Elasticities of Demand and Supply – Chapter 5 Test Bank | 9e - Foundations of Microeconomics 9e | Test Bank with Answer Key by Robin Bade by Robin Bade. DOCX document preview.
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Foundations of Microeconomics, 9e (Bade)
Chapter 5 Elasticities of Demand and Supply
5.1 The Price Elasticity of Demand
1) The price elasticity of demand is a measure of
A) the equilibrium price of a product.
B) buyers' responsiveness to changes in the price of a product.
C) the amount of a product purchased when income increases.
D) whether a product is a substitute or a complement.
E) how much a change in demand affects the equilibrium price.
Topic: Price elasticity of demand
Skill: Level 1: Definition
Section: Checkpoint 5.1
Status: Old
AACSB: Reflective thinking
2) The price elasticity of demand measures which of the following?
A) the slope of the demand curve
B) the rate at which demand changes when price changes
C) how responsive the quantity demanded is to changes in price
D) the percentage-slope of the demand curve
E) None of these correctly defines what price elasticity of demand measures.
Topic: Price elasticity of demand
Skill: Level 1: Definition
Section: Checkpoint 5.1
Status: Old
AACSB: Reflective thinking
3) The price elasticity of demand measures the extent to which the quantity demanded changes when
A) the price of the good changes.
B) the price of a related good changes.
C) the expected future price of a good changes.
D) consumer preferences change.
E) both the demand and supply of the good change.
Topic: Price elasticity of demand
Skill: Level 1: Definition
Section: Checkpoint 5.1
Status: Old
AACSB: Reflective thinking
4) The price elasticity of demand measures the ________ that results from a ________.
A) change in quantity demanded; change in price
B) change in price; change in the quantity demanded
C) percentage change in price; percentage change in the quantity demanded
D) percentage change in the quantity demanded; percentage change in price
E) percentage change in the quantity demanded; change in price
Topic: Price elasticity of demand
Skill: Level 1: Definition
Section: Checkpoint 5.1
Status: Old
AACSB: Reflective thinking
5) The elasticity of demand is used to
A) determine if consumers will or will not buy a product.
B) measure how responsive consumers are to a change in price.
C) determine in what direction the demand curve shifts if income changes.
D) find the market equilibrium.
E) determine if a change in price results in a shortage or a surplus.
Topic: Price elasticity of demand
Skill: Level 2: Using definitions
Section: Checkpoint 5.1
Status: Old
AACSB: Reflective thinking
6) To determine the price elasticity of demand, we
A) need information on consumers' incomes.
B) need to know how much is available.
C) compare the percentage change in the quantity demanded to the percentage change in the price.
D) compare the change in the quantity to the change in price.
E) divide the quantity by the price.
Topic: Price elasticity of demand
Skill: Level 2: Using definitions
Section: Checkpoint 5.1
Status: Old
AACSB: Reflective thinking
7) If the price of a good rises, then moving along a demand curve the percentage change in the quantity demanded will be
A) positive.
B) negative.
C) zero.
D) either positive, negative, or zero depending on how the demand curve shifted.
E) undefined.
Topic: Percentage change
Skill: Level 2: Using definitions
Section: Checkpoint 5.1
Status: Old
AACSB: Reflective thinking
8) If we ignore the negative or positive sign, the midpoint method of calculating a percentage change in price between two points on a demand curve results in
A) a smaller percentage change if the price rises than if it falls.
B) the same percentage, regardless of whether the price increases or decreases.
C) the price elasticity of demand.
D) the price elasticity of supply.
E) a higher percentage change if the price rises than if it falls.
Topic: Midpoint formula
Skill: Level 2: Using definitions
Section: Checkpoint 5.1
Status: Old
AACSB: Reflective thinking
9) Suppose the price of a box of cereal rises from $4 to $6. Using the midpoint method, what is the percentage change in price?
A) 50 percent
B) 40 percent
C) 33 percent
D) 67 percent
E) None of the above answers is correct.
Topic: Midpoint formula
Skill: Level 2: Using definitions
Section: Checkpoint 5.1
Status: Old
AACSB: Analytical thinking
10) Suppose the price of a DVD rose from $15 to $17 and the quantity demanded decreased from 1,000 per month to 900 per month. Using the midpoint formula, the ________ percent change in price lead to a ________ percent change in the quantity demanded.
A) 12.5; 10.5
B) 13.3; 10.0
C) 11.8; 11.1
D) 8.0; 9.5
E) None of the above answers is correct.
Topic: Midpoint formula
Skill: Level 2: Using definitions
Section: Checkpoint 5.1
Status: Old
AACSB: Analytical thinking
11) Suppose the local university charges $85 per credit hour. If tuition increases from $85 to $93 per credit hour, using the midpoint method, what is the percentage change in price?
A) 8.99 percent
B) 8.00 percent
C) 9.41 percent
D) 8.62 percent
E) 9.12 percent
Topic: Midpoint formula
Skill: Level 3: Using models
Section: Checkpoint 5.1
Status: Old
AACSB: Analytical thinking
12) Using the midpoint method, if the price of an airline ticket from Orlando to Pittsburgh falls from $275 to $238, the percentage change in price is
A) 1442 percent.
B) 14.42 percent.
C) 15.54 percent.
D) 13.45 percent.
E) 68.00 percent.
Topic: Midpoint formula
Skill: Level 3: Using models
Section: Checkpoint 5.1
Status: Old
AACSB: Analytical thinking
13) If the demand for a good is elastic, then
A) people do not change the quantity they demand when the price of the good changes.
B) a change in price leads to a smaller percentage change in the quantity demanded.
C) people substantially decrease the quantity of the good they buy if its price increases by a small percentage.
D) a change in the quantity demanded is smaller than the change in price.
E) the quantity demanded divided by the price exceeds 1.00.
Topic: Elastic demand
Skill: Level 2: Using definitions
Section: Checkpoint 5.1
Status: Old
AACSB: Reflective thinking
14) When the percentage change in the quantity demanded exceeds the percentage change in price, then demand is
A) inelastic.
B) unit elastic.
C) elastic.
D) irrelevant.
E) undefined.
Topic: Elastic demand
Skill: Level 1: Definition
Section: Checkpoint 5.1
Status: Old
AACSB: Analytical thinking
15) If the percentage change in price is 10 percent and the demand is elastic, then the percentage change in the quantity demanded
A) is greater than 0 percent but less than 10 percent.
B) is larger than 10 percent.
C) equals 0 percent.
D) equals 10 percent.
E) More information is needed to determine the magnitude of the change in the quantity demanded.
Topic: Elastic demand
Skill: Level 2: Using definitions
Section: Checkpoint 5.1
Status: Old
AACSB: Analytical thinking
16) If the price of a six-pack of Pepsi falls from $4 to $3 and the quantity purchased increases 80 percent, then demand is
A) inelastic.
B) elastic.
C) unit elastic.
D) perfectly inelastic.
E) perfectly elastic.
Topic: Elastic demand
Skill: Level 2: Using definitions
Section: Checkpoint 5.1
Status: Old
AACSB: Analytical thinking
17) Suppose the Chicago Bears football team raises ticket prices by 13 percent and as a result the quantity of tickets demanded decreases by 21 percent. This response means that the demand for Bears tickets is
A) inelastic.
B) elastic.
C) unit elastic.
D) perfectly inelastic.
E) perfectly elastic.
Topic: Elastic demand
Skill: Level 2: Using definitions
Section: Checkpoint 5.1
Status: Old
AACSB: Analytical thinking
18) If the price elasticity of demand for moose hunting lessons is 4.23, then the demand for moose hunting lessons is
A) elastic.
B) unit elastic.
C) inelastic.
D) perfectly unit elastic.
E) perfectly elastic.
Topic: Elastic demand
Skill: Level 2: Using definitions
Section: Checkpoint 5.1
Status: Old
AACSB: Analytical thinking
19) Suppose the demand for peaches sold from one roadside stand in Georgia is perfectly elastic. As a result, a 7 percent increase in the price charged by the owner of this stand leads to
A) zero peaches sold by this stand.
B) no change in the quantity demanded at this stand.
C) a 7 percent decrease in the quantity demanded at this stand.
D) a 7 percent decrease in demand at this stand.
E) a virtually infinite increase in the quantity demanded at this stand.
Topic: Perfectly elastic demand
Skill: Level 2: Using definitions
Section: Checkpoint 5.1
Status: Old
AACSB: Analytical thinking
20) When the percentage change in the quantity demanded is less than the percentage change in price, then demand is
A) inelastic.
B) unit elastic.
C) elastic.
D) irrelevant.
E) undefined.
Topic: Inelastic demand
Skill: Level 1: Definition
Section: Checkpoint 5.1
Status: Old
AACSB: Analytical thinking
21) Suppose the San Francisco 49ers lower ticket prices by 15 percent and as a result the quantity of tickets demanded increases by 10 percent. This set of results shows that San Francisco 49ers tickets have
A) an inelastic demand.
B) an elastic demand.
C) a unit elastic demand.
D) an inelastic supply.
E) an elastic supply.
Topic: Price elasticity of demand
Skill: Level 2: Using definitions
Section: Checkpoint 5.1
Status: Old
AACSB: Analytical thinking
22) If the percentage change in the quantity demanded is not zero but is less than the percentage change in the price, demand is
A) elastic.
B) inelastic.
C) unit elastic.
D) perfectly elastic.
E) perfectly inelastic.
Topic: Inelastic demand
Skill: Level 2: Using definitions
Section: Checkpoint 5.1
Status: Old
AACSB: Analytical thinking
23) If the price elasticity of demand for razors is 0.32, the demand for razors is
A) elastic.
B) unit elastic.
C) inelastic.
D) perfectly inelastic.
E) perfectly elastic.
Topic: Inelastic demand
Skill: Level 1: Definition
Section: Checkpoint 5.1
Status: Old
AACSB: Analytical thinking
24) Perfectly inelastic demand means that consumers
A) are willing to buy any quantity of the good at a given price, but none at higher prices.
B) decrease their consumption as price rises.
C) increase their consumption as price rises.
D) will buy a certain quantity, regardless of price.
E) will buy a huge, almost infinite amount more, if the price falls just a little.
Topic: Perfectly inelastic demand
Skill: Level 2: Using definitions
Section: Checkpoint 5.1
Status: Old
AACSB: Reflective thinking
25) Suppose the demand for rescue services in our national parks is perfectly inelastic. This fact would mean that a 31 percent increase in rescue fees leads to
A) a 31 percent decrease in the quantity demanded.
B) a 31 percent increase in demand.
C) a 31 percent decrease in demand.
D) no change in the quantity demanded.
E) a decrease in the quantity demanded to 0 rescues.
Topic: Perfectly inelastic demand
Skill: Level 2: Using definitions
Section: Checkpoint 5.1
Status: Old
AACSB: Reflective thinking
26) When the percentage change in the quantity demanded equals the percentage change in price, then demand is
A) inelastic.
B) unit elastic.
C) elastic.
D) irrelevant.
E) undefined.
Topic: Unit elastic demand
Skill: Level 1: Definition
Section: Checkpoint 5.1
Status: Old
AACSB: Analytical thinking
27) If the price elasticity of demand for opera tickets in Orlando is 1.00, then the demand for opera tickets in Orlando is
A) unit elastic.
B) elastic.
C) perfectly inelastic.
D) inelastic.
E) perfectly elastic.
Topic: Unit elastic demand
Skill: Level 1: Definition
Section: Checkpoint 5.1
Status: Old
AACSB: Analytical thinking
28) Suppose a local photographer increases his prices by 8 percent and quantity demanded decreases by the same percentage. This set of facts indicates that the demand for his services is
A) inelastic.
B) elastic.
C) unit elastic.
D) perfectly elastic.
E) perfectly inelastic.
Topic: Unit elastic demand
Skill: Level 2: Using definitions
Section: Checkpoint 5.1
Status: Old
AACSB: Analytical thinking
29) Which of the following does NOT influence the price elasticity of demand?
A) the amount by which the demand curve shifts when the price of another good changes
B) the number of substitutes available to consumers
C) the price of the good relative to total income
D) the time period buyers have to respond to a price change
E) whether the good is a necessity or a luxury
Topic: Factors that influence the price elasticity of demand
Skill: Level 2: Using definitions
Section: Checkpoint 5.1
Status: Old
AACSB: Reflective thinking
30) If a substitute good is easy to find, then demand for a good is
A) elastic.
B) inelastic.
C) unit elastic.
D) perfectly inelastic.
E) Substitutes don't have any effect on elasticity.
Topic: Elasticity, substitutes
Skill: Level 2: Using definitions
Section: Checkpoint 5.1
Status: Old
AACSB: Reflective thinking
31) The demand for a good is more elastic if the
A) good is a necessity.
B) good has few substitutes.
C) good is narrowly defined.
D) supply of the good is plentiful.
E) Both answers B and C are correct.
Topic: Elasticity, substitutes
Skill: Level 2: Using definitions
Section: Checkpoint 5.1
Status: Old
AACSB: Reflective thinking
32) If a good has many close substitutes, then its demand is most likely
A) elastic.
B) inelastic.
C) unit elastic.
D) perfectly inelastic.
E) elastic or inelastic depending on whether the price of the good is increasing or decreasing.
Topic: Elasticity, substitutes
Skill: Level 1: Definition
Section: Checkpoint 5.1
Status: Old
AACSB: Reflective thinking
33) If a product is narrowly defined, it is likely to
A) have many substitutes and therefore its demand is elastic.
B) have few substitutes, and therefore its demand is less elastic.
C) be unique, and therefore its demand is inelastic.
D) be unique and have many substitutes.
E) have a larger proportion of income spent on it.
Topic: Elasticity, substitutes
Skill: Level 1: Definition
Section: Checkpoint 5.1
Status: Old
AACSB: Reflective thinking
34) Of the following, which good has the most elastic demand?
A) food
B) breakfast food
C) cereal
D) Post Raisin Bran
E) Post Raisin Brand purchased at a Safeway grocery store
Topic: Elasticity, substitutes
Skill: Level 2: Using definitions
Section: Checkpoint 5.1
Status: Old
AACSB: Reflective thinking
35) The demand for Dasani bottled water in New York City would be ________. The demand for bottled water in the Sahara Desert would be ________.
A) elastic; inelastic
B) unit elastic; inelastic
C) elastic; unit elastic
D) inelastic; elastic
E) inelastic; inelastic
Topic: Elasticity, substitutes
Skill: Level 2: Using definitions
Section: Checkpoint 5.1
Status: Old
AACSB: Application of knowledge
36) All of the following statements are true EXCEPT
A) the demand for food is less elastic than the demand for a Hawaiian vacation.
B) the demand for clothing is less elastic than the demand for blue jeans.
C) the demand for gasoline is more elastic the longer the time elapsed.
D) the smaller the proportion of income spent on a good, the more inelastic demand will be.
E) the demand for Nike running shoes is less elastic than the demand for shoes.
Topic: Price elasticity of demand
Skill: Level 5: Critical thinking
Section: Checkpoint 5.1
Status: Old
AACSB: Analytical thinking
37) The price elasticity of demand for Red Delicious apples, a certain type of apple, is likely
A) elastic.
B) inelastic.
C) perfectly elastic.
D) perfectly inelastic.
E) unit elastic.
Topic: Elasticity, substitutes
Skill: Level 2: Using definitions
Section: Checkpoint 5.1
Status: Old
AACSB: Reflective thinking
38) Which of the following statements is correct?
A) The demand for New Balance shoes is more elastic than the demand for shoes in general.
B) The demand for salt is very elastic.
C) The demand for luxuries is less elastic than the demand for necessities.
D) The demand for a narrowly defined good is less elastic than the demand for a more broadly defined good.
E) The larger the proportion of income spent on a good, the smaller the elasticity of demand.
Topic: Elasticity, substitutes
Skill: Level 2: Using definitions
Section: Checkpoint 5.1
Status: Old
AACSB: Reflective thinking
39) One reason why the demand for gasoline is inelastic is because
A) substitutes for gas abound.
B) substitutes for gas are hard to find.
C) gasoline is a luxury item.
D) people have a long time to shop around for automobiles that use less gas.
E) buses run on diesel fuel rather than gasoline.
Topic: Elasticity, substitutes
Skill: Level 2: Using definitions
Section: Checkpoint 5.1
Status: Old
AACSB: Reflective thinking
40) The longer the time that has elapsed since the price of a good changed, the
A) more elastic the demand for that good.
B) steeper the demand curve.
C) less elastic the demand for that good.
D) smaller the amount of that good bought.
E) fewer substitutes available for the good.
Topic: Elasticity, time since the price changed
Skill: Level 2: Using definitions
Section: Checkpoint 5.1
Status: Old
AACSB: Reflective thinking
41) As more time passes, the price elasticity of gasoline
A) increases.
B) decreases.
C) stays the same.
D) becomes perfectly inelastic.
E) becomes perfectly elastic.
Topic: Elasticity, time since the price changed
Skill: Level 2: Using definitions
Section: Checkpoint 5.1
Status: Old
AACSB: Reflective thinking
42) Demand for a product tends to be more elastic the longer the time period considered because
A) sellers have more time to expand production.
B) buyers have more time to search for substitutes.
C) price increases over time make the price larger relative to buyers' incomes.
D) the inverse relationship between the price and the quantity demanded weakens over time.
E) buyers get used to the new price.
Topic: Elasticity, time since the price changed
Skill: Level 2: Using definitions
Section: Checkpoint 5.1
Status: Old
AACSB: Reflective thinking
43) The long-run price elasticity of demand for electricity is ________ the short-run price elasticity of demand for electricity.
A) greater than
B) less than
C) equal to
D) not comparable to
E) unrelated to
Topic: Elasticity, time since the price changed
Skill: Level 2: Using definitions
Section: Checkpoint 5.1
Status: Old
AACSB: Reflective thinking
44) A product's price elasticity of demand is likely to be greater
A) if it only has a few substitutes.
B) if consumers spend a small proportion of income on the product.
C) the less time consumers have to adjust to price changes.
D) if the product is a luxury good rather than a necessity.
E) Both answers C and D are correct.
