ch. 6 econ 2001

B. Substitute goods.

Oil and alternative sources of energy such as wind and solar are A. Complementary goods. B. Substitute goods. C. Inferior goods. D. Income-elastic goods.

B. Vertical.

A demand curve that is perfectly inelastic is A. Horizontal. B. Vertical. C. Upward-sloping. D. Downward-sloping.

A. Positive.

A good is normal if the sign on the income elasticity formula is A. Positive. B. Greater than 1. C. Less than 1. D. Negative.

B. Unitary.

A price change will have no effect on total revenue if demand is A. Elastic. B. Unitary. C. Inelastic. D. Perfectly elastic.

B. Price elasticity of demand should become larger.

Ceteris paribus, as the number of substitutes for a good increases, the A. Price elasticity of demand should become smaller. B. Price elasticity of demand should become larger. C. Cross-price elasticity of demand should become negative. D. Income elasticity of demand should become negative.

B. Good X is a normal good and good Y is an inferior good.

Ceteris paribus, if income increases and as a result, the demand for good X increases and the demand for good Y falls, A. Good X is an inferior good and good Y is a normal good. B. Good X is a normal good and good Y is an inferior good. C. Goods X and Y are substitute goods. D. Goods X and Y are complementary goods.

D. More elastic the demand for the good.

Ceteris paribus, the longer the time period, the A. Smaller the income elasticity for the good. B. Less elastic the demand for the good. C. More unitary elastic the demand for the good. D. More elastic the demand for the good.

D. How responsive sellers are to a change in price.

Elasticity of supply looks at A. How responsive producers are to a change in quantity demanded. B. How much quantity demanded changes with a change in price. C. The responsiveness of sellers to a change in consumer's incomes. D. How responsive sellers are to a change in price.

C. Demand is inelastic.

Higher prices will increase total revenue if A. Demand is elastic. B. Demand is unitary elastic. C. Demand is inelastic. D. The price elasticity of demand is zero.

C. Reduce the demand for DVD players.

If DVD players and DVDs are complementary goods, an increase in the price of DVDs will, ceteris paribus, A. Increase the quantity demanded of DVDs. B. Increase the quantity demanded of DVD players. C. Reduce the demand for DVD players. D. Reduce the demand for DVDs.

C. The demand curve is horizontal.

If demand is perfectly elastic, A. The demand curve is vertical. B. The demand curve is very steep. C. The demand curve is horizontal. D. The demand curve has a zero slope

C. The demand curve will be very steep.

If demand is very inelastic, A. The demand curve will be very flat. B. The demand curve will be horizontal. C. The demand curve will be very steep. D. The demand curve is upward-sloping.

D. 3.5.

If income falls 4 percent for a year and as a result the quantity of new homes demanded falls from 23 million to 20 million units for the year, the value of the income elasticity of demand for new homes is closest to A. 0.6. B. 1.8. C. 2.9. D. 3.5.

B. An inferior good.

If income rises by 10 percent and the quantity sold of a particular vehicle falls by 7 percent, then this particular type of vehicle is A. A normal good. B. An inferior good. C. An irregular good. D. A substandard good.

C. New cars are a normal good, and the income elasticity is +2.0.

If incomes fall by 5 percent and the quantity demanded for new cars falls by 10 percent, A. New cars are a normal good, and the income elasticity is +.5. B. New cars are an inferior good, and the income elasticity is +2.0. C. New cars are a normal good, and the income elasticity is +2.0. D. New cars are an inferior good, and the income elasticity is +0.5.

A. The percentage change in quantity demanded is greater than the percentage in price.

If the demand for a product is elastic, then A. The percentage change in quantity demanded is greater than the percentage in price. B. The percentage change in price is greater than the percentage change in quantity demanded. C. The change in the quantity demanded is greater than the change in income. D. Buyers are not very sensitive to a change in price.

C. Not change.

If the price elasticity of demand is 1.0, and a firm raises its price by 10 percent, the total revenue will A. Rise by 10 percent. B. Fall by 10 percent. C. Not change. D. Rise by 100 percent.

