chapter 5 econ

Suppose there is a 6 percent increase in the price of good X and a resulting 6 percent decrease in the quantity of X demanded. Price elasticity of demand for X is a. 1. b. 6. c. 0. d. infinite.

a. 1

If the price elasticity of demand for a good is 4.0, then a 10 percent increase in price would result in a a. 4.0 percent decrease in the quantity demanded. b. 10 percent decrease in the quantity demanded. c. 40 percent decrease in the quantity demanded. d. 400 percent decrease in the quantity demanded.

c. 40 percent decrease in the quantity demanded.

Moving down a linear demand curve we know that elasticity gets a. smaller, then larger. b. larger. c. smaller d. larger, then smaller.

c. smaller

Holding all other forces constant, if raising the price of a good results in less total revenue, the demand for the good must be a. unit elastic. b. inelastic. c. elastic. d. perfectly inelastic.

c. elastic.

The price elasticity of demand measures a. a buyer's responsiveness to a change in the price of a good. b. the increase in demand as additional buyers enter the market. c. how much more of a good consumers will demand when incomes rise. d. the increase in demand that will occur from a change in one of the nonprice determinants of demand.

a. a buyer's responsiveness to a change in the price of a good.

Suppose the price elasticity of demand for basketballs is 1.20. A 15 percent increase in price will result in a. an 18 percent decrease in the quantity of basketballs demanded. b. a 15 percent decrease in the quantity of basketballs demanded. c. an 8 percent reduction in the number of basketballs demanded. d. a 12.5 percent reduction in the number of basketballs demanded.

a. an 18 percent decrease in the quantity of basketballs demanded.

An inelastic demand means that a. consumers hardly respond to a change in price. b. consumers respond substantially to a change in price. c. consumers respond directly to a change in income. d. the change in quantity demanded is equal to the change in price.

a. consumers hardly respond to a change in price.

The most basic tools of economics are a. demand and supply. b. price and quantity. c. monetary and fiscal policy. d. elasticity of demand and supply.

a. demand and supply.

When small changes in price lead to infinite changes in quantity demanded, demand is perfectly a. elastic and will be horizontal. b. inelastic and will be horizontal. c. elastic and will be vertical. d. inelastic and will be vertical.

a. elastic and will be horizontal.

Demand for a good would tend to be more inelastic the a. fewer the available substitutes. b. longer the time period considered. c. more the good is considered a luxury good. d. more narrowly defined the market is.

a. fewer the available substitutes.

When demand is elastic the price elasticity is a. greater than 1, and price and total revenue will move in opposite directions. b. less than 1, and price and total revenue will move in the same direction. c. less than 1, and price and total revenue will move in opposite directions. d. greater than 1, and price and total revenue will move in the same direction.

a. greater than 1, and price and total revenue will move in opposite directions.

The flatter the demand curve through a given point, the a. greater the price elasticity of demand. b. smaller the price elasticity of demand. c. closer the price elasticity of demand will be to the slope of the curve. d. more equal the price elasticity of demand will be to the slope of the curve.

a. greater the price elasticity of demand.

Moving up a linear demand curve, we know that total revenue a. increases, then decreases. b. decreases, then increases. c. increases. d. decreases.

a. increases, then decreases.

For a vertical demand curve, slope a. is undefined and elasticity equals 0. b. equals 0 and elasticity is undefined. c. and elasticity are both undefined. d. and elasticity are both equal to 0.

a. is undefined and elasticity equals 0.

When the price elasticity of demand is perfectly inelastic, the elasticity a. is zero and the demand curve is vertical. b. is zero and the demand curve is horizontal. c. approaches infinity and the demand curve is vertical. d. approaches infinity and the demand curve is horizontal.

a. is zero and the demand curve is vertical.

On a downward-sloping linear demand curve, total revenue would be at a maximum at the a. midpoint of the demand curve. b. lower end of the demand curve. c. upper end of the demand curve. d. It is impossible to tell without knowing prices and quantities demanded.

a. midpoint of the demand curve.

