Economics 10th Edition Colander Test Bank 1

Economics 10th Edition Colander
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File: Chapter 06 Describing Supply and Demand—Elasticities
True/False
[QUESTION]
1. Price elasticity of demand is the percentage change in price divided by the percentage change
in quantity demanded.
Ans: False
AACSB: Reflective Thinking
Bloom’s: Remember
Difficulty: 01 Easy
Learning Objective: 06-01
Topic: Price Elasticity
Feedback: Price elasticity of demand is the percentage change in quantity demanded divided by
the percentage change in price.
[QUESTION]
2. If the price of a good goes up by 20 percent and the quantity demanded falls by 40 percent,
the price elasticity of demand is 2.
Ans: True
Bloom’s: Understand
Difficulty: 02 Medium
Feedback: Elasticity of demand = % change in quantity/% change in price = 40/20 = 2. We
conventionally give elasticity of demand as a positive number, which is why we used the
absolute values of the numerator and denominator in the above equation (we have taken 40
percent instead of –40 percent).
[QUESTION]
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3. If the price of corn goes up by $1 a bushel and the quantity supplied rises by 100 bushels, the
price elasticity of supply has to be 100.
Ans: False
Feedback: Elasticity is the percentage change in quantity divided by the percentage change in
price. You cannot calculate elasticity with the information given in the question because it is not
given in percentage changes. We need to know the prices and quantities at which the above
changes occur to calculate percentages.
[QUESTION]
4. Refer to the following graph.
Since the supply curve intersects the horizontal axis, all the points along the supply curve shown
are inelastic.
Ans: True
Feedback: All points along a supply curve that intersects the quantity axis have elasticities less
than 1.
[QUESTION]
5. When demand is perfectly inelastic, there is no change in quantity demanded after a change in
price.
Ans: True
Bloom’s: Remember
Difficulty: 01 Easy
Feedback: Quantity demanded is not responsive to a price change when demand is perfectly
inelastic.
[QUESTION]
6. Most likely, the elasticity of demand for transportation is greater than the elasticity of demand
for cars.
Ans: False
Topic: Substitution and Elasticity
Feedback: Transportation in general has fewer substitutes than does transportation by cars and
thus has a lower elasticity.
[QUESTION]
7. Revenue remains unchanged along a straight-line demand curve.
Ans: False
Topic: Elasticity, Total Revenue, and Demand
Feedback: Revenue is greatest at the midpoint of a straight-line demand curve (where elasticity
of demand equals 1) and falls on either side.
[QUESTION]
If price is currently at B and rises, total revenue will rise.

