Exploring Microeconomics 7th Edition Sexton Test Bank 1

Exploring Microeconomics 7th Edition by Sexton ISBN
1285859456 9781285859453
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1. Price elasticity of demand is a measure of the relative responsiveness of the change in quantity demanded to a change in
price.
a. True
b. False
ANSWER: True
POINTS: 1
REFERENCES: p. 157
TOPICS: 6.1 Price Elasticity of Demand | Price Elasticity of Demand
2. Price elasticity of demand is a measure of the relative responsiveness of the change in price to a change in quantity
demanded.
a. True
b. False
ANSWER: False
POINTS: 1
REFERENCES: p. 157
3. If a huge percentage change in price leads to a small percentage change in quantity demanded, then demand is said to
be inelastic.
a. True
b. False
ANSWER: True
POINTS: 1
REFERENCES: p. 157
TOPICS: 6.1 Price Elasticity of Demand | Is the Demand Curve Elastic or Inelastic?
4. If Pizza Hut decreases its price for a large pizza by 25% and this leads to a 75% increase in sales, we can conclude that
demand is relatively elastic with regard to price over that range.
a. True
b. False
Cengage Learning Testing, Powered by Cognero Page 1
ANSWER: True
POINTS: 1
REFERENCES: p. 158
TOPICS: 6.1 Price Elasticity of Demand | Types of Demand Curves
5. If the demand curve for X has twice the elasticity of the demand curve for Y, then for the same percentage decrease in
price, the percentage increase in the quantity of X demanded would be twice that for Y.
a. True
b. False
ANSWER: True
POINTS: 1
REFERENCES: p. 157
6. If a huge percentage change in price leads to a small percentage change in quantity demanded, then demand is said to
be elastic.
a. True
b. False
ANSWER: False
POINTS: 1
REFERENCES: p. 166
7. The widespread availability of e-mail has likely increased the price elasticity of demand for the services of the U.S.
Postal Service.
a. True
b. False
ANSWER: True
POINTS: 1
REFERENCES: p. 160
TOPICS: 6.1 Price Elasticity of Demand | The Determinants of the Price Elasticity of Demand
8. Moving along an elastic portion of a demand curve, a small percentage change in price leads to a larger percentage
change in quantity demanded.
a. True
b. False
ANSWER: True
POINTS: 1
REFERENCES: p. 158
9. Moving along the inelastic portion of a demand curve, a large percentage change in price leads to a smaller percentage
change in quantity demanded.
a. True
b. False
ANSWER: True
POINTS: 1
REFERENCES: p. 158
10. Demand for a good is said to be inelastic if the quantity demanded increases substantially when the price falls by a
small amount.
a. True
b. False
ANSWER: False
POINTS: 1
REFERENCES: p. 158
11. Demand for a good is said to be inelastic if the quantity demanded increases slightly when the price falls by a large
amount.
a. True
b. False
ANSWER: True
POINTS: 1
REFERENCES: p. 158
12. The quantity of gasoline demanded will respond more to a change in price over three weeks than over three years.
a. True
b. False
ANSWER: False
POINTS: 1
REFERENCES: p. 162
13. A perfectly elastic demand curve is vertical.

a. True
b. False
ANSWER: False
POINTS: 1
REFERENCES: p. 159
14. Demand is relatively elastic when the price elasticity coefficient exceeds 1.0.
a. True
b. False
ANSWER: True
POINTS: 1
REFERENCES: p. 158
15. If the price elasticity coefficient equals 4.2, then demand is relatively inelastic with regard to price.
a. True
b. False
ANSWER: False
POINTS: 1
REFERENCES: p. 158
16. Using the midpoint method for calculating the price elasticity of demand, you get the same elasticity of demand
between two points, whether you are moving up the demand curve or down it.
a. True
b. False
ANSWER: True
POINTS: 1
REFERENCES: p. 158
TOPICS: 6.1 Price Elasticity of Demand | Calculating the Price Elasticity of Demand: The Midpoint Method
17. The flatter the demand curve passing through a given point, the less elastic the demand curve at that point.
a. True
b. False
ANSWER: False
POINTS: 1
REFERENCES: p. 159
18. A perfectly inelastic supply curve is vertical.

a. True
b. False
ANSWER: True
POINTS: 1
REFERENCES: p. 159
19. Demand tends to be more elastic, the greater the number of good substitutes, the greater the fraction of one’s income
devoted to a product and the greater the time allowed to respond to a price change.
a. True
b. False
ANSWER: True
POINTS: 1
REFERENCES: p. 159
20. If good A had twice as many good substitutes as good B, but good B consumed twice the amount of a buyers income
as good A, goods A and B would have the same elasticity of demand.
a. True
b. False
ANSWER: False
POINTS: 1
REFERENCES: p. 159
21. A decrease in price will cause a firm's total revenue to decrease if demand is price inelastic.
a. True
b. False
ANSWER: True
POINTS: 1
REFERENCES: p. 166
TOPICS: 6.2 Total Revenue and the Price Elasticity of Demand | How Does the Price Elasticity of Demand Impact
Total Revenue?
22. An increase in price will cause a firm's total revenue to increase if demand is price elastic.
a. True
b. False
ANSWER: False
POINTS: 1
REFERENCES: p. 165
Total Revenue?
23. If a consumer's total expenditure on a good does not vary with price, then that consumer's demand curve is unit elastic
over that range of prices.
a. True
b. False
ANSWER: True
POINTS: 1
REFERENCES: p. 159
TOPICS: 6.2 Price Elasticity of Demand | How Does the Price Elasticity of Demand Impact Total Revenue?
24. The longer the time buyers have to respond to a decrease in price, the more likely it is that the total revenue for the
good in question would increase as a result.
a. True
b. False
ANSWER: True
POINTS: 1
REFERENCES: p. 159
25. The more good substitutes there are for a product, the more likely it is that the total revenue for the good in question
would increase as a result of an increase in price.
a. True
b. False
ANSWER: False
POINTS: 1
REFERENCES: p. 159

26. If you and your business partner are trying to increase your total revenue, and you want a lower price than she does, it
could be because you think the relevant demand curve is more elastic than your partner does.
a. True
b. False
ANSWER: True
POINTS: 1
REFERENCES: p. 159
27. If demand for lima beans is inelastic, a poor lima bean harvest could increase the total revenue of lima bean producers.
a. True
b. False
ANSWER: True
POINTS: 1
REFERENCES: p. 159
TOPICS: 6.2 Price Elasticity of Demand | Price Elasticity Changes along a linear Demand Curve Revenue?
28. A straight line demand curve has a different elasticity of demand at different points along the curve.
a. True
b. False
ANSWER: True
POINTS: 1
REFERENCES: p. 159
29. As you move down a demand curve, if a decrease in price from $11 to $9 increased total revenue, then further
decreases below $9 would also increase total revenue.
a. True
b. False
ANSWER: False
POINTS: 1
REFERENCES: p. 159
30. To determine whether or not a pair of goods are complements, economists are interested in the cross price elasticity of
demand between the two goods.
a. True
b. False
ANSWER: True
POINTS: 1
REFERENCES: p. 170
TOPICS: 6.3 Other Types of Demand Elasticities | The Cross-Price Elasticity of Demand
31. If the cross price elasticity of demand between goods A and B was equal to 0.5, those goods are substitutes.
a. True
b. False
ANSWER: True
POINTS: 1
REFERENCES: p. 170
32. To assess whether or not a good is normal or inferior, economists are interested in the cross price elasticity of demand.
a. True
b. False
ANSWER: False
POINTS: 1
REFERENCES: p. 171-172
TOPICS: 6.3 Other Types of Demand Elasticities | The Income Elasticity of Demand
33. If the income elasticity of demand is less than 1.0, it means it is an inferior good.
a. True
b. False
ANSWER: False
POINTS: 1
34. Price elasticity of supply is a measure of the relative responsiveness of the change in price to a change in quantity
supplied.
a. True
b. False
ANSWER: False
POINTS: 1
REFERENCES: p. 174
TOPICS: 6.4 Price Elasticity of Supply | What Is the Price Elasticity of Supply?
35. When a 5% increase in price leads to an 8% increase in quantity supplied, supply is relatively inelastic.
a. True
b. False
ANSWER: False
POINTS: 1
REFERENCES: p. 174
36. When a 9% increase in price leads to a 6% increase in quantity supplied, supply is relatively inelastic.
a. True
b. False
ANSWER: True
POINTS: 1
REFERENCES: p. 174
37. Unlike demand, the longer the time suppliers have to respond to a change in price, the less elastic is the supply curve.
a. True
b. False
ANSWER: False
POINTS: 1
REFERENCES: p. 173
TOPICS: 6.4 Price Elasticity of Supply | How Does time Affect Supply Elasticities?
38. An increase in tax rates on a product will raise more revenue, the more inelastic is the demand curve.
a. True
b. False
ANSWER: True
POINTS: 1
TOPICS: 6.4 Price Elasticity of Supply | Elasticities and Taxes: Combining Supply and Demand Elasticities
39. Given an upward sloping supply curve, the more inelastic is demand, the greater the fraction of the burden of taxation
that is borne by consumers.
a. True
b. False
ANSWER: True
POINTS: 1
40. Price elasticity of demand is defined as:

a. the slope of the demand curve.
b. the slope of the demand curve divided by the price.
c. the percentage change in price divided by the percentage change in quantity demanded.
d. the percentage change in quantity demanded divided by the percentage change in price.
ANSWER: d
POINTS: 1
REFERENCES: p. 157
41. Total revenue for a seller represents the amount that:

a. sellers receive for a good or service which is computed as P ÷ Q.
b. sellers receive for a good or service which is computed as P Q.
c. one buyer spends on a good or service which is computed as P Q.
d. one buyer spends on a good or service which is computed as P ÷ Q.
ANSWER: b
POINTS: 1
REFERENCES: p. 165
Total Revenue?
42. Demand is said to be ____ when the quantity demanded is very responsive to changes in price.
a. independent

b. inelastic
c. unit elastic
d. elastic
ANSWER: d
POINTS: 1
REFERENCES: p. 157
43. Demand is said to be ____ when the quantity demanded changes the same proportion as the price.
a. independent
b. inelastic
c. unit elastic
d. elastic
ANSWER: c
POINTS: 1
REFERENCES: p. 157
44. When demand is elastic:

a. price elasticity of demand is greater than one.
b. consumers are relatively responsive to changes in price.
c. the percentage change in quantity demanded resulting from a price change is greater than the percentage
change in price.
d. all of the above are correct.
ANSWER: d
POINTS: 1
REFERENCES: p. 158
45. If the demand curve is perfectly elastic, the elasticity coefficient is ____ and the curve is ____.
a. zero, vertical
b. infinity, horizontal
c. zero, horizontal
d. infinity, vertical
ANSWER: b
POINTS: 1
REFERENCES: p. 158
46. Shaina and Mariah have a business that provides personal fitness training services. They know that after raising their
prices from $100 to $150 per hour, the quantity of hours they spent delivering training services fell from 45 to 40 hours
per week. The demand for their services is:
a. elastic, with a price elasticity coefficient greater than one.
b. elastic, with a price elasticity coefficient less than one.
c. inelastic, with a price elasticity coefficient greater than one.
d. inelastic, with a price elasticity coefficient less than one.

