MULTIPLE CHOICE.    Choose the one alternative that best completes the statement or answers the question.

1)
Consider two demand curves and the same price change for both. If the resulting percentage change in quantity
demanded is greater for one (D1) than the other (D2), we can conclude   

1)

_______
A)
that D1 is elastic and D2 is inelastic.
B)
that D1 is inelastic and D2 is elastic.
C)
that D1 is more elastic than D2.
D)
that D2 is more elastic than D1.
E)
nothing about their relative elasticities.

2)
The price elasticity of demand measures the responsiveness of   

2)

_______
A)
supply to demand changes.
B)
quantity demanded to changes in the price.
C)
the price to changes in quantity demanded.
D)
demand to supply changes.
E)
equilibrium changes

3)
When the percentage change in quantity demanded is greater than the percentage change in price that brought it about,
demand is said to be

3)

_______
A)
elastic.
B)
zero elastic.
C)
unit elastic.
D)
inelastic.
E)
unelastic.

4)
When the percentage change in quantity demanded is less than the percentage change in price that brought it about,
demand is said to be

4)

_______
A)
unit elastic.
B)
inelastic.
C)
zero elastic.
D)
elastic.
E)
unelastic.

5)
The formula for the own-price elasticity of demand for a commodity can be written as which of the following?

5)

_______
A)

B)

C)

D)

E)

6)
Suppose that the quantity of a good demanded rises from 90 units to 110 units when the price falls from $1.20 to 80 cents
per unit. The price elasticity of demand for this product is

6)

_______
 A)
4.0

B)

1.5

C)

0.5

D)

1.0

E)

2.0

7)
If the price elasticity of demand is 0.5, then a 10 percent increase in price results in a   

7)

_______
A)
5 percent decrease in total revenues.
B)
0.5 percent decrease in quantity demanded.
C)
5 percent decrease in quantity demanded.
D)
50 percent reduction in quantity demanded.
E)
5 percent increase in quantity demanded.

8)
Suppose that the quantity of beer demanded falls from 103 000 litres per week to 97 000 litres per week as a result of a 10
percent increase in its price. The price elasticity of demand for beer is therefore   

8)

_______
A)
1.97.
B)
1.03.
C)
6.0.
D)
0.6.
E)
impossible to compute unless we know the before and after prices.

9)
Suppose that the quantity demanded of skipping ropes rises from 1250 to 1750 units when the price falls from $1.25 to
$0.75 per unit. The price elasticity of demand for this product is

9)

_______
A)
1/3.

B)

3/2.

C)

2.

D)

1.

E)

2/3.

The table below shows the demand schedule for museum admissions in a small city.

Price Quantity Demanded

(per visit (thousands of person-
per person) visits per year)
$10 2
$8 4
$6 6
$4 8
$2 10

TABLE 4-1

10)
Refer to Table 4-1. The elasticity of demand for museum admissions is

10)

______
A)
greater at higher prices than at lower prices.
B)
elastic at all points on the demand curve.
C)
constant at all points on the demand curve.
 D)
inelastic at all points on the demand curve.
E)
greater at lower prices than at higher prices.

11)
Refer to Table 4-1. Between the prices of $8 and $10, the elasticity of demand is

11)

______
A)
2/3.

B)

1/3.

C)

2.

D)

1.

E)

3.

12)
If the price elasticity of demand for some good is 2.7, a 10 percent increase in the price results in

12)

______
A)
a 27 percent increase in the quantity demanded.
B)
a 2.7 percent decrease in the quantity demanded.
C)
a 2.7 percent increase in the quantity demanded.
D)
There is not enough information to answer this question.
E)
a 27 percent decrease in the quantity demanded.

13)
As the price for some product increases from $4.00 to $5.00 per unit, quantity demanded decreases from 400 to 300 units
per month. For this segment of the demand curve, the price elasticity of demand is   

13)
______
A)
7/9.

B)

7.

C)

1.

D)

9.

E)

9/7.

14)
As the price for some product decreases from $4.00 to $3.00 per unit,    quantity demanded increases from 400 to 500 units
per day. For this segment of the demand curve, the price elasticity of demand is

14)

______
A)
1.

B)

7.

C)

9/7.

D)

7/9.

E)

9.

15)
Which of the following illustrates elastic demand?