Ans: False
Feedback: At prices higher than B, elasticity is greater than 1. Price elasticity of demand is the
percentage change in quantity demanded divided by the percentage change in price. Therefore, a
rise in price at a point above B will lead to a more than proportional fall in quantity demanded,
and therefore total revenue will fall.
[QUESTION]
9. The cross-price elasticity of demand is the percentage change in price divided by the
percentage change in the price of another good.
Ans: False
Bloom’s: Remember
Difficulty: 01 Easy
Topic: Income and Cross-Price Elasticity
Feedback: The cross-price elasticity of demand is the percentage change in quantity divided by
the percentage change in the price of another good.
[QUESTION]
10. If demand is highly inelastic and supply shifts to the right, the equilibrium price will rise
significantly while quantity will increase only slightly.
Ans: False
Topic: The Power of Supply/Demand Analysis
Feedback: A highly inelastic demand curve and a supply curve that shifts to the right will result
in a significant decline in price while quantity increases only slightly.
[QUESTION]
11. When the demand curve is highly inelastic, there is a strong incentive for suppliers to find a
way to collectively reduce the quantity sold in the market and raise the price of the product.
Ans: True
Feedback: A highly inelastic demand curve means that if suppliers can collectively limit
quantity supplied, total revenue going to suppliers will rise.
Multiple Choice
[QUESTION]
12. Price elasticity of demand is the:
A. change in the quantity demanded of a good divided by the change in the price of that good.
B. change in the price of a good divided by the change in the quantity demanded of that good.
C. percentage change in price of that good divided by the percentage change in the quantity
demanded of that good.
D. percentage change in quantity demanded of a good divided by the percentage change in the
price of that good.
Ans: D
Bloom’s: Remember
Difficulty: 01 Easy
Feedback: See the definition of price elasticity of demand.
[QUESTION]
13. The price elasticity of supply is the:
A. change in the quantity supplied divided by the change in price.
B. percentage change in the quantity supplied divided by the percentage change in price.
C. change in the price divided by the change in the quantity supplied.
D. percentage change in the price divided by the percentage change in the quantity supplied.
Ans: B
Bloom’s: Remember
Difficulty: 01 Easy
Feedback: See the definition of price elasticity of supply.
[QUESTION]
14. In general, the greater the elasticity, the:
A. smaller the responsiveness of price to changes in quantity.
B. smaller the responsiveness of quantity to changes in price.
C. larger the responsiveness of price to changes in quantity.
D. larger the responsiveness of quantity to changes in price.
Ans: D
Bloom’s: Remember
Difficulty: 01 Easy
Feedback: When either demand or supply is highly elastic, the quantity is very responsive to a
change in price.
[QUESTION]
15. Demand is said to be elastic when the:
A. percentage change in quantity demanded is less than the percentage change in price.
B. percentage change in quantity demanded is greater than the percentage change in price.
C. change in quantity demanded is less than the change in price.
D. change in quantity demanded is greater than the change in price.
Ans: B
Bloom’s: Remember
Difficulty: 01 Easy
Feedback: Demand is elastic if the price elasticity of demand is greater than 1. This occurs if the
percentage change in quantity demanded exceeds the percentage change in price. We cannot say
whether demand is elastic based on information about the change in quantity demanded relative
to the change in price because elasticity is a percentage measurement.
[QUESTION]
16. Supply is said to be inelastic when the:
A. percentage change in quantity supplied is less than the percentage change in price.
B. percentage change in quantity supplied is greater than the percentage change in price.
C. change in quantity supplied is less than the change in price.
D. change in quantity supplied is greater than the change in price.
Ans: A
Bloom’s: Remember
Difficulty: 01 Easy
Feedback: Supply is inelastic if the price elasticity of supply is less than 1. This occurs if the
percentage change in price exceeds the percentage change in quantity supplied. We cannot say
whether supply is inelastic based on information about the change in quantity supplied relative to
the change in price because elasticity is a percentage measurement.
[QUESTION]
17. If quantity demanded falls by 25 percent when price rises by 50 percent, demand is said to
be:
A. elastic.
B. inelastic.
C. proportional.
D. unit elastic.
Ans: B
Feedback: Here, the percentage change in quantity demanded is less than the percentage change
in price, so demand is inelastic (Ed < 1).
[QUESTION]
18. If the amount of land supplied remains the same even when the price of land increases, the:
A. supply of land must be perfectly elastic.
B. supply of land must be perfectly inelastic.
C. demand for land must be perfectly elastic.
D. demand for land must be perfectly inelastic.
Ans: B
Feedback: The supply is perfectly inelastic when quantity supplied remains unchanged after a
change in price.
[QUESTION]
19. The short-run elasticity of demand for gasoline sold at gasoline stations is 0.20. If terrorism
causes the supply of gasoline to fall, resulting in a 5 percent drop in quantity, if other things
remain the same, the price per gallon will increase by:
A. 4 percent.
B. 5 percent.
C. 20 percent.
D. 25 percent.
Ans: D
AACSB: Analytic
Bloom’s: Apply
Difficulty: 03 Hard
Feedback: Price elasticity of demand = % change in quantity/% change in price, implying that
0.2 = 5%/x. Solving for the percentage change in price, or x, yields the prediction of a 25
percent change in price.
[QUESTION]
20. If average movie ticket prices rise by about 5 percent and attendance falls by about 2
percent, other things being equal, the elasticity of demand for movie tickets is about:
A. 0.0.
B. 0.4.
C. 0.6.
D. 2.5.
Ans: B
AACSB: Analytic
Bloom’s: Apply
Difficulty: 03 Hard
Feedback: Price elasticity of demand = % change in quantity/% change in price = 2/5 = 0.4. We
conventionally give elasticity of demand as a positive number, which is why we used the
absolute values of the numerator and denominator in the above equation (we have taken 2
percent instead of –2 percent).
[QUESTION]
21. If average movie attendance is 250 million when prices are $7 a ticket and 200 million when
prices are $9 a ticket, the elasticity of demand for movie tickets is about:
A. 0.0.
B. 0.9.
C. 1.1.
D. 1.8.
Ans: B
AACSB: Analytic
Bloom’s: Apply
Difficulty: 03 Hard
Feedback: Elasticity = [(250 – 200)/225]/[(9– 7)/8] = 0.9. We state elasticity of demand as
positive.
[QUESTION]
22. A newspaper recently lowered its price from 50 cents to 30 cents, causing the number of
newspapers sold to increase from 240,000 to 280,000. Other things equal, the data imply that the
elasticity of demand for this newspaper is about:
A. 3.25.
B. 0.5.
C. 0.3.
D. 0.15.
Ans: C
AACSB: Analytic
Bloom’s: Apply
Difficulty: 03 Hard
Feedback: Elasticity = [(280,000 – 240,000)/260,000]/[(.3 – .5)/.4] = (40,000/260,000)/(–0.2/.4)
= (.1538)/–.5) = –0.3. We state elasticity of demand as positive.
[QUESTION]
23. If the price elasticity of supply is 0.5, a 10 percent increase in price will cause a:
A. 5 percent increase in quantity supplied.
B. 5 percent decrease in quantity supplied.
C. 20 percent increase in quantity supplied.
D. 20 percent decrease in quantity supplied.
Ans: A
Feedback: According to the law of supply, an increase in price causes an increase in quantity
supplied. The price elasticity of supply is the percentage change in quantity supplied divided by
the percentage change in price (0.5 = 5%/10%).
[QUESTION]
24. A price elasticity of demand for a good or service of 1.8 tells us that:
A. the price changes by $1.80 when quantity changes by 1 unit.
B. quantity demanded falls by 1.8 percent when price rises by 1 percent.
C. the price rises by 1.8 percent when quantity demanded falls by 1 percent.
D. quantity demanded falls by 1.8 units when price changes by $1.
Ans: B
Feedback: Price elasticity tells us the percentage change in quantity in response to a percentage
change in price.
[QUESTION]
25. If the price of a good goes up by 5 percent and, in response, the quantity demanded falls by
15 percent, the price elasticity of demand will be:
A. .05.
B. 3.
C. 0.3333.
D. 0.15.
Ans: B
AACSB: Analytic
Bloom’s: Apply
Difficulty: 03 Hard
the percentage change in price = 15%/5% = 3.
[QUESTION]
26. Charlie Black will purchase 10 percent more cans of Coke if the price of a can of Coke falls
by 5 percent. Charlie's price elasticity of demand for cans of Coke is:
A. 10.
B. 5.
C. 2.
D. ½.
Ans: C
AACSB: Analytic
Bloom’s: Apply
Difficulty: 03 Hard
the percentage change in price = 10%/5% = 2.
[QUESTION]
