Preview Extract
CHAPTER 5—ELASTICITY
MULTIPLE CHOICE
1) The price elasticity of demand measures the responsiveness of quantity demanded to
changes in price.
a. True
b. False
Answer: A
2) A price elasticity of demand of 2 for a specific cola means that if the price increases 1
percent, the quantity demanded of the cola will decrease by 2 percent.
a. True
b. False
Answer: A
3) Another term that could be used for elasticity is
a. sensitivity
b. utility
c. surplus
d. profit
e. slope
Answer: A
4) The price elasticity of demand is important to firms because
a. it explains the relationship between income and demand for the goods they sell
b. it shows how price changes affect total expenditures on the goods they sell
c. the law of demand suggests that elasticity falls as total expenditures continuously rises
d. it helps identify the equilibrium price and quantity in the market
e. it relates price to supply
Answer: B
5) The sensitivity of one economic variable to changes in another variable is known as
a. the variability coefficient
b. elasticity
c. the sensitivity coefficient
d. the cross-variability coefficient
e. the law of demand
Answer: B
6) The price elasticity of demand measures the
a. responsiveness of a good's price to a change in quantity demanded
b. adaptability of suppliers when a change in demand alters the price of a good
c. responsiveness of quantity demanded to a change in a good's price
d. adaptability of buyers when there is a change in demand
e. responsiveness of quantity supplied to a change in quantity demanded
Answer: C
7) The price elasticity of demand is the
a. percentage change in price divided by the percentage change in quantity demanded
b. average change in price divided by the average change in quantity demanded
c. percentage change in quantity demanded divided by the percentage change in price
d. average change in price divided by the average change in quantity demanded
e. percentage change in quantity demanded divided by the average change in price
Answer: C
8) If the price elasticity of demand for Cheer detergent is 3.0, then a
a. 12 percent drop in price leads to a 36 percent rise in the quantity demanded
b. 12 percent drop in price leads to a 4 percent rise in the quantity demanded
c. $1,000 drop in price leads to a 3,000-unit rise in the quantity demanded
d. $1,000 drop in price leads to a 333-unit rise in the quantity demanded
e. 12 percent rise in price leads to a 36 percent rise in the quantity demanded
Answer: A
9) When calculating the price elasticity of demand, we assume that the price of the good
changes while all other variables affecting
a. demand except buyers' incomes remain constant
b. demand except the population size remain constant
c. demand and supply remain constant
d. supply remain constant
e. demand remain constant
Answer: E
10) The concept of elasticity is used to
a. indicate the economy's ability to rebound from a recession
b. measure the robustness of a variable
c. measure the sensitivity of one variable to changes in another
d. measure price changes
e. measure income changes
Answer: C
11) In measuring the sensitivity of demand, the
a. price and income elasticities refer to movements along the demand curve; other elasticities
refer to shifts of the entire demand curve
b. price and cross-price elasticities analyze movements along the demand curve; other
elasticities refer to shifts of the entire demand curve
c. income and cross-price elasticities refer to movements along the demand curve; price
elasticity refers to shifts of the entire demand curve
d. price elasticity refers to movements along the demand curve; income and cross-price
elasticities refer to shifts of the entire demand curve
e. income elasticity refers to movements along the demand curve; other elasticities refer to
shifts of the entire demand curve
Answer: D
12) If a 10 percent rise in the price of bananas leads to a 20 percent reduction in the quantity
of bananas demanded, then the price elasticity of demand is 0.50.
a. True
b. False
Answer: B
13) If a 10 percent rise in the price of bananas leads to a 20 percent reduction in the quantity
of bananas demanded, then the price elasticity of demand is 2.00.
a. True
b. False
Answer: A
14) If the price of a good increases from $20 to $25 and the quantity demanded declines from
15 to 10 units of the good, the price elasticity of demand is 5.
a. True
b. False
Answer: B
15) Suppose that a local supermarket sells apples and oranges for 50 cents apiece, and at
these prices is able to sell 100 apples and 200 oranges per week. One week, the supermarket
lowered the price per apple to 40 cents and sold 120 apples. The next week, they lowered the
price per orange to 40 cents (after raising the price per apple back to 50 cents) and sold 240
oranges. These results imply that the
a. price elasticity of apples is lower than the price elasticity of oranges
b. price elasticity of apples is higher than the price elasticity of oranges
c. demand for apples is more price sensitive than the demand for oranges
d. demand for oranges is more price sensitive than the demand for apples
e. price elasticities of demand for apples and oranges are the same over these price ranges
Answer: E
16) A $1.00 increase in the price of a restaurant meal results in a drop in quantity demanded
of 5 meals. Which of the following statements is correct?
a. The slope of the demand curve is -1/5; there is insufficient information to determine the
price elasticity of demand.
b. The price elasticity of demand is -1/5; there is insufficient information to determine the
slope of the demand curve.
c. Both the slope of the demand curve and the price elasticity of demand are equal to -1/5.
d. There is insufficient information to determine either the slope of the demand curve or the
price elasticity of demand.
e. The slope of the demand curve is -1/5; the price elasticity of demand is 5.
