econ 5 lol

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.

A Topic: Elastic demand Skill: Level 2: Using definitions Section: Checkpoint 5.1 Status: Old AACSB: Analytical

94) 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

A Topic: Elasticity and total revenue Skill: Level 2: Using definitions Section: Checkpoint 5.1 Status: Old AACSB: Reflective

98) 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

A Topic: Elasticity and total revenue Skill: Level 5: Critical

48) 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.

A Topic: Elasticity, fraction of income Skill: Level 2: Using definitions Section: Checkpoint 5.1 Status: Old AACSB: Reflective

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.

A Topic: Elasticity, substitutes Skill: Level 1: Definition Section: Checkpoint 5.1 Status: Old AACSB: Reflective

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.

A Topic: Elasticity, substitutes Skill: Level 1: Definition Section: Checkpoint 5.1 Status: Old AACSB: Reflective

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 donʹt have any effect on elasticity.

A Topic: Elasticity, substitutes Skill: Level 2: Using definitions Section: Checkpoint 5.1 Status: Old AACSB: Reflective

36) 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.

A Topic: Elasticity, substitutes Skill: Level 2: Using definitions Section: Checkpoint 5.1 Status: Old AACSB: Reflective

Page 461 Copyright © 2015 Pearson Education, Inc. 37) 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.

A Topic: Elasticity, substitutes Skill: Level 2: Using definitions Section: Checkpoint 5.1 Status: Old AACSB: Reflective

39) 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.

A Topic: Elasticity, time since the price changed Skill: Level 2: Using definitions Section: Checkpoint 5.1 Status: Old AACSB: Reflective

42) 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

A Topic: Elasticity, time since the price changed Skill: Level 2: Using definitions Section: Checkpoint 5.1 Status: Old AACSB: Reflective

Page 462 Copyright © 2015 Pearson Education, Inc. 40) 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.

A Topic: Elasticity, time since the price changed Skill: Level 2: Using definitions Section: Checkpoint 5.1 Status: Old AACSB: Reflective

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

A Topic: Factors that influence the price elasticity of demand Skill: Level 2: Using definitions Section: Checkpoint 5.1 Status: Old AACSB: Reflective

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.

A Topic: Inelastic demand Skill: Level 1: Definition Section: Checkpoint 5.1 Status: Old AACSB: Analytical

Page 452 Copyright © 2015 Pearson Education, Inc. 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.

A Topic: Midpoint formula Skill: Level 2: Using definitions Section: Checkpoint 5.1 Status: Old AACSB: Analytical

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

A Topic: Midpoint formula Skill: Level 3: Using models Section: Checkpoint 5.1 Status: Old AACSB: Analytical

Page 472 Copyright © 2015 Pearson Education, Inc. 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 the quantity demanded? A) 22.2 percent B) 10.0 percent C) 15.5 percent D) 5.2 percent E) 25 percent

A Topic: Midpoint formula Skill: Level 3: Using models Section: Checkpoint 5.1 Status: Old AACSB: Analytical

Page 455 Copyright © 2015 Pearson Education, Inc. 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.

A Topic: Perfectly elastic demand Skill: Level 2: Using definitions Section: Checkpoint 5.1 Status: Old AACSB: Analytical

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.

A Topic: Price elasticity of demand Skill: Level 1: Definition Section: Checkpoint 5.1 Status: Old AACSB: Reflective

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.

A Topic: Price elasticity of demand Skill: Level 2: Using definitions Section: Checkpoint 5.1 Status: Old AACSB: Analytical

49) 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.

A Topic: Price elasticity of demand, formula Skill: Level 2: Using definitions Section: Checkpoint 5.1 Status: Old AACSB: Reflective

Page 473 Copyright © 2015 Pearson Education, Inc. 77) Using the table above, what is the elasticity of demand between the prices of $6 and $4? A) 1 B) 3/2 C) 2/3 D) 2 E) 4

A Topic: Price elasticity of demand, formula Skill: Level 3: Using models Section: Checkpoint 5.1 Status: New AACSB: Analytical

52) 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.

A Topic: Price elasticity of demand, formula Skill: Level 3: Using models Section: Checkpoint 5.1 Status: Old AACSB: Analytical

54) 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.

A Topic: Price elasticity of demand, formula Skill: Level 3: Using models Section: Checkpoint 5.1 Status: Old AACSB: Analytical

55) 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.

A Topic: Price elasticity of demand, formula Skill: Level 3: Using models Section: Checkpoint 5.1 Status: Old AACSB: Analytical

62) When the price of a burrito increases from $2 to $4, the quantity demanded decreases from 50 to 40. Using the midpoint method, the price elasticity of demand equals A) 1/3. B) 3. C) 2. D) 1. E) 1/2.

A Topic: Price elasticity of demand, formula Skill: Level 3: Using models Section: Checkpoint 5.1 Status: Old AACSB: Analytical

63) When the price of Cosmopolitan magazine decreases from $5 to $3, the quantity demanded increases from 600,000 to 1,000,000 copies each month. Using the midpoint method, the price elasticity of demand equals A) 1. B) 3. C) 2. D) 1/3. E) 1/2.

A Topic: Price elasticity of demand, formula Skill: Level 3: Using models Section: Checkpoint 5.1 Status: Old AACSB: Analytical

67) 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. Using the midpoint method, the price elasticity of demand is A) 0.77. B) 1.30. C) 0.07. D) 3.00. E) 2.50.

A Topic: Price elasticity of demand, formula Skill: Level 3: Using models Section: Checkpoint 5.1 Status: Old AACSB: Analytical

70) 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.

A Topic: Price elasticity of demand, formula Skill: Level 3: Using models Section: Checkpoint 5.1 Status: Old AACSB: Analytical

79) In the figure above, using the midpoint method, the price elasticity of demand when the price falls from $8 to $7 is equal to A) 2.50. B) 1.63. C) 0.40. D) 0.62. E) 1.00.

A Topic: Price elasticity of demand, formula Skill: Level 3: Using models Section: Checkpoint 5.1 Status: Old AACSB: Analytical

83) When hamburger is $3 per pound, Ms. Rush buys 6 pounds. When hamburger is $2 per pound, Ms. Rush buys 10 pounds. Describe Ms. Rushʹs demand between these two prices. A) elastic B) unit elastic C) inelastic D) perfectly inelastic E) perfectly elastic

A Topic: Price elasticity of demand, formula Skill: Level 3: Using models Section: Checkpoint 5.1 Status: Old AACSB: Analytical

Page 466 Copyright © 2015 Pearson Education, Inc. 53) 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.

A Topic: Price elasticity of demand, formula Skill: Level 3: Using models Section: Checkpoint 5.1 Status: Old AACSB: Analytical

Page 470 Copyright © 2015 Pearson Education, Inc. 68) 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.

A Topic: Price elasticity of demand, formula Skill: Level 3: Using models Section: Checkpoint 5.1 Status: Old AACSB: Analytical

Page 471 Copyright © 2015 Pearson Education, Inc. Price (dollars per skirt) Quantity demanded (skirts per year) 20 30 35 25 71) 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? (Use the midpoint method.) A) 0.33 B) 0.25 C) 1.00 D) 1.33 E) 3.00

A Topic: Price elasticity of demand, formula Skill: Level 3: Using models Section: Checkpoint 5.1 Status: Old AACSB: Analytical

86) 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.

A Topic: Price elasticity of demand, linear demand curve Skill: Level 2: Using definitions Section: Checkpoint 5.1 Status: Old AACSB: Reflective

Page 475 Copyright © 2015 Pearson Education, Inc. 84) 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.

A Topic: Slope and elasticity Skill: Level 2: Using definitions Section: Checkpoint 5.1 Status: Old AACSB: Reflective

92) 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.

A Topic: Total revenue Skill: Level 1: Definition Section: Checkpoint 5.1 Status: Old AACSB: Reflective

Page 478 Copyright © 2015 Pearson Education, Inc. 93) Total revenue equals A) price × quantity sold. B) profit - cost. C) price. D) quantity sold - cost. E) cost × price.

A Topic: Total revenue Skill: Level 1: Definition Section: Checkpoint 5.1 Status: Old AACSB: Reflective

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.

B Topic: Elastic demand Skill: Level 2: Using definitions Section: Checkpoint 5.1 Status: Old AACSB: Analytical

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.

B Topic: Elastic demand Skill: Level 2: Using definitions Section: Checkpoint 5.1 Status: Old AACSB: Analytical

Page 454 Copyright © 2015 Pearson Education, Inc. 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.

B Topic: Elastic demand Skill: Level 2: Using definitions Section: Checkpoint 5.1 Status: Old AACSB: Analytical

Page 479 Copyright © 2015 Pearson Education, Inc. 96) 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.

B Topic: Elasticity and total revenue Skill: Level 2: Using definitions Section: Checkpoint 5.1 Status: Old AACSB: Reflective

97) 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.

B Topic: Elasticity and total revenue Skill: Level 3: Using models Section: Checkpoint 5.1 Status: Old AACSB: Reflective

44) 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.

B Topic: Elasticity, luxury good Skill: Level 2: Using definitions Section: Checkpoint 5.1 Status: Old AACSB: Reflective

Page 464 Copyright © 2015 Pearson Education, Inc. 47) 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

B Topic: Elasticity, necessities Skill: Level 2: Using definitions Section: Checkpoint 5.1 Status: Old AACSB: Reflective

38) 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.

B Topic: Elasticity, substitutes Skill: Level 2: Using definitions Section: Checkpoint 5.1 Status: Old AACSB: Reflective

41) 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 buyersʹ incomes. D) the inverse relationship between the price and the quantity demanded weakens over time. E) buyers get used to the new price.