27. As the manager of a ski resort, you want to increase the number of lift tickets sold by 8
percent. Your staff economist has determined that the price elasticity of demand for lift tickets is
2. To increase sales by the desired amount, you should decrease the price of a lift ticket by:
A. 2 percent.
B. 4 percent.
C. 8 percent.
D. 16 percent.
Ans: B
AACSB: Analytic
Bloom’s: Apply
Difficulty: 03 Hard
Feedback: Price elasticity of demand = % change in quantity/% change in price = 8/x = 2. Solve
for x.
[QUESTION]
28. Susan's price elasticity of restaurant meals is 2.27. If the price of a restaurant meal falls by 2
percent, the quantity of restaurant meals Susan demands will:
A. increase by 2.27 percent.
B. fall by 2.27 percent.
C. increase by 4.54 percent.
D. increase by 22.7 percent.
Ans: C
AACSB: Analytic
Bloom’s: Apply
Difficulty: 03 Hard
Feedback: Elasticity = x/2 = 2.27. Solve for x.
[QUESTION]
29. Richard Voith estimated the price elasticity of demand for round-trip rail fare to be 0.62. If
fares rose by 30 percent, one would expect the quantity of round-trip tickets purchased to:
A. rise by 18.6 percent
B. fall by 18.6 percent
C. rise by 48.4 percent
D. fall by 48.4 percent
Ans: B
AACSB: Analytic
Bloom’s: Apply
Difficulty: 03 Hard
Feedback: Price elasticity of demand = % change in quantity/% change in price = x/30 = .62.
Solve for x.
[QUESTION]
30. It has been estimated that the price elasticity of demand for attending baseball games is 0.23.
Other things held constant, a 10 percent increase in attendance can be explained by a:
A. 43.48 percent fall in the price of a ticket.
B. 43.48 percent rise in the price of a ticket.
C. 23 percent fall in the price of a ticket.
D. 23 percent rise in the price of a ticket.
Ans: A
AACSB: Analytic
Bloom’s: Apply
Difficulty: 03 Hard
Feedback: Price elasticity of demand = % change in quantity/% change in price = 10/x = 0.23.
Solve for x.
[QUESTION]
31. It has been estimated that the price elasticity for cigarettes is 0.164. Assuming there are
currently no taxes on cigarettes, to reduce cigarette purchases 5 percent, the government would
need to tax cigarettes enough to:
A. raise the price by 0.82 percent.
B. lower the price by 0.82 percent.
C. raise the price by 30.5 percent.
D. lower the price by 30.5 percent.
Ans: C
AACSB: Analytic
Bloom’s: Apply
Difficulty: 03 Hard
Feedback: Price elasticity of demand = % change in quantity/% change in price = 5/x = .164.
Solve for x.
[QUESTION]
32. An elasticity of supply of 2.7 means that:
A. supply is inelastic.
B. quantity supplied changes 2.7 units for each 1 percent change in price.
C. quantity supplied changes 2.7 percent for each 1 percent change in price.
D. price changes by 2.7 percent for each 1 percent change in quantity supplied.
Ans: C
Feedback: Elasticity is the percentage change in quantity divided by the percentage change in
price.
[QUESTION]
33. If the quantity of picture frames supplied increases 15 percent when the price goes up 20
percent, the elasticity of supply is:
A. 15.
B. 20.
C. 1.33.
D. 0.75.
Ans: D
AACSB: Analytic
Bloom’s: Apply
Difficulty: 03 Hard
Feedback: Price elasticity of supply = % change in quantity/% change in price = 15/20 = .75.
[QUESTION]
34. A marketing student observes that when the price of ice cream rises by 10 percent, the
quantity of ice cream a supplier is willing to sell rises by 5 percent. The student correctly
concludes that the elasticity of supply for ice cream is:
A. .2.
B. .5.
C. 2.
D. 5.
Ans: B
Feedback: Price elasticity of supply = % change in quantity/% change in price = 5%/10% = .5.
[QUESTION]
35. Measuring the price of gasoline in dollars, an economist calculates the price elasticity of
demand to be .5. What would the price elasticity of demand be if the economist had chosen to
measure the price of gasoline in pennies rather than dollars?
A. .5
B. .05
C. .005
D. 50
Ans: A
Feedback: Elasticity is independent of units.
[QUESTION]
36. Measuring the price of gasoline in dollars per quart, an economist calculates the price
elasticity of demand to be 1. What would the price elasticity of demand be if the economist had
chosen to measure the price in dollars per gallon?
A. 1
B. 4
C. .25
D. .5
Ans: A
Feedback: Elasticity is independent of units.
[QUESTION]
37. If a $100 drop in the price of a $10,000 car resulted in an increase in the quantity of cars
purchased from 100 to 110 and a $100 drop in the price of a $1,000 vacation rental resulted in an
increase in the quantity of weekly vacation homes rented from 100 to 110, the price elasticity of
demand is:
A. greater for the car.
B. less for the car.
C. the same for both the car and the vacation rental.
D. not comparable.
Ans: A
AACSB: Analytic
Bloom’s: Analyze
Difficulty: 03 Hard
Feedback: The percentage rise in quantity was the same for both, but the percentage fall in price
was greater for the vacation rental. Therefore, its elasticity of demand is smaller than that of the
car.
[QUESTION]
38. A sporting goods store observes that as they reduce the price of squash balls from $5 to $4,
their quantity demanded rises from 200 to 220. Rounding to the nearest tenth, they correctly
compute the elasticity of demand of squash balls to be:
A. 0.1.
B. 0.4.
C. 2.3.
D. 5.
Ans: B
AACSB: Analytic
Bloom’s: Apply
Difficulty: 03 Hard
Feedback: Elasticity = [(200 – 220)/210]/[(5 – 4)/4.5] = (–20/210)/(1/4.5) = –.095/.222 = –0.4.
We state elasticity of demand as positive.
[QUESTION]
39. As the price of beachfront cottages in Florida was raised from $400,000 to $500,000, their
quantity supplied rose from 2,000 to 2,100. Rounding to the nearest tenth, the elasticity of supply
of beachfront cottages is:
A. 0.4.
B. 0.2.
C. 1.0.
D. 4.6
Ans: B
AACSB: Analytic
Bloom’s: Apply
Difficulty: 03 Hard
Feedback: Elasticity = [(2,100 – 2,000)/2,050]/[(500,000 – 400,000)/450,000] =
(100/2,050)/(100,000/450,000) = 0.2 (rounded).
[QUESTION]
40. As the price of tomatoes fell from $2.5 to $2, the quantity imported from Mexico fell from
1,800 tons to 900 tons. The elasticity of supply of tomatoes imported from Mexico is:
A. 0.25.
B. 0.3
C. 3.0
D. 5.
Ans: C
AACSB: Analytic
Bloom’s: Apply
Difficulty: 03 Hard
Feedback: Elasticity = [(1,800 – 900)/1,350]/[(2 – 2.5)/2.25] = (–900/1,350)/(–0.5/2.25) = 3.0.
We state elasticity of demand as positive.
[QUESTION]
41. As the price of samosas (a kind of food in India) was raised from 2 to 3 rupees (Indian
currency), their quantity demanded fell from 15,000 to 12,000. Rounding to the nearest tenth, the
elasticity of demand of samosas is:
A. 4.
B. 0.6.
C. 1.8.
D. impossible to determine because we don't know the exchange rate of the rupee.
Ans: B
AACSB: Analytic
Bloom’s: Apply
Difficulty: 03 Hard
Feedback: Elasticity = [(12,000 – 15,000)/13,500]/[(3 – 2)/2.5] = (–3,000/13,500)/(1/2.5) = –0.6.
We state elasticity of demand as positive. Elasticity is a number that measures the general
responsiveness of quantity to changes in price. It does not matter what the currency is.
[QUESTION]
42. Compute the approximate elasticity of supply from the following data:
A. .2
B. .5
C. 2.1
D. 5.0
Ans: C
AACSB: Analytic
Bloom’s: Apply
Difficulty: 03 Hard
Feedback: Elasticity = [(500 – 400)/450]/[(100 – 90)/95] = (100/450)/(10/95) = .22/.11 = 2.1.
[QUESTION]
43. Compute the approximate elasticity of demand from the following data:
A. .87
B. 1.15
C. 1.5
D. 5.0
Ans: B
AACSB: Analytic
Bloom’s: Apply
Difficulty: 03 Hard
Feedback: Elasticity = [(11.5 – 13.5)/12.5]/[(23 – 20)/21.5) = (–2/12.5)/(3/21.5) = –.16/.14 = –
1.15. We state elasticity of demand as positive.
[QUESTION]
44. Refer to the graph shown. Calculate the approximate average elasticity of demand as the
price falls from $18 to $0:
A. 3
B. 1
C. 2/3
D. 3/2
Ans: B
AACSB: Analytic
Bloom’s: Apply
Difficulty: 03 Hard
Feedback: Elasticity is [(9 – 0)/4.5]/[(0 – 18)/9] = (2)/(–2) = –1. We state elasticity of demand as
positive.
[QUESTION]
45. Refer to the graph shown. Calculate the approximate elasticity of demand for the line
segment BD:
A. 3
B. 2
C. ½
D. 3/2
Ans: C
AACSB: Analytic
Bloom’s: Apply
Difficulty: 03 Hard
Feedback: Elasticity is [(9 – 3)/6]/[(0 – 12)/6] = –1/2. We state elasticity of demand as positive.
[QUESTION]
46. Refer to the graph shown. Calculate the approximate elasticity of demand for the line
segment CD:
A. 3
B. 1/3
C. 1/5
D. 5
Ans: C
AACSB: Analytic
Bloom’s: Apply
Difficulty: 03 Hard
Feedback: Elasticity is [(9 – 6)/7.5]/[(0 – 6)/3] = (3/7.5)/(2) = –.20. We state elasticity of
demand as positive.
[QUESTION]
47. Refer to the graph shown. The elasticity of demand is closest to 1 on line segment:
A. AB
B. BC
C. CD
D. The elasticity is not close to 1 on any of these line segments.
Ans: B
AACSB: Analytic
Bloom’s: Apply
Difficulty: 03 Hard
Feedback: Elasticity of demand will be greater than 1 on segment AB, close to 1 on segment
BC, and less than 1 on segment CD.
[QUESTION]
48. Refer to the graph shown. Demand is inelastic on line segment:
A. AB
B. BC
C. CD
D. The demand is not inelastic on any of these line segments.
Ans: C
AACSB: Analytic