Answer: A
17) If a 20 percent decrease in the price of chicken results in a 10 percent increase in the
quantity demanded, the price elasticity of demand has a value of
a. 0.5
b. 2
c. 1
d. 0.1
e. none of these
Answer: A
18) The price elasticity of demand is
a. irrelevant to the determination of prices, incomes, and interest rates
b. indeterminate in most cases
c. the percentage change in price divided by the percentage change in quantity demanded
d. the percentage change in price with respect to the percentage change in quantity supplied
e. the percentage change in quantity demanded divided by the percentage change in price
Answer: E
19) Figure 5-1 shows the prices of two services offered by Earl's Barber Shop and the
resulting quantities demanded by customers. In this example, the price elasticity of demand
for manicures (using the midpoint formula) is
a. 1
b. 2
c. 3
d. 0.5
e. 0.4
Answer: A
20) Figure 5-1 shows the prices of two services offered by Earl's Barber Shop and the
resulting quantities demanded by customers. In this example, the price elasticity of demand
for haircuts (using the midpoint formula) is
a. 1
b. 1.8
c. 3.5
d. 2.25
e. 0.5
Answer: B
21) Figure 5-1 shows the prices of two services offered by Earl's Barber Shop and the
resulting quantities demanded by customers. Suppose that the current price for a haircut is
$20 and the current price for a manicure is $12, and Earl has a sale of $4 off the price of
either a haircut or a manicure. In this example,
a. haircuts have the smaller absolute change in quantity demanded and the more elastic
demand
b. Earl can earn more revenue from manicures at the lower price
c. Earl should decrease the number of spaces in his shop allocated to haircuts
d. the demand for haircuts is unitary elastic
e. the demand for haircuts is inelastic
Answer: A
22) Consider demand curve D in Figure 5-2. Between points F and G, the price elasticity of
demand is
a. 1
b. 0.5
c. 2
d. 0.2
e. none of these
Answer: B
23) In Figure 5-2, compare demand curve D between points F and G to demand curve D'
between points J and K. Which of the following statements is correct?
a. Both demand curves have the same slope, but D' is more elastic in the $2 to $3 range.
b. Both demand curves have the same slope, but D' is less elastic in the $2 to $3 range.
c. Both demand curves have the same price elasticity of demand, but D' has a larger slope.
d. Both demand curves have the same price elasticity of demand, but D' has a smaller slope.
e. Both demand curves have the same slope and the same value for the price elasticity of
demand.
Answer: B
24) Daniel's consumption of pizzas drops from 6 per week to 4 per week when the price rises
from $9 to $11. His price elasticity of demand for pizza equals
a. 0.5
b. 1
c. 2
d. 0.08
e. 1.7
Answer: C
25) In Figure 5-3, the price elasticity of demand equals __________ between points T and U
and equals __________ between points V and W.
a. 0.33; 1.86
b. 0.54; 3
c. 3; 0.54
d. 1.86; 0.33
e. 2; 2
Answer: D
26) In Figure 5-3, the price elasticity of demand between points T and U is the same as
between points V and W.
a. True
b. False
Answer: B
27) If the price of a certain brand of sneakers falls from $27.50 to $22.50, and the quantity
demanded by consumers increases from 15 to 25 pairs per week, then the price elasticity of
demand is
a. 0.25
b. 1.00
c. 2.75
d. 1.50
e. 2.50
Answer: E
28) Figure 5-4 shows the demand schedule for hockey pucks. What is the price elasticity of
demand when the price changes from $4 per puck to $5 per puck?
a. 0.33
b. 1.00
c. 1.15
d. 3.00
e. none of these
Answer: D
29) Figure 5-4 shows the demand schedule for hockey pucks. What is the price elasticity of
demand when the price changes from $2 per puck to $1 per puck (using the midpoint
formula)?
a. 0.33
b. 0.15
c. 3.00
d. 1.00
e. none of these
Answer: A
30) The price elasticity of demand is usually equal to the slope of the demand curve.
a. True
b. False
Answer: B
31) If the demand curve is a straight line with a negative slope, then demand is more elastic at
higher prices than lower prices.
a. True
b. False
Answer: A
32) The elasticity approach to measuring the sensitivity of quantity demanded to changes in
price differs from using the slope because the elasticity approach calculates the ratio of the
a. absolute change in price to the absolute change in quantity demanded
b. absolute change in quantity demanded to the percentage change in price
c. absolute change in quantity demanded to the percentage change in price
d. percentage change in quantity demanded to the percentage change in price
e. average change in price to the average change in quantity demanded
Answer: D
33) The slope of the demand curve and the price elasticity of demand are
a. basically the same thing
b. determined by supply
c. are derived from production and distribution costs
d. different because slope is based on absolute changes and elasticity is based on percentage
changes
e. implicit in the shape of the supply curve
Answer: D
34) In Figure 5-5, the slope of the demand curve
a. has a constant value of -2
b. is higher between points T and U than between points V and W
c. is lower between points T and U than between points V and W
d. matches the value of the price elasticity of demand at each point
e. is lower than the value of the price elasticity of demand at every point
Answer: A
35) If the demand curve is a straight line and has the normal negative slope, then as quantity
demanded increases, demand
a. becomes more elastic
b. becomes more inelastic
c. is unitary elastic
d. rises and then falls
e. is an inverse function of supply
Answer: B
36) Which of the following statements about straight-line demand curves is true?
a. The price elasticity of demand becomes larger in absolute value as price falls.
b. The price elasticity of demand becomes smaller in absolute value as price falls.
c. The price elasticity of demand is constant along the curve.
d. The price elasticity of demand and the slope of the demand curve are the same.
e. Demand is price elastic everywhere along the curve.