B Topic: Elasticity, time since the price changed Skill: Level 2: Using definitions Section: Checkpoint 5.1 Status: Old AACSB: Reflective

Page 456 Copyright © 2015 Pearson Education, Inc. 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.

B Topic: Inelastic demand Skill: Level 2: Using definitions Section: Checkpoint 5.1 Status: Old AACSB: Analytical

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.

B Topic: Midpoint formula Skill: Level 2: Using definitions Section: Checkpoint 5.1 Status: Old AACSB: Analytical

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.

B Topic: Midpoint formula Skill: Level 2: Using definitions Section: Checkpoint 5.1 Status: Old AACSB: Reflective

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.

B Topic: Midpoint formula Skill: Level 3: Using models Section: Checkpoint 5.1 Status: Old AACSB: Analytical

Page 451 Copyright © 2015 Pearson Education, Inc. 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.

B Topic: Percentage change Skill: Level 2: Using definitions Section: Checkpoint 5.1 Status: Old AACSB: Reflective

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.

B Topic: Price elasticity of demand Skill: Level 2: Using definitions Section: Checkpoint 5.1 Status: Old AACSB: Reflective

51) 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.

B Topic: Price elasticity of demand, formula Skill: Level 2: Using definitions Section: Checkpoint 5.1 Status: Old AACSB: Reflective

66) A firm can sell 10 units if the price is $100 and can sell 8 units if the price is $125. Using the midpoint method, what is the price elasticity of demand? A) 0.75 B) 1.00 C) 1.25 D) 0.50 E) 0.0

B Topic: Price elasticity of demand, formula Skill: Level 3: Using models Section: Checkpoint 5.1 Status: Old AACSB: Analytical

Page 469 Copyright © 2015 Pearson Education, Inc. 64) 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.

B Topic: Price elasticity of demand, formula Skill: Level 3: Using models Section: Checkpoint 5.1 Status: Old AACSB: Analytical

Page 474 Copyright © 2015 Pearson Education, Inc. 80) In the figure above, using the midpoint method, the price elasticity of demand when the price falls from $7 to $6 is equal to A) 2.50. B) 1.63. C) 0.40. D) 0.62. E) 1.00.

B Topic: Price elasticity of demand, formula Skill: Level 3: Using models Section: Checkpoint 5.1 Status: Old AACSB: Analytical

85) 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

B Topic: Price elasticity of demand, linear demand curve Skill: Level 2: Using definitions Section: Checkpoint 5.1 Status: Old AACSB: Reflective

Page 477 Copyright © 2015 Pearson Education, Inc. 90) 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.

B Topic: Price elasticity of demand, linear demand curve Skill: Level 2: Using definitions Section: Checkpoint 5.1 Status: Old AACSB: Reflective

88) 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.

B Topic: Price elasticity of demand, linear demand curve Skill: Level 3: Using models Section: Checkpoint 5.1 Status: Old AACSB: Reflective

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.

B Topic: Unit elastic demand Skill: Level 1: Definition Section: Checkpoint 5.1 Status: Old AACSB: Analytical

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.

C Topic: Elastic demand Skill: Level 1: Definition Section: Checkpoint 5.1 Status: Old AACSB: Analytical

Page 453 Copyright © 2015 Pearson Education, Inc. 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.

C Topic: Elastic demand Skill: Level 2: Using definitions Section: Checkpoint 5.1 Status: Old AACSB: Reflective

46) 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

C Topic: Elasticity, necessities Skill: Level 2: Using definitions Section: Checkpoint 5.1 Status: Old AACSB: Reflective

Page 459 Copyright © 2015 Pearson Education, Inc. 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.

C Topic: Elasticity, substitutes Skill: Level 2: Using definitions Section: Checkpoint 5.1 Status: Old AACSB: Reflective

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.

C Topic: Inelastic demand Skill: Level 1: Definition Section: Checkpoint 5.1 Status: Old AACSB: Analytical

Price (dollars per pizza) Quantity demanded (pizzas per day) 10 100 9 125 73) 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

C Topic: Midpoint formula Skill: Level 3: Using models Section: Checkpoint 5.1 Status: Old AACSB: Analytical

Page 468 Copyright © 2015 Pearson Education, Inc. 60) 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.

C Topic: Price elasticity of demand Skill: Level 1: Definition Section: Checkpoint 5.1 Status: New AACSB: Reflective

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.

C Topic: Price elasticity of demand Skill: Level 1: Definition Section: Checkpoint 5.1 Status: Old AACSB: Reflective

6) To determine the price elasticity of demand, we A) need information on consumersʹ 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.

C Topic: Price elasticity of demand Skill: Level 2: Using definitions Section: Checkpoint 5.1 Status: Old AACSB: Reflective

72) Using the data in the table above, the demand for skirts is A) elastic. B) unit elastic. C) inelastic. D) indeterminate. E) perfectly inelastic.

C Topic: Price elasticity of demand Skill: Level 3: Using models Section: Checkpoint 5.1 Status: Old AACSB: Analytical

65) 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.

C Topic: Price elasticity of demand, formula Skill: Level 2: Using definitions Section: Checkpoint 5.1 Status: Old AACSB: Analytical

Page 465 Copyright © 2015 Pearson Education, Inc. 50) 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.

C Topic: Price elasticity of demand, formula Skill: Level 2: Using definitions Section: Checkpoint 5.1 Status: Old AACSB: Reflective

81) In the figure above, using the midpoint method, the price elasticity of demand when the price falls from $6 to $5 is equal to A) 2.50. B) 1.63. C) 1.10. D) 0.91. E) 1.00.

C Topic: Price elasticity of demand, formula Skill: Level 3: Using models Section: Checkpoint 5.1 Status: Old AACSB: Analytical

89) 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.

C Topic: Price elasticity of demand, linear demand curve Skill: Level 2: Using definitions Section: Checkpoint 5.1 Status: Old AACSB: Reflective

78) 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.

C Topic: Price elasticity of demand, linear demand curve Skill: Level 3: Using models Section: Checkpoint 5.1 Status: New AACSB: Analytical

91) 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.

C Topic: Price elasticity of demand, linear demand curve Skill: Level 3: Using models Section: Checkpoint 5.1 Status: Old AACSB: Reflective

Page 458 Copyright © 2015 Pearson Education, Inc. 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.

C Topic: Unit elastic demand Skill: Level 2: Using definitions Section: Checkpoint 5.1 Status: Old AACSB: Analytical

95) 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.

D Topic: Elasticity and total revenue Skill: Level 2: Using definitions Section: Checkpoint 5.1 Status: Old AACSB: Reflective

Page 463 Copyright © 2015 Pearson Education, Inc. 43) A productʹs 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.

D Topic: Elasticity, luxury good Skill: Level 2: Using definitions Section: Checkpoint 5.1 Status: Old AACSB: Reflective

45) The demand for a necessity generally is A) very elastic. B) infinitely elastic. C) unaffected by income. D) inelastic. E) unit elastic.

D Topic: Elasticity, necessities Skill: Level 2: Using definitions Section: Checkpoint 5.1 Status: Old AACSB: Reflective

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.

D Topic: Perfectly inelastic demand Skill: Level 2: Using definitions Section: Checkpoint 5.1 Status: Old AACSB: Reflective

Page 457 Copyright © 2015 Pearson Education, Inc. 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.

D Topic: Perfectly inelastic demand Skill: Level 2: Using definitions Section: Checkpoint 5.1 Status: Old AACSB: Reflective

Page 450 Copyright © 2015 Pearson Education, Inc. 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

D Topic: Price elasticity of demand Skill: Level 1: Definition Section: Checkpoint 5.1 Status: Old AACSB: Reflective

Price (dollars) Quantity 10 0 9 1 8 2 7 3 6 4 5 5 4 6 3 7 2 8 1 9 76) Using the table above, what is the elasticity of demand between the prices of $9 and $7? A) 1/4 B) 1 C) 2 D) 4 E) 6

D Topic: Price elasticity of demand, formula Skill: Level 3: Using models Section: Checkpoint 5.1 Status: New AACSB: Analytical

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) 4; elastic E) 0; perfectly elastic

D Topic: Price elasticity of demand, formula Skill: Level 3: Using models Section: Checkpoint 5.1 Status: Old AACSB: Analytical

58) 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

D Topic: Price elasticity of demand, formula Skill: Level 3: Using models Section: Checkpoint 5.1 Status: Old AACSB: Analytical

59) 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

D Topic: Price elasticity of demand, formula Skill: Level 3: Using models Section: Checkpoint 5.1 Status: Old AACSB: Analytical

61) Suppose the price of a ticket to a Lenny Kravitz concert is $41 and at that price, the quantity of tickets demanded is 17,000 per concert. Using the midpoint method of calculating percentage changes, if Mr. Kravitz raises the price to $48 and the quantity demanded decreases to 16,000, the price elasticity of demand for his concert tickets is A) 15.73. B) 6.06. C) 1.00. D) 0.39. E) 0.93.

D Topic: Price elasticity of demand, formula Skill: Level 3: Using models Section: Checkpoint 5.1 Status: Old AACSB: Analytical

69) 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.

D Topic: Price elasticity of demand, formula Skill: Level 3: Using models Section: Checkpoint 5.1 Status: Old AACSB: Analytical

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 price elasticity of demand? A) 0.5 B) 0.6 C) 0.9 D) 2.1 E) 8.6

D Topic: Price elasticity of demand, formula Skill: Level 3: Using models Section: Checkpoint 5.1 Status: Old AACSB: Analytical

Page 467 Copyright © 2015 Pearson Education, Inc. 56) 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

D Topic: Price elasticity of demand, formula Skill: Level 3: Using models Section: Checkpoint 5.1 Status: Old AACSB: Analytical

82) 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.

