Test Bank For Microeconomics 10th Edition

Test Bank for Microeconomics, 10th Edition
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1. Which of the following is explained by the price elasticity of demand for a product?
a. The effect of changes in price on the supply of the product
b. The effect of changes in quantity on the supply of the product
c. The effect of changes in quantity on the price of the product
d. The effect of changes in price on the quantity demanded of the product
e. The effect of changes in price on the quantity supplied of the product
ANSWER: d
DIFFICULTY: Easy
LEARNING OBJECTIVES: MICR.BOYE.16.20 - ch. 05, 1
NATIONAL STANDARDS: United States - Analytic - BB-Legal
United States - Elasticity
TOPICS: The Price Elasticity of Demand
OTHER: Knowledge
NOTES: Revised
2. When the manager of a local movie theater raises the price of movie tickets from $7.50 to $8.50, his total revenue falls.
This means that:
a. the demand for movie tickets is highly elastic.
b. the supply of movie tickets is perfectly elastic.
c. the supply of movie tickets is unit-elastic.
d. the demand for movie tickets is inelastic.
e. the supply of movie tickets is inelastic.
ANSWER: a
DIFFICULTY: Moderate
NATIONAL STANDARDS: United States - Elasticity
United States - Reflective Thinking
OTHER: Application
NOTES: Revised
3. Which of the following is true of the price elasticity of demand of a product?

a. It measures the responsiveness of quantity demanded or quantity supplied to a change in one of the
determinants of demand and/or supply.
b. It is calculated as the percentage change in the quantity demanded of the product divided by the percentage
change in the price of the product.
c. It is calculated as the percentage change in the demand for the product divided by the percentage change in
income of a consumer, everything else held constant.
d. It measures the responsiveness of demand to a change in the quantity supplied.
e. It is calculated as the percentage change in the quantity demanded of the product divided by the percentage
change in the price of a related product, everything else held constant.
ANSWER: b
DIFFICULTY: Easy
OTHER: Knowledge
4. The less responsive consumers are to a change in the price of a product, _____.
a. the more price-elastic is the supply curve
b. the more income-inelastic is the demand curve
c. the more price-inelastic is the demand curve
d. the more income-elastic is the supply curve
e. the more price-elastic is the demand curve
ANSWER: c
DIFFICULTY: Easy
OTHER: Knowledge
5. The price elasticity of demand for a product is a measure of the:

a. extent of competition in the market for the product.
b. change in the quantity purchased of the product relative to a change in a consumer's income.
c. change in the quantity demanded of the product due to changes in factors other than price.
d. degree of consumer responsiveness to changes in the price of the product.
e. percentage change in the prices of two related products.
ANSWER: d
DIFFICULTY: Easy
OTHER: Knowledge
NOTES: Revised
6. If the price elasticity of demand for a product is equal to 4, a 1 percent increase in price of the product will cause the
quantity demanded to _____ by _____ percent.
a. increase; 0.25
b. decrease; 0.25
c. increase; 4
d. decrease; 25
e. decrease; 4
ANSWER: e
OTHER: Application
7. If a 50 percent increase in the price of pizza results in a 25 percent decrease in the quantity demanded of pizza, then the
price elasticity of demand for pizza:
a. is equal to 0.5 and demand for pizza is inelastic.
b. is equal to 0.5 and demand for pizza is elastic.
c. is equal to 2 and demand for pizza is elastic.
d. is equal to 2 and demand for pizza is inelastic.
e. cannot be determined from the information provided.
ANSWER: a
OTHER: Application
NOTES: Revised
8. Assume that the price elasticity of demand for a commodity is 0.20. A 10 percent increase in the price of the
commodity will be followed by a:
a. 20 percent increase in the quantity demanded.
b. 2 percent decrease in the quantity demanded.
c. 20 percent decrease in the quantity demanded.
d. 0.2 percent decrease in the quantity demanded.
e. 2 percent increase in the quantity demanded.
ANSWER: b
OTHER: Application
9. If a 10 percent increase in the price of gasoline results in a 2 percent decrease in the quantity demanded of gasoline,
then the elasticity of demand for gasoline is:
a. equal to 0.2 and demand is inelastic.
b. equal to 0.2 and demand is elastic.
c. equal to 0.02 and demand is elastic.
d. equal to 0.5 and demand is inelastic.
e. equal to 0.5 and the demand is elastic.
ANSWER: a
OTHER: Application
10. If the demand for a product is unit-elastic, a 25 percent increase in its price will result in:
a. a 25 percent change in total revenue.
b. no change in quantity demanded.
c. a 1 percent increase in quantity demanded.
d. a 25 percent decrease in quantity demanded.
e. a 100 percent change in quantity demanded.
ANSWER: d
OTHER: Application
11. If a 1 percent change in the price of a good causes a 1 percent change in the quantity demanded of that good, then the
demand is said to be:
a. perfectly elastic.
b. income elastic.
c. unit-elastic.
d. inelastic.
e. perfectly inelastic.
ANSWER: c
DIFFICULTY: Easy
OTHER: Knowledge
NOTES: Revised
12. When the elasticity of demand for a particular good is between zero and -1, _____.
a. demand is elastic
b. demand is inelastic
c. demand is unit-elastic
d. the good is an inferior good
e. the good is a normal good
ANSWER: b
DIFFICULTY: Easy
OTHER: Knowledge
NOTES: Revised
13. If a product has an elastic demand, it means that:

a. consumers are relatively sensitive to a change in the price of the product.
b. consumers are relatively insensitive to a change in the quantity demanded of the product.
c. consumers are relatively insensitive to a change in the price of the product.
d. producers are relatively insensitive to a change in the price of the product.
e. producers are relatively sensitive to a change in the quantity demanded of the product.
ANSWER: a
DIFFICULTY: Easy
OTHER: Knowledge
14. What would be the consequence of a 10 percent decrease in the price of a good for which price elasticity of demand is
5?
a. A 50 percent decrease in the quantity demanded
b. A 5 percent increase in the quantity demanded
c. A 50 percent increase in the quantity demanded
d. A decrease in the quantity demanded by 0.2 units
e. An increase in the quantity demanded by 0.2 units
ANSWER: c
OTHER: Application
15. If the percentage change in the quantity demanded of a good is greater than the percentage change in the price of the
good, then the demand for the good is _____.
a. inelastic
b. relatively elastic
c. unit-elastic
d. perfectly inelastic
e. income elastic
ANSWER: b
OTHER: Comprehension
NOTES: Revised
16. Suppose 50 loaves of bread are demanded at a particular price. If that price rises by 2 percent, the quantity demanded
decreases to 49.5 loaves of bread. This implies that the:
a. demand is elastic.
b. demand is unit-elastic.
c. price elasticity of demand is equal to 2.
d. demand is inelastic.
e. income elasticity of demand is equal to 0.5.
ANSWER: d
OTHER: Application
NOTES: Revised
The figure given below shows the demand curves for five products: A, B, C, D, and E.
Figure 6.1
17. Refer to Figure 6.1. The demand curve B is:

a. more elastic compared to demand curve E.
b. less elastic compared to demand curve C.
c. perfectly elastic.
d. more elastic compared to demand curve D.
e. an example of a unit-elastic demand curve.
ANSWER: b
OTHER: Application
18. Refer to Figure 6.1. The value of the coefficient of price elasticity of demand for E is:
a. equal to infinity.
b. equal to 1.
c. equal to zero.
d. less than 1.
e. greater than zero but less than one.
ANSWER: a
OTHER: Application
19. Refer to Figure 6.1. Which of the following is true when prices increase from P1 to P2?
a. The change in quantity demanded is larger for C than D, thus the demand for D is relatively less elastic than it
is for C.
b. The change in the quantity demanded following the price increase is the largest for C.
c. The change in the quantity demanded following the price increase is the least for D.
d. The demand for E is perfectly inelastic.
e. The change in quantity demanded is larger for C than A, thus the demand for C is more elastic than it is for A.
ANSWER: e
OTHER: Application
NOTES: Revised
20. Refer to Figure 6.1. Which of the following is true of the demand curve for A?
a. Consumers purchase any quantity of A regardless of the price.
b. There is no change in the quantity demanded of A as the price changes.
c. A small price change will cause consumers to change their consumption by a much larger quantity.
d. The smallest price increase will cause consumers to switch to the producer with a lower price.
e. The price elasticity of demand for A is equal to 1.
ANSWER: b
OTHER: Application
21. Refer to Figure 6.1. The demand curve E is most likely to represent the demand for:
a. alcohol by an alcoholic.
b. a life-saving drug.
c. holiday travel packages.
d. a particular brand of breakfast cereal.
e. air conditioning during a hot summer.
ANSWER: c
OTHER: Application
22. In Figure 6.1, which demand curve is most likely to represent the demand for insulin by diabetics?
a. A
b. B
c. C
d. D
e. E
ANSWER: a
OTHER: Application
23. Which of the following is an example of inelastic demand?

a. A 10 percent increase in the price of milk leads to a 20 percent decrease in the quantity demanded of milk.
b. A 10 percent increase in the price of milk leads to a 10 percent decrease in the quantity demanded of milk.
c. A 10 percent increase in the price of milk leads to a 5 percent decrease in the quantity demanded of milk.
d. A 10 percent increase in the price of milk leads to a 10 percent increase in the quantity demanded of milk.
e. A 10 percent increase in the price of milk leads to a 5 percent increase in the quantity demanded of milk.
ANSWER: c
OTHER: Application
NOTES: Revised
24. If the demand for a good is perfectly inelastic, then:

a. the value of price elasticity of demand of the good is equal to 1.
b. the value of price elasticity of demand of the good is equal to -1.
c. the demand curve of the good is nonexistent.
d. consumers are very responsive to a change in the price of the good.
e. quantity demanded does not change when price of the good changes.
ANSWER: e
DIFFICULTY: Easy
OTHER: Knowledge
NOTES: Revised
25. If a price increase from $20 to $40 causes quantity demanded to decrease from 100 units to 50 units, one can conclude
that demand for the product is _____.
a. inelastic
b. elastic
c. perfectly inelastic
d. perfectly elastic
e. unit-elastic
ANSWER: a
OTHER: Application
26. Assume that the demand curve for a certain good is a vertical line. This vertical demand curve illustrates the idea that:
a. consumers are unwilling to pay more than a certain price for the good.
b. the good is a complement to another good.
c. consumers are unwilling to pay less than a certain price for the good.
d. there are many substitutes for this good.
e. people will not change the quantity demanded of the good when its price is changed.
ANSWER: e
DIFFICULTY: Easy
OTHER: Knowledge
27. If the demand for corn is elastic, then:

a. there are not many substitutes for the consumption of corn.
b. the price elasticity of demand for corn is less than -1.
c. a decrease in price will reduce total revenue for corn producers.
d. an increase in price will increase total revenue for corn producers.
e. consumers will continue buying the same quantity even if price increases.
ANSWER: b
DIFFICULTY: Easy
OTHER: Knowledge
NOTES: Revised
28. An economic survey observed that a 20 percent cut in the price of a certain line of women’s clothing, almost doubled
the quantity demanded of the clothing. This led economists to conclude that the demand for this line of clothing is _____.
a. highly elastic
b. highly inelastic
c. unit-elastic
d. perfectly elastic
e. perfectly inelastic
ANSWER: a
OTHER: Application
29. A horizontal demand curve shows that demand for a good is _____.
a. perfectly inelastic
b. moderately inelastic
c. unit-elastic
d. moderately elastic
e. perfectly elastic
ANSWER: e
DIFFICULTY: Easy
OTHER: Knowledge
NOTES: Revised
30. A 0.5% increase in the price of a particular product causes the quantity demanded of the product to drop to zero. This
means that the price elasticity of demand for the product is:
a. perfectly elastic.
b. unit-elastic.
c. perfectly inelastic.
d. moderately elastic.
e. moderately inelastic.
ANSWER: a
DIFFICULTY: Challenging
31. If the demand for cream cheese produced by a dairy is perfectly elastic, then:
a. the demand curve will be vertical.
b. the demand curve will be horizontal.
c. the demand curve will be upward sloping.
d. the demand curve will be downward sloping.
e. the demand curve will initially slope upward and then slope upward.
ANSWER: b
DIFFICULTY: Easy
OTHER: Knowledge
NOTES: Revised
32. Consider a medical breakthrough that led to the discovery of a simple microchip, which when inserted inside the
human ear could prevent certain chronic diseases. The price elasticity of demand for that microchip would most likely be
_____.
a. highly elastic
b. highly inelastic
c. undefined
d. negative only for high prices
e. positive only for high prices
ANSWER: b
NOTES: Revised
33. If a 15 percent reduction in the price of electricity per kilowatt hour has no impact on the total electricity consumption,
we can infer that in the short run, the demand for electricity is _____.
a. perfectly inelastic
b. perfectly elastic
c. unit-elastic
d. relatively inelastic
e. relatively elastic
ANSWER: a
OTHER: Application
34. If = -1.50 for a good, and price of the good decreases by 20 percent, then:
a. quantity demanded will decrease by 30 percent.
b. quantity demanded will increase by 30 percent.
c. total revenue will remain unchanged.
d. total revenue will decrease.
e. quantity demanded will increase by 3 percent.
ANSWER: b
OTHER: Application
NOTES: Revised
35. Suppose the value of price elasticity of demand for goods manufactured by firms A, B, C, and D are 0, -0.8, -1, and -
1.5 respectively. The demand for the good will be elastic for:
a. firms A, B, C, and D.
b. firms B, C, and D.
c. only firm A.
d. firms C and D only.
e. only firm D.
ANSWER: e
OTHER: Application
NOTES: Revised
36. Which of the following is a determinant of price elasticity of demand?

a. Availability of substitute goods
b. Excess capacity
c. Scale of production
d. Inventories
e. Cost of production
ANSWER: a
DIFFICULTY: Easy
OTHER: Knowledge
37. Demand for a good becomes more elastic as:
a. the number of substitutes available declines.
b. the time period under consideration becomes shorter.
c. a good makes up a larger percentage of a consumer’s budget.
d. a good makes up a smaller percentage of a consumer’s budget.
e. the producer has more time to respond to price changes.
ANSWER: c
DIFFICULTY: Easy
OTHER: Application
NOTES: Revised
38. In the opinion of many consumers, there are few, if any, substitutes for the popular search engine Google. If Google
were to charge consumers for its services, it would face:
a. a relatively inelastic demand curve.
b. a relatively elastic demand curve.
c. a negative income elasticity of demand.
d. a positive cross elasticity of demand.
e. a perfectly elastic demand curve.
ANSWER: a
TOPICS: Other Demand Elasticities
OTHER: Application
39. Which of the following would most likely be highly price-elastic?