ANSWER: d
POINTS: 1
47. Shaina and Mariah have a business that provides personal fitness training services. They know that after raising their
prices from $50 to $75 per hour, the quantity of hours they spent delivering training services fell from 90 to 80 hours per
week. The demand for their services is:
a. inelastic, with a price elasticity coefficient greater than one.
b. inelastic, with a price elasticity coefficient less than one.
c. elastic, with a price elasticity coefficient greater than one.
d. elastic, with a price elasticity coefficient less than one.
ANSWER: b
POINTS: 1
48. Shari and Mary have a business that provides personal fitness training services. They know that after raising their
prices from $40 to $60 per hour, the quantity of hours they spent delivering training services fell from 90 to 50 hours per
week. The demand for their services is:
a. inelastic, with a price elasticity coefficient greater than one.
b. inelastic, with a price elasticity coefficient less than one.
c. elastic, with a price elasticity coefficient greater than one.
d. elastic, with a price elasticity coefficient less than one.
ANSWER: c
POINTS: 1
49. A steel mill raises the price of steel by 7%, which results in a 20% reduction in the quantity of steel demanded. The
demand curve facing this firm is:
a. elastic.
b. inelastic.
c. unit elastic.
d. unit inelastic.
ANSWER: a
POINTS: 1
REFERENCES: p. 158
50. A steel mill raises the price of steel by 20%, which results in a 7% reduction in the quantity of steel demanded. The
demand curve facing this firm is:
a. elastic.
b. inelastic.
c. unit elastic.
d. unit inelastic.
ANSWER: b
POINTS: 1
REFERENCES: p. 159
51. If the demand is perfectly elastic, what would happen to the quantity demanded if there is a tiny increase in price?
a. quantity demanded will increase proportionately
b. quantity demanded will fall to zero
c. quantity demanded will register a disproportionately high increase
d. quantity demanded will decrease proportionately
ANSWER: b
POINTS: 1
REFERENCES: p. 158
52. Bailey's Barber Shop knows that a 5% increase in the price of their haircuts results in a 15% decrease in the number of
haircuts purchased. What is the elasticity of demand facing Bailey's Barber Shop?
a. 0.05
b. 0.10
c. 0.33
d. 3.0
ANSWER: d
POINTS: 1
53. Butch’s Barber Shop knows that it faces an elasticity of demand equal to 3.0 over the relevant range of its demand
curve. A 1% increase in its price will do what to the number of haircuts demanded from Butch’s Barber Shop?
a. It will increase by 0.33%
b. It will increase by 3.0%
c. It will decrease by 0.33%
d. It will decrease by 3.0%
ANSWER: d
POINTS: 1
54. Fantastic Cuts Hair Salon knows that a 15% increase in the price of their haircuts will result in a 5% decrease in the
number of haircuts sold. What is the elasticity of demand facing Fantastic Cuts?
a. 0.05
b. 0.10
c. 0.33
d. 3.0
ANSWER: c
POINTS: 1

55. If makers of snake anti-venom implement significant price increases, it is unlikely to significantly affect the use of
anti-venom for treating poisonous snakebites. The demand for anti-venom is:
a. elastic.
b. inelastic.
c. unit elastic.
d. unit inelastic.
ANSWER: b
POINTS: 1
REFERENCES: p. 159
56. If the demand for a good is perfectly inelastic, what will happen to the quantity demanded if there is a tiny increase in
price?
a. quantity demanded will increase proportionately
b. quantity demanded will fall to zero
c. quantity demanded will decrease proportionately
d. quantity demanded will remain the same
ANSWER: d
POINTS: 1
REFERENCES: p. 159
57. A movie theatre raises its admission prices by 10%, which results in a 10% reduction in the quantity of tickets
demanded. The demand curve facing this firm is:
a. elastic.
b. inelastic.
c. unit elastic.
d. unit inelastic.
ANSWER: c
POINTS: 1
Exhibit 6-1
The elasticity in the vicinity of five different points along a demand curve varies as follows:
Point A B C D E
Elasticity 1.25 0.3 1.0 0.2 2.1
58. Refer to Exhibit 6-1. At which of these points would a price increase be accompanied by an increase in total revenue?
a. B and D
b. A and E
c. A, C, and E
d. A and D
ANSWER: a
POINTS: 1
Total Revenue?
59. Refer to Exhibit 6-1. At which of these points would sellers of a product want to increase price to increase their total
revenue?
a. B and D
b. A and E
c. A, C, and E
d. A and D
ANSWER: a
POINTS: 1
Total Revenue?
60. Refer to Exhibit 6-1. In the vicinity of which of these points would a price decrease be accompanied by an increase in
total revenue?
a. B and D
b. A and E
c. A and D
d. B, C, and D
ANSWER: b
POINTS: 1
Total Revenue?
61. Refer to Exhibit 6-1. In the vicinity of which of these points would sellers of a product want to decrease the price to
increase their total revenue?
a. B and D
b. A and E
c. A and D
d. B, C, and D
ANSWER: b
POINTS: 1
Total Revenue?
62. Refer to Exhibit 6-1. In the vicinity of which of these points would sellers find that their total revenue remained
essentially unchanged as they changed their price?
a. B and D
b. A and E
c. C
d. None of the above. That could never happen.
ANSWER: c

POINTS: 1
Total Revenue?
63. The Shoe Emporium reduces the price of its shoes by 50% and finds that the quantity demanded for its shoes increases
more than 80%. The demand for shoes from The Shoe Emporium appears to be:
a. inelastic.
b. elastic.
c. unit elastic.
d. unit inelastic.
ANSWER: b
POINTS: 1
64. When the Blue Ocean Surfboard Company lowered the price of surfboards by 20%, it sold 10% more surfboards. The
price elasticity of demand for surfboards is:
a. 2.
b. 1/2.
c. 1.
d. 20.
ANSWER: b
POINTS: 1
65. If the price elasticity of demand for a good is 5.0, then a 10 percent increase in price results in a
a. 0.5 percent decrease in the quantity demanded.
b. 2.5 percent decrease in the quantity demanded.
c. 5 percent decrease in the quantity demanded.
d. 50 percent decrease in the quantity demanded.
ANSWER: d
POINTS: 1
66. If the short run elasticity of demand for widgets is 0.7 and the long run elasticity of demand for widgets is 1.5, an
increase in price will ____ total revenue in the short run and ____ total revenue in the long run.
a. Increase; increase.
b. Increase; decrease.
c. Decrease; increase.
d. Decrease; decrease.
ANSWER: b
POINTS: 1

Total Revenue?
67. If the short run elasticity of demand for widgets is 0.7 and the long run elasticity of demand for widgets is 1.5, a
decrease in price will ____ total revenue in the short run and ____ total revenue in the long run.
ANSWER: c
POINTS: 1
TOPICS: 6.2 Total Revenue and the Price Elasticity of Demand | How Does the Price Elasticity of De-mand
Impact Total Revenue?
ANSWER: a
POINTS: 1
Total Revenue?
ANSWER: d
POINTS: 1
Total Revenue?
ANSWER: d
POINTS: 1

Total Revenue?
ANSWER: a
POINTS: 1
Total Revenue?
72. If a cut in prices decreases total revenue in the short run, what will it do to total revenue in the long run?
a. It will decrease total revenue in the long run.
b. It will increase total revenue in the long run.
c. It will leave total revenue unchanged in the long run.
d. Any of the above results are possible in the long run.
ANSWER: d
POINTS: 1
Total Revenue?
73. If an increase in prices decreases total revenue in the short run, what will it do to total revenue in the long run?
ANSWER: a
POINTS: 1
Total Revenue?
74. If a cut in prices increases total revenue in the short run, what will it do to total revenue in the long run?
ANSWER: b
POINTS: 1

Total Revenue?
75. If an increase prices increases total revenue in the short run, what will it do to total revenue in the long run?
ANSWER: d
POINTS: 1
Total Revenue?
76. If an increase in prices increases total revenue for a product in the short run, in the long run, it will:
a. Increase total revenue by more.
b. Increase total revenue by less.
c. Decrease total revenue.
d. Either b. or c. could result in the long run.
ANSWER: d
POINTS: 1
Total Revenue?
77. If a decrease in prices increases total revenue for a product in the short run, in the long run, it will:
a. Increase total revenue by more.
b. Increase total revenue by less.
c. Decrease total revenue.
d. Either b. or c. could result in the long run.
ANSWER: a
POINTS: 1
Total Revenue?
78. Suppose there is a 10 percent increase in the price of good X and it causes a 10 percent decrease in the quantity of X
demanded. Price elasticity of demand for X is
a. 0.
b. 1.
c. 10.
d. 100.
ANSWER: b
POINTS: 1