The price elasticity of supply measures how responsive a. sellers are to a change in price. b. buyers are to a change in income. c. buyers are to a change in price. d. sellers are to a change in buyers' income.

a. sellers are to a change in price.

Demand is said to be inelastic if a. the quantity demanded changes only slightly when the price of the good changes. b. demand shifts only slightly when the price of the good changes. c. buyers respond substantially to changes in the price of the good. d. the price of the good responds only slightly to changes in demand.

a. the quantity demanded changes only slightly when the price of the good changes.

When a supply curve is relatively flat, a. the supply is relatively elastic. b. the supply is relatively inelastic. c. sellers are not at all responsive to a change in price. d. quantity supplied changes slightly when the price changes

a. the supply is relatively elastic.

If a 30 percent change in price causes a 15percent change in quantity supplied, then the price elasticity of supply is a. 1/2 and supply is elastic. b. 1/2 and supply is inelastic. c. 2 and supply is inelastic. d. 2 and supply is elastic.

b. 1/2 and supply is inelastic.

When demand is inelastic, a decrease in price will cause a. an increase in total revenue. b. a decrease in total revenue. c. no change in total revenue. d. There is insufficient information to answer this question.

b. a decrease in total revenue.

When demand is elastic in the current price range, a. an increase in price would increase total revenue because the decrease in quantity demanded is less than the increase in price. b. an increase in price would decrease total revenue because the decrease in quantity demanded is greater than the increase in price. c. a decrease in price would decrease total revenue because the increase in quantity demanded is smaller than the decrease in price. d. a decrease in price would not affect the total revenue.

b. an increase in price would decrease total revenue because the decrease in quantity demanded is greater than the increase in price.

A perfectly elastic demand implies that a. buyers will not respond to any change in price. b. any rise in price above that represented by the demand curve will result in no output demanded. c. price and quantity demanded respond proportionally. d. price will rise by an infinite amount when there is a change in quantity demanded. ANSWER: b. any rise in price above that represented by the demand curve will result in no output demanded.

b. any rise in price above that represented by the demand curve will result in no output demanded.

Suppose a producer is able to separate customers into two groups, one having a price inelastic demand and the other having a price elastic demand. If the producer's objective is to increase total revenue, she should a. increase the price charged to customers with the price elastic demand and decrease the price charged to customers with the price inelastic demand. b. decrease the price charged to customers with the price elastic demand and increase the price charged to customers with the price inelastic demand. c. charge the same price to both groups of customers. d. increase the price for both groups of customers.

b. decrease the price charged to customers with the price elastic demand and increase the price charged to customers with the price inelastic demand.

You produce jewelry boxes. If the demand for jewelry boxes is elastic and you want to increase your total revenue, you should a. increase the price of your jewelry boxes. b. decrease the price of your jewelry boxes. c. not change the price of your jewelry boxes. d. None of the above answers are correct.

b. decrease the price of your jewelry boxes.

Because the demand for wheat tends to be inelastic, the development of a new, more productive hybrid wheat would tend to a. increase the total revenue of wheat farmers. b. decrease the total revenue of wheat farmers. c. weaken the demand for wheat. d. weaken the supply of wheat.

b. decrease the total revenue of wheat farmers.

Suppose the government increases the tax on gasoline in order to raise revenue. Since raising the gasoline tax would increase the price of gasoline, the government must be assuming that the a. demand for gasoline is price elastic. b. demand for gasoline is price inelastic. c. demand for gasoline is price unit-elastic. d. tax on gasoline will not affect the consumption of gasoline.

b. demand for gasoline is price inelastic.

An increase in price causes an increase in total revenue when a. demand is elastic. b. demand is inelastic. c. demand is unit elastic. d. All of the above are possible.

b. demand is inelastic.

When the price of bubble gum is $0.50, the quantity demanded is 400 packs per day. When the price falls to $0.40, the quantity demanded increases to 600. Given this information and using the midpoint method, you know that the demand for bubble gum is a. inelastic. b. elastic. c. unit elastic. d. perfectly inelastic.

b. elastic.