Answer: B
37) Which of the following statements concerning the slope and price elasticity of demand
along a straight-line demand curve is correct?
a. Slope measures the change in quantity resulting from a one-dollar change in price.
b. Elasticity measures the percent change in price resulting from a one-percent change in
quantity demanded.
c. Slope measures the dollar change in price for a one-unit change in quantity demanded.
d. Elasticity measures the unit change in quantity demanded resulting from a one-dollar
change in price.
e. Slope measures the percent change in price resulting from a one-percent change in quantity
demanded.
Answer: C
38) Moving downward along a straight-line demand curve, the absolute value of the price
elasticity of demand
a. always rises
b. rises until the midpoint of the curve is reached, and then falls
c. falls until the midpoint of the curve is reached, and then rises
d. always falls
e. falls from 1 to 0
Answer: D
39) Suppose that when the price of aspirin rises from $2 to $3 per bottle, the quantity
demanded falls from 800 bottles per day to 700 bottles per day. Over this range, the demand
for aspirin is
a. elastic
b. unitary elastic
c. perfectly elastic
d. inelastic
e. perfectly inelastic
Answer: D
40) A local store noticed that when it increased the price of milk from $2.50 to $3.50 per
gallon, it sold the same amount of milk per week (165 gallons). Since everything else
remained the same, we would say the
a. demand for milk is perfectly elastic
b. demand for milk is elastic
c. demand for milk is perfectly inelastic
d. demand for milk is unitary elastic
e. law of supply does not apply in this situation
Answer: C
41) A local store noticed that when it increased the price of milk from $2.50 to $3.50 per
gallon, it sold 33% less milk. Since everything else remained the same, we would say the
a. demand for milk is perfectly elastic
b. demand for milk is elastic
c. demand for milk is perfectly inelastic
d. demand for milk is unitary elastic
e. law of supply does not apply in this situation
Answer: D
42) If the percentage change in quantity demanded is smaller (in absolute value) than the
percentage change in price, then demand is
a. inelastic
b. elastic
c. unit elastic
d. determined by supply
e. inadequate compared to supply
Answer: A
43) If the percentage change in quantity demanded is greater (in absolute value) than the
percentage change in price, then demand
a. determines supply
b. is indeterminate
c. is elastic
d. is inelastic
e. is unit elastic
Answer: C
44) If demand is elastic, then
a. the percentage change in quantity demanded is larger in absolute value than the percentage
change in price
b. supply is inelastic
c. prices can neither rise nor fall
d. the percentage change in quantity demanded is smaller in absolute value than the
percentage change in price
e. supply is elastic
Answer: A
45) If the percentage change in quantity demanded divided by the percentage change in price
equals 1, then
a. supply is inelastic
b. supply is elastic
c. demand is elastic
d. demand is inelastic
e. demand is unit elastic
Answer: E
46) If demand is perfectly inelastic,
a. the percent change in quantity demanded divided by the percent change in price is zero
b. the demand curve is a vertical line
c. supply is perfectly inelastic too
d. consumers have power over prices
e. the percentage change in price divided by the percentage change in quantity demanded is
zero
Answer: A
47) If the demand curve is a vertical line, then
a. demand is perfectly elastic
b. demand is perfectly inelastic
c. demand is unit elastic
d. demand is determined by supply
e. supply is a horizontal line
Answer: B
48) If demand is perfectly elastic, then
a. the demand curve is a horizontal line
b. supply is perfectly inelastic
c. supply is perfectly elastic
d. the demand curve is a vertical line
e. the demand curve is downward sloping
Answer: A
49) Celia buys 24 gallons of gasoline per month when the price is $2 per gallon, but only 16
gallons if the price rises to $3 per gallon. Within this range, her demand for gasoline is
a. unitary elastic
b. perfectly inelastic
c. perfectly elastic
d. inelastic
e. elastic
Answer: A
50) If the price of food falls by 10 percent and the quantity sold increases by 5 percent, then
the price elasticity of demand in that range equals
a. 2, and demand is elastic
b. 0.5, and demand is elastic
c. 2, and demand is inelastic
d. 0.5, and demand is inelastic
e. 15, and demand is elastic
Answer: D
51) If the numerical value of the price elasticity of demand is 3, then a one-percent change in
price will cause a(n)
a. larger percentage change in quantity demanded, so demand is elastic
b. larger percentage change in quantity demanded, so demand is inelastic
c. smaller percentage change in quantity demanded, so demand is elastic
d. smaller percentage change in quantity demanded, so demand is inelastic
e. equal percentage change in quantity demand, so demand is unitary elastic
Answer: A
52) Figure 5-6 shows the demand curve for chicken. Between points L and M, the price
elasticity of demand is
a. 0.44, and demand is elastic
b. 0.44, and demand is inelastic
c. 2.25, and demand is elastic
d. 2.25, and demand is inelastic
e. 0.028, and demand is inelastic
Answer: B
53) If the demand curve is a horizontal line,
a. demand is perfectly elastic
b. demand is perfectly inelastic
c. demand is unitary elastic
d. demand is relatively inelastic
e. total expenditure is maximized
Answer: A
54) Figure 5-7 shows Sally's demand for movie theater tickets (quantity of movies per year).