D Topic: Price elasticity of demand, formula Skill: Level 4: Applying models Section: Checkpoint 5.1 Status: Old AACSB: Analytical

Page 476 Copyright © 2015 Pearson Education, Inc. 87) 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.

D Topic: Price elasticity of demand, linear demand curve Skill: Level 3: Using models Section: Checkpoint 5.1 Status: Old AACSB: Reflective

Page 460 Copyright © 2015 Pearson Education, Inc. 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

E Topic: Elasticity, substitutes Skill: Level 2: Using definitions Section: Checkpoint 5.1 Status: Old AACSB: Reflective

35) 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.

E Topic: Price elasticity of demand Skill: Level 5: Critical

29) 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

A Topic: Cross elasticity of demand, complements Skill: Level 2: Using definitions Section: Checkpoint 5.3 Status: Old AACSB: Reflective

Page 517 Copyright © 2015 Pearson Education, Inc. 28) 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.

A Topic: Cross elasticity of demand, complements Skill: Level 2: Using definitions Section: Checkpoint 5.3 Status: Old AACSB: Reflective

Page 518 Copyright © 2015 Pearson Education, Inc. 31) 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.

A Topic: Cross elasticity of demand, complements Skill: Level 2: Using definitions Section: Checkpoint 5.3 Status: Old AACSB: Reflective

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.

A Topic: Cross elasticity of demand, formula Skill: Level 2: Using definitions Section: Checkpoint 5.3 Status: Old AACSB: Reflective

8) If the price of a movie rises 3 percent and, as a result, the quantity demanded of video rentals increases 6 percent, then the cross elasticity of demand is A) 2. B) 1/2. C) -1/2. D) -2. E) 9.

A Topic: Cross elasticity of demand, formula Skill: Level 3: Using models Section: Checkpoint 5.3 Status: Old AACSB: Analytical

Page 511 Copyright © 2015 Pearson Education, Inc. Price (dollars per cake) Quantity demanded (gallons of ice cream per week) 2 10 4 6 9) Based on data in the table above, use the midpoint method to determine 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.

A Topic: Cross elasticity of demand, formula Skill: Level 3: Using models Section: Checkpoint 5.3 Status: Old AACSB: Analytical

14) 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.

A Topic: Cross elasticity of demand, substitutes Skill: Level 1: Definition Section: Checkpoint 5.3 Status: Old AACSB: Reflective

13) 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.

A Topic: Cross elasticity of demand, substitutes Skill: Level 2: Using definitions Section: Checkpoint 5.3 Status: Old AACSB: Reflective

Page 512 Copyright © 2015 Pearson Education, Inc. 12) 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.

A Topic: Cross elasticity of demand, substitutes Skill: Level 2: Using definitions Section: Checkpoint 5.3 Status: Old AACSB: Reflective

Page 513 Copyright © 2015 Pearson Education, Inc. 15) 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.

A Topic: Cross elasticity of demand, substitutes Skill: Level 3: Using models Section: Checkpoint 5.3 Status: New AACSB: Analytical

17) 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.

A Topic: Cross elasticity of demand, substitutes Skill: Level 5: Critical

Page 490 Copyright © 2015 Pearson Education, Inc. 126) Demand is elastic if A) consumers respond strongly to changes in the productʹs 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.

A Topic: Elastic demand Skill: Level 2: Using definitions Section: Checkpoint 5.1 Status: Old AACSB: Reflective

Page 482 Copyright © 2015 Pearson Education, Inc. 105) 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 bakeryʹs 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

A Topic: Elasticity and total revenue Skill: Level 2: Using definitions Section: Checkpoint 5.1 Status: Old AACSB: Analytical

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) only iii B) only i C) only ii D) i and ii E) i and iii

A Topic: Elasticity and total revenue Skill: Level 3: Using models Section: Checkpoint 5.1 Status: Old AACSB: Analytical

101) 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.

A Topic: Elasticity and total revenue Skill: Level 3: Using models Section: Checkpoint 5.1 Status: Old AACSB: Analytical

104) 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

A Topic: Elasticity and total revenue Skill: Level 3: Using models Section: Checkpoint 5.1 Status: Old AACSB: Analytical

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

A Topic: Elasticity and total revenue Skill: Level 3: Using models Section: Checkpoint 5.1 Status: Old AACSB: Analytical

131) 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.

A Topic: Elasticity and total revenue Skill: Level 3: Using models Section: Checkpoint 5.1 Status: Old AACSB: Reflective

Page 480 Copyright © 2015 Pearson Education, Inc. 99) 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

A Topic: Elasticity and total revenue Skill: Level 3: Using models Section: Checkpoint 5.1 Status: Old AACSB: Reflective

107) 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.

A Topic: Elasticity and total revenue Skill: Level 4: Applying models Section: Checkpoint 5.1 Status: Old AACSB: Reflective

Page 498 Copyright © 2015 Pearson Education, Inc. 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.

A Topic: Factors that influence the price elasticity of supply Skill: Level 2: Using definitions Section: Checkpoint 5.2 Status: Old AACSB: Reflective

66) 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.

A Topic: Income elasticity of demand, formula Skill: Level 3: Using models Section: Checkpoint 5.3 Status: Old AACSB: Analytical

68) 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

A Topic: Income elasticity of demand, formula Skill: Level 3: Using models Section: Checkpoint 5.3 Status: Old AACSB: Analytical

70) 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.

A Topic: Income elasticity of demand, inferior good Skill: Level 2: Using definitions Section: Checkpoint 5.3 Status: Old AACSB: Reflective

36) 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.

A Topic: Income elasticity of demand, normal good Skill: Level 2: Using definitions Section: Checkpoint 5.3 Status: Old AACSB: Reflective

42) 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.

A Topic: Income elasticity of demand, normal good Skill: Level 2: Using definitions Section: Checkpoint 5.3 Status: Old AACSB: Reflective

Page 520 Copyright © 2015 Pearson Education, Inc. 37) 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

A Topic: Income elasticity of demand, normal good Skill: Level 2: Using definitions Section: Checkpoint 5.3 Status: Old AACSB: Reflective

Page 521 Copyright © 2015 Pearson Education, Inc. 40) 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

A Topic: Income elasticity of demand, normal good Skill: Level 2: Using definitions Section: Checkpoint 5.3 Status: Old AACSB: Reflective

44) 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.

A Topic: Income elasticity of demand, normal good Skill: Level 3: Using models Section: Checkpoint 5.3 Status: Old AACSB: Reflective

38) 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

A Topic: Income elasticity, normal good Skill: Level 4: Applying models Section: Checkpoint 5.3 Status: Old AACSB: Reflective

127) During the winter of 2011-2012, 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.

A Topic: Inelastic demand Skill: Level 2: Using definitions Section: Checkpoint 5.1 Status: Old AACSB: Reflective

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) only i B) only ii C) only iii D) i and ii E) i and iii

A Topic: Integrative Skill: Level 2: Using definitions Section: Integrative Status: Old AACSB: Reflective

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) only i B) only ii C) only iii D) i and ii E) ii and iii

A Topic: Integrative Skill: Level 2: Using definitions Section: Integrative Status: Old AACSB: Reflective

Page 541 Copyright © 2015 Pearson Education, Inc. 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. Using the midpoint method, 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.

A Topic: Integrative Skill: Level 3: Using models Section: Integrative Status: Old AACSB: Analytical

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

A Topic: Integrative Skill: Level 3: Using models Section: Integrative Status: Old AACSB: Reflective

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.

A Topic: Midpoint formula Skill: Level 3: Using models Section: Checkpoint 5.1 Status: Old AACSB: Analytical

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.

A Topic: Midpoint formula Skill: Level 3: Using models Section: Checkpoint 5.1 Status: Old AACSB: Analytical

Page 537 Copyright © 2015 Pearson Education, Inc. 9) In the figure above, when the price rises from $3 to $4, the price elasticity of demand is A) 1.4. B) 2. C) 0.71. D) 0.4. E) 1.

A Topic: Midpoint formula Skill: Level 3: Using models Section: Checkpoint 5.1 Status: Old AACSB: Analytical

Page 538 Copyright © 2015 Pearson Education, Inc. 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.

A Topic: Midpoint formula Skill: Level 3: Using models Section: Checkpoint 5.1 Status: Old AACSB: Analytical

Page 531 Copyright © 2015 Pearson Education, Inc. 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.

A Topic: Perfectly elastic demand Skill: Level 2: Using definitions Section: Checkpoint 5.1 Status: Old AACSB: Analytical

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

A Topic: Price elasticity of supply Skill: Level 2: Using definitions Section: Checkpoint 5.2 Status: Old AACSB: Reflective

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.

A Topic: Price elasticity of supply Skill: Level 3: Using models Section: Checkpoint 5.2 Status: Old AACSB: Analytical

Page 540 Copyright © 2015 Pearson Education, Inc. 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.

A Topic: Price elasticity of supply Skill: Level 3: Using models Section: Checkpoint 5.2 Status: Old AACSB: Analytical

39) 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.

A Topic: Price elasticity of supply, elastic Skill: Level 1: Definition Section: Checkpoint 5.2 Status: Old AACSB: Analytical

34) 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.

A Topic: Price elasticity of supply, elastic Skill: Level 1: Definition Section: Checkpoint 5.2 Status: Old AACSB: Reflective

45) 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. The supply of textbooks is A) elastic B) perfectly elastic C) inelastic D) perfectly inelastic E) unit elastic.

A Topic: Price elasticity of supply, elastic Skill: Level 3: Using models Section: Checkpoint 5.2 Status: Old AACSB: Analytical

19) 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.

