ECO UNIT 5

If a seller knows that the price elasticity of demand for her product is 2.4, what will happen to her total revenue if the price decreases?

Total revenue will increase

If demand is price inelastic, then a. buyers do not respond much to a change in price. b. buyers respond substantially to a change in price, but the response is very slow. c. buyers do not alter their quantities demanded much in response to advertising, fads, or general changes in tastes. d. the demand curve is very flat.

a. buyers do not respond much to a change in price.

When the price of chai tea lattés is $5, Maxine buys 20 per month. When the price is $4, she buys 30 per month. Maxine's demand for chai tea lattés is a. elastic, and her demand curve would be relatively flat. b. elastic, and her demand curve would be relatively steep. c. inelastic, and her demand curve would be relatively flat. d. inelastic, and her demand curve would be relatively steep.

a. elastic, and her demand curve would be relatively flat.

A person who takes a prescription drug to control high cholesterol most likely has a demand for that drug that is a. inelastic. b. unit elastic. c. elastic. d. highly responsive to changes in income.

a. inelastic.

When the price of candy bars is $1.00, the quantity demanded is 500 per day. When the price falls to $0.80, the quantity demanded increases to 600. Given this information and using the midpoint method, we know that the demand for candy bars is a. inelastic. b. elastic. c. unit elastic. d. perfectly inelastic

a. inelastic.

The difference between slope and elasticity is that slope a. is a ratio of two changes, and elasticity is a ratio of two percentage changes. b. is a ratio of two percentage changes, and elasticity is a ratio of two changes. c. measures changes in quantity demanded more accurately than elasticity. d. None of the above is correct; there is no difference between slope and elasticity.

a. is a ratio of two changes, and elasticity is a ratio of two percentage changes.

When consumers face rising gasoline prices, they typically a. reduce their quantity demanded more in the long run than in the short run. b. reduce their quantity demanded more in the short run than in the long run. c. do not reduce their quantity demanded in the short run or the long run. d. increase their quantity demanded in the short run but reduce their quantity demanded in the long run.

a. reduce their quantity demanded more in the long run than in the short run.

If the cross-price elasticity of two goods is positive, then the two goods are a. substitutes. b. complements. c. normal goods. d. inferior goods.

a. substitutes.

For a good that is a necessity, demand a. tends to be inelastic. b. tends to be elastic. c. has unit elasticity. d. cannot be represented by a demand curve in the usual way.

a. tends to be inelastic

In which of the following situations will total revenue increase? a. Price elasticity of demand is 1.2, and the price of the good decreases. b. Price elasticity of demand is 0.5, and the price of the good increases. c. Price elasticity of demand is 3.0, and the price of the good decreases. d. All of the above are correct

all.

When the price of a good is $5, the quantity demanded is 100 units per month; when the price is $7, the quantity demanded is 80 units per month. Using the midpoint method, the price elasticity of demand is about a. 0.22. b. 0.67. c. 1.33. d. 1.50.

b. 0.67.

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. 0. b. 1. c. 6. d. 36.

b. 1.

Using the midpoint method, the price elasticity of demand for a good is computed to be approximately 0.75. Which of the following events is consistent with a 10 percent decrease in the quantity of the good demanded? a. a 7.5 increase in the price of the good b. a 13.33 percent increase in the price of the good c. an increase in the price of the good from $7.50 to $10 d. an increase in the price of the good from $10 to $17.50

b. a 13.33 percent increase in the price of the good

When quantity demanded responds strongly to changes in price, demand is said to be a. fluid. b. elastic. c. dynamic. d. highly variable.

b. elastic

The demand for grape-flavored Hubba Bubba bubble gum is likely a. inelastic because there are many close substitutes for grape-flavored Hubba Bubba . b. elastic because there are many close substitutes for grape-flavored Hubba Bubba. c. inelastic because the market is broadly defined. d. elastic because the market is broadly defined.

b. elastic because there are many close substitutes for grape-flavored Hubba Bubba.

Suppose demand is perfectly inelastic, and the supply of the good in question decreases. As a result, a. the equilibrium quantity decreases, and the equilibrium price is unchanged. b. the equilibrium price increases, and the equilibrium quantity is unchanged. c. the equilibrium quantity and the equilibrium price both are unchanged. d. buyers' total expenditure on the good is unchanged.

b. the equilibrium price increases, and the equilibrium quantity is unchanged.

Suppose the price of a bag of frozen chicken nuggets decreases from $6.50 to $5.75 and, as a result, the quantity of bags demanded increases from 600 to 800. Using the midpoint method, the price elasticity of demand for frozen chicken nuggets in the given price range is a. 0.35. b. 0.43. c. 2.33. d. 2.89.

c. 2.33.

If the price elasticity of demand for aluminum foil is 1.45, then a 2.4% decrease in the price of aluminum foil will increase the quantity demanded of aluminum foil by a. 1.66%, and aluminum foil sellers' total revenue will increase as a result. b. 1.66%, and aluminum foil sellers' total revenue will decrease as a result. c. 3.48%, and aluminum foil sellers' total revenue will increase as a result. d. 3.48%, and aluminum foil sellers' total revenue will decrease as a result

c. 3.48%, and aluminum foil sellers' total revenue will increase as a result.

If the price elasticity of demand for a good is 1.2, then a 3 percent decrease in price results in a a. 0.4 percent increase in the quantity demanded. b. 2.5 percent increase in the quantity demanded. c. 3.6 percent increase in the quantity demanded. d. 6 percent increase in the quantity demanded.

c. 3.6 percent increase in the quantity demanded

For a particular good, an 8 percent increase in price causes a 4 percent decrease in quantity demanded. Which of the following statements is most likely applicable to this good? a. There are many close substitutes for this good. b. The good is a luxury. c. The market for the good is broadly defined. d. The relevant time horizon is long.

c. The market for the good is broadly defined.

The midpoint method is used to compute elasticity because it a. automatically computes a positive number instead of a negative number. b. results in an elasticity that is the same as the slope of the demand curve. c. gives the same answer regardless of the direction of change. d. automatically rounds quantities to the nearest whole unit.

c. gives the same answer regardless of the direction of change.

When a supply curve is relatively flat, a. sellers are not very responsive to changes in price. b. supply is relatively inelastic. c. supply is relatively elastic. d. Both a and b are correct.

c. supply is relatively elastic.

Cross-price elasticity of demand measures how a. the price of one good changes in response to a change in the price of another good. b. the quantity demanded of one good changes in response to a change in the quantity demanded of another good. c. the quantity demanded of one good changes in response to a change in the price of another good. d. strongly normal or inferior a good is.

c. the quantity demanded of one good changes in response to a change in the price of another good

In general, elasticity is a measure of a. the extent to which advances in technology are adopted by producers. b. the extent to which a market is competitive. c. how firms' profits respond to changes in market prices. d. how much buyers and sellers respond to changes in market conditions

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

On a LINEAR demand curve, if the price is low and the quantity demanded is high, demand is _____ in that region and a price increase will cause _____ in total revenue

inelastic; an increase