A. elastic

If the price elasticity of demand is equal to 2, the good has _____ demand. A. elastic B. inelastic C. unitary elastic D. restrictive

A. 0.5.

If the price increases by 10 percent, and the quantity demanded falls by 5 percent, the absolute value of the price elasticity will be A. 0.5. B. 5.0. C. 50. D. -5.0.

B. Negative.

MP3 players and MP3 files are complementary goods. The cross-price elasticity of demand between MP3 players and MP3 files is expected to be A. Positive. B. Negative. C. Equal to zero. D. Undefined.

B. The absolute value of the price elasticity of demand is 1.0.

Maximum total revenue occurs when A. Total revenue is -1.0. B. The absolute value of the price elasticity of demand is 1.0. C. Price multiplied by quantity is 1.0. D. The absolute value of the price elasticity of demand is 100.

B. How much quantity demanded changes after a change in price.

Price elasticity looks at A. The law of demand. B. How much quantity demanded changes after a change in price. C. The degree to which price changes with a change in quantity demanded. D. Why the law of demand is untrue.

B. How sensitive buyers are to a change in price.

Price elasticity of demand refers to A. How responsive producers are to a change in the cost of production. B. How sensitive buyers are to a change in price. C. How buyers respond to a change in income. D. How buyers react to a change in the price of a substitute good.

B. Responsive the quantity demanded is to a change in price.

Price elasticity of demand shows how A. To compute the slope of the demand curve. B. Responsive the quantity demanded is to a change in price. C. Responsive the quantity demanded is to a change in the price of related goods. D. Responsive the price is to a change in demand.

C. Lower his price to increase revenue.

Sam owns a taco restaurant, and he conducted a consumer survey that indicates that the price elasticity of demand for his restaurant is 3.5. You would advise Sam to A. Raise his price to increase revenues. B. Keep his price the same to maximize revenues. C. Lower his price to increase revenue. D. Offer more high-priced products.

A. The quantity supplied changes little when the price increases.

Supply is very inelastic when A. The quantity supplied changes little when the price increases. B. The quantity supplied changes a lot when price increases. C. The quantity supplied does not change at all when price increases. D. The quantity supplied changes only when demand changes.

A. 1.80.

Suppose the price of video games falls from $40 to $20 and as a result the quantity demanded of scooters falls from 40,000 to 10,000 per year. The value of the cross-price elasticity of demand is A. 1.80. B. 1.00. C. 0.83. D. 0.56.

B. 1.29.

Suppose the quantity demanded of ski boats falls from 4.0 million to 3.0 million as a result of an average price increase from $20,000 to $25,000 per boat. The absolute value of the price elasticity of demand is closest to A. 0.20. B. 1.29. C. 0.78. D. 0.29.

B. Rises when incomes rise.

The demand for normal goods A. Rises when incomes fall. B. Rises when incomes rise. C. Falls when incomes rise. D. Shifts to the right when incomes fall.

A. In the long run.

The demand is more price-elastic A. In the long run. B. If the product is a necessity. C. If the product is a small part of the consumer's budget. D. If the product has very few substitutes.

D. Set the price of tickets at the unitary elasticity price.

The local baseball team owner hires you to help maximize the team's profits. You are told that costs are constant because enough help is always hired for a full stadium, so assume your task is to maximize revenues from ticket sales. Your advice to the owner should be to A. Set the ticket price in the inelastic region of the demand curve in order to increase revenues. B. Raise the price as high as possible until the number of tickets sold begins to fall. C. Set the price as low as possible to make sure the stadium is always full. D. Set the price of tickets at the unitary elasticity price.

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

The price elasticity of demand is equal to A. The percentage change in quantity demanded times the percentage change in price. B. The unit change in price divided by the unit change in quantity demanded. C. The percentage change in quantity demanded divided by the percentage change in price. D. The unit change in quantity demanded times the unit change in price.

B. Price elasticity of demand.

The total revenue effect of a movement along a demand curve can best be predicted using the A. Law of diminishing marginal utility. B. Price elasticity of demand. C. Utility-maximizing rule. D. Law of demand.