A Topic: Price elasticity of supply, formula Skill: Level 3: Using models Section: Checkpoint 5.2 Status: Old AACSB: Analytical

22) 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.

A Topic: Price elasticity of supply, formula Skill: Level 3: Using models Section: Checkpoint 5.2 Status: Old AACSB: Analytical

24) 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.

A Topic: Price elasticity of supply, formula Skill: Level 3: Using models Section: Checkpoint 5.2 Status: Old AACSB: Analytical

28) 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. Using the midpoint method, 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.

A Topic: Price elasticity of supply, formula Skill: Level 3: Using models Section: Checkpoint 5.2 Status: Old AACSB: Analytical

Page 501 Copyright © 2015 Pearson Education, Inc. 27) 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. Using the midpoint method, 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.

A Topic: Price elasticity of supply, formula Skill: Level 3: Using models Section: Checkpoint 5.2 Status: Old AACSB: Analytical

Page 502 Copyright © 2015 Pearson Education, Inc. 31) 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, using the midpoint formula the elasticity of supply equals A) 0.33. B) 2.94. C) 3.08. D) 0.23. E) -3.08.

A Topic: Price elasticity of supply, formula Skill: Level 3: Using models Section: Checkpoint 5.2 Status: Old AACSB: Analytical

Page 499 Copyright © 2015 Pearson Education, Inc. 20) It is very difficult for Gourmet Chocolatier to find inexpensive and available inputs for the business. Because of this, we predict that Gourmet Chocolatierʹs supply to be A) inelastic. B) perfectly elastic. C) elastic. D) unit elastic. E) nonexistent.

A Topic: Price elasticity of supply, inelastic Skill: Level 3: Using models Section: Checkpoint 5.2 Status: Old AACSB: Reflective

Page 495 Copyright © 2015 Pearson Education, Inc. 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.

A Topic: Price elasticity of supply, perfectly elastic Skill: Level 3: Using models Section: Checkpoint 5.2 Status: Old AACSB: Analytical

37) 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.

A Topic: Price elasticity of supply, perfectly inelastic Skill: Level 2: Using definitions Section: Checkpoint 5.2 Status: Old AACSB: Reflective

Page 496 Copyright © 2015 Pearson Education, Inc. 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.

A Topic: Price elasticity of supply, production possibilities Skill: Level 2: Using definitions Section: Checkpoint 5.2 Status: Old AACSB: Reflective

Page 497 Copyright © 2015 Pearson Education, Inc. 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

A Topic: Price elasticity of supply, production possibilities Skill: Level 5: Critical

Page 506 Copyright © 2015 Pearson Education, Inc. 44) 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

A Topic: Price elasticity of supply, time elapsed after a price change Skill: Level 2: Using definitions Section: Checkpoint 5.2 Status: Old AACSB: Reflective

118) A firm raises the price it charges. The firmʹs 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.

A Topic: Total revenue test Skill: Level 2: Using definitions Section: Checkpoint 5.1 Status: Old AACSB: Reflective

121) 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.

A Topic: Total revenue test Skill: Level 2: Using definitions Section: Checkpoint 5.1 Status: Old AACSB: Reflective

116) In the figure above, if the price falls from $8 to $7, demand is A) elastic. B) inelastic. C) unit elastic. D) income elastic. E) perfectly elastic.

A Topic: Total revenue test Skill: Level 3: Using models Section: Checkpoint 5.1 Status: Old AACSB: Analytical

Page 487 Copyright © 2015 Pearson Education, Inc. 117) 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.

A Topic: Total revenue test Skill: Level 3: Using models Section: Checkpoint 5.1 Status: Old AACSB: Analytical

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.

A Topic: Unit elastic demand Skill: Level 1: Definition Section: Checkpoint 5.1 Status: Old AACSB: Analytical

Page 545 Copyright © 2015 Pearson Education, Inc. 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?

A decrease in supply raises the price more when demand is inelastic. The skyrocketing price of gasoline indicates that the demand for gasoline is inelastic. Topic: Price elasticity of demand Skill: Level 2: Using definitions Section: Checkpoint 5.1 Status: Old AACSB: Analytical

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.

B Topic: Cross elasticity of demand Skill: Level 1: Definition Section: Checkpoint 5.3 Status: Old AACSB: Reflective

60) 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.

B Topic: Cross elasticity of demand Skill: Level 2: Using definitions Section: Checkpoint 5.3 Status: Old AACSB: Reflective

32) 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.

B Topic: Cross elasticity of demand, complements Skill: Level 2: Using definitions Section: Checkpoint 5.3 Status: Old AACSB: Reflective

33) 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.

B Topic: Cross elasticity of demand, complements Skill: Level 3: Using models Section: Checkpoint 5.3 Status: Old AACSB: Analytical

64) 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.

B Topic: Cross elasticity of demand, complements Skill: Level 3: Using models Section: Checkpoint 5.3 Status: Old AACSB: Analytical

16) 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.

B Topic: Cross elasticity of demand, substitutes Skill: Level 2: Using definitions Section: Checkpoint 5.3 Status: Old AACSB: Reflective

19) 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.

B Topic: Cross elasticity of demand, substitutes Skill: Level 2: Using definitions Section: Checkpoint 5.3 Status: Old AACSB: Reflective

61) 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.

B Topic: Cross elasticity of demand, substitutes Skill: Level 2: Using definitions Section: Checkpoint 5.3 Status: Old AACSB: Reflective

Page 515 Copyright © 2015 Pearson Education, Inc. 22) Pete feeds his dog 100 percent more Pup-Peronis when Zukeʹs treats increase in price by 50 percent. For Pete, Pup-Peronis and Zukeʹs 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

B Topic: Cross elasticity of demand, substitutes Skill: Level 3: Using models Section: Checkpoint 5.3 Status: Old AACSB: Analytical

Page 536 Copyright © 2015 Pearson Education, Inc. 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) only iii B) only i C) only ii D) i and ii E) i and iii

B Topic: Elastic demand Skill: Level 3: Using models Section: Checkpoint 5.1 Status: Old AACSB: Analytical

103) 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.

B Topic: Elasticity and total revenue Skill: Level 2: Using definitions Section: Checkpoint 5.1 Status: Old AACSB: Analytical

110) KFC raises the price of its grilled chicken. The price elasticity of demand for KFC grilled chicken is 0.8. What happens to the KFCʹs 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.

B Topic: Elasticity and total revenue Skill: Level 2: Using definitions Section: Checkpoint 5.1 Status: Old AACSB: Analytical

Page 481 Copyright © 2015 Pearson Education, Inc. 102) 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.

B Topic: Elasticity and total revenue Skill: Level 2: Using definitions Section: Checkpoint 5.1 Status: Old AACSB: Analytical

106) 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.

B Topic: Elasticity and total revenue Skill: Level 2: Using definitions Section: Checkpoint 5.1 Status: Old AACSB: Reflective

100) 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.

B Topic: Elasticity and total revenue Skill: Level 3: Using models Section: Checkpoint 5.1 Status: Old AACSB: Analytical

114) 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.

B Topic: Elasticity and total revenue Skill: Level 3: Using models Section: Checkpoint 5.1 Status: Old AACSB: Analytical

Page 527 Copyright © 2015 Pearson Education, Inc. 59) 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.

B Topic: Eye on the global economy, income elasticities of demand Skill: Level 4: Applying models Section: Checkpoint 5.3 Status: Old AACSB: Reflective

58) 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.

B Topic: Income elasticity of demand Skill: Level 4: Applying models Section: Checkpoint 5.3 Status: Old AACSB: Reflective

35) 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.

B Topic: Income elasticity of demand, formula Skill: Level 3: Using models Section: Checkpoint 5.3 Status: Old AACSB: Analytical

Page 525 Copyright © 2015 Pearson Education, Inc. 53) 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.

B Topic: Income elasticity of demand, inferior good Skill: Level 2: Using definitions Section: Checkpoint 5.3 Status: Old AACSB: Reflective

Page 530 Copyright © 2015 Pearson Education, Inc. 71) An inferior good has a ________ elasticity of demand. A) positive income B) negative income C) negative cross D) positive cross E) negative price

B Topic: Income elasticity of demand, inferior good Skill: Level 2: Using definitions Section: Checkpoint 5.3 Status: Old AACSB: Reflective

54) 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

B Topic: Income elasticity of demand, inferior good Skill: Level 3: Using models Section: Checkpoint 5.3 Status: Old AACSB: Analytical

41) 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.

B Topic: Income elasticity of demand, normal good Skill: Level 2: Using definitions Section: Checkpoint 5.3 Status: Old AACSB: Reflective

69) 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.

B Topic: Income elasticity of demand, normal good Skill: Level 2: Using definitions Section: Checkpoint 5.3 Status: Old AACSB: Reflective

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.

B Topic: Integrative Skill: Level 2: Using definitions Section: Integrative Status: Old AACSB: Reflective

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.

B Topic: Integrative Skill: Level 3: Using models Section: Integrative Status: Old AACSB: Reflective

8) In the figure above, when the price falls from $5 to $4, the price elasticity of demand is A) 2. B) 3. C) 0.75. D) 1.5. E) 0.33.

B Topic: Midpoint formula Skill: Level 3: Using models Section: Checkpoint 5.1 Status: Old AACSB: Analytical

Page 532 Copyright © 2015 Pearson Education, Inc. 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.

B Topic: Perfectly inelastic demand Skill: Level 2: Using definitions Section: Checkpoint 5.1 Status: Old AACSB: Analytical

Page 491 Copyright © 2015 Pearson Education, Inc. 129) 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.

