Student name:__________

TRUE/FALSE - Write 'T' if the statement is true and 'F'

if the statement is false.
1) A linear demand curve has a constant elasticity over
the full range of the curve.

⊚ true
⊚ false

2) The greater the ease of shifting resources from product elasticity of supply of
X to product Y in the production process, the greater is the product Y.

⊚ true
⊚ false

3) If the elasticity coefficient of supply is 0.7, supply is

elastic.

⊚ true
⊚ false

4) Supply curves for antiques tend to be highly inelastic.

⊚ true
⊚ false

5) The smaller the number of good substitutes for a

product, the greater will be the price elasticity of demand for
it.

⊚ true
⊚ false

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 ⊚ true

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7) Generally speaking, the demand for luxury goods is
more price elastic than is the demand for necessities.

⊚ true
⊚ false

8) Generally speaking, the smaller the percentage of price elastic will be the
one's total budget devoted to a particular product, the more demand for that product.

⊚ true
⊚ false

9) If price and total revenue are directly related, demand

is inelastic.

⊚ true
⊚ false

10) If price changes and total revenue changes in the

opposite direction, demand is relatively elastic.

⊚ true
⊚ false

11)

Quantity Price Quantity 50 5 20

Demanded Supplied On the basis of the above
Per Month Per Month
demand and supply data,
30 $ 8 44 the demand for this
36 7 38 product is elastic in the
42 6 30 $8–$7 price range.

⊚ true
⊚ false

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12)

Quantity Price Quantity 50 5 20

Demanded Supplied On the basis of the above
Per Month Per Month
demand and supply data,
30 $ 8 44 the supply of this product
36 7 38 is inelastic in the $6–$5
42 6 30 price range.

⊚ true
⊚ false

13) Cross elasticity of demand measures the effect of a

change in the price of one product on the quantity demanded
of another product.

⊚ true
⊚ false

14) Income elasticity measures the effect of a change in

income on the purchases of some good or service.

⊚ true
⊚ false

15) If the coefficient of income elasticity of demand is

positive, the product is an inferior good.

⊚ true
⊚ false

16) If the coefficient of cross elasticity of demand is

positive, the two products are complementary goods.

⊚ true
⊚ false

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17) An income elasticity coefficient of −1.8 means the product is a normal good.

⊚ true
⊚ false

18) A cross elasticity of demand coefficient of +2.5

indicates that the two products are substitutes.

⊚ true
⊚ false

19) We would expect the coefficient of cross elasticity of

demand for DVD players and DVDs to be positive.

⊚ true
⊚ false

20) If the percentage change in quantity demanded is less

than the percentage change in price, then demand is said to be
elastic.

⊚ true
⊚ false

21) A good with a price-elasticity of demand coefficient of

0.75 has a demand that is price-inelastic.

⊚ true
⊚ false

22) If the quantity demanded for Good A increases from of demand in this price
40 to 60 when price decreases from $9 to $7, price elasticity range is 1.6.

⊚ true
⊚ false

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23) In the price range where demand is elastic, if the seller
of the good raises its price, then total revenues will increase.

⊚ true
⊚ false

24) If the price-elasticity coefficient for a product is 0.68 then the seller should cut
and the seller wants to raise revenues by changing its price, the price of the product.

⊚ true
⊚ false

25) Whenever a product is put on special sale at a

discounted price, total revenue from the product increases.
This indicates that the coefficient of elasticity for the product
is greater than 1.

⊚ true
⊚ false

26) When demand is price-elastic, an increase in price will

lead to increased total consumer spending for the product.

⊚ true
⊚ false

27) Price elasticity of demand tends to be low for goods

with few close substitutes.

⊚ true
⊚ false

28) A product that is successfully advertised and has loyal

buyers would have a low price-elasticity coefficient.

⊚ true

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29) Given that the demand for grains is price-inelastic, we
would expect that if the harvest of grains increases
significantly, other factors constant, then grain farmers' total
revenues would increase.

⊚ true
⊚ false

30) A state government seeking to increase its excise-tax

revenues is more likely to increase the tax rate on items with
elastic demand.

⊚ true
⊚ false

31) The demand for cocaine among addicts is relatively

elastic.

⊚ true
⊚ false

32) The law of supply indicates that the price-elasticity of

supply coefficient would have a negative sign.

⊚ true
⊚ false

33) The price elasticity of supply determines how much

price would change as a result of a change in demand.

⊚ true
⊚ false

34) Over a longer time period after a price change, the price elasticity of supply

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tends to decrease.

⊚ true
⊚ false

35) If changes in demand cause significant changes in

equilibrium price, then supply must be relatively inelastic.

⊚ true
⊚ false

36) The supply of antiques is highly inelastic. Thus,

increases in demand would have a small effect on price.

⊚ true
⊚ false

37) The supply of tickets to a major sporting event held in

an enclosed stadium with a fixed number of seats, such as the
Super Bowl or a World Series game, is perfectly inelastic.

⊚ true
⊚ false

38) A positive cross-elasticity of demand between two

goods indicates that the two goods are both normal goods.

⊚ true
⊚ false

39) A normal good would have a positive price-elasticity

of demand.

⊚ true
⊚ false

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40) You notice that whenever incomes rise by 5 percent,
people buy 3 percent more of Good A. This suggests that
Good A has a negative income elasticity of demand.

⊚ true
⊚ false

41) We would expect the cross-elasticity of demand

between popcorn and potato chips to be negative.

⊚ true
⊚ false

42) We would expect the income elasticity of demand for

steak to be positive, and that for hamburger to be negative.

⊚ true
⊚ false

MULTIPLE CHOICE - Choose the one alternative that

best completes the statement or answers the question.
43) The price elasticity of demand coefficient measures

D) how far
A) buyer responsiveness to price changes. business executives can
B) the extent to which a demand curve shifts as stretch their fixed costs.
incomes change.
C) the slope of the demand curve.

44) The basic formula for the price elasticity of demand

coefficient is

C) absolute
A) absolute decline in quantity demanded/absolute
increase in price.
B) percentage change in quantity
demanded/percentage change in price.

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decline in price/absolute increase in quantity demanded.
D) percentage change in price/percentage change in
quantity demanded.

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45) The demand for a product is inelastic with respect to
price if

D) a drop in price
A) consumers are largely unresponsive to a per unit is accompanied by an
price change. increase in the quantity
B) the elasticity coefficient is greater than 1. demanded.
C) a drop in price is accompanied by a decrease in
the quantity demanded.

46) If the price elasticity of demand for a product is 2.5,

then a price cut from$2.00 to$1.80 will

percent.
A) increase the quantity demanded by about 2.5 D) increase the
percent. quantity demanded by
B) decrease the quantity demanded by about 2.5 about 250 percent.
percent.
C) increase the quantity demanded by about 25

47) Suppose that as the price of Y falls from$2.00 to midpoint formula) is

$1.90, the quantity of Y demanded increases from110 to 118. approximately
Then the absolute value of the price elasticity (using the

C) 1.37.
A) 4. D) 3.94.
B) 2.09.

48) Suppose that as the price of Y falls from $12 to $10,

the quantity of Y demanded increases from 500 to 600. Then
the absolute value of the price elasticity (using the midpoint
formula) is approximately

C) 1.
A) 50. D) 0.83.
B) 1.2.

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49) Which of the following is not characteristic of the
demand for a commodity that is elastic?

D) The elasticity
A) The relative change in quantity demanded is coefficient is greater than
greater than the relative change in price. one.
B) Buyers are relatively sensitive to price changes.
C) Total revenue increases if price is increased.

50) If the demand for product X is inelastic, a 4 percent

decrease in the price of X will

4 percent.
A) decrease the quantity of X demanded by more D) increase the
than 4 percent. quantity of X demanded by
B) decrease the quantity of X demanded by less than less than 4 percent.
4 percent.
C) increase the quantity of X demanded by more than

51) If a firm can sell3,000 units of product A at $10 per

unit and5,000 at $8, then

2.25.
A) the price elasticity of demand is approximately D) A is an inferior
0.44. good.
B) A is a complementary good.
C) the price elasticity of demand is approximately

52) A perfectly inelastic demand schedule

D) can be
A) rises upward and to the right but has a constant represented by a line
slope. parallel to the horizontal
B) can be represented by a line parallel to the vertical axis.
axis.
C) cannot be shown on a two-dimensional graph.

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53) The larger the coefficient of price elasticity of demand
for a product, the

that product.
A) larger the resulting price change for an increase in D) smaller the
supply. resulting price change for
B) more rapid the rate at which the marginal utility of an increase in supply.
that product diminishes.
C) less competitive will be the industry supplying

54) Most demand curves are relatively elastic in the upper-

left portion because the original price

D) from which the

A) and quantity from which the percentage changes percentage price change is
in price and quantity are calculated are both large. calculated is large and the
B) and quantity from which the percentage changes original quantity from
in price and quantity are calculated are both small. which the percentage
C) from which the percentage price change is change in quantity is
calculated is small and the original quantity from which the calculated is small.
percentage change in quantity is calculated is large.

55) The price elasticity of demand for widgets is 0.8. increase in sales of 16
Assuming no change in the demand curve for widgets, an percent implies a(n)

D) 40 percent
A) 1 percent reduction in price. reduction in price.
B) 12 percent reduction in price.
C) 20 percent reduction in price.

56) The price elasticity of demand for widgets is 0.75. percent decrease in sales
Assuming no change in the demand curve for widgets, a 9 implies a(n)

D) 6.75 percent
A) 3.25 percent increase in price. increase in price.
B) 8 percent increase in price.
C) 12 percent increase in price.

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57) Suppose Aiyanna's Pizzeria currently faces a linear time. We can expect that
demand curve and is charging a very high price per pizza and each successive week,
doing very little business. Aiyanna now decides to lower
pizza prices by 5 percent per week for an indefinite period of

D) the elasticity of
A) demand will become more price elastic. supply will increase.
B) price elasticity of demand will not change as price
is lowered.
C) demand will become less price elastic.

58) The price elasticity of demand of a straight-line

demand curve is

the curve.
A) elastic in high-price ranges and inelastic in low- D) 1 at all points
price ranges. on the curve.
B) elastic but does not change at various points on
the curve.
C) inelastic but does not change at various points on

59) A leftward shift in the supply curve of product X will

increase equilibrium price to a greater extent the

D) more inelastic
A) more elastic the supply curve. the demand for the
B) larger the elasticity of demand coefficient. product.
C) more elastic the demand for the product.

60) If the demand for bacon is relatively elastic, a 10

percent decline in the price of bacon will

C) decrease the
A) decrease the amount demanded by more than 10
percent.
B) increase the amount demanded by more than 10
percent.

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amount demanded by less than 10 percent.
D) increase the amount demanded by less than 10
percent.

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61) The price elasticity of demand is generally

D) positive
A) negative, but the minus sign is ignored. because price and quantity
B) positive, but the plus sign is ignored. demanded are inversely
C) positive for normal goods and negative for related.
inferior goods.

62) For a linear demand curve,

D) demand is
A) elasticity is constant along the curve. elastic at relatively high
B) elasticity is unity at every point on the curve. prices.
C) demand is elastic at relatively low prices.

63) The price of product X is reduced from $100 to $90

and, as a result, the quantity demanded increases from 50 to
60 units. Therefore, demand for X in this price range

C) is inelastic.
A) has declined. D) is elastic.
B) is of unit elasticity.

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 The diagram shows two
product demand curves.
On the basis of this
diagram, we can say that

64)

the two demand curves.

A) over range P1P2, price elasticity of demand is D) not enough
greater for D1 than for D2. information is given to
B) over range P1P2, price elasticity of demand is compare price elasticities.
greater for D2 than for D1.
C) over range P1P2, price elasticity is the same for

65) Suppose we find that the price elasticity of demand for can conclude that quantity
a product is 3.5 when its price is increased by 2 percent. We demanded

D) decreased by
A) increased by 7 percent. 1.75 percent.
B) decreased by 7 percent.
C) decreased by 9 percent.

66) Suppose the price elasticity of demand for beef is

about 0.6. Other things equal, this means that a 20 percent
increase in the price of beef will cause the quantity of beef
demanded to

C) decrease by
A) increase by approximately 12 percent.
B) decrease by approximately 12 percent.

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approximately 32 percent.
D) decrease by approximately 26 percent.

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67) If demand for a product is elastic, the value of the
price elasticity coefficient is

C) equal to one.
A) zero. D) less than one.
B) greater than one.

68) The concept of price elasticity of demand measures

D) the sensitivity
A) the slope of the demand curve. of consumer purchases to
B) the number of buyers in a market. price changes.
C) the extent to which the demand curve shifts as the
result of a price decline.

69)

Refer to the diagram. Between prices of $5.70 and $6.30,

D) D2 is more
A) D1 is more elastic than D2. elastic than D1.
B) D2 is an inferior good and D1 is a normal good.
C) D1 and D2 have identical elasticities.

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70) Refer to the diagram and
assume a single good. If
the price of the good
decreases from $6.30 to
$5.70, consumer
expenditure would

D) increase if
A) decrease if demand were D1 only. demand were either D1 or
B) decrease if demand were D2 only. D2.
C) decrease if demand were either D1 or D2.

71) <p><span style="color:#FF0000;"><strong><span elasticity of demand along

style="font-size:16pt;"> this portion of the demand
curve would be

Refer to the diagram and assume a single good. If the price

of the good increased from $5.70 to $6.30 along D1, the price

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 C) 1.2.
A) 0.8. D) 2.
B) 1.

72) Suppose the price of local cable TV service increased price elasticity of demand
from$16.20 to$19.80 and as a result the number of cable is approximately
subscribers decreased from 224,000 to 176,000. Along this
portion of the demand curve, using the midpoint method,

C) 1.
A) 0.83. D) 8.
B) 1.2.

73) If the price of hand calculators falls from $10 to $9

and, as a result, the quantity demanded increases from 100 to
125, then

statement about elasticity.

A) demand is price elastic.
B) demand is price inelastic.
C) demand is unit elastic with respect to price.
D) not enough information is given to make a

74) A perfectly inelastic demand curve

D) graphs as a line
A) has a price elasticity coefficient greater than parallel to the horizontal
unity. axis.
B) has a price elasticity coefficient of unity
throughout.
C) graphs as a line parallel to the vertical axis.

75) If quantity demanded is completely unresponsive to

price changes, demand is

B) perfectly
A) perfectly inelastic. elastic.

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 C) relatively inelastic.
D) relatively elastic.

76) A firm can sell as much as it wants at a constant price.