15)
______
A)
a price elasticity of 0.8
B)
A 10 percent increase in price causes a 20 percent decrease in quantity demanded.
C)
a price elasticity of 1.0
D)
A 10 percent increase in price causes a 5 percent decrease in quantity demanded.
E)
A 10 percent increase in price causes a 10 percent reduction in quantity demanded.

16)
If per capita income increases by 10 percent and household expenditures on fur coats increase by 15 percent, one can
conclude that the price elasticity of demand for fur coats is

16)

______
A)
elastic.
B)
positive.
C)
unity.
D)
inelastic.
E)
not determinable from the information given.

FIGURE 4-1

17)
Refer to Figure 4-1. In diagram 1, the price elasticity of demand

17)

______
A)
at point A is less than at point C.
B)
is equal at points A, B, and C.
C)
at point A is equal to that at point C.
D)
at point A is greater than at point C.
E)
none of the above.

18)
Refer to Figure 4-1. The price elasticity of demand is equal to one along the entire demand curve in

18)

______
A)
diagram 2 only.

B)

diagram 1 only.
C)
both diagrams.

D)

neither diagram.

19)
A perfectly horizontal demand curve shows that the own-price elasticity of demand is

19)

______
A)
zero.
B)
less than one.
C)
unity.
D)
not defined.
E)
infinite.

20)
A vertical demand curve shows that the own-price elasticity of demand is

20)

______
 A)
zero.
B)
less than one.
C)
infinity.
D)
unity.
E)
not defined.

21)
The price elasticity of demand for a product tends to be greater the

21)

______
A)
fewer close substitutes for it there are.
B)
more broadly the product is defined.
C)
lower its price.
D)
more close substitutes for it there are.
E)
shorter the time span being considered.

22)
Which of the following statements would you expect to be true about the demand elasticities for cornflakes and food?

22)

______
A)
Because cornflakes is food, but not all food is cornflakes, cornflakes would have a lower price elasticity of demand.
B)
Food has a lower price elasticity of demand because it is more broadly defined.
C)
Food has a higher price elasticity of demand because it is a necessity.
D)
Compared with food, cornflakes has a lower price elasticity of demand because it is specifically defined.
E)
Because cornflakes is food, cornflakes would have the same price elasticity of demand as food.

23)
With a downward-sloping straight-line demand curve, price elasticity of demand is   

23)

______
A)
increasing to the midpoint of the curve and then decreasing.
B)
rising continuously with price increases.
C)
constant everywhere on it.
D)
decreasing continuously with price increases.
E)
indeterminate.

24)
Price elasticity of demand

24)

______
A)
is greater than one if the percentage increase in the commodity's price is greater than the percentage decline in quantity
demanded.
B)
usually increases over time.
C)
is higher for an entire group of related products than it is for a particular product in that group.
D)
is a positive number because price and quantity demanded move in the same direction.
E)
is very small when good substitutes are readily available for the commodity.

25)
Suppose you are shown two intersecting demand curves that are drawn on the same scale. At the point of intersection,
one of the demand curves is steeper than the other. Which of the following could explain the difference in slopes?

25)

______
A)
The steeper one applies for the short run whereas the flatter one applies for the long run.
B)
The steeper one is probably the demand curve for a luxury good.
C)
The flatter one is for a good with no close substitutes.
D)
The steeper one has a higher income elasticity of demand.
E)
It is not possible to compare the slopes of different demand curves.

26)
If demand is unit elastic at all prices, then the demand curve is

26)

______
 A)
perfectly horizontal.
B)
upward sloping.
C)
a straight line.
D)
a rectangular hyperbola.
E)
a parabola.

27)
Suppose egg producers succeed in permanently raising the price of their product by 15 percent, and as a result the
quantity demanded falls by 15 percent in the short run. In the long run we can expect the quantity demanded to fall by

27)

______
A)
100 percent.
B)
15 percent.
C)
0 percent.
D)
more than 15 percent.
E)
between 0 and 15 percent.

28)
When the percentage change in quantity demanded resulting from a price change is less than the percentage change in
price, demand is said to be

28)

______
A)
zero elastic.
B)
inelastic
C)
perfectly elastic
D)
elastic.
E)
unit elastic.

29)
A demand curve that is the shape of a rectangular hyperbola

29)
______
A)
has the same elasticity as a straight-line demand curve.
B)
has an elasticity of 100 percent over the whole curve.
C)
is unit elastic over the whole curve.
D)
is elastic over the whole curve.
E)
is inelastic over the whole curve.