B Topic: Price elasticity of demand, formula Skill: Level 2: Using definitions Section: Checkpoint 5.1 Status: Old AACSB: Analytical

130) The price of a bag of pretzels rises from $2 to $3 and the quantity demanded decreases from 100 to 60. What is the price elasticity of demand? A) 1.0 B) 1.25 C) 40.0 D) 20.0 E) 0.80

B Topic: Price elasticity of demand, formula Skill: Level 3: Using models Section: Checkpoint 5.1 Status: Old AACSB: Analytical

Page 486 Copyright © 2015 Pearson Education, Inc. 115) In the figure above, using the midpoint method, what is the price elasticity of demand when the price falls from $8 to $7? A) 4.0 B) 5.0 C) 0.5 D) 0.4 E) 0.25

B Topic: Price elasticity of demand, formula Skill: Level 3: Using models Section: Checkpoint 5.1 Status: Old AACSB: Analytical

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.

B Topic: Price elasticity of supply Skill: Level 1: Definition Section: Checkpoint 5.2 Status: Old AACSB: Reflective

Page 494 Copyright © 2015 Pearson Education, Inc. 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.

B Topic: Price elasticity of supply Skill: Level 3: Using models Section: Checkpoint 5.2 Status: Old AACSB: Analytical

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

B Topic: Price elasticity of supply, elastic Skill: Level 2: Using definitions Section: Checkpoint 5.2 Status: Old AACSB: Analytical

Page 493 Copyright © 2015 Pearson Education, Inc. 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.

B Topic: Price elasticity of supply, formula Skill: Level 2: Using definitions Section: Checkpoint 5.2 Status: Old AACSB: Analytical

48) 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.

B Topic: Price elasticity of supply, formula Skill: Level 2: Using definitions Section: Checkpoint 5.2 Status: Old AACSB: Reflective

26) 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. Using the midpoint method, Jessʹs price elasticity of supply is equal to A) 1.33. B) 0.75. C) 3.00. D) 4.00. E) 1.50.

B Topic: Price elasticity of supply, formula Skill: Level 3: Using models Section: Checkpoint 5.2 Status: Old AACSB: Analytical

29) Suppose a decrease in demand causes the price to decrease from $4 to $3 and the quantity to decrease from 1,000 to 700. Using the midpoint method, 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.

B Topic: Price elasticity of supply, formula Skill: Level 3: Using models Section: Checkpoint 5.2 Status: Old AACSB: Analytical

33) 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.

B Topic: Price elasticity of supply, formula Skill: Level 3: Using models Section: Checkpoint 5.2 Status: Old AACSB: Analytical

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.

B Topic: Price elasticity of supply, inelastic Skill: Level 1: Definition Section: Checkpoint 5.2 Status: Old AACSB: Analytical

Page 507 Copyright © 2015 Pearson Education, Inc. 47) 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.

B Topic: Price elasticity of supply, perfectly inelastic Skill: Level 2: Using definitions Section: Checkpoint 5.2 Status: Old AACSB: Reflective

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

B Topic: Price elasticity of supply, perfectly inelastic Skill: Level 3: Using models Section: Checkpoint 5.2 Status: Old AACSB: Reflective

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.

B Topic: Price elasticity of supply, production possibilities Skill: Level 2: Using definitions Section: Checkpoint 5.2 Status: Old AACSB: Reflective

43) 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.

B Topic: Price elasticity of supply, time elapsed after a price change Skill: Level 2: Using definitions Section: Checkpoint 5.2 Status: Old AACSB: Reflective

119) A firm raises the price it charges. The firmʹs 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.

B Topic: Total revenue test Skill: Level 2: Using definitions Section: Checkpoint 5.1 Status: Old AACSB: Reflective

Page 559 Copyright © 2015 Pearson Education, Inc. Price (dollars) Quantity supplied (units per week) A 100 120 B 80 100 C 60 80 D 40 60 E 20 40 9) The table above gives the supply schedule for a product. Using the midpoint method, find the price elasticity of supply between points A and B, between B and C, between C and D, and between D and E.

Between A and B, the elasticity of supply is 0.82. Between B and C, the elasticity of supply is 0.78. Between C and D, the elasticity of supply is 0.71. Between D and E, the elasticity of supply is 0.60. Topic: Price elasticity of supply, formula Skill: Level 3: Using models Section: Checkpoint 5.2 Status: Old AACSB: Analytical

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.

C Topic: Cross elasticity of demand Skill: Level 1: Definition Section: Checkpoint 5.3 Status: Old AACSB: Reflective

23) 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.

C Topic: Cross elasticity of demand, complements Skill: Level 2: Using definitions Section: Checkpoint 5.3 Status: Old AACSB: Reflective

24) 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.

C Topic: Cross elasticity of demand, complements Skill: Level 2: Using definitions Section: Checkpoint 5.3 Status: Old AACSB: Reflective

26) 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.

C Topic: Cross elasticity of demand, complements Skill: Level 2: Using definitions Section: Checkpoint 5.3 Status: Old AACSB: Reflective

27) 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.

C Topic: Cross elasticity of demand, complements Skill: Level 2: Using definitions Section: Checkpoint 5.3 Status: Old AACSB: Reflective

62) 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. The cross elasticity of demand is equal to A) -0.25. B) -0.40. C) -2.50. D) -25.00. E) 4.00.

C Topic: Cross elasticity of demand, formula Skill: Level 3: Using models Section: Checkpoint 5.3 Status: Old AACSB: Analytical

Page 510 Copyright © 2015 Pearson Education, Inc. 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.

C Topic: Cross elasticity of demand, formula Skill: Level 3: Using models Section: Checkpoint 5.3 Status: Old AACSB: Analytical

Page 514 Copyright © 2015 Pearson Education, Inc. 18) 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.

C Topic: Cross elasticity of demand, substitutes Skill: Level 2: Using definitions Section: Checkpoint 5.3 Status: Old AACSB: Reflective

21) 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.

C Topic: Cross elasticity of demand, substitutes Skill: Level 3: Using models Section: Checkpoint 5.3 Status: Old AACSB: Analytical

20) 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

C Topic: Cross elasticity of demand, substitutes Skill: Level 3: Using models Section: Checkpoint 5.3 Status: Old AACSB: Reflective

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 Windowsʹ 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.

C Topic: Cross elasticity of demand, substitutes Skill: Level 4: Applying models Section: Checkpoint 5.3 Status: Old AACSB: Reflective

109) 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 Hutʹs 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.

C Topic: Elasticity and total revenue Skill: Level 2: Using definitions Section: Checkpoint 5.1 Status: Old AACSB: Analytical

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. Using the midpoint method, 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.

C Topic: Integrative Skill: Level 3: Using models Section: Integrative Status: Old AACSB: Analytical

Page 483 Copyright © 2015 Pearson Education, Inc. 108) Taco Bell firm raises the price of its tacos. The price elasticity of demand for Taco Bell tacos equals 5.0. What happens to the Taco Bellʹs 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.

C Topic: Elasticity and total revenue Skill: Level 2: Using definitions Section: Checkpoint 5.1 Status: Old AACSB: Analytical

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

C Topic: Elasticity and total revenue Skill: Level 3: Using models Section: Checkpoint 5.1 Status: Old AACSB: Analytical

18) One reason why the price elasticity of supply for DVD players is greater than one is that A) the cost of producing DVD players is small. B) the storage of DVD players is not possible. C) DVD players can be easily stored. D) the demand for DVD players is fairly large. E) DVD players require relatively advanced technology for their production.

C Topic: Factors that influence the price elasticity of supply Skill: Level 2: Using definitions Section: Checkpoint 5.2 Status: Old AACSB: Reflective

72) 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

C Topic: Income elasticity of demand Skill: Level 2: Using definitions Section: Checkpoint 5.3 Status: New AACSB: Reflective

45) 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.

C Topic: Income elasticity of demand Skill: Level 3: Using models Section: Checkpoint 5.3 Status: Old AACSB: Reflective

48) 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

C Topic: Income elasticity of demand, inferior good Skill: Level 1: Definition Section: Checkpoint 5.3 Status: Old AACSB: Reflective

50) Goods are ________ when the income elasticity of demand is less than zero. A) substitutes B) complements C) inferior D) elastic E) normal

C Topic: Income elasticity of demand, inferior good Skill: Level 2: Using definitions Section: Checkpoint 5.3 Status: Old AACSB: Reflective

51) If a product is an inferior good, then its income elasticity of demand is A) zero. B) positive. C) negative. D) indeterminate. E) undefined.

C Topic: Income elasticity of demand, inferior good Skill: Level 2: Using definitions Section: Checkpoint 5.3 Status: Old AACSB: Reflective

52) 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.

C Topic: Income elasticity of demand, inferior good Skill: Level 2: Using definitions Section: Checkpoint 5.3 Status: Old AACSB: Reflective

57) 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.

C Topic: Income elasticity of demand, inferior good Skill: Level 3: Using models Section: Checkpoint 5.3 Status: Old AACSB: Analytical

Page 526 Copyright © 2015 Pearson Education, Inc. 56) 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.

C Topic: Income elasticity of demand, inferior good Skill: Level 3: Using models Section: Checkpoint 5.3 Status: Old AACSB: Analytical

47) 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 peopleʹs 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

C Topic: Income elasticity of demand, inferior good Skill: Level 4: Applying models Section: Checkpoint 5.3 Status: Old AACSB: Reflective

39) 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.

C Topic: Income elasticity of demand, normal good Skill: Level 2: Using definitions Section: Checkpoint 5.3 Status: Old AACSB: Reflective

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.

C Topic: Integrative Skill: Level 3: Using models Section: Integrative Status: Old AACSB: Reflective

Page 543 Copyright © 2015 Pearson Education, Inc. 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

C Topic: Integrative Skill: Level 3: Using models Section: Integrative Status: Old AACSB: Reflective

125) 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

C Topic: Midpoint formula Skill: Level 2: Using definitions Section: Checkpoint 5.1 Status: Old AACSB: Analytical

Page 539 Copyright © 2015 Pearson Education, Inc. 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.