A. The change in price is divided by the average price.

To find the average percentage change in price, A. The change in price is divided by the average price. B. The change in quantity is divided by the average quantity. C. The change in quantity is divided by the change in price. D. The percentage change in quantity demanded is divided by the percentage change in price.

C. The change in quantity demanded is divided by the average quantity.

To find the average percentage change in quantity demanded, A. The change in price is divided by the percentage change in quantity demanded. B. The change in quantity demanded is divided by the change in price. C. The change in quantity demanded is divided by the average quantity. D. The change in price is divided by the average price.

D. Price leads to greater total revenue.

When demand is price-inelastic, ceteris paribus, an increase in A. Price leads to lower total revenue. B. Total revenue means quantity rises. C. Total revenue indicates a reduction in price. D. Price leads to greater total revenue.

A. Increases.

When income falls, the quantity demanded for inferior goods A. Increases. B. Decreases. C. Has a smaller change than the income change. D. Stays the same.

D. Substitutes.

When the prices of postage stamps rise, the demand for Internet service increases, ceteris paribus. Postage stamps and Internet service are therefore A. Elastic. B. Inelastic. C. Complements. D. Substitutes.

D. Income elasticity of demand is negative.

If a good is inferior, its A. Cross-price elasticity is negative. B. Price elasticity of demand is negative. C. Income elasticity of demand is positive. D. Income elasticity of demand is negative.

B. Quantity sold times price.

Total revenue is A. Price times income. B. Quantity sold times price. C. Equal to total profit. D. Equal to costs of production.

C. European travel.

Which of the following products will have elastic demand? A. Gasoline. B. Cigarettes. C. European travel. D. Alcohol.

A. At higher prices.

On a demand curve, demand is more elastic A. At higher prices. B. At lower prices. C. When demand is unitary. D. At the middle price.

A. The income from sales.

Total revenue is equal to A. The income from sales. B. Profit. C. Cost of production. D. Total revenue minus total cost.

C. Greater than 1.

When demand is elastic, the absolute number for price elasticity will be A. Greater than 0. B. Less than 1. C. Greater than 1. D. Equal to 1.

A. The percentage change in price is greater than the percentage change in quantity demanded.

When demand is inelastic A. The percentage change in price is greater than the percentage change in quantity demanded. B. Buyers are very sensitive to changes in price. C. The product in demand has many substitute goods. D. The percentage change in quantity demanded is greater than the percentage change in price.

A. Horizontal.

A demand curve that is completely elastic is A. Horizontal. B. Vertical. C. Upward-sloping. D. Downward-sloping.

B. Demand is inelastic.

A price decrease will cause total revenue to fall if A. Demand is elastic. B. Demand is inelastic. C. Demand is unitary elastic. D. The price elasticity of demand is less than zero.

D. Increases, then decreases.

Assume a good has a downward-sloping, linear demand curve. Starting at a price of zero, as the price of the good increases, total revenue A. Increases indefinitely. B. Decreases indefinitely because the quantity sold will decrease. C. Is constant. D. Increases, then decreases.

C. Less positive (move closer to zero).

Assume apples and oranges are substitutes. Suppose apple growers launch a successful advertising campaign that convinces consumers apples are a better product. As a result the cross-price elasticity of apples and oranges will become A. Less negative (move closer to zero). B. More negative. C. Less positive (move closer to zero). D. More positive

C. fall; fall

Assume that store brand cereal is an inferior good. If income rises, then the price of store brand cereal will ________ and the quantity sold of store brand cereal will _______. A. rise; rise B. rise; fall C. fall; fall D. fall; rise

B. Increase by 95 percent.

Assume the price elasticity of demand for JT Chip Co. chips is 4.0. If the company decreases the price of each bag of chips from $1.89 to $1.49, the number of bags sold will A. Decrease by 78 percent. B. Increase by 95 percent. C. Increase by 48 percent. D. Increase by 78 percent

C. Increase because the percentage increase in price is greater than the percentage change in quantity demanded.

Assume the price elasticity of demand for MC Pretzel Co. pretzels is 0.8. If the company increases the price of each bag of pretzels, total revenue will A. Decrease because fewer bags will be sold. B. Increase because demand is elastic and revenue will rise. C. Increase because the percentage increase in price is greater than the percentage change in quantity demanded. D. Be impossible to predict because the percentage change in price is not known.