Topic: Elasticity, luxury good
Skill: Level 2: Using definitions
Section: Checkpoint 5.1
Status: Old
AACSB: Reflective thinking
45) The demand for luxury suites at basketball games is more elastic if
A) these suites are a necessity.
B) these suites are a luxury item.
C) few close substitutes exist for these suites.
D) basketball fans have little time to look for alternative suites.
E) poorer fans cannot afford luxury suites.
Topic: Elasticity, luxury good
Skill: Level 2: Using definitions
Section: Checkpoint 5.1
Status: Old
AACSB: Reflective thinking
46) The demand for a necessity generally is
A) very elastic.
B) infinitely elastic.
C) unaffected by income.
D) inelastic.
E) unit elastic.
Topic: Elasticity, necessities
Skill: Level 2: Using definitions
Section: Checkpoint 5.1
Status: Old
AACSB: Reflective thinking
47) The demand for necessities generally is ________ the demand for luxury goods.
A) as elastic as
B) more elastic than
C) less elastic than
D) flatter than
E) not comparable to
Topic: Elasticity, necessities
Skill: Level 2: Using definitions
Section: Checkpoint 5.1
Status: Old
AACSB: Reflective thinking
48) If a good is a necessity, it has ________ substitutes and its demand is ________.
A) poor; elastic
B) poor; inelastic
C) many; elastic
D) many; inelastic
E) many; precisely unit elastic
Topic: Elasticity, necessities
Skill: Level 2: Using definitions
Section: Checkpoint 5.1
Status: Old
AACSB: Reflective thinking
49) You are more sensitive to a change in price if you
A) spend a lot of your income on the good.
B) spend a small percentage of your income on the good.
C) buy very little of the good.
D) do not buy the good regularly.
E) have a very inelastic demand for the good.
Topic: Elasticity, fraction of income
Skill: Level 2: Using definitions
Section: Checkpoint 5.1
Status: Old
AACSB: Reflective thinking
50) We calculate the price elasticity of demand as the
A) ratio of the percentage change in the quantity demanded to the percentage change in price.
B) change in quantity divided by the change in price.
C) ratio of the percentage change in the price to the percentage change in quantity.
D) percentage change in the quantity demanded divided by the percentage change in income.
E) equilibrium quantity divided by the equilibrium price.
Topic: Price elasticity of demand, formula
Skill: Level 2: Using definitions
Section: Checkpoint 5.1
Status: Old
AACSB: Reflective thinking
51) What is the formula for the price elasticity of demand? The percentage change in the
A) quantity demanded divided by the percentage change in the price of a substitute or complement.
B) quantity supplied divided by the percentage change in price.
C) quantity demanded divided by the percentage change in price.
D) quantity demanded divided by the percentage change in income.
E) equilibrium quantity demanded divided by the equilibrium price.
Topic: Price elasticity of demand, formula
Skill: Level 2: Using definitions
Section: Checkpoint 5.1
Status: Old
AACSB: Reflective thinking
52) Demand is price inelastic if ________ percentage change in the price leads to a ________ percentage change in the quantity demanded.
A) a small; large
B) a large; small
C) any; large
D) Both answers A and B are correct.
E) None of the above answers is correct.
Topic: Price elasticity of demand, formula
Skill: Level 2: Using definitions
Section: Checkpoint 5.1
Status: Old
AACSB: Reflective thinking
53) If a 10 percent price increase generates a 10 percent decrease in quantity demanded, then demand is
A) unit elastic.
B) elastic.
C) perfectly inelastic.
D) perfectly elastic.
E) inelastic.
Topic: Price elasticity of demand, formula
Skill: Level 3: Using models
Section: Checkpoint 5.1
Status: Old
AACSB: Analytical thinking
54) If a 10 percent price increase generates a 20 percent decrease in quantity demanded, then demand is
A) elastic.
B) perfectly inelastic.
C) perfectly elastic.
D) inelastic.
E) unit elastic.
Topic: Price elasticity of demand, formula
Skill: Level 3: Using models
Section: Checkpoint 5.1
Status: Old
AACSB: Analytical thinking
55) If a 30 percent price increase generates a 20 percent decrease in quantity demanded, then demand is
A) inelastic.
B) elastic.
C) unit elastic.
D) perfectly elastic.
E) perfectly inelastic.
Topic: Price elasticity of demand, formula
Skill: Level 3: Using models
Section: Checkpoint 5.1
Status: Old
AACSB: Analytical thinking
56) The price of furnace filters increased by 5 percent and the quantity demanded did not change. The price elasticity of demand for furnace filters is
A) perfectly inelastic.
B) inelastic.
C) elastic.
D) unit elastic.
E) perfectly elastic.
Topic: Price elasticity of demand, formula
Skill: Level 3: Using models
Section: Checkpoint 5.1
Status: Old
AACSB: Analytical thinking
57) If a 2 percent change in price leads to a ________ percent change in the quantity demanded, then demand is ________.
A) 2; elastic
B) 1; unit elastic
C) 3; inelastic
D) 1; inelastic
E) 0; perfectly elastic
Topic: Price elasticity of demand, formula
Skill: Level 3: Using models
Section: Checkpoint 5.1
Status: Old
AACSB: Analytical thinking
58) If a 2 percent change in price leads to a ________ percent change in the quantity demanded, then demand is ________.
A) 2; elastic
B) 1; unit elastic
C) 3; inelastic
D) 4; elastic
E) 0; perfectly elastic
Topic: Price elasticity of demand, formula
Skill: Level 3: Using models
Section: Checkpoint 5.1
Status: Old
AACSB: Analytical thinking
59) If the price elasticity of demand for a good is 2, then a 10 percent increase in the price of that good ________ the quantity demanded by ________ percent.
A) increases; 20
B) decreases; 2
C) decreases; 10
D) decreases; 20
E) increases; 8
Topic: Price elasticity of demand, formula
Skill: Level 3: Using models
Section: Checkpoint 5.1
Status: Old
AACSB: Analytical thinking
60) When the price of tacos rise 4 percent, the quantity demanded decreases 10 percent. What is the price elasticity of demand for tacos?
A) 40.0
B) 25.0
C) 0.4
D) 2.5
E) 10.0
Topic: Price elasticity of demand, formula
Skill: Level 3: Using models
Section: Checkpoint 5.1
Status: Old
AACSB: Analytical thinking
61) When we use the midpoint method to compute the price elasticity of demand we use
A) the original quantity and the average price.
B) the original price and the average quantity.
C) the average price and the average quantity.
D) either the original or new price, and the average quantity.
E) the average price and the original quantity.
Topic: Price elasticity of demand
Skill: Level 1: Definition
Section: Checkpoint 5.1
Status: Old
AACSB: Reflective thinking
62) Suppose the price of a ticket to an Imagine Dragons concert is $41 and at that price, the quantity of tickets demanded is 17,000 per concert. If Imagine Dragons raises the price to $48 and the quantity demanded decreases to 16,000, the price elasticity of demand for the concert tickets at the midpoint between these two prices is
A) 15.73.
B) 6.06.
C) 1.00.
D) 0.39.
E) 0.93.
Topic: Price elasticity of demand, formula
Skill: Level 3: Using models
Section: Checkpoint 5.1
Status: Old
AACSB: Analytical thinking
63) When the price of a burrito increases from $2 to $4, the quantity demanded decreases from 50 to 40. At the midpoint between these two prices, the price elasticity of demand equals
A) 1/3.
B) 3.
C) 2.
D) 1.
E) 1/2.
Topic: Price elasticity of demand, formula
Skill: Level 3: Using models
Section: Checkpoint 5.1
Status: Old
AACSB: Analytical thinking
64) When the price of a taco decreases from $5 to $3, the quantity demanded increases from 600,000 to 1,000,000 copies each month. At the midpoint between these two prices, the price elasticity of demand equals
A) 1.
B) 3.
C) 2.
D) 1/3.
E) 1/2.
Topic: Price elasticity of demand, formula
Skill: Level 3: Using models
Section: Checkpoint 5.1
Status: Old
AACSB: Analytical thinking
65) If a 4 percent change in the price of a good leads to a 3 percent change in quantity demanded, the price elasticity of demand equals
A) 1.33.
B) 0.75.
C) 4.00.
D) 3.44.
E) None of the above answers is correct.
Topic: Price elasticity of demand, formula
Skill: Level 3: Using models
Section: Checkpoint 5.1
Status: Old
AACSB: Analytical thinking
66) A 10 percent increase in price leads to a 20 percent decrease in the quantity demanded. The price elasticity of demand is equal to
A) 0.5.
B) 1.0.
C) 2.0.
D) 20.0.
E) 10.0.
Topic: Price elasticity of demand, formula
Skill: Level 2: Using definitions
Section: Checkpoint 5.1
Status: Old
AACSB: Analytical thinking
67) A firm can sell 10 units if the price is $100 and can sell 8 units if the price is $125. At the midpoint between these two prices, what is the price elasticity of demand?
A) 0.75
B) 1.00
C) 1.25
D) 0.50
E) 0.0
Topic: Price elasticity of demand, formula
Skill: Level 3: Using models
Section: Checkpoint 5.1
Status: Old
AACSB: Analytical thinking
68) When the price of a cup of coffee falls from $3.00 to $2.50, the quantity demanded increases from 1,000 per month to 1,150 per month. At the midpoint between these two prices, the price elasticity of demand is
A) 0.77.
B) 1.30.
C) 0.07.
D) 3.00.
E) 2.50.
Topic: Price elasticity of demand, formula
Skill: Level 3: Using models
Section: Checkpoint 5.1
Status: Old
AACSB: Analytical thinking
69) During last year the price of regular unleaded gasoline in Oakland, California increased 11.0 percent. If the price elasticity of demand for gasoline was 0.13, the price hike means that the quantity demanded decreased by
A) 1.43 percent.
B) 8.46 percent.
C) 0.16 percent.
D) 4.31 percent.
E) 6.46 percent.
Topic: Price elasticity of demand, formula
Skill: Level 3: Using models
Section: Checkpoint 5.1
Status: Old
AACSB: Analytical thinking
70) If the price elasticity of demand for a product is 2.5, then a price increase of 1.5 percent decreases the quantity demanded by
A) 1.55 percent.
B) 3.50 percent.
C) 5.00 percent.
D) 3.75 percent.
E) 1.00 percent.
Topic: Price elasticity of demand, formula
Skill: Level 3: Using models
Section: Checkpoint 5.1
Status: Old
AACSB: Analytical thinking
71) Suppose the University of Oklahoma increases the price of student football tickets for the 2012 season by 30 percent. If the price elasticity of demand for student tickets is 1.22, the price increase leads to
A) a 36.6 percent decrease in the quantity demanded.
B) a 30 percent decrease in the quantity demanded.
C) a 1.22 percent decrease in the quantity demanded.
D) 28.78 percent decrease in the quantity demanded.
E) no change in the quantity demanded.
Topic: Price elasticity of demand, formula
Skill: Level 3: Using models
Section: Checkpoint 5.1
Status: Old
AACSB: Analytical thinking
72) Using the data in the table above, when the price of a skirt rises from $20 to $35, what is the price elasticity of demand?
A) 0.33
B) 0.25
C) 1.00
D) 1.33
E) 3.00
Topic: Price elasticity of demand, formula
Skill: Level 3: Using models
Section: Checkpoint 5.1
Status: Old
AACSB: Analytical thinking
73) Using the data in the table above, the demand for skirts is
A) elastic.
B) unit elastic.
C) inelastic.
D) indeterminate.
E) perfectly inelastic.
Topic: Price elasticity of demand
Skill: Level 3: Using models
Section: Checkpoint 5.1
Status: Old
AACSB: Analytical thinking
74) The data in the table above give two points on the demand curve for pizza. Using the midpoint method, when the price of a pizza falls from $10 to $9, what is the percentage change in price?
A) 8.2 percent
B) 15.5 percent
C) 10.5 percent
D) 5.0 percent
E) 1.0 percent
Topic: Midpoint formula
Skill: Level 3: Using models
Section: Checkpoint 5.1
Status: Old
AACSB: Analytical thinking
75) The data in the table above give two points on the demand curve for pizza. Using the midpoint method, when the price of a pizza falls from $10 to $9, what is the percentage change in the quantity demanded?
A) 22.2 percent
B) 10.0 percent
C) 15.5 percent
D) 5.2 percent
E) 25 percent
Topic: Midpoint formula
Skill: Level 3: Using models
Section: Checkpoint 5.1
Status: Old
AACSB: Analytical thinking
76) The data in the table above give two points on the demand curve for pizza. When the price of a pizza falls from $10 to $9, at the midpoint between these two prices what is the price elasticity of demand?
A) 0.5
B) 0.6
C) 0.9
D) 2.1
E) 8.6
Topic: Price elasticity of demand, formula
Skill: Level 3: Using models
Section: Checkpoint 5.1
Status: Old
AACSB: Analytical thinking
Price (dollars) | Quantity |
10 | 0 |
9 | 1 |
8 | 2 |
7 | 3 |
6 | 4 |
5 | 5 |
4 | 6 |
3 | 7 |
2 | 8 |
1 | 9 |
77) Using the table above, what is the price elasticity of demand at the midpoint between the prices of $9 and $7?
A) 1/4
B) 1
C) 2
D) 4
E) 6
Topic: Price elasticity of demand, formula
Skill: Level 3: Using models
Section: Checkpoint 5.1
Status: Old
AACSB: Analytical thinking
78) Using the table above, what is the price elasticity of demand at the midpoint between the prices of $6 and $4?
A) 1
B) 3/2
C) 2/3
D) 2
E) 4
Topic: Price elasticity of demand, formula
Skill: Level 3: Using models
Section: Checkpoint 5.1
Status: Old
AACSB: Analytical thinking
79) Using the table above, the elasticity of demand is equal to 1 at a price of
A) $8.
B) $6.
C) $5.
D) $3.
E) $1.
Topic: Price elasticity of demand, linear demand curve
Skill: Level 3: Using models
Section: Checkpoint 5.1
Status: Old
AACSB: Analytical thinking
80) The figure shows a demand curve. Using the midpoint method, between point A to point B is a ________ change in price and a ________ change in quantity.
A) 2.22 percent; 66.7 percent
B) $2; 2 unit
C) 2.20 percent; 100 percent
D) 2.25 percent; 50 percent
E) 20 percent; 40 percent
Topic: Elasticity formula
Skill: Level 2: Using definitions
Section: Checkpoint 5.1
Status: Old
AACSB: Analytical thinking
81) The figure shows a demand curve. The price elasticity of demand at the midpoint between points A and B equals
A) 0.033.
B) 1.00.
C) 2.00.
D) 30.0
E) 0.022.
Topic: Elasticity formula
Skill: Level 2: Using definitions
Section: Checkpoint 5.1
Status: Old
AACSB: Analytical thinking
82) The figure above shows a demand curve. Using the midpoint formula, between point A and point B the percentage change in the quantity demanded is ________ the percentage change in the price, which means that the elasticity of demand is ________.
A) equal to; unit elastic
B) more than; inelastic
C) more than; elastic
D) less than; elastic
E) less than; inelastic
Topic: Elasticity formula
Skill: Level 2: Using definitions
Section: Checkpoint 5.1
Status: Old
AACSB: Application of knowledge
83) Tickets to a Beyonce concert increase from $90 to $110. As a result, tickets sales fall from 100,000 to 80,000. Using the midpoint formula, the percentage change in _______which means that the elasticity of demand is ________.
A) quantity demanded is greater than the percent change in price; elastic
B) quantity supplied is greater than the percent change in price; elastic
C) price is greater than the change in demand; inelastic
D) price is greater than the change in supply; inelastic
E) quantity demanded equals the percent change in price; unit elastic
Topic: Elastic, inelastic, and unit elastic demand
Skill: Level 2: Using definitions
Section: Checkpoint 5.1
Status: Old
AACSB: Application of knowledge
84) Ticket prices to a Kanye West concert increase from $40 to $60. As a result, ticket sales decrease from 50,000 to 40,000. At the midpoint between these two prices, the elasticity of demand for Kanye West tickets equals ________ and demand is ________.
A) 1.8; elastic
B) 0.55; inelastic
C) 0,22; inelastic
D) 0.40; inelastic
E) 5.0; elastic
Topic: Elastic, inelastic, and unit elastic demand
Skill: Level 2: Using definitions
Section: Checkpoint 5.1
Status: Old
AACSB: Application of knowledge
85) Ticket prices to a Kanye West concert increase from $40 to $60. As a result, ticket sales decrease from 50,000 to 40,000. Total revenue changes from ________ and demand is ________.
A) $2 million to $2.4 million; elastic
B) $40 to $60; elastic
C) $2 million to $2.4 million; inelastic
D) $2.4 million to $2 million; elastic
E) $1.6 million to $3 million; elastic
Topic: Total revenue test
Skill: Level 2: Using definitions
Section: Checkpoint 5.1
Status: Old
AACSB: Application of knowledge
86) In the figure above, the price elasticity of demand at the midpoint between $8 and $7 is equal to
A) 2.50.
B) 1.63.
C) 0.40.
D) 0.62.
E) 1.00.
Topic: Price elasticity of demand, formula
Skill: Level 3: Using models
Section: Checkpoint 5.1
Status: Old
AACSB: Analytical thinking
87) In the figure above, the price elasticity of demand at the midpoint between $7 and $6 is equal to
A) 2.50.
B) 1.63.
C) 0.40.
D) 0.62.
E) 1.00.
Topic: Price elasticity of demand, formula
Skill: Level 3: Using models
Section: Checkpoint 5.1
Status: Old
AACSB: Analytical thinking
88) In the figure above, the price elasticity of demand at the midpoint between $6 and $5 is equal to
A) 2.50.
B) 1.63.
C) 1.10.
D) 0.91.
E) 1.00.
Topic: Price elasticity of demand, formula
Skill: Level 3: Using models
Section: Checkpoint 5.1
Status: Old
AACSB: Analytical thinking
89) In the mid-1970s, Newsweek magazine reported that the city of Atlanta lowered its city bus fares from 40 cents to 15 cents a passenger. The number of bus riders increased by 15 percent after the fare cut. This set of results indicates that the demand for bus rides in Atlanta at that time was
A) unit elastic.