79. Suppose the demand for a good is currently unit elastic over the relevant range. Then a new substitute good is
introduced to the market. As a result, demand over that range is now likely to be
a. Unit elastic.
b. Relatively elastic.
c. Relatively inelastic.
d. Perfectly elastic.
ANSWER: b
POINTS: 1
80. Suppose the demand for a good is currently unit elastic over the relevant range. Then the producer of a substitute good
goes out of business and stops producing it. As a result, demand over that range is now likely to be
a. Unit elastic.
b. Relatively elastic.
c. Relatively inelastic.
d. Perfectly inelastic.
ANSWER: c
POINTS: 1
81. If the price elasticity of demand for a good is 0.25, then a 20 percent decrease in price results in a
a. 0.0625 percent increase in the quantity demanded.
b. 4 percent increase in the quantity demanded.
c. 5 percent increase in the quantity demanded.
d. 80 percent increase in the quantity demanded.
ANSWER: c
POINTS: 1
82. Suppose a 5 percent increase in price causes a 25 percent decrease in quantity demanded. Which of the following
statements is most likely true?
a. There are many substitutes for this good.
b. There are few substitutes for this good.
c. The market for the good is a necessity.
d. The price change persists over a very short period of time.
ANSWER: a
POINTS: 1
REFERENCES: p. 160
TOPICS: 6.1 Shifts in the Demand Curve\ Availability of Close Substitutes
83. The nation's largest cable TV company tested the effect of a price reduction for premium movie channels. It lowered
prices 10% and found that the number of customers rose by almost 50%. This means:
a. the demand curve for the premium movie channels shifted to the right.
b. the supply curve for premium movie channels shifted to the left.
c. the demand for premium movie channels is elastic in this price range.
d. the demand for premium movie channels is inelastic in this price range.
ANSWER: c
POINTS: 1
84. The nation's largest cable TV company tested the effect of a price increase for premium sports channels. It increased
prices 10% and found that the number of customers decreased by more than 40%. This means:
a. the demand curve for the premium sports channels shifted to the right.
b. the supply curve for premium sports channels shifted to the left.
c. the demand for premium sports channels is elastic in this price range.
d. the demand for premium sports channels is inelastic in this price range.
ANSWER: c
POINTS: 1
85. The nation's largest cable TV company tested the effect of a price reduction for premium movie channels. It increased
prices from $20 to $30 per month and found virtually no change in the number of customers. This means:
a. the demand curve for the premium movie channels shifted to the right.
b. the supply curve for premium movie channels shifted to the left.
c. the demand for premium movie channels is very elastic in this price range.
d. the demand for premium movie channels is very inelastic in this price range.
ANSWER: d
POINTS: 1
86. If a small change in price will lead to an infinite change in the quantity demanded, then the demand curve is:
a. horizontal.
b. vertical.
c. inclined.
d. non-linear.
ANSWER: a
POINTS: 1
REFERENCES: p. 158
87. If a small change in price will lead to an infinite change in the quantity demanded, then the demand curve is:
a. Perfectly elastic.
b. Perfectly inelastic.
c. Downward sloping.
d. non-linear
ANSWER: a
POINTS: 1
REFERENCES: p. 158
88. The price elasticity of demand coefficient for gourmet coffee is estimated to be equal to 1.6. It is expected, therefore,
that a 10% increase in price would lead to:
a. a 16% decrease in the quantity of gourmet coffee demanded.
b. a 16% increase in the quantity of gourmet coffee demanded.
c. an 8% decrease in the quantity of gourmet coffee demanded.
d. an 8% increase in the quantity of gourmet coffee demanded.
ANSWER: a
POINTS: 1
89. Which of the following is not a major determinant of the price elasticity of demand?
a. availability of close substitutes
b. proportion of income spent on the good
c. The supply of goods available
d. amount of time that has elapsed since the price change
ANSWER: c
POINTS: 1
90. A recent study at a liberal arts college concluded that demand elasticity is 0.91 for college courses. The administration
is considering a tuition increase to help balance the budget. An economist might advise the school to:
a. decrease tuition in order to increase revenue by boosting enrollment.
b. increase tuition in order to increase revenue.
c. leave tuition unchanged as a change in tuition is unlikely to enhance the school's budget by increasing revenue.
d. decrease tuition because demand for courses is elastic.
ANSWER: b
POINTS: 1
Total Revenue?
91. If Education R Us University thought that it faced an inelastic demand for the regular academic year but an elastic
demand for summer school, and it wanted to increase its total tuition revenue, it would want to____ tuition in the regular
academic year and ____ tuition for summer school
d. Decrease, decrease.
ANSWER: b
POINTS: 1

Total Revenue?
Exhibit 6-2
92. Refer to Exhibit 6-2. Elasticity varies along a linear demand curve. Graph A represents the section of the curve where:
a. the curve is inelastic.
b. Ed is < 1.
c. starting at P2, a decrease in price will lead to a decrease in total revenue.
ANSWER: d
POINTS: 1
TOPICS: 6.2 Total Revenue and the Price Elasticity of Demand | Price Elasticity Changes Along a Linear Demand
Curve
93. Refer to Exhibit 6-2. Elasticity varies along a linear demand curve. Graph B represents the section of the curve where:
a. the curve is elastic.
b. Ed is > 1.
c. starting at P1, an increase in price will lead to a decrease in total revenue.
ANSWER: d
POINTS: 1
Curve
94. Along a linear demand curve, price elasticity of demand is:

a. constant.
b. more elastic to the northwest than to the southeast.
c. less elastic to the northwest than to the southeast.

d. always equal to one.
ANSWER: b
POINTS: 1
Curve
95. A bountiful wheat harvest can be bad news for wheat farmers because the
a. supply curve for an individual wheat farmer is usually perfectly elastic.
b. supply curve for an individual wheat farmer is usually perfectly inelastic.
c. demand for wheat is usually inelastic, meaning that factors that shift supply curve to the right decrease total
revenues to sellers.
d. demand for basic wheat is usually elastic, meaning that factors that shift supply to the right increase total
revenues to sellers.
ANSWER: c
POINTS: 1
Curve
96. When demand and income move in the same direction, a good is said to be:
a. a normal good.
b. an inferior good.
c. a complementary good.
d. a substitute good.
ANSWER: a
POINTS: 1
Exhibit 6-3

97. Refer to Exhibit 6-3. The graph that best illustrates a perfectly inelastic demand curve is:
a. Graph A.
b. Graph B.
c. Graph C.
d. Graph D.
ANSWER: d
POINTS: 1
REFERENCES: p. 159
98. Refer to Exhibit 6-3. The graph that best illustrates a perfectly elastic demand curve is
a. Graph A.
b. Graph B.
c. Graph C.
d. Graph D.
ANSWER: b
POINTS: 1
REFERENCES: p. 158
99. Refer to Exhibit 6-3. The graph that best illustrates a relatively inelastic (but not perfectly inelastic) range along a
demand curve is:
a. Graph A.
b. Graph B.
c. Graph C.
d. Graph D.
ANSWER: c
POINTS: 1
REFERENCES: p. 159
100. What type of demand curve is depicted by the graph below?
a. perfectly inelastic
b. perfectly elastic
c. unit elastic
d. relatively inelastic
ANSWER: a
POINTS: 1
REFERENCES: p. 159
101. When a product's price increases from $9 to $11, the quantity demanded decreases from 1200 to 800. Based on this
information, the price elasticity of demand (in absolute terms) is estimated to be equal to:
a. 0.5.
b. 2.0.
c. 0.25.
d. 4.0.
ANSWER: b
POINTS: 1
102. When a product's price increases from $800 to $1,200, the quantity demanded decreases from 11,000 to 9,000. Based
on this information, the price elasticity of demand (in absolute terms) is estimated to be equal to:
a. 0.5.
b. 2.0.
c. 0.25.
d. 4.0.
ANSWER: a
POINTS: 1

103. The price of a new electronic toy increases from $16 to $24 and the quantity demanded decreases from 1,050 to 950
per month as a result. Based on this information, the price elasticity of demand (in absolute terms) is estimated to be equal
to:
a. 5.00
b. 4.00
c. 0.75
d. 0.25
ANSWER: d
POINTS: 1
104. The price of a new toy increases from $5 to $7 and the quantity demanded decreases from 12,000 to 6,000 per month
as a result. Based on this information, the price elasticity of demand (in absolute terms) is estimated to be equal to:
a. 0.5, indicating relatively elastic demand.
b. 0.5, indicating relatively inelastic demand.
c. 2.0, indicating relatively elastic demand.
d. 2.0, indicating relatively inelastic demand.
ANSWER: c
POINTS: 1
105. The price of stadium seats at a baseball game increases from $20 to $30 and ticket sales fall from 45,000 per game to
35,000 per game. If other things remained constant, then it appears that the price elasticity of demand is:
a. elastic.
b. inelastic.
c. unit elastic.
d. unit inelastic.
e. equal to zero.
ANSWER: b
POINTS: 1
106. A price cut will decrease the total revenue a firm receives if the demand for its product is:
a. elastic.
b. inelastic.
c. unit elastic.
d. unit inelastic.
ANSWER: b
POINTS: 1
Total Revenue?
107. A price cut will increase the total revenue a firm receives if the demand for its product is:
a. elastic.
b. inelastic.
c. unit elastic.
d. unit inelastic.
ANSWER: a
POINTS: 1
Total Revenue?
108. A jeweler cut prices in his store by 20% and the dollar value of his sales fell by 20%. This is indicative of:
a. elastic demand.
b. inelastic demand.
c. perfectly elastic demand.
d. perfectly inelastic demand.
ANSWER: d
POINTS: 1
Total Revenue?
109. A jeweler cut prices in his store by 20%. As a result:

a. Its total revenue would fall by 20% if the elasticity of demand was zero.
b. Its total revenue would fall, but by less than 20% if the elasticity of demand is greater than zero but less than
one.
c. Its total revenue would rise if the elasticity of demand is greater than one.
d. All of the above would be true.
ANSWER: d
POINTS: 1
Total Revenue?
110. If demand is unit elastic:

a. Total revenue and prices rise and fall together.
b. Total revenue rises as price falls.
c. Total revenue falls as price rises.
d. Total revenue remains constant as price rises or falls.
ANSWER: d
POINTS: 1
Curve
111. When the price of ulcer medication increased by $20 per 100 tablets, a drug company's revenue increased by $10
million. Its elasticity of demand coefficient (in absolute terms) must be:
a. zero.
b. greater than one.
c. less than one.
d. infinitely large.
ANSWER: c
POINTS: 1
Total Revenue?
112. Which of the following is associated with relatively elastic demand?

a. Few substitutes; large portion of income; short time span
b. Many substitutes; large portion of income; long time span
c. Few substitutes; small portion of income; short time span
d. Many substitutes; small portion of income; long time span
ANSWER: b
POINTS: 1
113. If the demand curve for a product was vertical, then the elasticity of demand would be:
a. equal to zero.
b. equal to one.
c. greater than one, but less than infinity.
d. equal to infinity.
ANSWER: a
POINTS: 1
REFERENCES: p. 159
114. If the demand curve for a product is horizontal, then the elasticity of demand is:
a. equal to zero.
b. equal to one.
c. greater than one, but less than infinity.
ANSWER: d
POINTS: 1
REFERENCES: p. 158
Exhibit 6-4

115. Refer to Exhibit 6-4. With reference to Graph A, at a price of $10, total revenue equals:
a. $200.
b. $400.
c. $500.
d. $1,000.
ANSWER: b
POINTS: 1
Total Revenue?
116. Refer to Exhibit 6-4. With reference to Graph A, at a price of $5, total revenue equals:
a. $200.
b. $400.
c. $500.
d. $1,000.
ANSWER: c
POINTS: 1
Total Revenue?
117. Refer to Exhibit 6-4. Graph A represents a demand curve that is relatively ____in the range illustrated. Total revenue
____ as the price decreases from $10 to $5.
a. inelastic; decreases
b. elastic; decreases
c. elastic; increases
d. inelastic; increases
ANSWER: c
POINTS: 1
Total Revenue?