Demand is thus

D) relatively
A) perfectly inelastic. elastic.
B) perfectly elastic.
C) relatively inelastic.

77) A demand curve that is parallel to the horizontal axis

is

D) relatively
A) perfectly inelastic. elastic.
B) perfectly elastic.
C) relatively inelastic.

78) Answer the question on the basis of the following

demand schedule.

Price Quantity Demanded 2 5

$ 6 1 1 6
5 2 If this demand schedule
4 3 were graphed, we would
3 4 find that

D) the data are

A) its slope diminishes as we move southeast down inconsistent with the law
the curve. of demand.
B) its slope diminishes as we move northwest up the
curve.
C) its slope is constant throughout.

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79) Answer the question on the basis of the following demand schedule.

Price Quantity Demanded 3 4

$ 6 1 2 5
5 2 1 6
4 3 The price elasticity of
demand is relatively elastic

D) in the $6–$5
A) in the $6–$4 price range. price range only.
B) over the entire $6–$1 price range.
C) in the $3–$1 price range.

80) Answer the question on the basis of the following

demand schedule.

Price Quantity Demanded 2 5

$ 6 1 1 6
5 2 The price elasticity of
4 3 demand is relatively
3 4 inelastic

D) in the $6–$5
A) in the $6–$4 price range. price range only.
B) over the entire $6–$1 price range.
C) in the $3–$1 price range.

81) Answer the question on the basis of the following

demand schedule.

Price Quantity Demanded 3 4

$ 6 1 2 5
5 2 1 6
4 3 The price elasticity of
demand is unity

slope of the demand curve

A) throughout the entire price range, because the is constant.

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 B) in the $4–$3 price range only. D) over the entire
C) over the entire $3–$1 price range. $6–$4 price range.

82) Answer the question on the basis of the following

demand schedule.

Price Quantity Demanded 3 4

$ 6 1 2 5
5 2 1 6
4 3 Which of the following is
correct?

origin, price elasticity of

A) Although the slope of the demand curve is demand is constant
constant, price elasticity declines as we move from high to throughout.
low price ranges. D) A steep slope
B) Although the slope of the demand curve is means demand is inelastic;
constant, price elasticity increases as we move from high to a flat slope means demand
low price ranges. is elastic.
C) Although the demand curve is convex to the

83) In which price range of the accompanying demand

schedule is demand elastic?

Price Quantity Demanded

$ 4 2 A) $4–$3
3 4 B) $3–$2
C) $2–$1
2 6
D) below $1
1 8

84) The price elasticity of demand is a measure of the

its price.
A) effect of changes in demand on the price.
B) relationship between price and profitability.
C) responsiveness of buyers of a good to changes in

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 D) sensitivity of a good's price to changes in demand.

85) The price-elasticity of demand coefficient, Ed, is

measured in terms of

in quantity demanded.
A) dollar change in price and unit change in quantity D) percentage
demanded. change in price and unit
B) dollar change in price and amount of shift in change in demand.
demand.
C) percentage change in price and percentage change

86) We use the midpoint formula in computing the price

elasticity of demand coefficient in order to

D) make the
A) make the coefficient value become independent of coefficient become equal
whether price goes up or down. to the slope of the demand
B) convert absolute changes into percentage changes. curve.
C) eliminate the negative sign of the coefficient.

87) The price-elasticity of demand is always negative

because of

D) scarcity.
A) the law of demand.
B) percentage changes being used in the formula.
C) the midpoint formula.

88) We use percentage changes in the formula for

estimating the price elasticity of demand coefficient in order
to

computation.
A) make the coefficient's value become independent C) eliminate the
of whether price goes up or down. negative sign of the
B) take the midpoints of P and of Q in the coefficient.

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 D) make it irrelevant how we measure price: be it in
cents, in dollars, or in thousands of dollars.

89) When the price of a product is increased 10 percent,

the quantity demanded decreases 15 percent. The price-
elasticity-of-demand coefficient for this product is

C) 0.67.
A) 1.5. D) 6.7.
B) 0.15.

90) When the price of a product is increased 8 percent, the of demand coefficient for
quantity demanded decreases 20 percent. The price-elasticity this product is

C) 0.4.
A) 2.5. D) 4.
B) 25.

91) In interpreting the Ed value as either elastic or

inelastic, we look at the

D) percentage
A) Ed coefficient with its negative sign. change in quantity.
B) absolute value of the Ed coefficient.
C) percentage change in price.

92) If the price-elasticity coefficient for a good is 1.75, the

demand for that good is described as

C) inferior.
A) normal. D) inelastic.
B) elastic.

93) When the price of a

product increases by 15

Version 1 26
percent, the quantity demanded decreases by 10 percent. We
can therefore conclude that the demand for this product is

C) cross-elastic.
A) elastic. D) unitary elastic.
B) inelastic.

94) Blossom, Inc., sells 500 bottles of perfume a month price elasticity of demand
when the price is $7. A huge increase in resource costs forces coefficient is
Blossom to raise the price to $9, and the firm only manages to
sell 460 bottles of perfume. Using the midpoint formula, the

D) 3 and inelastic.
A) 0.33 and elastic.
B) 3 and elastic.
C) 0.33 and inelastic.

95) If the price elasticity of demand for a product is equal

to 0.5, then a decrease in price of 10 percent will increase
quantity demanded by

C) 5 percent.
A) 20 percent. D) 0.05 percent.
B) 0.5 percent.

96) The price of season tickets to a performing arts theater

decreases by 3 percent. As a result, the quantity demanded
increases by 6 percent. The price elasticity of demand for
season tickets is

C) 2.
A) 0.5. D) 18.
B) 9.

97) The price elasticity of demand for a popular sporting

event is 1.2. If the price of a ticket to this event increases by
10 percent, the quantity of tickets demanded will

Version 1 27
 D) increase by 8.3
A) decrease by 8.3 percent. percent.
B) decrease by 12 percent.
C) increase by 12 percent.

Refer to the graph above.

Which demand curve is
relatively most elastic
between P1 and P2?

98)

C) D3
A) D1 D) D4
B) D2

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 Refer to the graph above.
Which demand curve is
perfectly inelastic?

99)

C) D4
A) D2 D) D5
B) D3

100) Suppose you are given the following data on demand

for a product. The price elasticity of demand (based on the
midpoint formula) when price decreases from $9 to $7 is

Price Quantity Demanded

$ 10 30 A) 0.63.
9 40 B) 1.16.
C) 1.6.
8 50
D) 2.27.
7 60
6 70

101) When the price of candy bars decreased from $0.55 to coefficient (based on the
$0.45, the quantity demanded changed from 19,000 per day to midpoint formula) for
21,000 per day. In this price range, the price-elasticity candy bars is

B) 2.
A) 1. C) 0.2.

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 D) 0.5.

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102) causes quantity demanded
to decrease from 100 units
to 50 units. Which graph
best illustrates the demand
for this good?

Refer to the graphs above. A price increase from $20 to $40

C) graph C
A) graph A D) graph D
B) graph B

103)

Refer to the graphs above. Which one shows a perfectly

elastic demand?

C) graph C
A) graph A D) graph D
B) graph B

104)

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104)
Refer to the graphs above. Which one shows demand with a
price-elasticity coefficient equal to zero?

C) graph C
A) graph A D) graph D
B) graph B

105) Refer to the graphs

above. Which one shows a
situation where buyers are
all willing to pay one
uniform price for the
product?

C) graph C
A) graph A D) graph D
B) graph B

106) If an increase in the supply of a product in the market

results in a decrease in price, but no change in the quantity
traded, then

D) the price
A) the price elasticity of supply is zero. elasticity of demand is
B) the price elasticity of supply is infinite. zero.
C) the price elasticity of demand is unitary.

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Version 1 33
 C) $14-$12
A) $18-16 D) $12-$10
B) $16-$14

108) Answer the question based on the following data.

Price Per Unit Quantity Demanded Per 10 36

Unit of Time 8 40
$ 20 12 6 44
18 17 4 48
16 20 What is the price elasticity
14 24 of demand over the range
12 30 of $8 to $10?

C) 1.93
A) 0.11 D) 1.43
B) 0.47

109) A straight-line downward-sloping demand curve has a

price elasticity of demand which

D) is unitary at all
A) decreases as price decreases. prices.
B) increases as price decreases.
C) is zero at all prices.

110) Along a linear downward-sloping demand curve, the

price elasticity of demand will be

D) different across
A) greater than one across each price range. each price range.
B) less than one across each price range.
C) equal to zero across each price range.

Version 1 34
 Consider the parallel
demand curves in the
figure above. Which curve
is relatively more elastic at
P1?

111)

D) Both have the

A) AA same slope; therefore both
B) BB have the same elasticity.
C) The answer cannot be determined.

112) You are the only seller of eggs in town, and the price- change, what should you
elasticity coefficient for eggs is known to be 0.8. If you want do to the price?
to increase your sales quantity by 10 percent through a price

D) increase price
A) reduce price by 12.5 percent by 8 percent
B) increase price by 12.5 percent
C) reduce price by 8 percent

113) When the percentage change in price is greater than

the resulting percentage change in quantity demanded,

D) demand is
A) a decrease in price will increase total revenue. elastic.
B) demand may be either elastic or inelastic.
C) an increase in price will increase total revenue.

114) Suppose the price elasticity coefficients of demand are 1.43, 0.67, 1.11, and 0.29

Version 1 35
for products W, X, Y, and Z, respectively. A 1 percent
decrease in price will increase total revenue in the cases of

C) X and Z.
A) W and Y. D) Z and W.
B) Y and Z.

Suppose that the total-

revenue curve is derived
from a particular linear
demand curve. That
demand curve must be

115)

D) elastic for
A) inelastic for price declines that increase quantity price increases that reduce
demanded from 6 units to 7 units. quantity demanded from 8
B) elastic for price declines that increase quantity units to 7 units.
demanded from 6 units to 7 units.
C) inelastic for price increases that reduce quantity
demanded from 4 units to 3 units.

Version 1 36
 Suppose the total-
revenue curve is derived
from a particular linear
demand curve. That
demand curve must be

116)

D) elastic for
A) inelastic for price declines that increase quantity price increases that reduce
demanded from 2 units to 3 units. quantity demanded from 4
B) elastic for price declines that increase quantity units to 3 units.
demanded from 5 units to 6 units.
C) inelastic for price increases that reduce quantity
demanded from 4 units to 3 units.

Version 1 37
 Suppose the total-
revenue curve is derived
from a particular linear
demand curve. That
demand curve must be

117)

D) inelastic for
A) inelastic for price declines that increase quantity price increases that reduce
demanded from 2 units to 3 units. quantity demanded from 4
B) elastic for price declines that increase quantity units to 3 units.
demanded from 5 units to 6 units.
C) unit elastic for price increases that reduce quantity
demanded from 5 units to 4 units.

118) Which of the following statements is not correct?

within a range where the

A) If the relative change in price is greater than the elasticity coefficient is
relative change in the quantity demanded associated with it, unity.
demand is inelastic. D) Demand tends
B) In the range of prices in which demand is elastic, to be elastic at high prices
total revenue will diminish as price decreases. and inelastic at low prices.
C) Total revenue will not change if price varies

119) In which of the following instances will total revenue

decline?

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 D) Price rises and
A) Price rises and supply is elastic. demand is elastic.
B) Price falls and demand is elastic.
C) Price rises and demand is inelastic.

120) If a firm's demand for labor is elastic, a union-

negotiated wage increase will

D) cause a
A) necessarily be inflationary. shortage of labor.
B) cause the firm's total payroll to increase.
C) cause the firm's total payroll to decline.

121) The Illinois Central Railroad once asked the Illinois

Commerce Commission for permission to increase its
commuter rates by 20 percent. The railroad argued that
declining revenues made this rate increase essential.
Opponents of the rate increase contended that the railroad's
revenues would fall because of the rate hike. It can be
concluded that

D) the railroad felt

A) both groups felt that the demand was elastic but that the demand for
for different reasons. passenger service was
B) both groups felt that the demand was inelastic but elastic and opponents of
for different reasons. the rate increase felt it was
C) the railroad felt that the demand for passenger inelastic.
service was inelastic and opponents of the rate increase felt it
was elastic.

122) If a firm finds that it can sell $13,000 worth of a

product when its price is $5 per unit and $11,000 worth of it
when its price is $6, then

C) elasticity of
A) the demand for the product is elastic in the $6-$5
price range.
B) the demand for the product must have increased.

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demand is 0.74.
D) the demand for the product is inelastic in the $6-
$5 price range.

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123) Suppose the price elasticity of demand for bread is
0.2. If the price of bread falls by 10 percent, the quantity
demanded will increase by

fall.
A) 2 percent and total expenditures on bread will D) 20 percent and
rise. total expenditures on bread
B) 2 percent and total expenditures on bread will fall. will rise.
C) 20 percent and total expenditures on bread will

Refer to the diagram,

which is a rectangular
hyperbola, that is, a curve
such that each rectangle
drawn from any point on
the curve will be of
identical area. If this
rectangular hyperbola was
a demand curve, we could
say that it would be

124)

D) of unit
A) elastic at high prices and inelastic at low prices. elasticity throughout.
B) elastic at low prices and inelastic at high prices.
C) impossible to generalize about its elasticity.

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 Refer to the diagram,
which is a rectangular
hyperbola, that is, a curve
such that each rectangle
drawn from any point on
the curve will be of
identical area. In
comparing the price
elasticity and the slope of
this demand curve, we can
conclude that the

125)

D) slope of the
A) slope of a demand curve measures its elasticity. curve varies, but its
B) elasticity of a demand curve measures its slope. elasticity is constant.
C) slope and elasticity of the curve are both constant
throughout.

126) Gigantic State University raises tuition for the purpose

of increasing its revenue so that more faculty can be hired.
GSU is assuming that the demand for education at GSU is

D) relatively
A) decreasing. inelastic.
B) relatively elastic.
C) perfectly elastic.

127) If the demand for farm products is price inelastic, a

bumper crop (an unusually good harvest) will cause farm
revenues to

D) either increase
A) increase. or decrease, depending on
B) decrease. what happens to supply.
C) be unchanged.

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128) Other things the same, if a price change causes total
revenue to change in the opposite direction, demand is

D) of unit
A) perfectly inelastic. elasticity.
B) relatively elastic.
C) relatively inelastic.

129) If the price elasticity of demand for a product is unity,

a decrease in price will

D) increase the
A) have no effect upon the amount purchased. quantity demanded, but
B) increase the quantity demanded and increase total total revenue will be
revenue. unchanged.
C) increase the quantity demanded but decrease total
revenue.