At a price of $9 per ticket, her
a. demand is inelastic
b. demand is perfectly elastic
c. demand is elastic
d. total expenditure is being maximized
e. demand is perfectly inelastic
Answer: C
55) Figure 5-7 shows Sally's demand for movie theater tickets (quantity of movies per year).
At a price of $9 per ticket, the price elasticity of demand is
a. .5
b. 1.0
c. 1.5
d. 2
e. cannot tell from information given
Answer: C
56) Demand is said to be price inelastic when the coefficient of price elasticity of demand is
a. greater than +1
b. between 0 and +1
c. zero
d. infinity
Answer: B
57) When a one-percent change in price is accompanied by a larger percent change in
quantity demanded,
a. demand is inelastic
b. supply is elastic
c. the good is a normal good
d. the good is an inferior good
e. demand is elastic
Answer: E
58) Figure 5-8 shows the demand schedule for hockey pucks. At which price is demand the
most price elastic?
a. $1
b. $2
c. $3
d. $4
e. $5
Answer: E
59) Figure 5-8 shows the demand schedule for hockey pucks. At which price is demand the
least price elastic?
a. $1
b. $2
c. $3
d. $4
e. $5
Answer: A
60) If a change in price does not lead to any change in revenue, then demand over that range
of prices is inelastic.
a. True
b. False
Answer: B
61) A public university knows that demand from potential students is elastic. If the university
wants to increase tuition revenue, it should
a. raise its tuition rate
b. hold its tuition rate constant and increase faculty salaries
c. increase its financial aid
d. lower its tuition rate
e. increase its enrollment
Answer: D
62) If demand is price inelastic, a decrease in price
a. raises total revenue to the seller
b. raises total expenditure on the good, but not total revenue to the seller
c. reduces total revenue to the seller
d. leaves total revenue to the seller unchanged
e. leaves total expenditure on the good unchanged
Answer: C
63) If the demand for a good is price inelastic, a decrease in total revenue from the good
would result from a(n)
a. increase in price
b. decrease in quantity demanded
c. favorable shift in tastes and preferences
d. decrease in price
e. increase in consumers' incomes
Answer: D
64) If demand is perfectly inelastic, a decrease in price results in a(n)
a. decrease in seller's total revenue
b. increase in total seller’s expenditure
c. increase in expenditure on the good, but a decrease in revenue to the seller
d. unfavorable shift in tastes and preferences
e. increase in total revenue to the seller
Answer: A
65) If demand is price elastic, a decrease in price results in a(n)
a. decrease in total expenditure on the good
b. unfavorable shift in tastes and preferences
c. decrease in total cost for the seller
d. increase in supply of the good
e. increase in total revenue to the seller
Answer: E
66) If demand is price elastic, a decrease in seller’s total revenue would result from a(n)
a. decrease in price
b. increase in quantity demanded
c. increase in price
d. decrease in income for an inferior good
e. increase in total cost to the seller
Answer: C
67) If demand is unitary elastic, a price decrease results in
a. an increase in total seller’s total revenue
b. no change in total seller’s total revenue
c. a decrease in total expenditure on the good
d. a decrease in quantity demanded of the good
e. an increase in supply of the good
Answer: B
68) If a price decrease results in no change in seller’s total revenue then
a. supply determined demand
b. supply is unresponsive to demand
c. demand is elastic
d. demand is inelastic
e. demand is unitary elastic
Answer: E
69) Suppose a local bookstore notices that a 2 percent increase in book prices leads to a 2
percent decrease in the number of books sold. Which of the following is true?
a. Demand for books is price elastic.
b. The store's sales revenue did not change.
c. Demand for books is price inelastic.
d. Demand for books is perfectly inelastic.
e. The bookstore could increase revenue by further lowering prices.
Answer: B
70) If demand is price inelastic,
a. price and total revenue change in opposite directions
b. a seller should decrease the price to increase total revenue
c. too few goods are being produced from society's point of view
d. price and total revenue change in the same direction
e. the market can never be in equilibrium
Answer: D
71) Figure 5-9 shows Sally's demand for movie theater tickets (quantity of movies per year).
If the price per ticket fell from $8 to $7,
a. there would be no change in Sally's total expenditure on movie tickets
b. Sally would spend less money on movie tickets
c. Sally would spend more money on movie tickets
d. Sally's demand curve would shift to the left
e. the supply curve would shift to the right
Answer: A
72) As a result of heavy spring rains in the Midwest, the corn crop declined sharply. If corn
growers experienced an increase in sales revenue, the demand for corn must be
a. price elastic
b. price inelastic
c. unitary elastic
d. perfectly inelastic
e. perfectly elastic
Answer: B
73) If demand for a good is represented by curve D in Figure 5-10, then an increase in supply
of the good will cause
a. the equilibrium quantity to rise, but seller’s total revenue to fall
b. the equilibrium quantity to fall, but seller’s total revenue to rise
c. both the equilibrium quantity and seller’s total revenue to fall
d. the equilibrium quantity to rise, but seller’s total revenue will not change
e. both the equilibrium quantity and seller’s total revenue to rise
Answer: E
74) If demand for a good is represented by curve D' in Figure 5-10, then a decrease in supply
of the good will cause
a. both the equilibrium price and revenue to rise
b. both the equilibrium price and revenue to fall
c. the equilibrium price to rise, but revenue to fall
d. the equilibrium price to fall, but revenue to rise
e. neither the equilibrium price nor revenue to change
Answer: A
75) If demand for a good is represented by curve D" in Figure 5-10, then an increase in
supply of the good will cause the equilibrium
a. price to fall, but revenue will not change
b. quantity to fall, but revenue to rise
c. quantity to rise, but revenue will not change
d. price to rise, but revenue to fall
e. price to fall. Seller’s total revenue could rise or fall depending on the price elasticity of
demand
Answer: E
76) Consider a good with a price elasticity equal to 1 at every point on its demand curve.
