Chapter 5 MCQ Flashcards
If you like Pepsi and Coke about the same, your demand for Pepsi is likely to be elastic. T F
True. More substitutes means more elastic demand.
Any elasticity value less than 1 is inelastic. T F
True. Greater than 1 is elastic.
The fewer substitutes available, the more elastic demand is. T F
False. Fewer substitutes mean more inelastic demand.
When negotiating a price on an expensive purchase, you want the dealer to believe that your demand is elastic — that is, you are willing to shop elsewhere if you don’t get a low price because good substitutes are available. T F
True. You will respond strongly (shopping elsewhere) to a small change in price.
Total revenue (P × Q) decreases when a business lowers the price of an inelastic good. T F
True. Raising the price of an inelastic good increases total revenue.
Price elasticity of demand is constant along a straight-line demand curve. T F
False. Slope is constant — elasticity changes.
If a decrease in supply increases total revenue, demand must be inelastic. T F
True. Leftward shift supply increases price. If total revenue increases, demand is inelastic.
Price cuts are smart when facing inelastic demand. T F
False. Prices rises will increase total revenue.
A horizontal supply curve is perfectly elastic. T F
True. Quantity supplied has infinite response to change in price.
The federal government of Canada introduced a Working Income Tax Benefit. This policy increases the return from working because it reduces the tax paid on earnings. women’s work-supply decision is more “elastic” to wages than men’s, so women are more likely to benefit from this policy than are men. T F
True. Increase in quantity supplied of work is greater for women than men. More work equals more income.
If a 10-percent rise in price increases quantity supplied by 40 percent, supply is elastic. T F
True. Percentage change in quantity supplied (40) greater than percentage change in price (10).
We would expect a negative cross elasticity of demand between hamburgers and hamburger buns. T F
True. Cross elasticity of demand is negative for complements used together.
An inferior good has a negative cross elasticity of demand. T F
False. Has negative income elasticity of demand.
Necessities have negative income elasticities of demand. T F
False. Necessities have income inelastic demand.
The more elastic demand is for a service, the more consumers pay of the sales tax. T F
False. Sellers pay more because consumers will substitute rather than pay higher price with tax.
The fact that butter and margarine are close substitutes makes
demand for butter more elastic.
demand for butter more inelastic.
butter an inferior good.
margarine an inferior good.
a) Better substitutes mean more elastic demand.
Two points on the demand curve for volleyballs are
Price
Quantity Demanded
$19
55
$21
45
What is the midpoint elasticity of demand between these two points?
2.5
2.0
0.5
0.4
b) Use midpoint formula. Percentage change in quantity = 20%. Percentage change in price = 10%.
If the price elasticity of demand is 2, a 1 percent fall in price will
double the quantity demanded.
decrease the quantity demanded by half.
increase the quantity demanded by 2 percent.
decrease the quantity demanded by 2 percent.
c) Use simple formula. Price and quantity demanded inversely related.
Price elasticity of demand will be larger,
the shorter the time to adjust.
the greater the proportion of income spent on the product.
the harder it is to find good substitutes.
when all of the above are true.
b) Also longer time to adjust and easier to find substitutes.
A fall in tuition fees decreases a college’s total revenue if the price elasticity of demand for college education is
negative.
greater than zero but less than one.
equal to one.
greater than one.
b) Fall in price decreases total revenue for inelastic demand.
After visiting restaurants in Paris with fee-for-service toilets, a Canadian restaurant owner decides to charge customers a fee for bathroom use. How will bathroom use inside the owner’s restaurant most likely change?
Quantity demanded decreases; total revenue falls.
Quantity demanded increases; total revenue rises.
Quantity demanded decreases; total revenue rises.
Quantity demanded increases; total revenue falls.
c) Bathroom demand likely inelastic — small decrease in use from price rise.
If the Jets cut ticket prices and find that total revenue does not change, the price elasticity of demand for tickets is
zero.
greater than zero but less than one.
equal to one.
greater than one.
c) Unit elastic demand.
A new technology lowers the cost of photocopiers. If the demand for photocopiers is price inelastic, photocopier sales
decrease and total revenue increases.
decrease and total revenue decreases.
increase and total revenue increases.
increase and total revenue decreases.
d) Supply shifts rightward. Equilibrium quantity increases, price falls, and, with inelastic demand, total revenue decreases.
The statement “Even after the reward was doubled, nobody volunteered for the mission” illustrates
the law of supply.
elastic supply.
inelastic supply.
inelastic demand.
c) Large rise in price produces no change in quantity supplied.
There would be a high elasticity of supply for a business
in a small town with no available workers.
in a large town with many available workers.
with workers who are lazy and unwilling to work additional hours.
with workers who threaten to quit if their hours are reduced.
b) More available inputs.
Since real trees take a very long time to grow, this year’s supply of real Christmas trees is
low.
high.
elastic.
inelastic.
d) More production times means more inelastic supply.
The cross elasticity of the demand for white tennis balls with respect to the price of yellow tennis balls is probably
negative and high.
negative and low.
positive and high.
positive and low.
c) Almost perfect substitutes.
If a 10 percent increase in income causes a 5 percent increase in quantity demanded, what is the income elasticity of demand?
0.5
–0.5
2.0
–2.0
a) Use simple formula. Positive for normal goods.
Luxuries tend to have income elasticities of demand that are
greater than one.
greater than zero but less than one.
positive.
negative.
a) Income elastic.
If the price of a product is not affected by a sales tax
supply is perfectly elastic.
demand is perfectly elastic.
elasticity of supply is greater than elasticity of demand.
demand is perfectly inelastic.
b) Seller pays entire tax because buyers will not pay more.
