in price.

C. Consumer spending does not respond to changes in income.

D. Total revenue falls in response to a price decrease.

64. Suppose the local government decides to reduce traffic congestion on a bridge by imposing a toll. The toll will be most effective if the price elasticity of demand for the bridge is:

A. Inelastic.

B. Elastic.

C. Unitary.

D. Either unitary or inelastic.

65. Which of the following is most likely to be elastic with respect to demand?

A. Cigarettes.

B. Shoes.

C. Gasoline in the short run.

D. Airline travel in the long run.

66. The demand for _______ is relatively elastic.

A. water

B. electricity

C. vacation travel

D. coffee

67. If demand is inelastic, then:

A. Consumer spending does not respond to changes in income.

B. Total revenue rises in response to a price decrease.

C. Quantity demanded is very responsive to changes in price.

D. Quantity demanded is not very responsive to changes in price.

68. If quantity demanded rises only slightly following a moderate price cut, then the response would be considered:

A. Elastic.

B. Inelastic.

C. Unitary elastic.

D. Abnormal.

69. When the percentage change in quantity demanded is numerically less than the percentage change in price, ceteris paribus, demand is:

A. Elastic.

B. Inelastic.

C. Unitary elastic.

D. Perfectly elastic.

70. Which of the following is most likely to be inelastic with respect to demand?

A. Illegal drugs.

B. Airline travel in the long run.

C. New cars.

D. HDTV sets.

71. The demand for _______ is relatively inelastic.

A. New cars

B. TVs

C. Gasoline in the short run

D. Airline travel

72. If the percentage change in quantity demanded is exactly equal to the percentage change in price, then demand is:

A. Normal elastic.

B. Relatively inelastic.

C. Relatively elastic.

D. Unitary elastic.

73. For which of the following is the price elasticity of demand most likely to be unitary elastic?

A. Cigarettes.

B. Private education.

C. New cars.

D. Gasoline in the short run.

74. Total revenue is:

A. The price of a product times the quantity sold in a given time period.

B. The profit a company earns from the sales of goods.

C. Equal to revenue minus the cost of production.

D. The additional revenue earned from the sale of one more unit.

75. If the price elasticity of demand is 1.0 and a firm raises its price by 15 percent, then total revenue will:

A. Rise by 15 percent.

B. Fall by 15 percent.

C. Rise by 6.67 percent.

D. Not change.

76. Ceteris paribus, when the price elasticity of demand is unitary elastic, a decrease in:

A. Price results in no change to total revenue.

B. Total revenue indicates an increase in price.

C. Total revenue indicates a decrease in price.

D. Price results in an increase in total revenue.

77. If demand is unitary elastic, then a price cut:

A. Reduces total revenue.

B. Increases total revenue.

C. Does not change total revenue.

D. Sometimes increases and sometimes decreases total revenue.

78. Ceteris paribus, a price increase will cause total revenue to stay the same for a producer only if the price elasticity demand for its product is:

A. Inelastic.

B. Elastic.

C. Unitary elastic.

D. Extremely high.

79. A price cut will increase the total revenue a firm receives, ceteris paribus, only if the demand for its product is:

A. Elastic.

B. Inelastic.

C. Unitary elastic.

D. Perfectly inelastic (i.e., E = 0).

80. If the price elasticity of demand for Baja Fresh tacos is 2.5, then Baja Fresh can:

A. Reduce the price of tacos by 25 percent and total revenue will remain the same.

B. Raise the price of tacos and total revenue will increase.

C. Reduce the price of tacos by less than 25 percent and total sales will remain the same.

D. Reduce the price of tacos and total revenue will increase.

81. Ceteris paribus, total revenue definitely declines when price:

A. Falls and demand has unitary elasticity.

B. Falls and demand is elastic.

C. Rises and demand is elastic.

D. Rises and demand is inelastic.

82. Ceteris paribus, a price increase will cause total revenue to decrease for a firm if the demand for its product is:

A. Inelastic.

B. Elastic.

C. Unitary elastic.

D. Normal elastic.

83. Ceteris paribus, in which of the following instances will total revenue decline?

A. Price rises and demand is inelastic.

B. Price rises and demand is elastic.

C. Price falls and demand is elastic.

D. Price falls and demand is unitary elastic.

84. Ceteris paribus, a price decrease will cause total revenue to decrease for a firm if the demand for its product is:

A. Unitary elastic.

B. Inelastic.

C. Elastic.

D. Increasing rapidly.

85. Ceteris paribus, when a firm increases the price of its product, total revenue will:

A. Always increase because the firm will receive more revenue per unit sold.

B. Always decrease because the firm will sell fewer units.

C. Increase if the price elasticity of demand is inelastic.

D. Increase if the price elasticity of demand is elastic.

86. By which of the following means can the university reduce the size of the crowd at its football game and simultaneously earn more revenue to finance a new stadium?

A. By raising ticket prices when demand for tickets is inelastic.

B. By raising ticket prices when demand for tickets is elastic.

C. By lowering ticket prices when demand for tickets is inelastic.

D. By lowering ticket prices when demand for tickets is elastic.

87. Which one of the following generalizations is NOT correct?

A. The demand for luxury goods is relatively elastic

B. The demand for necessities is relatively elastic.

C. The greater the availability of substitutes, the higher the price elasticity of demand

D. The higher the price of an item is as compared to a consumer’s income the higher the elasticity of demand.

88. Which of the following causes demand to be more elastic with respect to price?

A. Shorter periods of time to adjust to a change in price.

B. A higher ratio of price to consumers’ income.

C. Fewer substitutes.

D. A steeper demand curve for a given price and quantity.

89. Which of the following does NOT influence the price elasticity of demand?

A. The availability of substitutes.

B. The price of the item relative to your budget.

C. The costs of production.

D. Successful advertising.

90. Which of the following causes the price elasticity of demand for a good to be more inelastic?

A. A shorter period of time to adjust to a change in price.

B. A higher ratio of price to consumers’ income.

C. The availability of many substitutes.

D. The good is a luxury.

91. People find it difficult to get along without necessities, therefore demand for necessities:

A. Is relatively elastic.

B. Is relatively inelastic.

C. Is relatively unitary elastic.

D. Does not change with changes in price.

92. Which of the following is relatively inelastic with respect to demand?

A. A luxury good.

B. A good with few substitutes.

C. A good that is very expensive.

D. A good that is a complement.

93. If the price of potato chips rises and the demand for pretzels rises, then potato chips and pretzels are:

A. Substitutes.

B. Complements.

C. Price inelastic goods.

D. Price elastic goods.

94. If the price of battery-powered flashlights falls and the demand for flashlight batteries rises, then flashlights and batteries are:

A. Substitutes.

B. Complements.

C. Price inelastic goods.

D. Price elastic goods.

95. When income increases, the demand for most products:

A. Increases and the demand curve shifts to the left.

B. Increases and the demand curve shifts to the right.

C. Decreases and the demand curve shifts to the left.

D. Decreases and the demand curve shifts to the right.

96. When income decreases, the demand for most products:

A. Increases and the demand curve shifts to the left.

B. Increases and the demand curve shifts to the right.

C. Decreases and the demand curve shifts to the left.

D. Decreases and the demand curve shifts to the right.

97. The objective of advertising, from an economic perspective, is to shift the demand curve to the:

A. Right and decrease price elasticity of demand.

B. Right and increase price elasticity of demand.

C. Left and decrease price elasticity of demand.

D. Left and increase price elasticity of demand.

98. When a firm advertises, it is attempting to:

A. Move consumers along the existing demand curve.

B. Decrease the marginal utility consumers receive from the product.

C. Decrease the price elasticity of demand for the product.

D. Shift the demand curve to the left.

99. Complete the table and then use the information to answer the following question(s).

Utility Schedule Table

In the utility schedule table, the marginal utility of the third unit is:

A. 5 utils.

B. 8 utils.

C. 12 utils.

D. 52 utils.

100. Complete the table and then use the information to answer the following question(s).

Utility Schedule Table

In the utility schedule table, the total utility when two units are consumed is:

A. 12 utils.

B. 20 utils.

C. 30 utils.

D. 44 utils.

101. Complete the table and then use the information to answer the following question(s).

Utility Schedule Table

In the utility schedule table, the total utility when four units are consumed is:

A. 57.

B. 52.

C. 8.

D. 5.

102. Complete the table and then use the information to answer the following question(s).

Utility Schedule Table

In the utility schedule table, diminishing marginal utility occurs:

A. With the second and fourth units only.

B. With the first and third units only.

C. Only with the second unit.

D. With all of the units after the first.

103. The following is a hypothetical demand schedule for automobiles.

Demand Schedule for Automobiles

In the demand schedule for automobiles table, what is the total revenue from automobile sales at a price of $24,000 per auto?

