Chapter 6

16) Total revenue equals A) price per unit times quantity sold. B) price per unit times quantity supplied. C) price per unit times change in quantity sold. D) change in price per unit times quantity sold.

A

18) When demand is unit elastic, a change in price causes total revenue to stay the same because A) the percentage change in quantity demanded exactly offsets the percentage change in price. B) buyers are buying the same quantity C) total revenue never changes with price changes. D) the change in profit is offset by the change in production cost.

A

19) Opera Estate Girls' School is considering increasing its tuition to raise revenue. If the school believes that raising tuition will increase revenue it is assuming that the demand for attending the school is A) inelastic. B) elastic. C) unit elastic. D) perfectly elastic.

A

5) If demand is perfectly inelastic, the absolute value of the price elasticity of demand is A) zero. B) less than one. C) more than one. D) equal to the absolute value of the slope of the demand curve.

A

11) Which of the following products comes closest to having a perfectly inelastic demand? A) gasoline B) cholesterol medication in general C) iPhones D) bus rides

B

14) Which of the following goods would have the most inelastic demand? A) ski vacations B) bread C) luxury cars D) big screen TVs

B

17) When demand is elastic, a fall in price causes total revenue to rise because A) when price falls, quantity sold increases so total revenue automatically rises. B) the increase in quantity sold is large enough to offset the lower price. C) the percentage increase in quantity demanded is less than the percentage fall in price. D) the demand curve shifts.

B

2) Suppose the value of the price elasticity of demand is -3. What does this mean? A) A 1 percent increase in the price of the good causes quantity demanded to increase by 3 percent. B) A 1 percent increase in the price of the good causes quantity demanded to decrease by 3 percent. C) A 3 percent increase in the price of the good causes quantity demanded to decrease by 1 percent. D) A $1 increase in price causes quantity demanded to fall by 3 units.

B

20) Last year, Joan bought 50 pounds of hamburger when her household income was $40,000. This year, her household income was only $30,000 and Joan bought 60 pounds of hamburger.Holding everything else constant, Joan's income elasticity of demand for hamburger is A) positive, so Joan considers hamburger to be an inferior good. B) negative, so Joan considers hamburger to be an inferior good. C) positive, so Joan considers hamburger to be a normal good and a necessity. D) negative, so Joan considers hamburger to be a normal good.

B

21) If a 5 percent increase in income leads to a 10 percent decrease in quantity demanded for a product, this product is A) an income elastic good. B) an inferior good. C) a necessity. D) a luxury good.

B

23) The cross-price elasticity of demand measures the A) absolute change in the quantity demanded of one good divided by the absolute change in the price of another good. B) percentage change in the quantity demanded of one good divided by the percentage change in the price of another good. C) percentage change in the price of one good divided by the percentage change in the quantity demanded of another good. D) percentage change in the quantity demanded of one good in one location divided by the price of the same good in another location.

B

3) If demand is inelastic, the absolute value of the price elasticity of demand is A) one. B) less than one. C) greater than one. D) greater than the absolute value of the slope of the demand curve.

B

1) Price elasticity of demand measures A) how responsive suppliers are to price changes. B) how responsive sales are to changes in the price of a related good. C) how responsive quantity demanded is to a change in price. D) how responsive sales are to a change in buyers' incomes.

C

12) When there few close substitutes available for a good, demand tends to be A) perfectly inelastic. B) perfectly elastic. C) relatively inelastic. D) relatively elastic.

C

25) If the cross-price elasticity of demand between beer and wine is 0.31, then beer and wine are A) complements. B) price-inelastic goods. C) substitutes. D) necessities.

C

27) Suppose the value of the price elasticity of supply is 4. What does this mean? A) A 4 percent increase in the price of the good causes quantity supplied to increase by 1 percent. B) A 1 percent increase in the price of the good causes the supply curve to shift upward by 4 percent. C) A 1 percent increase in the price of the good causes quantity supplied to increase by 4 percent. D) For every $1 increase in price, quantity supplied increases by 4 units.

C

30) If, for a given percentage decrease in price, quantity supplied decreases by a proportionately smaller percentage, then supply is A) unit elastic. B) perfectly elastic. C) inelastic. D) elastic.