Bloom’s: Apply
Difficulty: 03 Hard
Feedback: Elasticity of demand will be less than 1 on line segment CD, and so demand is
inelastic in this region.
[QUESTION]
49. Refer to the graph shown. The approximate elasticity of segment AD is:
A. 3/4.
B. 3.
C. 4/3.
D. 4.
Ans: A
AACSB: Analytic
Bloom’s: Apply
Difficulty: 03 Hard
Feedback: Elasticity is [(7 – 1)/4]/[(18 – 0)/9] = (3/2)/(2) = 3/4.
[QUESTION]
50. Refer to the graph shown. The approximate elasticity of segment AC is:
A. 1/3.
B. 1/2.
C. 2/3.
D. 3/2.
Ans: C
AACSB: Analytic
Bloom’s: Apply
Difficulty: 03 Hard
Feedback: Elasticity is [(5 – 1)/3]/[(12 – 0)/6] = (4/3)/(2) = 2/3.
[QUESTION]
51. Refer to the graph shown. The approximate elasticity of segment AB is:
A. 1/3.
B. 1/2.
C. 2/3.
D. 3/2.
Ans: B
AACSB: Analytic
Bloom’s: Apply
Difficulty: 03 Hard
Feedback: Elasticity is [(3 – 1)/2]/[(6 – 0)/3] = (1)/(2) = 1/2.
[QUESTION]
52. If the supply of a product is inelastic, this implies that a specific percentage change in price
leads to:
A. an equal percentage change in the quantity supplied.
B. a larger percentage change in the quantity supplied.
C. a smaller percentage change in the quantity supplied.
D. no percentage change in the quantity supplied.
Ans: C
Bloom’s: Remember
Difficulty: 01 Easy
Feedback: Inelastic supply means that the percentage change in quantity is less than the
percentage change in price.
[QUESTION]
53. If the percentage increase in the quantity supplied equals the percentage increase in the
price, the supply:
A. is elastic.
B. is inelastic.
C. has unit elasticity.
D. is perfectly elastic.
Ans: C
Bloom’s: Remember
Difficulty: 01 Easy
Feedback: See the definition of unit elastic.
[QUESTION]
54. If the percentage increase in the quantity supplied is greater than the percentage increase in
the price, the supply:
A. is elastic.
B. is inelastic.
C. is unit elastic.
Ans: A
Bloom’s: Remember
Difficulty: 01 Easy
Feedback: See the definition of elastic.
[QUESTION]
55. If the percentage increase in the quantity supplied is smaller than the percentage increase in
the price, the supply:
A. is elastic.
B. is inelastic.
C. is unit elastic.
Ans: B
Bloom’s: Remember
Difficulty: 01 Easy
Feedback: See the definition of inelastic.
[QUESTION]
56. If the price elasticity of demand for a good is inelastic, a price change causes:
A. a zero change in quantity demanded.
B. an infinite change in quantity demanded.
C. a more than proportionate change in quantity demanded.
D. a less than proportionate change in quantity demanded.
Ans: D
Feedback: See the definition of inelastic.
[QUESTION]
57. If quantity demanded does not change when the price changes, the demand:
A. is elastic.
B. is inelastic.
C. has unit elasticity.
D. is perfectly inelastic.
Ans: D
Bloom’s: Remember
Difficulty: 01 Easy
Feedback: See the definition of perfectly inelastic.
[QUESTION]
58. If quantity demanded changes infinitely when the price changes, the demand:
A. is slightly elastic.
B. is inelastic.
C. is unit elastic.
Ans: D
Bloom’s: Remember
Difficulty: 01 Easy
Feedback: See the definition of perfectly elastic.
[QUESTION]
59. If the quantity of houses supplied in an area increases 10 percent when the price goes up 25
percent, the supply:
A. is elastic.
B. is inelastic.
C. is unit elastic.
Ans: B
AACSB: Analytic
Bloom’s: Analyze
Difficulty: 03 Hard
Feedback: Elasticity is 10/25 = .4. Since this is less than 1, supply is inelastic.
[QUESTION]
60. If the elasticity of demand for restaurant meals is 2.27, the demand for restaurant meals is:
A. elastic.
B. inelastic.
C. unit elastic.
D. perfectly inelastic.
Ans: A
Feedback: Elastic points have elasticities greater than 1.
[QUESTION]
61. If the elasticity of demand for electricity is 0.13, the demand for electricity is:
A. inelastic.
B. elastic.
C. perfectly inelastic.
D. unit elastic.
Ans: A
Feedback: Inelastic points have elasticities less than 1.
[QUESTION]
62. George Davis and Michael Wohlgenant estimate that for every 1 percent increase in the
price of Christmas trees, quantity demanded falls by 0.6 percent. The demand for Christmas trees
is:
A. inelastic.
B. elastic.
D. unit elastic.
Ans: A
Feedback: Elasticity = 0.6/1 = 0.6. Inelastic points have elasticities less than 1.
[QUESTION]
63. Elizabeth Savoca estimated that for every 1 percent increase in tuition costs at a college, 2.4
percent fewer students applied to that college. This indicates that the elasticity of applying to
college is:
A. inelastic.
B. elastic.
D. unit elastic.
Ans: B
Feedback: Elasticity = 2.4/1 = 2.4. Elastic points have elasticities greater than 1.
[QUESTION]
64. If consumers won't pay more than 59 cents for a pack of gum and at 59 cents they will buy
an almost infinite amount, price elasticity of demand at 59 cents is:
A. inelastic.
B. elastic.
C. perfectly elastic.
D. perfectly inelastic.
Ans: C
Feedback: The response to an increase in price above 59 cents is enormous; thus, demand is
perfectly elastic.
[QUESTION]
65. Refer to the following table to answer the question. Demand is most elastic between:
A. $2 and $4.
B. $4 and $6.
C. $6 and $8.
D. $8 and $10.
Ans: D
AACSB: Analytic
Bloom’s: Apply
Difficulty: 03 Hard
Feedback: Elasticity rises as price rises along a straight-line demand curve. The highest price
range is the most likely candidate. Doing the calculations, we find that elasticity between $8 and
$10 is 1.5 and is less than 1 (inelastic) in all the other ranges.
[QUESTION]
66. Refer to the following table to answer the question. Demand is inelastic between:
A. $6 and $8.
B. $8 and $10.
C. $10 and $12.
D. $12 and $14.
Ans: A
AACSB: Analytic
Bloom’s: Apply
Difficulty: 03 Hard
Feedback: Elasticity rises as price rises along a straight-line demand curve. The lowest price
range is the most likely candidate. Doing the calculations, we find that elasticity between $6 and
$8 is 0.875 but is more than 1 (elastic) in all the other ranges.
[QUESTION]
67. Refer to the following table to answer the question. Supply shown by the table is:
A. elastic.
B. unit elastic.
C. inelastic.
D. changing as price changes.
Ans: B
AACSB: Analytic
Bloom’s: Apply
Difficulty: 03 Hard
Feedback: This curve goes through the origin and is unit elastic along all points.
[QUESTION]
68. Refer to the table shown to answer the question. Between $2 and $2.20, demand is:
A. elastic.
B. unit elastic.
C. inelastic.
D. perfectly elastic.
Ans: B
AACSB: Analytic
Bloom’s: Apply
Difficulty: 03 Hard
Feedback: Between $2 and $2.20 elasticity is (.2/2.1)/(–10/105) = –1. We state demand
elasticities as positive by convention.
[QUESTION]
69. Refer to the table shown to answer the question. Between $1.60 and $1.80, demand is:
A. elastic.
B. unit elastic.
C. inelastic.
Ans: C
AACSB: Analytic
Bloom’s: Apply
Difficulty: 03 Hard
Feedback: Between $1.60 and $1.80 elasticity is (10/125)/(-.2/1.70) = -0.68. We state demand
[QUESTION]
70. Refer to the table shown to answer the question. Between $2.20 and $2.40, demand is:
A. elastic.
B. unit elastic.
C. inelastic.
Ans: A
AACSB: Analytic
Bloom’s: Apply
Difficulty: 03 Hard
Feedback: Between $2.20 and $2.40 elasticity is (10/95)/(–.2/2.3) = 1.21. We state demand
[QUESTION]
71. Refer to the graph shown. Which of the following curves demonstrates a perfectly inelastic
demand curve?
A. A
B. B
C. C
D. None of the curves
Ans: C
Bloom’s: Remember
Difficulty: 01 Easy
Feedback: A perfectly inelastic curve is vertical because there is never any change in quantity
demanded.
[QUESTION]
72. Refer to the graph shown. Which of the following curves demonstrates a perfectly elastic
demand curve?
A. A
B. B
C. C
Ans: A
Bloom’s: Remember
Difficulty: 01 Easy
Feedback: A perfectly elastic curve is horizontal because there is never any change in price.
[QUESTION]
73. Along a straight-line demand curve, elasticity:
A. rises as price rises.
B. declines as price rises.
C. is equal to slope.
D. is always zero.
Ans: A
Feedback: Elasticity is infinite at the price axis intercept and declines to zero at the quantity axis
intercept.
[QUESTION]
74. Which of the following statements is true about a downward-sloping demand curve that is a
straight line?
A. The slope and the elasticity are the same at all points.
B. The slope remains the same, but elasticity rises as you move down the demand curve.
C. The slope remains the same, but elasticity falls as you move down the demand curve.
D. The slope and the elasticity fall as you move down the demand curve.
Ans: C
Feedback: The slope of a straight line is always the same, and the elasticity falls as one moves
down the demand curve.
[QUESTION]
75. Along a straight-line supply curve:
A. elasticity rises as price rises.
B. elasticity declines as price declines.
C. elasticity is equal to slope.
D. the change in elasticity depends on the supply curve in question.
Ans: D
Feedback: If the supply curve intersects the price axis, elasticity declines as price rises. If the
supply curve intersects the quantity axis, elasticity rises as price rises.
[QUESTION]
Elasticity is greatest at point:

A. A.
B. B.
C. C.
D. It is the same everywhere along this supply curve.
Ans: A
supply curve intersects the quantity axis, elasticity rises as price rises. (Unless the supply curve is
horizontal or vertical.)
[QUESTION]
A. A.
B. B.
C. C.
Ans: C
supply curve intersects the quantity axis, elasticity rises as price rises. (Unless the supply curve is
horizontal or vertical.)
[QUESTION]
A. A.
B. B.
C. C.
Ans: D
Feedback: If the supply curve intersects the origin, the elasticity is 1 along the entire supply
curve.
[QUESTION]
79. Refer to the graph shown. At which point is elasticity 1?
A. A
B. B
C. C
D. D
Ans: B
\
Feedback: A straight-line demand curve is unit elastic only at its midpoint of the quantity axis.
[QUESTION]
80. Refer to the graph shown. At which point is elasticity zero?
A. A
B. B
C. C
D. D
Ans: D
Bloom’s: Remember
Difficulty: 01 Easy
Feedback: Elasticity is zero at the quantity axis intercept.
[QUESTION]
81. Refer to the graph shown. At which point is elasticity infinite?
A. A
B. B
C. C
D. D
Ans: A
Bloom’s: Remember
Difficulty: 01 Easy
Feedback: Elasticity is infinite at the price axis intercept.
[QUESTION]
82. Refer to the graph shown. Which point has an elasticity greater than 1?
A. E
B. B
C. C
D. D
Ans: B
Feedback: Points to the left of the x-axis midpoint are elastic (greater than 1).
[QUESTION]
83. Refer to the graph shown. Which point has an elasticity less than 1?
A. A
B. B
C. C
D. D
Ans: D
AACSB: Analytic
Feedback: Points to the right of the x-axis midpoint are inelastic (elasticity less than 1).
[QUESTION]
84. Refer to the graph shown. Which supply curve is unit elastic?
A. A
B. B
C. C
D. D
Ans: B
Feedback: Supply curves that intersect the origin have elasticity of 1 (unit elastic).
[QUESTION]
85. Refer to the graph shown. For which curve does the price elasticity of supply decrease as
price increases?
A. A
B. B
C. C
D. D
Ans: C
Feedback: Supply curves that intersect the price axis have decreasing price elasticity (assuming
they are not horizontal).
[QUESTION]
86. Refer to the graph shown. Which supply curve is perfectly elastic?
A. A
B. B
C. C
D. D
Ans: A
Feedback: Horizontal supply curves are perfectly elastic.
[QUESTION]
87. Refer to the graph shown. Which supply curve is perfectly inelastic?
A. A
B. B
C. C
D. D
Ans: D
Feedback: Vertical supply curves are perfectly inelastic.
[QUESTION]
88. Refer to the graph shown. When price rises by 10 percent, quantity supplied rises by 10
percent. Which curve best demonstrates the elasticity of supply in this example?
A. A
B. B
C. C
D. D
Ans: B
Feedback: Elasticity is 1. Supply curves that intersect the origin have elasticity of 1 (unit
elastic).
[QUESTION]
Which of the following curves demonstrates a unit elastic demand curve? (That is, a curve where
elasticity is 1 at each point.)
A. A
B. B
C. C
Ans: D
Feedback: Elasticity goes from infinity to zero along a straight-line demand curve. It has unit
elasticity only at its midpoint of the quantity axis.
[QUESTION]
90. Refer to the graph shown. Which supply curve is elastic?
A. A
B. B
C. C
Ans: C
Feedback: Supply curves that intersect the price axis are elastic.
[QUESTION]
91. Refer to the graph shown. When price rises by 20 percent, quantity supplied rises by 25
percent. Which curve best demonstrates elasticity in this example?
A. A
B. B
C. C
Ans: C
Feedback: Supply is elastic. Supply curves that intersect the price axis are elastic.
[QUESTION]
92. Refer to the graph shown. Which supply curve is inelastic?
A. A
B. B
C. C
Ans: A
Feedback: Supply curves that intersect the quantity axis are inelastic.
[QUESTION]
93. Refer to the graph shown. When price declines by 11 percent, quantity supplied falls by 8
percent. Which curve best demonstrates the elasticity in this example?
A. A
B. B
C. C
Ans: A
Feedback: The example demonstrates an inelastic supply curve. Supply curves that intersect the
quantity axis are inelastic.
[QUESTION]
94. If the supply curve intersects the vertical (price) axis, the supply curve has an elasticity:
A. less than 1.
B. equal to 1.
C. greater than 1.
D. that is indeterminate.
Ans: C
Bloom’s: Remember
Difficulty: 01Easy
Feedback: Supply curves that intersect the price axis are elastic (Elasticity > 1).
[QUESTION]
95. A supply curve that intersects the horizontal (quantity) axis is:
A. inelastic.
B. elastic.
C. perfectly elastic.
D. unit elastic.
Ans: A
Bloom’s: Remember
Difficulty: 01 Easy
Feedback: Supply curves that intersect the horizontal axis are inelastic.
[QUESTION]
96. A perfectly elastic supply curve would:
A. intersect the two axes at the origin.
B. intersect the horizontal axis.
C. be horizontal.
D. be vertical.
Ans: C
Feedback: Quantity supplied would change enormously with a small change in price. This is
true only for a horizontal supply curve.
[QUESTION]
97. The supply curve with the greatest elasticity is one with slope of:
A. 1/2.
B. 1.
C. 2.
D. impossible to say.
Ans: D
AACSB: Analytic
Bloom’s: Analyze
Difficulty: 03 Hard
Feedback: Slope is not the same as elasticity. The trick with supply curves is the price intercept.
If it is positive, it is elastic. If it is negative (cuts the horizontal axis), it is inelastic.
[QUESTION]
The demand curve with the greatest elasticity is:

A. A.
B. B.
C. C.
D. D.
Ans: D
AACSB: Analytic
Bloom’s: Analyze
Difficulty: 03 Hard
Feedback: D is perfectly elastic (elasticity is infinite).
[QUESTION]
Elasticity is smallest at which point?

A. A
B. B
C. C
D. D
Ans: D
AACSB: Analytic
Bloom’s: Analyze
Difficulty: 03 Hard
Feedback: P/Q × Q/P. In all these demand curves Q/P are the same and P is the same.
Since the only thing that changes is quantity, the point where Q is the largest has the smallest
elasticity.
[QUESTION]
100. The demand for a good is inelastic. Which of the following would be an explanation for
this?
A. The good is a necessity.
B. The good is specifically defined.
C. The good costs a large portion of one's total income.
D. The time interval considered is long.
Ans: A
Feedback: Necessities tend to be price inelastic.
[QUESTION]
101. The demand for a good is inelastic. Which of the following would be the most likely
explanation for this?
A. The good is narrowly defined.
B. The good is broadly defined.
Ans: B
Feedback: Broadly defined goods have few substitutes; thus, demand for them is price inelastic.
[QUESTION]
102. The demand for a good is elastic. Which of the following would be the most likely
D. The time interval considered is short.
Ans: C
Feedback: Demand for goods that costs a large portion of one's total income tends to be price
elastic.
[QUESTION]
103. The demand for a good is elastic. Which of the following would be the most likely
C. The good costs a small portion of one's total income.
Ans: D
Feedback: The longer the time interval considered, the more substitutes and the greater the price
elasticity of demand.
[QUESTION]
104. During World War II, the price of rubber went up considerably. The rise in price stimulated
research for alternatives. For example, today's automobile tires are made almost entirely from
synthetic materials. As a result, the increase in the price of rubber eventually led to a very large
drop in quantity demanded. This is an example of how the price elasticity of demand:
A. falls the less specifically the good is defined.
B. rises the less specifically the good is defined.
C. falls the greater the time frame considered.
D. rises the greater the time frame considered.
Ans: D
Feedback: As more substitutes become available with increased time, the price elasticity of
demand increases.
[QUESTION]
105. The price elasticity of demand for insulin by diabetic patients is much smaller than the
price elasticity of demand for leather shoes. This is an example of how the price elasticity of
demand:
A. falls the less specifically the good is defined.
B. rises the less specifically the good is defined.
C. falls the more a good is a necessity.
D. rises the more a good is a necessity.
Ans: C
Feedback: Insulin is a necessity for diabetic patients. Leather shoes are not necessities. Thus, the
price elasticity of demand for insulin tends to be inelastic.
[QUESTION]
106. Which of the following most likely correctly orders goods from most to least demand
elastic?
A. Cars, motor transportation, transportation
B. Transportation, bicycles, non-motor transportation
C. Brand-name Advil, pain-relieving medicine, aspirin
D. Pain-relieving medicine, brand-name Advil, aspirin
Ans: A
Feedback: The more broadly defined a product is, the less elastic is demand.
[QUESTION]
107. For which of the following goods is the demand curve likely to be most inelastic?
A. Hershey's Symphony chocolate bar
B. Chocolate bars with nuts
C. Candy
D. Chocolate bars
Ans: C
Feedback: Candy, as a broadly defined good, has fewer substitutes than the other more specific
items. Therefore, the demand curve for candy is likely to be the most inelastic.
[QUESTION]
108. Compared to the elasticity of demand for off-peak trains, one would expect elasticity of
demand for peak-time trains to be:
A. greater.
B. less.
C. unrelated.
D. the same.
Ans: B
Feedback: For peak-time users (commuters) trains tend to be more of a necessity (to get to
work); thus, the elasticity tends to be smaller.
[QUESTION]
109. Refer to the following table to answer the question. A local government is looking to
reduce "undesirable" behavior on the part of its citizens: drinking alcoholic beverages and
smoking. Assuming people cannot shop for alcoholic beverages out of town, a 10 percent sin tax
would have the largest proportionate effect on the sale of:
A. cigarettes
B. liquor
C. beer
D. wine
Ans: B
Feedback: Elasticity is greatest for liquor, and a 10 percent tax on liquor thus would have the
greatest proportionate effect on quantity purchased.
[QUESTION]
110. If elasticity of demand is greater than 1:
A. a rise in price lowers total revenue.
B. a decline in price will not change total revenue.
C. a rise in price increases total revenue.
D. a decline in price lowers total revenue.
Ans: A
Bloom’s: Remember
Difficulty: 01 Easy
Feedback: If elasticity of demand is greater than 1, a rise in price lowers total revenue. If
elasticity of demand is less than 1, a rise in price increases total revenue.
[QUESTION]
111. If elasticity of demand is less than 1:
A. a rise in price decreases total revenue.
B. a decline in price increases total revenue.
C. a decline in price will not change total revenue.
D. a rise in price increases total revenue.
Ans: D
Feedback: If elasticity of demand is greater than 1, a rise in price lowers total revenue. If
elasticity of demand is less than 1, a rise in price increases total revenue.
[QUESTION]
112. Along a downward-sloping straight-line demand curve beginning at the price where
demand intersects the price axis, as price declines, revenue:
A. declines.
B. rises.
C. declines and then rises.
D. rises and then declines.
Ans: D
Feedback: At each endpoint (price and quantity axis intercepts), revenue is zero. At first revenue
rises, then hits a maximum where elasticity is 1, and then declines.
[QUESTION]
113. Suppose average movie attendance is 250 million when prices are $7 a ticket and 200
million when prices are $9 a ticket. Other things being equal, the data imply that the elasticity of
demand for movie tickets is:
A. elastic, so the increase in price caused total revenue to rise.
B. elastic, so the increase in price caused total revenue to fall.
C. inelastic, so the increase in price caused total revenue to rise.
D. inelastic, so the increase in price caused total revenue to fall.
Ans: C
AACSB: Analytic
Bloom’s: Apply
Difficulty: 03 Hard
Feedback: Elasticity = [(250 – 200)/225]/[(7 – 9)/8] = –0.9. Since the absolute value of the
elasticity is less than 1, demand is inelastic. When demand is inelastic, an increase in price
causes total revenue to rise.
[QUESTION]
114. In California, the price elasticity for vanity license plates is .5 and their price is $29.
California is:
A. maximizing revenue since elasticity is less than 1 and revenue will increase after a price
increase when demand is inelastic.
B. not maximizing revenue since elasticity is less than 1 and revenue will increase after a price
C. maximizing revenue since elasticity is less than 1 and revenue will decrease after a price
D. not maximizing revenue since elasticity is less than 1 and revenue will decrease after a price
Ans: B
AACSB: Analytic
Bloom’s: Apply
Difficulty: 03 Hard
Feedback: Since elasticity = .5 < 1, demand is inelastic, which means that revenue will increase
after an increase in price. Revenue is maximized when elasticity = 1.
[QUESTION]
115. In Massachusetts, the price elasticity of license plates is 3.5 and their price is $50.
Massachusetts is:
A. maximizing revenue since elasticity is greater than 1 and revenue will increase after a price
decrease when demand is elastic.
B. not maximizing revenue since elasticity is greater than 1 and revenue will increase after a
price decrease when demand is elastic.
C. maximizing revenue since elasticity is greater than 1 and revenue will decrease after a price
decrease when demand is elastic.
D. not maximizing revenue since elasticity is greater than 1 and revenue will decrease after a
price decrease when demand is elastic.
Ans: B
AACSB: Analytic
Bloom’s: Apply
Difficulty: 03 Hard
Feedback: Since elasticity = 3.5 > 1, demand is elastic, which means that revenue will increase
after a decrease in price. Revenue is maximized when elasticity = 1.
[QUESTION]
116. Elasticity of demand for bus services is 0.23 for the peak hours and 0.42 for off-peak hours.
The same percentage increase in price would:
A. lower revenues for both, but more for peak hours.
B. raise revenues for both, but more for peak hours.
C. raise revenue for peak hours but lower revenue for off-peak hours.
D. lower revenue for peak hours but raise revenue for off-peak hours.
Ans: B
AACSB: Analytic
Bloom’s: Analyze
Difficulty: 03 Hard
Feedback: Since demand is inelastic for both peak and off-peak hours, revenue would rise for
both. Revenue would rise by more for peak hours since demand is less elastic during these times.
[QUESTION]
117. GreenTree Corporation sells live Christmas trees. It observes that when it increases the
price of Christmas trees by 10 percent, revenue rises by 25 percent. The demand for Christmas
trees is:
A. inelastic.
B. elastic.
C. unit elastic.
Ans: A
Feedback: If revenue rises when price rises, demand must be inelastic.
[QUESTION]
118. The president of a college has been told that when they raised their tuition by 15 percent
the previous year, total revenue from tuition remained unchanged. Assuming the change in
revenue is due to the change in tuition only, the president could conclude that demand for that
college, over that tuition range, must be:
A. greater than 1.
B. less than 1.
C. equal to 1.
D. equal to zero.
Ans: C
Feedback: Only unit elasticity results in no change in revenue with a change in price.
[QUESTION]
119. Refer to the graph shown. When price is $40, revenue equals areas:
A. A only.
B. A and B only.
C. A, B, and D only.
D. A, B, C, D, and E.
Ans: C
AACSB: Analytic
Bloom’s: Apply
Difficulty: 02 Hard
Feedback: Revenue is price times quantity.
[QUESTION]
120. Refer to the graph shown. When price rises from $30 to $40:
A. lost revenue is represented by areas C and E and gained revenue is represented by area A.
B. gained revenue is represented by areas C and E and lost revenue is represented by area A.
C. lost revenue is represented by areas B, C, D, and E and gained revenue is represented by area
A.
D. gained revenue is represented by areas B, C, D, and E and lost revenue is represented by area
A.
Ans: A
AACSB: Analytic
Bloom’s: Apply
Difficulty: 03 Hard
Feedback: Revenue at price $40 is A, B, and D. Revenue at a price of $30 is areas B, C, D, and
E.
[QUESTION]
121. Refer to the graph shown. Area C plus area E is:
A. smaller than area A, because demand is elastic between $30 and $40.
B. larger than area A, because demand is inelastic between $30 and $40.
C. smaller than area A, because demand is inelastic between $30 and $40.
D. larger than area A, because demand is elastic between $30 and $40.
Ans: D
AACSB: Analytic
Bloom’s: Apply
Difficulty: Hard
Feedback: The first thing to figure out is where elasticity is 1. Since at $30, the demand is unit
elastic, at prices above $30, demand is elastic and the revenue gained is smaller than the revenue
lost when price rises from $30 to $40.
[QUESTION]
122. Refer to the graph shown. When price rises from $10 to $30:
A. lost revenue is represented by areas B and C and gained revenue is represented by area F.
B. gained revenue is represented by areas B and C and lost revenue is represented by area F.
C. lost revenue is represented by areas B, C, and D and gained revenue is represented by area A.
D. gained revenue is represented by areas B, C, and D and lost revenue is represented by area A.
Ans: B
AACSB: Analytic
Bloom’s: Apply
Difficulty: 03 Hard
Feedback: Revenue at price $40 is B, C, D, and E. Revenue at price of $10 is areas D, E, and F.
[QUESTION]
123. Refer to the graph shown. Area F is:
A. smaller than areas B and C, because demand is elastic between $10 and $30.
B. larger than areas B and C, because demand is elastic between $10 and $30.
C. larger than areas B and C, because demand is inelastic between $10 and $30.
D. smaller than areas B and C, because demand is inelastic between $10 and $30.
Ans: D
Feedback: Since at $30, the demand is unit elastic, at prices below $30, demand is inelastic and
the revenue gained is larger than the revenue lost when price rises from $10 to $30.
[QUESTION]
124. Along a straight-line demand curve, total revenue is the highest when elasticity of demand
is:
A. zero.
B. 1.
C. infinity.
D. between zero and 1.
Ans: B
Feedback: When elasticity is greater than 1, prices can be reduced to increase total revenue, and
when elasticity is less than 1, prices can be raised to increase total revenue. But when elasticity
equals 1, total revenue is maximized, so increasing or decreasing price doesn't change total
revenue.
[QUESTION]
125. Refer to the graph shown. Between points A and B, demand is:
A. inelastic.
B. elastic.
C. unit elastic.
Ans: B
Feedback: Since revenue is rising while price is declining, demand must be elastic.
[QUESTION]
126. Refer to the graph shown. At point D demand is:
A. inelastic.
B. elastic.
C. unit elastic.
Ans: C
Feedback: Since revenue remains constant, demand must be unit elastic.
[QUESTION]
127. Refer to the graph shown. Between points E and F demand is:
A. inelastic.
B. elastic.
C. unit elastic.
Ans: A
Feedback: Since revenue is declining while price is declining, demand must be inelastic.
[QUESTION]
128. Refer to the graph shown. Demand is unit elastic when revenue is:
A. $4,000.
B. $6,000.
C. $8,000.
D. $10,000.
Ans: D
Feedback: When revenue is maximized, demand is unit elastic.
[QUESTION]
129. Refer to the graph shown. Total revenue is at a maximum when price is:
A. $2.
B. $4.
C. $6.
D. $8.
Ans: B
Feedback: Total revenue is maximized where demand is unit elastic.
[QUESTION]
130. Refer to the graph shown. When price increases from $4 to $6, total revenue:
A. increases from $200 to $250.