30)
If household income increases by 50 percent and desired household expenditure on vacation travel increases by 15
percent, the price elasticity of demand for vacation travel is

30)

______
A)
unity.
B)
inelastic.
C)
elastic.
D)
positive.
E)
not determinable from the information given.

31)
Suppose that the quantity demanded of a good rises from 40 units to 60 units per month when the price falls from $1.05 to
95 cents per unit. The price elasticity of demand for this product is

31)

______
A)
1.0

B)

0.5

C)

1.5

D)

2.0
 E)

4.0

32)
Which of the following statements would you expect to be true about T-shirts and clothing?

32)

______
A)
Compared with clothing, T-shirts have a lower price elasticity of demand because they are specifically defined.
B)
Because T-shirts are clothing, but not all clothing is T-shirts, T-shirts would have a lower price elasticity of demand than
clothing.
C)
Clothing has a higher price elasticity of demand because it is a necessity.
D)
Clothing has a lower price elasticity of demand because it is more broadly defined.
E)
T-shirts would have the same price elasticity of demand as clothing.

33)
Which of the following illustrates elastic demand?

33)

______
A)
A 5 percent increase in price causes a 2.5 percent decrease in quantity demanded.
B)
A 5 percent increase in price causes a 10 percent decrease in quantity demanded.
C)
a price elasticity of 1.0.
D)
A 10 percent increase in price causes a 10 percent reduction in quantity demanded.
E)
a price elasticity of 0.8.

34)
Suppose that the quantity demanded of paperback novels rises from 80 000 to 120 000 units per month when the price
falls from $11 to $9 per unit. The price elasticity of demand for this product is

34)

______
A)
3/2.

B)

1.
 C)

2.

D)

1/3.

E)

2/3.

35)
If the price elasticity of demand is 1.4, a 10 percent increase in the price of the good results in

35)

______
A)
a 1.4 percent decrease in the quantity demanded.
B)
a 1.4 percent increase in the quantity demanded.
C)
a 14 percent decrease in the quantity demanded.
D)
a 14 percent increase in the quantity demanded.
E)
There is not enough information to answer this question.

36)
If the total expenditure on photocopiers increases when the price of photocopiers rises, the price elasticity of demand is

36)

______
A)
exactly zero.
B)
less than one (demand is inelastic).
C)
not determinable from the information given.
D)
greater than one (demand is elastic).
E)
equal to one (demand is unit elastic).

37)
If the total expenditure on perfume increases when the price of perfume falls, the price elasticity of demand is

37)
______
A)
greater than one (demand is elastic).
B)
less than one (demand is inelastic).
C)
exactly zero.
D)
not determinable from the information given.
E)
unity (demand is unit elastic).

38)
If the value of the price elasticity of demand is 0.6, demand is said to be

38)

______
A)
elastic.
B)
partially inelastic
C)
somewhat inelastic
D)
inelastic
E)
partially elastic

Demand Schedule for Ski Tickets

Price Quantity Demanded

    ($)                                            (no. of tickets)

120                                                                      0
110                                                              100
100                                                              200
    90                                                              300
    80                                                              400
    70                                                              500
    60                                                              600
    50                                                              700
    40                                                              800
    30                                                              900
    20                                                          1000
    10                                                          1100
        0                                                          1200

TABLE 4-2

39)
Refer to Table 4-2. Using the data provided to plot the demand curve for ski tickets results in a ________ demand curve.
Price elasticity along this demand curve is therefore ________ as price is falling.
39)

______
A)
rectangular hyperbola; constant at a value of 1
B)
downward sloping and linear; continuously increasing
C)
horizontal; constant at a value of 8
D)
vertical; constant at a value of 0
E)
downward sloping and linear; continuously decreasing

40)
Refer to Table 4-2. Total expenditure for ski tickets reaches a maximum at a price/quantity demanded combination of

40)

______
A)
$100/200
B)
$20/1000
C)
$60/600
D)
$30/90
E)
$80/400

41)
Refer to Table 4-2. The price elasticity of demand over the interval of the demand curve between prices of $40 and $20 is

41)

______
A)
-0.33

B)

0.33

C)

1.0

D)

3.0
 E)

-3.0

42)
Refer to Table 4-2. Price elasticity over the interval of the demand curve between prices of $90 and $70 is

42)

______
A)
0.5

B)