For a horizontal demand curve, slope a. is undefined and elasticity equals 0. b. equals 0 and elasticity is undefined. c. and elasticity are both undefined. d. and elasticity are both equal to 0.

b. equals 0 and elasticity is undefined.

A perfectly elastic demand curve will be a. vertical. b. horizontal. c. downward sloping to the right. d. upward sloping to the right.

b. horizontal.

In any market, total revenue is price a. divided by the price elasticity of demand. b. multiplied by quantity. c. plus quantity. d. multiplied by quantity minus the costs of production.

b. multiplied by quantity.

Which of the following is NOT a determinant of the price elasticity of demand for a product? a. time b. price c. market definition d. substitutes

b. price

The price elasticity of supply measures how much a. the quantity supplied responds to changes in input prices. b. the quantity supplied responds to changes in the price of the good. c. the price of the good responds to changes in supply. d. sellers respond to changes in technology.

b. the quantity supplied responds to changes in the price of the good.

A perfectly inelastic demand curve will be a. negatively sloped, because buyers decrease their purchases when the price rises. b. vertical, because buyers purchase the same amount whether the price rises or falls. c. positively sloped, because buyers respond by increasing their purchases when price rises. d. horizontal, because buyers increase their purchases by huge amounts with slight changes in price.

b. vertical, because buyers purchase the same amount whether the price rises or falls.

How does total revenue change as one moves down a linear demand curve? a. It increases. b. It decreases. c. It first increases, then decreases. d. It is unaffected by a movement along the demand curve.

c. It first increases, then decreases.

Your younger sister needs $50 to buy a new bike. She has opened a lemonade stand to make the money she needs. She currently is charging 25 cents per cup, but wants to adjust her price to earn the money faster. If you know that the demand for lemonade is elastic, what is your advice to her? a. Leave the price the same and be patient. b. Raise the price to increase total revenue. c. Lower the price to increase total revenue. d. There isn't enough information given to answer this question.

c. Lower the price to increase total revenue.

The elasticity of demand will change along a. a horizontal demand curve. b. a vertical demand curve. c. a linear, downward-sloping demand curve. d. the elasticity of demand remains constant along all demand curves.

c. a linear, downward-sloping demand curve.

The concept of elasticity is used to a. analyze how much the economy is capable of expanding. b. determine the level of government invention in the economy. c. analyze supply and demand with greater precision. d. calculate consumer credit purchases.

c. analyze supply and demand with greater precision.

Get Smart University is contemplating increasing tuition to enhance revenue. If GSU feels that raising tuition would enhance revenue, they are a. necessarily ignoring the law of demand. b. assuming that the demand for university education is elastic. c. assuming that the demand for university education is inelastic. d. assuming that the supply of university education is elastic.

c. assuming that the demand for university education is inelastic.

The price elasticity of demand measures how responsive a. buyers are to a change in income. b. sellers are to a change in price. c. buyers are to a change in price. d. sellers are to a change in buyers' incomes.

c. buyers are to a change in price.

Holding all other forces constant, when the price of gasoline rises, the number of gallons of gasoline demanded would fall substantially over a ten-year period because a. buyers tend to be much less sensitive to a change in price when given more time to react. b. buyers will have substantially more income over a ten-year period. c. buyers tend to be much more sensitive to a change in price when given more time to react. d. None of these answers are correct.

c. buyers tend to be much more sensitive to a change in price when given more time to react.

The demand for caviar tends to be income a. elastic because it is relatively expensive. b. inelastic because it is packaged in small containers. c. elastic because buyers generally feel that they can do without it. d. inelastic because it is scarce.

c. elastic because buyers generally feel that they can do without it.

Demand is unit elastic if elasticity is a. less than 1. b. greater than 1. c. equal to 1. d. equal to 0.

c. equal to 1.

Elasticity of demand is closely related to the slope of the demand curve. The more responsive buyers are to a change in price, the demand curve will be a. steeper. b. further to the right. c. flatter. d. closer to the vertical axis.

c. flatter.

