Chapter 4 Elasticity: Microeconomics, 10e, Global Edition (Parkin)

Microeconomics, 10e, Global Edition (Parkin)
Chapter 4 Elasticity
1 Price Elasticity of Demand
1) Suppose the price of burgers increases from $2 to $3 each. The degree to which quantity
demanded responds to this price increase depends on the
A) price elasticity of demand.
B) the price elasticity of supply.
C) income elasticity of demand.
D) cross elasticity of demand.
Answer: A
Topic: Price Elasticity of Demand
Skill: Recognition
Question history: Previous edition, Chapter 4
AACSB: Reflective Thinking
2) The price elasticity of demand measures

A) how often the price of a good changes.
B) the slope of a budget curve.
C) how sensitive the quantity demanded is to changes in demand.
D) the responsiveness of the quantity demanded to changes in price.
Answer: D
Skill: Recognition
3) Elasticity measures the

A) percentage change in a variable.
B) slope of a curve.
C) change in a variable.
D) responsiveness of a variable to a change in another variable.
Answer: D
Skill: Recognition
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4) The price elasticity of demand for purses is measured in
A) dollars.
B) purses.
C) dollars per purse.
D) None of the above answers is correct because there are no units for an elasticity of demand.
Answer: D
Skill: Recognition
Question history: Modified 10th edition
5) The price elasticity of demand is defined as the magnitude of the

A) change in quantity demanded divided by the change in price.
B) change in price divided by the change in quantity demanded.
C) percentage change in quantity demanded divided by the percentage change in price.
D) percentage change in price divided by the percentage change in quantity demanded.
Answer: C
Skill: Recognition
6) The price elasticity of demand is calculated as the absolute value of the

A) percentage change in quantity demanded divided by the percentage change in price.
B) percentage change in price divided by the percentage change in quantity demanded.
C) change in quantity demanded divided by the change in price.
D) change in price divided by the change in quantity demanded.
Answer: A
Skill: Recognition
7) The price elasticity of demand equals magnitude of the

A) change in the price divided by the change in quantity demanded.
B) change in the quantity demanded divided by the change in price.
C) percentage change in the price divided by the percentage change in the quantity demanded.
D) percentage change in the quantity demanded divided by the percentage change in the price.
Answer: D
Topic: Calculating Elasticity
Skill: Recognition
2
8) The price elasticity of demand is equal to the ________ in the ________ divided by the
________ in the ________.
A) percentage change; price; percentage change; quantity demanded
B) change; price; change; quantity demanded
C) percentage change; quantity demanded; percentage change; price
D) change; quantity demanded; change; price
Answer: C
Skill: Recognition
9) The slope of a demand curve depends on

A) the units used to measure price and the units used to measure quantity.
B) the units used to measure price but not the units used to measure quantity.
C) the units used to measure quantity but not the units used to measure price.
D) neither the units used to measure price nor the units used to measure quantity.
Answer: A
Skill: Conceptual
10) The price elasticity of demand depends on

A) the units used to measure price and the units used to measure quantity.
B) the units used to measure price but not the units used to measure quantity.
C) the units used to measure quantity but not the units used to measure price.
D) neither the units used to measure price nor the units used to measure quantity.
Answer: D
Skill: Conceptual
11) When the quantity of coal is measured in kilograms instead of pounds, the demand for coal
becomes
A) more elastic.
B) less elastic.
C) neither more nor less elastic.
D) undefined.
Answer: C
Skill: Conceptual
3
12) The price elasticity of demand for oranges ________ change if the units of the quantity was
changed from pounds to kilograms and ________ change if the units of the price was changed
from dollars to cents.
A) would; would
B) would; would not
C) would not; would
D) would not; would not
Answer: D
Skill: Conceptual
13) Suppose the quantity of gasoline is measured in gallons and the price of gasoline is measured
in dollars. The price elasticity of demand is 0.67. If the price of gasoline was now measured in
cents rather than dollars, the price elasticity of demand would now be
A) 0.0067.
B) 0.67.
C) 6.7.
D) 67.0.
Answer: B
Skill: Conceptual
14) A decrease in the price of eggs from $1.50 to $1.30 per dozen resulted in an increase in egg
purchases in two cities. In Philadelphia, daily egg purchases increased from 6000 to 8000
dozens; in nearby Dover, Delaware, daily egg purchases increased from 300 to 400 dozens. The
price elasticity of demand is therefore
A) lower in the smaller city as would be expected.
B) greater in the smaller city as would be expected.
C) certainly affected by population differences in different markets.
D) the same in Philadelphia as in Dover.
Answer: D
Skill: Analytical
AACSB: Analytical Skills
4
15) Dan sells newspapers. Dan says that a 4 percent increase in the price of a newspaper will
decrease the quantity of newspapers demanded by 8 percent. According to Dan, the demand for
newspapers is ________.
A) inelastic
B) unit elastic
C) perfectly elastic
D) elastic
Answer: D
Skill: Conceptual
16) The price elasticity of demand for furniture is estimated at 1.3. This value means a one
percent increase in the
A) price of furniture will increase the quantity of furniture demanded by 1.3 percent.
B) price of furniture will decrease the quantity of furniture demanded by 1.3 percent.
C) quantity of furniture demanded will decrease the price of furniture by 1.3 percent.
D) quantity of furniture demanded will increase the price of furniture by 1.3 percent.
Answer: B
Skill: Conceptual
17) The price elasticity of demand for oil is estimated at 0.05. This value means a 10 percent
increase in the
A) quantity of oil demanded will result from a 0.5 percent increase in the price of oil.
B) quantity of oil demanded will result from a 0.5 percent decrease in the price of oil.
C) price of oil will increase the quantity of oil demanded by 0.5 percent.
D) price of oil will decrease the quantity of oil demanded by 0.5 percent.
Answer: D
Skill: Conceptual
5
18) If a 6 percent decrease in the price leads to a 5 percent increase in the quantity demanded, the
price elasticity of demand is
A) 0.30.
B) 0.60.
C) 0.83.
D) 1.20.
Answer: C
Skill: Analytical
19) A 10 percent increase in the quantity of spinach demanded results from a 20 percent decline
in its price. The price elasticity of demand for spinach is
A) 0.5.
B) 2.0.
C) 10.0.
D) 20.0.
Answer: A
Skill: Analytical
20) A 20 percent increase in the quantity of pizza demanded results from a 10 percent decline in
its price. The price elasticity of demand for pizza is
A) 0.5.
B) 2.0.
C) 10.0.
D) 20.0.
Answer: B
Skill: Analytical
21) If a 20 percent increase in the price of a used car results in a 10 percent decrease in the
quantity of used cars demanded, then the price elasticity of demand equals
A) 0.5.
B) 1.0.
C) 2.0.
D) 10.0.
Answer: A
Skill: Analytical
6
22) If the price of a movie ticket increases by 4 percent and the quantity of movies demanded
falls by 2 percent, the price elasticity of demand is
A) 2.0.
B) 4.0.
C) 0.5.
D) some amount that cannot be determined without more information.
Answer: C
Skill: Analytical
23) If the price of a burger decreases by 5 percent and as a result the quantity of burgers
demanded increases by 8 percent, the price elasticity of demand equals
A) 0.60.
B) 0.40.
C) 1.60.
D) 0.625.
Answer: C
Skill: Analytical
24) If the quantity demanded of hamburgers increases by 20 percent when the price decreases by
5 percent, then the price elasticity of demand is
A) 0.25.
B) 4.0.
C) 20.0.
D) 5.0.
Answer: B
Skill: Analytical
25) Suppose that the quantity of pizza demanded decreased by 15 percent after an increase in
price of 10 percent. What is the price elasticity of demand for pizza?
A) 1.50.
B) 0.67.
C) -1.50.
D) -0.67.
Answer: A
Skill: Analytical
7
26) When the price of a movie ticket increases from $5 to $7, the quantity of tickets demanded
decreases from 600 to 400 a day. What is the price elasticity of demand for movie tickets?
A) 0.83
B) 1.20
C) 1.00
D) 2.32
Answer: B
Skill: Analytical
27) Suppose a rise in the price of peaches from $5.50 to $6.50 per bushel decreases the quantity
demanded from 12,500 to 11,500 bushels. The price elasticity of demand is
A) 0.5.
B) 1.0.
C) 2.0.
D) 1000.0.
Answer: A
Skill: Analytical
28) Taco Bell's economists determine that the price elasticity of demand for their tacos is 2.0. So,
if Taco Bell raises the price of its tacos by 6.0 percent, the quantity demanded will decrease by
________ percent.
A) 2.0
B) 3.0
C) 6.0
D) 12.0
Answer: D
Skill: Analytical
8
29) Using average price and average quantity, calculate the price elasticity of demand if a price
rise from $8 to $10 and decreases the quantity demanded from 20 units to 15 units. The price
elasticity of demand equals
A) 2.5.
B) 1.29.
C) 0.78.
D) 0.06
Answer: B
Skill: Analytical
30) A local pizzeria raised its price from $9 to $11 for each pizza and the sales of its pizza
decreased from 150 to 100 per day. What is the price elasticity of demand in this case?
A) 1/2
B) -2
C) -1/2
D) 2
Answer: D
Skill: Analytical
31) Using the average price and average quantity, what is the elasticity of demand for oranges
when the price of oranges changes from $200 to $160 per bushel and so the quantity demanded
changes from 1000 to 1400 bushels?
A) 1.5
B) 0.1
C) 10.0
D) 0.67
Answer: A
Skill: Analytical
9
32) If the price of a soda increases from 75¢ to $1.00 and as a result the quantity demanded of
sodas decreases from 10 to 9 per week, the elasticity of demand for sodas equals
A) 2.72.
B) 0.37.
C) 0.83.
D) 1.20.
Answer: B
Skill: Analytical
33) When the price of oranges increases from $4 to $6 per bag, the quantity demanded of
oranges decreases from 800 bags to 700 bags. The price elasticity of demand over this price
range is equal to
A) 3.
B) 3/7 or 0.4286.
C) 1/3 or 0.3333.
D) 1/4 or 0.25.
Answer: C
Skill: Analytical
34) Florida State University has just lowered the price of its season football tickets from $350.00
to $300.00. As a result, there was an increase in the number of season tickets purchased from
43,000 to 47,000. The price elasticity of demand for season tickets equals
A) 1.71.
B) 1.58.
C) 0.71.
D) 0.58.
Answer: D
Skill: Analytical
10
35) Suppose the quantity demanded is 5 units when the price is $1.00. If the price rises to $2.00,
the quantity demanded falls to 3 units. The price elasticity of demand is
A) 0.5.
B) 0.75.
C) 1.33.
D) 2.00.
Answer: B
Skill: Analytical
36) A fall in the price of lemons from $10.50 to $9.50 per bushel increases the quantity
A) 0.80.
B) 1.20.
C) 1.25.
D) 8.00.
Answer: A
Skill: Analytical
37) Last year the price of corn was $3 per bushel and the quantity of corn demanded was 8
million bushels. This year the price of corn is $4 per bushel and the quantity of corn demanded is
7 million bushels. Assuming that the demand curve has not shifted, what is the price elasticity of
demand for corn? (Use the midpoint formula)
A) 1
B) 0.47
C) 2.14
D) 0.29
Answer: B
Skill: Analytical
11
38) A fall in the price of cabbage from $10.50 to $9.50 per bushel increases the quantity
A) 0.80.
B) 1.20.
C) 1.25.
D) 8.00.
Answer: B
Skill: Analytical
39) Suppose that the quantity of root beer demanded declines from 103,000 gallons per week to
97,000 gallons per week as a consequence of a 10 percent increase in the price of root beer. The
price elasticity of demand is
A) 0.60.
B) 1.40.
C) 1.66.
D) 6.00.
Answer: A
Skill: Analytical
40) The price elasticity of demand is 5.0 if a 10 percent increase in the price results in a
________ decrease in the quantity demanded.
A) 2 percent
B) 5 percent
C) 10 percent
D) 50 percent
Answer: D
Skill: Analytical
12
41) A shift of the supply curve of DVDs raises the price of a DVD from $9.50 to $10.50 a DVD
and reduces the quantity demanded from 41 million to 39 million DVDs a month. The price
elasticity of demand for DVDs is
A) 2 million DVDs a month per dollar.
B) $1 per 2 million barrels a day.
C) 0.5.
D) 2.0.
Answer: C
Skill: Analytical
42) A decrease in the supply of sugar increases the price of sugar from $1.00 a packet to $1.25 a
packet. The quantity decreases from 100 packets a day to 80 packets a day. The price elasticity
of demand of sugar is ________.
A) 0.75
B) 0.5
C) 1.0
D) 1.25
Answer: C
Skill: Analytical
43) Suppose the price elasticity of demand for oil is 0.1. In order to lower the price of oil by 20
percent, the quantity of oil supplied must be increased by
A) 200 percent.
B) 20 percent.
C) 2 percent.
D) 0.2 percent.
Answer: C
Skill: Analytical
13
44) The price elasticity of demand for cigarettes is 0.4. If government wants to reduce smoking
by 10 percent, by how much should it raise the price of cigarettes by imposing a tax?
A) by 10 percent
B) by 20 percent
C) by 25 percent
D) by 50 percent
Answer: C
Skill: Analytical
45) The price elasticity of demand for DVDs is 2. If the price of a DVD increased by 2 percent,
the quantity demanded will ________.
A) decrease by 2 percent
B) not change
C) decrease by 4 percent
D) decrease by 1 percent
Answer: C
Skill: Analytical
46) Suppose the price elasticity of teenager's demand for cigarettes is 2.0. If the government
imposes a tax on cigarettes that raises the price by 10 percent, by how much will it reduce
teenage smoking?
A) by 5 percent
B) by 10 percent
C) by 15 percent
D) by 20 percent
Answer: D
Skill: Analytical
14
47) According to one study, the price elasticity of demand for cigarettes is 0.25. To decrease the
consumption of cigarettes by 8 percent, a tax on cigarettes must raise the price of cigarettes by
A) 32 percent.
B) 25 percent.
C) 2 percent.
D) 3.1 percent.
Answer: A
Skill: Analytical
48) Because of an increase in the price of leather, the price of a pair of women's dress shoes
increased 12 percent. If the price elasticity of demand for women's dress shoes is 0.85, which of
the following will happen?
A) Total expenditure on women's dress shoes decreases.
B) The number of pairs of women's dress shoes demanded decreases by 10.2 percent.
C) Total revenue from the sale of women's dress shoes decreases.
D) none of the above
Answer: B
Skill: Analytical
49) The price elasticity of demand for new cars is 1.2. Hence, a 10 percent price increase will
A) decrease the quantity of new cars demanded by 1.2 percent.
B) increase consumer expenditure on new cars by 1.2 percent.
C) decrease the quantity of new cars demanded by 12 percent.
D) increase consumer expenditure on new cars by 12 percent.
Answer: C
Skill: Analytical
50) The price of a good rises by 12 percent and the price elasticity of demand for the good is
0.85. Which of the following is a correct interpretation of these facts?
A) When the price rises by 12 percent, the quantity demanded decreased by 0.85 percent.
B) For each 1 percent that the price rose, the quantity demanded decreased by 10.2 percent.
C) For each 0.85 percent that the price rose, the quantity demanded decreased by 1 percent.
D) For each 1 percent that the price rose, the quantity demanded decreased by 0.85 percent.
Answer: D
Skill: Analytical
15
51) If the price elasticity of demand for clothing is 0.64, this implies that
A) a 6.4 percent increase in price the price of clothing leads to a 10 percent decrease in the
quantity demanded.
B) a 10 percent increase in the price of clothing leads to a 6.4 percent decrease in the quantity
demanded.
C) if there is an increase in the price of clothing the total expenditures on clothing decreases.
D) Both answers A and C are correct.
Answer: B
Skill: Analytical
52) If the price elasticity of demand for a good is 0.8, then a

