Question 1

The price elasticity of demand measures the

Accepted Answer

A)  magnitude of the response in quantity demanded to a change in price.
B)  direction of the shift in the demand curve in response to a market event.
C)  size of the shortage created by the increase in demand.
D)  responsiveness of quantity demanded to a change in income.

Question 2

Which of the following could be the price elasticity of demand for a good for which a decrease in price would decrease revenue?

Accepted Answer

A)  0.8
B)  1
C)  1.8
D)  2.4

Question 3

For a good that is a necessity,

Accepted Answer

A)  quantity demanded tends to respond substantially to a change in price.
B)  demand tends to be inelastic.
C)  the law of demand does not apply.
D)  All of the above are correct.

Question 4

A city wants to raise revenues to build a new municipal swimming pool next year.The mayor suggests that the city raise the price of admission to the current municipal pools this year to raise revenues.The city manager suggests that the city lower the price of admission to raise revenues.Who is correct?

Accepted Answer

A)  Both the mayor and city manager would be correct if demand were price elastic.
B)  Both the mayor and city manager would be correct if demand were price inelastic.
C)  The mayor would be correct if demand were price elastic;the city manager would be correct if demand were price inelastic.
D)  The mayor would be correct if demand were price inelastic;the city manager would be correct if demand were price elastic.

Question 5

Suppose that Jane enjoys Diet Coke so much that she consumes one can every day.Although she enjoys gourmet cheese,she consumes it sporadically.If the price of Diet Coke rises,Jane decreases her consumption by only a very small amount.But if the price of gourmet cheese rises,Jane decreases her consumption by a lot.These examples illustrate the importance of

Accepted Answer

A)  the availability of close substitutes in determining the price elasticity of demand.
B)  a necessity versus a luxury in determining the price elasticity of demand.
C)  the definition of a market in determining the price elasticity of demand.
D)  the time horizon in determining the price elasticity of demand.

Question 6

Suppose the income elasticity of demand is -0.5 for good X.This implies that a 5% decrease in income will cause the quantity demanded of good X to

Accepted Answer

A)  increase by 2.5%,and X is an inferior good.
B)  decrease by 2.5% and X is a normal good.
C)  increase by 10% and X is an inferior good.
D)  decrease by 10% and X is a normal good.

Question 7

Demand is said to have unit elasticity if the price elasticity of demand is

Accepted Answer

A)  less than 1.
B)  greater than 1.
C)  equal to 1.
D)  equal to 0.

Question 8

Which of the following is likely to have the most price elastic demand?

Accepted Answer

A)  dental floss
B)  milk
C)  salt
D)  diamond earrings

Question 9

You are in charge of the local city-owned aquatic center.You need to increase the revenue generated by the aquatic center to meet expenses.The mayor advises you to increase the price of a day pass.The city manager recommends reducing the price of a day pass.You realize that

Accepted Answer

A)  the mayor thinks demand is elastic,and the city manager thinks demand is inelastic.
B)  both the mayor and the city manager think that demand is elastic.
C)  both the mayor and the city manager think that demand is inelastic.
D)  the mayor thinks demand is inelastic,and the city manager thinks demand is elastic.

Question 10

Danita rescues dogs from her local animal shelter.When Danita's income rises by 7 percent,her quantity demanded of dog biscuits increases by 12 percent.For Danita,the income elasticity of demand for dog biscuits is

Accepted Answer

A)  negative,and dog biscuits are a normal good.
B)  negative,and dog biscuits are an inferior good.
C)  positive,and dog biscuits are an inferior good.
D)  positive,and dog biscuits are a normal good.

Question 11

Figure 5-9 
-Refer to Figure 5-9.If the price falls from point A to point B,total revenue

Accepted Answer

A)  increases,and demand is price elastic.
B)  decreases,and demand is price elastic.
C)  increases,and demand is price inelastic.
D)  decreases,and demand is price inelastic.

Question 12

Scenario 5-2
Suppose the demand function for good X is given by:  where  is the quantity demanded of good X,  is the price of good X,and  is the price of good Y,which is related to good X.
-Refer to Scenario 5-2.Using the midpoint method,if the price of good X is constant at $10 and the price of good Y decreases from $10 to $8,the cross price elasticity of demand is about

Accepted Answer

A)  0.57,and X and Y are substitutes.
B)  -0.22,and X and Y are complements.
C)  -0.80,and X and Y are complements.
D)  -2.57,and X and Y are complements.

Question 13

A city wants to raise revenues to build a new municipal swimming pool next year.The mayor suggests that the city raise the price of admission to the current municipal pools this year to raise revenues.The city manager suggests that the city lower the price of admission to raise revenues.Who is correct?

Accepted Answer

A)  the mayor
B)  the city manager
C)  The answer depends on the price elasticity of demand.
D)  The answer depends on the costs of construction of the new municipal swimming pool.

Question 14

For which of the following goods is the income elasticity of demand likely highest?

Accepted Answer

A)  water
B)  diamonds
C)  hamburgers
D)  housing

Question 15

Suppose the price of a bag of tortilla chips decreases from $3.00 to $2.50 and,as a result,the quantity of tortilla chips demanded increases from 200 bags to 300 bags.Using the midpoint method,the price elasticity of demand for tortilla chips in the given price range is

Accepted Answer

A)  0.33.
B)  0.45.
C)  2.20.
D)  3.00.

Question 16

For a good that is a necessity,demand

Accepted Answer

A)  tends to be inelastic.
B)  tends to be elastic.
C)  has unit elasticity.
D)  cannot be represented by a demand curve in the usual way.