118. Refer to Exhibit 6-4. With reference to Graph B, at a price of $5, total revenue equals:
a. $200.
b. $300.
c. $250.
d. $150.
ANSWER: a
POINTS: 1
Total Revenue?
119. Refer to Exhibit 6-4. Graph B represents a demand curve that is relatively ____in the range illustrated. Total revenue
____ as the price decreases from $10 to $5.
a. inelastic; decreases
b. elastic; decreases
c. elastic; increases
d. inelastic; increases
ANSWER: a
POINTS: 1
Total Revenue?
120. The Book Nook reduces prices by 20%. If the dollar value of The Book Nook's sales remain constant, it indicates
that:
a. the quantity of books sold remains constant.
b. the demand curve is horizontal.
c. the demand curve is vertical.
d. the quantity of books sold increases by 20%.
ANSWER: d
POINTS: 1
Total Revenue?
121. Evaluate the following statements:

I. The slope of the demand curve is always equal to the elasticity of demand.
II. Moving down along a downward-sloping, straight-line demand curve, the elasticity of
demand falls.
a. (I) and (II) are both true.

b. (I) is true and (II) is false.
c. (I) is false and (II) is true.
d. (I) and (II) are both false.
ANSWER: c
POINTS: 1

Curve
122. A subsidy to wheat farmers reduces the price of a bushel of wheat from $2.50 to $2 per bushel. The equilibrium
quantity of wheat sold prior to the subsidy was equal to 200,000 bushels. Predict the new equilibrium quantity of wheat
after the imposition of the subsidy given that the demand for wheat is known to be unit elastic.
a. 100,000 bushels
b. 200,000 bushels
c. 250,000 bushels
d. 400,000 bushels
ANSWER: c
POINTS: 1
123. The following schedule represents a portion of Kate's demand for sub sandwiches.
Quantity Demanded
Price per Month
$6 3
$5 5
$4 8
Along this portion of Kate's demand curve for sub sandwiches, price elasticity of demand is:
a. equal to zero.
b. less than one.
c. equal to one.
d. greater than one.
ANSWER: d
POINTS: 1
124. The following schedule represents a portion of Tim's demand for video rentals each month.
Quantity Demanded
Price per Month
$4 8
$3 9
$2 10
Along this portion of Tim's demand curve for video rentals, price elasticity of demand is:
a. equal to zero.
b. less than one.
c. equal to one.
d. greater than one.
ANSWER: b
POINTS: 1

125. If most passenger trains operate far below full capacity and demand is ____, reducing travel fares would be likely to
increase total revenue.
a. inelastic
b. unit elastic
c. unit inelastic
d. elastic
ANSWER: d
POINTS: 1
Total Revenue?
126. Which of the following is associated with a more elastic demand curve?
a. availability of many close substitutes
b. a greater amount of time for consumers to respond to a price change
c. a large percentage of income spent on the good in question
d. all of the above
ANSWER: d
POINTS: 1
127. Which of the following is associated with a less elastic demand curve?
a. availability of many close substitutes
b. a greater amount of time for consumers to respond to a price change
c. a smaller percentage of income spent on the good in question
d. all of the above
ANSWER: c
POINTS: 1
128. A "war on drugs" is waged, and, as a result, a larger quantity of drugs flowing into the United States is seized and
more drug traffickers are arrested. If demand for drugs is inelastic, one would expect the total expenditure on drugs to:
a. decrease.
b. increase.
c. stay constant.
d. There is not enough information available to make a determination.
ANSWER: b
POINTS: 1
Total Revenue?
129. A "war on drugs" is waged, and, as a result, a larger quantity of drugs flowing into the United States is seized and
more drug traffickers are arrested. If demand for drugs is relatively elastic, one would expect the total expenditure on
drugs to:
a. decrease.
b. increase.
c. stay constant.
d. There is not enough information available to make a determination.
ANSWER: a
POINTS: 1
Total Revenue?
130. If an increase in price causes total expenditure on a product to decrease, then the price elasticity of demand is:
a. inelastic.
b. elastic.
c. unit elastic.
d. zero.
ANSWER: b
POINTS: 1
Total Revenue?
131. A 25% decrease in the price of breakfast cereal leads to a 20% increase in the quantity of cereal demanded. As a
result:
a. total revenue will decrease.
b. total revenue will increase.
c. total revenue will remain constant.
d. the elasticity of demand will increase.
ANSWER: a
POINTS: 1
Total Revenue?
132. The price elasticity of demand for tickets to local hockey matches is estimated to be equal to 0.89. In order to boost
ticket revenues, an economist would advise:
a. decreasing the price of hockey match tickets because demand is elastic.
b. increasing the price of hockey match tickets because demand is elastic.
c. not changing the price of hockey match tickets because demand is unit elastic.
d. increasing the price of hockey match tickets because demand is inelastic.
ANSWER: d
POINTS: 1
Total Revenue?
133. Which of the following is associated with inelastic demand?

a. a limited amount of time for consumers to respond to a price change
b. availability of many close substitutes
c. large percentage of income spent on the good in question
d. all of the above
ANSWER: a
POINTS: 1
134. Which of the following is not associated with more inelastic demand?
a. a limited amount of time for consumers to respond to a price change
b. availability of many close substitutes
c. large percentage of income spent on the good in question
d. Neither b. or c. is associated with more inelastic demand
ANSWER: d
POINTS: 1
135. A 10% decrease in the price of energy bars leads to a 20% increase in the quantity of energy bars demanded. It
appears that:
a. demand is inelastic and total revenue will decrease.
b. demand is inelastic and total revenue will increase.
c. demand is elastic and total revenue will decrease.
d. demand is elastic and total revenue will increase.
ANSWER: d
POINTS: 1
Total Revenue?
136. The elasticity of supply is defined as the ____ change in quantity supplied divided by the ____ change in price.
a. total; percentage
b. percentage; marginal
c. marginal; percentage
d. percentage; percentage
ANSWER: d
POINTS: 1
REFERENCES: p. 173
137. Supply is said to be ____ when the quantity supplied is very responsive to changes in price.
a. independent
b. inelastic
c. unit elastic
d. elastic
ANSWER: d
POINTS: 1
REFERENCES: p. 174
138. Supply is said to be ____ when the quantity supplied is not very responsive to changes in price.
a. independent
b. inelastic
c. unit elastic
d. elastic
ANSWER: b
POINTS: 1
REFERENCES: p. 174
139. If the measured elasticity of supply coefficient equals 0.6, then supply is:
a. perfectly elastic.
b. elastic.
c. unit elastic.
d. inelastic.
ANSWER: d
POINTS: 1
REFERENCES: p. 174
140. If the measured elasticity of supply coefficient equals 1.3, then supply is:
a. perfectly elastic.
b. elastic.
c. unit elastic.
d. inelastic.
ANSWER: b
POINTS: 1
REFERENCES: p. 174
141. If the supply curve for a product is vertical, then the elasticity of supply is:
a. equal to zero.
b. equal to one.
c. greater than one but less than infinity.
ANSWER: a
POINTS: 1
REFERENCES: p. 174
142. If the supply curve for a product is horizontal, then the elasticity of supply is:
a. equal to zero.
b. equal to one.
c. greater than one but less than infinity.
ANSWER: d
POINTS: 1
REFERENCES: p. 174
143. If the estimated elasticity of supply coefficient equals 0.85, then:

a. the supply curve is vertical.
b. the demand curve is horizontal.
c. supply is unit elastic.
d. supply is relatively inelastic.
ANSWER: d
POINTS: 1
REFERENCES: p. 174
144. Ceteris paribus, if a 4% increase in price leads to a 6% increase in the quantity supplied, then:
a. supply is elastic.
b. supply is unit elastic.
c. supply is inelastic.
d. the supply curve is perfectly vertical.
ANSWER: a
POINTS: 1
REFERENCES: p. 173
145. The elasticity of supply coefficient for bicycles is estimated to be equal to 1.5. It is expected, therefore, that a 4%
increase in price would lead to:
a. a 4% decrease in the quantity of bicycles supplied.
b. a 4% increase in the quantity of bicycles supplied.
c. a 6% decrease in the quantity of bicycles supplied.
d. a 6% increase in the quantity of bicycles supplied.
ANSWER: d
POINTS: 1
REFERENCES: p. 173
146. The elasticity of supply coefficient for lobster is estimated to be equal to 0.6. It is expected, therefore, that a 10%
decrease in price would lead to:
a. a 6% decrease in the quantity of lobsters supplied.
b. a 6% increase in the quantity of lobsters supplied.
c. a 10% decrease in the quantity of lobsters supplied.
d. a 10% increase in the quantity of lobsters supplied.
ANSWER: a
POINTS: 1
REFERENCES: p. 173
147. Ceteris paribus, if an 6% increase in quantity supplied is caused by an 8% increase in price, then:
ANSWER: c
POINTS: 1
REFERENCES: p. 173
148. Ceteris paribus, if a 6% increase in price causes an 8% increase in quantity supplied, then:
ANSWER: a
POINTS: 1
REFERENCES: p. 173
149. If price increases 6% and the quantity exchanged increases 4%, what does that tell us about the elasticity of demand?
a. Demand is elastic.
b. Demand is unit elastic.
c. Demand is inelastic.
d. It tells us nothing about the elasticity of demand.
ANSWER: d
POINTS: 1
REFERENCES: p. 173
150. If price increases 6% and the quantity exchanged decreases 6%, what does that tell us about the elasticity of supply?
a. It tells us nothing about the elasticity of supply.
b. Supply is elastic.
c. Supply is inelastic.
d. Supply is unit elastic.
ANSWER: a
POINTS: 1
REFERENCES: p. 173
151. If the short run elasticity of supply for a product is 0.8, in the long run elasticity, supply:
a. Is inelastic.
b. Is unit elastic.
c. Is inelastic.
d. Any of the above could be true of the product’s long run elasticity of supply.
ANSWER: d
POINTS: 1
REFERENCES: p. 173
152. An increase in demand will increase total revenue:

a. Always.
b. Only if supply is relatively inelastic.
c. Only if supply is relatively elastic.
d. Only if supply is unit elastic.
ANSWER: a
POINTS: 1
REFERENCES: p. 173
153. A decrease in demand will increase total revenue:

a. Always.
b. Only if supply is relatively inelastic.
c. Only if supply is relatively elastic.
d. Never.
ANSWER: d
POINTS: 1
REFERENCES: p. 173
154. For a given change in demand:

a. Quantity will change relatively more in the long run than the short run.
b. Quantity will change relatively more in the short run than the long run.
c. Price will change relatively more in the long run than the short run.
d. Both b. and c. are true.
ANSWER: a
POINTS: 1
REFERENCES: p. 173
155. For a given change in demand:

a. The quantity exchanged will change relatively more in the long run than the short run.
b. The quantity exchanged will change relatively more in the short run than the long run.
c. The market price will change relatively more in the short run than the long run.
d. Both a. and c. are true.
ANSWER: d
POINTS: 1
REFERENCES: p. 173
156. A perfectly elastic supply curve is:

a. upward sloping to the right.
b. downward sloping to the left.
c. horizontal.
d. vertical.
ANSWER: c
POINTS: 1
REFERENCES: p. 174
157. A perfectly inelastic supply curve is:

a. upward sloping to the right.
b. downward sloping to the left.
c. horizontal.
d. vertical.
ANSWER: d
POINTS: 1
REFERENCES: p. 174
158. The larger the proportion of income spent on a product, other things equal, the:
a. more unit elastic is a consumer's demand.
b. more elastic is a consumer's demand.
c. more inelastic is a consumer's demand.
d. more vertical is a consumer's demand curve.
ANSWER: b
POINTS: 1
159. The longer the time period considered, the price elasticity of demand tends to:
a. decrease.
b. remain constant.
c. increase.
d. converge to zero.
ANSWER: c
POINTS: 1
160. The longer the time period considered, the elasticity of supply tends to:
a. decrease.
b. remain constant.
c. increase.
d. converge to zero.
ANSWER: c
POINTS: 1
161. Elasticity of demand will ____ as the availability of substitutes ____.