B) perfectly inelastic.
C) elastic.
D) inelastic.
E) perfectly elastic.
Topic: Price elasticity of demand, formula
Skill: Level 4: Applying models
Section: Checkpoint 5.1
Status: Old
AACSB: Analytical thinking
90) When hamburger is $3 per pound, Ms. Rush buys 6 pounds. When hamburger is $2 per pound, Ms. Rush buys 10 pounds. Describe Ms. Rush's demand at the midpoint between these two prices.
A) elastic
B) unit elastic
C) inelastic
D) perfectly inelastic
E) perfectly elastic
Topic: Price elasticity of demand, formula
Skill: Level 3: Using models
Section: Checkpoint 5.1
Status: Old
AACSB: Analytical thinking
91) Economists use elasticity to measure the responsiveness of quantity to a change in price rather than the slope of the demand curve because elasticity is
A) independent of the units of measurement.
B) dependent on the units of measurement.
C) easier to calculate.
D) harder to calculate.
E) always negative whereas the slope is always positive.
Topic: Slope and elasticity
Skill: Level 2: Using definitions
Section: Checkpoint 5.1
Status: Old
AACSB: Reflective thinking
92) Which of the following is correct?
i. All linear demand curves have a constant slope and a constant price elasticity of demand.
ii. The price elasticity of demand changes while moving along a downward-sloping linear demand curve.
iii. The magnitude of the slope of all linear demand curves is equal to the price elasticity of demand.
A) i only
B) ii only
C) iii only
D) i and ii
E) i, ii, and iii
Topic: Price elasticity of demand, linear demand curve
Skill: Level 2: Using definitions
Section: Checkpoint 5.1
Status: Old
AACSB: Reflective thinking
93) Moving downward along a linear (straight-line) downward sloping demand curve, the
A) slope is constant.
B) price is constant.
C) quantity is constant.
D) elasticity is constant.
E) None of the above answers is correct.
Topic: Price elasticity of demand, linear demand curve
Skill: Level 2: Using definitions
Section: Checkpoint 5.1
Status: Old
AACSB: Reflective thinking
94) The figure shows a demand curve. The price elasticity of demand at point C = 1.00.
If the price increases from $20 to $25, total revenue will
A) decrease because demand is elastic.
B) decrease because demand is unit elastic.
C) increase because the price has doubled.
D) increase because demand is inelastic.
E) more information is needed to determine what will happen to total revenue.
Topic: Total revenue test
Skill: Level 2: Using definitions
Section: Checkpoint 5.1
Status: Old
AACSB: Application of knowledge
95) The figure shows a demand curve. The price elasticity at point C equals 1.00.
Suppose the price falls from $10 to $5. As a result, total revenue will
A) increase because demand is inelastic.
B) decrease because demand is unit elastic.
C) decrease because demand is inelastic.
D) not change because the price change is too small.
E) increase because demand is elastic.
Topic: Total revenue test
Skill: Level 2: Using definitions
Section: Checkpoint 5.1
Status: Old
AACSB: Application of knowledge
96) Moving downward along a linear (straight-line) downward-sloping demand curve, the
A) price elasticity of demand does not change.
B) quantity demanded decreases.
C) demand becomes more elastic.
D) demand becomes less elastic.
E) total revenue never changes.
Topic: Price elasticity of demand, linear demand curve
Skill: Level 3: Using models
Section: Checkpoint 5.1
Status: Old
AACSB: Reflective thinking
97) As you move up along a straight-line demand curve
A) the price elasticity of demand decreases in size.
B) the price elasticity of demand increases in size.
C) total revenue always decreases.
D) total revenue always increases.
E) total revenue never changes.
Topic: Price elasticity of demand, linear demand curve
Skill: Level 3: Using models
Section: Checkpoint 5.1
Status: Old
AACSB: Reflective thinking
98) Which of the following statements is correct for the price elasticity of demand along a linear, downward-sloping demand curve?
A) The price elasticity of demand is constant because the slope is constant.
B) At low prices, demand is elastic but at high prices demand is inelastic.
C) At high prices, demand is elastic but at low prices demand is inelastic.
D) The price elasticity of demand is not defined for a linear demand curve because the slope is constant.
E) None of the above answers is correct.
Topic: Price elasticity of demand, linear demand curve
Skill: Level 2: Using definitions
Section: Checkpoint 5.1
Status: Old
AACSB: Reflective thinking
99) At the midpoint of a linear, downward-sloping demand curve, the price elasticity of demand is
A) greater than one.
B) equal to one.
C) less than one but greater than zero.
D) zero.
E) infinite.
Topic: Price elasticity of demand, linear demand curve
Skill: Level 2: Using definitions
Section: Checkpoint 5.1
Status: Old
AACSB: Reflective thinking
100) Along a linear (straight-line) downward-sloping demand curve, demand is unit elastic at
A) the highest price.
B) the lowest price.
C) the midpoint.
D) all points on the linear demand curve.
E) None of the above because linear demand curves are never unit elastic.
Topic: Price elasticity of demand, linear demand curve
Skill: Level 3: Using models
Section: Checkpoint 5.1
Status: Old
AACSB: Reflective thinking
101) The price of the good multiplied by the quantity sold is its
A) total revenue.
B) total cost.
C) total spending.
D) total income.
E) total quantity.
Topic: Total revenue
Skill: Level 1: Definition
Section: Checkpoint 5.1
Status: Old
AACSB: Reflective thinking
102) Total revenue equals
A) price × quantity sold.
B) profit - cost.
C) price.
D) quantity sold - cost.
E) cost × price.
Topic: Total revenue
Skill: Level 1: Definition
Section: Checkpoint 5.1
Status: Old
AACSB: Reflective thinking
103) The total revenue test says
i. Demand is elastic if a decrease in price results in an increase in total revenue.
ii. Total revenue is maximized when demand is elastic.
iii. Total revenue is minimized when demand is unit elastic.
A) i only
B) i and ii
C) ii and iii
D) i, ii and iii
E) ii only
Topic: Elasticity and total revenue
Skill: Level 2: Using definitions
Section: Checkpoint 5.1
Status: Old
AACSB: Reflective thinking
104) If demand is price inelastic and the price is lowered, which of the following occurs?
A) The quantity sold decreases.
B) The total expenditure increases and the total revenue decreases.
C) The total revenue of the firms selling the product is unchanged.
D) The total revenue of the firms selling the product decreases.
E) The total expenditure decreases and the total revenue increases.
Topic: Elasticity and total revenue
Skill: Level 2: Using definitions
Section: Checkpoint 5.1
Status: Old
AACSB: Reflective thinking
105) If demand is inelastic and the price falls, the total revenue
A) rises.
B) falls.
C) remains constant.
D) might rise, fall, or remain constant.
E) becomes negative.
Topic: Elasticity and total revenue
Skill: Level 2: Using definitions
Section: Checkpoint 5.1
Status: Old
AACSB: Reflective thinking
106) Total revenue increases if the price of the good
A) rises and demand is elastic.
B) rises and demand is inelastic.
C) rises and demand is unit elastic.
D) falls and supply is inelastic.
E) falls and demand is unit elastic.
Topic: Elasticity and total revenue
Skill: Level 3: Using models
Section: Checkpoint 5.1
Status: Old
AACSB: Reflective thinking
107) If the supply of a good decreases and it causes total revenue to increase, this shows that the good has an
A) inelastic demand.
B) elastic demand.
C) unit elastic demand.
D) inelastic supply.
E) elastic supply.
Topic: Elasticity and total revenue
Skill: Level 5: Critical thinking
Section: Checkpoint 5.1
Status: Old
AACSB: Analytical thinking
108) You own a small store. Your cashier thinks you should raise prices to increase your total revenue and your customer thinks you should lower prices to increase your total revenue. The cashier thinks the price elasticity of demand is ________ and the customer believes the price elasticity of demand is ________.
A) inelastic; elastic
B) elastic; inelastic
C) elastic; elastic
D) inelastic; inelastic
E) unit elastic; elastic
Topic: Elasticity and total revenue
Skill: Level 3: Using models
Section: Checkpoint 5.1
Status: Old
AACSB: Reflective thinking
109) Products X, Y, and Z have price elasticities of 3.0, 0.80, and 1.0 respectively. Total revenue decreases if the price of
A) product X falls.
B) product Y falls.
C) product Z falls.
D) product X or product Z falls.
E) product Y or product Z falls.
Topic: Elasticity and total revenue
Skill: Level 3: Using models
Section: Checkpoint 5.1
Status: Old
AACSB: Analytical thinking
110) If a 2 percent rise in price leads to a 4 percent decrease in quantity demanded, then demand is
A) elastic and total revenue decreases.
B) elastic and total revenue increases.
C) inelastic and total revenue decreases.
D) elastic, but we cannot tell what happens to total revenue without more information.
E) Total revenue decreases but we cannot tell if the demand is elastic or inelastic without more information.
Topic: Elasticity and total revenue
Skill: Level 3: Using models
Section: Checkpoint 5.1
Status: Old
AACSB: Analytical thinking
111) If the demand for insulin is inelastic, an increase in insulin prices leads to
A) less total revenue for insulin makers.
B) more total revenue for insulin makers.
C) no change in total revenue for insulin makers.
D) first a decrease, then an increase in total revenue for insulin makers.
E) Total revenue probably changes, but we need more information about the change in total expenditures on insulin to determine if the total revenue rises, falls, or stays the same.
Topic: Elasticity and total revenue
Skill: Level 2: Using definitions
Section: Checkpoint 5.1
Status: Old
AACSB: Analytical thinking
112) If the price elasticity of demand for gasoline equals 0.3, then an increase in the price of a gallon of gasoline from $3.70 to $3.90
A) decreases total revenue.
B) increases total revenue.
C) leads to no change in total revenue.
D) makes the demand for gasoline elastic.
E) Both answers B and D are correct.
Topic: Elasticity and total revenue
Skill: Level 2: Using definitions
Section: Checkpoint 5.1
Status: Old
AACSB: Analytical thinking
113) If a Pizza Hut raises the price of a slice of pizza from $3.00 to $3.25, the quantity demanded decreases from 1,500 slices per week to 1,300 slices per week. The demand for slices of pizza is ________ and the total revenue received by this Pizza Hut ________.
A) elastic; decreases
B) inelastic; decreases
C) elastic; increases
D) inelastic; increases
E) unit elastic; does not change
Topic: Elasticity and total revenue
Skill: Level 3: Using models
Section: Checkpoint 5.1
Status: Old
AACSB: Analytical thinking
114) If an Atlanta bakery raises the price of their rye bread by 11 percent and the quantity demanded decreases by 11 percent, then the demand for the rye bread is ________ and the bakery's total revenue ________.
A) unit elastic; does not change
B) unit elastic; increases
C) unit elastic; decreases
D) elastic; does not change
E) inelastic; does not change
Topic: Elasticity and total revenue
Skill: Level 2: Using definitions
Section: Checkpoint 5.1
Status: Old
AACSB: Analytical thinking
115) Suppose the Oakland Raiders football team increases their season ticket prices and total revenue from ticket sales falls, but not to zero. This fact means that the demand for Raiders tickets is
A) inelastic.
B) elastic.
C) unit elastic.
D) perfectly elastic.
E) perfectly inelastic.
Topic: Elasticity and total revenue
Skill: Level 2: Using definitions
Section: Checkpoint 5.1
Status: Old
AACSB: Reflective thinking
116) After long hair for men became popular, barbers found that their incomes fell. In an attempt to boost their incomes, many barbers raised the price of a haircut and yet their total revenue fell even more. What can explain this result?
A) The demand for haircuts by barbers is elastic because of many substitutes.
B) The demand for haircuts by barbers became inelastic after the increase in price.
C) Haircuts are inferior products.
D) The demand for haircuts by barbers is inelastic because most people need haircuts.
E) None of the above can explain the phenomenon.
Topic: Elasticity and total revenue
Skill: Level 4: Applying models
Section: Checkpoint 5.1
Status: Old
AACSB: Reflective thinking
117) Taco Bell raises the price of its tacos. The price elasticity of demand for Taco Bell tacos equals 5.0. What happens to the Taco Bell's total revenue?
A) nothing
B) It increases.
C) It decreases.
D) It becomes negative.
E) It might change, but more information is needed to determine if it increases, decreases, or does not change.
Topic: Elasticity and total revenue
Skill: Level 2: Using definitions
Section: Checkpoint 5.1
Status: Old
AACSB: Analytical thinking
118) Pizza Hut lowers the price of its pizza. The price elasticity of demand for Pizza Hut pizza equals 0.3. What happens to the Pizza Hut's total revenue?
A) nothing
B) It increases.
C) It decreases.
D) It becomes negative.
E) It might change, but more information is needed to determine if it increases, decreases, or does not change.
Topic: Elasticity and total revenue
Skill: Level 2: Using definitions
Section: Checkpoint 5.1
Status: Old
AACSB: Analytical thinking
119) KFC raises the price of its grilled chicken. The price elasticity of demand for KFC grilled chicken is 0.8. What happens to the KFC's total revenue?
A) nothing
B) It increases.
C) It decreases.
D) It becomes negative.
E) It might change, but more information is needed to determine if it increases, decreases, or does not change.
Topic: Elasticity and total revenue
Skill: Level 2: Using definitions
Section: Checkpoint 5.1
Status: Old
AACSB: Analytical thinking
120) A Minnesota snowmobile dealer lowers its prices in February by 16 percent and the quantity demanded increases by 2 percent. Thus the demand for snowmobiles from this dealer is ________ and the dealer's total revenue will ________.
A) elastic; increase
B) elastic; decrease
C) inelastic; increase
D) inelastic; decrease
E) unit elastic; decrease
Topic: Elasticity and total revenue
Skill: Level 2: Using definitions
Section: Checkpoint 5.1
Status: Old
AACSB: Analytical thinking
121) In the figure above, what is the total revenue at point A?
A) $20
B) $150
C) $170
D) $3,000
E) 150 quantity units
Topic: Total revenue
Skill: Level 3: Using models
Section: Checkpoint 5.1
Status: Old
AACSB: Analytical thinking
122) In the figure above, what is the price elasticity of demand at the midpoint between points A and B?
A) 0.05
B) 0.13
C) 0.43
D) 1.00
E) 2.33
Topic: Price elasticity of demand, formula
Skill: Level 3: Using models
Section: Checkpoint 5.1
Status: Old
AACSB: Analytical thinking
123) In the figure above, what happens to total revenue as we move from point A to point B?
A) It increases.
B) It decreases.
C) It remains constant.
D) It becomes negative.
E) More information about the elasticity of demand is needed to determine if it increases, decreases, or does not change.
Topic: Elasticity and total revenue
Skill: Level 3: Using models
Section: Checkpoint 5.1
Status: Old
AACSB: Analytical thinking
124) In the figure above, what is the price elasticity of demand at the midpoint between $8 and $7?
A) 4.0
B) 5.0
C) 0.5
D) 0.4
E) 0.25
Topic: Price elasticity of demand, formula
Skill: Level 3: Using models
Section: Checkpoint 5.1
Status: Old
AACSB: Analytical thinking
125) In the figure above, at the midpoint between $8 and $7, demand is
A) elastic.
B) inelastic.
C) unit elastic.
D) income elastic.
E) perfectly elastic.
Topic: Total revenue test
Skill: Level 3: Using models
Section: Checkpoint 5.1
Status: Old
AACSB: Analytical thinking
126) In the figure above, when the price falls from $8 to $7, total revenue
A) increases from $120 to $210 so demand is elastic.
B) decreases from $210 to $120 so demand is inelastic.
C) increases from $120 to $210 so demand is inelastic.
D) decreases from $210 to $120 so demand is elastic.
E) increases from $120 to $210, but more information is needed to determine whether demand is elastic, inelastic, or unit elastic.
Topic: Total revenue test
Skill: Level 3: Using models
Section: Checkpoint 5.1
Status: Old
AACSB: Analytical thinking
127) A firm raises the price it charges. The firm's total revenue decreases. What can we conclude about the price elasticity of demand?
A) Demand is elastic.
B) Demand is unit elastic.
C) Demand is inelastic.
D) Demand is perfectly inelastic.
E) Not enough information is given to conclude anything about price elasticity of demand.
Topic: Total revenue test
Skill: Level 2: Using definitions
Section: Checkpoint 5.1
Status: Old
AACSB: Reflective thinking
128) A firm raises the price it charges. The firm's total revenue does not change. What can we conclude about the price elasticity of demand?
A) Demand is elastic.
B) Demand is unit elastic.
C) Demand is inelastic.
D) Demand is perfectly elastic.
E) Not enough information is given to conclude anything about price elasticity of demand.
Topic: Total revenue test
Skill: Level 2: Using definitions
Section: Checkpoint 5.1
Status: Old
AACSB: Reflective thinking
129) A firm lowers the price it charges. The firm's total revenue decreases. What can we conclude about the price elasticity of demand?
A) Demand is elastic.
B) Demand is unit elastic.
C) Demand is inelastic.
D) Demand is perfectly elastic.
E) Not enough information is given to conclude anything about price elasticity of demand.
Topic: Total revenue test
Skill: Level 2: Using definitions
Section: Checkpoint 5.1
Status: Old
AACSB: Reflective thinking
130) If, when the price falls, total revenue increases, demand is
A) elastic.
B) inelastic.
C) unit elastic.
D) perfectly inelastic.
E) None of the above answers is correct because total revenue always decreases when the price of the good falls.
Topic: Total revenue test
Skill: Level 2: Using definitions
Section: Checkpoint 5.1
Status: Old
AACSB: Reflective thinking
131) The price elasticity of demand for an agricultural product is 0.4. This value means that, when the quantity decreases 1 percent, the price
A) falls 4 percent.
B) rises 4 percent.
C) falls 2.5 percent.
D) rises 2.5 percent.
E) rises 0.25 percent.
Topic: Farm revenue and elasticity
Skill: Level 4: Applying models
Section: Checkpoint 5.1
Status: Old
AACSB: Analytical thinking
132) The price elasticity of demand is a measure of the extent to which the quantity demanded of a good changes when ________ and all other influences on buyers' plans remain the same.