A) 1 percent rise in the price leads to a 0.8 percent decrease in the quantity demanded.
B) one dollar rise in the price leads to a 0.8 percent decrease in the quantity demanded.
C) 1 percent rise in the price leads to an 80 percent decrease in the quantity demanded.
D) 1 percent rise in the price leads to an 8 percent decrease in the quantity demanded.
Answer: A
Skill: Analytical
Price Quantity demanded

(dollars per bushel) (bushels)
8 2,000
7 4,000
6 6,000
5 8,000
4 10,000
3 12,000
53) The table above gives the demand schedule for snow peas. The price elasticity of demand
between $6.00 and $7.00 per bushel is
A) 1.0.
B) 2.0.
C) 2.6.
D) 5.0.
Answer: C
Skill: Analytical
16
54) The table above gives the demand schedule for snow peas. If the price of snow peas falls
from $4.00 to $3.00 a bushel, total revenue will
A) increase because demand is elastic in this range.
B) decrease because demand is elastic in this range.
C) increase because demand is inelastic in this range.
D) decrease because demand is inelastic in this range.
Answer: D
Topic: Total Revenue and Elasticity
Skill: Analytical
55) The table above gives the demand schedule for snow peas. The demand curve for snow peas
is a straight line and so the elasticity of demand is
A) 1 at all prices.
B) the same at all prices but not 1.
C) higher at higher prices.
D) lower at higher prices.
Answer: C
Topic: Elasticity Along a Straight-Line Demand Curve
Skill: Analytical
Price Quantity demanded

(dollars per bushel) (bushels)
A 10 0
B 8 4
C 6 8
D 4 12
E 2 16
56) The table above gives the demand schedule for peas. Between point A and point B, the price
elasticity of demand equals
A) 0.11.
B) 0.50.
C) 0.22.
D) 9.09.
Answer: D
Skill: Analytical
17
57) The table above gives the demand schedule for peas. Between point C and point D, the price
elasticity of demand is
A) elastic.
B) unit elastic.
C) 0.75.
D) 3.00.
Answer: B
Skill: Analytical
58) The table above gives the demand schedule for peas. Which of the following statements
correctly describes the price elasticity of demand?
A) The price elasticity of demand is larger at point A than at point B.
B) The price elasticity of demand is larger at point D than at point A.
C) The price elasticity of demand is constant because the slope is constant.
D) The price elasticity of demand increases moving from point A to point B to point C to point D
to point E.
Answer: A
Skill: Conceptual
18
59) The figure shows the demand curve for popsicles. The price elasticity of demand when the
price of a popsicle increases from $0.30 to $0.50 is ________.
A) 0
B) 1
C) 1/2
D) 2
Answer: B
Skill: Analytical
19
60) The figure illustrates the demand for hamburgers. When the price is $1.00 a hamburger, the
elasticity of demand is ________ and a 1 percent increase in the price will ________ the quantity
of hamburgers demanded by ________ percent.
A) 1.00; decrease; 0.40
B) 0.40; decrease; 0.40
C) 2.50; increase; 2.50
D) 5.00; decrease; 5.00
Answer: B
Skill: Analytical
61) The price elasticity of demand can range between

A) zero and one.
B) negative infinity and infinity.
C) zero and infinity.
D) negative one and one.
Answer: C
Topic: Inelastic and Elastic Demand
Skill: Conceptual
20
62) If the quantity demanded changes by a relatively small amount for a given change in price,
then demand is
A) perfectly inelastic.
B) perfectly elastic.
C) elastic.
D) inelastic.
Answer: D
Skill: Recognition
63) If the price elasticity is between 0 and 1, demand is

A) elastic.
B) inelastic.
C) unit elastic.
D) perfectly elastic.
Answer: B
Skill: Recognition
64) Demand is inelastic if

A) a large change in quantity demanded results in a small change in price.
B) the quantity demanded is very responsive to changes in price.
C) the price elasticity of demand is less than 1.
D) the price elasticity of demand is greater than 1.
Answer: C
Skill: Recognition
65) When the percentage change in quantity demanded is less than the percentage change in
price, the demand for the good is ________.
A) inelastic
B) unit elastic
C) perfectly inelastic
D) elastic
Answer: A
Skill: Recognition
21
66) If a 20 percent increase in the price of a used car results in a 10 percent decrease in the
quantity of used cars demanded, then the demand for used cars is
A) elastic.
B) inelastic.
C) unit elastic.
D) arc elastic.
Answer: B
Skill: Analytical
67) Demand is price inelastic if a relatively ________ price increase leads to a relatively
________ in the quantity demanded.
A) large; small increase
B) small; large decrease
C) large; small decrease
D) small; large increase
Answer: C
Skill: Recognition
68) If a consumer is relatively insensitive to changes in the price of a good, then the consumer's
demand for the good is
A) elastic.
B) unit elastic.
C) inelastic.
Answer: C
Skill: Recognition
69) If the price of salt increases and the quantity demanded does not change, then
A) the price elasticity of demand is equal to zero.
B) demand is perfectly inelastic.
C) the demand curve for salt is horizontal.
D) Both answers A and B are correct.
Answer: D
Skill: Recognition
22
70) Marvin loves chocolate truffles. As the price of a chocolate truffle increases from $1 to $2 to
$3, Marvin continues to buy a dozen chocolate truffles every week. Marvin's demand for
chocolate truffles is ________.
A) elastic
B) unit elastic
C) illustrated by a horizontal demand curve
D) perfectly inelastic
Answer: D
Skill: Conceptual
71) If the price of a good increases from $3 to $4, and the quantity demand remains unchanged,
then the demand is
C) somewhat elastic.
D) infinite.
Answer: A
Skill: Analytical
72) When the price elasticity of demand for a good equals

A) 0, the demand curve is vertical.
B) 0, the demand curve is horizontal.
C) 1, the demand curve is vertical.
D) 1, the demand curve is horizontal.
Answer: A
Skill: Conceptual
73) A straight-line demand curve along which the price elasticity of demand equals 0 is one that
A) forms a 45 degree angle with the vertical axis.
B) forms a 60 degree angle with the horizontal axis.
C) is vertical.
D) is horizontal.
Answer: C
Skill: Analytical
23
74) Demand is perfectly inelastic when
A) shifts in the supply curve results in no change in price.
B) the good in question has perfect substitutes.
C) shifts of the supply curve results in no change in quantity demanded.
D) shifts of the supply curve results in no change in the total revenue from sales.
Answer: C
Skill: Recognition
75) A good with a vertical demand curve has a demand with

A) unit elasticity.
B) infinite elasticity.
C) zero elasticity.
D) varying elasticity.
Answer: C
Skill: Recognition
76) If the demand for a good is elastic, when the price increases, the
A) demand will decrease.
B) quantity demanded will increase.
C) quantity demanded will decrease by a smaller percentage than the price increased.
D) quantity demanded will decrease by a greater percentage than the price increased.
Answer: D
Skill: Recognition
77) If demand is price elastic,

A) a 1 percent decrease in the price leads to an increase in the quantity demanded that exceeds 1
percent.
B) a 1 percent increase in the price leads to an increase in the quantity demanded that exceeds 1
percent.
C) a 1 percent decrease in the price leads to a decrease in the quantity demanded that is less than
1 percent.
D) the price is very sensitive to any shift of the supply curve.
Answer: A
Skill: Recognition
24
78) A hot dog vendor on a street corner could increase the quantity of hot dogs her customers
demand by 12 percent if she lowers the price of a hot dog 10 percent. The demand for the hot
dogs is
A) cross elastic.
B) arc elastic.
C) unit elastic.
D) elastic.
Answer: D
Skill: Analytical
79) Demand is price elastic if a

A) relatively large price increase leads to a relatively small decrease in the quantity demanded.
B) relatively small price increase leads to a relatively large decrease in the quantity demanded.
C) price increase leads to a decrease in the quantity demanded.
D) price increase leads to an increase in the quantity demanded.
Answer: B
Skill: Recognition
80) If the demand for a good is elastic, the price elasticity of demand is ________.
A) greater than 1
B) equal to 1
C) between 0 and 1
D) less than zero
Answer: A
Skill: Recognition
81) "Last October, due to an early frost, the price of a pumpkin increased by 10 percent
compared to the price in the previous Halloween seasons. As a result, the quantity demanded
county-wide decreased from 2 million to 1.5 million." Based on this statement, the
A) demand for pumpkins is elastic.
B) demand for pumpkins is inelastic.
C) demand for pumpkins is unit elastic.
D) demand curve for pumpkins shifted rightward.
Answer: A
Skill: Analytical
25
82) If the price elasticity of demand for peanut butter is 2.4, then peanut butter
A) has an elastic demand.
B) has an inelastic demand.
C) has a unit elastic demand.
D) is a normal good.
Answer: A
Skill: Recognition
83) If the quantity demanded changes by an infinitely large amount for a given change in price,
then demand is
C) elastic.
D) inelastic.
Answer: B
Skill: Recognition
84) When the demand for a good is perfectly elastic, ________.

A) total revenue is as large as possible
B) the demand curve for the good is vertical
C) the price elasticity of demand is infinite
D) the price elasticity of demand is zero
Answer: C
Skill: Recognition
85) If the demand for a good is perfectly elastic, the price elasticity of demand is ________ and
the demand curve is ________.
A) infinite; vertical
B) zero; vertical
C) zero; horizontal
D) infinite; horizontal
Answer: D
Skill: Recognition
26
86) A good with a horizontal demand curve has a demand
A) with an income elasticity of demand equal to 0.
B) with a price elasticity of demand equal to 0.
C) with a price elasticity of demand equal to infinity.
D) for which there are no substitute.
Answer: C
Skill: Conceptual
87) If the price elasticity of demand for gasoline is 0.8 and the price elasticity of demand for
plane tickets is 2.2 then the demand for gasoline is ________ and the demand for plane tickets is
________.
A) elastic; inelastic
B) inelastic; elastic
C) elastic; elastic
D) inelastic; inelastic
Answer: B
Skill: Recognition
88) If the price elasticity of demand for airline travel is 0.52 in the short run and 1.46 in the long
run, then the demand for airline travel is ________ in the short run and ________ in the long run.
A) elastic; elastic
B) elastic; inelastic
C) inelastic; elastic
Answer: C
Skill: Recognition
89) The demand for movies is unit elastic if