A person who has high cholesterol and must exercise an hour every day has what type of demand for exercise equipment ? a. elastic b. unit elastic c. inelastic d. weak

c. inelastic

The elasticity of a perfectly elastic supply curve equals a. 0. b. 1. c. infinity. d. less than 1 but greater than 0.

c. infinity.

Demand is said to be inelastic if the a. quantity demanded changes proportionately more than price. b. price changes proportionately more than income. c. quantity demanded changes proportionately less than price. d. quantity demanded changes proportionately the same as price.

c. quantity demanded changes proportionately less than price.

Cross-price elasticity of demand measures how the a. quantity demanded of a good changes as price changes. b. quantity demanded of a good changes as income changes. c. quantity demanded of one good changes as the price of another good changes. d. price of a good is affected when income changes.

c. quantity demanded of one good changes as the price of another good changes.

If sellers respond substantially to changes in price, then a. the supply curve will shift substantially when the price rises. b. sellers are considered to be relatively price insensitive. c. sellers are considered to be relatively price sensitive. d. the price elasticity of supply equals 1.

c. sellers are considered to be relatively price sensitive.

The smaller the price elasticity of demand the a. closer the price elasticity of demand will be to the slope of the curve. b. flatter the demand curve will be through a given point. c. steeper the demand curve will be through a given point. d. more equal the price elasticity of demand will be to the slope of the curve.

c. steeper the demand curve will be through a given point.

In general, elasticity is a. the friction that develops between buyers and sellers in a market. b. a measure of how much government intervention is prevalent in a market. c. a measure of how competitive a market is. d. a measure of how much buyers and sellers respond to changes in market conditions.

d. a measure of how much buyers and sellers respond to changes in market conditions.

The cross-price elasticity of demand can tell us whether goods are a. normal or inferior. b. elastic or inelastic. c. luxuries or necessities. d. complements or substitutes.

d. complements or substitutes

If a person only occasionally enjoys a cup of coffee, his demand for coffee would be a. horizontal. b. inelastic. c. unit elastic. d. elastic.

d. elastic.

The greater the price elasticity of demand the a. more likely the product is a necessity. b. smaller the responsiveness of quantity demanded to price. c. greater the percentage change in price over the percentage change in quantity demanded. d. greater the responsiveness of quantity demanded to price.

d. greater the responsiveness of quantity demanded to price.

A good will have a more inelastic demand a. the greater the availability of close substitutes. b. the narrower the definition of the market. c. the longer the period of time. d. if it is considered a necessity.

d. if it is considered a necessity.

The discovery of a new hybrid wheat would tend to increase the supply of wheat. Under what conditions would wheat farmers realize an increase in revenue? a. if the supply of wheat is elastic b. if the supply of wheat is inelastic c. if the demand for wheat is inelastic d. if the demand for wheat is elastic

d. if the demand for wheat is elastic

If a good is a necessity, demand for the good would tend to be a. elastic. b. horizontal. c. unit elastic. d. inelastic.

d. inelastic.

The supply of a good will be more elastic the a. more the good is considered a luxury. b. broader the market is defined. c. more close substitutes the good has. d. longer the time period being considered.

d. longer the time period being considered.

If the cross-price elasticity of demand is 1.25, then the two goods would be a. complements. b. luxuries. c. normal goods. d. substitutes

d. substitutes

A key determinant of the elasticity of supply is a. the ability of sellers to change the price of the good they produce. b. the number of firms in the market. c. how responsive buyers are to changes in sellers' prices. d. the ability of sellers to change the amount of the good they produce.

d. the ability of sellers to change the amount of the good they produce.

Demand is said to be elastic if a. the price of the good responds substantially to changes in demand. b. demand shifts substantially when the price of the good changes. c. buyers do not respond much to changes in the price of the good. d. the quantity demanded responds substantially to changes in the price of the good.

d. the quantity demanded responds substantially to changes in the price of the good.