Question 1

For a vertical demand curve,

Accepted Answer

A) the slope is undefined,and the price elasticity of demand is equal to 0. 
B) the slope is equal to 0,and the price elasticity of demand is undefined. 
C) both the slope and price elasticity of demand are undefined. 
D) both the slope and price elasticity of demand are equal to 0.

Question 2

In the case of perfectly inelastic demand,

Accepted Answer

A) the change in quantity demanded equals the change in price. 
B) the percentage change in quantity demanded equals the percentage change in price. 
C) infinitely-large changes in quantity demanded result from very small changes in the price. 
D) quantity demanded stays the same whenever price changes.

Question 3

An increase in price causes an increase in total revenue when demand is

Accepted Answer

A) elastic. 
B) inelastic. 
C) unit elastic. 
D) All of the above are possible.

Question 4

If a 10% decrease in price for a good results in a 20% increase in quantity demanded,the price elasticity of demand is

Accepted Answer

A) 0.50. 
B) 1. 
C) 1.5. 
D) 2.

Question 5

Suppose that gasoline prices increase dramatically this month.Lola commutes 100 miles to work each weekday.Over the next few months,Lola drives less on the weekends to try to save money.Within the year,she sells her home and purchases one only 10 miles from her place of employment.These examples illustrate the importance of

Accepted Answer

A) the availability of 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

Figure 5-3 
-Refer to Figure 5-3.Which demand curve is perfectly elastic?

Accepted Answer

A) A 
B) B 
C) C 
D) D

Question 7

Last year,Tess bought 5 handbags when her income was $54,000.This year,her income is $60,000,and she purchased 7 handbags.Holding other factors constant,it follows that Tess's income elasticity of demand is about

Accepted Answer

A) 0.32,and Tess regards handbags as inferior goods. 
B) 0.32,and Tess regards handbags as normal goods. 
C) 3.17,and Tess regards handbags as inferior goods. 
D) 3.17,and Tess regards handbags as normal goods.

Question 8

Holding all other forces constant,when the price of gasoline rises,the number of gallons of gasoline demanded would fall substantially over a ten-year period because

Accepted Answer

A) buyers tend to be much less sensitive to a change in price when given more time to react. 
B) buyers tend to be much more sensitive to a change in price when given more time to react. 
C) buyers will have substantially more real income over a ten-year period. 
D) the quantity supplied of gasoline increases very little in response to an increase in the price of gasoline.

Question 9

If the price elasticity of demand for a good is 0.4,then which of the following events is consistent with a 2 percent decrease in the quantity of the good demanded?

Accepted Answer

A) a 0.8 percent increase in the price of the good 
B) a 2.4 percent increase in the price of the good 
C) a 5 percent increase in the price of the good 
D) a 8 percent increase in the price of the good

Question 10

The price elasticity of demand changes as we move along a

Accepted Answer

A) horizontal demand curve. 
B) vertical demand curve. 
C) linear,downward-sloping demand curve. 
D) All of the above are correct.

Question 11

You and your college roommate eat three packages of Ramen noodles each week.After graduation last month,both of you were hired at several times your college income.Your roommate still enjoys Ramen noodles very much and buys even more,but you plan to buy fewer Ramen noodles in favor of foods you prefer more.When looking at income elasticity of demand for Ramen noodles,yours would

Accepted Answer

A) be negative and your roommate's would be positive. 
B) be positive and your roommate's would be negative. 
C) be zero and your roommate's would approach infinity. 
D) approach infinity and your roommate's would be zero.

Question 12

Whether a good is a luxury or necessity depends on the

Accepted Answer

A) price of the good. 
B) preferences of the buyer. 
C) intrinsic properties of the good. 
D) scarcity of the good.

Question 13

Figure 5-11 
-Refer to Figure 5-11.A decrease in price from $20 to $10 leads to a

Accepted Answer

A) decrease in total revenue of $200,so the price elasticity of demand is greater than 1 in this price range. 
B) decrease in total revenue of $200,so the price elasticity of demand is less than 1 in this price range. 
C) decrease in total revenue of $120,so the price elasticity of demand is less than 1 in this price range. 
D) decrease in total revenue of $120,so demand is elastic in this price range.

Question 14

Suppose good X has a positive income elasticity of demand.This implies that good X could be
(i)A normal good.
(ii)A necessity.
(iii)An inferior good.
(iv)A luxury.

Accepted Answer

A) (i)only 
B) (i)and (ii)only 
C) (i), (ii),and (iv)only 
D) (iii)only

Question 15

The price elasticity of demand for bread

Accepted Answer

A) is computed as the percentage change in quantity demanded of bread divided by the percentage change in price of bread. 
B) depends,in part,on the availability of close substitutes for bread. 
C) reflects the many economic,social,and psychological forces that influence consumers' tastes for bread. 
D) All of the above are correct.

Question 16

Figure 5-4 
-Refer to Figure 5-4.If the price increases in the region of the demand curve between points B and C,we can expect total revenue to

Accepted Answer

A) increase. 
B) stay the same. 
C) decrease. 
D) first decrease,then increase until total revenue is maximized.

Question 17

For a particular good,a 5 percent increase in price causes a 2 percent decrease in quantity demanded.Which of the following statements is most likely applicable to this good?

Accepted Answer

A) There are many close substitutes for this good. 
B) The good is a luxury. 
C) The market for the good is broadly defined. 
D) The relevant time horizon is long.

Question 18

Suppose the cross-price elasticity of demand between hot dogs and mustard is -2.00.This implies that a 20 percent increase in the price of hot dogs will cause the quantity of mustard purchased to

Accepted Answer

A) fall by 200 percent. 
B) fall by 40 percent. 
C) rise by 200 percent. 
D) rise by 40 percent.

Question 19

Figure 5-5 
-Refer to Figure 5-5.The maximum value of total revenue corresponds to a price of

Accepted Answer

A) $20. 
B) $50. 
C) $70. 
D) $100.

Question 20

When her income increased from $10,000 to $20,000,Heather's consumption of macaroni decreased from 10 pounds to 5 pounds and her consumption of soy-burgers increased from 2 pounds to 4 pounds.We can conclude that for Heather,macaroni

Accepted Answer

A) and soy-burgers are both normal goods with income elasticities equal to 1. 
B) is an inferior good and soy-burgers are normal goods;both have income elasticities of 1. 
C) is an inferior good with an income elasticity of -1 and soy-burgers are normal goods with an income elasticity of 1. 
D) and soy-burgers are both inferior goods with income elasticities equal to -1.

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