-2.0

C)

1.0

D)

-0.5

E)

2.0
 FIGURE 4-2

43)
Refer to Figure 4-2. In part 1 of the figure, the elasticity of demand over the price range $14 to $16 is   

43)

______
A)
0.
B)
less than 1.
C)
1.
D)
greater than 1.
E)
infinity.

44)
Refer to Figure 4-2. In part 1 of the figure, the elasticity of demand over the price range $12 to $14 is   

44)

______
A)
0.
B)
less than 1.
C)
1.
D)
greater than 1.
E)
infinity.

45)
Refer to Figure 4-2. In part 1 of the figure, the elasticity of demand for prices below $10 is   

45)

______
A)
0.
B)
less than 1.
C)
1.
D)
greater than 1.
E)
infinity.
 46)
Refer to Figure 4-2. In part 1 of the figure, the elasticity of demand at $10 is

46)

______
A)
0.
B)
less than 1.
C)
exactly 1.
D)
greater than 1.
E)
infinity.

47)
Refer to Figure 4-2. In part 3 of the figure, the elasticity of demand between prices $10 and $20 is

47)

______
A)
0.
B)
less than 1.
C)
exactly 1.
D)
greater than 1.
E)
infinity.

48)
Refer to Figure 4-2. In part 3 of the figure, the elasticity of demand between prices $5 and $10 is

48)

______
A)
0.
B)
less than 1.
C)
exactly 1.
D)
greater than 1.
E)
infinity.
 49)
Refer to Figure 4-2. In part 2 of the figure, the elasticity of demand is

49)

______
A)
0.
B)
less than 1.
C)
1.
D)
greater than 1.
E)
infinity.

50)
Refer to Figure 4-2. The price elasticity of demand is continuously decreasing as the price falls in part(s)

50)

______
A)
1.
B)
2.
C)
1, 2, and 3.
D)
2, 3, and 4.
E)
none of the above

51)
Refer to Figure 4-2. The price elasticity of demand is continuously increasing as the price falls in part(s)

51)

______
A)
1.
B)
2.
C)
1, 2, and 3.
D)
2, 3, and 4.
E)
none of the above

52)
Refer to Figure 4-2. The price elasticity of demand is constant as price changes in part(s)

52)

______
A)
1.
B)
2.
C)
1, 2, and 3.
D)
2, 3, and 4.
E)
none of the above

53)
Refer to Figure 4-2. Demand is inelastic

53)

______
A)
over section (a) of the demand curve in diagram 1.
B)
over the entire demand curve in diagram 3.
C)
at the midpoint between sections (a) and (b) of the demand curve in diagram 1.
D)
over section (b) of the demand curve in diagram 1.
E)
over the entire demand curve in diagram 1.

54)
Refer to Figure 4-2. There is good reason to suppose that, of the four goods whose demand curves are shown in parts 1-4
of the figure, the good that has the fewest close substitutes is shown in   

54)

______
A)
part 1.
B)
part 2.
C)
part 3.
D)
part 4.
E)
-- there is not enough information to even make a good guess.

55)
Refer to Figure 4-2. As price decreases, total expenditure increases, reaches a maximum, and then decreases for the
demand curve in diagram(s)

55)

______
A)
1.
B)
2.
C)
3.
D)
4.
E)
1 and 3.

56)
Refer to Figure 4-2. As price decreases, total expenditure remains constant in diagram(s)

56)

______
A)
1.
B)
2.
C)
3.
D)
4.
E)
none of the above

57)
A demand curve for which any price-quantity combination yields the same total expenditure reveals a price elasticity of
demand equal to

57)

______
A)
one.
B)
zero.
C)
infinity.
D)
not enough information to know.
E)
some value greater than one but less than infinity.
 58)
If demand is inelastic, an increase in price will cause total expenditure to   

58)

______
A)
be negative.
B)
increase.
C)
fall to zero.
D)
remain constant.
E)
decrease.

59)
When a product's price has an inverse relationship with total expenditure, then demand has a price elasticity of

59)

______
A)
inverse proportions.
B)
less than one.
C)
greater than one.
D)
one.
E)
zero.

60)
If total expenditure on a product rises and falls directly with a product's price, then demand for this product has an
elasticity of   

60)

______
A)
one.
B)
less than one.
C)
greater than one.
D)
direct proportions.
E)
zero.
 61)
If the total expenditure on automobiles increases when the price of automobiles rises, the price elasticity of demand for
automobiles is

61)

______
A)
equal to one (demand is unit elastic).
B)
not determinable from the information given.
C)
less than one (demand is inelastic).
D)
greater than one (demand is elastic).
E)
exactly zero.