A) a 5 percent decrease in the price leads to an infinite increase in the quantity demanded.
B) a 5 percent increase in the price leads to a 5 percent decrease in the quantity demanded.
C) any increase in the price leads to a 1 percent decrease in the quantity demanded.
D) a 5 percent increase in the price leads to a 5 percent increase in total revenue.
Answer: B
Skill: Analytical
27
90) Unit elastic demand means that the
A) ratio of a change in the quantity demanded to a change in the price equals 1.
B) ratio of a percentage change in the quantity demanded to a percentage change in the price
equals 1.
C) demand curve is vertical.
D) demand curve is horizontal.
Answer: B
Skill: Analytical
91) Freezing temperatures in California have sharply reduced the supply of oranges in the U.S.
You predict that the price of oranges will ________, and the more elastic the demand for
oranges, the ________ will be the effect on the price.
A) fall; smaller
B) fall; greater
C) rise; smaller
D) rise; greater
Answer: C
Skill: Analytical
92) If the elasticity of demand for peaches is 1.76 and the elasticity of demand for apples is 1.59,
then consumers are
A) more sensitive to a change in the price of peaches than they are to a change in the price of
apples.
B) less sensitive to a change in the price of peaches than they are to a change in the price of
apples.
C) more sensitive to a change in the quantity of peaches than they are to a change in the quantity
of apples.
D) less sensitive to a change in the quantity of peaches than they are to a change in the quantity
of apples.
Answer: A
Skill: Analytical
28
93) The demand curve in the figure above illustrates the demand for a product with
A) zero price elasticity of demand at all prices.
B) infinite price elasticity of demand.
C) unit price elasticity of demand at all prices.
D) a price elasticity of demand that is different at all prices.
Answer: A
Skill: Analytical
29
94) In the above figure, which demand curve illustrates perfectly elastic demand?
A) G
B) H
C) I
D) J
Answer: D
Skill: Recognition
30
95) The demand curve in the figure above illustrates a product whose demand has a price
elasticity of demand equal to
A) zero at all prices.
B) infinity.
C) one at all prices.
D) a different amount at different prices.
Answer: B
Skill: Analytical
31
96) The demand curve in the figure above illustrates the demand for a product with
A) zero price elasticity of demand at all prices.
B) infinite price elasticity of demand.
C) unit price elasticity of demand at all prices.
D) a price elasticity of demand that is different at all prices.
Answer: C
Skill: Analytical
97) If the demand curve for oranges is a downward sloping straight line, the price elasticity of
demand will increase the
A) higher the price of oranges.
B) higher the price of other fruits.
C) higher the income level of consumers.
D) lower the price of oranges.
Answer: A
Skill: Conceptual
32
98) If the demand curve is a downward sloping straight line, the price elasticity of demand
always
A) increases as the demand curve shifts rightward.
B) increases as the demand curve shifts leftward.
C) increases with movements upward along the demand curve.
D) decreases with movements upward along the demand curve.
Answer: C
Skill: Conceptual
99) Along a straight-line demand curve, as the price falls the

A) demand becomes more elastic.
B) demand becomes less elastic.
C) elasticity of demand is constant.
D) demand is always unitary elastic.
Answer: B
Skill: Conceptual
100) The price elasticity of demand ________ in value when moving downward along a
________ line demand curve.
A) falls; straight
B) rises; curved
C) falls, curved
D) rises; straight
Answer: A
Skill: Analytical
101) The demand for bus rides is a downward-sloping straight line demand curve. The price
elasticity of demand for bus rides ________.
A) increases as the price of a bus ride falls
B) decreases as the price of a bus ride falls
C) is the same no matter what the price of a bus ride
D) decreases as the price of a bus ride rises
Answer: B
Skill: Recognition
33
102) The demand for computer chips is a downward sloping straight line. If there is an increase
in the supply of computer chips, this change will
A) increase the price elasticity of demand for computer chips.
B) decrease the price elasticity of demand for computer chips.
C) have no effect on the price elasticity of demand for computer chips.
D) have an unpredictable effect on the price elasticity of demand for computer chips.
Answer: B
Skill: Analytical
103) At the midpoint of a downward sloping straight-line demand curve, the demand
A) is elastic.
B) is unit elastic.
C) is inelastic.
D) has an elasticity exactly equal to zero.
Answer: B
Skill: Analytical
104) A straight-line demand curve with negative slope intersects the horizontal axis at 200 tons
per week. The point on the demand curve at which the price elasticity of demand is 1
corresponds to a quantity demanded
A) of 0 tons.
B) of 100 tons.
C) of 200 tons.
D) that would be negative if a negative quantity demanded were possible.
Answer: B
Skill: Analytical
105) If the demand curve for a good is a downward sloping straight line, the demand for the
good will be more price elastic the higher is the
A) price of the good.
B) price of complements.
C) income of consumers.
D) income elasticity of demand for that good.
Answer: A
Skill: Conceptual
34
106) The demand curve for microwave popcorn is linear. Which of the following definitely
makes the demand for microwave popcorn more inelastic?
A) a decrease in the price of microwave popcorn
B) an increase in the price of microwave popcorn
C) an increase in income
D) a decrease in income
Answer: A
Skill: Analytical
107) If the demand curve for tacos is a downward sloping straight line, at which of the following
prices is the demand the most elastic?
A) a price of $0.50 per taco
B) a price of $1.00 per taco
C) a price of $1.50 per taco
D) There is not enough information given to determine at which price the demand is most elastic.
Answer: C
Skill: Analytical
108) On a linear demand curve that intersects both axes,

A) the elasticity exceeds 1.00 at all prices.
B) the elasticity is less than 1.00 at all prices.
C) the elasticity equals 1.00 at all prices.
D) the elasticity decreases as the price falls and quantity increases.
Answer: D
Skill: Analytical
109) On a straight-line downward-sloping demand curve, the maximum elasticity of demand

occurs
A) at its vertical intercept.
B) at its midpoint.
C) at its horizontal intercept.
D) where it intersects the supply curve.
Answer: A
Skill: Analytical
35
110) A straight-line demand curve with negative slope intersects the horizontal axis at 100 tons
per week. At the midpoint on the demand curve (corresponding to 50 tons per week) the price
elasticity of demand is
A) 0.
B) 0.5.
C) 1.0.
D) unknown without more information.
Answer: C
Skill: Analytical
111) Which of the following statements is FALSE?

A) A good with a vertical demand curve has a perfectly inelastic demand.
B) A good with a straight line, downward sloping demand curve has a demand whose elasticity
is constant.
C) A good with a horizontal demand curve has a perfectly elastic demand.
D) All of the above statements are false.
Answer: B
Skill: Recognition
36
112) The figure above illustrates a linear demand curve. By comparing the price elasticity in the
$2 to $4 price range with the elasticity in the $8 to $10 range, you can conclude that the elasticity
is
A) greater in the $8 to $10 range.
B) greater in the $2 to $4 range.
C) the same in both price ranges.
D) greater in the $8 to $10 range when the price rises but greater in the $2 to $4 range when the
price falls.
Answer: A
Skill: Analytical
113) The figure above illustrates a linear demand curve. If the price falls from $8 to $6,
A) total revenue increases.
B) total revenue decreases.
C) total revenue remains unchanged.
D) the quantity demanded increases by less than 20 percent.
Answer: A
Skill: Analytical
37
114) The figure above illustrates a linear demand curve. In the range from $8 to $6,
A) the demand is price elastic.
B) the demand is unit elastic.
C) the demand is price inelastic.
D) more information is needed to determine if the demand is price elastic, unit elastic, or
inelastic.
Answer: A
Skill: Analytical
115) The figure above illustrates a linear demand curve. If the price falls from $6 to $4,
A) total revenue increases.
B) total revenue decreases.
C) total revenue remains unchanged.
D) quantity demanded increases by more than 100 percent.
Answer: C
Skill: Analytical
116) The figure above illustrates a linear demand curve. In the price range from $8 to $6,
demand is ________ and in the price range $4 to $2, demand is ________.
A) elastic; elastic
Answer: B
Skill: Analytical
117) The figure above illustrates a linear demand curve. If the price rises from $6 to $8 demand
is ________ and if the price falls from $8 to $6 demand is ________.
A) elastic; elastic
Answer: A
Skill: Analytical
38
118) The demand curve in the figure above illustrates the demand for a product with a price
elasticity of demand
A) equal to zero at all prices.
B) equal to infinite at all prices.
C) equal to one at all prices.
D) that is different at all prices.
Answer: D
Skill: Analytical
39
119) The figure illustrates Anne's demand for books. At ________ a book, Anne's demand for
books is inelastic.
A) all prices between $15 and $30
B) all prices between $10 and $15
C) all prices between $10 and $20
D) all prices below $30
Answer: B
Skill: Analytical
120) According to the total revenue test, a price cut increases total revenue if demand is
A) inelastic.
B) perfectly inelastic.
C) elastic.
D) unit elastic.
Answer: C
Skill: Recognition
40
121) Demand is inelastic when a price ________ results in total revenue ________.
A) rise; decreasing
B) fall; increasing
C) rise, increasing
D) fall, remaining the same
Answer: C
Skill: Recognition
122) Demand is elastic when a price ________ results in total revenue ________.
A) rise, decreasing
B) fall, decreasing
C) rise, increasing
D) fall; remaining constant
Answer: A
Skill: Recognition
123) When the demand for a good is inelastic and its price increases, the total revenue from the
sale of the good will ________.
A) increase
B) decrease initially and then increase
C) decrease
D) not change
Answer: A
Skill: Recognition
124) When demand is ________, a decrease in price ________ total revenue.

A) elastic; decreases
B) inelastic; decreases
C) unit elastic; increases
D) elastic; does not change
Answer: B
Skill: Recognition
41
125) If demand is inelastic, an increase in the price will
A) decrease total revenue.
B) increase total revenue.
C) not change total revenue.
D) increase the quantity demanded.
Answer: B
Skill: Recognition
126) To maximize its revenue,

A) a firm facing inelastic demand should always raise its price.
B) a firm facing elastic demand should always raise its price.
C) a firm should always charge the highest price possible regardless of the elasticity of demand.
D) None of the above answers is correct.
Answer: A
Skill: Recognition
127) The demand for a good is elastic if

A) an increase in its price results in an increase in total revenue.
B) a decrease in its price results in a decrease in total revenue.
C) an increase in its price results in a decrease in total revenue.
D) the good is a necessity.
Answer: C
Skill: Analytical
128) Demand is unit elastic when

A) the slope of the demand curve is -1.
B) a shift of the supply curve leads to no change in price.
C) a shift of the supply curve leads to an equal shift of the demand curve.
D) a change in the price of the product leads to no change in the total revenue.
Answer: D
Skill: Recognition
42
129) Producers' total revenue will decrease if
A) income increases and the good is a normal good.
B) the price rises and demand is elastic.
C) the price rises and demand is inelastic.
D) income falls and the good is an inferior good.
Answer: B
Skill: Conceptual
130) Producers' total revenue will increase if

