Chapter 4

Question 1

What does the price elasticity of demand measure?
a. Percentage change in quantity demanded relative to percentage change in income
b. Percentage change in quantity demanded relative to percentage change in price
c. Total revenue divided by quantity demanded
d. Percentage change in price relative to percentage change in quantity supplied

Answer 1

b. Percentage change in quantity demanded relative to percentage change in price

Question 2

If the price elasticity of demand for a good is greater than 1, the demand is considered:
a. Inelastic
b. Unitary elastic
c. Elastic
d. Perfectly elastic

Answer 2

C. Elastic

Question 3

Which of the following goods is likely to have an elastic demand?
a. Salt
b. Insulin
c. Luxury cars
d. Gasoline

Answer 3

c. Luxury Cars

Question 4

What is the relationship between total revenue and price elasticity of demand?
a. Always directly proportional
b. Always inversely proportional
c. Proportional for elastic goods, inversely proportional for inelastic goods
d. Inversely proportional for elastic goods, proportional for inelastic go

Answer 4

d. Inversely proportional for elastic goods, proportional for inelastic go

Question 5

If the price elasticity of supply is close to zero, the supply is considered:
a. Perfectly elastic
b. Perfectly inelastic
c. Unitary elastic
d. Elastic

Answer 5

B. Perfectly Inelastic

Perfectly elastic = infinityPerfectly inelastic = 0/

Question 6

Which of the following factors is likely to make the demand for a good more inelastic?
a. Availability of substitutes
b. Short time horizon
c. Luxurious nature of the good
d. Consumer income sensitivity

Answer 6

B. Short time horizon

Question 7

If a 10% increase in price leads to a less than 1% decrease in quantity demanded, the demand is:
a. Elastic
b. Inelastic
c. Unitary elastic
d. Perfectly elastic

Answer 7

B. Inelastic

Question 8

In the case of perfectly inelastic demand, the price elasticity of demand is:
a. 0
b. 1
c. Greater than 1
d. Undefined

Answer 8

A. 0

Question 9

“Good weather resulted in record wheat harvests and sent wheat prices tumbling. The result has been disastrous for many wheat​ farmers.”:
A. The demand has unit elasticity.
B. The demand is inelastic.
C. The demand is elastic.
D. This quotation tells nothing about the elasticity of demand.

Answer 9

B. The demand is inelastic.

Question 10

“Ridership always went up when bus fares came down, but the increased patronage never was enough to prevent a decrease in overall revenue.”
A. The demand is inelastic.
B. The demand is elastic.
C. The demand has unit elasticity.
D. This quotation tells nothing about the elasticity of demand.

Answer 10

A. The demand is inelastic.

Question 11

As the price of cell phones​ fell, producers found their revenues​ soaring.”
A. The demand is elastic.
B. The demand has unit elasticity.
C. The demand is inelastic.
D. This quotation tells nothing about the elasticity of demand

Answer 11

A. The Demand is elastic

Question 12

“Coffee to me is an essential​ good-I’ve just got to have it no matter what the​ price.”
A. The​ speaker’s demand is perfectly inelastic.
B. The market demand is perfectly inelastic.
C. The market demand is perfectly elastic.
D. The​ speaker’s demand is perfectly elastic.

Answer 12

A. The speaker’s demand is perfectly inelastic

Question 13

“The soaring price of condominiums does little to curb the strong demand in​ Vancouver.”
A. The demand has unit elasticity.
B. The demand is inelastic.
C. The demand is elastic.
D. This quotation tells nothing about the elasticity of demand.

Answer 13

D. This quotation tells nothing about the elasticity of demand.

Question 14

What would you predict about the relative price elasticity of demand for brown leather hiking boots of size 9​?
The demand for brown leather hiking boots of size 9 is:
A. less price elastic than the demand for leather hiking boots​,
since the product group of
brown leather hiking boots of size 9 is broader than the product group of leather hiking boots.
B. price elastic than the demand for leather hiking boots​, since the product group of brown leather hiking boots of size 9 is narrower
than the product group of leather hiking boots.
C. more price elastic than the demand for leather hiking boots​,
since the product group of
brown leather hiking boots of size 9 is narrower than the product group of leather hiking boots.
D. more price elastic than the demand for leather hiking boots​,
since the product group of brown leather hiking boots of size 9 is broader than the product group of leather hiking boots.

Answer 14

C. more price elastic than the demand for leather hiking boots​,
since the product group of
brown leather hiking boots of size 9 is narrower than the product group of leather hiking boots.

Question 15

Suppose a stamp dealer buys the only two existing copies of a stamp at an auction. After the​ purchase, the dealer goes to the front of the room and burns one of the stamps in front of the shocked audience.
In order for this to be a​ wealth-maximizing action, the dealer must believe that the:
A. supply is very inelastic​ (flat) so the value of his purchase will rise sharply when demand falls.
B. demand is very inelastic​ (steep) so the value of his purchase will rise sharply when supply falls.
C. demand is very elastic​ (steep) so the value of his purchase will rise sharply when supply falls.
D. supply is very elastic​ (flat) so the value of his purchase will rise sharply when demand rises

Answer 15

B. demand is very inelastic​ (steep) so the value of his purchase will rise sharply when supply falls.

Question 16

The price elasticity along a
negatively sloped linear
demand curve:
A. is equal to 1.
B. is zero
C. is less than 1.
D. changes at every point
E. is infinite

Answer 16

D. changes at every point

Question 17

Total expenditure is rising when:
A. the price decreases on a good with very few substitutes.
B. there is a price decrease and an elastic demand
C. the percentage change in quantity demanded is equal to the percentage change in price.
D. elasticity is unit elastic
E. there is a price decrease and inelastic demand.