a. The demand for milk by a household
b. The demand for insulin by a diabetes patient
c. The demand for water
d. The demand for new houses
e. The demand for coal over a period of one month
ANSWER: d
OTHER: Application
40. Which of the following is true with respect to the price elasticity of demand?
a. The coefficient of price elasticity of demand will change with changes in the units of measurement (for
instance, going from pounds to ounces).
b. Elasticity of demand is equal to the slope of the demand curve.
c. Elasticity measures the sensitivity of total expenditure to a change in price of a good.
d. Elasticity will tend to be greater for a relatively expensive product than for a cheaper one.
e. A coefficient of 1 means that the percentage change in total expenditure is equivalent to the percentage change
in price.
ANSWER: d
OTHER: Knowledge
41. If a product has an inelastic demand, then:

a. there is probably a long time period under consideration.
b. as price increases, total revenue to producers decreases.
c. an increase in the price will decrease total consumer expenditures.
d. there are probably many complements for the good.
e. there are probably few substitutes for the good.
ANSWER: e
OTHER: Knowledge
42. Since an expensive sports car constitutes a greater portion of a consumer’s budget than does laundry soap, the price
elasticity of demand for an expensive sports car is _____.
a. relatively less elastic
b. unit-elastic
c. perfectly inelastic
d. relatively more elastic
e. perfectly elastic
ANSWER: d
OTHER: Application
NOTES: Revised
43. The value of price elasticity of demand is more likely to be above 1 if:
a. consumers have a long time to adjust to a price change.
b. the product is a necessity.
c. demand is inelastic.
d. there are few close substitutes for the product.
e. total revenue declines in response to a price reduction.
ANSWER: a
DIFFICULTY: Easy
OTHER: Knowledge
NOTES: Revised
44. A fall in the average income of a consumer, say during a recession, is represented by:
a. an upward movement along the demand curve for a good consumed by the consumer.
b. a downward movement along the demand curve for a good consumed by the consumer.
c. a shift of the demand curve for a good consumed by the consumer.
d. a rotation of the demand curve for a good consumed by the consumer.
e. an inward shift of the demand curve for an inferior good consumed by the consumer.
ANSWER: c
OTHER: Application
45. _____ measures the percentage change in quantity demanded of a good caused by a given percentage change in the
price of a related good.
a. Income elasticity of demand
b. Cross-price elasticity of demand
c. Advertising elasticity of demand
d. Price elasticity of demand
e. Point elasticity
ANSWER: b
DIFFICULTY: Easy
OTHER: Knowledge
46. When product A is a substitute for product B, the cross-price elasticity of demand for products A and B will be _____.
a. unity
b. negative
c. positive
d. decreasing
e. increasing
ANSWER: c
DIFFICULTY: Easy
OTHER: Knowledge
47. Assume that due to unfavorable conditions in a prime honey-producing area, the price of honey increases by 50
percent. The quantity consumed of herbal tea declines immediately by 25 percent. Everything else held constant, the:
a. cross-price elasticity of demand for herbal tea and honey is negative, and therefore the two goods are
substitutes.
b. cross-price elasticity of demand for herbal tea and honey is negative, and therefore the two goods are
complements.
c. cross-price elasticity of demand for herbal tea and honey is positive, and therefore the two goods are
substitutes.
d. cross-price elasticity of demand for herbal tea and honey is positive, and therefore the two goods are
complements.
e. cross-price elasticity of demand cannot be determined from the information provided.
ANSWER: b
OTHER: Application
48. When the cross-price elasticity of demand for two goods is a positive number, one can correctly conclude that:
a. the goods are normal goods.
b. the goods are inferior goods.
c. the goods are substitutes.
d. the goods are complements.
e. total revenue will increase when the price increases.
ANSWER: c
DIFFICULTY: Easy
OTHER: Knowledge
49. Peanut butter and jelly are:

a. substitutes and have a positive cross-price elasticity of demand.
b. complements and have a positive cross-price elasticity of demand.
c. substitutes and have a positive cross-price elasticity of demand.
d. complements and have a negative cross-price elasticity of demand.
e. inferior goods when the income elasticity of demand is positive.
ANSWER: c
OTHER: Application
50. As the price of movie tickets increases, which of the following is most likely to happen?
a. The demand for DVDs will increase.
b. The quantity of books demanded will decrease.
c. The number of Broadway tickets purchased will decrease.
d. The prices of popcorn and soda will increase.
e. The number of movies being produced will decrease.
ANSWER: a
OTHER: Application
NOTES: Revised
51. When the price of hot dogs at the supermarket increases, the quantity demanded of hot dog buns declines. This
situation describes:
a. the income elasticity of demand for hot dogs.
b. the income elasticity of demand for hot dog buns.
c. the price elasticity of supply for hot dogs.
d. the negative cross-price elasticity of demand for hot dogs and hot dog buns.
e. the positive cross-price elasticity of supply for hot dogs and hot dog buns.
ANSWER: d
OTHER: Application
52. If the demand for product R increases as the price of product S increases, then _____.
a. consumer preferences for S have increased
b. R and S are not related goods
c. R and S are substitutes
d. R and S are complements
e. R is an inferior good
ANSWER: c
OTHER: Application
53. Suppose the manager of a store wants to know whether the product of the store across the street is a substitute for her
product. In other words, she would need to know if the _____ for the products is positive.
a. cross-price elasticity of demand
b. price elasticity of demand
c. income elasticity of demand
d. price elasticity of supply
e. cross-price elasticity of supply
ANSWER: a
OTHER: Application
NOTES: Revised
54. Goods whose income elasticity of demand is greater than zero are _____.
a. inferior goods
b. normal goods
c. substitute goods
d. superior goods
e. public goods
ANSWER: b
DIFFICULTY: Easy
OTHER: Knowledge
NOTES: Revised
55. As income levels rose moderately last year in the San Jose area, it was observed by local realtors that housing sales
increased substantially. It is clear from this information that, everything else held constant, the income elasticity of
demand for houses is _____.
a. negative and relatively low
b. negative and relatively high
c. positive and relatively low
d. positive and relatively high
e. neither positive nor negative
ANSWER: d
DIFFICULTY: Easy
OTHER: Application
56. An inferior good or service is any good or service for which:

a. an increase in price causes an increase in the quantity demanded.
b. a decrease in price causes an increase in demand.
c. an increase in price causes a decrease in the quantity demanded.
d. an increase in the amount consumed causes a decrease in marginal utility.
e. an increase in income causes a decrease in demand.
ANSWER: e
OTHER: Knowledge
57. Income elasticity of demand is expected to be _____.