62)
Suppose the current level of output of some good is X. If market demand is inelastic at that quantity, total expenditure on
this product would be higher if output was   

62)

______
A)
minimized.
B)
greater than X.
C)
less than X.
D)
kept constant.
E)
maximized.

63)
The president of a major nickel-producing company says that an increase in the price of nickel would have no effect on
the total amount spent on nickel. If this is true, the price elasticity of demand for nickel is

63)

______
A)
not calculable from the information given.
B)
less than zero.
C)
more than one.
D)
exactly one.
E)
infinitely elastic.

64)
If the total expenditure on clothing decreases when the price of clothing falls, the price elasticity of demand is

64)

______
A)
not determinable from the information given.
B)
unity (demand is unit elastic).
C)
greater than one (demand is elastic).
D)
exactly zero.
E)
less than one (demand is inelastic).

65)
If household expenditures on electricity remain constant when the price of electricity increases, the price elasticity for
electricity is

65)

______
A)
one (demand is unit elastic).
B)
exactly zero.
C)
not determinable from the information given.
D)
less than one (demand is inelastic).
E)
greater than one (demand is elastic).

66)
If the total revenue of producers rises for an initial cut in the price of their product but falls for further reductions in price,
the price elasticity of demand for the product

66)

______
A)
rises as price falls.
B)
rises and then falls.
C)
is zero.
D)
declines as price falls.
 E)
is unity.

67)
The elasticity of supply for a given commodity is calculated as

67)

______
A)

B)

C)

D)

E)

68)
A value of zero for the elasticity of supply of some product implies that

68)

______
A)
the supply curve is horizontal.
B)
the product will not be supplied at any price.
C)
there is no supply.
D)
supply is highly responsive to price.
E)
the supply curve is vertical.

69)
If the demand for some good fluctuates, but supply is constant, then which of the following combinations would
generally yield the greatest price fluctuations?

69)

______
A)
large demand fluctuations and inelastic supply
 B)
small demand fluctuations and elastic supply
C)
large demand fluctuations and elastic supply
D)
small demand fluctuations and inelastic supply
E)
small demand fluctuations and a unit elastic supply

70)
If the demand for some good fluctuates, but supply is constant, then which of the following combinations would
generally yield the greatest quantity fluctuations?

70)

______
A)
large demand fluctuations and elastic supply
B)
large demand fluctuations and inelastic supply
C)
small demand fluctuations and inelastic supply
D)
small demand fluctuations and unit elastic supply
E)
small demand fluctuations and elastic supply

71)
Suppose that as the price of some product increases from $4.00 to $5.00 per unit the quantity supplied rises from 500 to
1000 units per month. The price elasticity of supply for this product is

71)

______
A)
1.0.

B)

0.33.

C)

2.0.

D)

2.5.

E)

3.0.
 72)
The elasticity of supply for some product will tend to be larger

72)

______
A)
the lower is the elasticity of demand for the product.
B)
the easier it is for firms to shift from the production of this product to another.
C)
the higher is the elasticity of demand for the product.
D)
the less time firms have to adjust to price changes.
E)
the harder it is for firms to shift from the production of this product to another.

73)
If firms' costs rise rapidly as output increases, the

73)

______
A)
demand curve will tend to be steep.
B)
supply curve will tend to be flat.
C)
price elasticity of supply will tend to be low.
D)
price elasticity of supply will tend to be high.
E)
elasticity of demand will tend to be low.

74)
An upward-sloping straight-line supply curve through the origin has an elasticity of

74)

______
A)
zero.
B)
one.
C)
greater than one.
D)
less than one.
E)
infinity.
 75)
A value of infinity for the elasticity of supply of some product implies that

75)

______
A)
the supply curve is vertical.
B)
the supply curve is horizontal.
C)
supply is very unresponsive to price.
D)
the product will be supplied at any price.
E)
none of the above.

