Chapter 4

If the price of textbooks increases by one percent and the quantity demanded falls by one-half percent, then the price elasticity of demand is equal to: A. 0.05. B. 0.5. C. 2. D. 5.

0.5.

If a 10% decrease in the price of a good leads to a 20% increase in the quantity demanded, then what is the price elasticity of demand? A. ½. B. 2. C. 10. D. 20.

2.

Suppose an increase in the price of hamburger from $3 to $4 leads to an increase in quantity supplied from 100 units to 150 units. At the original price, the price elasticity of supply for hamburgers is ______ so supply is ______. A. 2/3; elastic B. 2/3; inelastic C. 3/2; elastic D. 3/2; inelastic

3/2; elastic

For which of the following products is demand likely to be least elastic with respect to price? A. Food B. Vegetables C. Green vegetables D. Green beans

Food

Which of the following determines whether a firm will earn higher revenues when it raises its price? A. The cost of the firm's inputs. B. Government regulation of the industry. C. The price elasticity of demand. D. None of the above, because companies always earn higher revenues when they increase price

The price elasticity of demand.

Economists have found that the price elasticity of demand for water is higher in the summer than in the winter. Why is this likely to be so? A. Winter is longer than summer, and price elasticity is lower over longer time horizons. B. Summer is longer than winter, and price elasticity is higher over longer time horizons. C. Winter water use tends to be for necessities such as cleaning and cooking, and summer water use tends to be for both necessities and non-necessities such as gardening and recreation. D. People take more vacations in the summer and so use less water at home.

Winter water use tends to be for necessities such as cleaning and cooking, and summer water use tends to be for both necessities and non-necessities such as gardening and recreation.

If the price elasticity of demand for a good is greater than one, then the demand for that good is: A. elastic. B. inelastic. C. unit elastic. D. perfectly elastic.

elastic.

The demand for a good is unit elastic with respect to price if the price elasticity of demand is: A. equal to one. B. greater than one. C. less than one. D. greater than negative one.

equal to one.

It takes many years to train to become an orthopedic surgeon. This suggests that, in the short run, a sudden increase in the demand for orthopedic surgeons will: A. not affect the salaries of orthopedic surgeons. B. have no impact on the number of people who decide to become orthopedic surgeons. C. lead to a large increase in the number of orthopedic surgeons. D. have little effect on the number of trained orthopedic surgeons.

have little effect on the number of trained orthopedic surgeons.

Suppose a 10% increase in the price of aspirin leads to a 5% decrease in the quantity demanded of aspirin. The demand for aspirin, therefore, is A. elastic. B. inelastic. C. unit elastic. D. perfectly inelastic.

inelastic.

A demand curve that is drawn as a vertical line has a price elasticity of demand equal to: A. 0. B. 1. C. infinity. D. the quantity.

infinity.

The price elasticity of demand is typically expressed as a positive number because: A. price and quantity move in the same direction. B. the demand curve has a positive slope. C. it's convenient to use absolute values. D. both the numerator and the denominator are negative, so the formula yields a positive number.

it's convenient to use absolute values.

You would expect the price elasticity of demand for transportation generally to be: A. the same as price elasticity of the demand for bus tickets. B. greater than price elasticity of the demand for bus tickets. C. less than price elasticity of the demand for bus tickets. D. greater than price elasticity of the demand for bus tickets when bus tickets are expensive, but less than price elasticity of the demand for bus tickets when the prices of bus tickets fall.

less than price elasticity of the demand for bus tickets.

Suppose you believe that plaid flannel shirts are an inferior good, and want to test this with economic data. You expect to find that the income elasticity for plaid flannel shirts is: A. close to zero. B. greater than zero, but less than one. C. greater than one. D. less than zero.

less than zero.

All else equal, the price elasticity of demand for small-budget items such as soap tends to be ______ than the price elasticity of demand for big-ticket items such as flat-screen TVs. A. higher B. lower C. very high D. the same

lower

For Outback Steakhouse, seating capacity is limited in the short run. In the long run, they can add as many seats as they want. Therefore, the price elasticity of supply for meals at Outback would be ______ in the short run than in the long run. A. higher B. lower C. the same D. more variable

lower

If the demand for a good is highly elastic, that good is likely to have: A. many close complements. B. few close complements. C. many close substitutes. D. few close substitutes

many close substitutes.

On a given linear demand curve, as price increases demand becomes ______ A. more elastic. B. less elastic. C. more negative. D. more variable.

more elastic.

During recessions, when some workers lose their jobs and have lower incomes, sales of durable goods (goods with a life expectancy of 3 years or more) decline. Apparently, durable goods are: A. substitutes. B. normal goods. D. complements. D. inferior goods.

normal goods.

The price elasticity of supply for the Hope Diamond is zero because there is only one. Therefore, the supply curve for the Hope Diamond is A. elastic. B. perfectly inelastic. C. unit elastic. D. perfectly elastic.

perfectly inelastic.

When calculating price elasticity of demand, if the percentage change in price is negative, then the percentage change in quantity demanded is typically: A. greater than one. B. positive. C. less than one. D. negative.

positive.

In surveying their alumni, State U's economics department discovered that ramen noodle consumption declined once students graduated and found jobs. One conclusion the survey team might draw from this result is that: A. there is excess demand for ramen noodles. B. the equilibrium price for ramen noodles is too high. C. college graduates have a high reservation price for ramen noodles. D. ramen noodles are an inferior good.

ramen noodles are an inferior good.

The price elasticity of supply at a point is: A. the percentage change in quantity supplied divided by the percentage change in price. B. the percentage change in price divided by the percentage change in quantity supplied. C. the change in quantity supplied divided by the change in price. D. the change in price divided by the change in quantity supplied.

the percentage change in quantity supplied divided by the percentage change in price.

The reason a brand name item (e.g., Tyson chicken) has a larger price elasticity than a class of items (e.g., chicken) is that: A. there are fewer substitutes for Tyson chicken than for chicken generally. B. it takes a lot of time to adjust to a substitute brand of chicken. C. the share of income spent on "chicken" is larger than spent on "Tyson Chicken". D. there are fewer substitutes for chicken generally than for Tyson chicken.

there are fewer substitutes for chicken generally than for Tyson chicken.

In 1985 a desert community stopped pumping water from a 1000 foot well because it had run dry. In 2005 the price of water doubled. The community then drilled the well deeper and started pumping again. In this community, A. the supply of water is perfectly inelastic because it is a finite resource. B. water production is characterized by increasing opportunity costs. C. markets cannot reach equilibrium because there is a persistent shortage of water. D. higher water prices can reduce quantity demanded but cannot increase quantity supplied.

water production is characterized by increasing opportunity costs.