A. $12 billion per year.

B. $26 billion per year.

C. $44 billion per year.

D. $48 billion per year.

104. The following is a hypothetical demand schedule for automobiles.

Demand Schedule for Automobiles

In the demand schedule for automobiles table, what is the total revenue from automobile sales at a price of $20,000 per auto?

A. $80 billion per year.

B. $40 billion per year.

C. $24 billion per year.

D. $20 billion per year.

105. The following is a hypothetical demand schedule for automobiles.

Demand Schedule for Automobiles

In the demand schedule for automobiles table, as price decreases from $24,000 per car to $20,000 per car:

A. The demand curve for cars shifts to the right.

B. Total revenue increases.

C. The quantity of cars demanded decreases.

D. The supply curve for cars shifts to the left.

106. In recent years advertising expenditures in the United States have:

A. Been less than $500 per consumer per year.

B. Totaled over $200 billion per year.

C. Not had any effect on consumer expenditures

D. Shifted the demand curve for goods and services to the left.

107. Advertising can enhance economic efficiency when it:

A. Exploits our senses and lack of knowledge,

B. Encourages us to purchase only brand name merchandise.

C. Offers us pictures and promises of exoneration, recognition, and love.

D. Is intended to provide information about existing products or to bring new products to our attention.

108. The demand for such items as salt, sugar, and hand soap tend to be:

A. Relatively inelastic

B. Relatively elastic

C. Perfectly inelastic

D. Perfectly elastic

109. The demand for such items as vacation travel, new cars, and HDTV cable packages tend to be:

A. Relatively inelastic

B. Relatively elastic

C. Perfectly inelastic

D. Perfectly elastic

110. One NEWS WIRE article states that an increase in cigarette prices of 10 percent reduced cigarette sales by about 4 percent. What is the effect of higher prices in the market for cigarettes?

A. A leftward shift of the demand curve.

B. A rightward shift of the demand curve.

C. A movement up the demand curve.

D. A movement down the demand curve.

111. The Policy Perspectives for this chapter identify that the United States spends more on advertising per person than most other countries. A successful advertising campaign should shift the:

A. Demand curve to the left.

B. Demand curve to the right.

C. Supply curve to the left.

D. Supply curve to the right.

112. On average, consumers spend the largest portion of their income on food.

The largest portion of a consumer’s budget is spent on housing.

AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 04-01 Explain why demand curves slope downward.
Topic: Patterns of Consumption

113. Housing and transportation account for the largest portion of the average consumer dollar.

Housing and transportation represent over 50% of a consumer’s budget.

AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 04-01 Explain why demand curves slope downward.
Topic: Patterns of Consumption

114. The goal of economic theory is to explain and predict choices.

By observing consumer buying habits, an economist can better understand future consumption choices.

AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 04-01 Explain why demand curves slope downward.
Topic: Patterns of Consumption

115. Status and ego concerns are sociopsychiatric explanations for consumption behavior.

Taste is the determinant that applies to status and ego concerns.

AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 04-01 Explain why demand curves slope downward.
Topic: Determinants of Demand

116. Demand is the desire to purchase a particular good even if you cannot pay for it.

Demand is the both the willingness and ability to purchase a particular good at a particular point in time.

AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 04-01 Explain why demand curves slope downward.
Topic: Determinants of Demand

117. Tastes and income are some of the determinants of demand.

Tastes and income are two of the five determinants of demand.

AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 04-01 Explain why demand curves slope downward.
Topic: Determinants of Demand

118. Market demand is the horizontal sum of individual consumer demands.

Each additional individual demand curve shifts the market demand curve to the right.

AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 04-01 Explain why demand curves slope downward.
Topic: Determinants of Demand

119. Total utility is the additional satisfaction received from consuming one more unit.

Total utility is the sum of the individual marginal utilities—or the additional satisfaction gained from consuming one more unit.

AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 04-01 Explain why demand curves slope downward.
Topic: The Demand Curve

120. At a point of diminishing marginal utility, marginal utility begins to decline as consumption increases.

The law of diminishing marginal utility states that, beyond some point, marginal utility declines with additional units of consumption.

AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 04-01 Explain why demand curves slope downward.
Topic: The Demand Curve

121. The law of diminishing marginal utility does not apply to goods that a person really enjoys.

The law of diminishing marginal utility applies to all normal goods and services.

AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 04-01 Explain why demand curves slope downward.
Topic: The Demand Curve

122. According to the law of diminishing marginal utility, with the consumption of each additional candy bar, for example, the total satisfaction decreases.

With the consumption of each additional candy bar total satisfaction increases at a decreasing rate until marginal utility turns negative. This statement is too strong as total satisfaction always decreasing would imply we should never have something like a candy bar.

AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 04-01 Explain why demand curves slope downward.
Topic: The Demand Curve

123. As long as marginal utility is positive, total utility must be increasing.

Marginal utility adds to total utility whenever it is positive.

AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 04-01 Explain why demand curves slope downward.
Topic: The Demand Curve

124. If marginal utility is rising, total utility must be falling.

If marginal utility is positive, total utility must be rising.

AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 04-01 Explain why demand curves slope downward.
Topic: The Demand Curve

125. The inverse relationship between quantity demanded and price for a good can be explained by the law of diminishing marginal utility.

Since marginal utility is diminishing, a consumer will only demand another unit if the price falls.

AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 04-01 Explain why demand curves slope downward.
Topic: The Demand Curve

126. The price elasticity of demand measures the response of consumers to a change in price.

Price elasticity is defined as the percentage change in quantity demanded divided by the percentage change in price.

AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 04-02 Describe what the price elasticity of demand measures.
Topic: Price Elasticity

127. If the price elasticity of demand is equal to 2.3, then a 1 percent increase in price will result in a 2.3 percent decrease in quantity demanded.

The value of the price elasticity of demand explains by what percentage quantity will fall with a on percent change in price.

AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 3 Hard
Learning Objective: 04-02 Describe what the price elasticity of demand measures.
Topic: Price Elasticity

128. The demand is price-inelastic when the percentage change in quantity demanded is greater than the percentage change in price for a particular good.

When the numerator (percent quantity demanded) is greater than the denominator (percent change in price), the price elasticity of demand will be greater than one and therefore the response would be considered elastic.

AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 04-02 Describe what the price elasticity of demand measures.
Topic: Price Elasticity

129. Demand is price-elastic when the percentage change in quantity demanded is greater than the percentage change in price for a particular good.

When the numerator (percent quantity demanded) is greater than the denominator (percent change in price), price elasticity of demand will be greater than one and therefore the response would be considered elastic.

AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 04-02 Describe what the price elasticity of demand measures.
Topic: Price Elasticity

130. Ceteris paribus, a price cut will most likely decrease total revenue if demand is inelastic.

If the demand for a good is inelastic, then a price cut will decrease total revenue because the percentage change in quantity demanded will be less than the percentage change in price.

AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 04-03 Depict the relationship of price elasticity, price, and total revenue.
Topic: Price Elasticity

131. Ceteris paribus, an increase in price will most likely decrease total revenue if the price elasticity of demand is 1.8.

If the demand for a good is elastic, then a price increase will decrease total revenue because the negative percentage change in quantity demanded will be greater than the positive percentage change in price.

AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 04-03 Depict the relationship of price elasticity, price, and total revenue.
Topic: Price Elasticity

132. Ceteris paribus, an increase in price will increase total revenue if the price elasticity of demand is 1.3.

With a price elasticity of demand of 1.3, a one percent price increase will cause quantity to decrease 1.3%. The negative effect on quantity will reduce total revenue more than the benefits of the per-unit price increase and so total revenue will fall.

AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 04-03 Depict the relationship of price elasticity, price, and total revenue.
Topic: Price Elasticity

133. Ceteris paribus, the price elasticity of demand for a good with many substitutes is likely to be inelastic.

If a good has many close substitutes, then its quantity demanded will be quite sensitive to changes in price.

AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 1 Easy
Learning Objective: 04-04 Recite the factors that influence the degree of price elasticity.
Topic: Price Elasticity

134. Ceteris paribus, a successful advertising campaign causes the demand curve for a good to become steeper.

One of the goals of advertising is to give the impression that the product is unique without close substitutes which will cause the product to be inelastic.

AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 04-05 Discuss how advertising affects consumer demand.
Topic: Price Elasticity

135. What determinant of demand would be impacted with each of the following when analyzing the demand for hybrid automobiles? a) The price of gasoline goes up. b)The price of large automobiles rises. c) Hybrid autos become more fashionable. d) Consumers anticipate that the price of hybrids will come down in the future. e) Consumers' incomes decline and hybrids are less expensive to buy and maintain than other cars. f) A news report claims that hybrid automobiles are unsafe.

a) Other goods; the desire for more fuel-efficient automobiles increases and so hybrid automobile demand increases.

b) Other goods; the cost a substitute good (large automobiles) rises and so hybrid automobile demand increases.

c) Preferences; the desire for hybrid automobiles becomes greater as they are more fashionable and so their demand increases.

d) Expectations; consumers anticipate that the cost will be less in the future and demand less hybrid automobiles today.

e) Income; consumers switch to the relatively cheaper good as their income falls and so they buy more hybrid automobiles.

f) Tastes; consumers believe that hybrid automobiles are unsafe and so they demand less.

AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
Blooms: Analyze
Difficulty: 3 Hard
Learning Objective: 04-01 Explain why demand curves slope downward.
Topic: The Demand Curve

136. A bar patron complains that he can no longer visit his neighborhood tavern as often because the price of his favorite beer went up one dollar per glass to $4. He used to purchase 20 beers per week but now he only purchases 16 beers per week. Determine if demand for beer is elastic or inelastic. If the patron only had 12 beers per week after the price increase would the elasticity of demand for the beer be different?

The price elasticity for the beer would be inelastic because the price increase leads to an increase in total revenue (i.e. percentage change in quantity demanded would be less than the percentage increase in price). If the patron only consumed 12 beers per week after the price increase the demand for beer would be elastic. In this case, the percentage change in quantity demanded is much more responsive to the $1 price increase.

AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
Blooms: Analyze
Difficulty: 3 Hard
Learning Objective: 04-02 Describe what the price elasticity of demand measures.
Topic: Price Elasticity

137. Using the determinants of demand and your own reasoning, classify each of the following products as elastic or inelastic: a) Alaska summer cruise; b) gasoline; c) ketchup.

a) Elastic—many substitutes and a luxury good b) Inelastic—no close substitutes and a necessity c) Inelastic—no close substitutes and a small price relative to income

AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 04-02 Describe what the price elasticity of demand measures.
Topic: Price Elasticity

138. Diminishing marginal utility begins when total utility decreases.

Diminishing marginal utility begins when total utility increases at a slower rate. When total utility declines, then marginal utility will become negative.

AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 04-01 Explain why demand curves slope downward.
Topic: The Demand Curve

139. If the price elasticity of demand is 3.7 for soft drinks, then the demand for soft drinks is elastic.

If the price elasticity of demand is greater than 1.0, the response is considered to be elastic.

AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 04-02 Describe what the price elasticity of demand measures.
Topic: The Demand Curve

140. The price of energy drinks increases by twenty percent and the demand for energy drink falls by fifteen percent. Based on this information, the price elasticity of demand is:

A. Elastic.

B. Inelastic.

C. Perfectly inelastic.

D. Unit elastic.

141. Which of the following is the least likely to be inelastic?

A. Gasoline.

B. Bread.

C. Shell-brand gasoline.

D. Chewing gum.

142. The price elasticity of salt is less than 1.

Salt is inexpensive, has no substitutes and is a necessity; all which are characteristics of a product that has an inelastic demand.

AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 04-02 Describe what the price elasticity of demand measures.
Topic: Price Elasticity

143. Adult smokers are not as responsive as teenagers are to increases in the price of cigarettes.

If the price of cigarettes increases due to higher taxes, teenagers are most likely to smoke fewer cigarettes.

AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 04-04 Recite the factors that influence the degree of price elasticity.
Topic: Price Elasticity

144. If the demand for concerts is inelastic, then raising the price of the concert tickets will increase the total revenue for the concert promotions.

If concert tickets are inelastic and prices for the tickets were increased, most concert attendees will purchase the tickets at the higher prices.

AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 04-04 Recite the factors that influence the degree of price elasticity.
Topic: Price Elasticity

145. Explain why it is so important for a business owner to understand the concept of price elasticity of demand when pricing their goods and services.

If a business owner understands price elasticity of demand, then she will know what items should be priced at lower prices and what items should be priced at higher prices. Goods and services that have inelastic demands can be priced higher than goods and services that have elastic demands. If the prices for her items are not correctly priced, based on the elasticity of demand, her total revenue will be less than optimal.

AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 3 Hard
Learning Objective: 04-04 Recite the factors that influence the degree of price elasticity.
Topic: Price Elasticity

146. In economics, elasticity means ______.

A. Responsiveness.

B. Satisfaction.

C. Output.

D. Pleasure.

147. As the marginal utility of a good diminishes, so does the

A. Quantity supplied of the product.

B. Price consumers are willing to pay.

C. Availability of the product.

D. Elasticity of demand for the product.

148. The demand for lunch at a local restaurant is currently price elastic for college students but price inelastic for businesspeople. In order to increase total revenue, the restaurant should

A. Lower the price to both businesspeople and students.

B. Increase the price to students and decrease the price to businesspeople.

C. Increase the price to both businesspeople and students.

D. Decrease the price to students but increase the price to businesspeople.

149. The following table shows the utility (enjoyment) that Joyce receives from eating ice cream cones on a hot summer day.

This chart illustrates the law of

A. demand.

B. supply.

C. diminishing returns.

D. diminishing marginal utility.

150. The goal of an advertising campaign is to:

A. Shift a product’s demand curve to the right.

B. Increase product sales.

C. Change consumer tastes and preferences.

D. All of these choices are correct.

151. A good whose demand is not very responsive to a change in price is:

A. Elastic.

B. Inelastic.

C. Unitary elastic.

D. Income elastic.

152. If the demand for a good is elastic, when price increases, total revenue will:

A. Increase.

B. Decrease.

C. Not change.

D. The change in total revenue is uncertain.

153. Which of the following are determinants of price elasticity?

A. The availability of substitutes.

B. The price of the good relative to income.

C. Whether the good is a necessity or luxury.

D. All of these choices are correct.

154. The increase in federal taxes on cigarettes from $0.39 to $1.01 in 2009 had only a modest effect on quantity demanded, indicating:

A. Demand for cigarettes is relatively elastic.

B. Demand for cigarettes is relatively inelastic.

C. Demand for cigarettes is unitary elastic.

D. More information is needed to determine the elasticity of demand for cigarettes.

155. When marginal utility is negative, total utility is:

A. Increasing.

B. Decreasing.

C. Constant.

D. More information is needed to describe total utility.

156. A good with relatively elastic demand is more likely to be a _____, or a good with _____ substitutes.

A. necessity; many

B. necessity; few

C. luxury; many

D. luxury; few

157. The 2009 tax increase of 20 cents per pack of cigarettes in San Francisco will most likely generate only modest revenues because:

A. Cigarettes in San Francisco have close substitutes available in other nearby cities or online.

B. The tax is too low to generate large revenues.

C. The tax will cause a shift in demand.

D. Many smokers will quit smoking because of the higher price, so few will actually pay the tax.

158. Gasoline and SUVs are _____; as gasoline prices have increased, SUV sales have _____.

A. complementary goods; decreased

B. complementary goods; increased

C. substitute goods; decreased

D. substitute goods; increased

159. When income changes, there is a _____ the _____ curve.

A. movement along; demand

B. shift of; demand

C. movement along; supply

D. shift of; supply

160. Recent prices increases for Starbucks coffee will cause an increase in revenue for the company if:

A. There are not many close substitutes for Starbucks coffee.

B. Money spent on Starbucks coffee makes up a small share of total income.

C. Starbucks coffee is more of a necessity than a luxury.

D. All of these choices are correct.