Chapter 5 MCQ

Question 1

If you like Pepsi and Coke about the same, your demand for Pepsi is likely to be elastic. T  F

Answer 1

True. More substitutes means more elastic demand.

Question 2

Any elasticity value less than 1 is inelastic. T  F

Answer 2

True. Greater than 1 is elastic.

Question 3

The fewer substitutes available, the more elastic demand is. T  F

Answer 3

False. Fewer substitutes mean more inelastic demand.

Question 4

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

Answer 4

True. You will respond strongly (shopping elsewhere) to a small change in price.

Question 5

Total revenue (P × Q) decreases when a business lowers the price of an inelastic good. T  F

Answer 5

True. Raising the price of an inelastic good increases total revenue.

Question 6

Price elasticity of demand is constant along a straight-line demand curve. T  F

Answer 6

False. Slope is constant — elasticity changes.

Question 7

If a decrease in supply increases total revenue, demand must be inelastic. T  F

Answer 7

True. Leftward shift supply increases price. If total revenue increases, demand is inelastic.

Question 8

Price cuts are smart when facing inelastic demand. T  F

Answer 8

False. Prices rises will increase total revenue.

Question 9

A horizontal supply curve is perfectly elastic. T  F

Answer 9

True. Quantity supplied has infinite response to change in price.

Question 10

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

Answer 10

True. Increase in quantity supplied of work is greater for women than men. More work equals more income.

Question 11

If a 10-percent rise in price increases quantity supplied by 40 percent, supply is elastic. T  F

Answer 11

True. Percentage change in quantity supplied (40) greater than percentage change in price (10).

Question 12

We would expect a negative cross elasticity of demand between hamburgers and hamburger buns. T  F

Answer 12

True. Cross elasticity of demand is negative for complements used together.

Question 13

An inferior good has a negative cross elasticity of demand. T  F

Answer 13

False. Has negative income elasticity of demand.

Question 14

Necessities have negative income elasticities of demand. T  F

Answer 14

False. Necessities have income inelastic demand.

Question 15

The more elastic demand is for a service, the more consumers pay of the sales tax. T  F

Answer 15

False. Sellers pay more because consumers will substitute rather than pay higher price with tax.

Question 16

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.

Answer 16

a) Better substitutes mean more elastic demand.

Question 17

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

Answer 17

b) Use midpoint formula. Percentage change in quantity = 20%. Percentage change in price = 10%.

Question 18

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.

Answer 18

c) Use simple formula. Price and quantity demanded inversely related.

Question 19

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.

Answer 19

b) Also longer time to adjust and easier to find substitutes.

Question 20

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.

Answer 20

b) Fall in price decreases total revenue for inelastic demand.

Question 21

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.

Answer 21

c) Bathroom demand likely inelastic — small decrease in use from price rise.

Question 22

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.

Answer 22

c) Unit elastic demand.

Question 23

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.

Answer 23

d) Supply shifts rightward. Equilibrium quantity increases, price falls, and, with inelastic demand, total revenue decreases.

Question 24

The statement “Even after the reward was doubled, nobody volunteered for the mission” illustrates

the law of supply.

elastic supply.

inelastic supply.

inelastic demand.

Answer 24

c) Large rise in price produces no change in quantity supplied.

Question 25

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.

Answer 25

b) More available inputs.

Question 26

Since real trees take a very long time to grow, this year’s supply of real Christmas trees is

low.
high.
elastic.
inelastic.

Answer 26

d) More production times means more inelastic supply.

Question 27

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.

Answer 27

c) Almost perfect substitutes.

Question 28

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

Answer 28

a) Use simple formula. Positive for normal goods.

Question 29

Luxuries tend to have income elasticities of demand that are

greater than one.

greater than zero but less than one.

positive.

negative.

Answer 29

a) Income elastic.

Question 30

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.

Answer 30

b) Seller pays entire tax because buyers will not pay more.