130) In which of the following cases will total revenue

increase?

D) Price rises and

A) Price falls and demand is inelastic. demand is elastic.
B) Price falls and supply is elastic.
C) Price rises and demand is inelastic.

131) A manufacturer of frozen pizzas found that total

revenue decreased when price was lowered from $5 to $4. It
was also found that total revenue decreased when price was
raised from $5 to $6. Thus,

elastic below $5.

A) the demand for pizza is elastic above $5 and D) $5 is not the
inelastic below $5. equilibrium price of pizza.
B) the demand for pizza is elastic both above and
below $5.
C) the demand for pizza is inelastic above $5 and

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 Refer to the diagram. In
the P1P2 price range,
demand is

132)

D) perfectly
A) of unit elasticity. elastic.
B) relatively inelastic.
C) relatively elastic.

Refer to the diagram. In

the P3P4 price range,
demand is

133)

D) perfectly
A) of unit elasticity. elastic.
B) relatively inelastic.
C) relatively elastic.

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134) The total-revenue test for elasticity

D) applies to the
A) is equally applicable to both demand and supply. short-run supply curve but
not to the long-run supply
B) does not apply to demand, because price and curve.
quantity are inversely related.
C) does not apply to supply, because price and total
revenue have a positive correlation.

135) If the University Chamber Music Society decides to

raise ticket prices to provide more funds to finance concerts,
the Society is assuming that the demand for tickets is

C) inelastic.
A) parallel to the horizontal axis. D) elastic.
B) shifting to the left.

136) The state legislature has cut Gigantic State revenue. The board is
University's appropriations. GSU's Board of Regents decides assuming that the
to increase tuition and fees to compensate for the loss of

D) coefficient of
A) demand for education at GSU is elastic. price elasticity of demand
B) demand for education at GSU is inelastic. for education at GSU is
C) coefficient of price elasticity of demand for greater than unity.
education at GSU is unity.

137) Which of the following is correct?

increase total revenue.

A) If demand is elastic, an increase in price will D) If demand is
increase total revenue. inelastic, an increase in
B) If demand is elastic, a decrease in price will price will decrease total
decrease total revenue. revenue.
C) If demand is elastic, a decrease in price will

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138) Suppose that the price of peanuts falls from $3 to $2
per bushel and that, as a result, the total revenue received by
peanut farmers changes from $16 to $14 billion. Thus,

D) no inference
A) the demand for peanuts is elastic. can be made as to the
B) the demand for peanuts is inelastic. elasticity of demand for
C) the demand curve for peanuts has shifted to the peanuts.
left.

139) Which of the following is correct?

opposite or the same

A) If the demand for a product is inelastic, a change direction.
in price will cause total revenue to change in the opposite D) The price
direction. elasticity coefficient
B) If the demand for a product is inelastic, a change applies to demand, but not
in price will cause total revenue to change in the same to supply.
direction.
C) If the demand for a product is inelastic, a change
in price may cause total revenue to change in either the

140) Refer to the diagram.

Total revenue at price P1 is
indicated by area(s)

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 C) A + C.
A) C + D. D) A.
B) A + B.

141) revenue will become

area(s)

Refer to the diagram. If price falls from P1 to P2, total

C) A + C.
A) B + D. D) C.
B) C + D.

142)

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 Refer to the diagram. The decline in price from P1 to P2 will

D) increase total
A) increase total revenue by D. revenue by D − A.
B) increase total revenue by B + D.
C) decrease total revenue by A.

143)

Refer to the diagram. In the P1 to P2 price range, we can say

D) that demand is
A) that consumer purchases are relatively insensitive elastic with respect to
to price changes. price.
B) nothing concerning price elasticity of demand.
C) that demand is inelastic with respect to price.

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 Refer to the diagram. If
price falls from $10 to $2,
total revenue

144)

D) falls from A +
A) rises from A + B to A + B + D + C, and demand is B to B + C, and demand is
elastic. inelastic.
B) falls from A + D to B + C, and demand is
inelastic.
C) rises from C + D to B + A, and demand is elastic.

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 D) 0.67, and
A) 0.25, and demand is inelastic. demand is inelastic.
B) 1.5, and demand is elastic.
C) 1, and demand is unit elastic.

146) If price and total revenue vary in opposite directions,

demand is

D) relatively
A) perfectly inelastic. elastic.
B) perfectly elastic.
C) relatively inelastic.

147) Which of the following statements is inconsistent with

an elastic demand curve?

relative change in price.

A) The price-elasticity coefficient is greater than 1.
B) Total revenue increases when price increases.
C) Buyers are relatively sensitive to price changes.
D) The relative change in quantity exceeds the

148) The total revenue received by sellers of a good is

computed by

D) dividing the
A) multiplying the price times the quantity sold. percentage change in
B) adding the price and the quantity sold. quantity by the percentage
C) multiplying the percentage change in price times change in price.
the percentage change in quantity.

149) The total revenue received by sellers of a good is the

same amount as the

C) price paid by
A) total income earned by the buyers.
B) total amount spent on the good by the buyers.

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the buyers for each unit of the good.
D) profits earned by the sellers of the good.

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150) Total revenue falls as the price of a good is raised, if
the demand for the good is

D) perfectly
A) elastic. elastic.
B) inelastic.
C) unitary elastic.

151) A 4 percent reduction in the price of a product has the product. The price
zero effect on the dollar amount of consumer expenditure on elasticity of demand is

D) equal to 1.
A) zero.
B) greater than zero.
C) greater than zero but less than 1.

Refer to the total revenue

graph above. An increase
in the quantity of product
X demanded from 14,000
to 16,000 units implies that
the price of product X was

152)

D) increased and
A) reduced and the demand is elastic. the demand is inelastic.
B) increased and the demand is elastic.
C) reduced and the demand is inelastic.

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 Refer to the total revenue
graph above. If the
quantity of product X
demanded falls from
14,000 to 10,000 units,
then it suggests that the
price of X was

153)

D) increased and
A) reduced and the demand is elastic. the demand is inelastic.
B) increased and the demand is elastic.
C) reduced and the demand is inelastic.

Refer to the total revenue

graph above. Demand is
price-elastic between
points

154)

C) F and G.
A) A and B. D) G and H.
B) D and E.

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 Refer to the total revenue
graph above. When the
seller is earning maximum
revenues from selling
Product X, the demand is

155)

D) perfectly
A) elastic. inelastic.
B) inelastic.
C) unit-elastic.

Consider the demand

curve above. If the price is
OA, then the total revenues
of sellers would be the area

156)

C) 0DEF.
A) DABE. D) CBEF.
B) 0ABC.

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 Consider the demand
curve above. If area 0ABC
is smaller than area 0DEF,
it suggests that if the price
increases from OD to OA,
then total revenues of
sellers will

157)

D) equal zero.
A) increase.
B) decrease.
C) remain constant.

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 C) price-elastic.
A) price-inelastic. D) income-elastic.
B) income-inelastic.

159) Demand is said to be inelastic when

revenue.
A) an increase in price results in a reduction in total D) the elasticity
revenue. coefficient exceeds one.
B) a reduction in price results in an increase in total
revenue.
C) a reduction in price results in a decrease in total

160) If in the short run the demand for mass transit is

inelastic and in the long run the demand is elastic, then a price

D) decrease will
A) increase will decrease total revenue in the short decrease total revenue in
run but increase total revenue in the long run. the short run and decrease
B) increase will increase total revenue in the short total revenue in the long
run but decrease total revenue in the long run. run.
C) decrease will increase total revenue in the short
run but decrease total revenue in the long run.

161) In which of the following instances will total revenues

decline?

D) price rises and

A) price rises and Ed equals 0.41 Ed equals 2.47
B) price rises and demand is of unit elasticity
C) price falls and demand is elastic

162) Answer the question based on the following table,

which shows a demand schedule.

Price Quantity Demanded 4 13

$ 5 10 3 15

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 2 19 At a price of $3, the total
1 25 revenues of sellers will be

C) $45.
A) $18. D) $5.
B) $12.

163) Answer the question based on the following table,

which shows a demand schedule.

Price Quantity Demanded 2 19

$ 5 10 1 25
4 13 Total revenues will
3 15 decrease if price

D) rises from $4
A) rises from $1 to $2. to $5.
B) rises from $2 to $3.
C) rises from $3 to $4.

164) Answer the question based on the following table,

which shows a demand schedule.

Price Quantity Demanded 2 19

$ 5 10 1 25
4 13 The largest decline in total
3 15 revenue will occur when
price falls from

C) $3 to $2.
A) $5 to $4. D) $2 to $1.
B) $4 to $3.

165) The price-elasticity coefficients are 2.6, 0.5, 1.4, and

0.18 for four different demand schedules,D1, D2, D3, and D4,
respectively. A 2-percent increase in price will result in an
increase in total revenues in which of the following cases?

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 C) D2 and D4
A) D1 and D3 D) D1, D2, and D3
B) D1 and D4

166) If 100 shirts are sold when the unit price is $10, while
75 shirts are sold when the unit price is $15, one can conclude
that in this price range,

D) consumers are
A) demand for the shirts is elastic. quite sensitive to changes
B) demand for the shirts is inelastic. in the price of the shirt.
C) demand for the shirts has shifted to the right.

167) Assume that pizza and hamburgers are the only food
items available to consumers. If the price of pizza increases,
other factors constant, then which of the following will
definitely happen?

increase.
A) Total revenues received by pizza sellers will D) Total revenues
increase. received by hamburger
B) Total revenues received by pizza sellers will sellers will decrease.
decrease.
C) Total revenues received by hamburger sellers will

168) When the price of movie tickets in a certain town was price-elasticity coefficient
reduced, the movie theaters' revenues did not change. This of
suggests that the demand for movie tickets in that town has a

C) 0.5.
A) 1.0. D) zero.
B) greater than 1.

169) Chuck has a price elasticity of demand for beer of 1.2.

Suppose that the price of beer is increased by 10 percent.
What will happen to the total amount Chuck spends on beer?

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 D) It is impossible
A) It will not change. to tell.
B) It will decrease.
C) It will increase.

170) If the price elasticity of demand for orange juice is 0.8,

then a reduction in the price of orange juice will cause buyers
to buy

D) more bottles of
A) fewer bottles of orange juice, and their total orange juice, but their total
spending on orange juice will decrease. spending on orange juice
B) fewer bottles of orange juice, but their total will decrease.
spending on orange juice will increase.
C) more bottles of orange juice, and their total
spending on orange juice will increase.

171)

Price Quantity Demanded 1 50

$ 5 10 Refer to the table above. If
4 20 the price starts falling from
3 30 $5, at what price range
2 40 does demand first become
inelastic?

C) from $4 to $3
A) from $2 to $1 D) from $5 to $4
B) from $3 to $2

172)

Price Quantity Demanded 1 50

$ 5 10
4 20
3 30
2 40

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Refer to the table above. What is the price that yields the maximum total revenue?

C) $4
A) $2 D) $5
B) $3

Refer to the above graph.

If the price is P3, then the
total revenue is represented
by area

173)

D) A + B + C + D
A) B + C + D. + E + F + G.
B) E + F + G.
C) B + C + D + E + F + G.

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 Refer to the above graph.
If the price decreases from
P3 to P2, then the total
revenue will lose area

174)

D) A + B + C +
A) B + E, but it will gain area H + I. D, but it will gain area E +
B) H + I, but it will gain area A + B + C. F + G.
C) E + F + G, but it will gain area H + I + J.

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 D) A + B + C, but
A) B + E, but it will lose area H + I + J. it will lose area G + I + J.
B) C + F + H, but it will lose area J.
C) E + F + G, but it will lose area J.

176)
Refer to the above graph. Consider a situation where price
increases from P3 to P4. In this price range, demand is
relatively

D) inelastic
A) inelastic because the loss in total revenue (areas E because the loss in total
+ F + G) is greater than the gain in total revenue (area A). revenue (area A) is greater
B) elastic because the loss in total revenue (areas E + than the gain in total
F + G) is greater than the gain in total revenue (area A). revenue (areas E + F + G).
C) elastic because the loss in total revenue (area A) is
greater than the gain in total revenue (areas E + F + G).

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 Refer to the above graph.
Consider a situation where
price decreases from P2 to
P1. In this price range,
demand is relatively

177)

D) inelastic
A) inelastic because the loss in total revenue (areas D because the gain in total
+ G + I + J) is greater than the gain in total revenue (areas C + revenue (area J) is less
F + H). than the loss in total
B) elastic because the loss in total revenue (areas C + revenue (areas C + F + H).
F + H) is greater than the gain in total revenue (area J).
C) elastic because the loss in total revenue (area J) is
less than the gain in total revenue (areas C + F + H).

178)

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 Refer to the figure above. At the equilibrium point in this
market, the sellers' total revenues are equal to

C) $360.
A) $300. D) $150.
B) $50.

179) In the figure above, if the

equilibrium price of the
product increased from $5
to the present price of $6
due to a supply shift, then
total revenue would have

D) stayed the
A) increased by $300. same.
B) decreased by $100.
C) decreased by $300.

180) You are the sales manager for a software company and have been informed that

Version 1 64
the price elasticity of demand for your most popular software
is less than 1. In order to increase total revenues from that
product, you should

D) increase the
A) increase the price of the software. supply of the software.
B) decrease the price of the software.
C) hold the price of the software constant.

181) A study of mass-transit systems in American cities substantial fare increases.

revealed that in the long run, revenues generally decline after This would suggest that

price rises.
A) the demand for mass transit is price-elastic in the D) there are few
long run. good substitutes for such
B) the demand for mass transit is price-inelastic in systems in urban areas.
the long run.
C) mass-transit service deteriorates in the long run as

182) The Bear Corporation finds that its total spending on

machine parts increases after the price of machine parts falls,
other things being equal. Which of the following is true about
the Bear Corporation's demand for machine parts with the
price change?

D) It is perfectly
A) It is unit elastic. inelastic.
B) It is price elastic.
C) It is price inelastic.

183) You are the newly

appointed sales manager of
the Rock Computer

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Tablets Company and have been charged with the task of elasticity of demand for
increasing revenues. Your economics consultants have your product is less than
informed you that at present price and output levels, price one. You should

D) cut advertising
A) decrease prices. expenditures to save
B) increase prices. money.
C) hold prices constant and increase supply.