A. Decrease by 14.3 percent.

Assume the price elasticity of demand for U.S. Frisbee Co. Frisbees is 0.5. If the company increases the price of each Frisbee from $12 to $16, the number of Frisbees demanded will A. Decrease by 14.3 percent. B. Decrease by 33.3 percent. C. Increase by 20.0 percent. D. Increase by 7.0 percent.

B. Be unitary.

Carter has budgeted $40 per month for candy bars. No matter how the price of candy bars changes, he spends exactly $40 per month. Carter's price elasticity of demand for candy bars must A. Equal zero. B. Be unitary. C. Be very inelastic since the amount he spends is not responsive to a price change. D. Be very elastic since the quantity he demands will change significantly if the price changes.

C. How responsive consumers of one good are to a change in the price of another good.

Cross-price elasticity refers to A. How responsive consumers are to a change in price. B. How responsive consumers are to a change in income. C. How responsive consumers of one good are to a change in the price of another good. D. How responsive consumers are to a change in quantity demanded.

A. How much sellers will increase production in response to a change in price.

Elasticity of supply tells us A. How much sellers will increase production in response to a change in price. B. How much sellers will change their price as their quantity supplied changes. C. How much producers will increase production with changes in consumers' income. D. How much supply responds to a change in quantity demanded.

C. 3.5 percent for each 1 percent decrease in price, ceteris paribus.

For product XYZ, the price elasticity of demand has an absolute value of 3.5. This means that quantity demanded will increase by A. 1 percent for each 3.5 percent decrease in price, ceteris paribus. B. 1 unit for each $3.50 decrease in price, ceteris paribus. C. 3.5 percent for each 1 percent decrease in price, ceteris paribus. D. 3.5 units for each $1 decrease in price, ceteris paribus.

A. Increase the price of its coffee.

If Carmen's Coffee Company wants to increase total revenue and the price elasticity of demand is 0.43, the company should A. Increase the price of its coffee. B. Decrease the price of its coffee. C. Keep the price constant since a price increase or decrease will cause total revenue to fall. D. Advertise since this is the only option that will increase total revenue.

C. Income elasticity of demand is positive.

If a good is normal, its A. Price elasticity of demand is positive. B. Income elasticity of demand is negative. C. Income elasticity of demand is positive. D. Cross-price elasticity is positive

A. An increase in price will reduce total revenue.

If demand is elastic, then A. An increase in price will reduce total revenue. B. An increase in price will increase total revenue. C. A decrease in price will reduce total revenue. D. A decrease in price will have no effect on total revenue.

A. The elasticity number E is greater than 1.

If demand is price-elastic, then A. The elasticity number E is greater than 1. B. The elasticity number E is less than 1. C. The elasticity number E is equal to 1. D. The elasticity number E is 0.

A. Fall by 1.8 percent.

If the cross-price elasticity of demand for SUVs with respect to the price of gasoline is -0.10, and gasoline prices rise by 18 percent, then SUV sales should, ceteris paribus, A. Fall by 1.8 percent. B. Fall by 18 percent. C. Rise by 1.8 percent. D. Rise by 18 percent.

A. Total revenue will rise if the price of cigarettes rises.

If the demand for cigarettes is inelastic, A. Total revenue will rise if the price of cigarettes rises. B. No matter how high the price goes, the quantity demanded will not fall. C. Total revenue will fall if the price of cigarettes rises. D. A price reduction will actually cause the quantity demanded to fall.

A. Increase price to increase total revenue.

If the elasticity of demand for cigarettes is 0.4, a seller should A. Increase price to increase total revenue. B. Decrease price to increase total revenue. C. Reduce price to maximize profits. D. Increase price because the percentage change in quantity demanded will be greater than the price effect.