a. relatively high for necessities
b. positive for most products
c. relatively low for luxuries
d. negative for most products
e. zero for most products
ANSWER: b
DIFFICULTY: Easy
OTHER: Knowledge
58. Ceteris paribus, a 10 percent increase in income results in a 50 percent decline in the quantity of potatoes purchased.
This implies potatoes can be categorized as _____.
a. complements
b. substitutes
c. inferior goods
d. normal goods
e. luxury goods
ANSWER: c
OTHER: Application
59. Last year, Alice bought 40 CDs when her income was $20,000. This year, her income increased to $25,000, and she
purchased 48 CDs. We can conclude that:
a. Alice’s price elasticity of demand for CDs is equal to 1.
b. Alice’s demand for CDs is price-inelastic.
c. Alice’s demand for CDs is price-elastic.
d. the income elasticity of demand for CDs is negative.
e. CDs are a normal good.
ANSWER: e
OTHER: Application
60. Which of the following goods is likely to have an income elasticity of demand that is less than zero?
a. A luxury yacht
b. A beach house
c. A state-of-the-art cellular phone
d. A box of generic macaroni and cheese dinner
e. A dinner at a French restaurant
ANSWER: d
OTHER: Application
61. If the demand for beans tends to decline as incomes rise, everything else held constant, beans are _____.
a. luxury goods
b. normal goods
c. price sensitive
d. not price sensitive
e. inferior goods
ANSWER: e
OTHER: Application
NOTES: Revised
62. For a given product, income elasticity of demand relates the percentage change in:
a. quantity demanded to the percentage change in income.
b. quantity demanded to the absolute change in income.
c. income to the percentage change in price.
d. price to the absolute change in quantity demanded.
e. income to the percentage change in quantity available for sale.
ANSWER: a
OTHER: Knowledge
63. Which of the following items is likely to have the highest positive income elasticity of demand?
a. Bread
b. Jewelry
c. Soap
d. A plumber’s service
e. Table salt
ANSWER: b
OTHER: Application
64. When the income elasticity of demand for a good is negative, one can correctly conclude that:
a. the good is a normal good.
b. the good is an inferior good.
c. the good is a substitute.
d. the good is a complement.
e. total revenue will decrease when the price increases.
ANSWER: b
DIFFICULTY: Easy
65. The income elasticity of demand _____.

a. must be negative because of the law of diminishing marginal utility
b. could be positive, negative or zero, depending on the nature of the good
c. must be positive for all goods because consumers tend to buy more at higher incomes
d. is usually zero because “you can only have so much”
e. can never be zero
ANSWER: b
OTHER: Knowledge
66. Price elasticity of demand measured over a range of prices and quantities along the demand curve is _____.
a. point elasticity
b. arc elasticity
c. income elasticity
d. cross elasticity
e. price elasticity
ANSWER: b
DIFFICULTY: Easy
OTHER: Knowledge
The table given below reports the price and quantity demanded of a commodity.
Table 6.1
Price Quantity Demanded
$5 300
$6 200
67. According to Table 6.1, when the price increases from $5 to $6, the price elasticity of demand is _____.
a. 0.25
b. 1.0
c. 1.3
d. 1.8
e. 1.67
ANSWER: e
OTHER: Application
The table below shows the quantities of automobiles, margarine, and coffee purchased by Ted at different levels of
income.
Table 6.2
Quantity Purchased
Income Automobiles Margarine Coffee
$25,000 2 10 1
$50,000 3 8 3
68. Refer to Table 6.2. What is the income elasticity of demand for automobiles?
a. 0.5
b. 0.35
c. 2
d. 0.2
e. Zero
ANSWER: a
OTHER: Application
69. Based on the information given in Table 6.2, margarine is:

a. an inferior good.
b. a necessity.
c. a normal good.
d. a complementary good.
e. a luxury good.
ANSWER: a
OTHER: Application
70. Based on the information given in Table 6.2, coffee would be considered:
a. an inferior good.
b. a necessity.
c. a substitute good.
d. a complement good.
e. a luxury good.
ANSWER: e
OTHER: Application
NOTES: Revised
71. Suppose the price of a product is reduced from $10 to $6 and the quantity demanded increases from 40 to 60 units.
From this we can conclude that the price elasticity of demand over this price range is equal to _____.
a. 1.2
b. 1.25
c. 0.80
d. 0.20
e. 0.5
ANSWER: b
OTHER: Application
72. If 12 candy bars are demanded at $0.30 each and 4 candy bars are demanded at $0.50 each, what is the elasticity of
demand over the price range from $0.30 to $0.50?
a. 2
b. 1.67
c. 0.5
d. 7.5
e. 0.4
ANSWER: a
OTHER: Application
73. Arc elasticity is calculated as _____.

