Chapter 3

Question 1

The price elasticity of demand indicates:

Answer 1

the extent to which consumers respond to a change in price

Question 2

An elastic demand curve is one for which:

Answer 2

a given percentage change in price causes a larger percentage change in quantity demanded

Question 3

If the demand for product X is inelastic, a 4 percent increase in the price of X:

Answer 3

decreases the quantity demanded of X by less than 4 percent

Question 4

A perfectly inelastic demand curve:

Answer 4

can be represented by a line parallel to the vertical axis

Question 5

A perfectly elastic demand curve:

Answer 5

can be represented by a line parallel to the horizontal axis

Question 6

If a business can sell 3000 units of a product at $10 per unit and 5000 units at $8 per unit, its demand is:

Answer 6

elastic

Question 7

In which of the following instances does total revenue increase?

Answer 7

price rises and demand is inelastic

Question 8

If a business can sell 20 000 units of a product at $2 per unit and 10 000 units at $4 per unit, its demand is:

Answer 8

unit-elastic

Question 9

Suppose that VIA Rail asked government authorities for permission to increase its commuter rates by 20 percent. The railroad argues that declining revenues make this rate increase essential. Opponents of the rate increase contend that the railroad’s revenues would fall because of the rate hike. It can be concluded that:

Answer 9

the railroad feels that the demand for passenger service is inelastic and opponents of the rate feel it is elastic

Question 10

If the demand for farm products is inelastic, a good harvest will cause farm revenues to:

Answer 10

decrease

Question 11

. 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. It can be concluded that:

Answer 11

the demand for pizza is elastic above $5 and inelastic below $5

Question 12

If the University Chamber Music Society decides to raise ticket prices to acquire more funds to finance concerts, the Society is assuming that the demand for tickets is:

Answer 12

inelastic

Question 13

The elasticity of demand for a product is likely to be greater:

Answer 13

the greater the amount of time over which buyers adjust to a price change

Question 14

Which of the following generalizations is not correct?

Answer 14

The price elasticity of demand is greater for necessities than it is for luxuries

Question 15

The demand for such products as salt, bread, and electricity tends to be:

Answer 15

relatively inelastic

Question 16

Which of the following products is most likely to have an elastic demand?

Answer 16

automobiles

Question 17

A product’s price rises from $4 to $6, causing consumption to fall from 2 million to 1 million units. The numerical value of price elasticity of demand is therefore:

Answer 17

1.67

Question 18

The quantity demanded of smartphones increases by 15 million units from an initial quantity of 22.5 million phones when its price drops from $500 to $300. Therefore the price elasticity of demand has a numerical value of:

Answer 18

1.00

Question 19

With a rise in the price of digitally streamed music from $0.50 to $1.00 per song, the number of songs bought falls from 3 million to 1 million. Hence the numerical value of the price of elasticity of demand for this product is:

Answer 19

1.50

Question 20

The quantity demanded of a product rises from 200 000 to 300 000 units when its price falls from $4 to $1. The numerical value of the price of elasticity of demand for this product is therefore:

Answer 20

0.33