B. increases from $150 to $200.
C. decreases from $200 to $150.
D. decreases from $250 to $200.
Ans: C
Feedback: Total revenue is price times quantity.
[QUESTION]
131. The Honolulu tourism commission proposed a 6 percent tax on hotel rooms to pay for an
outdoor amphitheater. A Purdue University economist estimates that the tax would result in a 6
percent increase in the price of hotel rooms. If the elasticity of demand is 1.33, what is the
expected change in quantity demanded?
A. 12.5 percent
B. –12.5 percent
C. 8 percent
D. –8 percent
Ans: D
AACSB: Analytic
Bloom’s: Apply
Difficulty: 03 Hard
Feedback: Elasticity = 1.33 = x/6. Solve for x. Note that quantity demanded will fall when price
rises.
[QUESTION]
132 . Income elasticity is defined as the:
A. change in demand divided by the change in income.
B. percentage change in demand divided by the percentage change in income.
C. change in income divided by the change in demand.
D. percentage change in income divided by the percentage change in demand.
Ans: B
Bloom’s: Remember
Difficulty: 01 Easy
Feedback: See the definition of income elasticity.
[QUESTION]
133. Cross-price elasticity of demand is defined as the:
A. percentage change in quantity demanded divided by percentage change in the price of the
same good.
B. percentage change in demand divided by percentage change in the price of another good.
C. change in the price of another good divided by the change in quantity demanded.
D. percentage change in the price of another good divided by the percentage change in quantity
demanded.
Ans: B
Bloom’s: Remember
Difficulty: 01 Easy
Feedback: See the definition of cross-price elasticity of demand.
[QUESTION]
134. For normal goods, income elasticity is:
A. greater than 0.
B. greater than 1.
C. less than 0.
D. equal to 1.
Ans: A
Bloom’s: Remember
Difficulty: 01 Easy
Feedback: See the definition of a normal good.
[QUESTION]
135. An economist estimates that with every 20 percent increase in income, the quantity of
grapes purchased rises by 11.2 percent. From this information one would conclude that grapes
are:
A. a luxury.
B. not demanded.
C. an inferior good.
D. a normal good.
Ans: D
Feedback: Income elasticity is 0.56. Since it is greater than 0, this is a normal good.
[QUESTION]
136. For luxuries, income elasticity is:
A. greater than 0.
B. greater than 1.
C. less than 0.
D. equal to 1.
Ans: B
Bloom’s: Remember
Difficulty: 01 Easy
Feedback: See the definition of luxuries.
[QUESTION]
137. An economist estimates that on average, for every 1 percent increase in income, the
quantity of European cars demanded increases by 1.93 percent. From this information one can
conclude that European cars are:
A. a luxury.
B. a necessity.
D. a negative good.
Ans: A
Feedback: Elasticity is 1.93. Since it is greater than 1, this is a luxury good.
[QUESTION]
138. An economist estimates that with every 15 percent increase in income, the quantity of
turkey purchased declines by 1.8 percent. From this information one would conclude that turkey
is:
A. a luxury.
B. a necessity.
D. a normal good.
Ans: C
Feedback: Income elasticity is –.12. Since it is negative, this is an inferior good.
[QUESTION]
139. For necessities, income elasticity is any value:
A. greater than 0.
B. greater than 1.
C. less than 0.
D. between 0 and 1.
Ans: D
Bloom’s: Remember
Difficulty: 01 Easy
Feedback: See the definition of necessities.
[QUESTION]
140. It is estimated that a 10 percent decline in income will reduce cigarette smoking by 1.4
percent. From this information one can conclude that cigarettes are most likely:
A. a luxury.
B. a necessity.
D. a large portion of one's budget.
Ans: B
Feedback: Since elasticity is between 0 and 1 (specifically, .14) cigarettes are most likely a
necessity.
[QUESTION]
141. It is estimated that a 5 percent decline in income will reduce health care purchases by 2.5
percent and reduce dental service purchases by 8 percent. From this information, one can
conclude that:
A. health care is a necessity and dental services are a luxury.
B. health care is a luxury and dental services are necessities.
C. both health care and dental services are necessities.
D. both health care and dental services are luxuries.
Ans: A
Feedback: Income elasticity of health care is 0.5, and that of dental services is 1.6. Thus, dental
services are luxuries and health care is a necessity.
[QUESTION]
142. For complements:
A. cross-price elasticity of demand is negative.
B. cross-price elasticity of demand is positive.
C. price elasticity of income is negative.
D. price elasticity of income is positive.
Ans: A
Bloom’s: Remember
Difficulty: 01 Easy
Feedback: See the definition of complements.
[QUESTION]
143. For substitutes:
A. cross-price elasticity of demand can be a negative value.
B. cross-price elasticity of demand can be any positive value.
C. cross-price elasticity of demand can be any value less than 1.
D. price elasticity of demand can be any positive value.
Ans: B
Bloom’s: Remember
Difficulty: 01 Easy
Feedback: See the definition of substitutes.
[QUESTION]
144. It is estimated that a 3 percent drop in the price of Asian and European autos will decrease
the demand for American cars by 0.84 percent. From this information one can conclude that:
A. the income elasticity of demand for American cars is less than 1.
B. European and Asian cars are luxuries.
C. European and Asian cars are substitutes for American cars.
D. European and Asian cars are complements for American cars.
Ans: C
Feedback: Cross-price elasticity of demand is positive, and so they are substitutes.
[QUESTION]
: 145. If an economist observed that higher hot dog prices lead to an increase in the demand for
chili, she most likely would conclude that:
A. chili and hot dogs are complements.
B. chili and hot dogs are substitutes.
C. chili and hot dogs are both inferior goods
D. chili and hot dogs are both normal goods.
Ans: B
Feedback: If the price of a good rises, the demand for its substitute will rise because people will
substitute the second good for the good whose price rose.
[QUESTION]
146. If an economist observed that higher hot dog prices lead to a decrease in the demand for
chili, she most likely would conclude that:
A. chili and hot dogs are complements.
B. chili and hot dogs are substitutes.
C. chili and hot dogs are both inferior goods
D. chili and hot dogs are both normal goods.
Ans: A
Feedback: If the price of a good rises, the demand for its complement will decrease because not
only will people buy less of the first good, they will buy less of the good that they consume with
it (its complement).
[QUESTION]
147. When the price of a good increases, what would we expect to see in the markets for its
complements?
A. Higher prices and increased sales
B. Higher prices and decreased sales
C. Lower prices and decreased sales
D. Lower prices and increased sales
Ans: C
Feedback: If a price of a good rises, the demand for its complement will decrease because not
only will people buy less of the first good, they will buy less of the good that they consume with
it (its complement). As demand declines, the price of the complement falls.
[QUESTION]
148. When the price of a good increases, what would we expect to see in the markets for its
substitutes?
A. Higher prices and increased sales
B. Higher prices and decreased sales
C. Lower prices and decreased sales
D. Lower prices and increased sales
Ans: A
Feedback: If a price of a good rises, the demand for its substitute will increase as people
substitute more of the second good for the good whose price increased. As demand rises,
equilibrium price and sales of the substitute will rise.
[QUESTION]
149. If milk and cookies are complements and the price of cookies falls, we would expect to see:
A. an increase in the demand for milk.
B. a decrease in the demand for milk.
C. an increase in the quantity demanded for milk but no change in demand.
D. a decrease in the quantity demanded for milk but no change in demand.
Ans: A
Feedback: If milk and cookies are complements, people tend to consume them together.
Therefore, if the price of cookies falls, the quantity of cookies demanded will rise. People will
also demand more milk to go with their cookies.
[QUESTION]
150. If milk and cookies are complements and the price of cookies rises, we would expect to
see:
A. an increase in the demand for milk.
B. a decrease in the demand for milk.
C. an increase in the quantity demanded for milk but no change in demand.
D. a decrease in the quantity demanded for milk but no change in demand.
Ans: B
Feedback: If the price of cookies rises, the quantity of cookies demanded will fall. People will
demand less milk to go with their cookies.
[QUESTION]
151. If pizzas and quesadillas are substitutes and the price of pizzas decreases, we would expect
to see:
A. an increase in the demand for quesadillas.
B. a decrease in the demand for quesadillas.
C. an increase in the quantity demanded for quesadillas.
D. a decrease in the quantity demanded for quesadillas.
Ans: B
Feedback: If the price of pizza declines, the quantity of pizza demanded will rise. Quesadilla
eaters will see that pizza is cheaper and switch to buying pizza. The demand for quesadillas
shifts to the left because the amount purchased falls at every price.
[QUESTION]
152. College students tend to eat more ramen noodles than do recent college graduates. A
primary reason for this is that:
A. ramen noodles are a normal good.
B. ramen noodles are an inferior good.
C. ramen noodles are a luxury good.
D. ramen noodles are scarce.
Ans: B
Feedback: College students generally have lower incomes than do recent graduates. A good
whose demand decreases when income increases is known as an inferior good.
[QUESTION]
153. If Portuguese wines are an inferior good, higher incomes will cause:
A. an increase in the demand for Portuguese wines.
B. a decrease in the demand for Portuguese wines.
C. an increase in the quantity demanded for Portuguese wines.
D. a decrease in the quantity demanded for Portuguese wines.
Ans: B
Feedback: A good whose demand decreases when income increases is known as an inferior
good. If Portuguese wines are inferior goods, as income rises, demand for the wines will decline.
This is not movement along the demand curve because the price of the wine hasn't changed.
[QUESTION]
154. If macaroni and cheese is an inferior good, falling incomes will tend to:
A. put upward pressure on its price and quantity.
B. put downward pressure on its price and quantity.
C. raise its price but lower its quantity.
D. lower its price but raise its quantity.
Ans: A