C

4) Perfectly inelastic demand is represented by a demand curve which is ________, and relatively inelastic demand is represented by a demand curve which is ________. A) downward sloping; vertical B) horizontal; downward sloping C) vertical; downward sloping D) upward sloping; horizontal

C

7) Suppose a hurricane decreased the supply of oranges so that the price of oranges rose from $120 a ton to $180 a ton and quantity sold decreased from 800 tons to 240 tons. What is the absolute value of the price elasticity of demand? A) 0.11 B) 0.37 C) 2.69 D) 9.33

C

9) Jaycee Jeans sold 40 pairs of jeans at a price of $40. When it lowered its price to $20, the quantity sold increased to 60 pairs. Calculate the absolute value of the price elasticity of demand. Use the midpoint formula. A) 1.67 B) 1.0 C) 0.6 D) 0.53

C

13) Jonah lives in a small town where there is only one Mexican restaurant. Which of the following is likely to be true about the price elasticity of demand for meals at the Mexican restaurant? A) Demand is likely to be perfectly inelastic. B) Demand is likely to be perfectly elastic. C) Demand is likely to be relatively elastic. D) Demand is likely to be relatively inelastic.

D

15) The demand for gasoline in the short run is A) elastic because people can easily switch to public transportation. B) perfectly inelastic because people have no choice but to buy gasoline. C) unit elastic because people tend to consume a stable amount of gasoline per period. D) inelastic because there are very few good substitutes for gasoline.

D

22) If the quantity demanded for a good rises as income rises then the income elasticity of demand for this good is ________ than 0, and the good is ________ good. A) greater; an inferior B) less; a normal C) less; an inferior D) greater; a normal

D

24) The cross-price elasticity of demand between Coca-Cola and Pepsi-Cola is calculated by dividing A) the percentage change in quantity demanded of Coca-Cola by the percentage change in the quantity demanded of Pepsi-Cola. B) the percentage change in the price of Pepsi-Cola by the percentage change in quantity demanded of Coca-Cola. C) the percentage change in the price of Coca-Cola by the percentage change in the price of Pepsi-Cola. D) the percentage change in the quantity demanded of Coca-Cola by the percentage change in the price of Pepsi-Cola.

D

26) The price elasticity of supply is equal to A) the value of the slope of the supply curve. B) the change in quantity supplied divided by the change in price. C) the percentage change in price divided by the percentage change in quantity supplied. D) the percentage change in quantity supplied divided by the percentage change in price.

D

29) If, for a given percentage increase in price, quantity supplied increases by a proportionately larger percentage, then supply is A) unit elastic. B) perfectly elastic. C) inelastic. D) elastic.

D

unit elastic

a given percentage that a change in price leads to an equal percentage change in quantity demanded or supplied - the absolute value of price elasticity is 1

Elasticity

a measure of how much one economic variable responds to changes in another economic variable

Economists estimated that the price elasticity of beer is -0.30 and the incomeelasticity of beer is 0.09. This means thata. a.)an increase in the price of beer will increase the quantity demanded of beer and beeris a normal good .b. an increase in the price of beer will lead to an increase in revenue for beer sellers andbeer is a normal good. c. a decrease in the price of beer will lead to an increase in revenue for beer sellers andbeer is an inferior good. d. an increase in the price of beer will lead to a increase in the quantity demanded ofbeer and beer is a necessity good.

b

When the price of tortilla chips rose by 10 percent, the quantity of tortilla chipssold fell 4 percent, and the sale of dips (like salsa and bean dip) fell 8 percent.This set of facts indicates that a. the cross-price elasticity between tortilla chips and dips is 0.8, so the two aresubstitutes. b. the cross-price elasticity between tortilla chips and dips is -0.4, so the two arecomplements .c. the cross-price elasticity between tortilla chips and dips is -0.8, so the two arecomplements. d. the cross-price elasticity between tortilla chips and dips is 0.4, so the two aresubstitutes.

c

Price elasticity of demand and equation

is the responsiveness of the quantity demanded to a change in price %change in quantity demanded/ %change in price

Is elasticity higher in the long run or the short run?

it is higher in the long run than the short run because over time people can adjust their buying habits

perfectly inelastic

means that there is no change in quantity at all when price changes - vertical line, 0

perfectly elastic

means the response to price is complete and infinite - horizontal line, infinity

Inelastic

the demand remains constant even with changes in economic factors - the absolute value of price elasticity is less than 1

if the market for a product is broadly defined then

there are few substitutes for the product and the demand for the product is relatively inelastic