Chapter 5
When quantity demanded does not respond at all to a change in price, demand is said to be A. perfectly inelastic. B. elastic. C. perfectly elastic. D. inelastic.
A. perfectly inelastic.
If total revenue increases as price decreases, demand is A. inelastic. B. elastic. C. perfectly elastic. D. unitary elastic.
B. elastic.
If total revenue increases as price decreases, demand is A. perfectly elastic. B. elastic. C. unitary elastic. D. inelastic.
B. elastic.
Which of the following is used to calculate income elasticity of demand? A. % change in quantity of labor supplied divided by % change in the wage rate B. % change in quantity of Upper Y demanded divided by % change in price of Upper X. C. % change in quantity supplied divided by % change in price D. % change in quantity demanded divided by % change in income
D. % change in quantity demanded divided by % change in income
If total revenue increases as price increases, demand is A. unitary elastic. B. elastic. C. perfectly elastic. D. inelastic.
D. inelastic.
When cross-price elasticity of demand is positive, A. the two goods are complements. B. the two goods are unrelated. C. the two goods are normal goods. D. the two goods are substitutes.
D. the two goods are substitutes.
Explain whether demand is likely to be elastic or inelastic for Big Macs. A. Inelastic comma since other fast food items could be considered close substitutes. B. Inelastic due to a lack of close substitutes. C. Elastic comma since many other fast food items could be considered close substitutes. D. Elastic due to a lack of close substitutes.
C. Elastic comma since many other fast food items could be considered close substitutes.
Suppose price decreases and demand is perfectly inelastic. What happens to total revenue? A. Total revenue will rise. B. Total revenue will not change. C. Total revenue will fall. D. Total revenue will change in an undetermined way.
C. Total revenue will fall.
If the price elasticity of demand for chocolate is -2.0 what should we expect would happen to consumption of chocolate if the price falls by 10%? What about a 50% decrease?
Consumption of chocolate should increase by 20%. If the price falls by 50% the increase in consumption may be less than 100%. The reason is that price cut is moving consumers into the inelastic portion of the demand curve. In other words, the absolute value of the price elasticity of demand for chocolate may no longer be 2.0 but rather much lower and even be less than 1.0.
In general, the more of your income a product consumes, the more elastic is its demand.
True
The more substitutes that are available for a product, the more elastic is its demand.
True
When the percentage change in quantity demanded is the same as the percentage change in price, demand is said to have unitary elasticity.
True
Demand is likely to become more elastic as we move from the short run to the long run.
True
A sporting goods store has estimated the demand curve for Brand A running shoes as a function of price. Use the diagram to the right to answer the following questions. Calculate demand elasticity using the midpoint formula between each set of points given below. (Enter your responses rounded to two decimal places and include a minus sign if necessary.) Demand elasticity between points A and B is ___________. Between points C and D is _______________. Between points E and F is ________________. If the store currently charges a price of $50, then increases that price to $60, what happens to total revenue from shoe sales? If the store currently charges a price of $30, then increases that price to $40, what happens to total revenue from shoe sales? If the store currently charges a price of $10, then increases that price to $20, what happens to total revenue from shoe sales?
-3.67,-1.00,-0.27, falls, remains constant, rises.
Explain how a successful advertising campaign will affect the demand curve for the product being advertised.
A successful advertising campaign will shift the demand curve for the product being advertised to the right, inducing consumers to buy more at every price. Advertising may also increase brand loyalty, making the demand curve less elastic.
For the following statements, use the figures on the right to decide whether you agree or disagree and explain your answer. The demand curve in Figure a is elastic. A. Disagree. Only the top half of the demand curve is elastic. B. Disagree. The flatter the slope a demand curve has, the more inelastic the curve. C. Agree. The flatter the slope a demand curve has, the more elastic the curve. D. Agree. The steeper the slope a demand curve has, the more elastic the curve.
A. Disagree. Only the top half of the demand curve is elastic.
The demand curve in Figure b is inelastic. A. Disagree. Price elasticity varies along a linear demand curve. B. Disagree. The steeper the slope a demand curve has, the more inelastic the curve. C. Agree. The flatter the slope a demand curve has, the more inelastic the curve. D. Disagree. The steeper the slope a demand curve has, the more elastic the curve.