76)
In the short run, an increase in demand will generally cause

76)

______
A)
supply to change.
B)
both price and quantity exchanged to rise above their long-run equilibrium values.
C)
the price to rise to a level below its long-run equilibrium value.
D)
the quantity exchanged to rise above its long-run equilibrium value.
E)
the price to rise above its long-run equilibrium value.
 FIGURE 4-3

77)
Refer to Figure 4-3. The diagram shows a rightward shift in the demand curve for some good, and the short-run and long-
run supply curves (SS and SL, respectively). In the new short-run equilibrium after the increase in demand, producers'
revenue

77)

______
A)
is unambiguously lower than in the long-run equilibrium at EL.
B)
is unambiguously higher than at E0.
C)
is unambiguously higher than at EL.
D)
is unambiguously lower than at E0.
E)
could be higher or lower than at E0, depending on the short-run elasticity of supply.

78)
Refer to Figure 4-3, which shows a demand shift and the short-run and long-run supply curves for some product. The
diagram illustrates the general principle that

78)

______
A)
demand is more elastic in the long run.
B)
both demand and supply are less elastic in the long run.
C)
demand is less elastic in the long run.
D)
supply is more elastic in the long run.
E)
supply is less elastic in the long run.

79)
Refer to Figure 4-3, which shows a demand shift and the short-run and long-run supply curves for some product. In the
new long-run equilibrium at EL, producers' revenue   

79)

______
A)
could be higher or lower than at E0, depending on the price elasticity of demand.
B)
could be higher or lower than at ES, depending on the price elasticity of demand.
 C)
is unambiguously lower than at E0.
D)
is unambiguously lower than at ES.
E)
is unambiguously higher than at ES.

80)
The imposition of an excise tax usually causes the price paid by consumers to ________, while the price received by sellers 
________.

80)

______
A)
fall; falls
B)
rise; falls
C)
rise; rises
D)
fall; remains unchanged
E)
rise; remains unchanged

81)
Consumers will bear a larger burden of an excise tax if

81)

______
A)
the tax is collected by firms rather than remitted directly to the government by consumers.
B)
both demand and supply are relatively inelastic.
C)
both demand and supply are relatively elastic.
D)
demand is relatively elastic and supply is relatively inelastic.
E)
demand is relatively inelastic and supply is relatively elastic.

82)
The imposition of an excise tax will cause the least burden on consumers when demand is   

82)

______
A)
elastic.
B)
perfectly elastic.
 C)
vertical.
D)
unitary elastic.
E)
perfectly inelastic.

83)
The "economic incidence" of an excise tax illustrates

83)

______
A)
who is legally responsible for paying it to the government.
B)
the legislative process it must pass through.
C)
the economic costs of avoiding it.
D)
the political process for implementing a tax.
E)
who bears the burden of the tax.

84)
Suppose a market is in equilibrium at price P0, and then an excise tax of t dollars per unit of the good is imposed. At a
price of (P0 + t) there will be excess ________ for the good unless the demand curve is ________.

84)

______
A)
supply; horizontal
B)
tax; unit elastic
C)
supply; vertical
D)
demand; vertical
E)
demand; horizontal

85)
Suppose the market supply curve for some good is upward sloping. If the imposition of an excise tax causes no change in
the equilibrium quantity sold in the market, the good's demand curve must be ________, meaning that the burden of the
tax has fallen completely on the ________.

85)

______
A)
unit elastic; government
 B)
horizontal; consumers
C)
vertical; firms
D)
horizontal; firms
E)
vertical; consumers

86)
Producers will bear a larger burden of a sales tax if

86)

______
A)
both demand and supply are relatively inelastic.
B)
the tax is collected by firms rather than remitted directly to the government by consumers.
C)
both demand and supply are relatively elastic.
D)
demand is relatively elastic and supply is relatively inelastic.
E)
demand is relatively inelastic and supply is relatively elastic.

87)
The formula for income elasticity of demand may be written as which of the following?

87)

______
A)

B)

C)

D)

E)

88)
Income elasticity measures the change in quantity demanded of some product with respect to changes in
88)

______
A)
its price.
B)
the demand of the product.
C)
households' income.
D)
the price of another related product.
E)
the supply of the product.

89)
Income elasticity of demand measures the extent to which

89)

______
A)
the price of a good changes when there is a change in income.
B)
real household income changes when there is a change in the price of a good.
C)
one household's income changes when there is a change in the income of another household.
D)
the quantity demanded of a good changes when income changes.
E)
quantity demanded changes when there is a change in price.