B. The quantity demanded will fall by 45 percent.

If the elasticity of demand is 3, and the price rises by 15 percent, then A. The quantity demanded will increase by 5 percent. B. The quantity demanded will fall by 45 percent. C. The quantity demanded will rise by 4.5 percent. D. The percentage change in quantity demanded will fall as income rises.

C. The demand is very inelastic.

If the price elasticity of demand for cigarettes is 0.4, A. The demand is very elastic. B. A 10 percent increase in price will cause quantity demanded to fall by 40 percent. C. The demand is very inelastic. D. A 5 percent decrease in price will cause quantity demanded to rise by 10 percent.

B. 6 percent decrease

If the price elasticity of demand is 0.6, then a 10 percent increase in the price of the good will lead to a ________ in the quantity demanded. A. 6 percent increase B. 6 percent decrease C. 0.6 percent increase D. 0.6 percent decrease

D. Both goods are substitute goods because the cross-price elasticity is +2.

If the price of Coke rises by 5 percent and the sales of Pepsi go up by 10 percent, we can conclude that A. The sign on the cross-price elasticity will be negative. B. Both goods are normal goods. C. Both goods are substitute goods because the cross-price elasticity is +0.5. D. Both goods are substitute goods because the cross-price elasticity is +2.

C. Demand for Good X is elastic.

If the price of Good X falls and total revenue rises, then A. Demand for Good X is inelastic. B. Demand for Good X is unitary elastic. C. Demand for Good X is elastic. D. The price elasticity of demand for Good X is equal to 1.

C. The company's total revenue will decrease.

If the price of a good rises by 10 percent and quantity demanded falls by 20 percent, we can predict that A. The company's total revenue will increase. B. The company's total profit will rise. C. The company's total revenue will decrease. D. The company's total revenue will remain the same.

B. 0.4.

If the price of cell phones increases by 5 percent and the quantity demanded falls by 2 percent, the absolute value of the price elasticity of demand is A. 5.0. B. 0.4. C. 2.1. D. 5 percent.

B. 2.

If the price of sandals increases by 10 percent and the quantity demanded falls by 20 percent, then the price elasticity of demand in absolute value is A. .2. B. 2. C. 20 percent. D. 2 percent.

B. 6 percent.

If the price of the iPod falls by 3 percent and the price elasticity of demand for iPods is 2.0, then quantity demanded will fall by what percentage? A. 5 percent. B. 6 percent. C. 0.6 percent. D. 60 percent.

A. The cross-price elasticity sign will be negative.

If two goods are complementary goods, then A. The cross-price elasticity sign will be negative. B. The cross-price elasticity sign is not important. C. The cross-price elasticity sign will be positive. D. The cross-price elasticity will be greater than 1.

A. The percentage change in quantity demanded for good X will fall if there is a reduction in price of good Y.

If two goods are substitute goods, A. The percentage change in quantity demanded for good X will fall if there is a reduction in price of good Y. B. The percentage change in quantity demanded for good X will stay the same if there is an increase in the price of good Y. C. If the price of good X increases, the demand for good Y falls. D. The percentage change in quantity demanded for good X will rise if there is a reduction in the price of good Y.

B. Responsiveness of quantity demanded to a percentage change in income.

Income elasticity measures the A. Responsiveness of quantity demanded for one good to a percentage change in price of another good. B. Responsiveness of quantity demanded to a percentage change in income. C. Way in which consumers switch from one product to another when price rises. D. Percentage change in quantity demanded given a percentage change in wealth.

B. The quantity supplied has a large increase in response to an increase in price.

Supply is very elastic when A. The quantity supplied does not change much when price rises. B. The quantity supplied has a large increase in response to an increase in price. C. The quantity supply does not respond to an increase in price. D. The quantity demanded causes the quantity supplied to increase.

A. 0.5.

Suppose a university raises its tuition by 6 percent and as a result the enrollment of students decreases by 3 percent. The absolute value of the price elasticity of demand is A. 0.5. B. 2.0. C. 8.0. D. 6.0.