A. Disagree. Price elasticity varies along a linear demand curve.
If income is falling and income elasticity of demand for a particular good is positive, then demand for the good is: A. decreasing, and it is a normal good. B. decreasing, and it is an inferior good. C. increasing, and it is a normal good. D. increasing, and it is an inferior good.
A. decreasing, and it is a normal good.
Demand has unitary elasticity if: A. the percentage change in quantity of a product demanded is the same as the percentage change in price in absolute value (a demand elasticity of 1). B. the percentage change in quantity demanded is larger than the percentage change in price in absolute value (a demand elasticity with an absolute value greater than 1). C. demand responds somewhat, but not a great deal, to changes in price. It always has a numerical value between zero and 1. D. changes in total revenue are the same as changes in price.
A. the percentage change in quantity of a product demanded is the same as the percentage change in price in absolute value (a demand elasticity of 1).
For a demand curve to be more elastic: A. there should be an availability of substitutes. B. the item must be a necessity. C. the item should represent a small portion of an individual's total budget. D. there should be insufficient time to adjust to price changes.
A. there should be an availability of substitutes.
If total revenue increases as price increases, demand is A. unitary elastic. B. inelastic. C. elastic. D. perfectly elastic.
A. unitary elastic.
Taxicab fares in most cities are regulated. Several years ago, taxicab drivers in Boston obtained permission to raise their fares 10 percent, and they anticipated that revenues would increase by about 10 percent as a result. They were disappointed, however. When the commissioner granted the 10 percent increase, revenues increased by only about 5 percent. What can you infer about the elasticity of demand for taxicab rides? Taxicab rides are ______________________ than anticipated by taxicab drivers.
more elastic
When quantity demanded does not respond at all to a change in price, demand is said to be
perfectly inelastic
The diagram on the left depicts Marley's demand for milk in gallons. If price falls from $2.25 per gallon to $1.75 per gallon, gallons purchased would increase from 3 to 7 gallons (16 quarts) per month. The slope of this demand curve is __________ . (Enter your response rounded to three decimal places.) The diagram on the right depicts Marley's demand for milk in quarts. If there is an identical price decline, quarts purchased would increase from 12 to 28 (16 quarts) per month purchased. The slope of this demand curve is __________. (Enter your response rounded to three decimal places.) Using point A as the starting point, the percentage change in market price in either diagram is ________. (Enter your response rounded to one decimal place). Because the identical percentage change in price led to an identical change in quantity demanded (4 gallons = 16 quarts), slope is ___________________________ of responsiveness.
-.125%, -.031%, -22.2%, a poor measure
Demand is inelastic if: A. demand responds somewhat, but not a great deal, to changes in price. It always has a numerical value between zero and 1. B. the percentage change in quantity of a product demanded is the same as the percentage change in price in absolute value (a demand elasticity of 1). C. changes in total revenue are indirectly (or negatively) related to changes in price. D. the percentage change in quantity demanded is larger than the percentage change in price in absolute value (a demand elasticity with an absolute value greater than 1).
A. demand responds somewhat, but not a great deal, to changes in price. It always has a numerical value between zero and 1.
At this point, demand is: A. elastic, because revenue increases as the price decreases. B. inelastic, because revenue increases as the price decreases. C. elastic, because revenue increases as the price increases. D. perfectly elastic.
A. elastic, because revenue increases as the price decreases.
During the 1992 Democratic National Convention, a group of 100 New York restaurants got together and offered lunch for $19.92, and a number of them added special dinner menus with meals priced at $24.92. These prices may sound high to you, but they were a substantial reduction in price for most of the participating restaurants. This resulted in increased revenues during the convention. After the convention, many restaurants decided to keep their prices down and got a real surprise: lower prices brought in more total revenue. How can elasticity be described in these New York restaurants? A. Unit elastic. B. Price elastic. C. Price inelastic. D. Elasticity cannot be determined.
B. Price elastic.
Suppose price increases and demand is perfectly elastic. What happens to total revenue? A. Total revenue will not change. B. Total revenue will fall to zero. C. Total revenue will rise. D. Total revenue will change in an undetermined way.
B. Total revenue will fall to zero.
Demand has unitary elasticity if: A. changes in total revenue are the same as changes in price. B. the percentage change in quantity of a product demanded is the same as the percentage change in price in absolute value (a demand elasticity of 1). C. demand responds somewhat, but not a great deal, to changes in price. It always has a numerical value between zero and 1. D. the percentage change in quantity demanded is larger than the percentage change in price in absolute value (a demand elasticity with an absolute value greater than 1).