a. increase; decreases
b. decrease; increases
c. increase; increases
d. remain unchanged; decreases
ANSWER: c
POINTS: 1
162. Put the following products in order from the least to the most elastic demand: Domino's pizza, pizza, and pizza from
Domino's on the corner of Main Street and 8th Avenue.
a. Domino's pizza; pizza; pizza from Domino's on the corner of Main Street and 8th Avenue
b. pizza; pizza from Domino's on the corner of Main Street and 8th Avenue; Domino's pizza
c. pizza; Domino's pizza; pizza from Domino's on the corner of Main Street and 8th Avenue
d. pizza from Domino's on the corner of Main Street and 8th Avenue; Domino's pizza; pizza
ANSWER: c
POINTS: 1
163. If the supply curve is perfectly elastic, then an increase in demand will:
a. increase both the price and the quantity exchanged.
b. increase the price but result in no change in the quantity exchanged.
c. increase the quantity exchanged but result in no change in the price.
d. decrease the price but not change the quantity exchanged.
ANSWER: c
POINTS: 1
REFERENCES: p. 174
164. If the demand curve is perfectly elastic, then an increase in supply will:
d. decrease the price but result in no change in the quantity exchanged.
ANSWER: c
POINTS: 1
REFERENCES: p. 158
165. If the demand curve is perfectly inelastic, then an increase in supply will:
d. decrease the price but result in no change in the quantity exchanged.
ANSWER: d
POINTS: 1
REFERENCES: p. 159
166. If the supply curve for housing is perfectly inelastic, a reduction in demand will cause the equilibrium price to:
a. rise and the equilibrium quantity to fall.
b. rise and the equilibrium quantity to stay the same.
c. fall and the equilibrium quantity to fall.
d. fall and the equilibrium quantity to stay the same.
ANSWER: d
POINTS: 1
REFERENCES: p. 174
167. If the demand curve for a life-saving medicine is perfectly inelastic, a reduction in supply will cause the equilibrium
price to:
c. rise and the equilibrium quantity to rise.
d. stay the same and the equilibrium quantity to fall.
ANSWER: b
POINTS: 1
REFERENCES: p. 158
168. If the supply curve for aspirin is perfectly elastic, a reduction in demand will cause the equilibrium price to:
c. fall and the equilibrium quantity to fall.
d. stay the same and the equilibrium quantity to fall.
ANSWER: d
POINTS: 1
REFERENCES: p. 174
169. What type of demand curve is depicted by the graph below?

a. perfectly elastic
b. relatively elastic
c. unit elastic
d. perfectly inelastic
ANSWER: a
POINTS: 1
REFERENCES: p. 158
170. A tax is imposed on orange juice. Consumers will bear more of the burden of the tax:
a. If the demand for orange juice is relatively inelastic and the supply is relatively elastic.
b. If the demand for orange juice is relatively elastic and the supply is relatively inelastic.
c. If the supply for orange juice is perfectly inelastic.
d. none of the above
ANSWER: a
POINTS: 1
171. A tax is imposed on wine. Sellers will bear no burden from this tax if the:
a. demand for wine is perfectly inelastic.
b. demand for wine is perfectly elastic.
c. demand for wine is unit elastic.
d. supply curve for wine is perfectly inelastic.
ANSWER: a
POINTS: 1
172. A tax is imposed on orange juice. Consumers will bear the full burden of this tax if the:
a. price elasticity of demand for orange juice equals 1.0.
b. demand for orange juice is perfectly elastic.
c. demand for orange juice is unit elastic.
d. demand curve for orange juice is perfectly inelastic.
ANSWER: d
POINTS: 1

173. A tax is imposed on wine. Sellers will bear the full burden of this tax if the:
a. demand for wine is perfectly inelastic.
b. price elasticity of demand for wine equals 1.0.
c. demand for wine is unit elastic.
d. supply for wine is perfectly inelastic.
ANSWER: d
POINTS: 1
174. If the demand for apples is highly elastic and the supply is highly inelastic, then if a tax is imposed on apples it will
be paid:
a. largely by the sellers of apples.
b. largely by the buyers of apples.
c. equally by the sellers and buyers of apples.
d. by the government.
ANSWER: a
POINTS: 1
175. The government proposes a tax on flowers in order to boost its revenue. Consumers will bear no part of this tax if
the:
a. demand for flowers is perfectly inelastic.
b. supply of flowers is perfectly elastic.
c. demand for flowers is perfectly elastic.
d. demand for flowers is unit elastic.
ANSWER: c
POINTS: 1
176. The government proposes a tax on flowers in order to boost its revenue. Consumers will bear all of this tax if the:
a. demand for flowers is perfectly inelastic.
b. supply of flowers is perfectly inelastic.
c. demand for flowers is perfectly elastic.
d. demand for flowers is unit elastic.
ANSWER: a
POINTS: 1
177. The government proposes a tax on flowers in order to boost its revenue. If the elasticity of demand is 1.3 and the
elasticity of supply is 0.7:
a. Consumers will bear the majority of the burden of the tax.
b. Producers will bear the majority of the burden of the tax.
c. Consumers and producers will bear equal shares of the burden of the tax.
d. It does not tell us enough to reveal whether consumers or producers will bear most of the burden of the tax.
ANSWER: b
POINTS: 1
178. If the elasticity of demand for a good is greater than the government expected:
a. Consumers will bear more of the burden of the tax than the government expected.
b. Producers will bear more of the burden of the tax than the government expected.
c. The tax will raise less revenue than the government expected.
d. Both b. and c. are true.
ANSWER: b
POINTS: 1
179. If the elasticity of supply for a good is greater than the government expected:
c. The tax will raise more revenue than the government expected.
ANSWER: a
POINTS: 1
180. If the elasticity of supply for a good is greater than the government expected:
c. The tax will raise less revenue than the government expected.
ANSWER: d
POINTS: 1
181. A tax on a good

a. raises the price that buyers effectively pay and raises the price that sellers effectively receive.
b. raises the price that buyers effectively pay and lowers the price that sellers effectively receive.
c. lowers the price that buyers effectively pay and raises the price that sellers effectively receive.
d. lowers the price that buyers effectively pay and lowers the price that sellers effectively receive.
ANSWER: b
POINTS: 1

182. When a tax is placed on a good
a. the price paid by buyers rises, and the price received by sellers rises.
b. the price paid by buyers rises, and the price received by sellers falls.
c. the price paid by buyers falls, and the price received by sellers rises.
d. the price paid by buyers falls, and the price received by sellers falls.
ANSWER: b
POINTS: 1
183. Taxes affect

a. only buyers.
b. only sellers.
c. only buyers and sellers.
d. buyers, sellers, and government tax revenue.
ANSWER: d
POINTS: 1
184. Buyers of a good will bear the larger part of the tax burden, and sellers will bear a smaller part of the tax burden,
when the
a. tax is placed on the sellers of the good.
b. tax is placed on the buyers of the good.
c. supply of the product is more elastic than the demand for the good.
d. demand for the product is more elastic than the supply of the good.
ANSWER: c
POINTS: 1
185. Sellers of a good will bear the larger part of the tax burden, and buyers will bear a smaller part of the tax burden,
when the
a. tax is placed on the sellers of the good.
b. tax is placed on the buyers of the good.
c. supply of the good is more elastic than the demand for the product.
d. demand for the good is more elastic than the supply of the product.
ANSWER: d
POINTS: 1
186. When a tax is imposed on a good for which the supply is relatively elastic and the demand is relatively inelastic,
a. buyers of the good will incur most of the burden of the tax.
b. sellers of the good will incur most of the burden of the tax.
c. buyers and sellers will each incur 50 percent of the burden of the tax.

d. the equilibrium quantity will increase.
ANSWER: a
POINTS: 1
187. When a good is taxed, the tax burden