A) income increases and the good is an inferior good.
B) the price rises and demand is elastic.
C) the price rises and demand is inelastic.
D) income falls and the good is a normal good.
Answer: C
Skill: Conceptual
131) If University of Nebraska increased its season football ticket sales from 43,000 to 47,000
when it lowered price from $350.00 to $300.00, then its demand for season tickets must be
________ because total revenue ________ when the price was lowered.
A) elastic; decreased
B) elastic; increased
C) inelastic; decreased
D) inelastic; increased
Answer: C
Skill: Conceptual
43
132) "Last October, due to an early frost, the price of a pumpkin increased by 10 percent
compared to the price in the previous Halloween season. As a result, the quantity demanded
county-wide decreased from 2 million to 1.5 million." Based on this statement, it is certain that
the
A) demand curve for Halloween costumes shifted leftward.
B) price elasticity of demand for pumpkins decreased from its value in previous years.
C) demand curve for pumpkins shifted leftward.
D) total revenue from the sale of pumpkins decreased.
Answer: D
Skill: Conceptual
133) At a local ice cream parlor, when the price of half-gallons of chocolate ice cream was
lowered by fifty cents per half-gallon, total revenue from the sale of chocolate ice cream
decreased. This result indicates that
A) there are more people who like vanilla ice cream than there are people who like chocolate ice
cream.
B) the demand for chocolate ice cream is inelastic.
C) the demand for chocolate ice cream is elastic.
Answer: B
Skill: Conceptual
134) If Sam wants to increase her total revenue from her sales of flowers and she knows that the
demand for flowers is price elastic, she should
A) lower her price to increase the demand and shift the demand curve rightward.
B) raise her price because she knows that the quantity demanded will also increase.
C) raise her price because she knows that the percentage decrease in the quantity demanded will
be smaller than the percentage increase in price.
D) lower her price because she knows that the percentage increase in the quantity demanded will
be greater than the percentage decrease in price.
Answer: D
Skill: Conceptual
44
135) A local transit authority charges $1 for a bus ride. An economics study suggests that in the
price range from $0.50 to $1.50, the elasticity of demand for bus trips is 1.1. To increase its
revenue, the transit authority should
A) raise the fare.
B) lower the fare.
C) leave the fare as it is.
Answer: B
Skill: Conceptual
136) The taxicab fare in Newville is regulated. The fare currently charged is $6 a ride. Newville
taxicab drivers want to obtain government's permission to lower the fare, which they think will
increase their total revenue. From this we can conclude that the drivers believe that the demand
for taxicab rides is
A) elastic.
B) inelastic.
C) unit elastic.
D) perfectly inelastic.
Answer: A
Skill: Conceptual
137) If Sam wants to increase her total revenue from her sales of flowers and she knows that the
demand for flowers is price inelastic, she should
A) lower her price to increase the demand and shift the demand curve rightward.
B) raise her price because she knows that the quantity demanded will also increase.
C) raise her price because she knows that the percentage decrease in the quantity demanded will
be smaller than the percentage increase in price.
D) lower her price because she knows that the percentage increase in the quantity demanded will
be greater than the percentage decrease in price.
Answer: C
Skill: Conceptual
45
138) In 1973 and again in 1979, the Organization of Petroleum Exporting Countries (OPEC)
raised the world price of crude oil and increased their revenue as well. Which of the following is
a true statement regarding these OPEC price hikes?
A) Their revenue increased because the demand for oil was income inelastic.
B) Their revenue increased because the demand for oil was price inelastic.
C) Their revenue would have increased regardless of income elasticity or price elasticity because
oil is an imported product for most nations.
D) Their revenue only increased because oil was already very expensive.
Answer: B
Skill: Conceptual
139) The marketing people at Ben and Jerry's Ice Cream Company believe that if they lower the
price of their Cherry Garcia flavor ice cream by 25 percent, the quantity demanded will increase
by 5 percent. If they are correct in their belief, then
A) the demand for Cherry Garcia is price elastic.
B) their total revenue from Cherry Garcia will increase if they lower the price.
C) the demand for Cherry Garcia is income elastic.
D) their total revenue from Cherry Garcia will decrease if they lower the price.
Answer: D
Skill: Conceptual
140) The marketing people for AT&T believe that if they lower the price of long-distance phone
calls by 5 percent, their quantity demanded will increase by 15 percent. If they are correct in
their belief, then
A) the demand for long-distance phone calls is price inelastic.
B) the total revenue from long-distance phone calls will increase if they lower the price.
C) the demand for long-distance phone calls is income elastic.
D) the total revenue from long-distance phone calls will decrease if they lower the price.
Answer: B
Skill: Conceptual
46
141) One year, the government boosted regulated taxi fares in New York City by 15 percent with
the expectation that the total revenue from taxi rides would also increase by 15 percent. The taxi
commission that authorized this fare increase must have believed that the demand for taxi service
was
A) elastic, but not perfectly elastic.
B) inelastic, but not perfectly inelastic.
C) unit elastic.
D) perfectly inelastic.
Answer: D
Skill: Conceptual
142) Suppose Sandy's Candies wants to increase its total revenues. If Sandy increases the price
of her candy, she must be assuming that the demand for candy is
A) unit elastic.
B) inelastic.
C) elastic.
D) income elastic.
Answer: B
Skill: Conceptual
143) Suppose Carol's Candid Cameras wants to increase its total revenue. If the firm lowers the
price of cameras by 2 percent, Carol must be predicting that the quantity
A) supplied will increase by more than 2 percent.
B) demanded will increase by more than 2 percent.
C) demanded will decrease by less than 2 percent.
D) supply will decrease by less than 2 percent.
Answer: B
Skill: Conceptual
47
144) Suppose Clem's Chemical Company wants to increase its total revenue. If there are few
substitutes for Clem's Chemicals,
A) Clem should increase the price of his chemicals.
B) Clem should decrease the price of his chemicals.
C) the demand for chemicals is elastic.
D) Clem will not be able to change the price of his chemicals.
Answer: A
Skill: Conceptual
145) If an increase in price results in no change in total revenue, then demand must be
A) inelastic.
B) elastic.
C) unit elastic.
D) infinitely elastic.
Answer: C
Skill: Conceptual
146) If demand for Farmer John's maple syrup is inelastic, then when Farmer John raises the
price of maple syrup, his total revenue will
A) increase.
B) decrease.
C) stay the same.
D) probably change, but more information is needed to determine if the total revenue increases,
decreases, or stays the same.
Answer: A
Skill: Conceptual
147) If the total revenue received by sellers of DVDs increases by 20 percent when price
increases by 10 percent, then demand for DVDs is
A) perfectly elastic.
B) unitary elastic.
C) inelastic.
D) elastic.
Answer: C
Skill: Conceptual
48
148) Total revenue received by surfboard manufacturers increases by $2 million when the price
of a surfboard decreases by $10. The price the elasticity of demand for surfboards is
A) between 0 and 1.
B) greater than 1.
C) equal to 0.
D) some amount that is impossible to determine without more information.
Answer: B
Skill: Conceptual
149) If a 20 percent decrease in the price of a good leads to a 15 percent increase in the quantity
demanded, then demand is ________ and total revenue will ________ as a result of the fall in
price.
A) elastic; increase
B) elastic; decrease
C) inelastic; increase
D) inelastic; decrease
Answer: D
Skill: Conceptual
150) The price elasticity of demand for wheat is 0.42. A drought cuts the supply of wheat. What
will happen to the farmers' total revenue?
A) The total revenue will increase.
B) The total revenue will decrease.
C) The total revenue will not change.
D) There is not enough information to determine what happens to the total revenue.
Answer: A
Skill: Conceptual
49
151) The price elasticity of demand for corn is 0.4. A new hybrid of corn is discovered and all
farmers start to use it, which increases the quantity of corn they can produce from each acre.
What happens to the farmers' total revenue?
A) The total revenue will increase.
B) The total revenue will decrease.
C) The total revenue will not change.
D) There is not enough information to determine what happens to the total revenue.
Answer: B
Skill: Conceptual
152) A university conducts a survey of students, which shows that a 10 percent tuition hike
would lead to a 12 percent decrease in the enrollment. If the university wants to increase its total
revenue, it should ________ tuition because the demand for education at this university is
________.
A) raise; elastic
B) not raise; elastic
C) raise; inelastic
D) not raise; inelastic
Answer: B
Skill: Conceptual
153) A university conducts a survey of students, which shows that a 10 percent tuition hike
would lead to a 7 percent decrease in the enrollment. If the university wants to increase its total
revenue, it should ________ tuition because the demand for education at this university is
________.
A) raise; elastic
B) not raise; elastic
C) raise; inelastic
D) not raise; inelastic
Answer: C
Skill: Conceptual
50
154) The price of a bus ride decreases, and the total revenue of the bus company decreases. The
demand for bus rides is ________.
A) perfectly elastic
B) inelastic
C) unit elastic
D) elastic but not necessarily perfectly elastic
Answer: B
Skill: Conceptual
155) The price elasticity of demand for gasoline is 0.40. If the price of gasoline rises by 20
percent, there will be
A) a decrease of more than 20 percent in the quantity of gasoline demanded.
B) an increase in the total revenue received from the sale of gasoline.
C) a loss of total revenue for gasoline producers, because at a higher price the quantity of
gasoline demanded decreases.
D) no change in the quantity of gasoline sold because people need gasoline.
Answer: B
Skill: Conceptual
156) When Monica's Catering lowered the price of catered meals from $60 per person to $20 per
person, the quantity demanded doubled from 500 meals to 1,000 meals. You can conclude that
the demand for Monica's catered meals over the price range of $20 to $60 is
A) upward sloping.
B) unit elastic.
C) elastic.
D) inelastic.
Answer: D
Skill: Conceptual
51
157) If the demand for a good is unit elastic,
A) a 5 percent increase in price results in a 5 percent increase in total revenue.
B) a 5 percent increase in price results in a 5 percent decrease in total revenue.
C) a 5 percent increase in price does not change total revenue.
D) the demand curve is a straight line with slope of -1.
Answer: C
Skill: Analytical
158) If OPEC, a group of oil producing nations, cuts oil production to increase the total revenue,
OPEC presumes that the demand for oil is
B) unit elastic.
C) elastic.
D) inelastic.
Answer: D
Skill: Analytical
159) A shift of the supply curve of oil raises the price from $70 a barrel to $80 a barrel and
reduces the quantity demanded from 40 million to 38 million barrels a day. You can conclude
that the
A) demand for oil is elastic.
B) demand for oil is inelastic.
C) supply of oil is elastic.
D) supply of oil is inelastic.
Answer: B
Skill: Analytical
52
160) A shift of the supply curve of oil raises the price from $60 a barrel to $75 a barrel and
reduces the quantity demanded from 40 million to 20 million barrels a day. You can conclude
that the
A) demand for oil is elastic.
B) demand for oil is inelastic.
C) supply of oil is elastic.
D) supply of oil is inelastic.
Answer: A
Skill: Analytical
161) The price of milk rises, so the supply of ice cream decreases. there is, as a result a 5 percent
increase in the price of ice cream and a 3 percent decrease in the quantity of ice cream sold. The
revenue received by ice cream suppliers will ________ because the demand for ice cream is
________.
A) decrease; price inelastic
B) increase; price inelastic
C) increase; price elastic
D) decrease; price elastic
Answer: B
Skill: Analytical
162) When the price of a Caesar salad is $5.00, the demand for Caesar salads is elastic, and when
the price is $4.00, the demand is inelastic. If Mike's Roadside Restaurant cuts the price from
$5.00 to $4.00, its total revenue from Caesar salads ________.
A) will increase
B) will decrease
C) will remain the same
D) might increase, decrease, or remain the same
Answer: D
Skill: Analytical
53
163) Suppose that the demand for corn is price inelastic. If a technological advance makes corn
farms more productive, the equilibrium price of corn will ________ and the farmers' total
revenue will ________.
A) rise; increase
B) rise; decrease
C) fall; increase
D) fall; decrease
Answer: D
Topic: Total Revenue
Skill: Analytical
164) Total revenue for skis is at a maximum when the price elasticity of demand is
A) between 0 and 1.
B) 1.
C) greater than 1.
D) 0.
Answer: B
Skill: Recognition
165) If hot dog vendors at baseball games want to maximize their total sales revenue, they will
have to
A) be willing to experience reduced hot dog expenditure by baseball fans.
B) set the price of their hot dogs so that the demand is unit elastic.
C) sell as many hot dogs as they can, even if it means lowering price.
D) raise their price, even if it means selling fewer hot dogs.
Answer: B
Skill: Conceptual
166) Sara's Strawberry Market maximizes its total revenue by selling strawberries for $1.25 a
basket. At a price of $1.25, you predict that ________
A) the demand for strawberries is inelastic
B) Sara's sells most of the strawberries that she grows
C) the demand for strawberries is elastic
D) the demand for strawberries is unit elastic
Answer: D
Skill: Analytical
54
Price Quantity
(dollars per demanded
pound) (pounds)
10 0
9 2
7 6
5 10
3 14
1 18
0 20
167) The above table gives the demand schedule for Billy Bob's BBQ ribs. The price elasticity of
demand for Billy Bob's ribs over the price range of $3 to $1 is equal to
A) 4.00.
B) 2.00.
C) 0.50.
D) 0.25.
Answer: D
Skill: Analytical
168) The above table gives the demand schedule for Billy Bob's BBQ ribs. If the price of a
pound of ribs falls from $3 per pound to $1 per pound, what is the change in Billy Bob's total
revenue?
A) $42
B) $24
C) -$2
D) -$24
Answer: D
Skill: Analytical
55
169) The above table gives the demand schedule for Billy Bob's BBQ ribs. The demand for Billy
Bob's ribs over the price range of $1 per pound to $3 per pound is
B) elastic.
C) unit elastic.
D) inelastic.
Answer: D
Skill: Analytical
170) The above table gives the demand schedule for Billy Bob's BBQ ribs. An increase in the
price of a pound of ribs will lead to a decrease in total revenue when
A) demand is inelastic.
B) the demand curve is vertical.
C) the price increase occurs over the price range of 0 to $5.
D) the price increase occurs over the price range of $5 to $10.
Answer: D
Skill: Conceptual
171) The above table gives the demand schedule for Billy Bob's BBQ ribs. The demand for Billy
Bob's ribs is unit elastic at which of the following prices?
A) $10
B) $7
C) $5
D) $1
Answer: C
Skill: Conceptual
56
172) The above figure shows the demand curve for movie rentals from Blockbuster. If
Blockbuster raised its price from $2.50 to $3.00, between these two prices the price elasticity of
demand equals
A) 1.2.
B) 0.8.
C) 2.0.
D) 0.5.
Answer: A
Skill: Analytical
173) The above figure shows the demand curve for movie rentals from Blockbuster. Which of
the following is true?
A) Consumer expenditure on movie rentals will always increase whenever Blockbuster lowers its
price.
B) Blockbuster will receive more total revenue if it charges $4.00 per movie rental rather than
$3.00.
C) The price elasticity of demand for movie rentals falls as Blockbuster raises its price.
D) The demand for movie rentals is more price inelastic at $1.00 than it is at $1.50.
Answer: D
Skill: Analytical
57
174) The above figure shows the demand curve for movie rentals from Blockbuster. At which of
the following prices is the demand unit elastic?
A) $5.00
B) $3.50
C) $2.50
D) $0.00
Answer: C
Skill: Analytical
175) The above figure shows the demand curve for movie rentals from Blockbuster. At which of
the following prices does Blockbuster have the maximum total revenue?
A) $5.00
B) $3.50
C) $2.50
D) $0.00
Answer: C
Skill: Analytical
Blockbuster lowered its price from $4.00 to $3.50, then total revenue would ________ because
demand is ________.
A) decrease; elastic
B) increase; elastic
C) decrease; inelastic
D) increase; inelastic
Answer: B
Skill: Analytical
58
demand is ________.
Answer: C
Skill: Analytical
demand is ________.
Answer: C
Skill: Analytical
59
179) The figure illustrates the demand for magazines. Newsagents will maximize their total
revenue when they ________.
A) sell 375 magazines a day
B) sell as many magazines as they can
C) charge $2.50 a magazine
D) sell 750 magazines a day
Answer: A
Skill: Analytical
60
180) The figure illustrates the demand for peanuts. If the price falls from $12 to $9 a bag, total
revenue will ________, and if the price rises from $3 to $6 a bag, total revenue will ________.
A) increase; decrease
B) increase; increase
C) decrease; increase
D) decrease; decrease
Answer: B
Skill: Analytical
61
181) In the above figure, at which point on the demand curve is the price elasticity of demand
equal to 1?
A) a.
B) b.
C) c.
D) It is impossible to say at which point the elasticity equals one.
Answer: C
Skill: Recognition
182) In the above figure, at point b on the demand curve, a price cut of one dollar will
A) increase total revenue.
B) decrease total revenue.
C) leave total revenue unchanged.
D) have an indeterminate effect on total revenue.
Answer: A
Skill: Recognition
62
183) Consider the straight-line demand curve illustrated in the figure above. At a price of $6,
demand
A) inelastic.
B) elastic.
C) unit elastic.
D) More information is needed to determine if the demand is elastic, unit elastic, or inelastic.
Answer: B
Skill: Conceptual
184) Consider the straight-line demand curve illustrated in the above figure. At what price is
total revenue maximized?
A) at a price of $8
B) at a price of $6
C) at a price of $4
D) More information is needed to determine the price at which total revenue is maximized.
Answer: C
Skill: Conceptual
63
185) The figure illustrates the demand for eggs. At what price will egg sellers maximize their
total revenue?
A) above $0.75 a dozen
B) $0.75 a dozen
C) less than $0.75 a dozen
D) $1.50 a dozen
Answer: B
Skill: Analytical
64
186) The figure above represents the behavior of total revenue as price falls along a straight-line
demand curve. What is the price elasticity of demand if total revenue is given by point f?
A) Demand is inelastic.
B) Demand is unit elastic.
C) Demand is elastic.
D) It is impossible to determine.
Answer: C
Skill: Analytical
187) The figure above represents the behavior of total revenue as price falls along a straight-line
demand curve. Unit elasticity of demand occurs at
A) point g.
B) point h.
C) point i.
D) point j.
Answer: B
Skill: Analytical
65
188) As the price of cell phones fell during the last decade, consumers' total expenditures on cell
phones increased. If the demand curve for cell phones did not shift, this fact means that the
demand for cell phones
A) must have shifted leftward.
B) must be upward sloping.
C) is elastic.
D) is inelastic.
Answer: C
Topic: Your Expenditure and Elasticity
Skill: Analytical
189) If your demand for gasoline is inelastic, when the price of gasoline falls, which of the
following occurs?
A) Your demand curve for gasoline will shift leftward.
B) Your demand curve for gasoline will shift rightward.
C) Your total expenditure on gasoline will increase.
D) Your total expenditure on gasoline will decrease.
Answer: D
Skill: Conceptual
190) Starting at the top of a straight-line downward sloping demand curve, as the price falls, total
expenditures will
A) initially increase and then decrease.
B) initially decrease and then increase.
C) increase along the entire demand curve.
D) decrease along the entire demand curve.
Answer: A
Skill: Conceptual
191) If a price decrease results in your expenditure on a good decreasing, your demand must be
A) inelastic.
B) unit.
C) elastic.
D) linear.
Answer: A
Skill: Conceptual
66
192) An increase in subway fares in New York City will boost your expenditures on subway
rides if
A) the supply of subway rides is elastic.
B) the supply of subway rides is inelastic.
C) your demand for subway rides is elastic.
D) your demand for subway rides is inelastic.
Answer: D
Skill: Conceptual
193) If your demand for a good is ________, then a 1 percent fall in its price will lead you to
________ your expenditures on the good.
A) inelastic; increase
B) inelastic; decrease
C) elastic; increase
D) elastic; decrease
Answer: D
Skill: Conceptual
194) If the price of gasoline rose from $2.85 to $2.95 per gallon, your expenditure on gasoline
would increase if your price elasticity of demand for gasoline equals
A) 1.25.
B) 1.00.
C) 0.75.
D) Total revenue would increase at all of the above elasticities.
Answer: C
Skill: Analytical
195) If the price of gasoline fell from $2.95 to $2.85 per gallon, your expenditure on gasoline
would increase if your price elasticity of demand for gasoline equals
A) 1.1.
B) 1.0.
C) 0.9.
D) Total revenue would increase at all of the above elasticities.
Answer: A
Skill: Analytical
67
196) If students' expenditures on airline travel increase as a consequence of more heavily
discounted fares, students' demand for airline travel must be
A) income elastic.
B) income inelastic.
C) price elastic.
D) price inelastic.
Answer: C
Skill: Recognition
197) Which goods have more elastic demands?