C Topic: Midpoint formula Skill: Level 3: Using models Section: Checkpoint 5.1 Status: Old AACSB: Analytical

Page 489 Copyright © 2015 Pearson Education, Inc. 123) 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 buyersʹ 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

C Topic: Price elasticity of demand Skill: Level 1: Definition Section: Checkpoint 5.1 Status: Old AACSB: Reflective

Page 485 Copyright © 2015 Pearson Education, Inc. 113) In the figure above, using the midpoint method, what is the price elasticity of demand between points A and B? A) 0.05 B) 0.13 C) 0.43 D) 1.00 E) 2.33

C Topic: Price elasticity of demand, formula Skill: Level 3: Using models Section: Checkpoint 5.1 Status: Old AACSB: Analytical

Page 492 Copyright © 2015 Pearson Education, Inc. 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.

C Topic: Price elasticity of supply Skill: Level 1: Definition Section: Checkpoint 5.2 Status: Old AACSB: Reflective

25) 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 using the midpoint method, the price elasticity of supply for barley equals A) 13.33. B) 26.78. C) 1.96. D) 0.51. E) zero.

C Topic: Price elasticity of supply, formula Skill: Level 3: Using models Section: Checkpoint 5.2 Status: Old AACSB: Analytical

30) When the price of a product increases from $35 to $45, the quantity supplied increases from 30 units to 40 units per week. Using the midpoint method, the price elasticity of supply is A) 0.00. B) -1.1. C) 1.14. D) 1.35. E) 0.88.

C Topic: Price elasticity of supply, formula Skill: Level 3: Using models Section: Checkpoint 5.2 Status: Old AACSB: Analytical

32) If the price of a good decreases from $9 to $6 and the quantity supplied decreases from 1,500 to 1,300, using the midpoint formula the elasticity of supply equals A) 0.20. B) 2.80. C) 0.36. D) 0.40. E) 3.20.

C Topic: Price elasticity of supply, formula Skill: Level 3: Using models Section: Checkpoint 5.2 Status: Old AACSB: Analytical

49) If a firm supplies 200 units at a price of $50 and 100 units at a price of $40, using the midpoint method, what is the price elasticity of supply? A) 0.33 B) 1.00 C) 3.00 D) 5.00 E) 8.50

C Topic: Price elasticity of supply, formula Skill: Level 3: Using models Section: Checkpoint 5.2 Status: Old AACSB: Analytical

36) 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.

C Topic: Price elasticity of supply, inelastic Skill: Level 2: Using definitions Section: Checkpoint 5.2 Status: Old AACSB: Reflective

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.

C Topic: Price elasticity of supply, production possibilities Skill: Level 2: Using definitions Section: Checkpoint 5.2 Status: Old AACSB: Reflective

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.

C Topic: Price elasticity of supply, production possibilities Skill: Level 2: Using definitions Section: Checkpoint 5.2 Status: Old AACSB: Reflective

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.

C Topic: Price elasticity of supply, unit elastic Skill: Level 1: Definition Section: Checkpoint 5.2 Status: Old AACSB: Analytical

Page 503 Copyright © 2015 Pearson Education, Inc. 35) 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.

C Topic: Price elasticity of supply, unit elastic Skill: Level 1: Definition Section: Checkpoint 5.2 Status: Old AACSB: Analytical

46) 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.

C Topic: Price elasticity of supply, unit elastic Skill: Level 2: Using definitions Section: Checkpoint 5.2 Status: Old AACSB: Analytical

Page 488 Copyright © 2015 Pearson Education, Inc. 120) A firm lowers the price it charges. The firmʹs 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.

C Topic: Total revenue test Skill: Level 2: Using definitions Section: Checkpoint 5.1 Status: Old AACSB: Reflective

Page 533 Copyright © 2015 Pearson Education, Inc. 3) The demand curve shown in the figure above is ________ over the price range from $95 to $105 per trip. A) perfectly elastic B) perfectly inelastic C) unit elastic D) elastic but not perfectly elastic E) inelastic but not perfectly inelastic

C Topic: Unit elastic demand Skill: Level 3: Using models Section: Checkpoint 5.1 Status: Old AACSB: Analytical

Page 509 Copyright © 2015 Pearson Education, Inc. 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.

D Topic: Cross elasticity of demand Skill: Level 2: Using definitions Section: Checkpoint 5.3 Status: Old AACSB: Reflective

10) 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.

D Topic: Cross elasticity of demand, complements Skill: Level 2: Using definitions Section: Checkpoint 5.3 Status: Old AACSB: Analytical

30) 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.

D Topic: Cross elasticity of demand, complements Skill: Level 2: Using definitions Section: Checkpoint 5.3 Status: Old AACSB: Reflective

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.

D Topic: Cross elasticity of demand, formula Skill: Level 4: Applying models Section: Checkpoint 5.3 Status: Old AACSB: Analytical

11) Goods are ________ when the income elasticity of demand is positive. A) complements B) elastic C) inferior D) substitutes E) normal

D Topic: Cross elasticity of demand, substitutes Skill: Level 2: Using definitions Section: Checkpoint 5.3 Status: Old AACSB: Reflective

Page 535 Copyright © 2015 Pearson Education, Inc. 5) The demand curve shown in the figure above is ________ over the price range from $95 to $105 per unit. A) perfectly elastic B) perfectly inelastic C) unit elastic D) elastic but not perfectly elastic E) inelastic but not perfectly inelastic

D Topic: Elastic demand Skill: Level 3: Using models Section: Checkpoint 5.1 Status: Old AACSB: Analytical

Page 484 Copyright © 2015 Pearson Education, Inc. 111) 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 dealerʹs total revenue will ________. A) elastic; increase B) elastic; decrease C) inelastic; increase D) inelastic; decrease E) unit elastic; decrease

D Topic: Elasticity and total revenue Skill: Level 2: Using definitions Section: Checkpoint 5.1 Status: Old AACSB: Analytical

128) 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.

D Topic: Elasticity, substitutes Skill: Level 2: Using definitions Section: Checkpoint 5.1 Status: Old AACSB: Reflective

122) 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.

D Topic: Farm revenue and elasticity Skill: Level 4: Applying models Section: Checkpoint 5.1 Status: Old AACSB: Analytical

73) 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

D Topic: Income elasticity of demand Skill: Level 2: Using definitions Section: Checkpoint 5.3 Status: New AACSB: Reflective

Page 519 Copyright © 2015 Pearson Education, Inc. 34) 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.

D Topic: Income elasticity of demand Skill: Level 2: Using definitions Section: Checkpoint 5.3 Status: Old AACSB: Reflective

Page 523 Copyright © 2015 Pearson Education, Inc. 46) For a good such as a large screen HD 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, HD TVs are bought by many consumers.

D Topic: Income elasticity of demand Skill: Level 2: Using definitions Section: Checkpoint 5.3 Status: Old AACSB: Reflective

65) 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

D Topic: Income elasticity of demand, formula Skill: Level 2: Using definitions Section: Checkpoint 5.3 Status: Old AACSB: Reflective

Page 524 Copyright © 2015 Pearson Education, Inc. 49) 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

D Topic: Income elasticity, inferior good Skill: Level 2: Using definitions Section: Checkpoint 5.3 Status: Old AACSB: Reflective

55) 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.

D Topic: Income elasticity, inferior good Skill: Level 4: Applying models Section: Checkpoint 5.3 Status: Old AACSB: Analytical

124) 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

D Topic: Midpoint formula Skill: Level 2: Using definitions Section: Checkpoint 5.1 Status: Old AACSB: Analytical

Page 504 Copyright © 2015 Pearson Education, Inc. 38) 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.

D Topic: Price elasticity of supply Skill: Level 1: Definition Section: Checkpoint 5.2 Status: Old AACSB: Reflective

Page 508 Copyright © 2015 Pearson Education, Inc. 51) 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.

D Topic: Price elasticity of supply, formula Skill: Level 2: Using definitions Section: Checkpoint 5.2 Status: Old AACSB: Analytical

Page 500 Copyright © 2015 Pearson Education, Inc. 23) 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.

D Topic: Price elasticity of supply, formula Skill: Level 3: Using models Section: Checkpoint 5.2 Status: Old AACSB: Analytical

40) The supply of beach front property on St. Simonʹs Island is A) elastic. B) unit elastic. C) negative. D) inelastic. E) perfectly elastic.

D Topic: Price elasticity of supply, production possibilities Skill: Level 2: Using definitions Section: Checkpoint 5.2 Status: Old AACSB: Reflective

42) 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.

D Topic: Price elasticity of supply, production possibilities Skill: Level 2: Using definitions Section: Checkpoint 5.2 Status: Old AACSB: Reflective

Page 505 Copyright © 2015 Pearson Education, Inc. 41) 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.

D Topic: Price elasticity of supply, production possibilities Skill: Level 2: Using definitions Section: Checkpoint 5.2 Status: Old AACSB: Reflective

112) 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

D Topic: Total revenue Skill: Level 3: Using models Section: Checkpoint 5.1 Status: Old AACSB: Analytical

5) What are the three cases for the price elasticity of demand? Briefly define each.