a. falls disproportionately on the side of the market that is more elastic.
b. falls disproportionately on the side of the market that is more inelastic.
c. falls disproportionately on the side of the market that is closer to unit elastic.
d. is not impacted by the relative elasticities of supply and demand.
ANSWER: b
POINTS: 1
188. When a tax is imposed on a good for which both demand and supply are very elastic,
a. sellers effectively pay the majority of the tax.
b. buyers effectively pay the majority of the tax.
c. the tax burden is equally divided between buyers and sellers.
d. None of the above is correct; further information would be required to determine how the burden of the tax is
distributed between buyers and sellers.
ANSWER: d
POINTS: 1
189. Which of the following statements is correct regarding the imposition of a tax on gasoline?
a. The incidence of the tax always falls on the buyer.
b. The incidence of the tax depends upon the price elasticities of demand and supply.
c. The incidence of the tax always falls on the sellers.
d. The oil company will ultimately pay.
ANSWER: b
POINTS: 1
190. Certain goods are related so that an increase in the price of one good decreases the demand for the other. These
goods are:
a. complements.
b. substitutes.
c. luxury goods.
d. competing goods.
ANSWER: a
POINTS: 1
191. Two goods are considered substitutes when the cross elasticity of demand is ___ and complements when the cross
elasticity of demand is ___.
a. Greater than zero, less than zero.
b. Less than zero, greater than zero.
c. Greater than one, less than one.
d. Less than one, greater than one.
ANSWER: a
POINTS: 1
192. The measure used to determine whether two products are substitutes or complements is called the:
a. price elasticity of demand.
b. income elasticity of demand.
c. cross-price elasticity of demand.
d. inverse elasticity of demand.
ANSWER: c
POINTS: 1
193. The definition of cross-elasticity of demand with regard to two products X and Y is:
a. the percentage change in the quantity of X demanded divided by the percentage change in the quantity of Y
demanded.
b. the percentage change in the price of Y divided by the percentage change in the quantity of X demanded.
c. the percentage change in the price of Y divided by the percentage change in the price of X.
d. the percentage change in the demand of one good (good X) divided by the percentage change in the price of
another good (good Y).
ANSWER: d
POINTS: 1
194. Chicken and fish are substitutes. Therefore, the cross elasticity of demand between chicken and fish should be:
a. negative.
b. positive.
c. zero.
d. All of the above are possible.
ANSWER: b
POINTS: 1
195. If the cross elasticity of demand coefficient for potato chips and pretzels equals 1.5:
a. potato chips and pretzels must both be inferior goods.
b. potato chips and pretzels must both be normal goods.
c. potato chips and pretzels must be substitutes.
d. potato chips and pretzels must be complements.
ANSWER: c
POINTS: 1
196. Hot dogs and hot dog buns are complementary goods. The cross price elasticity between hot dogs and hot dog buns:
a. is positive.
b. is equal to zero.
c. is negative.
d. could be any of the above.
ANSWER: c
POINTS: 1
197. Which of the following pairs of goods would most likely exhibit a cross price elasticity of 2.2?
a. hamburgers and fries
b. peanut butter and jelly
c. butter and margarine
d. tennis balls and tennis rackets
ANSWER: c
POINTS: 1
198. Which of the following pairs of goods would most likely exhibit a cross price elasticity of -1.8?
a. orange juice and grapefruit juice
b. coffee and tea
c. a bagel and cream cheese
d. a van and a sport utility vehicle
ANSWER: c
POINTS: 1
199. The formula for calculating the cross price elasticity of demand is:
a. the change in the quantity demanded of one good divided by the change in the price of another good.
b. the percentage change in demand of one good divided by the percentage change in the price of another good.
c. the percentage change in the quantity supplied of one good divided by the percentage change in the price of
another good.
d. the percentage change in the price of one good divided by the percentage change in the quantity demanded of
another good.
ANSWER: b
POINTS: 1
200. If the cross price elasticity between Goods A and B equals 0.7, then a reduction in the price of Good B will:
a. increase the demand for Good A and increase Good A's price as a result.
b. increase the demand for Good A and decrease Good A's price as a result.
c. decrease the demand for Good A and increase Good A's price as a result.
d. decrease the demand for Good A and decrease Good A's price as a result.
ANSWER: d
POINTS: 1
201. If the cross price elasticity between Goods A and B equals -1.3, then a reduction in the price of Good B will:
a. increase the demand for Good A and increase Good A's price as a result.
b. increase the demand for Good A and decrease Good A's price as a result.
c. decrease the demand for Good A and increase Good A's price as a result.
d. decrease the demand for Good A and decrease Good A's price as a result.
ANSWER: a
POINTS: 1
202. If the cross price elasticity of demand for tacos with respect to burritos equals +2.5, then:
a. a 1% increase in the quantity of burritos purchased will lead to a 2.5% increase in the price of a taco.
b. a 10% increase in the price of a burrito will lead to a 25% increase in the quantity of tacos demanded at a
given price.
c. a 1% decrease in the price of a burrito will lead to a 2.5% increase in the quantity of tacos demanded at a given
price.
d. a 1% increase in the quantity of tacos purchased will lead to a 2.5% increase in the price of a burrito.
ANSWER: b
POINTS: 1
203. If the cross price elasticity of demand for fries with respect to hamburgers equals -1.2, then:
a. a 1% increase in the quantity of hamburgers purchased will lead to a 1.2% increase in the price of fries.
b. a 10% increase in the price of a hamburger will lead to a 12% increase in the quantity of fries demanded at a
given price.
c. a 1% decrease in the price of a hamburger will lead to a 1.2% increase in the quantity of fries demanded at a
given price.
d. a 10% increase in the quantity of hamburgers purchased will lead to a 12% increase in the price of fries.
ANSWER: c
POINTS: 1
204. The measure of the relationship between a change in income and the consequent relative change in quantity
demanded at a given price is the:
a. cross elasticity of supply.
b. elasticity of supply.
c. cross elasticity of demand.
d. income elasticity of demand.
ANSWER: d
POINTS: 1
205. Good A has an income elasticity equal to 1.0 and a cross price elasticity with respect to Good B of -0.6. Then:
a. Good A is an inferior good and Goods A and B are substitutes.
b. Good A is an inferior good and Goods A and B are complements.
c. Good A is a normal good and Goods A and B are substitutes.
d. Good A is a normal good and Goods A and B are complements.
ANSWER: d
POINTS: 1
206. Good A has an income elasticity equal to 0.4 and a cross price elasticity with respect to Good B of 1.2. Then:
ANSWER: c
POINTS: 1
207. Good A has an income elasticity equal to -0.8 and a cross price elasticity with respect to Good B of -0.75. Then:
ANSWER: b
POINTS: 1
208. Good A has an income elasticity equal to -1.0 and a cross price elasticity with respect to Good B of 0.9. Then:

ANSWER: a
POINTS: 1
209. If one is interested in knowing whether or not a product is a normal good, one would be interested in the value of the:
a. elasticity of supply.
b. price elasticity of demand.
c. income elasticity of demand.
d. cross-price elasticity of demand.
ANSWER: c
POINTS: 1
210. A good is considered normal when its income elasticity of demand is ___ and inferior when the its income elasticity
of demand is ___.
a. Greater than zero, less than zero.
b. Less than zero, greater than zero.
c. Greater than one, less than one.
d. Less than one, greater than one.
ANSWER: a
POINTS: 1
REFERENCES: p. 170
211. When two goods have positive cross elasticities of demand and positive income elasticities, they are:
a. Normal and substitutes.
b. Normal and complements.
c. Inferior and substitutes.
d. Inferior and complements.
ANSWER: a
POINTS: 1
REFERENCES: p. 169
212. When two goods have negative cross elasticities of demand and negative income elasticities, they are:
ANSWER: d
POINTS: 1
REFERENCES: p. 169
213. When two goods have positive cross elasticities of demand and negative income elasticities, they are:
ANSWER: c
POINTS: 1
REFERENCES: p. 169
214. When two goods have negative cross elasticities of demand and positive income elasticities, they are:
ANSWER: b
POINTS: 1
REFERENCES: p. 169
215. If both of two goods have price elasticities of demand, price elasticities of supply, income elasticities of demand and
cross elasticities of demand all equal to 2.0:
a. They are both normal and substitutes.
b. They are both normal and complements.
c. They are both inferior and substitutes.
d. They are both inferior and complements.
ANSWER: a
POINTS: 1
216. If one is interested in knowing whether or not a pair of products are substitutes, one would be interested in the value
of the:
a. elasticity of supply.
b. price elasticity of demand.
c. income elasticity of demand.
d. cross-price elasticity of demand.
ANSWER: d
POINTS: 1
217. The income elasticities of Products A and B and their cross-price elasticities with respect to Product C are as follows:
Income Elasticity Cross-Price Elasticity
Product A +1.7 -0.6
Product B -0.8 +0.9
From this information, one can conclude that:
a. Product A is inferior, Product B is normal, Product A is a complement to Product C, and Product B is a
substitute for Product C.
b. Product A is normal, Product B is inferior, Product A is a complement to Product C, and Product B is a
c. Product A is normal, Product B is inferior, Product A is a substitute for Product C, and Product B is a
complement to Product C.
d. Product A is inferior, Product B is normal, Product A is a substitute for Product C, and Product B is a
ANSWER: b
POINTS: 1
218. The income elasticities of Products A and B and their cross price elasticities with respect to Product C are as follows:
Income Elasticity Cross Price Elasticity
Product A -2.1 +2.5
Product B +0.6 -0.75
From this information, one can conclude that:
a. Product A is normal, Product B is inferior, Product A is a complement to Product C, and Product B is a
b. Product A is normal, Product B is inferior, Product A is a substitute for Product C, and Product B is a
c. Product A is inferior, Product B is normal, Product A is a substitute for Product C, and Product B is a
d. Product A is inferior, Product B is normal, Product A is a complement to Product C, and Product B is a
ANSWER: c
POINTS: 1
219. Which of the following is false?

a. The price elasticity of demand measures the responsiveness of quantity demanded to a change in price.
b. The price elasticity of demand is defined as the percentage change in quantity demanded divided by the
percentage change in price.
c. If demand is elastic, it means the quantity demanded changes by a relatively larger amount than the price
change.
d. All of the above are true.
ANSWER: d
POINTS: 1
REFERENCES: p. 157
220. Which of the following would be most inelastic with regard to price?
a. a Samsung LCD television
b. a Sony LCD television
c. all LCD televisions
d. Demand for all of the above would be equally elastic because none are necessities.
ANSWER: c
POINTS: 1
221. As the time to respond to a change in market conditions increases, the odds of demand being elastic:
a. Increase.
b. Decrease.
c. Stay the same.
d. Cannot be determined.
ANSWER: a
POINTS: 1
222. As the time to respond to a change in market conditions increases, the odds of supply being elastic:
a. Increase.
b. Decrease.
c. Stay the same.
d. Cannot be determined.
ANSWER: a
POINTS: 1
TOPICS: 6.4 Price Elasticity of Supply | How does Time Affect Supply Elasticities?
223. For a given increase in price, a greater elasticity of demand will result in a greater
a. increase in quantity demanded.
b. increase in demand.
c. decrease in quantity demanded.
d. decrease in demand.
ANSWER: c
POINTS: 1
REFERENCES: p. 157
224. The long run demand curve for wheat is likely to be:
a. more elastic than the short run demand curve for wheat.
b. more inelastic the short run demand curve for wheat.
c. the same as the short run demand curve for wheat.
d. more inelastic than the short run supply of wheat.
ANSWER: a
POINTS: 1
225. In the graph below, a tax increase would be paid:

a. largely by the sellers.
b. largely by the buyers.
c. equally by the sellers and buyers.
ANSWER: b
POINTS: 1
226. If the elasticity of demand coefficient for a good is one-sixth (in absolute terms), we know:
a. that for every 1% increase in quantity, there will be a 6% increase in price.
b. that for every 1% increase in quantity, there will be a 6% decrease in price.
c. that for every 6% increase in quantity, there will be a 1% increase in price.
d. that for every 6% increase in quantity, there will be a 1% decrease in price.
ANSWER: b
POINTS: 1
REFERENCES: p. 157
227. If the elasticity of supply coefficient for a good is one-sixth (in absolute terms), we know:
ANSWER: a
POINTS: 1
REFERENCES: p. 157
TOPICS: 6.4 Price Elasticity of Supply | Types of Supply Curves
228. If the elasticity of demand for mothballs is 0.50, then moving along the demand for mothballs:
a. A 20% rise in the price of mothballs will lead to a 10% fall in the quantity of mothballs demanded.
b. A 10% rise in the price of mothballs will lead to a 20% fall in the quantity of mothballs demanded.
c. A 20% rise in the price of mothballs will lead to a 10% rise in the quantity of mothballs demanded.
d. A 10% rise in the price of mothballs will lead to a 20% rise in the quantity of mothballs demanded.
ANSWER: a
POINTS: 1
REFERENCES: p. 157
229. If the short run elasticity of demand for bus service is 1.01, we would expect the long run elasticity of demand to be:
a. relatively inelastic.
b. greater than 1.01.
c. equal to 1.01.
d. less than 1.01.
ANSWER: b
POINTS: 1
230. If the elasticity of demand coefficient for a good is 6 (in absolute terms), we know:
ANSWER: d
POINTS: 1
REFERENCES: p. 157

c. equally by the sellers and buyers.
ANSWER: a
POINTS: 1
232. When demand is relatively inelastic, a 5% increase in price will:

a. increase total revenue by more than 5%.
b. increase total revenue by less than 5%.
c. decrease total revenue by more than 5%.
d. decrease total revenue by more than 5%.
ANSWER: b
POINTS: 1
Total Revenue?