Which of the following statements is correct?
a. Total revenue always rises exactly in proportion to a drop in the price.
b. Total revenue always rises exactly in proportion to a rise in the price.
c. Total revenue does not change if the price changes.
d. Total revenue drops to zero whenever the price rises.
e. Total revenue always doubles if the price drops.
Answer: C
77) Perfect planting and harvesting weather results in a record high crop of wheat. If wheat
growers experience an increase in total sales revenue, then the demand for wheat must be
a. price-inelastic
b. unitary elastic
c. perfectly inelastic
d. price-elastic
e. perfectly elastic
Answer: A
78) Demand for goods in broader category definitions, such as "beverages", is usually less
elastic than demand for more narrowly defined goods, such as "diet colas."
a. True
b. False
Answer: A
79) Which of the following goods is likely to have the most elastic demand over the relevant
range of prices?
a. insulin
b. eggs
c. milk
d. Pepsi Cola
e. gasoline
Answer: D
80) Which of the following goods is likely to have the least elastic demand over the relevant
range of prices?
a. insulin
b. eggs
c. milk
d. Pepsi Cola
e. gasoline
Answer: A
81) Which of the following goods is likely to have the most price inelastic demand?
a. margarine
b. Tide detergent
c. cigarettes
d. Coca-Cola
e. ground beef
Answer: C
82) Generally, as goods are more broadly defined,
a. demand becomes more price elastic
b. demand becomes less price elastic
c. total expenditure falls as the price decreases
d. the demand curve becomes straighter
e. more substitute goods can be identified
Answer: B
83) In general, the more of an individual's total budget that is spent on a given product, the
a. greater the supply-side response
b. less elastic is the demand for that good
c. more elastic is the demand for that good
d. more the demand curve will shift when the price changes
e. less the demand curve will shift when the price changes
Answer: C
84) The more available substitutes there are for a good, the
a. larger the number of consumers
b. smaller the number of consumers
c. smaller the supply side response
d. more elastic the demand for that good
e. less elastic the demand for that good
Answer: D
85) A more elastic demand for a good would generally result from
a. an increase in the supply of that good
b. an increase in the number of substitutes for that good
c. a decrease in the number of substitutes for that good
d. smaller consumer incomes
e. a reduction in the number of consumers
Answer: B
86) The more narrowly we define a good, the easier it is to find substitutes, and
a. the greater is the number of producers of that good
b. the greater is the supply-side response
c. fewer consumers therefore wish to purchase the good
d. less elastic is the demand for that good
e. more elastic is the demand for that good
Answer: E
87) The price elasticity of demand will be larger in absolute value if
a. expenditure on the good represents a smaller proportion of the consumer's total expenditure
b. we define the good more broadly
c. we define the good more narrowly
d. the number of substitutes is smaller
e. the number of consumers is larger
Answer: C
88) The long-run price elasticity of demand for a good is
a. zero
b. smaller (in absolute value) than the short-run price elasticity
c. larger (in absolute value) than the short-run price elasticity
d. infinite
e. the same as the short-run elasticity
Answer: C
89) A less elastic demand for a good could result from
a. strong supply-side reactions
b. an increased number of available substitutes
c. lower consumer incomes
d. a longer time horizon
e. a shorter time horizon
Answer: E
90) For which of the following types of goods would demand be most price-elastic?
a. necessities
b. goods with many substitutes
c. goods that require only a small portion of the buyer's budget
d. goods with vertical demand curves
e. goods with vertical supply curves
Answer: B
91) For which of the following categories of goods is demand likely to be the most price
elastic?
a. automobiles
b. foreign-made automobiles
c. foreign-made sports cars
d. a BMW sports car
Answer: D
92) For which of the following items is demand likely to be the most price elastic?
a. Tide liquid laundry detergent
b. laundry detergent in general
c. powdered laundry detergent
d. liquid laundry detergent
Answer: A
93) Demand for a good is likely to be less elastic
a. the more narrowly defined the good is
b. the larger the good's share of the buyer's budget
c. in the long run than in the short run
d. the smaller the number of substitute goods available
e. at high prices
Answer: D
94) For which of the following is demand likely to be the most price elastic?
a. a good for which there are no close substitutes
b. a good for which there are no easily-obtained substitutes
c. a good with close substitutes that are difficult to obtain
d. a good that is no longer being produced
e. a good for which close substitutes are easily obtained
Answer: E
95) The more narrowly a good is defined, the
a. easier it is to find substitutes, and the less price-elastic is the demand
b. easier it is to find substitutes, and the more price-elastic is the demand
c. more difficult it is to find substitutes, and the less price-elastic is the demand
d. more difficult it is to find substitutes, and the more price-elastic is the demand
e. more difficult it is to find substitutes, but this has no impact on the price elasticity of
demand
Answer: B
96) For which of the following medical services is the income elasticity of demand likely to
be the smallest?
