Chapter 4

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

c

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

a

If a person has very little concern for his/her health, demand for health care would tend to be a. elastic. b. inelastic. c. unit elastic. d. horizontal.

a

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

b

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

b

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.

b

A person who lives to be on the sea in a boat would tend to have what type of demand for boats? a. elastic b. inelastic c. unit elastic d. weak

b

Demand for a good would tend to be more elastic, a. the greater the availability of complements. b. the longer the period of time considered. c. the broader the definition of the market. d. the fewer substitutes there are.

b

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

b

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

b

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

b

At the midpoint of a downward sloping linear demand curve, elasticity would be a. inelastic. b. elastic. c. unit elastic. d. perfectly elastic.

c

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

c

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

c

Demand is said to be unit elastic if a. the demand curve shifts by the same percentage amount as the price. b. quantity demanded changes by a larger percent than the price. c. quantity demanded changes by the same percent as the price. d. quantity demanded does not respond to a change in price.

c

A perfectly inelastic demand implies that a. buyers decrease their purchases when the price rises. b. buyers respond substantially to an increase in price. c. buyers increase their purchases only slightly when the price falls. d. buyers purchase the same amount when the price rises or falls.

d

Alice says that she would buy one banana split a day regardless of the price. If she is telling the truth, a. Alice's demand for banana splits is perfectly inelastic. b. Alice's price elasticity of demand for banana splits is 1. c. Alice's income elasticity of demand for banana splits is negative. d. None of the above answers are correct.

a

Chocolate Chip ice cream would tend to have very elastic demand because a. other flavors of ice cream are almost perfect substitutes. b. the market is broadly defined. c. there are few substitutes. d. it must be eaten quickly.

a

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

a

Economists use the concept of price elasticity of demand to measure a. how much buyers respond to changes in the price of the good. b. how much sellers respond to changes in the price of the good. c. how much worse off consumers are when the price of the good rises. d. how much demand responds to changes in buyers' incomes.

a

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

a

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

The main reason for using the midpoint method is that it a. gives the same answer regardless of the direction of change. b. uses fewer numbers. c. rounds prices to the nearest dollar. d. rounds quantities to the nearest whole unit.

a

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

a

Economists compute the price elasticity of demand as a. the percentage change in the price divided by the percentage change in quantity demanded. b. the percentage change in the quantity demanded divided by the percentage change in price. c. the change in quantity demanded divided by the change in the price. d. the percentage change in the quantity demanded divided by the percentage change in income.

b

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

b

The local pizza restaurant makes such great bread sticks that consumers do not respond much to a change in the price. If the owner is only interested in increasing revenue, he should a. lower the price of the bread sticks. b. raise the price of the bread sticks. c. leave the price of the bread sticks alone. d. reduce costs.

b

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

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

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

c

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

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

If a change in the price of a good results in no change in total revenue, a. the demand for the good must be elastic. b. the demand for the good must be inelastic. c. the demand for the good must be unit elastic. d. buyers must not respond very much to a change in price.

c

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

If there are very few, if any, good substitutes for good A, then a. the supply of good A would tend to be price elastic. b. the demand for good A would tend to be price elastic. c. the demand for good A would tend to be price inelastic. d. the demand for good A would tend to be income elastic.

c

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

c

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

c

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

d

Suppose the price of product X is reduced from $1.45 to $1.25 and, as a result, the quantity of X demanded increases from 2,000 to 2,200. Using the midpoint method, the price elasticity of demand for X in the given price range is a. 2.00. b. 1.55. c. 1.00. d. .64.

d

The demand for a good tends to be more elastic a. the greater the availability of close substitutes. b. the narrower the definition of the market. c. the longer the period of time. d. All of the above are correct.

d