D. 6.3.

Suppose computer prices at an office supply store fall from $1,000 to $900 and as a result the quantity demanded of typewriters decreases from 40 to 20 per month. The cross-price elasticity of demand is closest to A. 0.16. B. 0.2. C. 5.0. D. 6.3.

B. A normal good.

Suppose income falls 5 percent in a year, and as a result, housing construction falls from 10 million to 5 million units annually. Based on this information, housing starts are A. An inferior good. B. A normal good. C. Price-elastic. D. Price-inelastic.

D. Fall by 3.5 percent

Suppose the income elasticity of demand for used jet skis is 3.5. If the level of income decreases by 1 percent, the number of used jet skis sold will, ceteris paribus, A. Rise by 0.29 percent. B. Rise by 3.5 percent. C. Fall by 0.29 percent. D. Fall by 3.5 percent.

A. -1.71.

Suppose the price of soccer shoes decreases by 7 percent and as a result, there is a 12 percent rise in the quantity of shin guards demanded. The value of the cross-price elasticity of demand is A. -1.71. B. -0.58. C. 1.71. D. 0.58.

A. When price falls quantity demanded will rise, but for simplicity economists take the absolute value of the elasticity number.

Technically the elasticity number is negative because A. When price falls quantity demanded will rise, but for simplicity economists take the absolute value of the elasticity number. B. When price falls quantity demanded will fall, but for simplicity economists take the absolute value of the elasticity number. C. When price rises quantity demanded will rise, but for simplicity economists take the absolute value of the elasticity number. D. The demand curve is always upward-sloping.

D. The percentage change in quantity demanded divided by the percentage change in price.

The basic formula for price elasticity is A. The percentage change in price divided by the percentage change in quantity demanded. B. The change in quantity demanded divided by the change in price. C. The percentage change in income divided by the percentage change in price. D. The percentage change in quantity demanded divided by the percentage change in price.

C. elastic; more

The demand will be _______________ if the consumer has _________ substitute goods to choose from A. elastic; less B. inelastic; more C. elastic; more D. elastic; no

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

The formula for the elasticity of supply 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 percentage change in quantity supplied divided by the percentage change in income. D. The percentage change in price divided by the percentage change in quantity demanded.

B. Demand is inelastic.

When the percentage change in quantity demanded is less than the percentage change in price, ceteris paribus, A. Demand is elastic. B. Demand is inelastic. C. Demand is unitary elastic. D. Elasticity is impossible to calculate

D. A high ratio of price to income.

Which of the following causes demand to be more elastic with respect to price? A. Shorter periods of time to adjust to a change in price. B. A steeper demand curve for a given price and quantity. C. Fewer substitutes. D. A high ratio of price to income.

C. Costs of production.

Which of the following does not influence the price elasticity of demand? A. The availability of substitutes. B. The price of the item relative to the consumer's budget. C. Costs of production. D. The length of time.

A. Automobiles.

Which of the following is likely to have the most inelastic price elasticity of demand? A. Automobiles. B. Pickup trucks. C. Hondas. D. The Hondas one Honda dealer sells.

C. Generic canned food.

Which of the following is most likely an inferior good? A. Rolex watches. B. Nike running shoes. C. Generic canned food. D. A custom-built mansion.

C. The amount of income the consumer has.

Which of the following is not a determinant of the price elasticity of demand? A. The number of substitute goods available. B. The share of a consumer's budget. C. The amount of income the consumer has. D. The time frame—whether it is in the short run or long run.

A. Income elasticity of demand.

Which of the following is the best measure of the effects of a recession? A. Income elasticity of demand. B. Price elasticity of demand. C. Cross-price elasticity of demand. D. Utility-maximizing rule.

D. Medicines.

Which of the following products will have more inelastic demand? A. New cars. B. Fresh flowers. C. Fast food. D. Medicines.

D. Airline travel in the long run.

Which of the following would most likely have a price elasticity coefficient greater than 1? A. Cigarettes. B. Gasoline in the short run. C. Electricity. D. Airline travel in the long run.

A. Coffee.

Which of the following would most likely have a price elasticity coefficient less than 1? A. Coffee. B. Televisions. C. Fresh fish. D. New cars.