A) income changes
B) the price of a related good changes
C) the price of the good changes
D) the demand alone changes
E) both the demand and the supply simultaneously change
Topic: Price elasticity of demand
Skill: Level 1: Definition
Section: Checkpoint 5.1
Status: Old
AACSB: Reflective thinking
133) Suppose the price of a movie falls from $9 to $7. Using the midpoint method, what is the percentage change in price?
A) 33 percent
B) -33 percent
C) 25 percent
D) -25 percent
E) -97 percent
Topic: Midpoint formula
Skill: Level 2: Using definitions
Section: Checkpoint 5.1
Status: Old
AACSB: Analytical thinking
134) Suppose the price of a tie rises from $45 to $55. Using the midpoint method, what is the percentage change in price?
A) 10 percent
B) -10 percent
C) 20 percent
D) -20 percent
E) 100 percent
Topic: Midpoint formula
Skill: Level 2: Using definitions
Section: Checkpoint 5.1
Status: Old
AACSB: Analytical thinking
135) Demand is elastic if
A) consumers respond strongly to changes in the product's price.
B) a large percentage change in price brings about a small percentage change in quantity demanded.
C) a small percentage change in price brings about a small percentage change in quantity demanded.
D) the quantity demanded is not responsive to price changes.
E) the demand curve is vertical.
Topic: Elastic demand
Skill: Level 2: Using definitions
Section: Checkpoint 5.1
Status: Old
AACSB: Reflective thinking
136) During the winter of 2014-2015, the price of fuel oil increased enormously but the quantity demanded decreased only a little. This response indicates that the demand for fuel oil was
A) inelastic.
B) elastic.
C) unit elastic.
D) perfectly elastic.
E) perfectly inelastic.
Topic: Inelastic demand
Skill: Level 2: Using definitions
Section: Checkpoint 5.1
Status: Old
AACSB: Reflective thinking
137) If substitutes for a good are readily available, the demand for that good
A) does not change substantially if the price rises.
B) does not change substantially if the price falls.
C) is inelastic.
D) is elastic.
E) Both answers A and B are correct.
Topic: Elasticity, substitutes
Skill: Level 2: Using definitions
Section: Checkpoint 5.1
Status: Old
AACSB: Reflective thinking
138) If the price of a product increases by 5 percent and the quantity demanded decreases by 5 percent, then the elasticity of demand is
A) 0.
B) 1.
C) indeterminate.
D) 5.
E) 25.
Topic: Price elasticity of demand, formula
Skill: Level 2: Using definitions
Section: Checkpoint 5.1
Status: Old
AACSB: Analytical thinking
139) The price of a bag of pretzels rises from $2 to $3 and the quantity demanded decreases from 100 to 60. At the midpoint between these two prices, what is the price elasticity of demand?
A) 1.0
B) 1.25
C) 40.0
D) 20.0
E) 0.80
Topic: Price elasticity of demand, formula
Skill: Level 3: Using models
Section: Checkpoint 5.1
Status: Old
AACSB: Analytical thinking
140) When a firm raises the price of its product, what happens to its total revenue?
A) If demand is elastic, total revenue decreases.
B) If demand is unit elastic, total revenue increases.
C) If demand is inelastic, total revenue decreases.
D) If demand is elastic, total revenue increases.
E) If demand is unit elastic, total revenue decreases.
Topic: Elasticity and total revenue
Skill: Level 3: Using models
Section: Checkpoint 5.1
Status: Old
AACSB: Reflective thinking
141) In Tanzania a larger proportion of income is spent on food compared to Canada.
As a result, we'd expect the price elasticity of demand for food to be
A) greater in Canada.
B) greater in Tanzania.
C) equal in both countries because food is a necessity.
D) unrelated because the prices are different.
E) negative in Tanzania and positive in Canada.
Topic: Elasticity, fraction of income
Skill: Level 5: Critical thinking
Section: Checkpoint 5.1
Status: Old
AACSB: Reflective thinking
142) The price elasticity of demand for product A is 2.32. The price elasticity of demand for product Z is 0.12.
This difference could be due to the fact that
A) there are many good substitutes for product A and few substitutes for product Z.
B) there are many good substitutes for product Z and few substitutes for product A.
C) Product A is a necessity and product Z is a luxury.
D) Product Z is a necessity and product A is a luxury.
E) Both A and D are correct.
Topic: Elasticity, substitutes
Skill: Level 5: Critical thinking
Section: Checkpoint 5.1
Status: Old
AACSB: Reflective thinking
143) Product Z has a price elasticity of demand of 2.5. This means that
i. There are few substitutes for product Z.
ii. Consumers spend only a small portion of their income on product Z.
iii. If the price of product Z increases, the total amount spent on the good will decrease.
A) iii only
B) i, ii and iii
C) i and iii
D) ii only
E) ii and iii
Topic: Elastic demand
Skill: Level 2: Using definitions
Section: Checkpoint 5.1
Status: Old
AACSB: Analytical thinking
5.2 The Price Elasticity of Supply
1) What is measured by the price elasticity of supply?
A) The price elasticity of supply measures how responsive producers are to changes in the price of other goods.
B) The price elasticity of supply measures how responsive producers are to changes in income.
C) The price elasticity of supply measures how responsive producers are to changes in the price of a product.
D) The price elasticity of supply is a measure of the slope of the supply curve.
E) The price elasticity of supply measures how responsive producers are to changes in the cost of producing a product.
Topic: Price elasticity of supply
Skill: Level 1: Definition
Section: Checkpoint 5.2
Status: Old
AACSB: Reflective thinking
2) The price elasticity of supply measures
A) the percentage change in supply from a percentage change in demand.
B) the extent to which the quantity supplied of a good changes when the price of a good changes, other things remaining the same.
C) the slope of the supply curve.
D) how the equilibrium price changes in response to a change in the equilibrium quantity supplied.
E) Both answers B and C are correct.
Topic: Price elasticity of supply
Skill: Level 1: Definition
Section: Checkpoint 5.2
Status: Old
AACSB: Reflective thinking
3) The price elasticity of supply is always a positive value because
i. there is a direct relationship between the price and the quantity supplied.
ii. as the equilibrium price increases, the equilibrium quantity also always increases.
iii. buyers are willing to pay a higher price for larger quantities.
A) i only
B) ii only
C) iii only
D) i and ii
E) ii and iii
Topic: Price elasticity of supply
Skill: Level 2: Using definitions
Section: Checkpoint 5.2
Status: Old
AACSB: Reflective thinking
4) If the percentage change in the price of a good exceeds the percentage change in the quantity supplied, then the supply is
A) elastic.
B) inelastic.
C) unit elastic.
D) perfectly elastic.
E) perfectly inelastic.
Topic: Price elasticity of supply, formula
Skill: Level 2: Using definitions
Section: Checkpoint 5.2
Status: Old
AACSB: Analytical thinking
5) When the percentage change in the quantity supplied equals the percentage change in price, the supply is
A) elastic.
B) inelastic.
C) unit elastic.
D) perfectly elastic.
E) perfectly inelastic.
Topic: Price elasticity of supply, unit elastic
Skill: Level 1: Definition
Section: Checkpoint 5.2
Status: Old
AACSB: Analytical thinking
6) When the percentage change in the quantity supplied is less than the percentage change in price, the supply is
A) elastic.
B) inelastic.
C) unit elastic.
D) perfectly unit elastic.
E) perfectly elastic.
Topic: Price elasticity of supply, inelastic
Skill: Level 1: Definition
Section: Checkpoint 5.2
Status: Old
AACSB: Analytical thinking
7) The figure above shows the supply curve for a good with
A) a perfectly elastic supply.
B) a perfectly inelastic supply.
C) an elastic supply.
D) an inelastic supply.
E) a unit elastic supply.
Topic: Price elasticity of supply
Skill: Level 3: Using models
Section: Checkpoint 5.2
Status: Old
AACSB: Analytical thinking
8) If a small percentage change in the price brings a very large percentage change in the quantity supplied, then the supply is almost perfectly ________ and the supply curve is almost ________.
A) elastic; vertical
B) elastic; horizontal
C) inelastic; horizontal
D) inelastic; vertical
E) elastic; 45 degrees
Topic: Price elasticity of supply, elastic
Skill: Level 2: Using definitions
Section: Checkpoint 5.2
Status: Old
AACSB: Analytical thinking
9) The figure above shows the supply curve for a good with
A) a perfectly elastic supply.
B) a perfectly inelastic supply.
C) an elastic supply.
D) an inelastic supply.
E) a unit elastic supply.
Topic: Price elasticity of supply, perfectly elastic
Skill: Level 3: Using models
Section: Checkpoint 5.2
Status: Old
AACSB: Analytical thinking
10) If the supply curve is ________, the elasticity of supply is ________.
A) vertical; infinite
B) vertical; 0
C) horizontal; 1
D) horizontal; 0
E) a straight, upward sloping line through the origin; 0
Topic: Price elasticity of supply, perfectly inelastic
Skill: Level 3: Using models
Section: Checkpoint 5.2
Status: Old
AACSB: Reflective thinking
11) The fact that there is a very limited amount of land in Hong Kong means the supply of new apartments in Hong Kong is
A) inelastic.
B) elastic.
C) unit elastic.
D) perfectly elastic.
E) limited by the demand.
Topic: Price elasticity of supply, production possibilities
Skill: Level 2: Using definitions
Section: Checkpoint 5.2
Status: Old
AACSB: Reflective thinking
12) The opportunity cost of producing a good rises only slightly as the quantity produced increases. This good has
A) an inelastic demand.
B) an elastic demand.
C) an elastic supply.
D) an inelastic supply.
E) a perfectly elastic supply.
Topic: Price elasticity of supply, production possibilities
Skill: Level 2: Using definitions
Section: Checkpoint 5.2
Status: Old
AACSB: Reflective thinking
13) For a product with a constant or gently increasing opportunity cost of producing additional units, as more is produced, we expect that
A) demand is price elastic.
B) supply is price elastic.
C) demand is price inelastic.
D) supply is price inelastic.
E) demand is unit elastic.
Topic: Price elasticity of supply, production possibilities
Skill: Level 2: Using definitions
Section: Checkpoint 5.2
Status: Old
AACSB: Reflective thinking
14) For which of the following would the supply likely be most inelastic?
A) aircraft carrier
B) canned soup
C) toy airplane
D) t-shirt
E) bottled water
Topic: Price elasticity of supply, production possibilities
Skill: Level 5: Critical thinking
Section: Checkpoint 5.2
Status: Old
AACSB: Analytical thinking
15) Suppose a good can be produced using commonly available resources. The elasticity of supply is
A) negative.
B) greater than zero but less than 1.
C) greater than 1.
D) zero.
E) More information is needed to make a determination about the size of the elasticity of supply.
Topic: Price elasticity of supply, production possibilities
Skill: Level 2: Using definitions
Section: Checkpoint 5.2
Status: Old
AACSB: Reflective thinking
16) If wheat can be produced at a constant opportunity cost, then the supply of wheat is
A) elastic.
B) inelastic.
C) unit elastic.
D) perfectly inelastic.
E) perfectly elastic.
Topic: Price elasticity of supply, production possibilities
Skill: Level 2: Using definitions
Section: Checkpoint 5.2
Status: Old
AACSB: Analytical thinking
17) Which of the following explains why supply is more elastic as more time passes?
A) It is difficult or impossible to increase the quantity produced in a short period of time.
B) Consumers have more time to search for substitutes.
C) Sellers try to take advantage of a high price in the short term.
D) The supply curve becomes generally steeper as more time passes.
E) There is no explanation for this phenomenon.
Topic: Factors that influence the price elasticity of supply
Skill: Level 2: Using definitions
Section: Checkpoint 5.2
Status: Old
AACSB: Reflective thinking
18) One reason why the price elasticity of supply for tablets is greater than one is that
A) the cost of producing a tablet is small.
B) tablets cannot be stored.
C) tablets can be easily stored.
D) the demand for tablets is fairly large.
E) tablets require relatively advanced technology for their production.
Topic: Factors that influence the price elasticity of supply
Skill: Level 2: Using definitions
Section: Checkpoint 5.2
Status: Old
AACSB: Reflective thinking
19) Running shoes are likely to have a ________ elasticity of supply compared to bananas because ________.
A) higher; shoes are easier to store compared to bananas
B) lower; shoes are easier to store compared to bananas
C) lower; as incomes increase people are more likely to buy running shoes
D) higher; as incomes increase people are more likely to buy running shoes
E) similar; both goods are easily produced
Topic: Factors that influence the price elasticity of supply
Skill: Level 2: Using definitions
Section: Checkpoint 5.2
Status: Old
AACSB: Application of knowledge
20) If the price elasticity of supply for a good is 0.75, then
A) the percentage change in the quantity supplied is less than the percentage change in price.
B) the supply is elastic.
C) an increase in the price boosts the quantity supplied by a larger percentage.
D) the supply is inelastic so the demand must also be inelastic.
E) None of the above answers is correct.
Topic: Price elasticity of supply, formula
Skill: Level 3: Using models
Section: Checkpoint 5.2
Status: Old
AACSB: Analytical thinking
21) It is very difficult for Gourmet Chocolatier to find inexpensive and available inputs for the business. Because of this, we predict that Gourmet Chocolatier's supply to be
A) inelastic.
B) perfectly elastic.
C) elastic.
D) unit elastic.
E) nonexistent.
Topic: Price elasticity of supply, inelastic
Skill: Level 3: Using models
Section: Checkpoint 5.2
Status: Old
AACSB: Reflective thinking
22) The price of lumber increased by 10 percent and the quantity supplied increased by 20 percent. The supply of lumber is
A) inelastic.
B) perfectly elastic.
C) perfectly inelastic.
D) unit elastic.
E) elastic.
Topic: Price elasticity of supply, formula
Skill: Level 3: Using models
Section: Checkpoint 5.2
Status: Old
AACSB: Analytical thinking
23) Suppose a 20 percent increase in the price of gasoline results in a 25 percent increase in the quantity supplied. This response means that gasoline has
A) an elastic supply.
B) an inelastic supply.
C) a unit elastic supply.
D) an inelastic demand.
E) an elastic demand.
Topic: Price elasticity of supply, formula
Skill: Level 3: Using models
Section: Checkpoint 5.2
Status: Old
AACSB: Analytical thinking
24) The price of beef increased by 20 percent and the quantity supplied increased by 10 percent. The supply of beef is
A) elastic.
B) perfectly elastic.
C) perfectly inelastic.
D) inelastic.
E) unit elastic.
Topic: Price elasticity of supply, formula
Skill: Level 3: Using models
Section: Checkpoint 5.2
Status: Old
AACSB: Analytical thinking
25) If the price of corn increases by 20 percent and the quantity supplied of corn increases by 30 percent, then supply is
A) elastic and the elasticity of supply equals 1.5.
B) inelastic and the elasticity of supply equals 1.5.
C) elastic and the elasticity of supply equals 0.66.
D) inelastic and the elasticity of supply equals 0.66.
E) either elastic or inelastic, but more information about the elasticity of demand is needed to determine which.
Topic: Price elasticity of supply, formula
Skill: Level 3: Using models
Section: Checkpoint 5.2
Status: Old
AACSB: Analytical thinking
26) Suppose the current price of barley is $7 per bushel and at that price 100,000 bushels are grown by a Colorado farmer. If the price of barley rises to $8 and quantity supplied increases to 130,000 bushels, then at the midpoint between these two prices, the price elasticity of supply for barley equals
A) 13.33.
B) 26.78.
C) 1.96.
D) 0.51.
E) zero.
Topic: Price elasticity of supply, formula
Skill: Level 3: Using models
Section: Checkpoint 5.2
Status: Old
AACSB: Analytical thinking
27) Jess owns a sandwich shop. The price of a sandwich recently increased from $5 to $7. Jess responded by increasing the quantity of sandwiches she supplied from 70 to 90 per day. Then, at the midpoint between these two prices, Jess's price elasticity of supply is equal to
A) 1.33.
B) 0.75.
C) 3.00.
D) 4.00.
E) 1.50.
Topic: Price elasticity of supply, formula
Skill: Level 3: Using models
Section: Checkpoint 5.2
Status: Old
AACSB: Analytical thinking
28) The price of one bedroom apartments in Cheyenne increased from $55,000 to $65,000 and the quantity of apartment for sale increased from 25 to 30. At the midpoint between these two prices, the price elasticity of supply for apartments in Cheyenne is equal to
A) 0.916.
B) 0.75.
C) 1.09.
D) 2.18.
E) 0.08.
Topic: Price elasticity of supply, formula
Skill: Level 3: Using models
Section: Checkpoint 5.2
Status: Old
AACSB: Analytical thinking
29) Suppose an increase in demand causes the price to increase from $2 to $4 and the quantity to increase from 1,000 to 1,800. Then, at the midpoint between these two prices, the elasticity of supply equals
A) 0.86.
B) 1.17.
C) 2.74.
D) 0.68.
E) None of the above answers is correct.
Topic: Price elasticity of supply, formula
Skill: Level 3: Using models
Section: Checkpoint 5.2
Status: Old
AACSB: Analytical thinking
30) Suppose a decrease in demand causes the price to decrease from $4 to $3 and the quantity to decrease from 1,000 to 700. Then, at the midpoint between these two prices, the elasticity of supply equals
A) 0.81.
B) 1.24.
C) 2.83.
D) 0.18.
E) None of the above answers is correct.
Topic: Price elasticity of supply, formula
Skill: Level 3: Using models
Section: Checkpoint 5.2
Status: Old
AACSB: Analytical thinking
31) When the price of a product increases from $35 to $45, the quantity supplied increases from 30 units to 40 units per week. Then, at the midpoint between these two prices, the price elasticity of supply is
A) 0.00.
B) -1.1.
C) 1.14.
D) 1.35.
E) 0.88.
Topic: Price elasticity of supply, formula
Skill: Level 3: Using models
Section: Checkpoint 5.2
Status: Old
AACSB: Analytical thinking
32) If the price of a DVD falls from $20 to $12 and the quantity of DVDs supplied decreases from 118,000 per hour to 100,000 per hour, at the midpoint between these two prices the elasticity of supply equals
A) 0.33.