184) If demand for farm crops is inelastic, a good harvest

will cause farm revenues to

D) remain
A) increase because of the increase in the quantity unchanged, because the
that farmers can sell. increase in quantity that
B) increase because of a downward movement along can be sold will be
the supply curve, encouraging an increase in demand. matched by an equal
C) decrease because of a percentage fall in price that decrease in price.
is greater than the percentage increase in quantity sold.

185) A union argues that a price cut will boost the revenues
of the firm, while management argues that the opposite is
true. This suggests that the price elasticity of demand is

management's perspective.
A) unit-elastic from the union's perspective and unit- D) inelastic from
inelastic from management's perspective. the union's perspective,
B) perfectly inelastic from the union's perspective elastic from management's
and perfectly elastic from management's perspective. perspective.
C) elastic from the union's perspective, inelastic from

186) If the demand for a product is elastic, then

C) total revenue
A) a higher tax on the product will generate more tax will decrease as price
revenue. decreases.
B) a higher tax on the product will generate less tax D) total revenue
revenue. will remain constant as

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price increases.

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187) Sony is considering a 10 percent price reduction on its
HD televisions. If the price-elasticity coefficient for the sets in
this price range is 0.75, then the price cut will cause

decrease.
A) sales quantity to increase and revenues to also D) sales quantity
increase. to decrease but revenues to
B) sales quantity to increase but revenues to increase.
decrease.
C) sales quantity to decrease and revenues to also

188) The price elasticity of demand for a textbook is

estimated to be 1 no matter what the price or quantity
demanded. In this case,

D) a 10 percent
A) a 10 percent increase in price will result in a 10 increase in price will result
percent increase in total revenues. in a 10 percent increase in
B) a 10 percent increase in price will result in a 10 quantity demanded.
percent decrease in the quantity demanded.
C) a 10 percent increase in price will result in a 10
percent decrease in total revenues.

189) The demand schedules for such products as eggs,

bread, and electricity tend to be

D) relatively price
A) perfectly price elastic. elastic.
B) of unit price elasticity.
C) relatively price inelastic.

190) The elasticity of

demand for a product is
likely to be greater,

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 on the product.
A) if the product is a necessity, rather than a luxury D) the smaller the
good. number of substitute
B) the greater the amount of time over which buyers products available.
adjust to a price change.
C) the smaller the proportion of one's income spent

191) We would expect

soft drinks in general.

A) the demand for Coca-Cola to be less price elastic D) none of these
than the demand for soft drinks in general. answers hold true.
B) the demand for Coca-Cola to be more price elastic
than the demand for soft drinks in general.
C) no relationship between the price elasticity of
demand for Coca-Cola and the price elasticity of demand for

192) The narrower the definition of a product,

D) the smaller the

A) the larger the number of substitutes and the number of substitutes and
greater the price elasticity of demand. the smaller the price
B) the smaller the number of substitutes and the elasticity of demand.
greater the price elasticity of demand.
C) the larger the number of substitutes and the
smaller the price elasticity of demand.

193) The more time consumers have to adjust to a change

in price,

D) the more likely

A) the smaller will be the price elasticity of demand. the product is an inferior
good.
B) the greater will be the price elasticity of demand.
C) the more likely the product is a normal good.

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 D) greater for
A) greater in the long run than in the short run. "necessities" than it is for
B) greater in the short run than in the long run. "luxuries."
C) the same in both the short run and the long run.

196) Which of the following generalizations is not correct?

a particular product.
A) The larger an item is in one's budget, the greater D) The price
the price elasticity of demand. elasticity of demand is
B) The price elasticity of demand is greater for greater the longer the time
necessities than it is for luxuries. period under consideration.
C) The larger the number of close substitutes
available, the greater will be the price elasticity of demand for

197) The demand for a luxury good whose purchase would

exhaust a big portion of one's income is

D) relatively price
A) perfectly price inelastic. elastic.
B) perfectly price elastic.
C) relatively price inelastic.

198) The demand for a necessity whose cost is a small

portion of one's total income is

D) relatively price
A) perfectly price inelastic. elastic.
B) perfectly price elastic.
C) relatively price inelastic.

199) A firm produces and sells two goods, A and B. Good

A is known to have many close substitutes; Good B makes up
a significant portion of most families' budgets. From these
facts, we would expect that the demand for Good A would be
______, while that of Good B would be________.

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 D) inelastic;
A) elastic; elastic also elastic
B) inelastic; inelastic also
C) elastic; inelastic

200) A firm produces and sells two goods, A and B. Good

A is known to have many close substitutes; Good B makes up
a significant portion of most families' budgets. A price
increase for each good would most likely cause total revenues
from Good A to

increase.
A) increase and total revenues from Good B to D) decrease and
decrease total revenues from Good
B) increase and total revenues from Good B to B to decrease.
increase.
C) decrease and total revenues from Good B to

201) In some markets consumers may buy many different

brands of a product. Which of the statements below best
represents a situation where demand for a particular brand
would be very elastic?

D) "I pinch
A) "The different brands are almost identical. I pennies in buying other
always buy the cheapest." products, but like most
B) "I use so little of that product that when I do buy people, I feel I owe it to
it, I don't pay much attention to the price." myself to get the best
C) "The brand I buy is so superior to other available brand of this product."
brands that I hardly consider the others."

202) Which of the following is not characteristic of a

product with relatively inelastic demand?

the good.
A) The good is regarded by consumers as a necessity. C) Buyers spend a
small percentage of their
B) There are a large number of good substitutes for total income on the

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product. adjust to changes in price.
D) Consumers have had only a short time period to

203) What is the most likely effect of the development of theater (or cinema)
rental movies and online movie streaming on the movie industry?

D) increased price
A) decreased costs of producing movies elasticity of demand for
B) increased demand for movie theater tickets movie theater tickets
C) movie theater tickets become an inferior good

204) The demand for Cheerios cereal is more price-elastic

than the demand for cereals as a whole. This is best explained
by the fact that

D) consumption
A) Cheerios are a luxury. of cereals as a whole is
B) Cereals are a necessity. greater than consumption
C) there are more substitutes for Cheerios than for of Cheerios.
cereals as a whole.

205) Which of the following factors will make the demand

for a product relatively elastic?

consumers' budgets.
A) There are few substitutes.
B) The time interval considered is long.
C) The good is considered a necessity.
D) Purchases of the good require a small portion of

206) The price elasticity of demand increases with the

length of the period considered because

C) all prices will

A) consumers' incomes will increase over time.
B) the demand curve will shift outward as time
passes.

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increase over time.
D) consumers will be better able to find substitutes.

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207) Which product is most likely to be the most price
elastic?

C) clothing
A) milk D) automobiles
B) housing

208) An increase in the price of tickets to a popular sporting

event will increase total revenue if

event.
A) there are many substitutes for this form of D) the fans are
entertainment. price conscious.
B) the ticket is considered to be a luxury.
C) the buyers of the tickets are fanatic about the

209) A state government wants to increase the taxes on addictive, we would expect
cigarettes to increase tax revenue. Because cigarettes are its demand to be

D) inelastic. Thus,
A) elastic. Thus, the government's cigarette-tax the government's cigarette-
revenues would rise with a tax increase. tax revenues would rise
B) elastic. Thus, the government's cigarette-tax with a tax increase.
revenues would fall with a tax increase.
C) inelastic. Thus, the government's cigarette-tax
revenues would fall with a tax increase.

210) An auto rental company lowers the price of its rentals that over this price range,
to increase its market share. The price cut increases quantity the demand for the auto
demanded, but total revenue decreases. This result suggests rentals is

D) perfectly
A) elastic. elastic.
B) inelastic.
C) unit elastic.

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211) Considering the price-elasticity of demand for wheat,
we would expect that if the supply of wheat increases, other
factors constant, then wheat farmers' total revenues would

D) decrease
A) increase because the demand is price-inelastic. because the demand is
B) decrease because the demand is price-inelastic. price-elastic.
C) increase because the demand is price-elastic.

212) If the government imposes an excise tax on a good, it

will collect the most tax revenues from it if the demand for
the good is

D) perfectly
A) elastic. elastic.
B) inelastic.
C) unit elastic.

213) If the government tightens up on drug dealers and dollar expenditures to feed
raises the costs of dealing illegal drugs, then the drug addicts' their addiction will tend to

D) increase
A) increase because their demand is price-elastic. because their demand is
B) decrease because their demand is price-Inelastic. price-Inelastic.
C) decrease because their demand is price-elastic.

214) If sellers could price-discriminate and charge two increase revenues, then the
different prices to two different groups of buyers in order to sellers would charge

elastic.
A) a higher price to the buyers whose demand is D) the same price,
elastic. actually, because price-
B) a higher price to the buyers whose demand is discrimination will result
inelastic. in lower revenues.
C) a higher price to the buyers whose demand is unit-

215) Movie theaters charge lower prices to see a movie in the afternoon than in the

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evening because there is an

D) inelastic
A) inelastic supply of movies in the evening. demand to see movies in
B) elastic demand to see movies in the evening. the afternoon.
C) elastic demand to see movies in the afternoon.

216) When universities announce a large tuition increase

and follow it with an announcement that more financial aid
will be available, they are assuming that students who pay full
tuition

D) view a college
A) have elastic demand and students who use education as a normal good
financial aid have inelastic demand. and students who use
B) have inelastic demand and students who use financial aid view it as an
financial aid have elastic demand. inferior good.
C) view a college education as an inferior good and
students who use financial aid view it as a normal good.

217) Airlines charge business travelers more than leisure

travelers because there is a more

D) inelastic
A) elastic supply of business travel. demand for business travel.
B) inelastic supply of business travel.
C) elastic demand for business travel.

218) The price elasticity of supply measures how

changes in the price of X.

A) easily labor and capital can be substituted for one D) responsive
another in the production process. quantity supplied is to a
B) responsive the quantity supplied of X is to change in incomes.
changes in the price of X.
C) responsive the quantity supplied of Y is to

Version 1 76
219) The main determinant of elasticity of supply is the

D) number of uses
A) number of close substitutes for the product for the product.
available to consumers.
B) amount of time the producer has to adjust inputs
in response to a price change.
C) urgency of consumer wants for the product.

220) Suppose the supply of product X is perfectly inelastic.

If there is an increase in the demand for this product,
equilibrium price

decline.
A) will decrease, but equilibrium quantity will D) will increase,
increase. but equilibrium quantity
B) and quantity will both decrease. will be unchanged.
C) will increase, but equilibrium quantity will

221)

Price Quantity Supplied 4 7

$ 10 10 2 6
8 9 Refer to the table. Over the
6 8 $6–$4 price range, supply
is

D) inelastic.
A) perfectly elastic.
B) elastic.
C) perfectly inelastic.

222)

Price Quantity Supplied 4 7

$ 10 10 2 6
8 9
6 8

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Refer to the table. Over the $8–$6 price range, supply is

D) perfectly
A) inelastic. elastic.
B) elastic.
C) perfectly inelastic.

223)

Price Quantity Supplied 2 6

$ 10 10 Refer to the table. Over the
8 9 $10-$8 price range, the
6 8 elasticity coefficient of
4 7 supply is

C) less than 1.
A) 1. D) greater than 1.
B) zero.

224) The supply of product X is elastic if the price of X

rises by

same.
A) 5 percent and quantity supplied rises by 7 percent. D) 7 percent and
quantity supplied rises by 5
B) 8 percent and quantity supplied rises by 8 percent. percent.
C) 10 percent and quantity supplied remains the

225) The supply of product X is inelastic (but not perfectly

inelastic) if the price of X rises by

same.
A) 5 percent and quantity supplied rises by 7 percent. D) 7 percent and
quantity supplied rises by 5
B) 8 percent and quantity supplied rises by 8 percent. percent.
C) 10 percent and quantity supplied remains the

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226) The elasticity of supply of product X is unitary if the price of X rises by

D) 7 percent and
A) 5 percent and quantity supplied rises by 7 percent. quantity supplied rises by 5
percent.
B) 8 percent and quantity supplied rises by 8 percent.
C) 10 percent and quantity supplied stays the same.

227) The supply of product X is perfectly inelastic if the

price of X rises by

D) 7 percent and
A) 5 percent and quantity supplied rises by 7 percent. quantity supplied rises by 5
percent.
B) 8 percent and quantity supplied rises by 8 percent.
C) 10 percent and quantity supplied stays the same.

228)
The diagram shows two product supply curves. It indicates
that

same for the two curves.

A) over range Q1Q2, price elasticity of supply is D) not enough
greater for S1 than for S2. information is given to
B) over range Q1Q2, price elasticity of supply is compare price elasticities.
greater for S2 than for S1.
C) over range Q1Q2, price elasticity of supply is the

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229) It takes a considerable amount of time to increase the
production of pork. This implies that

D) the long-run
A) a change in the demand for pork will not affect its supply curve for pork is
price in the short run. less elastic than the short-
B) the short-run supply curve for pork is less elastic run supply curve for pork.
than the long-run supply curve for pork.
C) an increase in the demand for pork will elicit a
larger supply response in the short run than in the long run.

230) Suppose that the price of product X rises by 20 percent

and the quantity supplied of X increases by 15 percent. The
coefficient of price elasticity of supply for good X is

D) more than 1,
A) negative, and therefore X is an inferior good. and therefore supply is
B) positive, and therefore X is a normal good. elastic.
C) less than 1, and therefore supply is inelastic.

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 D) 2.5, and supply
A) 5, and supply is elastic. is elastic.
B) 1, and supply is unit elastic.
C) 0.25, and supply is inelastic.

Refer to the diagram and

assume that price
decreases from $10 to $2.
The coefficient of the price
elasticity of supply
(midpoint formula) relating
to this price change is
about

232)

D) 0.25, and
A) 4, and supply is elastic. supply is inelastic.
B) 1, and supply is unit elastic.
C) 0.5, and supply is inelastic.

233)

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233)
The diagram concerns supply adjustments to an increase in
demand (D1 to D2) in the immediate market period, the short
run, and the long run. Supply curves S1, S2, and S3 apply to the

respectively.
A) immediate market period, long run, and short run, D) short run, long
respectively. run, and immediate market
B) immediate market period, short run, and long run, period, respectively.
respectively.
C) long run, short run, and immediate market period,

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 C) increase equilibrium quantity but not equilibrium
price.
D) increase both equilibrium price and quantity.