A) goods with many substitutes
B) goods which are necessities
C) goods with few substitutes
D) goods whose purchase represents a small percentage of income
Answer: A
Topic: Factors That Influence the Price Elasticity of Demand
Skill: Recognition
198) The closer the substitutes for a good, the

A) more elastic is the demand for the good.
B) less elastic is the demand for the good.
C) smaller the degree of substitutability between the goods.
D) larger the proportion of income that is spent on the good.
Answer: A
Skill: Conceptual
199) The more substitutes available for a product, the

A) larger is its the price elasticity of demand.
B) smaller is its income elasticity of demand.
C) smaller is its price elasticity of demand.
D) larger is its income elasticity of demand.
Answer: A
Skill: Recognition
68
200) The demand for a good is more price elastic
A) if closer substitutes are available.
B) if the good is a necessity rather than a luxury.
C) if the share of the good in the average consumer's budget is smaller.
D) in the short run than in the long run.
Answer: A
Skill: Recognition
201) For many goods, the price elasticity of demand increases over time because
A) people's incomes tend to increase over time.
B) inflation increases all prices and incomes over time.
C) the ability to find substitutes for a good whose price has risen increases over time.
Answer: C
Skill: Conceptual
202) The amount of time elapsed since a price change impacts the elasticity of demand because
as more time passes
A) people can find more substitutes and so the elasticity of demand decreases.
B) people can find more substitutes and so the elasticity of demand increases.
C) people's incomes will increase and so the elasticity of demand decreases.
D) the good's price will have a chance to return to its previous level.
Answer: B
Skill: Conceptual
203) For many goods, the price elasticity of demand increases over time after a price hike
because
A) consumer incomes tend to increase over time.
B) inflation increases all prices and incomes over time.
C) the ability to find good substitutes for the product whose price rose increases over time.
D) ALL of the above answers are correct.
Answer: C
Skill: Conceptual
69
204) The demand for Honda Accords is probably
A) inelastic but more elastic than the demand for automobiles.
B) elastic and more elastic than the demand for automobiles.
C) inelastic and less elastic than the demand for automobiles.
D) elastic but less elastic than the demand for automobiles.
Answer: B
Skill: Conceptual
205) Which of the following statements is FALSE?

A) Goods or services that have few close substitutes generally have a less elastic demand.
B) Goods or services for which a greater proportion of income is spent on the item generally
have a more elastic demand.
C) A narrowly defined good or service generally has a less elastic demand.
D) The longer the time that has elapsed since a price change, the more elastic the demand.
Answer: C
Skill: Recognition
206) Which of the following makes demand less elastic?

A) the existence of many close substitutes for the good
B) spending a large proportion of income on the good
C) a short time elapsing since the product's price changed
D) All of the above answers are correct.
Answer: C
Skill: Recognition
207) The price elasticity of demand depends on the

A) proportion of consumers' budgets spent on the good.
B) number of available substitutes.
C) extent to which the commodity is a luxury.
D) all of the above
Answer: D
Skill: Recognition
70
208) A determinant of the price elasticity of demand is
A) whether the good is a durable or a nondurable.
B) the availability of resources used in the production of the product.
C) how well consumers like the good.
D) the proportion of the consumer's total budget spent on the good.
Answer: D
Skill: Recognition
209) The ________ the portion of your income spent on a good, the ________ is your demand
for the good.
A) larger; more income elastic
B) larger; more price elastic
C) smaller; less price elastic
D) smaller; more income elastic
Answer: C
Skill: Recognition
210) Of the following, demand is likely to be the least elastic for

A) Ford automobiles.
B) Toyota automobiles.
C) compact disc players.
D) toothpicks.
Answer: D
Skill: Conceptual
211) If a product has very few substitutes, demand elasticity is likely to be

A) 1.
B) elastic.
C) infinitely elastic.
D) inelastic.
Answer: D
Skill: Conceptual
71
212) Because there are numerous choices for fast food purchases, the price elasticity of demand
for Taco Bell food is likely
A) inelastic.
B) unitary elastic.
C) perfectly inelastic.
D) elastic.
Answer: D
Skill: Conceptual
213) The demand for ________ is more elastic than the demand for ________.
A) chewing gum; cars
B) all personal computers; Dell computers
C) Pepsi; all soft beverages
D) food; exotic vacations
Answer: C
Skill: Conceptual
214) The price elasticity of demand for a specific model of a luxury car is likely to be
A) elastic.
B) inelastic.
C) 0.
D) infinite.
Answer: A
Skill: Conceptual
215) Which of the following items will have the largest price elasticity of demand?
A) food
B) fruit
C) oranges
D) oranges from a Wal-Mart SuperCenter
Answer: D
Skill: Conceptual
72
216) The price elasticity of demand for meat in general is inelastic while the price elasticity of
demand for turkey or chicken is more elastic. Why?
A) Turkey and chicken are not red meat. Because they are not the same as other meats, they
should have different elasticities.
B) Turkey and chicken have many substitutes, such as fish or beef, while meat in general has
fewer substitutes.
C) Turkey and chicken are inferior goods.
D) Turkey and chicken are normal goods.
Answer: B
Skill: Conceptual
217) The demand for ________ is more elastic than the demand for ________.
A) chewing gum; cars
B) gasoline; professional services
C) all soft beverages; lemonade
D) motor vehicles; food
Answer: D
Skill: Conceptual
218) Of the following, demand is likely to be the most elastic for

A) food.
B) cars.
C) Sony DVD players.
D) personal computers.
Answer: C
Skill: Conceptual
219) Pizza Hut pizza has more close substitutes than does food in general. The price elasticity of
demand for Pizza Hut pizza is ________ the price elasticity of demand for food in general.
A) not comparable to
B) greater than
C) less than
D) the same as
Answer: B
Skill: Conceptual
73
220) Suppose that accountants increase the price for calculating income taxes owed by 20
percent. The short-run demand for their service is less elastic than the long-run demand because
in the long run consumers will ________.
A) spend less on this service
B) experience an increase in income
C) try to avoid paying their income tax
D) find other ways to calculate the income tax they must pay
Answer: D
Skill: Conceptual
221) Which of the following goods would have the smallest elasticity of demand?
A) Exxon brand premium unleaded gasoline
B) insulin sold to diabetics
C) an education at Harvard Law School sold to recent college graduates
D) a bottle of Bayer Aspirin sold to someone without a headache
Answer: B
Skill: Conceptual
222) For electricity, natural gas, or other forms of energy, it is very likely that the price elasticity
of demand
A) is zero.
B) is infinite.
C) will decrease in magnitude as more time passes after a price change.
D) will increase in magnitude as more time passes after a price change.
Answer: D
Skill: Conceptual
223) The price of gasoline rises by 33 percent to $3.50 a gallon and stays at that price for the
next two years. The quantity of gasoline demanded two years from now will be
A) the same as one month after the price hike.
B) greater than one month after the price hike.
C) less than one month after the price hike.
D) the same as it would be if the price hike had never occurred.
Answer: C
Skill: Analytical
74
224) Which of the following factors will make the demand for a product more elastic?
A) The product has no close substitutes.
B) A very small proportion of income is spent on the good.
C) A long time period has elapsed since the product's price changed.
D) The change in the product's price was unexpected.
Answer: C
Skill: Conceptual
225) Of the following, demand is likely to be the least elastic for

A) diamonds.
B) insulin for diabetics.
C) iceberg lettuce.
D) pink grapefruit.
Answer: B
Skill: Analytical
226) The demand for food is most elastic in countries

A) with low income levels.
B) with intermediate income levels.
C) with high income levels.
D) that are highly urbanized.
Answer: A
Skill: Analytical
227) The demand for a good is less price elastic

A) if closer substitutes are available.
B) if the good is a luxury rather than a necessity.
C) if the share of the good in the average consumer's budget is smaller.
D) in the long run than in the short run.
Answer: C
Skill: Conceptual
75
228) The air route from Dallas to Mexico City is served by more than one airline. The demand
for tickets from American Airlines for that route is probably
A) inelastic but more elastic than the demand for all tickets for that route.
B) elastic and more elastic than the demand for all tickets for that route.
C) inelastic and less elastic than the demand for all tickets for that route.
D) elastic but less elastic than the demand for all tickets for that route.
Answer: B
Skill: Conceptual
229) The elasticity of demand for Gateway computers is probably

A) inelastic and smaller than the elasticity of demand for computers overall.
B) elastic and smaller than the elasticity of demand for computers overall.
C) inelastic but larger than the elasticity of demand for computers overall.
D) elastic and larger than the elasticity of demand for computers overall.
Answer: D
Skill: Conceptual
230) Aglets are the metal or plastic tips on shoelaces that make it easier to lace your shoes. The
demand for aglets is probably
A) inelastic.
B) unit elastic.
C) elastic but not perfectly elastic.
Answer: A
Skill: Conceptual
231) The demand for food in poor countries is

A) inelastic and more inelastic than in rich countries.
B) inelastic but more elastic than in rich countries.
C) elastic but less elastic than in rich countries.
D) elastic and more elastic than in rich countries.
Answer: B
Skill: Conceptual
76
232) Suppose a 10 percent increase in the price of textbooks decreases the quantity demanded by
20 percent. The elasticity of demand for textbooks is
A) 0.2.
B) 2.0.
C) 5.0.
D) 10.0.
Answer: B
Topic: Study Guide Question, Calculating Elasticity
Skill: Analytical
233) The quantity of new cars increases by 10 percent. If the price elasticity of demand for new
cars is 1.25, the price of new cars will fall by
A) 2.5 percent.
B) 8 percent.
C) 10 percent.
D) 12.5 percent.
Answer: B
Topic: Study Guide Question, Calculating Elasticity
Skill: Analytical
234) Along a perfectly vertical demand curve, the price elasticity of demand
A) equals 0.
B) is greater than 0 but less than 1.0.
C) equals 1.0.
D) is negative.
Answer: A
Topic: Study Guide Question, Inelastic and Elastic Demand
Skill: Conceptual
235) Perfectly elastic demand is represented by a demand curve that