a. face-lifts
b. plastic surgery
c. manicures
d. emergency services after a car accident
e. hair transplants
Answer: D
97) If a 5 percent increase in income leads to a 15 percent increase in the quantity demanded
of a service, then the income elasticity of demand for that service equals 0.33.
a. True
b. False
Answer: B
98) Ink jet printers are a normal good only if, as income falls by a certain percentage, the
quantity demanded rises by an even greater percentage.
a. True
b. False
Answer: B
99) An inferior good is defined by an income elasticity less than 1.
a. True
b. False
Answer: B
100) The percentage change in quantity demanded divided by the percentage change in
income is referred to as the
a. price elasticity of demand
b. income elasticity of demand
c. cross-price elasticity of demand
d. slope of the demand curve
e. demand curve
Answer: B
101) If the quantity of higher education demanded rises by 5 percent when incomes rise by 10
percent,
a. higher education is a normal good
b. higher education is an inferior good
c. the demand for higher education is price elastic
d. the law of demand applies to higher education
e. the demand for higher education is price inelastic
Answer: A
102) After John's income rose by 8 percent, the amount of chicken he consumed fell by 2
percent. This means that
a. his income elasticity for chicken is positive
b. chicken is a normal good for John
c. his demand curve for chicken shifted to the left
d. his demand curve for chicken shifted to the right
e. John is spending more of his income on chicken than before
Answer: C
103) For which of the following goods is the income elasticity of demand likely to be largest?
a. poultry products
b. meals at restaurants
c. lemonade
d. used books
e. paperback mystery novels
Answer: B
104) Figure 5-11 shows five different levels of income for a particular state (in billions of
dollars) and the quantity of public higher education demanded there (for a given level of
tuition). What is the income elasticity of demand if income rises from $45 billion to $55
billion?
a. 1.00
b. 0.06
c. -1.00
d. 0
e. none of these
Answer: A
105) Figure 5-11 shows five different levels of income for a particular state (in billions of
dollars) and the quantity of public higher education demanded there (for a given level of
tuition). Given this information, what can be said about the state's demand for public higher
education?
a. It follows the law of demand.
b. It violates the law of demand.
c. Public higher education is an inferior good for income levels above $65 million.
d. Public higher education is a normal good.
Answer: D
106) When Brenda was in college, she worked part-time delivering pizzas and she ate five
boxes of macaroni and cheese per week. After graduation, she became a high school teacher
and ate only two boxes of macaroni and cheese per week. From this information,
a. macaroni and cheese is a normal good for Brenda
b. the law of demand applies to macaroni and cheese for Brenda
c. macaroni and cheese are substitute goods
d. macaroni and cheese is an inferior good for Brenda
e. Brenda's income elasticity of demand for macaroni and cheese is positive
Answer: D
107) An inferior good is
a. any good whose demand curve shifts to the left as income rises
b. any good of low quality
c. one that has few substitutes
d. any good produced by inexpensive labor
e. any good that consumers buy less of as its price falls
Answer: A
108) Suppose that the income elasticity of demand for college education is 1.3. This indicates
that
a. college education is a necessity
b. college education is an inferior good
c. the demand curve for college education slopes downward
d. college education is a normal good
e. the demand curve for college education is horizontal
Answer: D
109) The fact that travel on buses fell as incomes increased in many cities suggests that
a. bus travel is a normal good
b. the law of demand does not apply to bus travel
c. bus travel is an inferior good
d. there are no good substitute goods for bus travel
Answer: C
110) For a normal good, quantity demanded
a. increases as income rises, so the income elasticity of demand is positive
b. increases as income rises, so the income elasticity of demand is negative
c. falls as income rises, so the income elasticity of demand is positive
d. falls as income rises, so the income elasticity of demand is negative
e. remains unchanged as income rises, so the income elasticity of demand is zero
Answer: A
111) If the income elasticity of demand for a good is -2.5, then
a. it is a normal good, and its demand curve will shift to the left if buyers' incomes increase
b. it is a normal good, and its demand curve will shift to the right if buyers' incomes increase
c. it is an inferior good, and its demand curve will shift to the right if buyers' incomes
increase
d. it is an inferior good, and its demand curve will shift to the left if buyers' incomes increase
e. there is insufficient information to determine whether the good is normal or inferior
Answer: D
112) If the income elasticity of demand for a good is 0.5, then
a. it is a normal good, and its demand curve will shift to the left if buyers' incomes increase
b. it is a normal good, and its demand curve will shift to the right if buyers' incomes increase
c. it is an inferior good, and its demand curve will shift to the right if buyers' incomes
increase
d. it is an inferior good, and its demand curve will shift to the left if buyers' incomes increase
e. there is insufficient information to determine whether the good is normal or inferior
Answer: B
113) A 10 percent increase in buyers' incomes results in a 5 percent drop in the quantity of
hot dogs demanded. In this range, the income elasticity of demand for hot dogs is
a. 0.5
b. 2.0
c. 5.0
d. -2.0
e. -0.5
Answer: E
114) Suppose that the income elasticity of demand for fresh vegetables is 0.26. If buyers'
incomes rise by 10 percent, then
a. the demand curve for fresh vegetables will shift to the left
b. the quantity of fresh vegetables demanded will rise by 2.6 percent
c. the quantity of fresh vegetables demanded will rise by 12.6 percent
d. there will be a movement down and to the right on the demand curve for fresh vegetables
e. there will be a movement up and to the left along the demand curve for fresh vegetables
Answer: B
115) The income elasticity of demand measures
a. the relative certainty of future income
b. how elastic supply is compared to demand
c. the percent change in quantity demanded relative to the percent change in income
d. the percent change in income relative to the percent change in quantity demanded
e. how much income will stretch to make expected payments
Answer: C
116) If the income elasticity of demand is negative, this means that the good is
a. an inferior good
b. sold at a lower than equilibrium price
c. provided by a monopoly producer
d. provided by competitive producers
e. a normal good
Answer: A
117) With an income elasticity of demand of 0.5, cigarettes are an example of
a. a normal good
b. an inferior good
c. irrational demand
d. complements to health care
e. unitary elasticity
Answer: A
118) The cross-price elasticity of demand is useful for determining which pairs of
commodities serve as substitutes for each other.