B. the percentage change in quantity of a product demanded is the same as the percentage change in price in absolute value (a demand elasticity of 1).
Price elasticity of demand is defined as: A. a horizontal demand curve. B. the ratio of the percentage of change in quantity demanded to the percentage of change in price. C. the ratio of the percentage of change in quantity demanded to the percentage of change in income. D. the ratio of the percentage of change in quantity supplied to the percentage of change in price.
B. the ratio of the percentage of change in quantity demanded to the percentage of change in price.
Price elasticity of demand is defined as: A. the ratio of the percentage of change in quantity supplied to the percentage of change in price. B. the ratio of the percentage of change in quantity demanded to the percentage of change in price. C. the ratio of the percentage of change in quantity demanded to the percentage of change in income. D. a horizontal demand curve.
B. the ratio of the percentage of change in quantity demanded to the percentage of change in price.
For the following scenario, decide whether you agree or disagree and explain your answer. If the elasticity of demand for cocaine is minus0.20 and the Drug Enforcement Administration succeeds in reducing supply substantially, causing the street price of the drug to rise by 50%, buyers will spend less on cocaine. A. Agree: When price increases and demand is relatively inelastic, total revenue will rise. B. Disagree: When price increases and demand is relatively inelastic, total revenue will rise. C. Agree: When price increases and demand is relatively elastic, total revenue will fall. D. Disagree: When price increases and demand is relatively elastic, total revenue will rise.
B. Disagree: When price increases and demand is relatively inelastic, total revenue will rise.
For the following statement, state the relevant elasticity and state what its value should be (negative, positive, greater than one, zero, and so on). The demand for European vacations increases during times of rising incomes. nothing A. Income elasticity of demand is negative. B. Cross dash price elasticity of demand is negative. C. Income elasticity of demand is positive. D. Income elasticity of supply is negative.
C. Income elasticity of demand is positive.
During the 1992 Democratic National Convention, a group of 100 New York restaurants got together and offered lunch for $19.92, and a number of them added special dinner menus with meals priced at $24.92. These prices may sound high to you, but they were a substantial reduction in price for most of the participating restaurants. This resulted in increased revenues during the convention. After the convention, many restaurants decided to keep their prices down and got a real surprise: lower prices brought in more total revenue. How can elasticity be described in these New York restaurants? A. Unit elastic. B. Price inelastic. C. Price elastic. D. Elasticity cannot be determined.
C. Price elastic.
If income is falling and income elasticity of demand for a particular good is positive, then demand for the good is: A. decreasing, and it is an inferior good. B. increasing, and it is a normal good. C. decreasing, and it is a normal good. D. increasing, and it is an inferior good.
C. decreasing, and it is a normal good.
For a demand curve to be more inelastic: A. the item must be a luxury. B. there should be an availability of substitutes. C. the item should represent a small portion of an individual's total budget. D. there should be sufficient time to adjust to price changes.
C. the item should represent a small portion of an individual's total budget.
For the following scenario, decide whether you agree or disagree and explain your answer. Every year Christmas tree vendors bring tens of thousands of trees from the forests of New England to New York City and Boston. During the last two years, the market has been very competitive; as a result, price has fallen by 10 percent. If the price elasticity of demand was minus1.3, vendors would lose revenues altogether as a result of the price decline. A. Agree: When price decreases and demand is relatively elastic, total revenue will rise. B. Disagree: When price decreases and demand is relatively inelastic, total revenue will rise. C. Disagree: When price decreases and demand is relatively elastic, total revenue will rise. D. Agree: When price decreases and demand is relatively inelastic, total revenue will fall.
C. Disagree: When price decreases and demand is relatively elastic, total revenue will rise.
The quantity of peanuts demanded increases from 6 pounds to 9 pounds when the price of peanuts decreases from $4 per pound to $3 per pound. In this price range and using the midpoint formula, the price elasticity of demand for peanuts is A. -1.5 B. -0.71. C. -0.42. D. -1.4.
D. -1.4.
If an excise tax is imposed on a product, more tax revenue will be raised if demand for the product is relatively elastic instead of relatively inelastic.
False
Price elasticity of demand is calculated as the percentage change in price divided by the percentage change in quantity demanded.
False
