Chapter 5

The Smith family buys much more macaroni when someone in the family is laid off. This means that the Smiths' ____ is negative. a. demand curve for macaroni b. income elasticity for macaroni c. Engel's law d. price elasticity of demand for macaroni

b. income elasticity for macaroni

The Smith family buys much more macaroni when someone in the family is laid off. this means that the Smiths' _______ is negative. a. demand curve for macaroni b. income elasticity for macaroni c. Engel's law d. income e. price elasticity of demand for macaroni

b. income elasticity for macaroni

As the period for firms to expand output is lengthened, the elasticity of the market supply curve will: a. price elasticity of demand. b. income elasticity of demand. c. price elasticity of supply. d. cross elasticity of demand. e. cross elasticity of supply.

b. income elasticity of demand.

When economists look at the percentage change in quantity demanded generated by a change in income, they are looking at: a. price elasticity of demand. b. income elasticity of demand. c. price elasticity of supply. d. cross elasticity of demand. e. cross elasticity of supply.

b. income elasticity of demand.

Suppose the quantity demanded is 1,000 million bushels of peaches per year when the price is $3 per bushel and 1,500 million bushels when the price is $1 per bushel. The price elasticity of demand in this range of the demand curve is: a. elastic. b. inelastic. c. unitary elastic. d. infinitely elastic.

b. inelastic.

The number of CDs purchased increased by 50 percent when consumer income increased by 10 percent. Assuming other factors are held constant, CDs would be classified as: a. social goods b. normal goods c. Giffen goods d. inferior goods

b. normal goods

The number of CDs purchased increased by 50 percent when consumer income increased by 10 percent. Assuming other factors are held constant, CDs would be classified as: a. social goods. b. normal goods. c. Giffen goods. d. inferior goods.

b. normal goods.

If the price elasticity of demand is computed for two products, and product A measures .79, and product B measures 1.6, then: a. product A is more price elastic than product B. b. product B is more price elastic than product A. c. consumers are more sensitive to price changes in product A than in product B. d. product B is more price inelastic than product A. e. products A and B must be substitutes.

b. product B is more price elastic than product A.

_____ _____ is a more than 1 percent change in quantity demanded in response to a 1 percent change in price.

Elastic Demand

_____ _____ _____ _____ is the ratio of the percentage change in the quantity demanded of a good or service to a given percentage change in income.

Income Elasticity of Demand

The percentage change in quantity demanded is less than the percentage change in price. ______

Inelastic Demand

_____ _____ is a less than 1 percent change in quantity demanded in response to a 1 percent change in price.

Inelastic Demand

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

Price Elasticity

_____ _____ _____ _____ is the ratio of the percentage change in the quantity supplied of a product to the percentage change in its price.

Price Elasticity of Supply

If a good has a price elasticity of demand coefficient less than one, then: a. this good has an elastic demand. b. this good has an inelastic demand. c. a 10 percent increase in the price will result in a greater than 10 percent decrease in the quantity demanded. d. the demand curve will be vertical.

b. this good has an inelastic demand.

All things equal, the price elasticity of supply:will be greater a. in the short run than in the long run. b. will be greater in the long run than in the short run. c. is the same for the short run and the long run. d. approaches zero in the long run.

b. will be greater in the long run than in the short run.

Suppose the president of a textbook publisher argues that a 10 percent increase in the price of textbooks will raise total revenue for the publisher. It can be concluded that the company president thinks that demand for textbooks is: a. unitary elastic b. inelastic c. elastic d. perfectly inelastic

inelastic

An extreme case in which the demand curve is horizontal and the elasticity coefficient equals infinity is called _____ _____ _____.

perfectly elastic demand

An extreme case in which the demand curve is vertical and the elasticity coefficient equals zero is called _____ _____ _____.

perfectly inelastic demand

The ratio of the percentage change in quantity demanded to the percentage change in price is called _____ _____ _____ _____.

price elasticity of demand

The percentage change in quantity demanded exceeds the percentage change in price.

Elastic Demand

A perfectly _____ demand is a condition in which a small percentage change in price brings about an infinite percentage change in quantity demanded.

Elastic

T or F Applying supply and demand analysis, other factors held constant, the steeper the supply curve (less elastic), the larger the burden of a sales tax that is borne by the sellers.

False

T or F If a 10 percent price increase causes the quantity demanded for a good to decrease by 5 percent, demand is elastic.

False

T or F If a good has a price elasticity of demand coefficient greater than 1, total revenue can be increased by raising the price.

False

T or F If a supply curve has a constant slope throughout its length, it must have a constant price elasticity throughout its length.

False

T or F If demand for a good is price elastic, it must also be income elastic.

False

T or F If the demand curve for a good is elastic, consumers will spend more on that good when its price increases.

False

T or F If the price elasticity of demand for a good is elastic, then consumers are relatively unresponsive with respect to the quantity purchased when the price changes.

False

T or F In responses to a price change for good Y, if the cross-elasticity of demand for good Y is positive, good X and good Y are complements.

False

T or F Other factors held constant, if there are few close substitutes for a good, demand is more elastic for it.