a. True
b. False
Answer: A
119) The cross-price elasticity of demand is measured by the
a. change in quantity demanded of one good divided by the change in price of another good
b. percentage change in quantity demanded of one good divided by the percentage change in
its price
c. percentage change in demand for one good divided by the percentage change in income
d. percentage change in quantity supplied of one good divided by the percentage change in
the price of another good
e. percentage change in quantity demanded of one good divided by the percentage change in
price of another good
Answer: E
120) The cross-price elasticity of demand measures
a. how the quantity demanded of one good changes along with income
b. the slope of the demand curve
c. the slope of the supply curve at the point of equilibrium
d. the responsiveness of the quantity demanded of one good to changes in the price of another
good
e. how responsive changes in price are to changes in quantity demanded
Answer: D
121) If the cross-price elasticity of demand between two goods is -2.2, then the
a. two goods are substitutes
b. two goods are complements
c. income elasticity of demand must be between 0 and 1.0
d. goods are both normal goods
e. goods are both inferior goods
Answer: B
122) The cross-price elasticity of demand between butter and margarine is most likely
a. positive, since the goods are substitutes
b. positive, since the goods are complements
c. negative, since the goods are complements
d. negative, since the goods are substitutes
e. zero, since the goods are both normal
Answer: A
123) Bill's Office Furniture sells office chairs and desks. Bill's has changed the price per chair
by $10 in each of four successive weeks. Figure 5-12 shows the four prices along with the
corresponding sales of desks. What is the cross-price elasticity of demand of desks with
respect to chairs when the price of a chair changes in the $45 to $55 range?
a. -2.0
b. 2.0
c. 0.5
d. -0.5
e. 1.0
Answer: D
124) Bill's Office Furniture sells office chairs and desks. Bill's has changed the price per chair
by $10 in each of four successive weeks. Figure 5-12 shows the four prices along with the
corresponding sales of desks. From this information, it can be seen that
a. office chairs and desks are unrelated goods
b. office chairs and desks are complementary goods
c. office chairs and desks are substitute goods
d. both goods are normal goods
e. both goods obey the law of demand
Answer: B
125) When there is a positive cross-price elasticity of demand between two goods,
a. they are independent goods
b. they are complementary goods
c. they are substitute goods
d. they are normal goods
e. the income elasticity of demand is positive
Answer: C
126) The effect of a change in the price of tea on the quantity of coffee demanded is
measured by the
a. price elasticity of demand
b. substitute elasticity of demand
c. cross-price elasticity of demand
d. income elasticity of demand
e. alternative elasticity of demand
Answer: C
127) The cross-price elasticity of demand between Texaco gasoline and Mobil gasoline sold
at the same intersection would be
a. positive
b. negative
c. 0
d. 1.0
e. -1.0
Answer: A
128) If a decrease in the price of one good causes the demand curve for another good to shift
to the left, the two goods must be
a. inferior
b. normal goods
c. inferior goods
d. substitutes
e. complements
Answer: D
129) We would expect the cross-price elasticity of demand between two different brands of
flour to be
a. negative with a high absolute value
b. negative with a low absolute value
c. zero
d. positive with a low absolute value
e. positive with a high absolute value
Answer: E
130) The cross-price elasticity of demand is
a. price elasticity of demand multiplied by the income elasticity of demand
b. the percent change in the price of one commodity with respect to a one-percent change in
the quantity demanded of another commodity
c. the percent change in the demand for one commodity with respect to a one-percent change
in the price of another commodity
d. negative for substitute goods
e. price elasticity of demand crossed with consumer incomes
Answer: C
131) The percent change in the quantity of one commodity demanded divided by the percent
change in the price of another commodity is the
a. price elasticity of demand
b. price elasticity of supply
c. income elasticity of demand
d. income elasticity of supply
e. cross-price elasticity of demand
Answer: E
132) If the cross-price elasticity of demand is positive, then the
a. two goods are complements
b. two goods are substitutes
c. two goods have no relationship to each other
d. price is below the equilibrium
e. price is above the equilibrium
Answer: B
133) If two commodities are substitutes, then
a. they tend to be used together by consumers
b. their prices are generally regulated by the government
c. an increase in the price of one of them increases the supply of the other
d. the cross-price elasticity of demand is positive
e. the cross-price elasticity of demand is negative
Answer: D
134) If the cross-price elasticity of demand between two goods is negative, then
a. the two goods are complements
b. the two goods are substitutes
c. as price of one good rises, the quantity demanded of the other good also rises
d. one of the goods must be inferior
e. the two goods are rarely used together by consumers
Answer: A
135) The sign of the cross-price elasticity tells us whether two commodities are complements
or substitutes, but the size of this elasticity measure tells us
a. how the supply side of the market reacts to changes in demand
b. whether the government should regulate the two markets
c. which technology producers use
d. how closely the two goods are related
e. whether or not excess profits can be made in either market
Answer: D
136) Butter and margarine are examples of
a. substitutes
b. complements
c. externalities
d. inferior goods
e. goods that are independent of each other
Answer: A
137) The price elasticity of supply
a. is a number between 0 and 1.
