Samples Chapter 6 Elasticity

Indicate the answer choice that best completes the statement or answers the question.

1. Suppose that a jewelry store found that when it increased prices by 10 percent, sales revenue
increased by 3 percent. Which of the following is true about the price elasticity of demand for
the store’s goods?
a. Demand is perfectly inelastic.
b. Demand is inelastic, but not perfectly.
c. Demand is unitary classic.
d. Demand is elastic, but not perfectly.
e. Demand is perfectly elastic.

2. Suppose an increase in symphony tickets prices reduces the total revenue. This is evidence that
demand is:
a. price elastic.
b. price inelastic.
c. unitary elastic.
d. perfectly elastic.

3. Suppose that Starbucks reduces the price of its premium coffee from $2.20 to $1.80 per cup, and as a
result, the quantity sold per day increased from 350 to 450. Over this price range, the price elasticity of
demand for Starbucks coffee is:
a. 0.40.
b. 0.80.
c. 1.25.
d. 2.50.

4. When demand is price inelastic:

a. price and total revenue move in the same direction.
b. price and total revenue move in the opposite direction.
c. total revenue increases whether price goes up or down.
d. total revenue decreases whether price goes up or
down.

5. Price elasticity of demand is defined as the ratio of the:

a. percentage increase in price to an increase in quantity demanded.
b. unit change in quantity demanded to the dollar change in price.
c. maximum amount that consumers will pay to increase quantity.
d. percentage change in quantity demanded to the percentage change in price, other things being
equal.

6. Over the elastic portion of a demand curve, a decrease in price causes:

1
 a. an increase in total revenue.
b. a decrease in total revenue.
c. no change in total revenue.
d. an increase in quantity demanded, but anything can happen to
revenue.

7. Using the midpoints formula, what would be price elasticity of demand for a gallbladder operation if
the number of operations fell from 6,000 to 4,000 per week after its price increased from $6,000 to
$10,000?
a. 0.25.
b. 0.50.
c. 0.80.
d. 1.25

8. Suppose Good Food's supermarket raises the price of its steak and finds its total revenue from steak
sales does not change. This is evidence that price elasticity of demand for steak is:
a. perfectly elastic.
b. perfectly inelastic.
c. unitary elastic.
d. inelastic.
e. elastic.

9. Which of the statements below does not describe a demand curve that is unit elastic?
a. The percentage change in the quantity demanded = percentage change in product
price.
b. An increase in product price will not change total revenue.
c. The price elasticity of demand equals one.
d. A change in price does not change quantity demanded.
e. A decrease in product price will not change total revenue.

10. If Sam, the Pizza Man, lowers the price of his pizzas from $6 to $5 and finds that sales increase from
400 to 600 pizzas per week, then the demand for Sam's pizzas in this range is:
a. price inelastic.
b. price elastic.
c. unit elastic.
d. cross elastic.
e. income inelastic.

11. If a 10 percent cut in price causes a 15 percent increase in sales, then:

a. total revenue will decrease.
b. demand is price inelastic in this range.
c. demand is price elastic in this range.
 d. demand is unit elastic in this range.
e. total revenue will remain the same.

12. If the quantity of bread demanded rises 2 percent when the price of bread declines 10 percent, then the
price elasticity of demand is:
a. 0.2.
b. 1.
c. 2.
d. 10.
e. Cannot be determined.

13. As one moves down a straight-line, down-sloping demand curve, price elasticity will:
a. change from elastic, to unit elastic, then to
inelastic.
b. remain the same between any two points.
c. change from inelastic, to elastic, then to unit
elastic.
d. change from unit elastic, to elastic, then to
inelastic.
e. change from elastic, to inelastic, then to unit
elastic.

14. Leo's Bakery reduces the price of wheat bread from $3 to $1 and finds that quantity demanded
increases from 100 to 122 loaves. Leo calculates that his price elasticity of demand for wheat bread is:
a. 0.
b. 0.2.
c. 1.0.
d. 1.5.
e. 2.0

15. As price decreases and we move down further along a linear demand curve, the price elasticity of
demand will:
a. decrease.
b. increase.
c. stay the same.
d. approach infinity.
e. increase or decrease.

16. When a 2 percent increase in price generates a greater than 2 percent decrease in quantity demanded,
then:
a. demand is price inelastic.
b. total revenue increases.
c. demand is positively sloped.
 d. demand is unit elastic.
e. total revenue decreases.