90)
If a product's income elasticity of demand is -1.7, then we can conclude that

90)

______
A)
an increase in income will lead to an increase in demand for the product.
B)
the product is certainly a necessity.
C)
the product is an inferior good.
D)
a decrease in income will lead to an increase in demand for the product.
E)
both C and D.

91)
Nancy's income has just risen from $950 per week to $1,050 per week. As a result, she decides to double the number of
movies she attends each week. Nancy's demand for movies is
91)

______
A)
price elastic.
B)
difficult to comprehend if she is rational.
C)
income inelastic.
D)
price inelastic.
E)
income elastic.

92)
If the income elasticity of demand for some good is 2.4, a 10 percent increase in income results in

92)

______
A)
a 240 percent decrease in quantity demanded.
B)
a 24 percent increase in the quantity demanded.
C)
a 2.4 percent increase in the quantity demanded.
D)
a 24 percent decrease in quantity demanded.
E)
a 240 percent increase in the quantity demanded.

93)
When national income falls,    sales of vacation packages also fall, even at constant prices. This fact suggests that the
________ elasticity of demand for vacation packages is ________.

93)

______
A)
price; negative
B)
cross; positive
C)
income; negative
D)
income; positive
E)
price; positive

94)
For a normal good, the quantity demanded
94)

______
A)
responds inversely to changes in income.
B)
rises when income rises.
C)
rises when income falls.
D)
does not change when income rises or falls.
E)
falls when income rises.

95)
Which of the following tends to be true of the income elasticity of demand for food?

95)

______
A)
It tends to remain fairly constant at all levels of income.
B)
It is usually zero, since we can only eat so much.
C)
It tends to be well above unity only at high levels of income.
D)
At low levels of income, it tends to be fairly high; but as the level of income rises, it tends to fall.
E)
It tends to be well below unity only at low levels of income.

96)
If a product's income elasticity is -3.4, then we can conclude that

96)

______
A)
the product is a normal good.
B)
the product has a rising income-consumption curve.
C)
a decrease in income will lead to an increase in demand for the product.
D)
the product is certainly a necessity.
E)
an increase in income will lead to an increase in demand for the product.

97)
If the income elasticity of demand for a good is 1.25, a 10 percent increase in income results in

97)
______
A)
a 12.5 percent increase in the quantity demanded.
B)
a decrease in quantity demanded.
C)
a 12.5 percent decrease in the quantity demanded.
D)
a 125 percent increase in the quantity demanded.
E)
not enough information to answer this question.

98)
An increase in income will

98)

______
A)
always increase the demand for SUVs.
B)
decrease the demand for SUVs if SUVs have a very low price.
C)
increase the demand for SUVs if SUVs are normal goods.
D)
increase the supply of SUVs.
E)
increase the demand for SUVs if SUVs are inferior goods.

99)
We can expect that the income elasticity of demand for gourmet catered meals would be ________ the income elasticity of
demand for meals from a fast-food restaurant.

99)

______
A)
lower than
B)
less than
C)
equivalent to
D)
higher than
E)
not comparable to

100)
Suppose the supply curve for breakfast cereals is upward sloping. Suppose also that as average household income
increases we observe a fall in the price of breakfast cereal. We can conclude that breakfast cereal is a(n)
100)

_____
A)
necessity good.
B)
substitute good.
C)
inferior good.
D)
normal good.
E)
luxury good.

101)
For an inferior good, the quantity demanded

101)

_____
A)
responds directly to changes in income.
B)
falls when income falls.
C)
does not change when income rises or falls.
D)
rises when income rises.
E)
rises when income falls.

102)
Normal goods

102)

_____
A)
do not have elasticity of demand.
B)
have negative income elasticity of demand.
C)
have positive income elasticity of demand.
D)
have negative elasticity of supply.
E)
are sometimes also inferior goods.

103)
An inferior good has

103)
_____
A)
a negative income elasticity of demand.
B)
an income elasticity of demand greater than zero but less than 1.
C)
a positive income elasticity of demand and a price elasticity of demand greater than 1.
D)
a positive income elasticity of demand.
E)
a negative price elasticity of demand.

104)
If a producer knew his product to be an inferior good and he also knew average household income was falling, he might   

104)

_____
A)
decrease output because the demand for his product would rise.
B)
increase output because the demand for his product would rise.
C)
keep his output the same.
D)
close down, because inferior goods are the first to be eliminated from household budgets when income falls.
E)
cut output immediately because the demand for his product would surely fall.