b. measures the percent change in quantity supply as a result of a 1-percent change in price
c. measures the percent change in quantity supplied as a result of a 1-percent change in cost.
d. measures the shift in supply as the result of a price change
e. measures the movement of a supply curve along a fixed demand curve
Answer: B
138) Price elasticity of supply
a. is always a number between 0 and 1
b. is always a negative number
c. is always greater than or equal to 0
d. is always greater than 1.
e. can take on any value.
Answer: C
139) The supply of a good is more price elastic,
a. the fewer alternatives there are to producing the good in question
b. the more broadly the market for the good is defined
c. the longer the time horizon over which it is measured
d. the higher the cost of production
e. the more elastic the demand for that good.
Answer: C
140) The supply of a good is more price elastic
a. the more alternatives there are to producing the good in question
b. the more broadly the market for the good is defined.
c. the shorter the time horizon over which it is measured.
d. the higher the cost of production.
e. the more elastic the demand for that good.
Answer: A
141) A perfectly elastic supply curve
a. has an elasticity of 1
b. has an elasticity less than 1
c. has an elasticity of 0
d. is horizontal
e. is upward sloping
Answer: D
142) A perfectly inelastic supply curve
a. cannot exist
b. is horizontal
c. has an elasticity of 0
d. has an elasticity of 1
e. is vertical
Answer: E
143) Along a perfectly elastic supply curve
a. the quantity supplied is always the same
b. the price elasticity of demand is always the same
c. the price is always the same
d. the cross-price elasticity of demand is always the same
e. the elasticity of supply is different at each point.
Answer: C
144) If the elasticity of demand is much greater than the elasticity of supply, an excise tax
levied on the suppliers will
a. cause the suppliers to incur a greater burden of the tax than demanders
b. cause the demanders to incur a greater burden of the tax than suppliers
c. the burden of the tax will be shared equally between the suppliers and the demanders
d. cause the entire burden of the tax to rest on the demanders
e. Without more information as to the amount of the excise tax, who will incur a greater
burden will be unclear
Answer: A
145) If the elasticity of supply is much greater than the elasticity of demand, an excise tax
levied on the suppliers will
a. cause the suppliers to incur a greater burden of the tax than demanders
b. cause the demanders to incur a greater burden of the tax than suppliers
c. the burden of the tax will be shared equally between the suppliers and the demanders
d. cause the entire burden of the tax to rest on the demanders
e. Without more information as to the amount of the excise tax, who will incur a greater
burden will be unclear
Answer: B
146) If the elasticity of supply is much greater than the elasticity of demand, a subsidy
awarded to demanders will
a. benefit the demanders more than the suppliers
b. benefit the suppliers more than the demanders
c. the benefit of the subsidy will be equally shared between the demanders and the suppliers
d. allow the demanders to be the only ones who will benefit
e. Without more information as to the amount of the subsidy, who will benefit more can not
be determined
Answer: A
147) If the elasticity of demand is much greater than the elasticity of supply, a subsidy
awarded to demanders will
a. benefit the demanders more than the suppliers
b. benefit the suppliers more than the demanders
c. the benefit of the subsidy will be equally shared between the demanders and the suppliers
d. allow the demanders to be the only ones who will benefit
e. Without more information as to the amount of the subsidy, who will benefit more can not
be determined
Answer: B
148) If the demand for good A is more elastic than the demand for good B, a small decrease
in supply in both markets will cause
a. a much greater increase in price for good A than for good B
b. a much greater increase in price for good B than for good A
c. the price will increase by the same amount in both markets
d. only the price of good B will increase
e. only the price of good A will increase
Answer: B
149) If the demand for good A is more elastic than the demand for good B, a small increase
in supply in both markets will cause
a. a much greater decrease in price for good A than for good B
b. a much greater decrease in price for good B than for good A
c. the price will decrease by the same amount in both markets
d. only the price of good B will decrease
e. only the price of good A will decrease
Answer: B
150) If the demand for good A is more elastic than the demand for good B, a small increase
in supply in both markets will cause
a. a much greater increase in the equilibrium quantity of good A than for good B
b. a much greater increase in the equilibrium quantity of good B than for good A
c. the equilibrium quantity will decrease by the same amount in both markets
d. only the equilibrium quantity of good B will decrease
e. only the equilibrium quantity of good A will decrease
Answer: A
Test Bank for Microeconomics: Principles and Applications
Robert E. Hall, Marc Lieberman
9781111822569, 9781478405238, 9781478498056