Answer 17

B. there is a price decrease and an elastic demand

Question 18

A DVD store increases the price of its DVDs from $12 to $16.
​Correspondingly, sales fall from
2,500 to 1,500 per month. The total revenue _________, indicating that demand is _________.

Answer 18

decreased, elastic

Question 19

If the price elasticity of demand for some good with a negatively sloped demand curve is 3.7​, a 13
percent increase in the price results in:
A. a 48.1 percent increase in the quantity demanded.
B. a 4.81 percent increase in the quantity demanded.
C. a 48.1 percent decrease in the quantity demanded.
D. a 4.81 percent decrease in the quantity demanded.
E. There is not enough information to answer this question.

Answer 19

C. a 48.1 percent decrease in the quantity demanded.

Question 20

The determinants of price elasticity of demand for frozen orange juice​ include:
A. the size of the product group.
B.the time allowed to adjust to a price change.
C. the availability of substitutes for the product.
D. A and B only.
E. All of the above.

Answer 20

E. All of the above.

Question 21

The determinants of price elasticity of supply for frozen orange juice​ include:
A. the size of the product group.
B. how costs behave as output is varied.
C. the adjustment of demand.
D. A and B only.
E. All of the above.

Answer 21

B. how costs behave as output is varied.

Question 22

If the price elasticity of supply is
1.0​, then this value can be interpreted as:
A. quantity supplied increases 1 unit for every 1% increase in price.
B. an inelastic price elasticity of supply.
C. quantity supplied increases 1% for every 1% increase in price.
D. quantity decreases increases 1% for every 1% increase in price.
E. quantity supplied increases 10% for every 1% increase in price.

Answer 22

C. quantity supplied increases 1% for every 1% increase in price.

Question 23

If the supply curve is perfectly horizontal​,then the price elasticity of supply is:
A. increasing as quantity supplied increases.
B. less than 1
C. decreasing as quantity supplied increases.
D. zero
E. infinite

Answer 23

E. Infinite

Question 24

If the supply curve is very
inelastic and the demand curve shifts to the right​, then:
A. both quantity and price will increase by a large amount.
B. price will increase by a large amount and quantity by a small amount.
C. price will increase by a small amount and quantity by a large amount.
D. both quantity and price will increase by a small amount.
E. the new price and quantity cannot be determined without more information.

Answer 24

B. price will increase by a large amount and quantity by a small amount.

Question 25

Excise taxes are sometimes referred to as​ “sin taxes” when applied to products such as alcohol and cigarettes. Using the concepts of elasticity of demand and​ supply, explain how we could determine whether it is the consumer or the producer that is bearing the burden of such a tax.
Since products such as alcohol and cigarettes can be​ addictive, if a tax is imposed on the sales of cigarettes or​ alcohol, most of the tax will most likely be paid by the:
A. producers, since the supply is inelastic relative to demand.
B. producers, since the demand is inelastic relative to supply.
C. consumers, since the supply is inelastic relative to demand.
D. ​consumers, since the demand is inelastic relative to supply.

Answer 25

D. ​consumers, since the demand is inelastic relative to supply.

Question 26

if ηs = 0, then this suggests that the:
A. consumer price does not change when an excise tax is added to the sale of a good.
B. consumer price increases by the amount of the tax
C. entire burden of the excise tax is borne by the consumers.
D. sellers pay a smaller portion of the excise tax
E. larger portion of the excise tax is borne by the consumers

Answer 26

if ηs = 0, then this suggests that the:
A. consumer price does not change when an excise tax is added to the sale of a good.

Question 27

The​ consumers’ burden associated with an excise tax will be largest when demand is:
A. horizontal
B. perfectly elastic
C. unit elastic
D. vertical

Answer 27

D. vertical

Question 28

Producers bear most of the burden of excise taxes when:
A. supply is perfectly elastic
B. demand is inelastic relative to supply
C. supply is inelastic relative to demand
D. supply is elastic relative to demand.

Answer 28

C. supply is inelastic relative to demand

Question 29

Suppose the market supply curve is upward sloping. If the imposition of an excise tax causes no change in the
price consumers pay​,
the​ good’s demand curve must be:
A. perfectly elastic​,
implying that the burden of the tax is entirely borne by producers.
B. perfectly elastic, implying that the burden of the tax is entirely borne by consumers.
C. perfectly inelastic​,
implying that the burden of the tax is shared equally by consumers and producers.
D. perfectly inelastic​,
implying that the burden of the tax is entirely borne by producers.

Answer 29

A. perfectly elastic​,
implying that the burden of the tax is entirely borne by producers.

Question 30

If the price of milk falls from $2.85 to $2.55​, and this decreases
the sales of juice by 2,500 units per week​, we can say that milk
and juice are:
A. normal goods
B. inferior goods
C. complements
D. substitutes
E. unrelated goods.

Answer 30

D. substitutes