A) is vertical.
B) is horizontal.
C) has a 45° slope.
D) is a rectangular hyperbola.
Answer: B
Topic: Study Guide Question, Inelastic and Elastic Demand
Skill: Conceptual
77
236) Business people often speak about price elasticity without actually using the term. Which
statement describes a good with an elastic demand?
A) "A price cut won't help me. It won't increase my sales, and I'll just get less money for each
unit."
B) "I don't think a price cut will help my bottom line any. Sure, I'll sell a bit more, but I'll more
than lose because the price will be lower."
C) "My customers are real shoppers. After I cut my prices just a few cents below those my
competitors charge, customers have been flocking to my store and sales are booming."
D) "The economic expansion has done wonders for my sales. With more people back at work,
my sales are taking off!"
Answer: C
Topic: Study Guide Question, Elastic Demand
Skill: Conceptual
237) A product is likely to have a price elasticity of demand that exceeds 1 when
A) its price falls.
B) the percentage of income spent on it decreases.
C) it is a necessity.
D) it has close substitutes.
Answer: D
Topic: Study Guide Q., Factors That Influence Demand Elasticity
Skill: Recognition
238) The demand for a good is more price inelastic if

A) its price is higher.
B) the percentage of income spent on it is larger.
C) it is a luxury good.
D) it has no close substitutes.
Answer: D
Skill: Recognition
78
239) Which of the following is likely to have the smallest price elasticity of demand?
A) an automobile
B) a new automobile
C) a new Ford automobile
D) a new Ford Mustang
Answer: A
Skill: Recognition
240) Moving up (to the left) along a linear demand curve, the price elasticity of demand
A) decreases.
B) does not change.
C) increases.
D) at first increases and then decreases.
Answer: C
Topic: Study Guide Q, Elasticity Along a Straight-Line Demand Curve
Skill: Conceptual
241) If the price elasticity of demand equals 1.0, then as the price falls the
A) quantity demanded decreases.
B) total revenue falls.
C) quantity demanded does not change.
D) total revenue does not change.
Answer: D
Topic: Study Guide Question, Total Revenue and Elasticity
Skill: Conceptual
242) A rise in the price of a product lowers the total revenue from the product if the
A) income elasticity of demand exceeds 1.
B) good is an inferior product.
C) demand for the product is inelastic.
D) demand for the product is elastic.
Answer: D
Skill: Conceptual
79
243) By reviewing its sales records, Dell economists discover that when Dell lowers the price of
its personal computers, the total revenue Dell obtains from the sale of its personal computers
rises. Hence
A) supply of Dell personal computers is elastic.
B) demand for Dell personal computers is elastic.
C) supply of Dell personal computers is inelastic.
D) demand for Dell personal computers is inelastic.
Answer: B
Skill: Conceptual
244) If a 4 percent rise in the price of peanut butter lowers the total revenue received by the
producers of peanut butter by 4 percent, the demand for peanut butter
A) is elastic.
B) is inelastic.
C) is unit elastic.
D) has an elasticity of 2.0.
Answer: A
Skill: Analytical
245) If the price elasticity of demand for a product equals 1, as its price rises the
A) quantity demanded increases.
B) total revenue increases.
C) quantity demanded does not change.
D) total revenue does not change.
Answer: D
Skill: Analytical
246) When the price of a hot dog rises 10 percent, your expenditure on hot dogs increases.
Hence, it is certain that
A) hot dogs are a normal good for you.
B) hot dogs are an inferior good for you.
C) your demand for hot dogs is elastic.
D) your demand for hot dogs is inelastic.
Answer: D
Skill: Analytical
80
247) In the figure above, when the price of a disk is $B, total revenue is shown in the graph by
area
A) BCF0.
B) AGF0.
C) FCDE.
D) ADE0.
Answer: A
Topic: Parallel MyEconLab Questions
Skill: Analytical
81
248) The above figure illustrates the demand curve for a good. The good has
A) no substitutes.
B) only one substitute.
C) only a few substitutes.
D) many substitutes.
Answer: A
Topic: Parallel MyEconLab Questions, Elastic and Inelastic Demand
Skill: Analytical
82
249) The elasticity of demand along the demand curve shown in the above figure is constant and
equal to 1. Thus,
A) area 0BCF equals area 0AGF.
B) area 0BCF equals area FGDE.
C) area 0BCF equals area 0ADE.
D) area ABCG equals area 0AGF.
Answer: C
Topic: Parallel MyEconLab Questions, Elastic and Inelastic Demand
Skill: Analytical
83
250) The above figure shows a linear (straight-line) demand curve. Start at point A and then
moving to point B and then point C, the price elasticity of demand
A) increases.
B) decreases.
C) increases and then decreases.
D) decreases and then increases.
Answer: B
Topic: Parallel MyEconLab, Elasticity - Straight-Line Demand Curve
Skill: Analytical
2 More Elasticities of Demand
1) The cross elasticity of demand measures the responsiveness of the quantity demanded of a
particular good to changes in the prices of
A) its substitutes and its complements.
B) its substitutes but not its complements.
C) its complements but not its substitutes.
D) neither its substitutes nor its complements.
Answer: A
Topic: Cross Elasticity of Demand
Skill: Recognition
84
2) The cross elasticity of demand is calculated as the percentage change in the
A) quantity demanded of one good divided by the percentage change in the price of another good
B) price of one good divided by the percentage change in the quantity demanded of another
good.
C) quantity demanded of one good divided by the percentage change in the quantity demanded
of another good
D) price of one good divided by the percentage change in the price of another good.
Answer: A
Skill: Recognition
3) Toothpaste and toothbrushes are complements, so the ________ elasticity of demand is

________.
A) cross; positive
B) income; negative
C) cross; negative
D) income; positive
Answer: C
Skill: Recognition
4) Blue pens and black pens are close substitutes. The cross elasticity of demand for black pens
with respect to the price of blue pens is ________.
A) positive
B) negative
C) equal to 1
D) zero
Answer: A
Skill: Recognition
85
5) If the cross elasticity of demand between goods X and Y is positive and between goods X and
Z is negative, then X and Y are ________ and X and Z are ________.
A) price inelastic; complements
B) complements; substitutes
C) substitutes; complements
D) price inelastic; income elastic
Answer: C
Skill: Recognition
6) If goods are complements, definitely their

A) cross elasticities are positive.
B) income elasticities are positive.
C) income elasticities are negative.
D) cross elasticities are negative.
Answer: D
Skill: Recognition
7) If a rise in the price of good 1 decreases the quantity of good 2 demanded,

A) the cross elasticity of demand is negative.
B) the cross elasticity of demand is positive.
C) good 1 is an inferior good.
D) good 2 is an inferior good.
Answer: A
Skill: Conceptual
8) The cross elasticity of demand between apples and oranges is defined as the
A) percentage change in the quantity of apples demanded divided by the percentage change in
the price of oranges.
B) price elasticity of demand for apples divided by the price elasticity of demand for oranges.
C) percentage change in the quantity of apples demanded divided by the percentage change in
the quantity of oranges demanded.
D) change in the quantity of apples demanded divided by the change in the quantity of oranges
demanded.
Answer: A
Skill: Recognition
86
9) If peanut butter and jelly are complements, then their cross elasticity of demand must be
A) infinitely high.
B) a positive number that might be greater than 1.
C) a number between zero and one.
D) a negative number.
Answer: D
Skill: Recognition
10) The cross elasticity of demand for pizza with respect to the price of a soda is
A) positive because the goods are complements.
B) negative because the goods are complements.
C) positive because the goods are substitutes.
D) negative because the goods are substitutes.
Answer: B
Skill: Recognition
11) In the above figure, if the price of good A falls from P0 to P1 and the demand for good B
increases from D0 to D1, then goods A and B
A) are substitute goods.
B) are inferior goods.
C) will have a negative cross elasticity of demand.
D) are both price elastic but not perfectly price elastic.
Answer: C
Skill: Conceptual
87
12) In the above figure, if the two goods A and B, are complements , which of the following is
true?
A) The shift from D0 to D1 for good B leads to a shift from S0 to S1 for good A.
B) The shift from S0 to S1 for good A leads to the shift from D0 to D1 for good B.
C) The law of demand is violated in both markets.
D) The cross elasticity of demand between them is positive.
Answer: B
Skill: Conceptual
13) A negative value for the cross elasticity of demand between two goods indicates that
A) the goods are complements.
B) the goods are substitutes.
C) one of the goods is normal and the other is inferior.
D) each good is price inelastic.
Answer: A
Skill: Conceptual
14) Donuts and coffee are complements. When the price of a donut increases, the demand for
coffee ________ and the cross elasticity of demand for coffee with respect to the price of a donut
is ________.
A) decreases; negative
B) increases; negative
C) increases; positive
D) decreases; positive
Answer: A
Skill: Conceptual
15) If tea and coffee are substitutes, the cross elasticity of coffee with respect to the price of tea
will be ________ and an increase in the price of tea will ________ the demand for coffee.
A) positive; increase
B) negative; decrease
C) negative; increase
D) positive; decrease
Answer: A
Skill: Conceptual
88
16) If a 5 percent increase in the price of good A leads to a 4 percent decrease in the demand for
good B, then ________.
A) the goods are substitutes
B) only one good is a normal good
C) the goods are complements
D) both goods are normal goods
Answer: C
Skill: Conceptual
17) Joe likes peanut butter and jelly sandwiches for lunch. We can conclude that for Joe the cross
elasticity of demand for peanut butter with respect to jelly is
A) positive because jelly and peanut butter are substitutes.
B) positive because jelly and peanut butter are complements.
C) negative because jelly and peanut butter are substitutes.
D) negative because jelly and peanut butter are complements.
Answer: D
Skill: Conceptual
18) Many younger people eat peanut butter AND jelly, whereas many older people eat peanut
butter OR jelly. This suggests that the cross elasticity of demand between peanut butter and jelly
is
A) negative for youngsters and positive for oldsters.
B) positive for youngsters and negative for oldsters.
C) negative for youngsters and zero for oldsters.
D) positive for youngsters and zero for oldsters.
Answer: A
Skill: Recognition
89
19) If the cross elasticity of demand for good x with respect to the price of good y is positive,
then goods x and y are
A) normal goods.
B) inferior goods.
C) complements.
D) substitutes.
Answer: D
Skill: Conceptual
20) You are the new vice president in charge of advertising at Taco Bell. In your upcoming
advertising campaign, you plan to degrade the fast food competitor whose product is the closest
substitute for Taco Bell's tacos. That would be the fast food chain whose cross elasticity of
demand with your tacos is equal to
A) negative 2.11.
B) negative 1.75.
C) positive 1.55.
D) positive 1.00.
Answer: C
Skill: Conceptual
21) When the price of milk rose 50 percent, the quantity of milk sold fell 25 percent and the sale
of breakfast cereals also fell 25 percent. This set of facts indicates that the
A) demand for milk is price elastic.
B) demand for breakfast cereals is price elastic.
C) cross elasticity between milk and cereal is negative so the two are complements.
D) cross elasticity between milk and cereal is positive so the two are complements.
Answer: C
Skill: Conceptual
90
22) If Pepsi decided to raise its price, you would expect the price of Coca Cola
A) to fall.
B) to raise.
C) Their prices should have no relationship because Pepsi and Coca Cola are not related.
D) None of the above answer are correct.
Answer: B
Skill: Conceptual
23) If the cross elasticity of demand between goods A and B is positive,