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235) The diagram concerns
supply adjustments to an
increase in demand (D1 to
D2) in the immediate
market period, the short
run, and the long run. In
the long run, the increase
in demand will

price.
A) have no effect on either equilibrium price or D) increase both
quantity. equilibrium price and
B) increase equilibrium price but not equilibrium quantity.
quantity.
C) increase equilibrium quantity but not equilibrium

236)

Version 1 84
 The diagram concerns supply adjustments to an increase in
demand (D1 to D2) in the immediate market period, the short
run, and the long run. On the basis of this illustration, we can
conclude that

producers than does S2.

A) short-run adjustments are more economically D) S2 reflects a
efficient than are long-run adjustments. longer adjustment period
B) the amount of time producers have to adjust to a for producers than does S1.
change in demand is not a determinant of supply elasticity.
C) S1 reflects a longer adjustment period for

237) If the supply of product X is perfectly elastic, an

increase in the demand for it will increase

D) equilibrium
A) equilibrium quantity but reduce equilibrium price. price, but equilibrium
quantity will be
B) equilibrium quantity, but equilibrium price will be unchanged.
unchanged.
C) equilibrium price but reduce equilibrium quantity.

238) Suppose the price of a product rises and the total

revenue of sellers increases.

is inelastic.
A) It can be concluded that the demand for the D) No conclusion
product is elastic. can be reached with
B) It can be concluded that the supply of the product respect to the elasticity of
is elastic. supply.
C) It can be concluded that the supply of the product

239) Supply curves tend to be

B) more elastic in
A) perfectly elastic in the long run because consumer the long run because there
demand will have sufficient time to adjust fully to changes in is time for firms to enter or
supply. leave the industry.

Version 1 85
 C) perfectly inelastic in the long run because the law for firms to enter or leave
of scarcity imposes absolute limits on production. an industry.
D) less elastic in the long run because there is time

240) For an increase in demand, the price effect is smallest

and the quantity effect is largest

D) in the
A) when supply is least elastic. immediate market period.
B) in the long run.
C) in the short run.

241) A supply curve that is a vertical straight line indicates

that

quantity supplied.
A) production costs for this product cannot be D) an unlimited
calculated. amount of the product will
B) the relationship between price and quantity be supplied at a constant
supplied is inverse. price.
C) a change in price will have no effect on the

242) A supply curve that is parallel to the horizontal axis

suggests that

D) a change in
A) the industry is organized monopolistically. demand will change the
B) the relationship between price and quantity equilibrium quantity but
supplied is inverse. not price.
C) a change in demand will change price in the same
direction.

243) An increase in demand will increase equilibrium price

to a greater extent

B) if the product
A) if the product is a normal good. is an inferior good.

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 C) the less elastic the supply curve.
D) the more elastic the supply curve.

244) The supply of known Monet paintings is

D) relatively
A) perfectly elastic. inelastic.
B) perfectly inelastic.
C) relatively elastic.

245)

Price per Ticket Quantity Demanded 3 6,000

$ 13 1,000 Refer to the information
11 2,000 and assume the stadium
9 3,000 capacity is 5,000. If the
7 4,000 Mudhens' management
charges $7 per ticket,
5 5,000

D) the game will

A) some fans who want to see the game will find that be sold out.
tickets are not available.
B) there will be 2,000 empty seats.
C) there will be 1,000 empty seats.

246)

Price per Ticket Quantity Demanded 3 6,000

$ 13 1,000 Refer to the information
11 2,000 and assume the stadium
9 3,000 capacity is 5,000. The
7 4,000 supply of seats for the
game
5 5,000

B) varies directly
A) varies inversely with ticket prices. with ticket prices.

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 C) is perfectly inelastic.
D) is perfectly elastic.

247)

Price per Ticket Quantity Demanded 3 6,000

$ 13 1,000 Refer to the information
11 2,000 and assume the stadium
9 3,000 capacity is 5,000. If the
7 4,000 Mudhens' management
wanted a full house for the
5 5,000
game, it would

D) set ticket
A) set price so as to maximize its total revenue. prices at $9.
B) encourage scalpers to sell their tickets for more
than $7.
C) set ticket prices at $5.

248)

Price per Ticket Quantity Demanded 5 5,000

$ 13 1,000 3 6,000
11 2,000 Refer to the information.
9 3,000 Over the $11–$9 price
7 4,000 range, demand is

C) elastic.
A) perfectly elastic. D) inelastic.
B) perfectly inelastic.

249)

Price per Ticket Quantity Demanded 9 3,000

$ 13 1,000 7 4,000
11 2,000 5 5,000

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 3 6,000 Refer to the information.
Over the $9–$7 price
range, demand is

C) elastic.
A) perfectly elastic. D) inelastic.
B) perfectly inelastic.

250)

Price per Ticket Quantity Demanded 5 5,000

$ 13 1,000 3 6,000
11 2,000 Refer to the information.
9 3,000 Over the $7–$5 price
7 4,000 range, demand is

C) elastic.
A) perfectly elastic. D) inelastic.
B) perfectly inelastic.

251)

Price per Ticket Quantity Demanded 3 6,000

$ 13 1,000 Refer to the information. If
11 2,000 the Mudhens' management
9 3,000 wanted to maximize total
7 4,000 ticket revenue from the
game, it would set the
5 5,000
ticket price at

C) $9.
A) $5. D) $13.
B) $7.

252) An antidrug policy that reduces the supply of heroin

might

A) increase street

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crime because the addict's demand for heroin is highly D) increase street
inelastic. crime because the addict's
B) reduce street crime because the addict's demand demand for heroin is
for heroin is highly elastic. highly elastic.
C) reduce street crime because the addict's demand
for heroin is highly inelastic.

253) Studies of the minimum wage suggest that the price

elasticity of demand for teenage workers is relatively
inelastic. This means that

D) the cross
A) an increase in the minimum wage would increase elasticity of demand
the total incomes of teenage workers as a group. between teenage and adult
B) an increase in the minimum wage would decrease workers is positive and
the total incomes of teenage workers as a group. very large.
C) the unemployment effect of an increase in the
minimum wage would be relatively large.

254) Studies show that the demand for gasoline is

long run.
A) price inelastic in the short run but elastic in the D) price elastic in
long run. both the short and long
B) price inelastic in both the short and long run. run.
C) price elastic in the short run but inelastic in the

255) Farmers often find that large bumper crops are

associated with declines in their gross incomes. This suggests
that

D) the price
A) farm products are normal goods. elasticity of demand for
B) farm products are inferior goods. farm products is greater
C) the price elasticity of demand for farm products is than 1.
less than 1.

Version 1 90
256)

Quantity Price Quantity Refer to the data. Suppose

Demanded Supplied quantity demanded
45 $ 10 77 increased by 12 units at
50 8 73 each price, changing the
56 6 68 equilibrium price in a
direction and an amount
61 4 61
for you to determine. Over
67 2 57
that price range, supply is

C) elastic.
A) perfectly elastic. D) inelastic.
B) perfectly inelastic.

257)

Quantity Price Quantity Refer to the data. Suppose

Demanded Supplied quantity supplied declined
45 $ 10 77 by 23 units at each price,
50 8 73 changing the equilibrium
56 6 68 price in a direction and
amount for you to
61 4 61
determine. Over that price
67 2 57
range, demand is

D) perfectly
A) elastic. inelastic.
B) inelastic.
C) perfectly elastic.

258) The price of old baseball cards rises rapidly with

increases in demand because

inelastic.
A) the supply of old baseball cards is price inelastic. D) the demand for
old baseball cards is price
B) the supply of old baseball cards in price elastic. elastic.
C) the demand for old baseball cards is price

Version 1 91
259) The supply curve of a one-of-a-kind original painting
is

D) perfectly
A) relatively elastic. elastic.
B) relatively inelastic.
C) perfectly inelastic.

260) The supply curve of antique reproductions is

D) unit elastic.
A) relatively elastic.
B) relatively inelastic.
C) perfectly inelastic.

261) The coefficient of price-elasticity of supply for a

product is 2 if

D) a 2 percent
A) a 1 percent decrease in the price causes a 0.2 decrease in price causes a
percent decrease in quantity supplied. 2 percent decrease in
B) a 2 percent decrease in price causes a 1 percent quantity supplied.
decrease in quantity supplied.
C) a 1 percent decrease in price causes a 2 percent
decrease in quantity supplied.

262) The law of supply suggests that the price-elasticity of

supply is

D) always less
A) positive. than 1.
B) negative.
C) always greater than 1.

263) Suppose the price

elasticity of supply for

Version 1 92
crude oil is 2.5. How much would price have to rise to
increase production by 20 percent?

C) 20 percent
A) 8 percent D) 45 percent
B) 12.5 percent

In the graph above, what

is the price elasticity of
supply (using the midpoint
formula) between points A
and B?

264)

C) 2
A) 1 D) 1/3
B) 3

In the graph above, what

would happen to price and
to total revenue if the
equilibrium moved from
point B to point A?

265)

Version 1 93
 increase.
A) Price would fall and total revenue would increase. D) Price would
rise and total revenue
B) Price would fall and total revenue would also would decrease.
decrease.
C) Price would rise and total revenue would also

266) If a product has a short-run elasticity of supply equal

to zero, then an increase in the demand for the product will

D) leave the price

A) have no effect on price or quantity sold. unchanged and reduce the
B) increase price and leave quantity sold unchanged. quantity sold.
C) increase price and reduce the quantity sold to
zero.

267) If a college admits only a fixed number of applicants

every year, then the school's supply curve for admissions is

D) downward-
A) perfectly elastic. sloping.
B) perfectly inelastic.
C) quite flat.

268) In the immediate market period for a highly perishable

crop like tomatoes, the individual farmer's supply curve tends
to be

D) downward-
A) perfectly inelastic. sloping.
B) perfectly elastic.
C) quite flat.

269) The following data table relates to the supply schedule

of a product.

Price ($ Per Unit) Quantity Supplied (Units Per

Version 1 94
 Week) 3 500
5 100 0
10 200 Over which of the
15 250 following price ranges is
the price-elasticity of
20 300
supply greater than 1?
25 350

C) $20 to $25
A) $10 to $15 D) $25 to $30
B) $15 to $20

270) At a price of $4 per unit, Gadgets Inc. is willing to what is the elasticity of
supply 20,000 gadgets, while United Gadgets is willing to supply in the market for
supply 10,000 gadgets. If the price were to rise to $8 per unit, gadgets?
their respective quantities supplied would rise to 45,000 and
25,000. If these are the only two firms supplying gadgets,

C) 0.83
A) 1.2 D) 0.8
B) 1

271) A price increase from $43 to $49 results in an increase elasticity of supply in this
in quantity supplied from 220 units to 240 units. The price price range is

C) 1.5.
A) 0.3. D) 3.33.
B) 0.67.

Version 1 95
 Refer to the above graph.
Which of the following
statements is correct?

272)

D) Supply is
A) Demand is perfectly elastic. perfectly inelastic.
B) Demand is perfectly inelastic.
C) Supply is perfectly elastic.

Refer to the above graph.

If the demand increased,
then

273)

D) price would
A) price and quantity would both increase. stay the same and total
B) price and quantity would both decrease. revenues of sellers would
C) price would stay the same and total revenues of increase.
sellers would stay the same.

Version 1 96
 Refer to the graph above.
If demand decreases, then
total revenues will

274)

D) cause supply to
A) decrease. decrease too.
B) increase.
C) stay the same.

Refer to the graph above.

The time horizon depicted
in the graph

275)

C) must be the
A) must be the immediate market period.
B) cannot be the immediate market period.

Version 1 97
long run, not the short run.
D) can be determined by focusing on the demand
curve.

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276) Economists distinguish among the immediate market
period, the short run, and the long run by noting that

elastic in the immediate

A) supply is most elastic in the short run and least market period.
elastic in the immediate market period. D) supply is most
B) demand is most elastic in the short run, and least elastic in the short run and
elastic in the long run. least elastic in the long run.
C) supply is most elastic in the long run and least

277) To economists, the main differences between "the

short run" and "the long run" are that

D) in the long run

A) the law of diminishing returns applies in the long all resources are variable,
run, but not in the short run. while in the short run at
B) in the short run all resources are fixed, while in least one resource is fixed.
the long run all resources are variable.
C) fixed inputs are more important to decision
making in the long run than they are in the short run.

278) The supply of cars will be more elastic the

D) less able
A) greater the quantity demanded. producers are to make
B) longer the time interval considered. other goods.
C) greater the decline in input prices.

279) Elasticity of supply will increase when

D) it becomes
A) the number of producers selling a product easier to substitute one
decreases. factor of production for
B) producers are given less time to respond to price another in a manufacturing
changes. process.
C) the number of consumers wanting to purchase a
product increases.

Version 1 99
280)

Refer to the above graphs. For which graph is the supply

perfectly inelastic?

C) graph C
A) graph A D) graph D
B) graph B

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281)

Refer to the above

graphs. Which graph
shows the immediate
market period for supply?

C) graph C
A) graph A D) graph D
B) graph B

Version 1 101
282)

Refer to the above

graphs. Which graph
depicts a situation where
sellers are increasing their
output because their
product is becoming more
popular among buyers?

C) graph C
A) graph A D) graph D
B) graph B

283) The price of gold is often volatile because

D) supply is
A) demand is relatively inelastic, so changes in relatively inelastic, so
supply have a large effect on price. changes in demand have a
B) supply is relatively elastic, so changes in demand large effect on price.
have a large effect on price.
C) demand is relatively elastic, so changes in supply
have a large effect on price.

284) The main reason for the high price of antiques is that

B) supply is
A) supply is relatively elastic and demand increases relatively inelastic and
over time. demand increases over

Version 1 102
time. increases over time.
C) demand is relatively elastic and supply increases
over time.
D) demand is relatively inelastic and supply

285) A glass company making windows for houses also

makes windows for other things (cars, boats, stores, etc.). We
would expect its supply curve for house windows to be

make only house windows

A) dependent on the demand for boat and plane D) relatively more
windows. inelastic than those of
B) no different from that of firms which make only firms that make only house
house windows. windows
C) relatively more elastic than those of firms that

286) It is argued that, with a rising demand for college

education, if the supply were to become more elastic, then
college tuition costs would

D) decrease
A) rise faster. steeply.
B) decrease slowly.
C) increase more slowly.