105)
An increase in income will

105)

_____
A)
increase the demand for turnips if turnips are inferior goods.
B)
increase the supply of turnips.
C)
decrease the demand for turnips if turnips have a very low price.
D)
increase the demand for turnips if turnips are normal goods.
E)
always increase the demand for turnips.

106)
Cross-price elasticity of demand may be defined as

106)
_____
A)

B)

C)

D)

E)

107)
If two goods, X and Y, have a negative cross-elasticity of demand, then we know that they

107)

_____
A)
are complements.
B)
are both inferior goods.
C)
each have a price elasticity greater than one.
D)
are substitutes.
E)
are both normal goods.

108)
If two goods, X and Y, have a positive cross-elasticity of demand, then we know that they

108)

_____
A)
are both normal goods.
B)
are substitutes.
C)
are complements.
D)
are both inferior goods.
E)
each have a price elasticity greater than one.
 109)
Suppose the cross-elasticity of demand between two goods, X and Y, is negative. If the price of X decreases, the quantity
demanded will

109)

_____
A)
not change.
B)
fall for both goods.
C)
rise for X and fall for Y.
D)
fall for X and rise for Y.
E)
rise for both goods.

110)
Suppose the cross-elasticity of demand for two goods, X and Y, is positive. If the price of Y falls, then quantity demanded
will

110)

_____
A)
rise for both goods.
B)
fall for both goods.
C)
fall for X and rise for Y.
D)
remain the same for both goods.
E)
rise for X and fall for Y.

111)
If pizza and beer are complementary goods, we can conclude that

111)

_____
A)
the income elasticity of demand is positive.
B)
both goods are inferior goods.
C)
their cross-elasticity of demand is positive.
D)
their cross-elasticity of demand is negative.
E)
the income elasticity of demand is negative.

112)
During the 1970s, OPEC's output restrictions caused gasoline prices to increase sharply. Coincidentally, demand for gas-
guzzling cars fell. A likely explanation for these observations is that gasoline and cars had a ________ elasticity of demand
that was ________.

112)

_____
A)
cross; positive
B)
cross; negative
C)
price; negative
D)
income; positive
E)
income; negative

113)
The price of apples at a local market rises from $2.95 to $3.05 per kilo, and as a result the quantity of oranges that
households purchase increases from 3950 to 4050 kilos per week. The cross-price elasticity is

113)

_____
A)
-1.33.
B)
-0.75.
C)
0.75.
D)
1.33.
E)
1.5.

114)
Suppose the cross-elasticity of demand for two goods, domestic beer and imported beer, is positive. If the price of
imported beer falls, then quantity demanded will

114)

_____
A)
rise for domestic beer and fall for imported beer.
B)
fall for domestic beer and rise for imported beer.
C)
rise for both domestic and imported beer.
 D)
fall for both domestic and imported beer.
E)
not enough information to answer this question.

1)

C
2)
B
3)
A
4)
B
5)
D
6)
C
7)
C
8)
D
9)
E
10)
A
11)
E
12)
E
13)
E
14)
D
15)
B
16)
E
17)
D
18)
A
19)
E
20)
A
21)
D
22)
B
23)
B
 24)
B
25)
A
26)
D
27)
D
28)
B
29)
C
30)
E
31)
E
32)
D
33)
B
34)
C
35)
C
36)
B
37)
A
38)
D
39)
E
40)
C
41)
B
42)
E
43)
D
44)
D
45)
B
46)
C
47)
C
48)
C
49)
A
 50)
A
51)
E
52)
D
53)
D
54)
B
55)
A
56)
C
57)
A
58)
B
59)
C
60)
B
61)
C
62)
C
63)
D
64)
E
65)
A
66)
D
67)
A
68)
E
69)
A
70)
A
71)
E
72)
B
73)
C
74)
B
75)
B
 76)
E
77)
B
78)
D
79)
B
80)
B
81)
E
82)
B
83)
E
84)
C
85)
E
86)
D
87)
B
88)
C
89)
D
90)
E
91)
E
92)
B
93)
D
94)
B
95)
D
96)
C
97)
A
98)
C
99)
D
100)
C
101)
E
 102)
C
103)
A
104)
B
105)
D
106)
C
107)
A
108)
B
109)
E
110)
C
111)
D
112)
B
113)
C
114)
B