Chapter 6

Question 1

Price elasticity looks at

Answer 1

how much the quantity demanded or quantity supplied changes after as a result of a change in price.

Question 2

The basic formula for price elasticity of demand is

Answer 2

the percentage change in quantity demanded divided by the percentage change in price.

Question 3

Technically the elasticity number is negative because

Answer 3

when price falls, quantity demanded will rise, but for simplicity, economists take the absolute value of the elasticity number.

Question 4

f the price increases by 10 percent and the quantity demanded falls by 5 percent, the absolute value of the price elasticity of demand will be

Answer 4

0.5

Question 5

Assume the price elasticity of demand for U.S. Frisbee Co. Frisbees is 0.5. If the company increases the price of each Frisbee from $12 to $16, the number of Frisbees demanded will

Answer 5

decrease by 14.3 percent.

Question 6

If the elasticity of demand is 3, and the price rises by 15 percent, then

Answer 6

the quantity demanded will fall by 45 percent.

Question 7

Assume the price elasticity of demand for JT Chip Co. chips is 4.0. If the company decreases the price of each bag of chips from $1.89 to $1.49, the number of bags sold will

Answer 7

increase by 95 percent.

Question 8

If the price elasticity of demand is 0.6, then a 10 percent increase in the price of the good will lead to a ________ in the quantity demanded.

Answer 8

6 percent decrease

Question 9

When demand is elastic, the absolute number for price elasticity will be

Answer 9

greater than 1.

Question 10

If the demand for a product is elastic, then

Answer 10

the percentage change in quantity demanded is greater than the percentage in price.

Question 11

When the percentage change in quantity demanded is less than the percentage change in price, ceteris paribus,

Answer 11

demand is inelastic.

Question 12

Which of the following products will have a more inelastic demand?

Answer 12

medicines

Question 13

Which of the following products will have an elastic demand?

Answer 13

Travel souvenirs

Question 14

Which of the following does not influence the price elasticity of demand?

Answer 14

cost of production

Question 15

Ceteris paribus, as the number of substitutes for a good increases, the

Answer 15

price elasticity of demand should become larger.

Question 16

Ceteris paribus, the longer the time period, the

Answer 16

more elastic the demand for the good.

Question 17

Total revenue is

Answer 17

quantity sold times price.

Question 18

If demand is elastic, then

Answer 18

an increase in price will reduce total revenue.

Question 19

A price change will have no effect on total revenue if the demand is

Answer 19

unitary elastic

Question 20

Higher prices will increase total revenue if the

Answer 20

demand is inelastic.

Question 21

Sam owns a taco restaurant, and he conducted a consumer survey that indicates that the price elasticity of demand for his restaurant is 3.5. You would advise Sam to

Answer 21

lower his price to increase revenue.

Question 22

The formula for cross-price elasticity is

Answer 22

the percentage change in the quantity demanded for one good divided by the percentage change in the price of another good.

Question 23

Suppose computer prices at an office supply store fall from $1,000 to $900 and as a result the quantity demanded of typewriters decreases from 40 to 20 per month. The cross-price elasticity of demand is closest to

Answer 23

6.3

Question 24

When the price of taking a ride in Uber increases, the demand for Lyft rides increases, ceteris paribus. Uber and Lyft are therefore

Answer 24

substitutes

Question 25

Suppose the price of video games falls from $40 to $20, and as a result, the quantity demanded of footballs falls from 40,000 to 10,000 per year. The value of the cross-price elasticity of demand is

Answer 25

1.80

Question 26

Which of the following is the best measure of the effects of a recession?

Answer 26

income elasticity of demand

Question 27

The demand for normal goods

Answer 27

rises when income rises

Question 28

Elasticity of supply tells us

Answer 28

how much sellers will increase production in response to a change in price.

Question 29

When demand is price-inelastic, ceteris paribus, an increase in

Answer 29

price leads to greater total revenue