Demand can be elastic, inelastic, or unit elastic. Elastic demand occurs when the percentage change in quantity demanded exceeds the percentage change in price. Inelastic demand occurs when the percentage change in quantity demanded is less than the percentage change in price. Unit elasticity occurs when the percentage change in price equals the percentage change in demand. 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, ʺDemand is elastic if the percentage change in the price exceeds the percentage change in quantity demanded.ʺ Is your friend correct? Answer: No, your friend is incorrect. Demand is elastic if the percentage change in the price is less than the percentage change in the quantity demanded. Topic: Elastic demand Skill: Level 2: Using definitions Section: Checkpoint 5.1 Status: Old AACSB: Reflective

Page 516 Copyright © 2015 Pearson Education, Inc. 25) 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.

E Topic: Cross elasticity of demand, complements Skill: Level 2: Using definitions Section: Checkpoint 5.3 Status: Old AACSB: Reflective

Page 528 Copyright © 2015 Pearson Education, Inc. 63) 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.

E Topic: Cross elasticity of demand, formula Skill: Level 3: Using models Section: Checkpoint 5.3 Status: Old AACSB: Analytical

Page 529 Copyright © 2015 Pearson Education, Inc. 67) 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.

E Topic: Income elasticity of demand, formula Skill: Level 3: Using models Section: Checkpoint 5.3 Status: Old AACSB: Analytical

Page 522 Copyright © 2015 Pearson Education, Inc. 43) Sergioʹs rentals of Blu-ray movies increase by 10 percent when her income increases by 30 percent. Based on this information, we know that for Sergio Blu-ray movies A) are complements. B) are substitutes. C) are inferior goods. D) have an inelastic demand. E) are normal goods.

E Topic: Income elasticity of demand, normal good Skill: Level 3: Using models Section: Checkpoint 5.3 Status: Old AACSB: Reflective

Page 534 Copyright © 2015 Pearson Education, Inc. 4) The demand curve shown in the figure above is ________ over the price range from $0.90 to $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

E Topic: Inelastic demand Skill: Level 3: Using models Section: Checkpoint 5.1 Status: Old AACSB: Analytical

Page 544 Copyright © 2015 Pearson Education, Inc. 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) only i B) only ii C) only iii D) i and ii E) ii and iii

E Topic: Integrative Skill: Level 2: Using definitions Section: Integrative Status: Old AACSB: Reflective

Page 542 Copyright © 2015 Pearson Education, Inc. 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.

E Topic: Integrative Skill: Level 3: Using models Section: Integrative Status: Old AACSB: Reflective

21) 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.

E Topic: Price elasticity of supply, formula Skill: Level 3: Using models Section: Checkpoint 5.2 Status: Old AACSB: Analytical

50) 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

E Topic: Price elasticity of supply, formula Skill: Level 3: Using models Section: Checkpoint 5.2 Status: Old AACSB: Analytical

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.

E Topic: Price elasticity of supply, production possibilities Skill: Level 2: Using definitions Section: Checkpoint 5.2 Status: Old AACSB: Analytical

3) List factors that increase the price elasticity of supply.

Factors that increase the price elasticity of supply are: · 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? Answer: A product that can be stored can be withheld from the market for a time when the price falls and can be quickly supplied to the market from the inventory when the price rises. Hence the quantity supplied of the product can be quickly and markedly changed and so the supply is elastic. A product that cannot be stored, especially if it is perishable, cannot be withheld from the market when the price falls because it will spoil. In addition, when the price rises it cannot be supplied from the inventory because there is no inventory. Hence the quantity supplied of the product that cannot be stored cannot change much and is therefore less elastic. Topic: Elasticity, storage Skill: Level 2: Using definitions Section: Checkpoint 5.2 Status: Old AACSB: Written and oral communication Page 558 Copyright © 2015 Pearson Education, Inc. 5) Natural gas is difficult to store. What implication does this fact have for the elasticity of supply of natural gas? Answer: Because natural gas is difficult to store, the supply of natural gas is inelastic. With few storage facilities, it is very difficult (at least in the short run) to increase the quantity supplied by much even when prices rise substantially. Topic: Elasticity, storage Skill: Level 2: Using definitions Section: Checkpoint 5.2 Status: Old AACSB: Analytical

Page 550 Copyright © 2015 Pearson Education, Inc. 22) If a decrease in price increases total revenue, what can you determine about the elasticity of demand for the good?

If a decrease in price increases total revenue, the demand for the good is elastic, that is, the elasticity of demand exceeds 1.00. Topic: Total revenue test Skill: Level 2: Using definitions Section: Checkpoint 5.1 Status: Old AACSB: Analytical

4) What does a horizontal demand curve indicate about the price elasticity of demand?

If the demand curve for a good is horizontal, the demand for the good is perfectly elastic. Hence the price elasticity of demand is infinite. Topic: Perfectly elastic demand Skill: Level 2: Using definitions Section: Checkpoint 5.1 Status: Old AACSB: Reflective

23) ʺIf the price falls and, as a result, the total revenue decreases, demand is elastic.ʺ Is the previous assertion correct?

No, the assertion is incorrect. If the demand is elastic, a fall in price increases the quantity demanded enough so that total revenue increases. Topic: Total revenue test Skill: Level 2: Using definitions Section: Checkpoint 5.1 Status: Old AACSB: Analytical

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?

One of the determinants of elasticity is the proportion of income spent on a good or service. The higher the proportion of income spent on a good, the larger the price elasticity of demand for that good. People in developing countries have low incomes and therefore spend a large part of it on food. For example, in Tanzania 62 percent of income is spent on food. On the other hand, in United States only 12 percent of income is spent on food. The price elasticity of demand for food therefore will be larger in developing countries as compared to developed countries. 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? Answer: Moving down along a downward-sloping, linear demand curve, the elasticity of demand falls in value. Demand changes from elastic to inelastic at the midpoint of the demand curve and then changes to inelastic as the quantity demanded increases moving along 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? Answer: The effect of a price hike on total revenue depends on the elasticity of demand. If the demand is elastic, then total revenue will decrease because the decrease in the quantity demanded will outweigh the effect of the higher price. If the demand is inelastic, then total revenue will increase. In this case, the decrease in the quantity demanded is proportionally less than the increase in price and so the higher price leads to increased total revenue. Finally, if the demand is unit elastic, then the higher price does not change the total revenue. The percentage decrease in the quantity demanded just equals the percentage increase in the price and so the two effects just offset each other. The total revenue does not change. Topic: Elasticity and total revenue Skill: Level 2: Using definitions Section: Checkpoint 5.1 Status: Old AACSB: Written and oral communication Page 549 Copyright © 2015 Pearson Education, Inc. 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? Answer: Because the demand is inelastic, an increase in price increases the total revenue of the oil producers. Topic: Elasticity and total revenue Skill: Level 2: Using definitions Section: Checkpoint 5.1 Status: Old AACSB: Analytical

6) Is supply more elastic or less elastic as more time passes after a price change? Explain your answer.

Supply becomes elastic as more time passes after a price change. Consider the case of an increase in price. As more time passes, producers have time to gather more resources, such as building additional factories, and to implement new production techniques. Hence as time passes, the quantity supplied increases. Topic: Elasticity, time since the price changed Skill: Level 2: Using definitions Section: Checkpoint 5.2 Status: Old AACSB: Reflective

5.6 Essay: The Price Elasticity of Demand 1) ʺThe price elasticity of demand is a measure of how sensitive demanders are to changes in the price of a product.ʺ Is this statement true or false?

The assertion is true. All elasticities measure the sensitivity, or responsiveness, of some variable to a change in an influence. The price elasticity of demand measures how strongly demanders respond to a change in the price of the good or service. Topic: Price elasticity of demand Skill: Level 1: Definition Section: Checkpoint 5.1 Status: Old AACSB: Reflective

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?

The demand for Crest toothpaste must be inelastic, so that the percentage increase in price is greater than the percentage decrease in quantity demanded, thereby increasing the total revenue. Topic: Elasticity and total revenue Skill: Level 2: Using definitions Section: Checkpoint 5.1 Status: Old AACSB: Analytical

Page 548 Copyright © 2015 Pearson Education, Inc. 14) Water is considered a necessity. So, is the demand for water elastic or inelastic?

The demand for necessities is inelastic, so the demand for water is inelastic. Topic: Elasticity, necessities Skill: Level 2: Using definitions Section: Checkpoint 5.1 Status: Old AACSB: Reflective

Page 546 Copyright © 2015 Pearson Education, Inc. 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.

The demand is elastic. The formula for the price elasticity of demand is the percentage change in the quantity demanded divided by the percentage change in the price. And, if the elasticity of demand exceeds one, then the demand is elastic. In this case, the percentage change in the quantity demanded is larger than the percentage change in the price, so the elasticity of demand will be greater than one. Hence the demand is elastic. 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? Answer: No, if the demand is inelastic, when the price falls, the quantity demanded increases, but by a smaller percentage than the percentage fall in price. Thus the negative relationship between the price and the quantity demanded remains, and the demand curve still slopes downward, which is 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? Answer: The factors that determine the size of the elasticity of demand can be classified into the availability of substitutes for the good and the proportion of income spent on the good. The more substitutes for a good, the more elastic its demand. Luxuries have more substitutes than necessities, and so the elasticity of demand for luxuries exceeds that for necessities; narrowly defined goods have more substitutes than broadly defined goods, and so the elasticity of demand for narrowly defined goods exceeds that for broadly defined goods; and, the more time that has elapsed since a price change, the more substitutes consumers can find, and so the elasticity of demand is larger the more time passes. Income also plays a role because the larger the proportion of consumersʹ incomes spent on a good, the larger is its 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 Page 547 Copyright © 2015 Pearson Education, Inc. 10) Explain why the number of substitutes influences the price elasticity of demand. Answer: The price elasticity of demand is a measure of how responsive the quantity demanded is to a change in price. If a good has many substitutes, it is easy to switch away from it when its price rises. Hence a rise in price will substantially decrease the quantity demanded. Similarly, when its price falls, consumers can switch into it and away from many other (substitute) products. Hence a fall in price will substantially increase the quantity demanded. Because changes in price have major effects on the quantity demanded, the demand is elastic. Topic: Elasticity, substitutes Skill: Level 2: Using definitions Section: Checkpoint 5.1 Status: Old AACSB: Written and oral communication 11) ʺThe fewer the number of substitutes for a product, the more elastic the demand for that product.ʺ Is the previous statement true or false? Answer: The statement is false. The greater the number of substitutes, the more elastic the demand for that product. Conversely, the fewer the number of substitutes, the less elastic (the more inelastic) the demand for that product. Topic: Elasticity, substitutes Skill: Level 1: Definition Section: Checkpoint 5.1 Status: Old AACSB: Reflective

12) If a good has only a few, poor substitutes, is its demand elastic or inelastic?