287) Suppose the income elasticity of demand for toys is

+2.0. This means that

purchase of toys by 2
A) a 10 percent increase in income will increase the percent.
purchase of toys by 20 percent. D) toys are an
B) a 10 percent increase in income will increase the inferior good.
purchase of toys by 2 percent.
C) a 10 percent increase in income will decrease the

288) Suppose the income elasticity of demand for toys is

−0.5. This means that

Version 1 103
 purchase of toys by 6
A) a 12 percent increase in income will decrease the percent.
purchase of toys by 6 percent. D) toys are a
B) a 12 percent increase in income will decrease the normal good.
purchase of toys by 24 percent.
C) a 12 percent increase in income will increase the

289) If the income elasticity of demand for store brand

macaroni and cheese is −3.00, this means that

D) more store
A) store brand macaroni and cheese is a substitute for brand macaroni and cheese
name brand macaroni and cheese. will be purchased when its
B) store brand macaroni and cheese is a normal good. price falls.
C) store brand macaroni and cheese is an inferior
good.

290) The formula for cross elasticity of demand is

percentage change in

price of Y.
A) quantity demanded of X/percentage change in D) price of
price of X. X/percentage change in
B) quantity demanded of X/percentage change in quantity demanded of Y.
income.
C) quantity demanded of X/percentage change in

291) Cross elasticity of demand measures how sensitive

purchases of a specific product are to changes in

D) the general
A) the price of some other product. price level.
B) the price of that same product.
C) income.

Version 1 104
 D) less sensitive
A) stronger their complementariness. purchases of each are to
B) greater their substitutability. increases in income.
C) smaller the price elasticity of demand for both
products.

293) We would expect the cross elasticity of demand

between Pepsi and Coke to be

D) negative,
A) positive, indicating normal goods. indicating substitute goods.
B) positive, indicating inferior goods.
C) positive, indicating substitute goods.

294) We would expect the cross elasticity of demand

between dress shirts and ties to be

D) negative,
A) positive, indicating normal goods. indicating complementary
B) positive, indicating complementary goods. goods.
C) negative, indicating substitute goods.

The diagram suggests

that

295)

B) X and Y are
A) X and Y are both inferior goods. both normal goods.

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 C) X and Y are substitute goods.
D) X and Y are independent goods.

296) Compared to coffee, we would expect the cross

elasticity of demand for

D) both tea and

A) tea to be negative, but positive for cream. cream to be positive.
B) tea to be positive, but negative for cream.
C) both tea and cream to be negative.

297) We would expect the cross elasticity of demand for soft drinks in general
Pepsi to be greater in relation to other soft drinks than that for because

D) there are more

A) soft drinks are normal goods. good substitutes for soft
B) the income effect always exceeds the substitution drinks as a whole than for
effect. Pepsi specifically.
C) there are fewer good substitutes for soft drinks as
a whole than for Pepsi specifically.

298)

Refer to the diagrams. The case of substitute goods is

represented by figure

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 C) C.
A) A. D) D.
B) B.

299)

Refer to the diagrams. The case of a normal good is

represented by figure

C) C.
A) A. D) D.
B) B.

300) Refer to the diagrams.

The case of an inferior
good is represented by
figure

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 C) C.
A) A. D) D.
B) B.

301)

Refer to the diagrams. The case of complementary goods is

represented by figure

C) C.
A) A. D) D.
B) B.

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302)

Refer to the diagrams. In which case would the coefficient

of income elasticity be positive?

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 C) C
A) A D) D
B) B

303) Refer to the diagrams. In

which case would the
coefficient of income
elasticity be negative?

C) C
A) A D) D
B) B

304) Refer to the diagrams. In

which case would the
coefficient of cross
elasticity of demand be
positive?

A) A

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 B) B D) D
C) C

305) %media:ch6tb_p216top223.png% of cross elasticity of

Refer to the diagrams. In which case would the coefficient demand be negative?

C) C
A) A D) D
B) B

306) Suppose that a 10 percent increase in the price of

normal good Y causes a 20 percent increase in the quantity
demanded of normal good X. The coefficient of cross
elasticity of demand is

D) positive, and
A) negative, and therefore these goods are therefore these goods are
substitutes. complements.
B) negative, and therefore these goods are
complements.
C) positive, and therefore these goods are substitutes.

307) Suppose that a 20 percent increase in the price of

normal good Y causes a 10 percent decrease in the quantity
demanded of normal good X. The coefficient of cross
elasticity of demand is

D) positive, and
A) negative, and therefore these goods are therefore these goods are
substitutes. complements.
B) negative, and therefore these goods are
complements.
C) positive, and therefore these goods are substitutes.

308) Assume that a 6

percent increase in income
in the economy produces a

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3 percent increase in the quantity demanded of good X. The
coefficient of income elasticity of demand is

D) positive, and
A) negative, and therefore X is an inferior good. therefore X is a normal
B) positive but less than one; therefore X is an good.
inferior good.
C) positive, and therefore X is an inferior good.

309) Assume that a 3 percent increase in income across the

economy produces a 1 percent decline in the quantity
demanded of good X. The coefficient of income elasticity of
demand for good X is

D) positive and
A) negative, and therefore X is an inferior good. therefore X is a normal
B) negative, and therefore X is a normal good. good.
C) positive, and therefore X is an inferior good.

310) Which types of goods are most adversely affected by

recessions?

positive.
A) Goods for which the income elasticity coefficient D) Goods for
is relatively low or negative. which the cross elasticity
B) Goods for which the income elasticity coefficient coefficient is negative.
is relatively high and positive.
C) Goods for which the cross elasticity coefficient is

311) Which of the following goods (with their respective suffer a decline in demand
income elasticity coefficients in parentheses) will most likely during a recession?

D) plasma screen
A) dinner at a nice restaurant (+1.8) and LCD TVs (+4.2)
B) chicken purchased at the grocery store for
preparation at home (+0.25)
C) second-hand clothing (-0.6)

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312) Which of the following goods will least likely suffer a
decline in demand during a recession?

D) plasma screen
A) dinner at a nice restaurant and LCD TVs
B) iPods
C) toothpaste

313) If a 10 percent increase in the price of Good A results B, then it can be concluded
in an increase of 5 percent in the quantity demanded of Good that Goods A and B are

D) normal goods.
A) complementary goods.
B) substitutes goods.
C) independent goods.

314) If a 10 percent increase in the price of one good results it can be concluded that the
in no change in the quantity demanded of another good, then two goods are

D) normal goods.
A) complementary goods.
B) substitute goods.
C) independent goods.

315) Cross elasticity of demand is

D) positive for
A) negative for complementary goods. inferior goods.
B) negative for substitute goods.
C) unitary for inferior goods.

316) The cross elasticity of demand between Quaker State

motor oil and Texaco motor oil is likely to be

D) a large
A) zero. negative number.
B) a positive number.
C) a small negative number.

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317) The cross elasticity of demand between digital
cameras and memory cards is likely to be

D) a positive
A) zero. number between zero and
B) a negative number. 1.
C) a positive number greater than 1.

318) A 3 percent increase in the price of tea causes 6 of demand for coffee with
percent increase in the demand for coffee. The cross elasticity respect to the price of tea is

C) −2.
A) −0.5. D) 2.
B) 0.5.

319) The cross elasticity of demand for product X with

respect to the price of product Y is −1.2. It can be inferred
that X and Y are

D) unrelated
A) substitute products. products.
B) complementary products.
C) luxury products.

320) Most goods can be classified as normal goods rather

than inferior goods. The definition of a normal good suggests
that

0.
A) the income elasticity of demand for the good is D) the cross
negative. elasticity of demand for the
B) the price elasticity of demand for the good is good is positive.
negative.
C) the income elasticity for the good is greater than

321) If the demand for a product increases proportionately faster than the increase in

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consumers' incomes, then the income elasticity of demand for the product is

C) less than zero.

A) zero. D) equal to 1.
B) greater than zero.

322) A negative income elasticity of demand coefficient

indicates that

D) the product is a
A) the product is an inferior good. substitute good.
B) the product follows the law of demand.
C) the product is a complementary good.

323) The income elasticity of demand for food is roughly 1. doubles, the amount she'll
Suppose a consumer's monthly income is $2,000, of which 20 spend on food will be
percent is spent on food. If the income of this consumer

D) $1,000 per
A) $400 per month. month.
B) $500 per month.
C) $800 per month.

324) A consumer's weekly income is $300, and the The income elasticity of
consumer buys 5 bars of chocolate per week. When weekly demand for chocolate by
income increases to $330, the consumer buys 6 bars per week. this consumer is about

C) 2.
A) 0. D) 1.91.
B) 0.52.

325) Which of these pairs of concepts can be positively, as

well as negatively, related?

product demanded
A) the income of consumers and the demand for a C) the price of a
product product and the demand
B) the price of a product and the quantity of that for a complementary

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product and its supply
D) the cost of resources required to make a product

326) The relationship between a consumer's monthly

income and monthly consumption of four products, A-D, is
shown below.

Quantity 0
Consumed 5, 60 1 10 1
Inco A B C D 00 8
me 0 0
$ 45 9 20 0 Which product listed is an
4, 0 example of an inferior
00 good?

C) C
A) A D) D
B) B

327) For which product is the income elasticity of demand

most likely to be negative?

D) bread
A) computer software
B) used clothing
C) apps for iPhones

328)

Product % Change in % Change in Y –1 +1

Income Quantity Z +4 +8
Demanded
Refer to the above table.
W –1 –1
Which product would be
X +6 +3 an inferior good?

C) Product Y
A) Product W
B) Product X

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 D) Both products W and Y

329)

Product % Change in % Change in Y –1 +1

Income Quantity Z +4 +8
Demanded
Refer to the above table.
W –1 –1
Which product is most
X +6 +3 responsive to a change in
income?

C) Product Y
A) Product W D) Product Z
B) Product X

330)

Product % Change in % Change in Y -1 +1

Income Quantity Z +4 +8
Demanded
Refer to the above table.
W -1 -1
Which product is a normal
X +6 +3 good but least responsive
to a change in income?

C) Product Y
A) Product W D) Product Z
B) Product X

331) Suppose the income elasticity of demand for jewelry is

2. Other things equal, a 10 percent increase in consumer
income will

percent.
A) decrease the quantity of jewelry purchased by 20 D) increase the
percent. quantity of jewelry
B) increase the quantity of jewelry purchased by 5 purchased by 20 percent.
percent.
C) decrease the quantity of jewelry purchased by 5

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332) (Consider This) Which of the following statements is
true about the history of Southwest Airlines entering new
markets?

revenue.
A) Southwest’s entry caused the demand for each D) Southwest’s
carrier to become more inelastic as customers increased their highly inelastic supply
loyalty to particular airlines. made it difficult for them
B) Southwest’s entry into new markets had little to take advantage of
impact on either the markets or airlines already serving those demand in the market.
markets.
C) Southwest’s low price strategy tapped into
existing elastic demand in the market, increasing the airline’s

333) (Consider This) In markets entered by Southwest

Airlines, gains in passenger traffic and profits

air travel meant reduced

A) went primarily to airlines already in those revenues for all airlines in
markets. those markets.
B) were evenly distributed among airlines in those
markets.
C) went almost entirely to Southwest.
D) were minimal, as the highly inelastic demand for

334) (Last Word) Suppose that a firm has "pricing power"

and can segregate its market into two distinct groups based on
differences in elasticities of demand. The firm might charge

D) the same price

A) a lower price to the group that has the less elastic to both groups but make it
demand. difficult for the group with
B) a higher price to the group that has the less elastic the more elastic demand to
demand. gain access to the product.
C) the same price to both groups but include a "free"
related product for the group that has an inelastic demand.

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335) (Last Word) Microsoft charges a substantially lower curve for the software
price for a software upgrade than for the initial purchase of upgrade to be
the software. This implies that Microsoft views the demand

software.
A) more elastic than the demand for the original D) of less value
software. than the original software.
B) upsloping rather than downsloping.
C) less elastic than the demand for the original

336) (Last Word) Which of the following is not an example

of pricing based on group differences in elasticity of demand?

D) discounted
A) senior-citizen discounts at restaurants and motels student prices for visits to
museums
B) cash rebates for purchases of automobiles
C) child discounts for admission to theme parks

337) (Last Word) Based on the concept of price elasticity of

demand, which of the following cases is most likely to occur?

students
A) golf courses charging higher prices for golf during D) airlines
the week than on weekends charging lower fares for
B) movie theaters charging higher prices for senior business travelers
citizens
C) colleges charging lower tuition for low-income

ESSAY. Write your answer in the space provided or on a demand and the price
separate sheet of paper. elasticity of demand?
338) What is the main difference between the law of

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339) Why do economists use percentages rather than consumers to changes in
absolute amounts in measuring the responsiveness of price?

340) How do you interpret the coefficient of the price

elasticity of demand? Explain when Ed is 1.5, 0.7, and 1.0.

341) What is the meaning of perfectly inelastic demand and

perfectly elastic demand? How would each be graphed?

342) Ford Motor Company announced a major rebate

program for its cars and trucks. The rebate program amounts
to a simple reduction in price. The company executives hope
to increase revenue as a result of this rebate program. What
economic explanation would justify this decision?

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343) List the four determinants of price elasticity of demand.

344) Explain how each of four determinants of elasticity of

demand can affect the price elasticity of demand.

345) Federal and state governments often seek to raise tax the products that will raise
revenue by levying excise or sales taxes on specific products. the most tax revenue?
What economic factors should be considered in determining

346) Paper newspapers have an elasticity of demand of .10.

Interpret this number and offer an explanation to why the
elasticity is so low.

347) Discuss the pros and cons of legalizing drugs such as

heroin or cocaine from an economic perspective using the
concept of elasticity.

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348) What is the price elasticity of supply? How is it
measured?

349) What is the main determinant of the price elasticity of

supply? Explain.

350) Why is there no total revenue test for elasticity of

supply?

351) Describe the elasticity of supply of a farm product that

is sold at a farmer’s market on a particular day.

352) Explain the

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differences between the immediate market period, the short
run, and the long run as they relate to price elasticity of
supply.

353) Explain how the price elasticity of supply is related to

the prices of antiques.

354) A computer company is considering lowering the

price of its laptop computer to promote sales. However, it
worries that this will reduce desktop computer sales. It finds
the cross elasticity of demand to be 1. 5. Are its concerns
legitimate? Explain.

355) You would think that if people’s income increased

over time, then all industries in the economy should benefit
equally, but this is not the case. Explain why.

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356) (Last Word) Explain how colleges and universities
charge students differently based on price elasticity of
demand.

357) (Last Word) Why is the price elasticity of demand for

air travel for business travelers different from that of leisure
travelers?