a.
b.
c.
d.
e.
ANSWER: d
DIFFICULTY: Easy
OTHER: Knowledge
Scenario 5.1
The demand for noodles is given by the following equation: Q = 20 - 4P + 0.2I - 2Px. Assume that P = $8, I = 200, and Px
= $10.
74. Given the above equation, the quantity of noodles demanded at a price of $8 is _____.
a. 8
b. 10
c. 12
d. 4
e. 20
ANSWER: a
OTHER: Application
75. Given the above equation, the price elasticity of demand for noodles is _____.
a. 4
b. 0.5
c. 2
d. 2.5
e. 1.6
ANSWER: a
OTHER: Application
76. Given the above equation, the income elasticity of demand for noodles is _____.
a. 5
b. 0.5
c. 2
d. 2.5
e. 1.6
ANSWER: a
OTHER: Application
77. Which of the following statements correctly describe the elasticities of demand for gasoline and automobiles?
a. The income elasticity of demand for gasoline and automobiles is negative.
b. The price elasticity of demand for gasoline is elastic and the cross-price elasticity between gasoline and SUVs
is positive.
c. The price elasticity of demand for gasoline is inelastic and the cross-price elasticity between gasoline and
SUVs is negative.
d. The price elasticity of demand for gasoline is inelastic and the income elasticity between gasoline and SUVs is
positive.
e. The price elasticity of demand for gasoline is elastic and the income elasticity between gasoline and SUVs is
negative.
ANSWER: c
MICR.BOYE.16.22 - ch. 05, 3
Other Demand Elasticities
OTHER: Application
78. When the supply elasticity of a product is 2.5, a 10 percent decrease in price will _____ the quantity supplied of the
product by _____ percent.
a. increase; 25
b. decrease; 25
c. increase; 2.5
d. decrease; 2.5
e. decrease; 4
ANSWER: b
TOPICS: The Price Elasticity of Supply
OTHER: Application
79. Acme Tools manufactures anvils, a forging tool. When the price of anvils was increased from $7 to $13, Acme Tools
was willing and able to increase production from 1 to 4 units per day. Using the midpoint formula, what is Acme's price
elasticity of supply for anvils?
a. 2
b. 1
c. 0.5
d. 4
e. 3.5
ANSWER: a
OTHER: Application
NOTES: Revised
80. A measure of the responsiveness of quantity supplied to changes in price is known as _____.
a. cross-price elasticity
b. price elasticity of demand
c. price elasticity of supply
d. income elasticity
e. point elasticity
ANSWER: c
DIFFICULTY: Easy
OTHER: Knowledge
81. There are some special types of goods for which supply cannot change, irrespective of the length of time allowed for
change, such as Beethoven symphonies. The price elasticity of supply for these goods is _____.
a. infinite
b. nonexistent
c. negative
d. zero
e. unity
ANSWER: d
DIFFICULTY: Easy
OTHER: Knowledge
82. Which of the following situations is represented by a nearly horizontal supply curve for a good?
a. Small price changes lead to small changes in quantity demanded of the good.
b. Small price changes lead to small changes in quantity supplied of the good.
c. Producers of the good are not operating efficiently.
d. Producers of the good are not maximizing profit.
e. Small changes in the price of the good lead to large changes in the quantity supplied of the good.
ANSWER: e
DIFFICULTY: Easy
OTHER: Knowledge
83. When economists speak of the short run, they are referring to _____.
a. a specific period of time, usually less than one year
b. a specific period of time, more than one year, but less than two years
c. a specific period of time just long enough that the quantities of all resources can be varied
d. a period of time short enough that the quantities of at least one of the resources cannot be varied
e. a period of time short enough that none of the quantities of the resources can be varied
ANSWER: d
DIFFICULTY: Easy
OTHER: Knowledge
84. Supply curves applicable to shorter periods of time tend to:

a. be represented by horizontal lines parallel to the quantity axis.
b. be perfectly elastic.
c. be more inelastic than supply curves that apply to longer periods of time.
d. be more elastic than supply curves that apply to longer periods of time.
e. have a price elasticity of supply that is approximately equal to 1.
ANSWER: c
OTHER: Knowledge
85. Economists have said that deregulation of the electric utility industry might lead to increased prices in the short run,
but prices will fall in the long run. In this context:
a. the short run means the middle of next year.
b. the short run means the period after all adjustments have been made, and the quantities of all resources have
been varied as necessary.
c. the long run means after all adjustments have been made, the quantities of all resources have been varied as
necessary, and new market entrants begin producing electricity.
d. the short run means the period after new firms begin producing electricity.
e. the long run means approximately ten years.
ANSWER: c
NOTES: Revised
86. If the price elasticity of supply is 0.75, it would imply that a _____.
a. a 100 percent increase in price would increase the quantity supplied by 75 percent
b. doubling of the price would increase the quantity supplied by 175 percent
c. 50 percent increase in price would increase the quantity supplied by 25 percent
d. 75 percent increase in price would increase the quantity supplied by 100 percent
e. 120 percent increase in price would increase the quantity supplied by 90 percent
ANSWER: e
OTHER: Application
87. Ceteris paribus, if a 20 percent increase in the price of shoes leads to a 10 percent increase in the quantity supplied of
shoes, then the price elasticity of supply is equal to _____.
a. 2
b. 20
c. 10
d. 0.5
e. 0.2
ANSWER: d
OTHER: Application
88. Ceteris paribus, if a 20 percent increase in the price of shoes leads to a 10 percent increase in the quantity supplied of
shoes, then the price elasticity of supply is equal to _____.
a. 2
b. 20
c. 10
d. 0.5
e. 0.2
ANSWER: d
OTHER: Application
89. The social security tax, like any other tax, is shared by employers and employees based on the elasticities of demand
and supply. If the wage elasticity of demand for labor is zero and the wage elasticity of supply for labor is positive:
a. most of the tax will be paid by the employer.
b. most of the tax will be paid by the employee.
c. all of the tax will be paid by the employer.
d. all of the tax will be paid by the employee.
e. the tax is split evenly between the employer and employee.
ANSWER: d
OTHER: Application
90. If the demand for liquor is elastic and the supply of liquor is inelastic, when the government increases liquor tax,
_____.
a. most of the tax will be paid by the consumer
b. most of the tax will be paid by the producer
c. all of the tax will be paid by the consumer
d. all of the tax will be paid by the producer
e. the tax will be paid by the retailer
ANSWER: b
OTHER: Application
91. Price elasticity of demand measures the responsiveness of quantity demanded in a market to a change in price.
a. True
b. False
ANSWER: True
DIFFICULTY: Easy
OTHER: Knowledge
92. Price elasticity of demand is the sole determinant of profit for a firm.
a. True
b. False
ANSWER: False
DIFFICULTY: Easy
93. If a product has an elastic demand, it means that consumers are relatively insensitive to a change in the price of the
product.
a. True
b. False
ANSWER: False
DIFFICULTY: Easy
OTHER: Knowledge
94. The coefficient of the price elasticity of demand is always negative.

a. True
b. False
ANSWER: True
DIFFICULTY: Easy
OTHER: Knowledge
95. If demand is unit-elastic, then a $5 decrease in price will lead to an increase in quantity demanded by 5 units.
a. True
b. False
ANSWER: False
OTHER: Application
96. If a 10 percent increase in the price of tomatoes leads to a 20 percent decrease in quantity demanded, then the price
elasticity of demand for tomatoes, , equals -2.
a. True
b. False
ANSWER: True
OTHER: Application
NOTES: Revised
97. If the price elasticity of demand is between -1 and - , then demand is inelastic.
a. True
b. False
ANSWER: False
DIFFICULTY: Easy
OTHER: Knowledge
NOTES: Revised
98. Since demand curves are mostly downward sloping, economists tend to ignore the negative sign when calculating the
price elasticity of demand.
a. True
b. False
ANSWER: True
DIFFICULTY: Easy
OTHER: Knowledge
99. A perfectly elastic demand curve is represented by a vertical line.

a. True
b. False
ANSWER: False
DIFFICULTY: Easy
OTHER: Knowledge
100. A perfectly inelastic demand curve is represented by an upward-sloping straight line.