A) the demands for A and B are both price elastic.
B) the demands for A and B are both price inelastic.
C) A and B are complements.
D) A and B are substitutes.
Answer: D
Skill: Conceptual
24) If the cross elasticity of demand between coffee and tea is positive, an increase in the price of
tea will shift the demand curve for
A) tea rightward.
B) tea leftward.
C) coffee rightward.
D) coffee leftward.
Answer: C
Skill: Conceptual
91
25) The cross-elasticity of demand between Homer's Holesome Doughnuts and Krusty's Krispy
Crullers is 5.0, which indicates that Homer's doughnuts and Krusty's crullers are
A) complements and the relationship between the two goods is strong (that is, the quantity
demanded of doughnuts is very responsive to changes in the price of crullers).
B) complements and the relationship between the two goods is weak (that is, the quantity
demanded of doughnuts is not very responsive to changes in the price of crullers).
C) substitutes and the relationship between the two goods is strong (that is, the quantity
demanded of doughnuts is very responsive to changes in the price of crullers).
D) substitutes and the relationship between the two goods is weak (that is, the quantity demanded
of doughnuts is not very responsive to changes in the price of crullers).
Answer: C
Skill: Conceptual
26) If the cross elasticity of demand is -5 between french fries and orange drink, then french fries
A) and orange drink are complements.
B) and orange drink are substitutes.
C) are a normal good and orange drink is an inferior good.
D) are an inferior good and orange drink is a normal good.
Answer: B
Skill: Conceptual
27) Suppose inter-city bus travel is a substitute for transportation by train. Which of the
following could then be true?
A) The cross elasticity between bus and train travel could equal 0.65.
B) The cross elasticity between bus and train travel could equal 1.0.
C) The cross elasticity between bus and train travel could equal 1.25.
D) All of the above could be true.
Answer: D
Skill: Analytical
92
28) Suppose that the cross elasticity of demand for Dell computers with respect to Hewlett
Packard computers is 2.1. If Hewlett-Packard lowers its price by 5 percent, other things being
equal, what will be the percentage change in the quantity of Dell computers demanded?
A) 2.4 percent
B) -10.5 percent
C) 10.5 percent
D) -42 percent
Answer: B
Skill: Analytical
29) Suppose Clyde always eats ice cream and chocolate syrup together. If the price of syrup
increases by 10 percent, and the cross elasticity of demand is -2, the demand for ice cream
A) increases by 5 percent.
B) increases by 20 percent.
C) decreases by 5 percent.
D) decreases by 20 percent.
Answer: D
Skill: Analytical
30) Dell lowers the price of their PCs by 10 percent. As a result, the quantity of Gateway
computers demanded at the current price decreases by 12 percent. What is the cross elasticity of
demand for Gateway computers with respect to the price of Dell computers?
A) -1.20
B) -0.83
C) 1.20
D) 0.83
Answer: C
Skill: Analytical
93
31) Microsoft raises the price of its Office software by 10 percent. As a result, the quantity of
personal computers demanded at the current price decreases by 5 percent. What is the cross
elasticity of demand for personal computers with respect to the price of Microsoft Office
software?
A) -2.0
B) -0.5
C) 0.5
D) 2.0
Answer: B
Skill: Analytical
32) If a price hike of 5 percent increases the quantity demanded of another good by 2 percent, the
goods must be ________ and the cross elasticity of demand equals ________.
A) substitutes; 0.40
B) substitutes; 2.5
C) complements; 0.40
D) complements; 2.5
Answer: A
Skill: Analytical
33) Based on the following pieces of information, which fast food product do consumers see as
the closest substitute for Wendy's Hamburgers?
A) Kentucky Fried Chicken, which has a cross elasticity of 1.70 with Wendy's
B) McDonalds hamburgers, which have a cross elasticity of 1.01 with Wendy's
C) Pizza Hut pizza, which has a cross elasticity of zero with Wendy's
D) Taco Bell tacos, which have a cross elasticity of -1.25 with Wendy's
Answer: A
Skill: Analytical
94
34) If there is an increase in the price of broccoli because of disastrous weather that destroys
about half of this year's spinach crop, which of the following could be true?
A) The cross elasticity of demand between spinach and broccoli is negative 1.25.
B) The demand curve for broccoli has shifted rightward and the cross elasticity of demand
between spinach and broccoli is positive.
C) The demand curve for spinach has shifted to the leftward and the cross elasticity of demand
between spinach and broccoli is positive.
D) The demand curves for spinach and broccoli have become more cross inelastic.
Answer: B
Skill: Analytical
35) If the cross elasticity of demand between two goods is -0.56, then a fall in the price of one
good leads to a ________ shift in the ________ of the other good.
A) rightward; demand
B) rightward; supply
C) leftward; demand
D) leftward; supply
Answer: A
Skill: Analytical
36) If the cross elasticity of demand between goods A and B is negative,

A) the demands for A and B are both price elastic.
B) the demands for A and B are both price inelastic.
C) A and B are complements.
D) A and B are substitutes.
Answer: C
Skill: Conceptual
95
37) The greater the substitutability between Northwest timber and Southeast timber, the
________ is the cross elasticity of demand between timber from the two regions and the
________ is the elasticity of demand for Northwest timber.
A) smaller; smaller
B) smaller; larger
C) larger; smaller
D) larger; larger
Answer: D
Skill: Conceptual
38) If goods A and B are complements, then

A) the cross elasticity of demand between A and B is negative.
B) the cross elasticity of demand between A and B is positive.
C) their income elasticities of demand are both greater than 1.
D) their income elasticities of demand are both less than 1.
Answer: A
Skill: Conceptual
39) If a rise in the price of good B increases the quantity demanded of good A,
A) A and B are substitutes.
B) A and B are complements.
C) A is a substitute for B, but B is a complement to A.
D) B is a substitute for A, but A is a complement to B.
Answer: A
Skill: Analytical
40) If a fall in the price of good A increases the quantity demanded of good B,
A) A and B are substitutes.
B) A and B are complements.
C) A is a substitute for B, but B is a complement to A.
D) B is a substitute for A, but A is a complement to B.
Answer: B
Skill: Analytical
96
41) The cross elasticity of demand between Coca-Cola and Pepsi-Cola is ________ so that Coke
and Pepsi are ________.
A) positive; complements
B) positive; substitutes
C) negative; normal goods
D) negative; substitutes
Answer: B
Skill: Analytical
42) If the price of one good increases by 3 percent and the quantity demanded of another good
increases by 2 percent, the cross elasticity is ________ and the two goods are ________.
A) 2/3, substitutes
B) 2/3, complements
C) 3/2, complements
D) 3/2, substitutes
Answer: A
Skill: Analytical
43) A rise in the price of good A shifts the ________ good B rightward if the cross elasticity of
demand between A and B is ________.
A) demand curve for; negative
B) demand curve for; positive
C) supply curve of; negative
D) supply curve of; positive
Answer: B
Skill: Analytical
44) The income elasticity of demand is a measure of the responsiveness of the

A) quantity of a good demanded to changes in income.
B) consumer's income to a change in the price of the goods he or she consumes.
C) quantity of a good demanded to changes in its price.
D) quantity of a good demanded to changes in another good's price.
Answer: A
Topic: Income Elasticity of Demand
Skill: Recognition
97
45) The income elasticity of demand is the percentage change in ________ divided by the
percentage change in ________.
A) the price; income
B) the quantity demanded; income
C) income; the quantity demanded
D) income; the price
Answer: B
Skill: Recognition
46) The income elasticity of demand is defined as the percentage change in

A) the quantity demanded resulting from a given percentage change in price.
B) income divided by the percentage change in quantity demanded.
C) the movement along the demand curve resulting from a change in income.
D) the quantity demanded divided by the percentage change in income.
Answer: D
Skill: Recognition
47) A normal good is defined as a good for which the demand curve
A) shifts leftward as income increases.
B) shifts rightward as income increases.
C) slopes downward to the right.
D) is perfectly price elastic.
Answer: B
Skill: Conceptual
48) When Sam's annual income was only $15,000, he purchased 50 pounds of bananas a year.
When his income rose to $18,000, he purchased 55 pounds a year. Therefore,
A) for Sam bananas are an inferior good.
B) his income elasticity of demand for bananas is negative.
C) his income elasticity and price elasticity of demand for bananas are both greater than one.
D) for Sam bananas are a normal good.
Answer: D
Skill: Analytical
98
49) The income elasticity of demand is
A) always positive.
B) always negative.
C) negative for a normal good and positive for an inferior good.
D) positive for a normal good and negative for an inferior good.
Answer: D
Skill: Recognition
50) Bus rides and canned soup are inferior goods, so the ________ elasticity of demand is
________.
A) cross; positive
B) income; positive
C) income; negative
D) cross; negative
Answer: C
Skill: Recognition
51) The income elasticity of demand is ________ for a normal good and ________ for an
inferior good.
A) positive; positive
B) positive; negative
C) negative; positive
D) negative; negative
Answer: B
Skill: Recognition
52) To say that turnips are inferior goods means that the income elasticity
A) is definitely greater than 1.
B) is definitely between 0 and 1.
C) is positive but could be greater than or less then (or equal to) 1.
D) is negative.
Answer: D
Skill: Recognition
99
53) If the income elasticity of demand for spaghetti is -1.3, then spaghetti
A) is a normal good.
B) is an inferior good.
C) has an elastic demand.
D) is income elastic.
Answer: B
Skill: Recognition
54) If a good is inferior, its income elasticity will be

A) 0.
B) 1.0.
C) negative.
D) positive.
Answer: C
Skill: Recognition
55) Goods whose income elasticities are negative are called

A) normal goods.
B) superior goods.
C) inferior goods.
D) complements.
Answer: C
Skill: Recognition
56) For Product X, the income elasticity of demand is -2.56. Which of the following is therefore
true?
A) Product X is a necessity.
B) Product X is a luxury.
C) Product X is an inferior good.
D) Product X is a normal good.
Answer: C
Skill: Recognition
100
57) Demand is income elastic if
A) a large percentage increase in income results in a small percentage increase in quantity
demanded.
B) a small percentage increase in income results in a large percentage increase in quantity
demanded.
C) an increase in income does not affect the quantity demanded.
D) the good in question has close substitutes.
Answer: B
Skill: Recognition
58) The income elasticity of demand is largest for

A) food.
B) clothing.
C) shelter.
D) luxuries.
Answer: D
Skill: Recognition
59) For Product X, the income elasticity of demand is 1.16. Which of the following is therefore
definitely true?
A) Product X is a necessity.
B) Product X is income elastic.
C) Product X is a substitute for some other good.
D) Product X is something that mostly poor people will buy.
Answer: B
Skill: Recognition
60) If the income elasticity for chocolate chip cookies is 1.84, then chocolate chip cookies are
A) a normal good and income inelastic.
B) a normal good and income elastic.
C) an inferior good and income inelastic.
D) an inferior good and income elastic.
Answer: B
Skill: Recognition
101
61) When consumers' incomes increased 10 percent, the quantity of milk bought increased 5
percent. This result means
A) the demand for milk is income elastic.
B) milk is a necessity.
C) milk is a luxury.
D) milk is an inferior good.
Answer: B
Skill: Conceptual
62) When consumers' incomes increased 6 percent, the quantity of wine bought increased 12
percent. This result means
A) wine is a luxury.
B) the demand for wine is income inelastic.
C) wine is a necessity.
D) wine is an inferior good.
Answer: A
Skill: Conceptual
63) The income elasticity of demand for bicycles is +10, which implies that bicycles are
A) an inferior good.
B) a normal good.
C) a substitute good for motorbikes.
D) a complement good for motorbikes.
Answer: B
Skill: Conceptual
64) About six months ago, Pat lost the job as vice president of a local bank. Since losing the job,
Pat still has the Sunday newspaper delivered every week. For Pat, the Sunday newspaper is
A) income inelastic.
B) price inelastic.
C) an inferior good.
D) a normal good because Pat still buys the paper even with a big loss of income.
Answer: A
Skill: Conceptual
102
65) Because Product X has a large positive income elasticity, it is likely that the product
A) has many good substitutes.
B) has few good complements.
C) is a necessity.
D) is a luxury.
Answer: D
Skill: Conceptual
66) Because Product X has a very small, positive income elasticity of demand, it is likely that
product X is a
A) luxury.
B) necessity.
C) product with many good substitutes.
D) product with many good complements.
Answer: B
Skill: Conceptual
67) The income elasticity of demand for food