B) 2.94.
C) 3.08.
D) 0.23.
E) -3.08.
Topic: Price elasticity of supply, formula
Skill: Level 3: Using models
Section: Checkpoint 5.2
Status: Old
AACSB: Analytical thinking
33) If the price of a good decreases from $9 to $6 and the quantity supplied decreases from 1,500 to 1,300, at the midpoint between these two prices the elasticity of supply equals
A) 0.20.
B) 2.80.
C) 0.36.
D) 0.40.
E) 3.20.
Topic: Price elasticity of supply, formula
Skill: Level 3: Using models
Section: Checkpoint 5.2
Status: Old
AACSB: Analytical thinking
34) If the price doubles and the quantity supplied also doubles, the price elasticity of supply for the good is
A) -1.
B) 1.
C) -2.
D) 2.
E) 100 percent.
Topic: Price elasticity of supply, formula
Skill: Level 3: Using models
Section: Checkpoint 5.2
Status: Old
AACSB: Analytical thinking
35) If the price elasticity of supply for a good is 10, then supply is
A) elastic.
B) inelastic.
C) unit elastic.
D) perfectly elastic.
E) perfectly inelastic.
Topic: Price elasticity of supply, elastic
Skill: Level 1: Definition
Section: Checkpoint 5.2
Status: Old
AACSB: Reflective thinking
36) If the quantity supplied and the price change by the same percentage, then supply is
A) elastic.
B) inelastic.
C) unit elastic.
D) perfectly elastic.
E) perfectly inelastic.
Topic: Price elasticity of supply, unit elastic
Skill: Level 1: Definition
Section: Checkpoint 5.2
Status: Old
AACSB: Analytical thinking
37) Because the price elasticity of supply for jumbo jets is 0.35, the supply of jumbo jets is
A) elastic.
B) unit elastic.
C) inelastic.
D) perfectly elastic.
E) perfectly inelastic.
Topic: Price elasticity of supply, inelastic
Skill: Level 2: Using definitions
Section: Checkpoint 5.2
Status: Old
AACSB: Reflective thinking
38) If a 20 percent increase in the price of a good does NOT change the quantity supplied, the
A) supply is perfectly inelastic.
B) supply is unit elastic.
C) supply is perfectly elastic.
D) supply is elastic.
E) None of the above answers is correct.
Topic: Price elasticity of supply, perfectly inelastic
Skill: Level 2: Using definitions
Section: Checkpoint 5.2
Status: Old
AACSB: Reflective thinking
39) The price elasticity of supply is a measure of the extent to which the quantity supplied of a good changes when the
A) cost of producing the product increases.
B) quantity of the good demanded increases.
C) supply increases.
D) price changes.
E) number of firms supplying the good changes.
Topic: Price elasticity of supply
Skill: Level 1: Definition
Section: Checkpoint 5.2
Status: Old
AACSB: Reflective thinking
40) When the percentage change in the quantity supplied is twice the percentage change in price, then supply is
A) elastic.
B) inelastic.
C) unit elastic.
D) perfectly inelastic.
E) perfectly elastic.
Topic: Price elasticity of supply, elastic
Skill: Level 1: Definition
Section: Checkpoint 5.2
Status: Old
AACSB: Analytical thinking
41) The supply of beach front property on St. Simon's Island is
A) elastic.
B) unit elastic.
C) negative.
D) inelastic.
E) perfectly elastic.
Topic: Price elasticity of supply, production possibilities
Skill: Level 2: Using definitions
Section: Checkpoint 5.2
Status: Old
AACSB: Reflective thinking
42) Goods that can be produced at a constant or very gently rising opportunity cost have
A) an elastic demand.
B) an inelastic demand.
C) an inelastic supply.
D) an elastic supply.
E) a unit elastic demand.
Topic: Price elasticity of supply, production possibilities
Skill: Level 2: Using definitions
Section: Checkpoint 5.2
Status: Old
AACSB: Reflective thinking
43) For a product with a rapidly increasing opportunity cost of producing additional units
A) demand is price elastic.
B) supply is price elastic.
C) demand is price inelastic.
D) supply is price inelastic.
E) the demand curve is vertical.
Topic: Price elasticity of supply, production possibilities
Skill: Level 2: Using definitions
Section: Checkpoint 5.2
Status: Old
AACSB: Reflective thinking
44) The greater the amount of time that passes after a price change, the
A) less elastic supply becomes.
B) more elastic supply becomes.
C) more negative supply becomes.
D) steeper the supply curve becomes.
E) None of the above answers is correct.
Topic: Price elasticity of supply, time elapsed after a price change
Skill: Level 2: Using definitions
Section: Checkpoint 5.2
Status: Old
AACSB: Reflective thinking
45) Many manufactured goods have an ________ supply if production plans have only a short period to change and as time passes and all production adjustments are made, the supply of the good ________ from the initial response.
A) inelastic; increases
B) elastic; decreases
C) elastic; increases
D) inelastic; decreases
E) inelastic; does not change
Topic: Price elasticity of supply, time elapsed after a price change
Skill: Level 2: Using definitions
Section: Checkpoint 5.2
Status: Old
AACSB: Reflective thinking
46) When the price of a textbook is $95, the quantity of textbooks supplied is 90 million a year and when the price rises to $105, the quantity of textbooks supplied is 110 million a year. At the midpoint between these two prices, the supply of textbooks is
A) elastic.
B) perfectly elastic.
C) inelastic.
D) perfectly inelastic.
E) unit elastic.
Topic: Price elasticity of supply, elastic
Skill: Level 3: Using models
Section: Checkpoint 5.2
Status: Old
AACSB: Analytical thinking
47) Supply is unit elastic when the
A) supply curve is upward sloping.
B) price elasticity of supply is positive.
C) percentage change in the quantity supplied equals the percentage change in price.
D) supply curve is horizontal.
E) supply curve is vertical.
Topic: Price elasticity of supply, unit elastic
Skill: Level 2: Using definitions
Section: Checkpoint 5.2
Status: Old
AACSB: Analytical thinking
48) When supply is perfectly inelastic, the supply curve is
A) upward sloping but not a straight line.
B) vertical.
C) downward sloping.
D) horizontal.
E) a straight line with a 45 degree slope that goes through the origin.
Topic: Price elasticity of supply, perfectly inelastic
Skill: Level 2: Using definitions
Section: Checkpoint 5.2
Status: Old
AACSB: Reflective thinking
49) The price elasticity of supply equals the percentage change in the
A) quantity demanded divided by the percentage change in the price of a substitute or complement.
B) quantity supplied divided by the percentage change in price.
C) quantity demanded divided by the percentage change in price.
D) supply divided by the percentage change in the demand.
E) quantity supplied divided by the percentage change in the quantity demanded.
Topic: Price elasticity of supply, formula
Skill: Level 2: Using definitions
Section: Checkpoint 5.2
Status: Old
AACSB: Reflective thinking
50) If a firm supplies 200 units at a price of $50 and 100 units at a price of $40, at the midpoint between these two prices what is the price elasticity of supply?
A) 0.33
B) 1.00
C) 3.00
D) 5.00
E) 8.50
Topic: Price elasticity of supply, formula
Skill: Level 3: Using models
Section: Checkpoint 5.2
Status: Old
AACSB: Analytical thinking
51) If the quantity supplied increases by 8 percent when the price rises by 2 percent, the price elasticity of supply is
A) 10.0.
B) 6.0.
C) 0.25.
D) 16.0.
E) 4.0.
Topic: Price elasticity of supply, formula
Skill: Level 3: Using models
Section: Checkpoint 5.2
Status: Old
AACSB: Analytical thinking
52) If the price of a a good increases by 10 percent and the quantity supplied increases by 5 percent, then the elasticity of supply is
A) greater than one and supply is elastic.
B) negative and supply is inelastic.
C) less than one and supply is elastic.
D) less than one and supply is inelastic.
E) greater than one and supply is inelastic.
Topic: Price elasticity of supply, formula
Skill: Level 2: Using definitions
Section: Checkpoint 5.2
Status: Old
AACSB: Analytical thinking
53) The figure shows two different supply curves. At the point where they cross, ________ is more likely to represent the short-run supply curve for airline seats, a good that has ________ supply.
A) S1; inelastic
B) S1; elastic
C) S2; elastic
D) S2; inelastic
E) S2; unit elastic
Topic: Elasticity of supply
Skill: Level 3: Using models
Section: Checkpoint 5.2
Status: Old
AACSB: Analytical thinking
54) The figure shows two different supply curves. At the point where they cross, ________ is more likely to represent the long-run supply curve for rice, a good that has ________ supply.
A) S2; inelastic
B) S2; elastic
C) S1; elastic
D) S1; inelastic
E) S1; unit elastic
Topic: Elasticity of supply
Skill: Level 3: Using models
Section: Checkpoint 5.2
Status: Old
AACSB: Analytical thinking
5.3 Cross Elasticity and Income Elasticity
1) The extent to which the demand for a good changes when the price of a substitute or complement changes, other things remaining the same, is measured as the
A) income elasticity of demand.
B) cross elasticity of demand.
C) price elasticity of demand.
D) price elasticity of supply.
E) cross income elasticity of demand.
Topic: Cross elasticity of demand
Skill: Level 1: Definition
Section: Checkpoint 5.3
Status: Old
AACSB: Reflective thinking
2) The cross elasticity of demand is a measure of how
A) responsive consumers are to changes in the price of a product.
B) responsive suppliers are to changes in the price of a product.
C) demand for a product changes when the price of a substitute or complement changes.
D) total revenue changes when the price of a product changes.
E) demand for a product changes when income changes.
Topic: Cross elasticity of demand
Skill: Level 1: Definition
Section: Checkpoint 5.3
Status: Old
AACSB: Reflective thinking
3) If we are trying to determine if two different products are substitutes, complements, or not related at all, we should find the value of the
A) price elasticity of demand for both goods.
B) price elasticity of supply for both goods.
C) income elasticity of demand for both goods.
D) cross elasticity of demand.
E) price elasticity of demand and the price elasticity of supply for both goods.
Topic: Cross elasticity of demand
Skill: Level 2: Using definitions
Section: Checkpoint 5.3
Status: Old
AACSB: Reflective thinking
4) If Microsoft wanted to prove to the Justice Department that its Windows software has many substitutes that personal computer owners can use, Microsoft hopes to find
A) that the demand for Windows' is inelastic.
B) that the demand for Windows is elastic.
C) a large positive value for the cross elasticity of Windows and other software.
D) a negative income elasticity for Windows.
E) a positive income elasticity for Windows.
Topic: Cross elasticity of demand, substitutes
Skill: Level 4: Applying models
Section: Checkpoint 5.3
Status: Old
AACSB: Reflective thinking
5) What is the formula for the cross elasticity of demand? The percentage change in the
A) quantity demanded divided by the percentage change in the price of a substitute or complement.
B) quantity supplied divided by the percentage change in price.
C) quantity demanded divided by the percentage change in price.
D) quantity demanded divided by the percentage change in income.
E) equilibrium quantity demanded divided by the equilibrium quantity supplied.
Topic: Cross elasticity of demand, formula
Skill: Level 2: Using definitions
Section: Checkpoint 5.3
Status: Old
AACSB: Reflective thinking
6) If a 1 percent increase in the price of X increases the quantity demanded of Y by 2 percent, then X and Y are
A) complements and the cross elasticity of demand equals 2.
B) substitutes and the cross elasticity of demand equals 1/2.
C) substitutes and the cross elasticity of demand equals 2.
D) complements and the income elasticity of demand equals 2.
E) normal goods and the income elasticity of demand of each equals 2.
Topic: Cross elasticity of demand, formula
Skill: Level 3: Using models
Section: Checkpoint 5.3
Status: Old
AACSB: Analytical thinking
7) The price of coffee rose 40 percent and the quantity of coffee demanded fell by 20 percent. The quantity of doughnuts demanded also fell by 20 percent. From this information, we can conclude that
A) the demand for coffee is elastic.
B) the demand for coffee is unit elastic.
C) coffee is an inferior good.
D) the cross elasticity demand between coffee and doughnuts is -0.5.
E) the income elasticity of demand for coffee is 2.
Topic: Cross elasticity of demand, formula
Skill: Level 4: Applying models
Section: Checkpoint 5.3
Status: Old
AACSB: Analytical thinking
8) The cross elasticity of demand for Good A and Good B is -0.7. This means that
A) if the price of Good A increases by 10 percent, the quantity demanded of Good B decreases by 7 percent.
B) if the price of Good A increases by 10 percent, the quantity demand of Good B increases by 7 percent.
C) the goods are substitutes.
D) the goods are complements.
E) both A and D are correct.
Topic: Cross elasticity of demand
Skill: Level 2: Using definitions
Section: Checkpoint 5.3
Status: Old
AACSB: Analytical thinking
9) The income elasticity of demand for electricity is 1.90. Suppose the economy improves and incomes are expected to increase by 10 percent. This means that
A) power companies can expect to sell 19 percent more electricity.
B) electricity demand is income inelastic.
C) consumers will try to find substitutes for electric power.
D) consumers will spend 19 percent of their income on electric power.
E) electricity is an inferior good.
Topic: Income elasticity of demand
Skill: Level 2: Using definitions
Section: Checkpoint 5.3
Status: Old
AACSB: Reflective thinking
10) If the price of a movie rises 3 percent and, as a result, the quantity demanded of streamed videos increases 6 percent, then the cross elasticity of demand is
A) 2.
B) 1/2.
C) -1/2.
D) -2.
E) 9.
Topic: Cross elasticity of demand, formula
Skill: Level 3: Using models
Section: Checkpoint 5.3
Status: Old
AACSB: Analytical thinking
11) Based on data in the table above, at the price midway between the two prices, what is the cross elasticity of demand for ice cream and cake?
A) The cross elasticity is -0.75.
B) The cross elasticity is -1.75.
C) The cross elasticity is -0.83.
D) The cross elasticity is -4.0.
E) The cross elasticity is -1.33.
Topic: Cross elasticity of demand, formula
Skill: Level 3: Using models
Section: Checkpoint 5.3
Status: Old
AACSB: Analytical thinking
12) Based on the data in the table above, ice cream and cake are ________ goods.
A) inferior
B) normal
C) substitute
D) complementary
E) Both answers B and D are correct.
Topic: Cross elasticity of demand, complements
Skill: Level 2: Using definitions
Section: Checkpoint 5.3
Status: Old
AACSB: Analytical thinking
13) Goods are ________ when the income elasticity of demand is positive.
A) complements
B) elastic
C) inferior
D) substitutes
E) normal
Topic: Cross elasticity of demand, substitutes
Skill: Level 2: Using definitions
Section: Checkpoint 5.3
Status: Old
AACSB: Reflective thinking
14) If the price of a Brita water filtration system increases and the quantity demanded of bottled water increases, then these two goods are
A) substitutes.
B) complements.
C) normal goods.
D) inferior goods.
E) inelastic goods.
Topic: Cross elasticity of demand, substitutes
Skill: Level 2: Using definitions
Section: Checkpoint 5.3
Status: Old
AACSB: Reflective thinking
15) The cross elasticity of demand for butter and margarine is likely to be
A) positive because they are substitutes.
B) positive because they are complements.
C) negative because they are substitutes.
D) negative because they are complements.
E) positive because they are normal goods.
Topic: Cross elasticity of demand, substitutes
Skill: Level 2: Using definitions
Section: Checkpoint 5.3
Status: Old
AACSB: Reflective thinking
16) Which of the following is correct?
A) The cross elasticity of demand for substitute goods is positive.
B) The cross elasticity of demand for substitute goods is negative.
C) The cross elasticity of demand equals the percentage change in demand divided by the percentage change in income.
D) The income elasticity of demand for a normal good is negative.
E) The cross elasticity of demand for normal goods is positive.
Topic: Cross elasticity of demand, substitutes
Skill: Level 1: Definition
Section: Checkpoint 5.3
Status: Old
AACSB: Reflective thinking
17) If the cross elasticity of demand between good A and good B is negative, then a decrease in the price of good A results in
A) an increase in the demand for good B.
B) a decrease in the demand for good B.
C) a movement downward along the demand curve for good B.
D) an increase in the supply of good B.
E) a decrease in the supply of good B.
Topic: Cross elasticity of demand, substitutes
Skill: Level 3: Using models
Section: Checkpoint 5.3
Status: Old
AACSB: Analytical thinking
18) Patrick lives near two gas stations, Exxon and Shell. If Exxon decreases the price of gas, we predict that the quantity of gasoline demanded at Shell will
A) decrease because Exxon and Shell gas are complements.
B) decrease because Exxon and Shell gas are substitutes.
C) increase because Exxon and Shell gas are substitutes.
D) increase because Exxon and Shell gas are complements.
E) not change Exxon and Shell are different brands of gasoline.
Topic: Cross elasticity of demand, substitutes
Skill: Level 2: Using definitions
Section: Checkpoint 5.3
Status: Old
AACSB: Reflective thinking
19) The cross elasticity of demand for strawberry jelly and grape jelly is likely to be
A) positive because they are substitutes.
B) positive because they are complements.
C) negative because they are substitutes.
D) negative because they are complements.
E) negative because they are inferior goods.
Topic: Cross elasticity of demand, substitutes
Skill: Level 5: Critical thinking
Section: Checkpoint 5.3
Status: Old
AACSB: Analytical thinking
20) If a lower price for a Pepsi decreases the demand for a Coke, the cross elasticity value for Pepsi and Coke is
A) definitely negative.
B) definitely equal to zero.
C) definitely positive.
D) definitely greater than one.
E) possibly negative, positive, or zero, but there is not enough information to decide.
Topic: Cross elasticity of demand, substitutes
Skill: Level 2: Using definitions
Section: Checkpoint 5.3
Status: Old
AACSB: Reflective thinking
21) If the cross elasticity of demand between Coke and Pepsi is 2.02, then Coke and Pepsi are
A) complements.
B) substitutes.
C) normal goods.
D) inferior goods.