The demand is inelastic. The fewer substitutes for a good, the more inelastic (less elastic) its demand. Topic: Elasticity, substitutes Skill: Level 1: Definition Section: Checkpoint 5.1 Status: Old AACSB: Reflective

Page 552 Copyright © 2015 Pearson Education, Inc. 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?

The price elasticity of demand = (percentage change in the quantity demanded) ÷ (percentage change in price). Using the numbers in the problem gives 4.0 = (20 percent) ÷ (percentage change in price), where 20 percent is the desired increase in the quantity of bouquets demanded. Therefore, rearranging the formula shows that (percentage change in price) = (20 percent) ÷ 4.0 = 5 percent. In order to increase the quantity demanded, the price needs to be decreased, so the price needs to be decreased by 5 percent. Next, 5 percent of $8 is ($8) × (5 percent) = $0.40. Thus the price needs to be decreased to $7.60 per bouquet. Topic: Elasticity formula Skill: Level 4: Applying models Section: Checkpoint 5.1 Status: Old AACSB: Analytical

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, using the midpoint method, what is the price elasticity of demand? Show your work. Is the demand elastic, inelastic, or unit elastic?

The price elasticity of demand = (percentage change in the quantity demanded) ÷ (percentage change in the price). Use the midpoint method to calculate the percentages. So the percentage change in the quantity demanded is (10 million - 8 million) ÷ (9 million) = 22 percent and the percentage change in the price is ($7 - $5) ÷ ($6) = 33 percent. Therefore the elasticity of demand equals (22 percent) ÷ (33 percent) = 0.67. Demand is inelastic because the price elasticity of demand is less than 1. Topic: Elasticity formula Skill: Level 3: Using models Section: Checkpoint 5.1 Status: Old AACSB: Analytical

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, using the midpoint method, what is the price elasticity of demand for suntan lotion?

The price elasticity of demand = (percentage change in the quantity demanded) ÷ (percentage change in the price). Use the midpoint method to calculate the percentages. Thus the percentage change in the quantity demanded = (900,000 - 845,000) ÷ (872,500) = 6.3 percent and the percentage change in the price is ($8 - $6) ÷ ($7) = 28.6 percent. Therefore the elasticity of demand equals (6.3 percent) ÷ (28.6 percent) = 0.22. Topic: Elasticity formula Skill: Level 3: Using models Section: Checkpoint 5.1 Status: Old AACSB: Analytical

Price (dollars) Quantity demanded (units per week) A 100 40 B 80 60 C 60 80 D 40 100 E 20 120 29) The table above gives the demand schedule for a good. Using the midpoint method, find the price elasticity of demand between points A and B, between B and C, between C and D, and between D and E.

The price elasticity of demand between points A and B is 1.80. Between points B and C, the elasticity of demand is 1.00. Between points C and D, the elasticity of demand is 0.56. And, between points D and E, the elasticity of demand is 0.27. Topic: Elasticity formula Skill: Level 3: Using models Section: Checkpoint 5.1 Status: Old AACSB: Analytical

13) Which is larger: The price elasticity of demand for food or the price elasticity of demand for oranges? Why?

The price elasticity of demand for oranges is larger than the price elasticity of demand for food. The elasticity of demand for oranges is larger because there are many more substitutes for oranges (apples, grapefruit, lemons, and so forth) than there are substitutes for food. Topic: Elasticity, substitutes Skill: Level 2: Using definitions Section: Checkpoint 5.1 Status: Old AACSB: Analytical

Page 551 Copyright © 2015 Pearson Education, Inc. 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. Using the midpoint method, what is the price elasticity of demand for flour? Is the demand for flour elastic or inelastic?

The price elasticity of demand is 0.23. (The price elasticity is calculated from [(100 pounds - 95 pounds) ÷ 97.5 pounds] ÷ [($0.80 - $1.00) ÷ $0.90] = 0.23.) Because the elasticity is less than one, the demand is inelastic. Topic: Elasticity formula Skill: Level 3: Using models Section: Checkpoint 5.1 Status: Old AACSB: Analytical

2) What is the price elasticity of demand? In terms of percentage changes, what is its formula?

The price elasticity of demand is a measure of the responsiveness of quantity demanded to a change in price. The formula for the price elasticity of demand is the absolute value of the percentage change in quantity demanded divided by the percentage change in price. Topic: Price elasticity of demand Skill: Level 1: Definition Section: Checkpoint 5.1 Status: Old AACSB: Reflective

7) If the price increases by 20 percent and the quantity supplied increases by 40 percent, what does the elasticity of supply equal?

The price elasticity of supply = (percentage change in the quantity supplied) ÷ (percentage change in price) = (40 percent) ÷ (20 percent) = 2.00. Topic: Price elasticity of supply, formula Skill: Level 2: Using definitions Section: Checkpoint 5.2 Status: Old AACSB: Analytical

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. What does the price elasticity of supply equal?

The price elasticity of supply = (percentage change in the quantity supplied) ÷ (percentage change in the price). Use the midpoint method to calculate the percentages. Thus the percentage change in the quantity supplied = (4,000,000 - 2,000,000) ÷ (3,000,000) = 66.7 percent and the percentage change in the price is ($700 - $600) ÷ ($650) = 15.4 percent. Therefore the elasticity of supply equals (66.7 percent) ÷ (15.4 percent) = 4.33. Topic: Price elasticity of supply, formula Skill: Level 3: Using models Section: Checkpoint 5.2 Status: Old AACSB: Analytical

Page 557 Copyright © 2015 Pearson Education, Inc. 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.

The price elasticity of supply measures how responsive quantity supplied is to a change in the price of the good. Supply can be price elastic, if the percentage change in the quantity supplied exceeds the percentage change in the price, price inelastic, if the percentage change in the quantity supplied is less than the percentage change in the price, or unit elastic, if the percentage change in the quantity supplied equals the percentage change in the price. 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? Answer: Because the price elasticity of supply exceeds one, the supply of corn is elastic. Topic: Elasticity of supply Skill: Level 2: Using definitions Section: Checkpoint 5.2 Status: Old AACSB: Reflective

Price (dollars) Quantity demanded (units per week) A 100 40 B 80 60 C 60 80 D 40 100 E 20 120 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?

The total revenue is the price multiplied by the quantity demanded. Hence at point A, the total revenue is $4,000. At point B it is $4,800. At point C it is $4,800. At point D it is $4,000. And at point E it is $2,400. Topic: Total revenue Skill: Level 3: Using models Section: Checkpoint 5.1 Status: Old AACSB: Analytical

21) Explain the total revenue test.

The total revenue test estimates whether demand for the good is elastic, unit elastic or inelastic based on what happens to total revenue when the price of a good changes. If price and total revenue move in opposite directions, demand is elastic. If price and total revenue move in the same direction, demand is inelastic. If a price change does not change total revenue, demand is unit elastic. Topic: Total revenue test Skill: Level 1: Definition Section: Checkpoint 5.1 Status: Old AACSB: Analytical

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?

When the price elasticity of demand is 0.6, a 12 percent decrease in quantity brings about a 20 percent increase in the price. Wheat farmersʹ total revenue increases since the demand is inelastic because, with inelastic demand and taken as a group, wheat farmersʹ total revenue increases. However, the benefit is distributed unequally. Those farmers whose crop was destroyed because of the bad weather are harmed whereas those farmers whose crop was spared the bad weather, benefited. Topic: Farm revenue and elasticity Skill: Level 5: Critical

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?

You should tell her to lower her price. Because demand is elastic, lowering the price will increase the total revenue. Topic: Elasticity and total revenue Skill: Level 2: Using definitions Section: Checkpoint 5.1 Status: Old AACSB: Analytical

Page 553 Copyright © 2015 Pearson Education, Inc. 30) The figure above shows the demand curve for pizza. Using the midpoint method and moving from point A to point B, calculate the a. percentage change in price. b. percentage change in quantity demanded. c. price elasticity of demand.

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

Page 556 Copyright © 2015 Pearson Education, Inc. Price (dollars) Total revenue (dollars) 1.00 110 1.25 125 1.50 125 1.75 100 34) Steve sells hotdogs from a vending cart downtown. The table above shows his daily total revenues at four different prices. Between which two prices is the demand for hotdogs a. elastic? b. unit elastic? c. inelastic?

a. Steveʹs demand is elastic 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. Steveʹs demand is unit elastic 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. Steveʹs demand is inelastic 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

Page 555 Copyright © 2015 Pearson Education, Inc. Price (dollars per admission) Quality demanded (thousands of visits per week) 10 100 8 200 6 300 4 400 2 200 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 museumʹs total revenue. What admission price should you charge? b. What is the elasticity of demand 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

Page 554 Copyright © 2015 Pearson Education, Inc. 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

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

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 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

1) The price elasticity of demand is a measure of A) the equilibrium price of a product. B) buyersʹ 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.

b AACSB: Reflective