Question 17

Scenario 5-1
Suppose that when the average college student's income is $10,000 per year,the annual quantity demanded of Patty's Pizza is 50 and the annual quantity demanded of Sue's Subs is 80.Suppose that when the price of Patty's Pizza increases from $8 to $10 per pie,the quantity demanded of Sue's Subs increases from 80 to 100.Suppose also that when the average student's income increases to $12,000 per year,the annual quantity demanded of Patty's Pizza increases from 50 to 60.
-Refer to Scenario 5-1.Using the midpoint method,what is the income elasticity of demand for pizza and what does the value indicate about the demand for pizza?

Accepted Answer

A)  The income elasticity is 0.18 so pizza is a normal good.
B)  The income elasticity is -1 so pizza is an inferior good.
C)  The income elasticity is 1 so pizza is unitary elastic.
D)  The income elasticity is 1 so pizza is a normal good.

Question 18

Goods with many close substitutes tend to have

Accepted Answer

A)  more elastic demands.
B)  less elastic demands.
C)  price elasticities of demand that are unit elastic.
D)  income elasticities of demand that are negative.

Question 19

When small changes in price lead to infinite changes in quantity demanded,demand is perfectly

Accepted Answer

A)  elastic,and the demand curve will be horizontal.
B)  inelastic,and the demand curve will be horizontal.
C)  elastic,and the demand curve will be vertical.
D)  inelastic,and the demand curve will be vertical.

Question 20

A person who takes a prescription drug to control high cholesterol most likely has a demand for that drug that is

Accepted Answer

A)  inelastic.
B)  unit elastic.
C)  elastic.
D)  highly responsive to changes in income.

Exam 5: Elasticity and Its Applications: The Elasticity of Demand

A person who takes a prescription drug to control high cholesterol most likely has a demand for that drug that is

Correct Answer
verified

Demand is said to have unit elasticity if the price elasticity of demand is

Correct Answer
verified

Figure 5-9 -Refer to Figure 5-9.If the price falls from point A to point B,total revenue

Correct Answer
verified

Correct Answer
verified

For which of the following goods is the income elasticity of demand likely highest?

Correct Answer
verified

For a good that is a necessity,demand

Correct Answer
verified

Correct Answer
verified

You are in charge of the local city-owned aquatic center.You need to increase the revenue generated by the aquatic center to meet expenses.The mayor advises you to increase the price of a day pass.The city manager recommends reducing the price of a day pass.You realize that

Correct Answer
verified

Correct Answer
verified

Danita rescues dogs from her local animal shelter.When Danita's income rises by 7 percent,her quantity demanded of dog biscuits increases by 12 percent.For Danita,the income elasticity of demand for dog biscuits is

Correct Answer
verified

Correct Answer
verified

Suppose the price of a bag of tortilla chips decreases from $3.00 to $2.50 and,as a result,the quantity of tortilla chips demanded increases from 200 bags to 300 bags.Using the midpoint method,the price elasticity of demand for tortilla chips in the given price range is

Correct Answer
verified

Correct Answer
verified

The price elasticity of demand measures the

Correct Answer
verified

For a good that is a necessity,

Correct Answer
verified

Which of the following could be the price elasticity of demand for a good for which a decrease in price would decrease revenue?

Correct Answer
verified

When small changes in price lead to infinite changes in quantity demanded,demand is perfectly

Correct Answer
verified

Goods with many close substitutes tend to have

Correct Answer
verified

Which of the following is likely to have the most price elastic demand?

Correct Answer
verified

Suppose the income elasticity of demand is -0.5 for good X.This implies that a 5% decrease in income will cause the quantity demanded of good X to

Correct Answer
verified

Exam 5: Elasticity and Its Applications: The Elasticity of Demand

A person who takes a prescription drug to control high cholesterol most likely has a demand for that drug that is

Correct AnswerverifiedShow Answer

Demand is said to have unit elasticity if the price elasticity of demand is

Correct AnswerverifiedShow Answer

Figure 5-9 -Refer to Figure 5-9.If the price falls from point A to point B,total revenue

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

For which of the following goods is the income elasticity of demand likely highest?

Correct AnswerverifiedShow Answer

For a good that is a necessity,demand

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

You are in charge of the local city-owned aquatic center.You need to increase the revenue generated by the aquatic center to meet expenses.The mayor advises you to increase the price of a day pass.The city manager recommends reducing the price of a day pass.You realize that

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Danita rescues dogs from her local animal shelter.When Danita's income rises by 7 percent,her quantity demanded of dog biscuits increases by 12 percent.For Danita,the income elasticity of demand for dog biscuits is

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Suppose the price of a bag of tortilla chips decreases from $3.00 to $2.50 and,as a result,the quantity of tortilla chips demanded increases from 200 bags to 300 bags.Using the midpoint method,the price elasticity of demand for tortilla chips in the given price range is

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

The price elasticity of demand measures the

Correct AnswerverifiedShow Answer

For a good that is a necessity,

Correct AnswerverifiedShow Answer

Which of the following could be the price elasticity of demand for a good for which a decrease in price would decrease revenue?

Correct AnswerverifiedShow Answer

When small changes in price lead to infinite changes in quantity demanded,demand is perfectly

Correct AnswerverifiedShow Answer

Goods with many close substitutes tend to have

Correct AnswerverifiedShow Answer

Which of the following is likely to have the most price elastic demand?

Correct AnswerverifiedShow Answer

Suppose the income elasticity of demand is -0.5 for good X.This implies that a 5% decrease in income will cause the quantity demanded of good X to

Correct AnswerverifiedShow Answer

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