False

Which of the following is true for a lower price elasticity of demand coefficient? a. The quantity demanded is less responsive. b. Few substitutes exist. c. Many substitutes exist. d. All of the above are correct

Few substitutes exist

The share of a tax ultimately paid by consumers and sellers is called _____ _____.

Tax Incidence

The price multiplied by the quantity demanded.

Total Revenue

The total number of dollars a firm earns from the sale of a good or service, which is equal to its price multiplied by the quantity demanded is called _____ _____.

Total Revenue

T of F Applying supply and demand analysis, other factors held constant, the steeper the supply curve (more inelastic), the larger the burden of a sales tax that is borne by the sellers.

True

T or F A horizontal demand curve is perfectly elastic.

True

T or F If a 10 percent price increase causes the quantity demanded for a good to decrease by 10 percent, demand is unitary elastic.

True

T or F If a 10 percent price increase causes the quantity demanded for a good to decrease by 20 percent, demand is elastic.

True

T or F Suppose an economist found that total revenues increased for the bus system when fares were raised. The conclusion is that the price elasticity demand for subway services over the range of fare increase is inelastic.

True

T or F The price elasticity of demand measures consumer responsiveness to a price change.

True

The percentage change in price causes an equal percentage change in quantity demanded.

Unitary Elastic

_____ _____ _____ is a 1 percent change in quantity demanded in response to a 1 percent change in price.

Unitary Elastic Demand

When the price of bread increases by 3 percent, the quantity demanded of crackers increases by 2 percent. The cross elasticity of demand between crackers and bread is: a. 0.67 b. 1.5 c. 2.5 d. 3.2 e. 5.0

a. 0.67

Looking at the relationship between elasticity and total revenue, we can see that ____. a. b and c b. when demand is unit elastic, small price changes don't change total revenue c. when a good is price inelastic, revenue increases when prices increase d. when a good is price elastic, revenue increases when prices increase e. total revenue is maximized when the elasticity has stopped changing

a. b and c

The number of computers bought increased by 20 percent when the price of on-line services declined by 10 percent. Assuming other factors are held constant, computers and on-line services are classified as: a. complements b. unrelated goods c. subsitutes d. social goods

a. complements

If the percentage change in the quantity demanded of a good is greater than the percentage change in price, price elasticity of demand is: a. elastic b. inelastic c. perfectly inelastic perfectly elastic

a. elastic

The price elasticity of demand coefficient for a good will be greater: a. if close substitutes exist. b. if minor complements exist. c. in the short-run. d. if a small portion of the budget will be spent on it.

a. if close substitutes exist.

Good A has a price elasticity of demand of .27, while good B has a price elasticity of demand of 2.9. To raise the most tax revenue, the government should: a. place a unit tax on good A. b. place a unit tax on good B. c. raise the price elasticity of demand for good A. d. subsidize the production of good B. e. cut its spending for various social programs.

a. place a unit tax on good A.

If a decrease in the price of football tickets increases the total revenue of the athletic department, this is evidence that demand is: a. price elastic b. price inelastic c. unit elastic with respect to price d. perfectly inelastic

a. price elastic

If the quantity of tickets to the fair sold decreases by 10 percent when the price increases by 5 percent, the price elasticity of demand over this range of the demand curve is: a. price elastic b. price inelastic c. perfectly inelastic d. unitary elastic

a. price elastic

Assume 300 billion pounds of Ostrich meat is produced per year when the price is 50 cents per pound, and 500 billion pounds when the price is 60 cents per pound. The supply of Ostrich meat, other factors held constant, is: a. price elastic. b. price inelastic. c. income elastic. d. income inelastic.

a. price elastic.

If a decrease in the price of football tickets increases the total revenue of the athletic department, this is evidence that demand is: a. price elastic. b. price inelastic. c. unit elastic with respect to price. d. perfectly inelastic.

a. price elastic.

If a 1 percent decrease in the price of product A brings about a 3 percent increase in the sales of product B, then: a. products A and B are complementary. b. the cross elasticity of demand between these two products is positive. c. products A and B are substitutes. d. the demand for these products is inelastic. e. the total revenue earned from product A will decrease.

a. products A and B are complementary.

There is no change in total revenue when the demand curve for a good is: a. unitary elastic b. perfectly inelastic c. elastic d. inelastic e. perfectly elastic

a. unitary elastic

Suppose that when price is $10, quantity supplied is 20. When price is $6, quantity supplied is 12. The price elasticity of supply is: a. 0.5 b. 0.8 c. 1.0 d. 1.5 e. 2.0

c. 1.0

Tara buys four music cassettes when the price is $10 and two cassettes when the price is $14. Her price elasticity of demand is: a. 0 b. 1 c. 2 d. 3 e. 4

c. 2

If the income elasticity of demand for a good is .59, then it is what type of good? a. Price elastic. b. Price inelastic. c. Income inelastic. d. Income elastic. e. Inferior.

c. Income inelastic.