A) does not change when an individual's income changes.
B) increases as an individual's income increases.
C) decreases as an individual's income increases.
D) is negative.
Answer: C
Skill: Conceptual
68) An increase in Abigail's income decreases her demand for used cars. For her, used cars are
A) a normal good.
B) an inferior good.
C) a complement to any good.
D) a substitute good.
Answer: B
Skill: Conceptual
103
69) If the income elasticity of demand for corn is 0.5, then as income increases
A) the demand for corn will increase.
B) the demand for corn will decrease.
C) corn will prove to be an inferior good.
D) the supply curve of corn will shift leftward.
Answer: A
Skill: Analytical
70) The greater the magnitude of the absolute value of the income elasticity of demand for a
good, the more the
A) demand for that good changes when income changes.
B) total revenue for firms producing that good changes when income changes.
C) price of the good changes when income changes.
D) All of the above answers are correct.
Answer: D
Skill: Conceptual
71) A 10 percent increase in income has caused a 5 percent decrease in the quantity demanded.
The income elasticity is
A) 0.5.
B) -0.5.
C) 2.0.
D) -2.0.
Answer: B
Skill: Analytical
72) Deb's income has just risen from $950 per week to $1,050 per week. As a result, she decides
to increase the number of movies she attends each month by 5 percent. Her demand for movies is
A) represented by a vertical line.
B) represented by a horizontal line.
C) income elastic.
D) income inelastic.
Answer: D
Skill: Analytical
104
73) Peter's monthly income increases from $1,500 to $1,600. As a result, he increases the
number of DVDs he buys per month from 2 to 3. Peter's demand for DVDs is
A) price elastic.
B) price inelastic.
C) income elastic.
Answer: C
Skill: Analytical
74) Paul's monthly income decreased from $2,500 to $2,300. As a result, he decreased the
number of DVDs he rents per month from 5 to 4. Paul's demand for DVD rentals is
A) price elastic.
B) price inelastic.
C) income elastic.
Answer: C
Skill: Analytical
75) Last year, Jack's income was $15,000 and he bought 50 bags of potato chips. This year his
income is $18,000 and he buys 55 bags of potato chips. Therefore, Jack's
A) income elasticity of demand for potato chips is 0.52.
B) price elasticity of demand for potato chips is 0.52.
C) income elasticity of demand for potato chips is 1.66.
D) price elasticity of demand for potato chips is 1.66.
Answer: A
Skill: Analytical
76) If your annual income rose by 10 percent and you increased your purchases of shoes from 2
pairs to 3 pairs each year, then your demand for shoes is
A) income inelastic and equal to 0.50.
B) income elastic and equal to 1.50.
C) income inelastic.
D) income elastic.
Answer: D
Skill: Analytical
105
77) As Mary's income increases by 20 percent, her demand for tickets to National Hockey
League games increases by 10 percent. Mary's demand for tickets is income ________; for
Mary, hockey tickets are ________ good.
A) elastic; a normal
B) inelastic; a normal
C) elastic; an inferior
D) inelastic; an inferior
Answer: B
Skill: Analytical
78) If when income increases by 2 percent and the price does not change, the quantity of airplane
travel demanded increases by 6 percent, then the income elasticity of demand of airplane travel is
________.
A) 0.33
B) 0
C) negative
D) 3.00
Answer: D
Skill: Analytical
79) The income elasticity of demand for vacations is 5. If incomes increase by 3 percent next
year, the quantity of vacations demanded at today's price will increase by ________ percent.
A) 3
B) 5/3
C) 15
D) 5
Answer: C
Skill: Analytical
106
80) Fred's income has just risen from $940 per week to $1,060 per week. As a result, he decides
to purchase 9 percent more steak per week. The income elasticity of Fred's demand for steak is
A) 0.75.
B) 0.90.
C) 1.00.
D) 1.33.
Answer: A
Skill: Analytical
81) Joan's income has just risen from $940 per week to $1,060 per week. As a result, she decides
to purchase 12 percent more lettuce per week. The income elasticity of Joan's demand for lettuce
is
A) 0.75.
B) 0.90.
C) 1.00.
D) 1.33.
Answer: C
Skill: Analytical
82) A 10 percent increase in income increases the quantity of orange juice demanded from
19,200 to 20,800 gallons. The income elasticity of demand for orange juice is
A) 0.5.
B) 0.8.
C) 1.0.
D) 1.2.
Answer: B
Skill: Analytical
107
83) A 10 percent increase in income increases the quantity of apple juice demanded from 18,800
to 21,200 gallons. The income elasticity of demand for apple juice is
A) 0.5.
B) 0.8.
C) 1.0.
D) 1.2.
Answer: D
Skill: Analytical
84) In the nation of Transporta, the income elasticity of demand for used cars is -2.66. So when
incomes in this nation increase by 10 percent
A) the quantity of used cars demanded will increase by 26.6 percent.
B) used cars will be normal goods.
C) the quantity of used cars demanded will decrease by 26.6 percent .
D) the demand curve for used cars will shift rightward.
Answer: C
Skill: Analytical
85) Duke increased his spending on steak from $7 to $11 per week because of a 12 percent salary
increase, so his
A) income elasticity of demand for steak is 1.37.
B) price elasticity of demand for steak is 1.37.
C) income elasticity of demand for steak is 3.7.
D) price elasticity of demand for steak is 3.7.
Answer: C
Skill: Analytical
86) Last year, after Shirley received a 14 percent pay increase, she increased the quantity of pork
chops she purchased by 6 percent. Hence, her income elasticity of demand for pork chops equals
A) 0.43.
B) -0.43.
C) 2.33.
D) -2.33
Answer: A
Skill: Analytical
108
87) If income increases by 2.0 percent, and quantity demanded of a good increases by 0.2
percent, the income elasticity for the good is
A) 0.22.
B) 0.002.
C) 0.10.
D) 1.00.
Answer: C
Skill: Analytical
88) The income elasticity of demand for restaurant meals is 1.61. So,
A) if income increases by 16.1 percent, the quantity demanded of restaurant meals will increase
by 10 percent.
B) if income increases by 10 percent, the quantity demanded of restaurant meals will increase by
16.1 percent.
C) restaurant meals are an income elastic normal good.
D) Both answers B and C are correct.
Answer: D
Skill: Analytical
89) Last year when John graduated and received a 20 percent pay increase, the average number
of restaurant meals he consumed rose from one a week to three a week. Hence his income
elasticity for restaurant meals is
A) 0.50.
B) -0.50.
C) 5.00.
D) -5.00.
Answer: C
Skill: Analytical
109
90) If a 10 percent increase in income results in an 8 percent increase in the quantity demanded
of a good, the income elasticity of demand equals ________ and the good is ________ good.
A) 0.80; an inferior
B) 1.2; a normal
C) 0.80; a normal
D) -1.2; an inferior
Answer: D
Skill: Analytical
91) The figure shows the relationship between Moira's income and the quantity of macaroni that
she demands. When income is less than $350 per month, macaroni ________.
A) is an inferior good
B) is a normal good
C) has many substitutes
D) has negative income elasticity
Answer: B
Skill: Conceptual
110
92) The increase in the demand for widgets, shown in the figure above, is the result of an
increase in the price of McBoover devices. Therefore,
A) widgets and McBoover devices are substitutes.
B) widgets and McBoover devices are complements.
C) widgets are a normal good.
D) McBoover devices are a normal good.
Answer: A
Skill: Analytical
93) The increase in the demand for widgets, shown in the figure above, is the result of a decrease
in the price of McBoover devices. Therefore,
A) widgets and McBoover devices are substitutes.
B) widgets and McBoover devices are complements.
C) widgets are a normal good.
D) McBoover devices are a normal good.
Answer: B
Skill: Analytical
111
increase in the price of McBoover devices from $9 to $11. Therefore, the cross-price elasticity
for these two products is
A) -2.0.
B) -0.5.
C) 0.5.
D) 2.0.
Answer: D
Skill: Analytical
95) The increase in the demand for widgets, shown in the figure above, is the result of a decrease
in the price of McBoover devices from $11 to $9. Therefore, the cross-price elasticity for these
two products is
A) -2.0.
B) -0.5.
C) 0.5.
D) 2.0.
Answer: A
Skill: Analytical
increase in income. Therefore, widgets
A) are a normal good.
B) are an inferior good.
C) are elastically demanded.
D) are inelastically demanded.
Answer: A
Skill: Analytical
112
increase in people's incomes from $28,500 per year to $31,500 per year. Therefore, the income
elasticity of demand for widgets is
A) 0.25.
B) 0.75.
C) 1.33.
D) 4.00.
Answer: D
Skill: Analytical
98) As income rises, the share of income spent on food in the United States
A) falls.
B) remains constant at 15 percent.
C) remains constant at 33 percent.
D) rises.
Answer: A
Topic: Real-World Income Elasticity of Demand
Skill: Conceptual
99) For which of the following pairs of goods is the cross elasticity of demand positive?
A) tennis balls and tennis rackets
B) videotapes and laundry detergent
C) airline trips and textbooks
D) beef and chicken
Answer: D
Topic: Study Guide Question, Cross Elasticity of Demand
Skill: Conceptual
100) A 10 percent decrease in the price of a Pepsi decreases the demand for a Coca-Cola by 50
percent. The cross elasticity of demand between a Pepsi and Coca-Cola is
A) 50.
B) 10.
C) 5.
D) 0.20.
Answer: C
Skill: Analytical
113
101) A fall in the price of X from $12 to $8 causes an increase in the quantity of Y demanded
from 900 to 1,100 units. What is the cross elasticity of demand between X and Y?
A) 0.5
B) -0.5
C) 2
D) -2
Answer: B
Skill: Analytical
102) A 10 percent decrease in income decreases the quantity demanded of pizza by 3 percent.
The income elasticity of demand for pizza is
A) -0.3.
B) 0.3.
C) 3.3.
D) 10.0.
Answer: B
Topic: Study Guide Question, Income Elasticity of Demand
Skill: Analytical
103) All normal goods have

A) income elasticities of demand greater than 1.0.
B) price elasticities of demand greater than 1.0.
C) negative price elasticities of demand.
D) positive income elasticities of demand.
Answer: D
Topic: Study Guide Question, Income Elasticity of Demand
Skill: Conceptual
114
7 True or False
1) The price elasticity of demand equals the slope of the demand curve.
Answer: FALSE
Topic: The Price Elasticity of Demand
Skill: Recognition
2) Price elasticity of demand is a units-free measure.

Answer: TRUE
Skill: Conceptual
Question history: New 10th edition
3) When we calculate the price elasticity of demand, we use percentages of the average price and
the average quantity in order to get the same value for the elasticity regardless of whether the
price falls or rises.
Answer: TRUE
Skill: Conceptual
4) If the quantity demanded of a good decreases by 10 percent when the price of the good
increases by 5 percent, the elasticity of demand is -2.00.
Answer: FALSE
Skill: Analytical
5) If the demand for cigarettes decreases after the U.S. Surgeon General publicizes five new
diseases associated with smoking, this is conclusive evidence that the demand for cigarettes is
elastic.
Answer: FALSE
Skill: Analytical
6) If the demand for a good is perfectly elastic, then the demand curve is horizontal.
Answer: TRUE
Skill: Analytical
115
7) The elasticity of demand is constant along a downward sloping straight-line demand curve.
Answer: FALSE
Skill: Conceptual
8) If the demand for KFC chicken is price elastic, a fall in the price of KFC chicken will raise the
total revenue.
Answer: TRUE
Skill: Conceptual
9) If the demand is unit elastic, a price cut will leave the quantity demanded unchanged.
Answer: FALSE
Skill: Conceptual
10) If the demand for KFC chicken is price inelastic, a fall in the price of KFC chicken will raise
the total revenue.
Answer: FALSE
Skill: Conceptual
11) If Taco Bell determines that the demand for its food is elastic, Taco Bell should raise its
price to increase its total revenue.
Answer: FALSE
Skill: Conceptual
12) If a hot dog vendor on a street corner experiences an increase in total revenue after lowering
the price of a hot dog, then the demand for the hot dogs must be elastic.
Answer: TRUE
Skill: Analytical
116
13) The larger the portion of a person's total budget spent on a good, the more inelastic the
demand for the good.
Answer: FALSE
Skill: Analytical
14) A necessity (such as food and shelter) generally has an inelastic demand.
Answer: TRUE
Skill: Conceptual
117
15) If the price of a pumpkin rises and consumers' total expenditure on pumpkins increases, then
the demand for pumpkins is inelastic.
Answer: TRUE
Skill: Analytical
16) The cross elasticity of demand for substitutes is always positive.

Answer: TRUE
Skill: Conceptual
17) If the cross elasticity of demand between Jeep Cherokees and Chevy Lumina Vans is 1.55,
then the two vehicles are not substitutes in the eyes of car buyers.
Answer: FALSE
Skill: Analytical
18) For inferior goods, the income elasticity of demand is negative.

Answer: TRUE
Skill: Recognition
19) An inferior good is a good whose income elasticity of demand is less than 0.
Answer: TRUE
Skill: Conceptual
20) Studies show that smoking cigars is inversely related to income. Thus cigars are an inferior
good.
Answer: TRUE
Skill: Analytical
118
21) If the demand for farm products is income elastic, that would mean that farm products were a
necessity.
Answer: FALSE
Skill: Analytical
22) Damage from floods and hurricanes which destroy a large portion of this year's crop of
oranges will definitely make oranges more price inelastic in supply.
Answer: FALSE
Topic: Elasticity of Supply
Skill: Analytical
23) For baseball memorabilia fans, the baseball with which Hank Aaron hit his 735th career
home run is perfectly inelastic in supply and in demand.
Answer: FALSE
Topic: Inelastic and Elastic Supply
Skill: Recognition
24) Fantastic growing conditions that produce a bumper crop of oranges on each tree this year
will definitely make the short run supply of oranges more price elastic.
Answer: FALSE
Skill: Analytical
25) Goods or services that can be produced only by using unique or rare productive resources
tend to have a low elasticity of supply.
Answer: TRUE
Skill: Conceptual
119
120

Chapter 4 Elasticity: Microeconomics, 10e, Global Edition (Parkin)

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Chapter 4 Elasticity: Microeconomics, 10e, Global Edition (Parkin)

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Microeconomics, 10e, Global Edition (Parkin)

1 Price Elasticity of Demand

2) The price elasticity of demand measures

3) Elasticity measures the

5) The price elasticity of demand is defined as the magnitude of the

6) The price elasticity of demand is calculated as the absolute value of the

7) The price elasticity of demand equals magnitude of the

9) The slope of a demand curve depends on

10) The price elasticity of demand depends on

52) If the price elasticity of demand for a good is 0.8, then a

Price Quantity demanded

Price Quantity demanded

61) The price elasticity of demand can range between

63) If the price elasticity is between 0 and 1, demand is

64) Demand is inelastic if

72) When the price elasticity of demand for a good equals

75) A good with a vertical demand curve has a demand with

77) If demand is price elastic,

79) Demand is price elastic if a

84) When the demand for a good is perfectly elastic, ________.

89) The demand for movies is unit elastic if

99) Along a straight-line demand curve, as the price falls the

108) On a linear demand curve that intersects both axes,

109) On a straight-line downward-sloping demand curve, the maximum elasticity of demand

111) Which of the following statements is FALSE?

124) When demand is ________, a decrease in price ________ total revenue.

126) To maximize its revenue,

127) The demand for a good is elastic if

128) Demand is unit elastic when

130) Producers' total revenue will increase if

197) Which goods have more elastic demands?

198) The closer the substitutes for a good, the

199) The more substitutes available for a product, the

205) Which of the following statements is FALSE?

206) Which of the following makes demand less elastic?

207) The price elasticity of demand depends on the

210) Of the following, demand is likely to be the least elastic for

211) If a product has very few substitutes, demand elasticity is likely to be

218) Of the following, demand is likely to be the most elastic for

225) Of the following, demand is likely to be the least elastic for

226) The demand for food is most elastic in countries

227) The demand for a good is less price elastic

229) The elasticity of demand for Gateway computers is probably

231) The demand for food in poor countries is

235) Perfectly elastic demand is represented by a demand curve that

238) The demand for a good is more price inelastic if

2 More Elasticities of Demand

3) Toothpaste and toothbrushes are complements, so the ________ elasticity of demand is

6) If goods are complements, definitely their

7) If a rise in the price of good 1 decreases the quantity of good 2 demanded,

23) If the cross elasticity of demand between goods A and B is positive,

36) If the cross elasticity of demand between goods A and B is negative,

38) If goods A and B are complements, then

44) The income elasticity of demand is a measure of the responsiveness of the

46) The income elasticity of demand is defined as the percentage change in

54) If a good is inferior, its income elasticity will be

55) Goods whose income elasticities are negative are called

58) The income elasticity of demand is largest for

67) The income elasticity of demand for food

103) All normal goods have

2) Price elasticity of demand is a units-free measure.

16) The cross elasticity of demand for substitutes is always positive.

18) For inferior goods, the income elasticity of demand is negative.

124) When demand is , a decrease in price total revenue.