Feedback: Demand increases for inferior goods when incomes fall. Therefore, as incomes fall,
demand for macaroni and cheese will rise, placing upward pressure on price and quantity.
[QUESTION]
155. Online music stores such as Apple's iTunes have taken customers from traditional stores
selling CDs. Based on this information, you can conclude that online music:
A. and CDs are complementary goods
B. and CDs are substitutes.
C. has a higher income elasticity than CDs.
D. has a higher price elasticity than CDs.
Ans: B
Feedback: If people are shifting away from CDs to online music, the two would seem to be
substitutes.
[QUESTION]
156. Repeated hurricanes in Florida have caused some retirees to choose to retire in Arizona
instead. Based on this information, retirement housing in Florida and that in Arizona are what
kinds of goods?
A. Florida housing has become an inferior good, and Arizona housing had been a luxury good.
B. Florida housing has become a luxury good, and Arizona housing had been an inferior good.
C. Florida housing and Arizona housing are substitutes.
D. Florida housing and Arizona housing are complementary goods.
Ans: C
Feedback: They are substitutes because people are considering Arizona as an alternative to
Florida.
[QUESTION]
157. An economist estimates that for every 1 percent increase in the price of natural Christmas
trees, the demand for artificial trees rises by .2 percent. From this information one can conclude
that:
A. the income elasticity of demand for natural Christmas trees is less than 1.
B. natural Christmas trees are luxuries.
C. natural and artificial Christmas trees are substitutes.
D. natural and artificial Christmas trees are complements.
Ans: C
Difficulty: Medium
Feedback: Cross-price elasticity of demand is positive, and so they are substitutes.
[QUESTION]
158. Refer to the following table to answer the question. Which of the following statements is
true?
A. A and B are complements whereas A and C are substitutes.
B. A and C are complements whereas A and B are substitutes.
C. A and B are complements and A and C are complements.
D. A and B are substitutes and A and C are substitutes.
Ans: A
Feedback: Cross-price elasticity of demand is negative for A and B. They are complements.
Cross-price elasticity of demand is positive for A and C. They are substitutes.
[QUESTION]
159. Suppose the demand for roses increases from 500 to 600 stems when income rises from
$10,000 to $20,000. Income elasticity for roses is:
A. 0.27.
B. 3.6.
C. 0.02.
D. 2.
Ans: A
AACSB: Analytic
Bloom’s: Apply
Difficulty: 03 Hard
Feedback: Elasticity = [(600 – 500)/550]/[(20,000 – 10,000)/15,000] =
(100/550)/(10,000/15,000) = .18/.67 = 0.27.
[QUESTION]
160. Suppose the demand for margarine increases from 800 to 1,000 pounds when income falls
from $40,000 to 30,000. Income elasticity is:
A. 0.02.
B. 50.
C. -0.77.
D. 0.77.
Ans: C
AACSB: Analytic
Bloom’s: Apply
Difficulty: 03 Hard
Feedback: Elasticity = [1,000 – 800/900]/[30,000 – 40,000/35,000] = (200/900)/(–
10,000/35,000) = .22/–.28 = -0.77.
[QUESTION]
161. If the quantity of Big Macs demanded falls from 2.0 million to 1.6 million as the price of
Whoppers falls from $1.40 to $.80, the cross-price elasticity of demand for Big Macs is:
A. –2.5.
B. –0.4.
C. 2.5
D. 0.4.
Ans: D
AACSB: Analytic
Bloom’s: Apply
Difficulty: 03 Hard
Feedback: Elasticity = [(1.6 – 2.0)/1.8]/[(.8 – 1.4/1.1] = [(–.4/1.8)/(– 0.6/1.1)] = 0.4.
[QUESTION]
162. If the quantity of Arizona green teas demanded falls from 4.0 million to 3.0 million as the
price of Lipton green teas falls from $2.70 to $2.50, Arizona's teas and Lipton's teas are:
A. substitutes.
B. complements.
C. luxuries.
D. inferior goods.
Ans: A
Feedback: Since the cross-price elasticity of demand for Arizona’s teas and Lipton’s teas is
positive, they are substitutes.
[QUESTION]
163. An economist estimates the elasticity of demand for baseball tickets to be 0.23. Using this
information, a club that wants to raise revenues should:
A. lower ticket prices.
B. increase ticket prices.
C. leave ticket prices unchanged, because it is maximizing revenue.
D. raise the prices of other goods sold at games.
Ans: B
Feedback: Since demand is inelastic, raising prices will increase revenues.
[QUESTION]
164. If demand is highly elastic and supply shifts to the right:
A. price will fall significantly; quantity hardly changes at all.
B. price will hardly change at all; quantity will rise significantly.
C. price will rise significantly as will quantity.
D. price and quantity will hardly change at all.
Ans: B
Feedback: A highly elastic demand curve means that quantity would be much more sensitive to
small price changes.
[QUESTION]
165. If demand is highly elastic and supply shifts to the left:
A. price will rise significantly; quantity hardly changes at all.
B. price will hardly change at all; quantity will decline significantly.
C. price will rise significantly and quantity will fall significantly.
Ans: B
Feedback: A highly elastic demand curve means that quantity would be much more sensitive to
[QUESTION]
166. If demand is highly inelastic and supply shifts to the right, price:
A. will rise significantly; quantity hardly changes at all.
B. hardly changes at all; quantity will rise significantly.
C. will rise significantly as will quantity.
D. will fall significantly; quantity hardly changes at all.
Ans: D
Feedback: A highly inelastic demand curve means that quantity would be much less sensitive to
large price changes.
[QUESTION]
167. If demand is highly inelastic and supply shifts to the left:
A. neither price nor quantity will rise much.
B. price will hardly rise at all; quantity will decline significantly.
C. price probably will rise significantly, as will quantity.
D. price will rise significantly; quantity hardly changes at all.
Ans: D
Feedback: A highly inelastic demand curve means that quantity would be much less sensitive to
[QUESTION]
168. If supply is highly inelastic and demand shifts to the left:
B. price will hardly change at all; quantity will fall significantly.
C. price will fall significantly as will quantity.
Ans: A
Feedback: A highly inelastic supply curve means that quantity would be much less sensitive to
[QUESTION]
169. If supply is highly inelastic and demand shifts to the right:
A. price probably will rise significantly; quantity hardly changes at all.
Ans: A
Feedback: A highly inelastic supply curve means that quantity would be much less sensitive to
[QUESTION]
170. If supply is highly elastic and demand shifts to the right:
A. price will rise significantly; quantity hardly changes at all.
Ans: B
Feedback: A highly elastic supply curve means that quantity would be much more sensitive to
[QUESTION]
171. If supply is highly elastic and demand shifts to the left:
B. price will hardly change at all; quantity will fall significantly.
C. price will fall significantly as will quantity.
Ans: B
Feedback: A highly elastic supply curve means that quantity would be much more sensitive to
[QUESTION]
172. In which case will the price change be the greatest (assuming the shifts described are the
same size)?
A. Demand is inelastic, and supply shifts to the left.
B. Supply is perfectly elastic, and demand shifts to the left.
C. Demand is elastic, and supply shifts to the left.
D. Supply is elastic, and demand shifts to the left.
Ans: A
AACSB: Analytic
Bloom’s: Analyze
Difficulty: 03 Hard
Feedback: When the stationary curve is inelastic, the price change is the greatest.
[QUESTION]
173. The supply of Russian caviar from the Caspian Sea diminished after the collapse of Soviet
communism. The price of caviar rose from $395 a pound to $595 a pound. Still, revenue from
the sale of caviar rose 30 percent. You can conclude that:
A. an elastic supply curve for caviar has shifted to the left.
B. an inelastic supply curve for caviar has shifted to the left.
C. the supply curve for caviar has shifted to the left along an inelastic demand curve.
D. the supply curve for caviar has shifted to the left along an elastic demand curve.
Ans: C
AACSB: Analytic
Bloom’s: Analyze
Difficulty: 03 Hard
Feedback: Since revenue rose as price rose, demand must be inelastic. Supply for caviar shifted
to the left.
[QUESTION]
174. If frost in Florida reduces the quantity of vegetables sold by 20 percent and increases their
retail price by 30 percent, one can conclude that:
A. the demand has shifted to the right along a perfectly inelastic supply curve.
B. the demand has shifted to the right along a perfectly elastic supply curve.
C. the supply of vegetables has shifted to the left along an elastic demand curve.
D. the supply of vegetables has shifted to the left along an inelastic demand curve.
Ans: D
AACSB: Analytic
Bloom’s: Analyze
Difficulty: Hard
Feedback: The freeze shifted the supply of vegetables to the left. Since the percentage change in
price is greater than the percentage change in quantity demanded, the demand for vegetables
must be inelastic.
[QUESTION]
175. If the demand for agricultural output is highly inelastic, an improvement in the technology
used in the agricultural industry most likely will cause a:
A. small drop in the price of agricultural output combined with a small increase in quantity.
B. small drop in the price of agricultural output combined with a large increase in quantity.
C. large drop in the price of agricultural output combined with a small increase in quantity.
D. large drop in the price of agricultural output combined with a large decrease in quantity.
Ans: C
Feedback: With a highly inelastic demand, the fall in price will be much larger than the increase
in quantity as equilibrium moves to a new point on the demand curve.
[QUESTION]
176. Inelastic demand creates an incentive for suppliers to:
A. try to get together and limit quantity supplied.
B. try to get together and increase quantity supplied.
C. compete with each other and increase quantity supplied.
D. stop producing altogether.
Ans: A
Feedback: By limiting supply, one can increase price and at the same time increase total
revenue, because the price increase wouldn't cause a large drop in quantity.

Economics 10th Edition Colander Test Bank 1

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File: Chapter 06 Describing Supply and Demand—Elasticities

If price is currently at B and rises, total revenue will rise.

Elasticity is greatest at point:

Elasticity is greatest at point:

The demand curve with the greatest elasticity is:

Elasticity is smallest at which point?

A. increases from $200 to $250.

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