a. True
b. False
ANSWER: False
DIFFICULTY: Easy
OTHER: Knowledge
101. As the price is raised along a straight-line demand curve, the demand curve becomes more elastic.
a. True
b. False
ANSWER: True
DIFFICULTY: Easy
OTHER: Knowledge
102. Demand is price-elastic at the top portion of a straight-line downward-sloping demand curve.
a. True
b. False
ANSWER: True
DIFFICULTY: Easy
OTHER: Knowledge
NOTES: Revised
103. The price elasticity of demand is the ratio of the change in quantity demanded to the change in price.
a. True
b. False
ANSWER: False
OTHER: Knowledge
104. By measuring the price elasticity of demand in terms of percentage changes, economists are able to compare the way
consumers respond to changes in the prices of different products.
a. True
b. False
ANSWER: True
DIFFICULTY: Easy
OTHER: Knowledge
105. Since the slope of a downward-sloping demand curve is constant, the price elasticity of demand does not change
when moving along this line.
a. True
b. False
ANSWER: False
OTHER: Knowledge
106. If the price of chocolate increases by 15 percent and the quantity demanded of chocolate declines by 5 percent, the
price elasticity of demand ( ) is -3.
a. True
b. False
ANSWER: False
OTHER: Application
NOTES: Revised
107. Everything else held constant, the greater the number of close substitutes there are for a good, the smaller the price
elasticity of demand for that good.
a. True
b. False
ANSWER: False
DIFFICULTY: Easy
OTHER: Knowledge
108. The demand for mansions is elastic because a small percentage change in price results in a large change in quantity
demanded.
a. True
b. False
ANSWER: True
109. If a consumer is spending a small portion of his or her income on a good, then the demand for the good is likely to be
inelastic.
a. True
b. False
ANSWER: True
DIFFICULTY: Easy
OTHER: Knowledge
110. The price elasticity of demand depends on how readily and easily consumers can switch their purchases from one
product to another.
a. True
b. False
ANSWER: True
DIFFICULTY: Easy
OTHER: Knowledge
111. Other things remaining unchanged, the longer the time period under consideration, the greater will be the price
elasticity of demand.
a. True
b. False
ANSWER: True
DIFFICULTY: Easy
OTHER: Knowledge
112. The cross-price elasticity between movie tickets and video rentals is positive.
a. True
b. False
ANSWER: True
OTHER: Application
113. If the quantity demanded of product S increases as the price of product T decreases, then S and T are complements.
a. True
b. False
ANSWER: True
OTHER: Application
114. The cross-price elasticity between baseballs and tennis balls is likely to be a large positive number.
a. True
b. False
ANSWER: False
OTHER: Application
115. When the income elasticity of demand for a good is negative, the good is called a luxury good.
a. True
b. False
ANSWER: False
OTHER: Knowledge
116. If butter has an income elasticity equal to 0.75, then butter is an inferior good.
a. True
b. False
ANSWER: False
OTHER: Application
117. An inferior good or service is any good or service for which an increase in income causes a decrease in demand.
a. True
b. False
ANSWER: True
DIFFICULTY: Easy
OTHER: Knowledge
118. Jen considers smoking an inferior good. In other words, for Jen to quit smoking, she would require a significant
increase in income.
a. True
b. False
ANSWER: True
119. If consumer income increases, then the demand for an inferior good shifts right.
a. True
b. False
ANSWER: False
DIFFICULTY: Easy
OTHER: Knowledge
120. The point elasticity is a measure of the sensitivity of consumers to a large price change - a range from one price to
another.
a. True
b. False
ANSWER: False
DIFFICULTY: Easy
OTHER: Knowledge
121. Cross-price elasticity is represented by the formula ΔQ/ΔP × P/Q; where Q and ΔQ represent the quantity demanded
and change in quantity demanded of a good, and P and ΔP represent the price and change in price of a related good
respectively.
a. True
b. False
ANSWER: True
OTHER: Knowledge
NOTES: Revised
122. Assume that as the price of wheat falls from $10 to $8, the quantity demanded of wheat increases from 100 bushels
to 150 bushels. This implies the price elasticity of demand for wheat is 0.5.
a. True
b. False
ANSWER: False
OTHER: Application
123. In order to avoid problems involved with calculating percentage changes over a wide range, economists use the base
or midpoint formula to calculate percentage changes when measuring the price elasticity of demand.
a. True
b. False
ANSWER: True
OTHER: Knowledge
124. If the price elasticity of supply is zero, the supply curve is a horizontal line parallel to the quantity axis.
a. True
b. False
ANSWER: False
OTHER: Knowledge
125. In the long run, the quantity of capital available to a firm is fixed.
a. True
b. False
ANSWER: False
DIFFICULTY: Easy
OTHER: Knowledge
126. The actual or chronological time for the short and the long run does not vary from industry to industry.
a. True
b. False
ANSWER: False
OTHER: Knowledge
127. If firms have to change their production techniques in order to change the quantities they supply, their response to a
price change will be less in a period of a year as compared to what they can do in a month.
a. True
b. False
ANSWER: False
DIFFICULTY: Easy
OTHER: Knowledge
NOTES: Revised
128. Supply tends to be more elastic in the long run than in the short run.
a. True
b. False
ANSWER: True
DIFFICULTY: Easy
OTHER: Knowledge
129. If a 10 percent increase in price leads to a 20 percent increase in the quantity supplied, then the elasticity of supply is
0.5.
a. True
b. False
ANSWER: False
OTHER: Application
130. Tax incidence explains how taxes are shared between producers and consumers.
a. True
b. False
ANSWER: True
DIFFICULTY: Easy
OTHER: Knowledge
131. If supply is price-inelastic and demand is price-elastic, then the firm can earn positive profits by increasing the price.
a. True
b. False
ANSWER: False
132. If price elasticity of supply is large and demand is price-inelastic, then the firm can earn positive profits by increasing
the price.
a. True
b. False
ANSWER: True
133. If demand is relatively elastic and supply is relatively inelastic, then the incidence of a tax will fall mainly on
consumers.
a. True
b. False
ANSWER: False
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3. Which of the following is true of the price elasticity of demand of a product?

5. The price elasticity of demand for a product is a measure of the:

13. If a product has an elastic demand, it means that:

17. Refer to Figure 6.1. The demand curve B is:

23. Which of the following is an example of inelastic demand?

24. If the demand for a good is perfectly inelastic, then:

27. If the demand for corn is elastic, then:

36. Which of the following is a determinant of price elasticity of demand?

39. Which of the following would most likely be highly price-elastic?

41. If a product has an inelastic demand, then:

49. Peanut butter and jelly are:

56. An inferior good or service is any good or service for which:

57. Income elasticity of demand is expected to be _____.

65. The income elasticity of demand _____.

69. Based on the information given in Table 6.2, margarine is:

73. Arc elasticity is calculated as _____.

84. Supply curves applicable to shorter periods of time tend to:

94. The coefficient of the price elasticity of demand is always negative.

99. A perfectly elastic demand curve is represented by a vertical line.

100. A perfectly inelastic demand curve is represented by an upward-sloping straight line.

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