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Answer Key

Test name: Chap 06_22e_Micro_Static

1) FALSE
2) TRUE
3) FALSE
4) TRUE
5) FALSE
6) TRUE
7) TRUE
8) FALSE
9) TRUE
10) TRUE
11) TRUE
12) FALSE
13) TRUE
14) TRUE
15) FALSE
16) FALSE
17) FALSE
18) TRUE
19) FALSE

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20) FALSE
21) TRUE
22) TRUE
23) FALSE
24) FALSE
25) TRUE
26) FALSE
27) TRUE
28) TRUE
29) FALSE
30) FALSE
31) FALSE
32) FALSE
33) TRUE
34) FALSE
35) TRUE
36) FALSE
37) TRUE
38) FALSE
39) FALSE
40) FALSE

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41) FALSE
42) TRUE
43) A
44) B
45) A
46) C
The price elasticity of demand for a product 2.00)/2.00], then the
equals the percentage change in quantity percentage change
demanded divided by the percentage change in quantity
in price. If, for example, the price elasticity is demanded (X) is 25
2.5 and theabsolute value of the percentage percent [2.5 = X/
change in price is10 percent [=(1.80 − 10; X = 25].
47) C
The price elasticity of demand (Ed) for a from $2.00 to $1.90
product equals the percentage change in causes an increase
quantity demanded divided by the percentage inquantity
change in price. Economists use the midpoint demanded from 110
formula to calculate over a range of prices and to 118, then Ed =
quantities, so that Ed = [Change in 1.37 = [8/(228/2)] /
quantity/(Q1 + Q2)/2] / [Change in price/(P1 [0.1/(3.9/2)].
+ P2)/2)]. If, for example, a price decrease
48) C
The price elasticity of demand (E d) for a use the midpoint
product equals the percentage change in formula to calculate
quantity demanded (QD) divided by the over a range of
percentage change in price (P). Economists prices and

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quantities, so that E d = [Change in demanded from 500
quantity/(Q1 + Q2)/2] / [Change in price/(P1 to 600, then E d = 1
+ P2)/2)]. If, for example, a price decrease = [(100)/(1,100/2)] /
from $12 to $10 causes an increase in quantity [(2)/(22/2)].
49) C
50) D
The price elasticity of demand for a product quantity demanded
equals the percentage change in quantity move in the
demanded divided (QD) by the percentage opposite direction,
change in price (P). If the percentage change so the price
in QD is greater than the percentage change in decrease will
P, then demand is price elastic. In this increase the
question it is given that demand is price quantity demanded
inelastic, so the percentage change in QD of X.
must be less than the percentage change in P.
Because of the law of demand, price and
51) C
The price elasticity of demand (Ed) for a decrease from $10
product equals the percentage change in to $8 causes an
quantity demanded (QD) divided by the increase in quantity
percentage change in price (P). Economists demanded from
use the midpoint formula to calculate over a 3,000 to 5,000, then
range of prices and quantities, so that Ed = Ed = 2.25 =
[Change in quantity/(Q1 + Q2)/2] / [Change in [(2,000)/(8,000/2)] /
price/(P1 + P2)/2)]. For example, if a price [(2)/(18/2)].
52) B
53) D

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54) D
55) C
The price elasticity of demand for a product been a(n) 20 percent
equals the percentage change in quantity reduction in price
demanded divided by the percentage change (0.8 = 16/X; X =
in price. If, for example, the price elasticity of 16/0.8).
demand is equal to 0.8 and there was a(n) 16
percent increase in sales, then there must have
56) C
The price elasticity of demand for a product been a(n) 12 percent
equals the percentage change in quantity increase in price
demanded divided by the percentage change (0.75 = 9/X; X =
in price. If, for example, the price elasticity of 9/0.75).
demand is equal to 0.75 and there was a(n) 9
percent decrease in sales, then there must have
57) C
58) A
59) D
60) B
61) A
62) D
63) D
The price elasticity of demand (E d) for a percentage change
product equals the percentage change in in price. For
quantity demanded (QD) divided by the demand to be price

Version 1 129
elastic, the percentage change in quantity [(10)/(190/2)]] =
demand must be greater than the percentage 1.73. Since 1.73 >
change in price, resulting in an elasticity 1, demand is price
coefficient E d > 1. If, for example, the price elastic over the
is reduced from $100 to $90, resulting in an price range given.
increase in QD from 50 to 60, then E d =
[Change in quantity/(Q1 + Q2)/2] / [Change in
price/(P1 + P2)/2)], or [= [(10)/(110/2)] /
64) A
65) B
The price elasticity of demand for a product percent reduction in
equals the percentage change in quantity quantity demanded
demanded divided by the percentage change (3.5 = X/2; X = 3.5
in price. If, for example, the price elasticity of × 2 = 7).
demand is 3.5, and price increased by 2
percent, then there must have been a(n) 7
66) B
The price elasticity of demand for a product decrease in quantity
equals the percentage change in quantity demanded (0.6 =
demanded divided by the percentage change X/20; X = 0.6 × 20
in price. If, for example, the price elasticity of = 12).
demand is 0.6, and price increases by 20
percent, then there must be a(n) 12 percent
67) B
68) D
69) A

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70) B
71) C
The price elasticity of demand (Ed) for a product equals the $5.70 to $6.30 causing a
percentage change in quantity demanded divided by the decrease in quantity
percentage change in price. Economists use the midpoint demanded from 212 to
formula to calculate over a range of prices and quantities, so 188, then Ed = 1.2 ( =
that Ed = [Change in quantity/(Q1 + Q2)/2] / [Change in 0.12/0.10).
price/(P1 + P2)/2)]. If, for example, price increased from

72) B
The price elasticity of demand (Ed) for a from $16.20 to
product equals the percentage change in $19.80 causes a
quantity demanded divided by the percentage decrease in quantity
change in price. Economists use the midpoint demanded from
formula to calculate over a range of prices and 224,000 to 176,000,
quantities, so that Ed = [Change in then Ed = 1.2 ( =
quantity/(Q1 + Q2)/2] / [Change in price/(P1 0.24/0.2).
+ P2)/2)]. If, for example, a price increase
73) A
74) C
75) A
76) B
77) B
78) C
79) A
80) C
81) B

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82) A
83) A
84) C
85) C
86) A
87) A
88) D
89) A
The price elasticity of demand for a product demanded change is
equals the percentage change in quantity 15 percent, then
demanded divided by the percentage change price elasticity of
in price. If, for example, the percentage demand is 1.5 (=
change in price is 10 percent and the quantity 15/10).
90) A
The price elasticity of demand for a product demanded change is
equals the percentage change in quantity 20 percent, then
demanded divided by the percentage change price elasticity of
in price. If, for example, the percentage demand is 2.5 (=
change in price is 8 percent and the quantity 20/8).
91) B
92) B
93) B
94) C

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The price elasticity of demand (Ed) for a 0.0833/0.25). When
product equals the percentage change in the elasticity
quantity demanded divided by the percentage coefficient is greater
change in price. Economists use the midpoint than one (Ed > 1),
formula to calculate over a range of prices and demand is price
quantities, so that Ed = [Change in elastic; when it is
quantity/(Q1 + Q2)/2] / [Change in price/(P1 less than one (Ed <
+ P2)/2)]. If, for example, a price increase 1), demand is price
from $7 to $9 causes a decrease in quantity inelastic.
demanded from 500 to 460, then Ed = 0.33 ( =
95) C
The price elasticity of demand for a product it will cause
equals the percentage change in quantity quantity demanded
demanded divided by the percentage change to increase 5 percent
in price. If, for example, the elasticity is 0.5 (0.5 = X/10, so X =
and there is a(n) 10 percent decrease in price, 0.5 × 10).
96) C
The price elasticity of demand for a product 6 percent, then the
equals the percentage change in quantity price elasticity of
demanded divided by the percentage change demand is 2 (= 6/3).
in price. If, for example, a 3 percent decrease
in price causes quantity demanded to increase
97) B
The price elasticity of demand for a product demand is 1.2, and
equals the percentage change in quantity price increases by
demanded divided by the percentage change 10 percent, then
in price. If, for example, the price elasticity of quantity demanded

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will fall by 12 percent (1.2 = X/10; X = 1.2 ×
10 = 12).

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98) A
99) D
100) C
The price elasticity of demand (E d) for a from $9 to $7
product equals the percentage change in causes an increase
quantity demanded (QD) divided by the in quantity
percentage change in price (P). Economists demanded from 40
use the midpoint formula to calculate over a to 60, then E d =
range of prices and quantities, so that E d = 1.6 ( = 0.4/0.25).
(Change in QD/(Q1+Q2)/2) / (Change in
P/(P1+P2)/2). If, for example, a price decrease
101) D
The price elasticity of demand (Ed) for a from $0.55 to $0.45
product equals the percentage change in causes an increase
quantity demanded divided by the percentage in quantity
change in price. Economists use the midpoint demanded from
formula to calculate over a range of prices and 19,000 to 21,000,
quantities, so that Ed = [Change in then Ed = 0.5 ( =
quantity/(Q1 + Q2)/2] / [Change in price/(P1 0.1/0.2).
+ P2)/2)]. If, for example, a price decrease
102) B
103) A
104) C
105) A
106) D

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107) D
The price elasticity of demand (Ed) for a example, demand is
product equals the percentage change in unit-elastic, it is
quantity demanded (QD) divided by the necessary to find
percentage change in price (P). Economists where Ed 1. In this
use the midpoint formula to calculate over a case, it is in the
range of prices and quantities, so that Ed = price range of $12-
[Change in quantity/(Q1 + Q2)/2] / [Change in $10.
price/(P1 + P2)/2)]. To find where, for
108) B
The price elasticity of demand (E d) for a changes $8 to $10,
product equals the percentage change in causing quantity
quantity demanded (QD) divided by the demanded to change
percentage change in price (P). Economists from 40 to 36, the
use the midpoint formula to calculate over a price elasticity of
range of prices and quantities, so that E d = demand, E d = 0.47
[Change in quantity/(Q1 + Q2)/2] / [Change in (= 0.105/0.222).
price/(P1 + P2)/2)]. If, for example, the price
109) A
110) D
111) B
112) A
The price elasticity of demand for a product demand is 0.8, and
equals the percentage change in quantity the goal is to
demanded divided by the percentage change increase sales
in price. If, for example, the price elasticity of quantity by 10

Version 1 136
percent, there would need to be a 12.5 percent
reduction in price (0.8 = 10/X; X = 10/0.8 =
12.5).
113) C
114) A
115) A
116) D
117) C
118) B
119) D
120) C
121) C
122) A
The total-revenue test tells us that demand is demand (E d) and
price elastic when price and total revenue for the numbers
change in the opposite direction, and price above, confirming
inelastic when price and total revenue change that demand is price
in the same direction. If, for example,an elastic over
increase in price from $5 to $6 causesa thegiven price
decrease in total revenue from $13,000 to range.
$11,000, then demand is price elastic. Note
that you can also calculate the price elasticity
123) B
The price elasticity of demand for a product equals the

Version 1 137
percentage change in quantity demanded inelastic when price
divided by the percentage change in price. If, and total revenue
for example, the price elasticity of demand is change in the same
0.2, and price falls by 10 percent, then direction. Since in
quantity demanded will increase 2 percent (0.2 this example price
= X/10; X = 0.2 × 10 = 2). fell and demand is
The total-revenue test tells us that demand is price inelastic, total
price elastic when price and total revenue expenditures will
change in the opposite direction, and price fall.
124) D
125) D
126) D
127) B
128) B
129) D
130) C
131) A
132) C
133) B
134) C
135) C
136) B
137) C

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138) B
The total-revenue test tells us that when price from $3 to $2, and
and total revenue change in the same total revenue falls
direction, demand is price inelastic. from $16 billion to
Conversely, if price and total revenue change $14 billion, demand
in the opposite direction, demand is likely is price inelastic.
price elastic. If, for example, the price falls
139) B
140) B
141) A
142) D
143) D
144) D
145) A
146) D
147) B
148) A
149) B
150) A
151) D
152) C
153) D

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154) A
155) C
156) B
157) B
158) C
159) C
160) B
161) D
162) C
Total revenue is found by multiplying price by
the quantity demanded at that price. In this
instance, total revenue is $45 (= $3 × 15).
163) D
Total revenue is found by multiplying price by
the quantity demanded at that price.
164) D
165) C
166) B
167) C
168) A
169) B
170) D

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171) B
172) B
173) C
174) A
175) B
176) B
177) D
178) A
179) D
180) A
181) A
182) B
183) B
184) C
185) C
186) B
187) B
188) B
189) C
190) B
191) B

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192) A
193) B
194) A
195) A
196) B
197) D
198) C
199) A
200) D
201) A
202) B
203) D
204) C
205) B
206) D
207) D
208) C
209) D
210) B
211) B
212) B

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213) D
214) B
215) C
216) B
217) D
218) B
219) B
220) D
221) D
222) A
223) C
224) A
The price elasticity of supply for a product percentage change
equals the percentage change in quantity in quantity supplied
supplied divided by the percentage change in must be greater than
price. If the elasticity coefficient is greater the percentage
than one, supply is price elastic; if the change in price.
elasticity coefficient is less than one, supply is
price inelastic. For the coefficient to be greater
than one and the supply price elastic, the
225) D
The price elasticity of supply for a product price. If the
equals the percentage change in quantity elasticity coefficient
supplied divided by the percentage change in is greater than one,

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supply is price elastic; if the elasticity not change quantity
coefficient is less than one, supply is price supplied, then
inelastic. For the coefficient to be less than supply is perfectly
one and the supply price inelastic, the price inelastic.
percentage change in quantity supplied must
be less than the percentage change in price,
but still positive. If the change in price does
226) B
The price elasticity of supply for a product coefficient is equal
equals the percentage change in quantity to one, meaning the
supplied divided by the percentage change in percentage change
price. If the elasticity coefficient is greater in quantity supplied
than one, supply is price elastic; if the equals the
elasticity coefficient is less than one, supply is percentage change
price inelastic. Supply is unitary elastic if the in price.
227) C
The price elasticity of supply for a product price inelastic.
equals the percentage change in quantity Supply is perfectly
supplied divided by the percentage change in inelastic if a price
price. If the elasticity coefficient is greater change results in no
than one, supply is price elastic; if the change in quantity
elasticity coefficient is less than one, supply is supplied.
228) A
229) B
230) C
The price elasticity of supply for a product equals the

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percentage change in quantity supplied price change results
divided by the percentage change in price. If in no change in
the elasticity coefficient is greater than one, quantity supplied.
supply is price elastic, if less than one,
inelastic. Supply is perfectly inelastic if a
231) C
232) D
233) C
234) B
235) D
236) C
237) B
238) D
239) B
240) B
241) C
242) D
243) C
244) B
245) C
246) C
247) C

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248) C
249) C
250) D
251) B
252) A
253) A
254) B
255) C
256) D
257) B
258) A
259) C
260) A
261) C
The price elasticity of supply for a product will cause a 2
equals the percentage change in quantity percent decrease in
supplied divided by the percentage change in quantity supplied: 2
price. If, for example, the elasticity coefficient = X/1; X = 2 × 1 =
(E s) is 2, then a 1 percent decrease in price 2.
262) A
263) A
The price elasticity of supply for a product equals the

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percentage change in quantity supplied 20 percent (2.5 =
divided by the percentage change in price. If, 20/X; X = 20/2.5 =
for example, the elasticity coefficient (E s) is 8).
2.5, then it would take a(n) 8 percent increase
in price to prompt an increase in production of
264) A
265) B
266) B
267) B
268) A
269) D
The price elasticity of supply (Es) for a ([Change in QS/(Q1
product equals the percentage change in + Q2)/2] / [Change
quantity supplied (QS) divided by the in P/(P1 + P2)/2]).
percentage change in price (P). Economists
use the midpoint formula to calculate over a
range of prices and quantities, so that Es =
270) A
The price elasticity of supply (Es) for a increase from $4 to
product equals the percentage change in $8 causes an
quantity supplied (QS) divided by the increase in QS from
percentage change in price (P). Economists 30,000 to 70,000
use the midpoint formula to calculate over a (combining the
range of prices and quantities, so that Es = quantities from the
([Change in QS/(Q1 + Q2)/2] / [Change in
P/(P1 + P2)/2]). If, for example, a price

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two firms at each price), then Es = 1.2 (=
0.8/0.667).