Which of the following describes a situation in which demand must be inelastic? a. Total revenue decreases by 10 percent when the price of spats rises by 10 percent. b. Total revenue decreases by less than 10 percent when the price of spats rises by 10 percent. c. Total revenue increases by more than 10 percent when the price of spats rises by 10 percent. d. Total revenue decreases by $10 when the price of spats rises by $10. e. Total revenue decreases by more than $10 when the price of spats rises by $10.

c. Total revenue increases by more than 10 percent when the price of spats rises by 10 percent.

If demand price elasticity measures 2, this implies that consumers would: a. buy twice as much of the product if the price drops 10 percent b. require a 2 percent drop in price to increase their purchases by 1 percent c. buy 2 percent more of the product in response to a 1 percent drop in price d. require at least a $2 increase in price before showing any response to the price increase. e. buy twice as much of the product if the price drops 1 percent

c. buy 2 percent more of the product in response to a 1 percent drop in price

If a 10 percent cut in price causes a 15 percent increase in sales, then: a. total revenue will decrease. b. demand is price inelastic in this range. c. demand is price elastic in this range. d. demand is unit elastic in this range. e. total revenue will remain the same.

c. demand is price elastic in this range.

A lower price elasticity of demand coefficient occurs when: a. many substitutes exist. b. the quantity demanded is more responsive. c. few substitutes exist. d. the market is broadly defined.

c. few substitutes exist.

If the government wants to raise tax revenue and shift most of the tax burden to the sellers, it would impose a tax on a good with a: a. steep (inelastic) demand curve and steep (inelastic) demand curve b. steep (inelastic) demand curve and a flat (elastic) supply curve c. flat (elastic) demand curve and a steep (inelastic) supply curve d. flat (elastic) demand curve and a flat (elastic) supply curve

c. flat (elastic) demand curve and a steep (inelastic) supply curve

Sally is an average shopper, with average income. When she is in the store she buys a few items which cost more than $20, several items which cost between $5 and $20, and many items which cost less than $1. The price elasticity of Sally's demand for these goods most likely ____. a. increases as the price decreases b. decreases as the price decreases c. increases as the price increases d. decreases as the price increases e. remains constant over all price ranges

c. increases as the price increases

Price elasticity of demand refers to the ratio of the: a. percentage change in price of a good in response to a percentage change in quantity demanded. b. percentage change in price of a good to a percentage increase in income. c. percentage change in the quantity demanded of a good to a percentage change in its price. d. none of these.

c. percentage change in the quantity demanded of a good to a percentage change in its price.

The ratio of the percentage change in the quantity demanded of a good or service to a given percentage change in the price of another good or service is called a(n) _____ _____ _____ ____.

cross elasticity of demand

A perfectly elastic demand curve has an elasticity coefficient of: a. 0 b. 1 c. less than 1 d. infinity

d. infinity

If a revenue-maximizing firm is told that the price elasticity of demand is equal to one, it should: a. raise prices 1 percent. b. lower prices 1 percent. c. raise prices until the elasticity becomes very high. d. keep the price where it is. e. lower prices until the elasticity becomes very high.

d. keep the price where it is.

The cross elasticity of demand between two goods is 2.5. These goods are: a. perfect complements b. imperfect complements c. unrelated d. substitutes e. inferior

d. substitutes

A public transit company finds that when it reduces the price of a bus ticket, total revenues remain the same. One can conclude from this that: a. the demand curve is horizontal, reflecting infinite price elasticity. b. the company sells the same number of bus tickets both before and after the price change. c. the demand curve for bus tickets must have shifted to the right. d. the firm is operating in a range of the demand curve that is unit elastic. e. the price should be lowered further so that a larger quantity can be sold.

d. the firm is operating in a range of the demand curve that is unit elastic.

Which of the following statements is true? a. If the income elasticity of demand is less than zero, the good is an inferior good. b. Only if the demand curve is vertical will sellers raise the price by the full amount of a tax. c. Two goods are substitutes if the cross-elasticity of demand coefficient is positive. d. A price elasticity of supply coefficient equal to 1.5 means the product exhibits an elastic supply and a 10 percent increase in the price will increase the quantity supplied by 15 percent. e. All of the above answers is correct.

e. All of the above answers is correct.

Per-unit taxes have which effect on the equilibrium price of a good? a. They cause demand curves to shift downward, thus lowering price. b. They cause demand curves to shift downward, thus raising price. c. They cause supply curves to shift downward, thus lowering price. d. They cause supply curves to shift upward, thus lowering price. e. They cause supply curves to shift upward, thus raising price.

e. They cause supply curves to shift upward, thus raising price.

In the very short-run period, a. the price elasticity of supply is very elastic. b. the price elasticity of demand is very elastic. c. the cross elasticity of demand is very inelastic. d. income elasticity is very elastic. e. the price elasticity of supply is very inelastic.

e. the price elasticity of supply is very inelastic.

If the price elasticity of demand for a product measures .45, a. this good has many available substitutes b. this good must be a nonessential good c. this good is a high-priced good d. a decrease in price will increase total revenue e. this good is demand price inelastic

e. this good is demand price inelastic