E) Both answers B and C are correct.
Topic: Cross elasticity of demand, substitutes
Skill: Level 2: Using definitions
Section: Checkpoint 5.3
Status: Old
AACSB: Reflective thinking
22) If Pepsi goes on sale and decreases its price by 10 percent, and as a result, the quantity demanded of Coca Cola decreases by 5 percent, then Pepsi and Coke are ________ goods.
A) inferior
B) normal
C) substitute
D) complementary
E) unrelated
Topic: Cross elasticity of demand, substitutes
Skill: Level 3: Using models
Section: Checkpoint 5.3
Status: Old
AACSB: Reflective thinking
23) Tacos and pizza are substitutes. If a 2 percent change in the price of a taco leads to a 4 percent change in the demand for pizza, the cross elasticity of demand equals
A) -1/2.
B) 1/2.
C) 2.
D) -2.
E) 4.
Topic: Cross elasticity of demand, substitutes
Skill: Level 3: Using models
Section: Checkpoint 5.3
Status: Old
AACSB: Analytical thinking
24) Pete feeds his dog 100 percent more Pup-Peronis when Zuke's treats increase in price by 50 percent. For Pete, Pup-Peronis and Zuke's are ________ and the cross-price elasticity of demand is ________.
A) complements; -1/2
B) substitutes; 2
C) substitutes; -2
D) complements; 2
E) substitutes; 1/2
Topic: Cross elasticity of demand, substitutes
Skill: Level 3: Using models
Section: Checkpoint 5.3
Status: Old
AACSB: Analytical thinking
25) The cross elasticity between computers and software is
A) negative because they are substitutes.
B) positive because they are substitutes.
C) negative because they are complements.
D) positive because they are complements.
E) positive because they are normal goods.
Topic: Cross elasticity of demand, complements
Skill: Level 2: Using definitions
Section: Checkpoint 5.3
Status: Old
AACSB: Reflective thinking
26) If you know the cross elasticity between two goods is negative, then you know the goods are
A) substitutes.
B) normal goods.
C) complements.
D) inferior goods.
E) inelastic goods.
Topic: Cross elasticity of demand, complements
Skill: Level 2: Using definitions
Section: Checkpoint 5.3
Status: Old
AACSB: Reflective thinking
27) If the price of a one good increases and the quantity demanded of a different good decreases, then these two goods are
A) substitutes.
B) normal goods.
C) inferior goods.
D) inelastic goods.
E) complements.
Topic: Cross elasticity of demand, complements
Skill: Level 2: Using definitions
Section: Checkpoint 5.3
Status: Old
AACSB: Reflective thinking
28) If the cross elasticity of demand is negative, that means the goods
A) have elastic demands.
B) have inelastic demands.
C) are complements.
D) are substitutes.
E) are inferior.
Topic: Cross elasticity of demand, complements
Skill: Level 2: Using definitions
Section: Checkpoint 5.3
Status: Old
AACSB: Reflective thinking
29) When two goods are related such that an increase in the price of one good decreases the quantity demanded of the other good, these goods are definitely
A) normal goods.
B) luxury goods.
C) complements.
D) substitutes.
E) inferior goods.
Topic: Cross elasticity of demand, complements
Skill: Level 2: Using definitions
Section: Checkpoint 5.3
Status: Old
AACSB: Reflective thinking
30) If a lower price for good X increases the demand for good Y, the cross elasticity value for the two goods is
A) negative.
B) equal to zero.
C) positive and less than one.
D) positive and greater than one.
E) possibly negative, positive, or zero, but there is not enough information to decide.
Topic: Cross elasticity of demand, complements
Skill: Level 2: Using definitions
Section: Checkpoint 5.3
Status: Old
AACSB: Reflective thinking
31) If two goods are ________, then an increase in the price of one leads to ________ in the quantity demanded of the other.
A) complements; a decrease
B) complements; no change
C) substitutes; a decrease
D) substitutes; no change
E) normal; an increase
Topic: Cross elasticity of demand, complements
Skill: Level 2: Using definitions
Section: Checkpoint 5.3
Status: Old
AACSB: Reflective thinking
32) The cross elasticity of demand for blank DVDs and DVD burners is likely to be
A) positive because they are substitutes.
B) positive because they are complements.
C) negative because they are substitutes.
D) negative because they are complements.
E) negative because with the advent of digital cameras, film and film cameras are inferior goods.
Topic: Cross elasticity of demand, complements
Skill: Level 2: Using definitions
Section: Checkpoint 5.3
Status: Old
AACSB: Reflective thinking
33) If the cross elasticity of demand between car insurance and new cars is -0.41, then car insurance and new cars are
A) complements.
B) substitutes.
C) normal goods.
D) inferior goods.
E) unrelated goods.
Topic: Cross elasticity of demand, complements
Skill: Level 2: Using definitions
Section: Checkpoint 5.3
Status: Old
AACSB: Reflective thinking
34) If the cross elasticity of demand for DVD players and DVDs equals -2, then the products are
A) unrelated.
B) complements.
C) inferior goods.
D) substitutes.
E) normal goods.
Topic: Cross elasticity of demand, complements
Skill: Level 2: Using definitions
Section: Checkpoint 5.3
Status: Old
AACSB: Reflective thinking
35) Tennis balls and tennis rackets are complements. If a 3 percent change in the price of a tennis racket leads to a 9 change in the quantity of tennis balls demanded, the cross elasticity of demand equals
A) 3.
B) -3.
C) 1/3.
D) -1/3.
E) 9.
Topic: Cross elasticity of demand, complements
Skill: Level 3: Using models
Section: Checkpoint 5.3
Status: Old
AACSB: Analytical thinking
36) The income elasticity of demand is a measure of
A) how demand for a product changes when the price of a substitute or complement product changes.
B) how responsive consumers are to changes in the price of a product.
C) how responsive suppliers are to changes in the price of a product.
D) the extent to which the demand for a good changes when income changes.
E) the extent to which the supply of a good changes when the demand changes as a result of a change in income.
Topic: Income elasticity of demand
Skill: Level 2: Using definitions
Section: Checkpoint 5.3
Status: Old
AACSB: Reflective thinking
37) If the income elasticity of demand for a good is 2, then when income rises 10 percent, the quantity demanded
A) increases 2 percent.
B) increases 20 percent.
C) decreases 2 percent.
D) decreases 20 percent.
E) increases 12 percent.
Topic: Income elasticity of demand, formula
Skill: Level 3: Using models
Section: Checkpoint 5.3
Status: Old
AACSB: Analytical thinking
38) The income elasticity of demand is
A) positive for a normal good.
B) zero for an inferior good.
C) less than one for an income elastic normal good.
D) Only answers A and B are correct.
E) Answers A, B, and C are correct.
Topic: Income elasticity of demand, normal good
Skill: Level 2: Using definitions
Section: Checkpoint 5.3
Status: Old
AACSB: Reflective thinking
39) The income elasticity of demand is ________ if the good is ________ good.
A) positive; a normal
B) positive; an inferior
C) negative; a normal
D) less than one; an inferior
E) positive; a substitute
Topic: Income elasticity of demand, normal good
Skill: Level 2: Using definitions
Section: Checkpoint 5.3
Status: Old
AACSB: Reflective thinking
40) Assume that it is predicted that for the years after you graduate from college, the entire economy will experience a long period of prosperity when incomes grow rapidly. What type of industry would be the best for you to find employment if this prediction is correct? An industry that produces a product that is
A) income elastic.
B) income inelastic.
C) inferior.
D) a substitute good.
E) none of these industries.
Topic: Income elasticity, normal good
Skill: Level 4: Applying models
Section: Checkpoint 5.3
Status: Old
AACSB: Reflective thinking
41) Which of the following statements is correct?
A) The income elasticity of demand for inferior goods is positive.
B) The cross elasticity of demand for substitutes is negative.
C) The income elasticity of demand for normal goods is positive.
D) The cross elasticity of demand for complements is positive.
E) The income elasticity of demand for inferior goods is zero.
Topic: Income elasticity of demand, normal good
Skill: Level 2: Using definitions
Section: Checkpoint 5.3
Status: Old
AACSB: Reflective thinking
42) The income elasticity of demand for skiing trips to Vermont is greater than one. Thus a trip to Vermont for skiing is ________ good.
A) a normal
B) an inferior
C) a unit elastic
D) a price elastic
E) a price inelastic
Topic: Income elasticity of demand, normal good
Skill: Level 2: Using definitions
Section: Checkpoint 5.3
Status: Old
AACSB: Reflective thinking
43) People eat at restaurants less often when their incomes fall because of a recession. Eating at restaurants must be
A) an inferior good.
B) a normal good.
C) a complement to other goods.
D) a substitute for other goods.
E) an inelastic good.
Topic: Income elasticity of demand, normal good
Skill: Level 2: Using definitions
Section: Checkpoint 5.3
Status: Old
AACSB: Reflective thinking
44) People take fewer trips by airplane when their incomes fall because of a recession. Trips by airplane must be
A) a normal good.
B) an inferior good.
C) a substitute for other goods.
D) a complement to other goods.
E) an inelastic good.
Topic: Income elasticity of demand, normal good
Skill: Level 2: Using definitions
Section: Checkpoint 5.3
Status: Old
AACSB: Reflective thinking
45) Sergio's downloads of movies increase by 10 percent when his income increases by 30 percent. Based on this information, we know that for Sergio downloaded movies
A) are complements.
B) are substitutes.
C) are inferior goods.
D) have an inelastic demand.
E) are normal goods.
Topic: Income elasticity of demand, normal good
Skill: Level 3: Using models
Section: Checkpoint 5.3
Status: Old
AACSB: Reflective thinking
46) Alan purchases 10 percent fewer bags of chips when his income decreases by 5 percent. Based on only this information, we know that for Alan
A) chips are a normal good.
B) chips are a complement to salsa.
C) chips are a substitute for pretzels.
D) chips are an inferior good.
E) the price of chips fell.
Topic: Income elasticity of demand, normal good
Skill: Level 3: Using models
Section: Checkpoint 5.3
Status: Old
AACSB: Reflective thinking
47) For a good such as food, the income elasticity is likely
A) negative.
B) equal to zero.
C) positive and less than one.
D) positive and greater than one.
E) undefined because people always buy the same amount of food.
Topic: Income elasticity of demand
Skill: Level 3: Using models
Section: Checkpoint 5.3
Status: Old
AACSB: Reflective thinking
48) For a good such as a large screen UHD television set, the income elasticity would likely be
A) negative.
B) equal to zero.
C) positive and less than one.
D) positive and greater than one.
E) undefined because large screen, UHD TVs are bought by many consumers.
Topic: Income elasticity of demand
Skill: Level 2: Using definitions
Section: Checkpoint 5.3
Status: Old
AACSB: Reflective thinking
49) Assume that it is predicted that for the years after you graduate from college, the entire economy will experience a long period of recession during which people's incomes decrease. What type of industry would be the best for you to find employment if this prediction is correct? An industry that produces a product that
A) is income elastic.
B) is income inelastic.
C) is inferior.
D) is a complement.
E) none of these industries.
Topic: Income elasticity of demand, inferior good
Skill: Level 4: Applying models
Section: Checkpoint 5.3
Status: Old
AACSB: Reflective thinking
50) What is an inferior good?
A) a product of low quality that we do not want to purchase
B) a product for which demand increases when income increases, and demand decreases when income decreases
C) a product for which demand increases when income decreases, and demand decreases when income increases
D) a product that is complementary
E) a product that is a substitute for another, better good
Topic: Income elasticity of demand, inferior good
Skill: Level 1: Definition
Section: Checkpoint 5.3
Status: Old
AACSB: Reflective thinking
51) A product that has a negative income elasticity of demand is ________ good.
A) a complementary
B) a substitute
C) a normal
D) an inferior
E) a negative
Topic: Income elasticity, inferior good
Skill: Level 2: Using definitions
Section: Checkpoint 5.3
Status: Old
AACSB: Reflective thinking
52) Goods are ________ when the income elasticity of demand is less than zero.
A) substitutes
B) complements
C) inferior
D) elastic
E) normal
Topic: Income elasticity of demand, inferior good
Skill: Level 2: Using definitions
Section: Checkpoint 5.3
Status: Old
AACSB: Reflective thinking
53) If a product is an inferior good, then its income elasticity of demand is
A) zero.
B) positive.
C) negative.
D) indeterminate.
E) undefined.
Topic: Income elasticity of demand, inferior good
Skill: Level 2: Using definitions
Section: Checkpoint 5.3
Status: Old
AACSB: Reflective thinking
54) If a good is inferior, then it has an income elasticity of demand that is
A) equal to zero.
B) greater than zero.
C) less than zero.
D) greater than one.
E) undefined.
Topic: Income elasticity of demand, inferior good
Skill: Level 2: Using definitions
Section: Checkpoint 5.3
Status: Old
AACSB: Reflective thinking
55) If a 5 percent increase in income brings about a 10 percent decrease in the demand for a good, then the
A) good is a normal good.
B) good is an inferior good.
C) income elasticity of demand is 0.5.
D) income elasticity of demand is 2.0.
E) income elasticity of demand is 5.0.
Topic: Income elasticity of demand, inferior good
Skill: Level 2: Using definitions
Section: Checkpoint 5.3
Status: Old
AACSB: Reflective thinking
56) If a 10 percent increase in income leads to a 5 percent decrease in the demand for a good, the income elasticity of demand equals ________ and the good is ________ good.
A) 1/2; a normal
B) -1/2; an inferior
C) 2; a normal
D) -2; a normal
E) -5; an inferior
Topic: Income elasticity of demand, inferior good
Skill: Level 3: Using models
Section: Checkpoint 5.3
Status: Old
AACSB: Analytical thinking
57) Joe receives a 20 percent increase in his income from his part time job and as a consequence decreases his consumption of Ramen noodles by 10 percent. Hence to Joe, Ramen noodles are
A) a normal good with a price elasticity of demand of 0.5.
B) a substitute good with a cross elasticity of 0.5.
C) a good with a price elasticity of supply of -0.5.
D) an inferior good with an income elasticity of -0.5.
E) an inferior good with an income elasticity of -2.0.
Topic: Income elasticity, inferior good
Skill: Level 4: Applying models
Section: Checkpoint 5.3
Status: Old
AACSB: Analytical thinking
58) If a 5 percent decrease in income leads to a 15 percent decrease in the demand for a good, the income elasticity of demand equals
A) -1/3 and the good is an inferior good.
B) 1/3 and demand for the good is income elastic.
C) 3 and the good is a normal good.
D) -3 and the demand for the good is income inelastic.
E) 3 and the good is an inferior good.
Topic: Income elasticity of demand, inferior good
Skill: Level 3: Using models
Section: Checkpoint 5.3
Status: Old
AACSB: Analytical thinking
59) When income increases from $20,000 to $30,000 the quantity of inter-city bus trips taken per year decreases from 10 to 8. Hence
A) inter-city bus trips are a normal good.
B) the income elasticity of demand for inter-city bus trips is -1.8.
C) the income elasticity of demand for inter-city bus trips is -0.56.
D) Both answers A and B are correct.
E) Both answers A and C are correct.
Topic: Income elasticity of demand, inferior good
Skill: Level 3: Using models
Section: Checkpoint 5.3
Status: Old
AACSB: Analytical thinking
60) The income elasticity of demand for foreign travel
A) is likely to be smaller than the income elasticity of demand for food.
B) is likely to be larger than the income elasticity of demand for food.
C) cannot be compared to the income elasticity of demand for food.
D) is likely to be inelastic.
E) is likely to be negative.
Topic: Income elasticity of demand
Skill: Level 4: Applying models
Section: Checkpoint 5.3
Status: Old
AACSB: Reflective thinking
61) The lower the level of income in a country, the
A) less income elastic is the demand for food.
B) more income elastic is the demand for food.
C) more negative the income elasticity of the demand for food.
D) Both answers A and C are correct.
E) None of the above is correct.
Topic: Eye on the global economy, income elasticities of demand
Skill: Level 4: Applying models
Section: Checkpoint 5.3
Status: Old
AACSB: Reflective thinking
62) The measure used to determine whether two products are complements or substitutes is called the
A) price elasticity of supply.
B) cross elasticity of demand.
C) price elasticity of demand.
D) income elasticity.
E) substitute elasticity of demand.
Topic: Cross elasticity of demand
Skill: Level 2: Using definitions
Section: Checkpoint 5.3
Status: Old
AACSB: Reflective thinking
63) If beef and pork are substitutes for consumers, the cross elasticity of demand between the two products must be
A) negative.
B) positive.
C) indeterminate.
D) elastic.
E) greater than 1.
Topic: Cross elasticity of demand, substitutes
Skill: Level 2: Using definitions
Section: Checkpoint 5.3
Status: Old
AACSB: Reflective thinking
64) When the price of a pizza is $10, the quantity of soda demanded is 300 drinks. When the price of a pizza is $15, the quantity soda demanded is 100 drinks. At the midpoint between these two prices, the cross elasticity of demand is equal to
A) -0.25.
B) -0.40.
C) -2.50.
D) -25.00.
E) 4.00.
Topic: Cross elasticity of demand, formula
Skill: Level 3: Using models
Section: Checkpoint 5.3
Status: Old
AACSB: Analytical thinking
65) When the price of going to a movie rises 5 percent, the quantity of DVDs demanded increases 10 percent. The cross elasticity of demand equals
A) 10.0.
B) 0.50.
C) -0.50.
D) -2.0.
E) 2.0.
Topic: Cross elasticity of demand, formula
Skill: Level 3: Using models
Section: Checkpoint 5.3
Status: Old
AACSB: Analytical thinking
66) If two goods have a cross elasticity of demand of -2, then when the price of one good increases, the demand curve of the other good
A) shifts rightward.
B) shifts leftward.
C) remains unchanged and the supply curve also remains unchanged.
D) might shift rightward, leftward, or remain unchanged.
E) remains unchanged but the supply curve shifts leftward.
Topic: Cross elasticity of demand, complements
Skill: Level 3: Using models
Section: Checkpoint 5.3
Status: Old
AACSB: Analytical thinking
67) The income elasticity of demand is the percentage change in the ________ divided by the percentage change in ________.