233. If a university charged a lower price for tuition during summer school than during the regular session, in search of
added total revenue,
a. administrators likely believe that demand is more elastic during summer school than during the regular
session.
b. administrators likely believe that demand is less elastic during summer school than during the regular session.
c. it indicates nothing about likely differences in the elasticity of demand during summer school than during the
regular session.
d. administrators likely believe that demand is both lower and less elastic during summer school than during the
regular session.
ANSWER: a
POINTS: 1
Total Revenue?

a. When demand is elastic, quantity and total revenue change in the same direction along it.
b. When demand is inelastic, quantity and total revenue change in the opposite direction along it.
c. When supply is elastic, quantity and total revenue change in the same direction along it.
d. When supply is inelastic, quantity and total revenue change in the opposite direction along it.
ANSWER: d
POINTS: 1
TOPICS: 6.2 Total Revenue and the Price Elasticity of Demand

c. Roughly equally by the sellers and buyers.
ANSWER: c
POINTS: 1
236. If 400 apple pies are sold at $4 per pie, but 600 apple pies are sold at $3 per pie, we know:
a. that the demand for pies is elastic over that price range.
b. that the demand for pies is inelastic over that price range.
c. that the demand for pies is unit elastic over that price range.
d. nothing about the elasticity of demand.
ANSWER: a
POINTS: 1
237. A decrease in demand will:

a. reduce total revenue.
b. increase total revenue.
c. increase total revenue only if demand is inelastic.
d. increase total revenue only if demand is elastic.
ANSWER: a
POINTS: 1
REFERENCES: p. 165
Total Revenue?
238. An increase in demand will:

a. reduce total revenue.
b. increase total revenue.
c. increase total revenue only if supply is inelastic.
d. increase total revenue only if supply is inelastic.
ANSWER: b
POINTS: 1
REFERENCES: p. 165
TOPICS: 6.4 Price Elasticity of Supply | Types of Supply Curves
239. If the price of a product is lowered from $300 to $270, and as a result the quantity demanded increases from 25 to 30
units, we know that in that range:
a. demand has declined.
b. demand is elastic.
c. demand is unit elastic.
d. demand is inelastic.
e. demand is perfectly elastic.
ANSWER: b
POINTS: 1
240. Which of the following would most likely feature elastic demand?
a. heart surgery
b. a required textbook
c. fresh green beans
d. all of the above
ANSWER: c
POINTS: 1
241. If the elasticity of demand for bagels is equal to 1, moving along the demand curve for bagels, an increase in price
will:
a. not affect the quantity purchased.
b. decrease the quantity demanded and increase total revenue.
c. decrease the quantity demanded and decrease total revenue.
d. decrease the quantity demanded and leave total revenue unchanged.
ANSWER: d
POINTS: 1
Total Revenue?
242. An increase in the price of good X due to a reduction in its supply will:
a. increase the total revenue of good X.
b. decrease the total revenue of good X.
c. increase the total revenue of goods that are substitutes for X.
d. increase the total revenue of goods that are complements for X.
ANSWER: c
POINTS: 1
243. If the short run elasticity of demand for a good was greater than 1, an increase in the price of the good would tend to:
a. increase total revenue in both the short run and the long run.
b. increase total revenue in the short run but not the long run.
c. decrease total revenue in the short run and the long run, but by more in the short run.
d. decrease total revenue in the short run and the long run, but by more in the long run.
ANSWER: d
POINTS: 1
Total Revenue?
244. Assume an industry initially in equilibrium has a price floor imposed at a price above the equilibrium price. Total
revenue received by the producers from sales will:
a. rise as a result.
b. rise as a result only if supply is elastic.
c. rise as a result only if demand is elastic.
d. rise as a result only if demand is inelastic.
ANSWER: d
POINTS: 1
Total Revenue?

245. Assume an industry initially in equilibrium has a price ceiling imposed at a price below the equilibrium price. Total
revenue received by the producers from sales will:
a. rise as a result.
b. rise as a result only if supply is inelastic.
c. rise as a result only if demand is inelastic.
d. fall as a result.
ANSWER: d
POINTS: 1
REFERENCES: p. 165
Total Revenue?
246. If 400 apple pies are sold at $4 per pie, but 500 apple pies are sold at $3 per pie, we know from the total revenue rule:
a. that the demand for pies is elastic over that price range.
b. that the demand for pies is inelastic over that price range.
c. that the demand for pies is unit elastic over that price range.
d. nothing about the elasticity of demand.
ANSWER: b
POINTS: 1

a. The price elasticity of supply measures the sensitivity of the quantity supplied to the changes in the price of
the good.
b. The price elasticity of supply is defined at the percentage change in the quantity supplied divided by the
percentage change in price.
c. Goods with a supply elasticity that is greater than 1 are called relatively elastic in supply.
d. When supply is inelastic, a 1 percent change in the price of a good will induce a more than 1 percent change in
the quantity supplied.
ANSWER: d
POINTS: 1
REFERENCES: p. 173
248. For a given increase in price, the greater is the elasticity of supply, the greater is the resulting
a. decrease in quantity supplied.
b. decrease in supply.
c. increase in quantity supplied.
d. increase in supply.
ANSWER: c
POINTS: 1
REFERENCES: p. 173
249. An increase in demand will increase the quantity sold but not the price in a market if:
a. supply is perfectly elastic
b. supply is perfectly inelastic
c. supply is relatively elastic
d. supply is relatively inelastic
ANSWER: a
POINTS: 1
REFERENCES: p. 174
250. If a price decrease leads to an increase in total revenue, demand must be:
a. perfectly inelastic.
b. relatively inelastic.
c. relatively elastic.
d. unit elastic.
ANSWER: c
POINTS: 1
Total Revenue?
251. If the elasticity of supply coefficient for a good is 6, we know:

ANSWER: c
POINTS: 1
REFERENCES: p. 173
252. If two goods both had positive cross elasticities and positive income elasticities,
a. they are both normal and substitutes for one another.
b. they are both normal and complements for one another.
c. they are both inferior and substitutes for one another.
d. they are both inferior and complements for one another.
ANSWER: a
POINTS: 1
253. A positive income elasticity of demand for a good

a. means it is a substitute.
b. means it is a complement.
c. it is a normal good.
d. it is an inferior good.
ANSWER: c
POINTS: 1
254. If the income elasticity of demand for good A was 3.9 and the income elasticity of demand for B was 0.2:
a. Both good A and good B are normal.
b. Both good A and good B are inferior.
c. Good A is normal and good B is inferior.
d. Good A is inferior and good B is normal.
ANSWER: a
POINTS: 1
255. If the supply of good A is perfectly elastic, a decrease in demand will:

a. reduce the equilibrium quantity traded, but leave the price unchanged.
b. reduce the equilibrium quantity traded, and reduce the price.
c. reduce the equilibrium price, but leave the quantity traded unchanged.
d. reduce the equilibrium price traded, but increase the quantity traded.
ANSWER: a
POINTS: 1
REFERENCES: p. 173
256. Which of the following is the most important determinant of the elasticity of supply?
a. The number of uses for the product.
b. The number of close substitutes to the product available to consumers.
c. The amount of time producers have to adjust their behavior in response to a price change.
d. The percentage of their incomes consumers spend on the product.
ANSWER: c
POINTS: 1
257. Assume the price of widgets increases by 22 percent and the quantity supplied increases by 27 percent as a result.
The elasticity of supply coefficient is:
a. greater than 1, implying that widgets are normal goods.
b. less than 1, implying that widgets are inferior goods.
c. greater than 1, implying that supply is elastic.
d. greater than 1, implying that supply is inelastic.
ANSWER: c
POINTS: 1
REFERENCES: p. 173
258. For a given decrease in demand, the effect on price is largest and the effect on quantity exchanged smallest when:
a. supply is perfectly elastic.

b. supply is elastic.
d. supply is perfectly inelastic.
ANSWER: d
POINTS: 1
REFERENCES: p. 173
259. For a given decrease in demand, the effect on price is smallest and the effect on quantity exchanged largest when:
a. supply is perfectly elastic.
b. supply is elastic.
d. supply is perfectly inelastic.
ANSWER: a
POINTS: 1
REFERENCES: p. 173
260. A given increase in demand will raise the equilibrium quantity exchanged:
a. unless supply is perfectly inelastic.
b. more in the long run than in the short run.
c. in the market for normal goods.
d. all of the above
ANSWER: d
POINTS: 1
REFERENCES: p. 173
261. For a given, permanent reduction in demand for a product:

a. the decrease in price will be greater the more elastic is supply.
b. the decrease in price will be greater in the long run than in the short run.
c. the decrease in price will be greater the more inelastic is supply.
ANSWER: c
POINTS: 1
REFERENCES: p. 173
262. The current supply of Rembrandt paintings:

a. is perfectly elastic.
b. is elastic.
c. is unit elastic.
d. is perfectly inelastic.
ANSWER: d
POINTS: 1
REFERENCES: p. 173
263. The greater the positive cross elasticity of demand between products A and B, the:
a. greater the degree to which they are substitutes.
b. greater the degree to which they are complements.
c. smaller the elasticity of demand for both products.
d. greater will be both products responsiveness to changes in income.
ANSWER: a
POINTS: 1
264. Unlike its competitors, one glass producer can use its equipment to make either windows for houses or windows for
cars. Other things equal, compared to its competitors, its supply curve of windows for cars would be:
a. more elastic than the supply curves of competitors.
b. less elastic than the supply curves of competitors.
c. greater than the supply curves of competitors.
d. less than the supply curves of competitors.
ANSWER: a
POINTS: 1
265. If a good has a perfectly inelastic short-run supply curve, an increase in demand will:
a. increase the price and quantity exchanged in the short run.
b. increase the price and but leave the quantity exchanged the same in the short run.
c. increase the quantity exchanged but leave the price the same in the short run.
d. leave both price and quantity exchanged the same in the short run.
ANSWER: b
POINTS: 1
REFERENCES: p. 174
266. If the elasticity of supply of a good was 2, how much would the price have to increase to lead to an increase in output
of 6 percent?
a. 3 percent.
b. 4 percent.
c. 8 percent.
d. 12 percent.
ANSWER: a
POINTS: 1
REFERENCES: p. 173
267. If the price elasticity of demand was 4.0 (in absolute terms), a 10% off sale would lead to:
a. a 40% increase in purchases by customers.
b. a 40% decrease in purchases by customers.
c. a 2.5% increase in purchases by customers.
d. a 2.5% decrease in purchases by customers.
ANSWER: a
POINTS: 1
268. Say that a consumer's income elasticity of demand over the relevant range is equal to 2. When she has a monthly
income of $2,000, she spends $600 on food. If her monthly income rose to $4,000, how much would she spend on food?
a. $900.
b. $1200.
c. $1800.
d. $2400.
ANSWER: d
POINTS: 1
269. If two goods both had negative cross elasticities and negative income elasticities,
a. they are both normal and substitutes for one another.
b. they are both normal and complements for one another.
c. they are both inferior and substitutes for one another.
d. they are both inferior and complements for one another.
ANSWER: d
POINTS: 1
270. A positive income elasticity of demand for a good means:

a. it is a substitute.
b. it is a complement.
c. it is a normal good.
d. it is an inferior good.
ANSWER: c
POINTS: 1
271. Which of the following goods would be most likely to feature an income elasticity of zero?
a. tickets to a championship football game
b. insulin
c. orange juice
d. cigarettes
ANSWER: b
POINTS: 1
272. Assume that the elasticities of supply and demand in an industry are both equal to 2 and that it is currently untaxed.
A new tax imposed on the industry will:
a. be borne more by suppliers than demanders.
b. be borne more by demanders than suppliers.
c. be borne equally by demanders and suppliers.
d. not raise any added revenue for the government since demand is relatively elastic.
ANSWER: c
POINTS: 1
273. If the government wanted a tax to not burden consumers much, it would want to tax an industry with:
a. elastic supply and demand curves.
b. inelastic supply and demand curves.
c. inelastic supply and elastic demand.
d. elastic supply and inelastic demand.
ANSWER: c
POINTS: 1
274. If the government wanted a tax to not burden producers much, it would want to tax an industry with
a. elastic supply and demand curves.
b. inelastic supply and demand curves.
c. inelastic supply and elastic demand.
d. elastic supply and inelastic demand.
ANSWER: d
POINTS: 1
275. A tax is imposed on orange juice. Consumers will bear no burden from this tax if the:
a. demand for orange juice is perfectly inelastic.
b. supply curve for orange juice is unit elastic.
c. demand for orange juice is unit elastic.
d. supply curve for orange juice is perfectly inelastic.
ANSWER: d
POINTS: 1
276. If marijuana were legalized, it is likely that there would be an increase in the supply of marijuana. Those in favor of
legalizing marijuana argue that this would generate less revenue to illegal suppliers. The legalize marijuana proponents
must believe the:
a. demand for marijuana is elastic.
b. demand for marijuana is inelastic.
c. demand for for marijuana is unit elastic.
d. none of the above.
ANSWER: b
POINTS: 1
277. If the government increases its efforts to reduce illegal drugs which of the following would explain the possible
unintended consequences—an increase in drug-related crimes.
a. More people will commit crimes as a result of the increased drug use.
b. Tough drug enforcement policies reduce the demand for illegal drugs.
c. Drug addicts will have an even greater need for quick cash to support their habits.
d. In the short run, both equilibrium quantities and prices will fall in the markets for illegal drugs.
ANSWER: c
POINTS: 1
278. Suppose the United States government is successful in reducing the flow of drugs into the United States. What
impact does this have on the supply and demand curves for illegal drugs.
a. supply decreases, demand is unaffected, and price increases.
b. demand decreases, supply is unaffected, and price decreases.
c. demand and supply both decrease, leaving price essentially unchanged.
d. supply decreases, demand increases, and price increases substantially.
ANSWER: a
POINTS: 1
279. In 1991, Congress levied a 10 percent luxury tax on yachts over $100,000. The tax brought in far less than was
anticipated, they must have passed the legislation thinking the demand for yachts was more ___ than it actually was.
a. elastic
b. inelastic
c. unit elastic
ANSWER: b
POINTS: 1
280. Among the following pairs, which is likely to have the greatest price elasticity of demand? Why?
a. cars or Toyotas
b. electricity usage during a month or during a year
c. cable television or an apartment rental
ANSWER:

a. The price elasticity of demand is likely greater for Toyotas. The more and better the
available substitutes, the greater is the price elasticity of demand. There are many more close
substitutes for Toyotas than there are close substitutes for cars in the marketplace.
b. The price elasticity of demand is likely greater for electricity usage over a one-year period
than it is over one month's time. Over time, consumers are better able to adjust their habits
and thus their energy usage.
c. The price elasticity of demand is higher for an apartment rental than for cable television
because rent on an apartment comprises a much greater share of a consumer's budget.
POINTS: 1
281. A family friend is shopping for an exclusive Vera Wang wedding gown for $8,000 but feels that the price is
excessive. She argues that the company should lower prices not only to benefit customers but also to increase the
company's revenues and profits. What has she assumed about the price elasticity of demand for these gowns? Is her
assumption likely to be correct or incorrect? Why?
ANSWER: In this case the friend has assumed that demand is elastic and that a decrease in price would lead to an
increase in total revenues. However, her suggestion is likely incorrect being that the exclusive nature of
these gowns would mean that many of the existing customers would be willing to purchase the gowns
even if the price rose dramatically. As such, the demand is more likely to be inelastic.
POINTS: 1
282. Arrange the following goods from least to most elastic, explaining your ordering: gasoline, Shell gasoline, and Shell
gasoline at a particular gas station.
ANSWER: Gasoline is least elastic, since there are few substitutes for it available to power automobiles. Shell gas at
a particular station is most elastic, since one can substitute other Shell stations or other brands of gas.
POINTS: 1
283. In a recent fare war, America West reduced the price of its roundtrip airfare from Charlotte, North Carolina, to New
York City from $198 to $138 to match American Airlines. America West matched the fare reluctantly, saying it would
cost the company millions of dollars in revenue for those tickets to be sold for less. American, on the other hand, believed
the fare cut would increase its revenue even if rival airlines matched the lower fares. What different assumptions about the
underlying price elasticity of demand for airline tickets on that route did each airline believe true?
ANSWER: America West must have believed demand in this price range to be inelastic, so that a fare cut would
lead to a relatively small increase in quantity demanded. American must have believed the opposite: that
the fare cut would stimulate a more than proportional, or elastic, consumer response.
POINTS: 1
Total Revenue?
284. You have been hired by the city to determine whether or not an increase in the price of tickets for the mass transit
system would raise system revenues. The debate has been heated and the city council seems to be divided. One side
argues that in order to increase revenues from the transit system, prices must be increased. The opposing side argues that a
price increase at this time will lower revenues. What assumptions are each side making about the price elasticity of
demand, and how might you determine the best course of action?
ANSWER: The side that is arguing that revenues will decline as a result of an increase in the price of mass transit
tickets is assuming that the demand is elastic. Those that argue that an increase in price will result in
greater revenues believe that the price elasticity of demand for mass transit systems is inelastic. You
might advise an increase in the price of transportation fares in order to identify whether demand is elastic
or inelastic.
POINTS: 1
Total Revenue?
285. Calculate the elasticity of demand when an increase in supply causes the equilibrium price and quantity to change
from $9 and 2,000 to $7 and 3,000, respectively.
ANSWER: Elasticity of demand = Percentage change in quantity demanded/Percentage change in price. Using the
average quantities and average prices to calculate elasticity, we obtain an elasticity of 5/3, or 1.66.
POINTS: 1
286. Calculate the cross-price elasticity of demand between computers and printers, where a 10 percent decrease in the
price of computers results in a 15 percent increase in the demand for printers.
ANSWER: In this case, the cross-price elasticity of demand is -1.5.
Cross-price elasticity of demand = (% in the demand for good A) / (% in the price of B) = +15% 
−10% = −1.5
POINTS: 1
287. Calculate the income elasticity of demand for DVDs, where a 10 percent increase in income results in a 20 percent
increase in the demand for DVDs. Decide from your answer, whether DVDs are normal or inferior goods.
ANSWER: Income elasticity of demand for DVDs is +2. (+20 percent/ +10 percent = +2)
In general, if the income elasticity is positive, then the good in question is a normal good because
income and demand move in the same direction. DVDs are normal goods because an increase in income
results in an increase in demand.
POINTS: 1
288. Calculate the elasticity of supply when an increase in demand causes the equilibrium price and quantity to change
from $2.00 and 500 to $2.80 and 1,000, respectively.
ANSWER: Elasticity of supply = Percentage change in quantity supplied/Percentage change in price. Using the
average quantities and average prices to calculate elasticity, we obtain: an elasticity of 2.0.
POINTS: 1
REFERENCES: p. 173
289. Based upon the following estimates of price elasticity of demand, which markets are the best markets to tax if the
government's goal is to raise tax revenue? Why?
Product Price Elasticity of Demand
Gasoline 0.8
Paper towels 2.2
Strawberries 1.5
Alcohol 0.6
Yachts 3.2
ANSWER: If the government's goal is to increase tax revenue, then the best markets to tax are those in which
demand is most inelastic, such as for alcohol and gasoline. When the government imposes a tax in
markets where demand is relatively inelastic, the quantity demanded will not decrease significantly.
POINTS: 1
REFERENCES: p. 175

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13. A perfectly elastic demand curve is vertical.

18. A perfectly inelastic supply curve is vertical.

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40. Price elasticity of demand is defined as:

41. Total revenue for a seller represents the amount that:

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44. When demand is elastic:

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94. Along a linear demand curve, price elasticity of demand is:

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100. What type of demand curve is depicted by the graph below?

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109. A jeweler cut prices in his store by 20%. As a result:

110. If demand is unit elastic:

112. Which of the following is associated with relatively elastic demand?

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121. Evaluate the following statements:

a. (I) and (II) are both true.

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133. Which of the following is associated with inelastic demand?

143. If the estimated elasticity of supply coefficient equals 0.85, then:

152. An increase in demand will increase total revenue:

153. A decrease in demand will increase total revenue:

154. For a given change in demand:

155. For a given change in demand:

156. A perfectly elastic supply curve is:

157. A perfectly inelastic supply curve is:

161. Elasticity of demand will ____ as the availability of substitutes ____.

169. What type of demand curve is depicted by the graph below?

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181. A tax on a good

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183. Taxes affect

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187. When a good is taxed, the tax burden

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219. Which of the following is false?

225. In the graph below, a tax increase would be paid:

231. In the graph below, a tax increase would be paid:

a. largely by the sellers.

232. When demand is relatively inelastic, a 5% increase in price will:

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234. Which of the following is false?

235. In the graph below, a tax increase would be paid:

a. largely by the sellers.

237. A decrease in demand will:

238. An increase in demand will:

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247. Which of the following is false?

251. If the elasticity of supply coefficient for a good is 6, we know:

253. A positive income elasticity of demand for a good

161. Elasticity of demand will as the availability of substitutes .