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271) B
The price elasticity of supply (Es) for a increase from $43 to
product equals the percentage change in $49 causes an
quantity supplied (QS) divided by the increase in QS from
percentage change in price (P). Economists 220 to 240, then Es
use the midpoint formula to calculate over a = 0.67 (=
range of prices and quantities, so that Es = 0.087/0.13).
([Change in QS/(Q1 + Q2)/2] / [Change in
P/(P1 + P2)/2]). If, for example, a price
272) C
273) D
274) A
275) B
276) C
277) D
278) B
279) D
280) C
281) C
282) B
283) D
284) B
285) C

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286) C
287) A
The income elasticity of demand for a product percent, then
equals the percentage change in quantity consumer purchases
demanded divided by the percentage change will increase by 20
in income. A positive income elasticity percent (+2.0 =
indicates that income and quantity demanded X/10; X = +2.0 × 10
are directly related, and that the product is a = 20).
normal good. If, for example, the income
elasticity is +2.0 and income increases by 10
288) A
The income elasticity of demand for a product percent, then
equals the percentage change in quantity consumer purchases
demanded divided by the percentage change will decrease by 6
in income. A negative income elasticity percent (−0.5 =
indicates that income and quantity demanded X/12; X = −0.5 × 12
are inversely related, and that the product is an = −6).
inferior good. If, for example, the income
elasticity is −0.5 and income increases by 12
289) C
290) C
291) A
292) B
293) C
294) D

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295) D
296) B
297) C
298) D
299) A
300) B
301) C
302) A
303) B
304) D
305) C
306) C
The cross elasticity of demand for a product increase in the price
equals the percentage change in quantity of good Y causes a
demanded of good X divided by the a 20 percent
percentage change in price of good Y. A increase in the
positive cross elasticity indicates that quantity quantity demand of
demanded of X and price of Y are directly good X, then cross
related, and that the products are substitutes elasticity is positive
for each other. A negative cross elasticity and goods X and Y
indicates that the goods are complements to are substitutes.
each other. If, for example, a 10 percent
307) B
The cross elasticity of demand for a product equals the

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percentage change in quantity demanded of good Y causes a 10
good X divided by the percentage change in percent decrease in
price of good Y. A positive cross elasticity the quantity demand
indicates that quantity demanded of X and of good X, then
price of Y are directly related, and that the cross elasticity is
products are substitutes for each other. A negative and goods
negative cross elasticity indicates that the X and Y are
goods are complements to each other. If, for complements.
example, a 20 percent increase in the price of
308) D
309) A
310) B
311) D
312) C
313) B
The cross elasticity of demand for a product the price of Good A
equals the percentage change in quantity causes a(n) 5
demanded of Good B divided by the percent increase in
percentage change in price of Good A. A the quantity demand
positive cross elasticity indicates that quantity of Good B, then
demanded of B and price of A are directly cross elasticity is
related, and that the products are substitutes positive and Goods
for each other. A negative cross elasticity A and B are
indicates that the goods are complements to substitutes.
each other. If, for example, a 10 increase in
314) C

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315) A
316) B
317) B
318) D
The cross elasticity of demand for a product demand for coffee
equals the percentage change in quantity (X), then cross
demanded of good X divided by the elasticity is + 2 (=
percentage change in price of good Y. If, for 6/3).
example, a 3 percent increase in the price of
tea (Y) causes a(n) 6 percent increase in the
319) B
320) C
321) B
322) A
323) C
The income elasticity of demand for a product their income
equals the percentage change in quantity doubles, an income
demanded of the good divided by the elasticity of one
percentage change in income. An income suggests that their
elasticity equal to one indicates that for any food expenditures
change in income, spending on that product would double to
will change proportionally. If, for example, a $800.
person spends $400 per month on food and
324) D
The income elasticity of demand (Ed) for a product equals the

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percentage change in quantity demanded of from $300 to $330
the good divided by the percentage change in causes an increase
income. Just as with price elasticities, in quantity
economists use the midpoint formula to demanded from 5 to
calculate over a range of income (Y) and 6, then Ed = 1.91 (=
quantities (Q), so that Ed = ([Change in 0.182/0.095).
QD/(Q1 + Q2)/2] / [Change in Y/(Y1 +
Y2)/2]). If, for example, an income increase
325) A
326) C
327) B
328) C
329) D
330) B
331) D
The income elasticity of demand for a product increase 20 percent
equals the percentage change in quantity (2 = X/10; X = 2 ×
demanded of the good divided by the 10 = 20).
percentage change in income. If, for example,
income elasticity is 2 and income rises by 10
percent, the quantity of jewelry purchased will
332) C
333) C
334) B
335) A

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336) B
337) C
338) According to the law of demand, other responsiveness (or
things equal, consumers will buy more of a sensitivity) to a
product when its price declines and less when price change is
its price increases. But how much more or less measured by a
will they buy? The amount varies from product’s price
product to product and over different price elasticity of
ranges for the same product. Consumers’ demand.
339) There are two reasons why we use different products. It
percentages. One reason is that if we use makes little sense to
absolute changes, the choice of units will compare the effects
affect our impression of buyer responsiveness. on quantity
For instance, if the price of a bag of popcorn demanded of (1) a
at the local softball game decreases from $3 to $1 increase in the
$2, and consumers increase their purchases price of a $10,000
from 60 to 100 bags, it will seem that used car with (2) a
consumers are quite sensitive to price changes $1 increase in the
and therefore that demand is elastic: A price price of a $1 soft
change of 1 unit has increased the amount drink. Here the
demanded by 40 units. But if we change the price of the used car
monetary unit from dollars to pennies, we find increases by 0.01
that a price change of 100 units (pennies) percent while the
causes a quantity change of 40 units, which price of the soft
may falsely lead us to believe that demand is drink increases by
inelastic. We avoid this problem by using 100 percent. We can
percentage changes. Another reason is that by more sensibly
using percentages, we can compare consumer compare the
responsiveness to changes in the prices of consumer

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responsiveness to price increases by using the
percentage increase in price for both.
340) An elasticity of demand of 1.5 means elasticity of demand
that the product has elastic demand and and its percentage
consumers are responsive to its price changes; change in price is
an elasticity of 0.7 means that the product has equal to its resulting
inelastic demand and consumers are not very percentage change
responsive to its price changes; and an in quantity
elasticity of demand of 1.0 reflects unit demanded.
341) Perfectly inelastic demand means there is to zero and graphs
no change in the quantity demanded when the as a line parallel to
price changes and graphs as a line parallel to the horizontal axis.
the vertical axis. Perfectly elastic demand
means that a price change will cause quantity
demanded to decline from an infinite amount
342) The company believes its cars and trucks a luxury. All of this
have elastic demand and a decrease in price means that
will increase revenue from them. The automobiles have a
economic justification is there are three high price elasticity
determinants of elasticity of demand that of demand and that
could apply in this case. There are a number revenues for the
of substitutes available for Ford automobiles company will
since there are many other auto producers in increase if the price
the market; the purchase of a new automobile is decreased.
takes a considerable proportion of income;
and some may believe that buying a new car is
343) The four determinants are (1) luxuries versus
substitutability, (2) proportion of income, (3)

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necessities, and (4) time.
344) Substitutability: Generally, the more for luxury goods
substitute goods that are available, the greater than it is for
the price elasticity of demand. Proportion of necessities. Time:
income: Other things equal, the higher the Generally, product
price of a good relative to consumers’ demand is more
incomes, the greater the price elasticity of elastic over longer
demand. Luxuries versus necessities: In time periods.
general, price elasticity of demand is higher
345) The government pays attention to sold). Because a
elasticity of demand when it selects goods and higher tax on a
services to tax. If the government levies a $1 product with elastic
excise tax on a product and 10,000 units are demand will bring
sold, tax revenue will be $10,000 (= $1 × in less tax revenue,
10,000 units sold). (An excise tax is a tax legislatures tend to
levied on the production of a specific product tax products that
or on the quantity of the product purchased. ) have inelastic
If the government raises the tax to $1. 50, but demand, such as
the higher price that results reduces sales to liquor, gasoline, and
4,000 because of elastic demand, tax revenue cigarettes.
will decline to $6,000 (= $1. 50 × 4,000 units
346) An elasticity of demand of .10 reflects an necessity as a
inelastic demand. It could be that the price source of news.
elasticity is so low because (1) there are no
good substitutes available, (2) it takes a
negligible proportion of income, or (3) it is a
347) Proponents of legalization contend that should be made
drugs should be treated like alcohol; they legal for adults and

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regulated for purity. Legalization, they argue, proponents think
will reduce drug trafficking significantly by and lowering prices
taking the profit out of it. Because addicts’ would create more
demand for drugs is highly inelastic, the addicts. They add
amounts consumed at the lower prices would that legalization
increase only modestly. Addicts’ total may make it more
expenditures for drugs like cocaine and heroin socially acceptable,
would decline, and so would the street crime increasing overall
that finances those expenditures. Those demand.
against legalization contend that the demand
for these drugs is more elastic than the
348) Price elasticity of supply is a measure of to the percentage
the responsiveness of producers to a change in change in its price.
the price of a product or resource. It is
measured as the ratio of the percentage change
in quantity supplied of a product (or resource)
349) The main determinant of price elasticity economists
of supply is time. The less time available to distinguish among
the producer, the more inelastic the good is; the immediate
the more time the producer has to respond to market period, the
the price change, the more elastic the good is. short run, and the
In analyzing the impact of time on elasticity, long run.
350) There is no total-revenue test for inelasticity, price
elasticity of supply because of the positive (or and total revenue
direct) relationship between price and amount always move
supplied; the supply curve slopes upward. together.
Regardless of the degree of elasticity or
351) The immediate market period is the length of time over

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which producers are unable to respond to a (vertical); the
change in price with a change in quantity farmer will sell the
supplied. Suppose the owner of a small farm truckload whether
brings to market one truckload of tomatoes the price is high or
that is the entire season’s output. The supply low.
curve for the tomatoes is perfectly inelastic
352) The immediate market period is a length product to change
of time over which producers are unable to the quantities of all
respond to a change in price with a change in the resources they
quantity supplied. The supply curve is employ, so that all
perfectly inelastic (vertical). The short run is a resources and costs
period of time in which producers are able to are variable and no
change the quantities of some but not all of the resources or costs
resources they employ; a period in which are fixed. The
some resources (usually plant) are fixed and supply curve is even
some are variable. The supply curve is more more elastic.
elastic and upsloping. The long run is a period
of time long enough to enable producers of a
353) The high price of an antique results from the supply of
strong demand and limited, highly inelastic antiques and other
supply. Because a genuine antique cannot be collectibles tends to
reproduced, its quantity supplied either does be inelastic. For
not rise or rises only slightly as price goes up. one-of-a-kind
The higher price might prompt the discovery antiques, the supply
of a few more remaining originals and thus is perfectly
add to the quantity available for sale, but this inelastic.
quantity response is usually quite small. So,
354) Yes, the concerns are legitimate. A cross substitutes. If cross
elasticity of 1.5 means that the two goods are elasticity of demand

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is positive, it indicates that sales of desktop you lower the price
computers will move in the same direction as for laptops, this will
a change in the price of laptop computers reduce sales of
since they are substitute goods. Therefore, if desktop computers.
355) Most products reflect a positive income incomes rise. So, if
elasticity, which means that consumers will consumer’s incomes
buy more of them as their incomes rise. are rising over time,
However, there are some goods with a the industries for the
negative income elasticity that are called inferior goods will
inferior goods. Consumers increase their be negatively
purchases of inferior goods as their income affected.
declines and decrease their purchases as
356) Price elasticity of demand for higher and immediately
education is greater for prospective students cushion the news by
from low-income families than similar emphasizing that
students from high-income families. This they also are
makes sense because tuition is a much larger increasing financial
proportion of household income for a low- aid. In effect, the
income student than for his or her high- college is increasing
income counterpart. Desiring a diverse student the tuition for
body, colleges charge different net prices (= students who have
tuition minus financial aid) to the two groups inelastic demand by
based on price elasticity of demand. High- the full amount and
income students pay full tuition, unless they raising the net
receive merit-based scholarships. Low-income tuition of those with
students receive considerable financial aid in elastic demand by
addition to merit-based scholarships and, in some lesser amount
effect, pay a lower net price. It is common for or not at all.
colleges to announce a large tuition increase Through this

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strategy, colleges boost revenue to cover a wide range of
rising costs while maintaining affordability for students.
357) Business travelers generally have or to simply not
inelastic demand for air travel. Because their travel at all. They
time is highly valuable, they do not see slower also pay for their
modes of transportation as realistic substitutes. tickets out of their
Also, their employers pay for their tickets as own pockets and
part of their business expenses. In contrast, thus are more
leisure travelers tend to have elastic demand. sensitive to price.
They have the option to drive rather than fly

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