Chapter 4 questions Flashcards
If 20 percent increase in the price of a good leads to a 60 percent decrease in the quantity demanded, then what is the price elasticity of demand?
a. 30.
b. 3.
c. 1/3.
d. 1/6.
b. 3.
If the price elasticity of demand for pineapples is 0.75, then a 4 percent increase in the price of pineapples will lead to a:
a. 3 percent decrease in the quantity of pineapples demanded.
b. 3 percent increase in the quantity of pineapples demanded.
c. 0.75 percent decrease in the quantity of pineapples demanded.
d. 0.75 percent increase in the quantity of pineapples demanded.
a. 3 percent decrease in the quantity of pineapples demanded.
The price elasticity of demand is the percentage change in quantity demanded divided by the percentage change in price. So, if the price elasticity of demand is 0.75 and price increases by 4 percent, then quantity demanded must fall by 3 (= 0.75 × 4) percent. Recall that price and quantity demanded move in opposite directions.
Suppose the price of a Snickers candy bar is $2.00 at both the airport and the grocery store. The price elasticity of demand for a Snickers candy bar at an airport is likely to be ______ the price elasticity of demand for a Snickers candy bar at the grocery store.
a. less than
b. equal to
c. greater than
d. the reciprocal of
a. less than
Fewer substitutes at the airport will cause demand to be less price elastic than it is at a grocery store, where there are likely more options.
Demand tends to be ______ in the short run than in the long run.
a. more elastic
b. less elastic
c. more variable
d. less important
b. less elastic
If the price of textbooks increases by one percent and the quantity demanded falls by one-half percent, then demand for textbooks is:
a. negative.
b. inelastic.
c. elastic.
d. unit elastic.
b. inelastic.
If the percentage change in quantity is less than the percentage change in price, then the price elasticity of demand will be less than one in absolute value, implying that demand is inelastic
The demand for a good is elastic if the price elasticity of demand is:
a. equal to one.
b. greater than one.
c. less than one.
d. equal to zero
b. greater than one.
Which of the following factors would make the price elasticity of demand more elastic?
a. being forced to make a purchasing decision with limited time
b. a good can only be found in a very limited number of stores
c. the purchase of the good is a major expense for you
d. the good is a low-cost item that you buy almost every day
e. there are many competitors providing essentially identical variations of the good
c. the purchase of the good is a major expense for you
e. there are many competitors providing essentially identical variations of the good
On a given linear demand curve, as price increases demand becomes:
a. more elastic.
b. less elastic.
c. more negative.
d. more variable.
a. more elastic.
To increase total revenue, firms with ______ demand should lower price, and firms with ______ demand should increase price.
a. elastic; unit
b. elastic; inelastic
c. inelastic; elastic
d. unit; inelastic
b. elastic; inelastic
Suppose that Chris had been charging $1.00 per pound for potatoes. When Chris lowered the price to $0.90 per pound, his total revenue fell. When Chris raised the price to $1.10, total revenue also fell. Which of the following could explain this?
a. $1.00 is the equilibrium price for potatoes.
b. At 90 cents, there is excess demand for potatoes.
c. $1.10 is more than Chris’s customers’ reservation prices.
d. The price elasticity of demand for potatoes is 1 at a price of $1.00 per pound.
d. The price elasticity of demand for potatoes is 1 at a price of $1.00 per pound.
Total revenue is highest when demand is unit elastic (that is, when the price elasticity of demand is equal to one).
If the absolute value of slope of the demand curve is 0.5, price is $6 per unit, and the quantity demanded is 6 units, then the price elasticity of demand is
a. 1.
b. 2.
c. 0.5.
d. 3.
b. 2.
If the income elasticity for a particular good is negative, then:
a. the good is a normal good.
b. as income increases, consumers will tend to purchase more of the good.
c. as income increases, consumers will tend to purchase less of the good.
d. the good is a luxury good.
c. as income increases, consumers will tend to purchase less of the good.
If most consumer goods and services are ______, then most income elasticities are ______.
a. normal; negative
b. inferior; positive
c. normal; greater than one
d. normal; positive
d. normal; positive
The cross-price elasticity of demand between bread and potatoes is estimated to be 0.5. This implies bread and potatoes are:
a. normal goods.
b. substitutes.
c. unrelated.
d. complements.
b. substitutes.
If the cross-price elasticity of demand between blueberries and yogurt is negative, then the two goods are:
a. substitutes.
b. normal goods.
c. complements.
d. inferior goods
c. complements.
A perfectly elastic demand curve has a slope of ______ while a perfectly inelastic demand curve has a slope of ______.
a. infinity; 0
b. 1; 0
c. 0; 1
d. 0; infinity
d. 0; infinity
If the slope of a demand curve is infinite, then the price elasticity of demand is:
a. zero.
b. infinite.
c. one.
d. equal to the price of the good.
a. zero.
If consumers completely cease purchasing a product when its price increases by any amount, then demand is:
a. inelastic.
b. perfectly inelastic.
c. unit elastic.
d. perfectly elastic.
d. perfectly elastic.