A) quantity demanded; the price of a substitute or complement
B) quantity supplied; price
C) quantity demanded; price
D) quantity demanded; income
E) quantity demanded when income changes; the quantity supplied
Topic: Income elasticity of demand, formula
Skill: Level 2: Using definitions
Section: Checkpoint 5.3
Status: Old
AACSB: Reflective thinking
68) When income increases from $20,000 to $30,000 the number of home delivered pizzas per year increases from 22 to 40. The income elasticity of demand for home delivered pizza equals
A) 1.45.
B) 0.69.
C) 0.58.
D) 0.40.
E) 2.86.
Topic: Income elasticity of demand, formula
Skill: Level 3: Using models
Section: Checkpoint 5.3
Status: Old
AACSB: Analytical thinking
69) When income increases by 6 percent, the demand for potatoes decreases by 2 percent. The income elasticity of demand for potatoes equals
A) -2.00.
B) 3.00.
C) -3.00.
D) 0.33.
E) -0.33.
Topic: Income elasticity of demand, formula
Skill: Level 3: Using models
Section: Checkpoint 5.3
Status: Old
AACSB: Analytical thinking
70) When income increases from $30,000 a year to $40,000 a year, the quantity demanded of weekend vacations by Sara increases from 2 a year to 5 a year. For Sara, the income elasticity of demand of weekend vacations is ________ and weekend vacations are ________ good.
A) 3; a normal
B) 4.5; a normal
C) 1/3; an inferior
D) -4.5; an inferior
E) 1/3; a normal
Topic: Income elasticity of demand, formula
Skill: Level 3: Using models
Section: Checkpoint 5.3
Status: Old
AACSB: Analytical thinking
71) If a product is a normal good, then its income elasticity of demand is
A) zero.
B) positive.
C) negative.
D) indeterminate.
E) greater than 1.
Topic: Income elasticity of demand, normal good
Skill: Level 2: Using definitions
Section: Checkpoint 5.3
Status: Old
AACSB: Reflective thinking
72) The income elasticity of demand for used cars is less than zero. So, used cars are
A) an inferior good.
B) a normal good.
C) an inelastic good.
D) a perfectly inelastic good.
E) a substitute good.
Topic: Income elasticity of demand, inferior good
Skill: Level 2: Using definitions
Section: Checkpoint 5.3
Status: Old
AACSB: Reflective thinking
73) An inferior good has a ________ elasticity of demand.
A) positive income
B) negative income
C) negative cross
D) positive cross
E) negative price
Topic: Income elasticity of demand, inferior good
Skill: Level 2: Using definitions
Section: Checkpoint 5.3
Status: Old
AACSB: Reflective thinking
74) Which of the following is most likely to have an income elasticity of demand that exceeds 1?
A) tobacco
B) alcoholic beverages
C) airline travel
D) food
E) telephone
Topic: Income elasticity of demand
Skill: Level 2: Using definitions
Section: Checkpoint 5.3
Status: Old
AACSB: Reflective thinking
75) Which of the following is most likely to have an income elasticity of demand that is less than 1?
A) movies
B) airline travel
C) foreign travel
D) food
E) restaurant meals
Topic: Income elasticity of demand
Skill: Level 2: Using definitions
Section: Checkpoint 5.3
Status: Old
AACSB: Reflective thinking
5.4 Chapter Figures
1) The demand curve shown in the figure above reflects demand that is
A) perfectly elastic.
B) perfectly inelastic.
C) unit elastic.
D) elastic but not perfectly elastic.
E) inelastic but not perfectly inelastic.
Topic: Perfectly elastic demand
Skill: Level 2: Using definitions
Section: Checkpoint 5.1
Status: Old
AACSB: Analytical thinking
2) The demand curve shown in the figure above reflects demand that is
A) perfectly elastic.
B) perfectly inelastic.
C) unit elastic.
D) elastic but not perfectly elastic.
E) inelastic but not perfectly inelastic.
Topic: Perfectly inelastic demand
Skill: Level 2: Using definitions
Section: Checkpoint 5.1
Status: Old
AACSB: Analytical thinking
3) The demand curve shown in the figure above is ________ at the midpoint between $95 and $105 per trip.
A) perfectly elastic
B) perfectly inelastic
C) unit elastic
D) elastic but not perfectly elastic
E) inelastic but not perfectly inelastic
Topic: Unit elastic demand
Skill: Level 3: Using models
Section: Checkpoint 5.1
Status: Old
AACSB: Analytical thinking
4) The demand curve shown in the figure above is ________ at the midpoint between $0.90 and $1.10 per pack.
A) perfectly elastic
B) perfectly inelastic
C) unit elastic
D) elastic but not perfectly elastic
E) inelastic but not perfectly inelastic
Topic: Inelastic demand
Skill: Level 3: Using models
Section: Checkpoint 5.1
Status: Old
AACSB: Analytical thinking
5) The demand curve shown in the figure above is ________ at the midpoint between $95 and $105 per unit.
A) perfectly elastic
B) perfectly inelastic
C) unit elastic
D) elastic but not perfectly elastic
E) inelastic but not perfectly inelastic
Topic: Elastic demand
Skill: Level 3: Using models
Section: Checkpoint 5.1
Status: Old
AACSB: Analytical thinking
The figure above shows the demand curve for Starbucks latte.
6) Using the figure above, suppose Starbucks charges $4.50 per cup for its latte. Which of the following is TRUE?
i. At this price, the demand for Starbucks latte is elastic.
ii. If Starbucks lowers the price of its latte, its revenue will decrease.
iii. If Starbucks raises the price of its latte, the demand for it will become less elastic.
A) iii only
B) i only
C) ii only
D) i and ii
E) i and iii
Topic: Elastic demand
Skill: Level 3: Using models
Section: Checkpoint 5.1
Status: Old
AACSB: Analytical thinking
7) In the figure above, at the point where the price is $4 per cup the price elasticity of demand is
A) 2.
B) 0.5.
C) 1.
D) 1.5.
E) 0.
Topic: Midpoint formula
Skill: Level 3: Using models
Section: Checkpoint 5.1
Status: Old
AACSB: Analytical thinking
8) In the figure above, at the midpoint between $5 and $4, the price elasticity of demand is
A) 2.
B) 3.
C) 0.75.
D) 1.5.
E) 0.33.
Topic: Midpoint formula
Skill: Level 3: Using models
Section: Checkpoint 5.1
Status: Old
AACSB: Analytical thinking
9) In the figure above, at the midpoint between $3 and $4, the price elasticity of demand is
A) 1.4.
B) 2.
C) 0.71.
D) 0.4.
E) 1.
Topic: Midpoint formula
Skill: Level 3: Using models
Section: Checkpoint 5.1
Status: Old
AACSB: Analytical thinking
10) Refer to the figure above. Suppose Starbucks charges $3.50 per cup for its latte. Which of the following is TRUE?
i. At this price, the demand for Starbucks latte is inelastic.
ii. If Starbucks raises the price of its latte, its revenue will increase.
iii. If Starbucks lowers the price of its latte, it will increase its revenue.
A) iii only
B) i only
C) ii only
D) i and ii
E) i and iii
Topic: Elasticity and total revenue
Skill: Level 3: Using models
Section: Checkpoint 5.1
Status: Old
AACSB: Analytical thinking
The figure above shows the demand curve for Starbucks latte.
11) In the figure above, the demand is elastic in the range of prices between
A) $3.50 and $4.50 per cup.
B) $2.50 and $3.50 per cup.
C) $1.00 and $2.00 per cup.
D) $2.00 and $4.00 per cup.
E) $1.75 and $2.75 per cup.
Topic: Midpoint formula
Skill: Level 3: Using models
Section: Checkpoint 5.1
Status: Old
AACSB: Analytical thinking
12) In the figure above, the demand is unit elastic
A) at the point where the price is $3.00 per cup.
B) at the point where the price is $2.00 per cup.
C) at the point where the price is $4.00 per cup.
D) at the point where the price is $2.50 per cup.
E) at all points along the demand curve.
Topic: Midpoint formula
Skill: Level 3: Using models
Section: Checkpoint 5.1
Status: Old
AACSB: Analytical thinking
13) In the figure above, the demand is inelastic in the range of prices between
A) $3.50 and $4.50 per cup.
B) $2.50 and $3.50 per cup.
C) $1.00 and $2.00 per cup.
D) $2.25 and $4.50 per cup.
E) $2.75 and $3.75 per cup.
Topic: Midpoint formula
Skill: Level 3: Using models
Section: Checkpoint 5.1
Status: Old
AACSB: Analytical thinking
14) Suppose Starbucks currently charges $3.25 per cup for its latte. If Starbucks lowers the price to $3.00 per cup, based on the demand curve in the figure above, its total revenue will ________ because the demand for Starbucks latte is ________ over this price range.
A) increase; elastic
B) decrease; elastic
C) increase; inelastic
D) increase; unit elastic
E) not change; unit elastic
Topic: Elasticity and total revenue
Skill: Level 3: Using models
Section: Checkpoint 5.1
Status: Old
AACSB: Analytical thinking
15) Suppose Starbucks currently charges $2.50 per cup for its latte. If Starbucks raises the price to $3.00 per cup, based on the demand curve in the figure above, its total revenue will ________ because the demand for Starbucks latte is ________ over this price range.
A) increase; elastic
B) decrease; elastic
C) increase; inelastic
D) increase; unit elastic
E) not change; unit elastic
Topic: Elasticity and total revenue
Skill: Level 3: Using models
Section: Checkpoint 5.1
Status: Old
AACSB: Analytical thinking
The figure above shows the supply curve for roses.
16) In the figure above, at the point where the price is $60 per bunch, the price elasticity of supply is
A) 1.8.
B) 0.56.
C) 1.
D) 1.5.
E) 0.
Topic: Price elasticity of supply
Skill: Level 3: Using models
Section: Checkpoint 5.2
Status: Old
AACSB: Analytical thinking
17) In the figure above, at the point where the price is $50 per bunch, the price elasticity of supply is
A) 2.14.
B) 0.47.
C) 1.
D) 3.
E) 0.33.
Topic: Price elasticity of supply
Skill: Level 3: Using models
Section: Checkpoint 5.2
Status: Old
AACSB: Analytical thinking
5.5 Integrative Questions
1) Suppose an increase in supply lowers the price from $10 to $8 and increases the quantity demanded from 100 units to 130 units. At the midpoint between these two prices, the elasticity of demand equals
A) 1.17.
B) 0.85.
C) 0.26.
D) 1.56.
E) None of the above answers is correct.
Topic: Integrative
Skill: Level 3: Using models
Section: Integrative
Status: Old
AACSB: Analytical thinking
2) Suppose a decrease in supply raises the price from $4.00 to $5.50 and decreases the quantity demanded from 2,000 to 1,500. At the midpoint between these two prices, the elasticity of demand equals
A) 2.10.
B) 1.11.
C) 0.90.
D) 0.72.
E) None of the above answers is correct.
Topic: Integrative
Skill: Level 3: Using models
Section: Integrative
Status: Old
AACSB: Analytical thinking
3) The total revenue test says that if a price decrease leads to
A) an increase in total revenue, demand is income elastic.
B) a decrease in total revenue, demand is income inelastic.
C) a decrease in total revenue, demand is price inelastic.
D) a decrease in total revenue, supply is price inelastic.
E) a decrease in total revenue, supply is price elastic.
Topic: Integrative
Skill: Level 3: Using models
Section: Integrative
Status: Old
AACSB: Reflective thinking
4) The total revenue test says that if a price decrease leads to
A) an increase in total revenue, supply is elastic.
B) a decrease in total revenue, supply is unit elastic.
C) a decrease in total revenue, supply is inelastic.
D) an increase in total revenue, supply is inelastic.
E) None of the above answers is correct.
Topic: Integrative
Skill: Level 3: Using models
Section: Integrative
Status: Old
AACSB: Reflective thinking
5) If demand is ________, a price cut ________ the total revenue.
A) elastic; increases
B) unit elastic; decreases
C) inelastic; increases
D) inelastic; does not change
E) normal; decreases
Topic: Integrative
Skill: Level 3: Using models
Section: Integrative
Status: Old
AACSB: Reflective thinking
6) If you spend a large portion of your income on a good
A) supply of that good would be price elastic.
B) demand for that good is more elastic than if you spent a smaller portion of your income on the good.
C) supply of that good is price inelastic.
D) demand for that good is less elastic than if you spent a smaller portion of your income on the good.
E) the good must be able to be produced at a constant (or gently rising) opportunity cost.
Topic: Integrative
Skill: Level 3: Using models
Section: Integrative
Status: Old
AACSB: Reflective thinking
7) A ________ curve means that ________.
A) horizontal demand; a change in price does not change total revenue
B) horizontal demand; the elasticity of demand is less than 1
C) horizontal supply; the elasticity of supply is infinite
D) horizontal supply; the elasticity of demand is infinite
E) vertical demand; a change in price does not change total revenue
Topic: Integrative
Skill: Level 3: Using models
Section: Integrative
Status: Old
AACSB: Reflective thinking
8) The cross elasticity of demand
A) means that an increase in the demand for one good leads to a decrease in demand for another good.
B) measures how a change in the price of one good impacts the demand for another good.
C) measures how a change in supply impacts the demand for the good.
D) means that an increase in the price of one good leads to an increase in the price of another good.
E) measures how a change in income impacts the demand for the good.
Topic: Integrative
Skill: Level 2: Using definitions
Section: Integrative
Status: Old
AACSB: Reflective thinking
9) Which of the following is TRUE?
i. The demand for a good is elastic if when its price changes, the percentage change in the quantity demanded exceeds the percentage change in price.
ii. Price elasticity of demand equals the percentage change in price divided by the percentage change in the quantity demanded.
iii. If demand is price inelastic, a rise in price leads to a decrease in total revenue.
A) i only
B) ii only
C) iii only
D) i and ii
E) ii and iii
Topic: Integrative
Skill: Level 2: Using definitions
Section: Integrative
Status: Old
AACSB: Reflective thinking
10) Which of the following is TRUE?
i. The supply of a good is inelastic if when its price changes, the percentage change in the quantity supplied exceeds the percentage change in price.
ii. Price elasticity of supply equals the percentage change in the quantity supplied divided by the percentage change in price.
iii. If demand is price elastic, a rise in price leads to a decrease in total revenue.
A) i only
B) ii only
C) iii only
D) i and ii
E) ii and iii
Topic: Integrative
Skill: Level 2: Using definitions
Section: Integrative
Status: Old
AACSB: Reflective thinking
11) Which of the following is TRUE?
i. The easier it is to find substitutes for a good, the more price elastic the demand for the good is.
ii. The demand for a good is more price elastic the smaller the proportion of income spent on it.
iii. If demand is price elastic, lowering the price leads to a decrease in total revenue.
A) i only
B) ii only
C) iii only
D) i and ii
E) i and iii
Topic: Integrative
Skill: Level 2: Using definitions
Section: Integrative
Status: Old
AACSB: Reflective thinking
5.6 Essay: The Price Elasticity of Demand
1) "The price elasticity of demand is a measure of how sensitive demanders are to changes in the price of a product." Is this statement true or false?
Topic: Price elasticity of demand
Skill: Level 1: Definition
Section: Checkpoint 5.1
Status: Old
AACSB: Reflective thinking
2) What is the price elasticity of demand? In terms of percentage changes, what is its formula?
Topic: Price elasticity of demand
Skill: Level 1: Definition
Section: Checkpoint 5.1
Status: Old
AACSB: Reflective thinking
3) When does a decrease in supply raise the price more: When demand is elastic or when demand is inelastic? When OPEC decreases the supply of oil, the price of gasoline skyrockets. Hence is the demand for gasoline elastic or inelastic?
Topic: Price elasticity of demand
Skill: Level 2: Using definitions
Section: Checkpoint 5.1
Status: Old
AACSB: Analytical thinking
4) What does a horizontal demand curve indicate about the price elasticity of demand?
Topic: Perfectly elastic demand
Skill: Level 2: Using definitions
Section: Checkpoint 5.1
Status: Old
AACSB: Reflective thinking
5) What are the three cases for the price elasticity of demand? Briefly define each.
Topic: Elastic, inelastic, and unit elastic demand
Skill: Level 1: Definition
Section: Checkpoint 5.1
Status: Old
AACSB: Written and oral communication
6) In a study session, your friend says, "Demand is elastic if the percentage change in the price exceeds the percentage change in quantity demanded." Is your friend correct?
Topic: Elastic demand
Skill: Level 2: Using definitions
Section: Checkpoint 5.1
Status: Old
AACSB: Reflective thinking
7) If the percentage change in quantity demanded is greater than the percentage change in price, can you determine if the demand is elastic, unit elastic, or inelastic? Explain your answer.
Topic: Elastic demand
Skill: Level 2: Using definitions
Section: Checkpoint 5.1
Status: Old
AACSB: Written and oral communication
8) Does the fact that the price elasticity of demand for a good is inelastic violate the law of demand?
Topic: Inelastic demand
Skill: Level 2: Using definitions
Section: Checkpoint 5.1
Status: Old
AACSB: Written and oral communication
9) What factors determine the size of the price elasticity of demand?
Topic: Factors that influence the price elasticity of demand
Skill: Level 2: Using definitions
Section: Checkpoint 5.1
Status: Old
AACSB: Written and oral communication
10) Explain why the number of substitutes influences the price elasticity of demand.
Topic: Elasticity, substitutes
Skill: Level 2: Using definitions
Section: Checkpoint 5.1
Status: Old
AACSB: Written and oral communication
11) "The fewer the number of substitutes for a product, the more elastic the demand for that product." Is the previous statement true or false?
Topic: Elasticity, substitutes
Skill: Level 1: Definition
Section: Checkpoint 5.1
Status: Old
AACSB: Reflective thinking
12) If a good has only a few, poor substitutes, is its demand elastic or inelastic?
Topic: Elasticity, substitutes
Skill: Level 1: Definition
Section: Checkpoint 5.1
Status: Old
AACSB: Reflective thinking
13) Which is larger: The price elasticity of demand for food or the price elasticity of demand for oranges? Why?
Topic: Elasticity, substitutes
Skill: Level 2: Using definitions
Section: Checkpoint 5.1
Status: Old
AACSB: Analytical thinking
14) Water is considered a necessity. So, is the demand for water elastic or inelastic?
Topic: Elasticity, necessities
Skill: Level 2: Using definitions
Section: Checkpoint 5.1
Status: Old
AACSB: Reflective thinking
15) Studies have shown that the price elasticity of demand for necessities, such as food, are higher in developing countries and lower in developed countries. What is the reason for this difference in elasticity?
Topic: Elasticity, fraction of income
Skill: Level 4: Applying models
Section: Checkpoint 5.1
Status: Old
AACSB: Written and oral communication
16) What happens to the price elasticity of demand moving down along a downward-sloping, linear demand curve?
Topic: Price elasticity of demand, linear demand curve
Skill: Level 2: Using definitions
Section: Checkpoint 5.1
Status: Old
AACSB: Written and oral communication
17) What effect does a price hike have on the total revenue of the producers?
Topic: Elasticity and total revenue
Skill: Level 2: Using definitions
Section: Checkpoint 5.1
Status: Old
AACSB: Written and oral communication
18) The demand for oil is inelastic. So, does an increase in the price of oil mean an increase in total revenue or a decrease in total revenue for oil producers?
Topic: Elasticity and total revenue
Skill: Level 2: Using definitions
Section: Checkpoint 5.1
Status: Old
AACSB: Analytical thinking
19) Anna owns the Sweet Alps Chocolate store. She charges $10 per pound for her hand made chocolate. You, the economist, have calculated the elasticity of demand for chocolate in her town to be 2.5. If she wants to increase her total revenue, what advice will you give her?
Topic: Elasticity and total revenue
Skill: Level 2: Using definitions
Section: Checkpoint 5.1
Status: Old
AACSB: Analytical thinking
20) You are the brand manager of Crest toothpaste and you observe that when you increase the price of Crest, your total revenue increases. How is that possible?
Topic: Elasticity and total revenue
Skill: Level 2: Using definitions
Section: Checkpoint 5.1
Status: Old
AACSB: Analytical thinking
21) Explain the total revenue test.
Topic: Total revenue test
Skill: Level 1: Definition
Section: Checkpoint 5.1
Status: Old
AACSB: Analytical thinking
22) If a decrease in price increases total revenue, what can you determine about the elasticity of demand for the good?
Topic: Total revenue test
Skill: Level 2: Using definitions
Section: Checkpoint 5.1
Status: Old
AACSB: Analytical thinking
23) "If the price falls and, as a result, the total revenue decreases, demand is elastic." Is the previous assertion correct?
Topic: Total revenue test
Skill: Level 2: Using definitions
Section: Checkpoint 5.1
Status: Old
AACSB: Analytical thinking
24) Recently the governor of Vermont proposed that cigarette taxes in Vermont should be increased substantially, from 44 cents a pack to 66 cents a pack. He estimates that Vermont can raise $20 million in revenue from this tax hike. He also pointed out that the neighboring state of New Hampshire was considering an increase in cigarette taxes.
a. How can it be that an increase in cigarette taxes will increase tax revenue, because, after all, a higher tax will increase cigarette prices and thereby decrease the quantity demanded?
b. If New Hampshire chooses not to increase cigarette taxes, is it likely that Vermont can still raise $20 million in tax revenue? Why or why not? Explain
a. The governor knows that cigarettes have an inelastic demand. If the price of cigarettes increases because of a tax, smokers will not decrease their consumption of cigarettes substantially. The percentage change in the quantity will be less than the percentage change in the price and the total tax revenue will increase.
b. If New Hampshire does not increase its taxes, it is less likely that Vermont will be able to raise the $20 million in tax revenue. The reason is because for many people cigarettes from New Hampshire are a good substitute for cigarettes from Vermont. Thus many people from Vermont will buy their cigarettes in New Hampshire, thereby decreasing the total increase in tax revenue in Vermont.
Topic: Addiction and elasticity
Skill: Level 4: Applying models
Section: Checkpoint 5.1
Status: Old
AACSB: Analytical thinking
25) Suppose the price of flour increases from $0.80 to $1.00 a pound and the quantity demanded decreases from 100 pounds to 95 pounds. At the midpoint between these two prices, what is the price elasticity of demand for flour? Is the demand for flour elastic or inelastic?
Topic: Elasticity formula
Skill: Level 3: Using models
Section: Checkpoint 5.1
Status: Old
AACSB: Analytical thinking
26) If the price of suntan lotion increases from $6 to $8 per bottle and quantity demanded decreases from 900,000 bottles to 845,000 bottles, at the midpoint between these two prices, what is the price elasticity of demand for suntan lotion?
Topic: Elasticity formula
Skill: Level 3: Using models
Section: Checkpoint 5.1
Status: Old
AACSB: Analytical thinking
27) If the price of a magazine increases from $5 to $7 and the quantity demanded of the magazines decreases from 10 million per month to 8 million per month, at the midpoint between these two prices, what is the price elasticity of demand? Show your work. Is the demand elastic, inelastic, or unit elastic?
Topic: Elasticity formula
Skill: Level 3: Using models
Section: Checkpoint 5.1
Status: Old
AACSB: Analytical thinking
28) Suppose the price elasticity of demand for bouquets of flowers is 4.0. You are charging $8 per bouquet. If you want to increase the quantity of bouquets you sell by 20 percent, what price should you charge?
Topic: Elasticity formula
Skill: Level 4: Applying models
Section: Checkpoint 5.1
Status: Old
AACSB: Analytical thinking
29) The table above gives the demand schedule for a good. Find the price elasticity of demand at the midpoint between points A and B, between B and C, between C and D, and between D and E.
Topic: Elasticity formula
Skill: Level 3: Using models
Section: Checkpoint 5.1
Status: Old
AACSB: Analytical thinking
30) The figure above shows the demand curve for pizza. Using the midpoint method between point A to point B, calculate the
a. percentage change in price.
b. percentage change in quantity demanded.
c. price elasticity of demand at the midpoint between points A and B.
a. Between points A and B, the price falls 40 percent.
b. Between points A and B, the quantity increases 10 percent.
c. The price elasticity of demand is 0.25.
Topic: Elasticity formula
Skill: Level 3: Using models
Section: Checkpoint 5.1
Status: Old
AACSB: Analytical thinking
31) In the figure above, at which point (a, b, or c) along the linear demand curve illustrated would demand be
a. most elastic?
b. most inelastic?
a. The demand would be most elastic at point a.
b. The demand would be most inelastic at point c.
Topic: Price elasticity of demand, linear demand curve
Skill: Level 3: Using models
Section: Checkpoint 5.1
Status: Old
AACSB: Analytical thinking
32) The table above gives the demand schedule for a good. What is the total revenue at point A? At point B? At point C? At point D? At point E?
Topic: Total revenue
Skill: Level 3: Using models
Section: Checkpoint 5.1
Status: Old
AACSB: Analytical thinking
33) The table above gives the demand schedule for museum visits.
a. You, as the resident economist, have been given the task of maximizing the museum's total revenue. What admission price should you charge?
b. What is the elasticity of demand at the midpoint between $6 and $4?
c. Moving along the demand schedule from $10 to $8 to $6 and ultimately to $4, how does the price elasticity of demand change in size?
a. The admission price you should charge is $6. The total number of visits will be 300,000 and total revenue is $6 × 300,000 = $1,800,000. No other price gives you this much total revenue.
b. The price elasticity of demand equals [(300 visits - 400 visits) ÷ 350 visits] ÷ [($6 - $4) ÷ $5] = (0.29) ÷ (0.4) = 0.71.
c. Moving along the demand schedule to lower prices, the elasticity of demand falls in size.
Topic: Elasticity and total revenue
Skill: Level 4: Applying models
Section: Checkpoint 5.1
Status: Old
AACSB: Analytical thinking
34) Steve sells hotdogs from a vending cart downtown. The table above shows his daily total revenues at four different prices. At the midpoint between which two prices is the demand for hotdogs
a. elastic?
b. unit elastic?
c. inelastic?
a. Steve's demand is elastic at the midpoint between $1.50 and $1.75. In this range, when Steve raises his price from $1.50 to $1.75 per hot dog, his total revenue falls, which means that the demand is elastic.
b. Steve's demand is unit elastic at the midpoint between $1.25 and $1.50. In this range, when Steve raises his price from $1.25 to $1.50 per hot dog, his total revenue does not change, which means that the demand is unit elastic.
c. Steve's demand is inelastic at the midpoint between $1.00 and $1.25. In this range, when Steve raises his price from $1.00 to $1.25 per hot dog, his total revenue rises, which means that the demand is inelastic.
Topic: Total revenue test
Skill: Level 4: Applying models
Section: Checkpoint 5.1
Status: Old
AACSB: Analytical thinking
35) Suppose bad weather decreases the quantity of wheat by 12 percent. If the price elasticity of demand for wheat is 0.6, how would the crop failure affect the price of wheat? Would the crop decrease benefit or harm wheat farmers?
Topic: Farm revenue and elasticity
Skill: Level 5: Critical thinking
Section: Checkpoint 5.1
Status: Old
AACSB: Analytical thinking
5.7 Essay: The Price Elasticity of Supply
1) What is the price elasticity of supply? List and briefly define three cases of the price elasticity of supply.
Topic: Elasticity of supply
Skill: Level 1: Definition
Section: Checkpoint 5.2
Status: Old
AACSB: Written and oral communication
2) If the price elasticity of supply of corn is 3.12, then is the supply of corn elastic or inelastic?
Topic: Elasticity of supply
Skill: Level 2: Using definitions
Section: Checkpoint 5.2
Status: Old
AACSB: Reflective thinking
3) List factors that increase the price elasticity of supply.
∙ The good has a constant or very gently rising opportunity cost of production.
∙ More time has passed since the price of the good changed.
∙ The good can be stored.
Topic: Factors that influence the price elasticity of supply
Skill: Level 2: Using definitions
Section: Checkpoint 5.2
Status: Old
AACSB: Written and oral communication
4) How does elasticity of supply differ for a product that can be stored, compared to a product that cannot be stored?
Topic: Elasticity, storage
Skill: Level 2: Using definitions
Section: Checkpoint 5.2
Status: Old
AACSB: Written and oral communication
5) Natural gas is difficult to store. What implication does this fact have for the elasticity of supply of natural gas?
Topic: Elasticity, storage
Skill: Level 2: Using definitions
Section: Checkpoint 5.2
Status: Old
AACSB: Analytical thinking
6) Is supply more elastic or less elastic as more time passes after a price change? Explain your answer.
Topic: Elasticity, time since the price changed
Skill: Level 2: Using definitions
Section: Checkpoint 5.2
Status: Old
AACSB: Reflective thinking
7) If the price increases by 20 percent and the quantity supplied increases by 40 percent, what does the elasticity of supply equal?
Topic: Price elasticity of supply, formula
Skill: Level 2: Using definitions
Section: Checkpoint 5.2
Status: Old
AACSB: Analytical thinking
8) Suppose the quantity supplied of computers increases from 2 million to 4 million units as the price of a computer increases from $600 to $700. At the midpoint between these two prices, what does the price elasticity of supply equal?
Topic: Price elasticity of supply, formula
Skill: Level 3: Using models
Section: Checkpoint 5.2
Status: Old
AACSB: Analytical thinking
9) The table above gives the supply schedule for a product. What is the price elasticity of supply at the midpoint between points A and B, between B and C, between C and D, and between D and E?
Topic: Price elasticity of supply, formula
Skill: Level 3: Using models
Section: Checkpoint 5.2
Status: Old
AACSB: Analytical thinking
10) June makes holiday wreaths and sells them during the holiday season. The figure above shows her supply curve of wreaths per week. Use the midpoint method in this problem.
a. Calculate the percentage change in quantity between points A and B.
b. Calculate the percentage change in price between points A and B.
c. Calculate the price elasticity of supply at the midpoint between points A and B.
a. The percentage change in quantity is 20 percent.
b. The percentage change in price is 20 percent.
c. The price elasticity of supply is 1.0.
Topic: Price elasticity of supply, formula
Skill: Level 4: Applying models
Section: Checkpoint 5.2
Status: Old
AACSB: Analytical thinking
5.8 Essay: Cross Elasticity and Income Elasticity
1) The price elasticity of demand is always positive, as is the price elasticity of supply. Is the cross elasticity of demand always positive? Explain your answer.
Topic: Cross elasticity of demand
Skill: Level 2: Using definitions
Section: Checkpoint 5.3
Status: Old
AACSB: Written and oral communication
2) Explain why the cross elasticity of demand for substitute goods is positive and the cross elasticity of demand for complements is negative.
Next, consider the case in which A and B are complements. In this case, an increase in the price of B decreases the quantity demanded of A and a decrease in the price of B increases the quantity demanded of A. Here, the change in quantity in the numerator always has the opposite sign from the change in the price in the denominator, so the resulting cross elasticity of demand will be negative.
Topic: Cross elasticity of demand
Skill: Level 2: Using definitions
Section: Checkpoint 5.3
Status: Old
AACSB: Written and oral communication
3) If the cross elasticity of demand between two goods is negative, are the goods substitutes or complements?
Topic: Cross elasticity of demand, complements
Skill: Level 2: Using definitions
Section: Checkpoint 5.3
Status: Old
AACSB: Reflective thinking
4) If the cross elasticity of demand between peanut butter and milk is -1.11, then are peanut butter and milk substitutes or complements?
Topic: Cross elasticity of demand, complements
Skill: Level 1: Definition
Section: Checkpoint 5.3
Status: Old
AACSB: Reflective thinking
5) How are the cross elasticity of demand and income elasticity of demand similar and how are they different from the price elasticity of demand?
The elasticities also differ. For instance, as outlined above, all three concentrate on a different factor: the good's price (for the price elasticity of demand); the price of a related good (for the cross elasticity of demand); and income (for the income elasticity of demand.) The price elasticity of demand is always positive (because we use the magnitudes of the percentage changes or, equivalently, we take the absolute value of the percentage changes) whereas the cross and income elasticities of demand can be either positive or negative.
Topic: Cross elasticity of demand and income elasticity of demand
Skill: Level 2: Using definitions
Section: Checkpoint 5.3
Status: Old
AACSB: Written and oral communication
6) If the income elasticity of demand for a Miami Dolphin season ticket is 2.34, then are Dolphin season tickets a normal or an inferior good?
Topic: Income elasticity of demand, normal good
Skill: Level 1: Definition
Section: Checkpoint 5.3
Status: Old
AACSB: Written and oral communication
7) The income elasticity of demand for store brands of soda (that is, non-name brands) is negative. What does this fact indicate about consumers' perceptions about the store brands?
Topic: Income elasticity of demand, inferior good
Skill: Level 2: Using definitions
Section: Checkpoint 5.3
Status: Old
AACSB: Written and oral communication
8) When the price of Ford pickup trucks rises from $18,000 to $19,000, the quantity of Chevy trucks demanded increases from 112,000 to 144,000. At the midpoint between these two prices, what does the cross elasticity of demand between Ford and Chevy trucks equal?
Topic: Cross elasticity of demand, formula
Skill: Level 3: Using models
Section: Checkpoint 5.3
Status: Old
AACSB: Analytical thinking
9) When the price of bananas rises 2 percent, the quantity demanded of peanut butter falls 4 percent.
a. What is the cross elasticity of demand between these two goods?
b. How are these goods related?
c. If the price of bananas rises, how will that affect the demand curve for peanut butter?
a. The cross elasticity of demand equals -2.
b. Because the cross elasticity of demand is negative, the cross elasticity indicates that the two goods are complements.
c. If the price of bananas rises, the demand for peanut butter decreases and the demand curve for peanut butter shifts leftward.
Topic: Cross elasticity of demand, formula
Skill: Level 3: Using models
Section: Checkpoint 5.3
Status: Old
AACSB: Analytical thinking
10) Consider two goods: peanut butter and jelly. If the price of jelly increases from $2 a jar to $3 per jar and the quantity demanded of peanut butter decreases from 50 jars to 45 jars, at the midpoint between these two prices what is the cross elasticity of demand? Are the goods substitutes or complements?
Topic: Cross elasticity of demand, formula
Skill: Level 3: Using models
Section: Checkpoint 5.3
Status: Old
AACSB: Analytical thinking
11) A 10 percent increase in income brings about a 15 percent decrease in the demand for a good. What is the income elasticity of demand and is the good a normal good or an inferior good?
Topic: Income elasticity of demand, formula
Skill: Level 3: Using models
Section: Checkpoint 5.3
Status: Old
AACSB: Analytical thinking
12) If income increases from $50,000 to $60,000 while the demand for a good increases from 100 units to 125 units, what is the income elasticity of demand? Is the good a normal good or an inferior good?
Topic: Income elasticity of demand, formula
Skill: Level 3: Using models
Section: Checkpoint 5.3
Status: Old
AACSB: Analytical thinking
13) The income elasticity of demand for movies in the United States is 3.41. If people's incomes decrease by 1 percent, what is the decrease in the quantity of movies demanded?
Topic: Income elasticity of demand, formula
Skill: Level 3: Using models
Section: Checkpoint 5.3
Status: Old
AACSB: Analytical thinking
14) The table above gives Sharon's demand for ground beef at two different income levels. Use the midpoint method in this problem.
a. What is the percentage change in Sharon's income?
b. What is the percentage change in the quantity demanded?
c. What is Sharon's income elasticity of demand for ground beef?
d. Is ground beef a normal or an inferior good for Sharon?
a. The percentage change in Sharon's income is 20 percent.
b. The percentage change in the quantity of ground beef demanded is 80 percent.
c. Sharon's income elasticity of demand for ground beef is 4.00.
d. Because the income elasticity is positive, ground beef is a normal good for Sharon.
Topic: Income elasticity of demand, formula
Skill: Level 3: Using models
Section: Checkpoint 5.3
Status: Old
AACSB: Analytical thinking
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Foundations of Microeconomics 9e | Test Bank with Answer Key by Robin Bade
By Robin Bade