17. On a part of the demand curve where the price elasticity of demand is less than 1, a decrease in price:
a. is impossible.
b. will increase total revenue.
c. will decrease total revenue.
d. raises the price elasticity of demand.
e. decreases quantity demanded.

18. Looking at the relationship between elasticity and total revenue, we can see that ____.
a. b and c
b. when demand is unit elastic, small price changes don't change total revenue
c. when a good is price inelastic, revenue increases when prices increase
d. when a good is price elastic, revenue increases when prices increase
e. total revenue is maximized when the elasticity has stopped changing

Exhibit 5-2 Price and quantity demanded data

Price Quantity Demanded
5 20
4 25
3 30
2 35
1 40

19. Using Exhibit 5-2, what is the price elasticity of demand when the price falls from five dollars to
four?
a. 1.
b. 1.25.
c. 0.8.
d. 2.0.
e. 0.4.

20. One of the reasons that price elasticities of demand are always stated as positive numbers is because:
a. the numerators and denominators of the formula are both
negative.
b. the numerators and denominators of the formula are both positive.
c. price increases always lead to increases in quantity demanded.
d. price decreases always lead to decreases in quantity demanded.
e. price elasticities are always negative, so we ignore the sign.

21. Avital and Joshua each have their own business selling lemonade in front of their houses. When they
each charge 25 cents per glass, their total revenues are equal. However, when they each charge 40 cents
per glass, Avital's revenues are bigger than Joshua's revenues. This is because:
a. Joshua faces a more inelastic demand curve.
b. Avital faces a more elastic demand curve.
c. Joshua faces a more elastic demand curve.
d. Avital faces a less inelastic demand curve.
e. there is a market failure.

22. The price elastic portion of the linear demand curve lies:
a. b and c.
b. above the point of unit elasticity.
c. anywhere to the left of current market prices.
d. below the point where total revenue is
maximized.
e. at the intersection with the supply curve.

23. If a revenue-maximizing firm is told that the price elasticity of demand is equal to one, it should:
a. raise prices 1 percent.
b. lower prices 1 percent.
c. raise prices until the elasticity becomes very high.
d. keep the price where it is.
e. lower prices until the elasticity becomes very high.

24. Another word for elasticity is:

a. responsiveness
.
b. happiness.
c. bonus
d. profit.
e. surplus.

25. If the price of Pepsi-Cola increases from 40 cents to 50 cents per bottle and the quantity demanded
decreases from 100 bottles to 50 bottles, then according to the averaging equation, the value of price
elasticity of demand for Pepsi-Cola is:
a. 0.5.
b. 0.25.
c. 1.
d. 3.
e. 2.

26. If Stimpson University increases tuition in order to increase its revenue, it will:
a. not be successful if the demand curve slopes
downward.
 b. be successful if demand is elastic.
c. be successful if demand is inelastic.
d. be successful if supply is elastic.
e. be successful if supply is inelastic.

Exhibit 5-4 Demand curves for silver

27. Assume that a wealthy buyer, Mr. Hunt, declares that he will purchase any amount of silver at a price
of $125 an ounce. In Exhibit 5-4, which graph illustrates the shape of the demand curve for silver?
a. Graph A.
b. Graph B.
c. Graph C.
d. Graph D.

28. A 10 percent rise in the price of housing reduces the quantity demanded of housing by 3 percent. We
can conclude that the demand for housing is:
a. inelastic.
b. elastic.
 c. unitary elastic.
d. perfectly elastic.

29. Suppose an oil company wants to make its total revenue as large as possible. It should charge a price
at which the demand for oil is:
a. elastic.
b. unitary elastic.
c. inelastic.
d. perfectly inelastic.

Exhibit 5-6 Demand curve for concert tickets

30. In Exhibit 5-6, suppose promoters charge a price of $30 per ticket. How much total revenue will their
sales generate?
a. $300,000.
b. $400,000.
c. $500,000.
d. $600,000.

31. Which of the following factors is associated with products with a highly price elastic
demand?
a. Few close substitutes.
b. A very short time period for consumers to respond to price changes.
c. Many very close substitutes.
d. A per unit price that is only a very small portion of most peoples’ budgets.

32. A product would be more demand price elastic:

a. the shorter the time the consumer has to adjust to price
changes.
 b. the lower the price of the good.
c. the fewer the number of good substitutes.
d. the less the essential nature of the good.
e. if the supply is more price elastic.

33. In the short run, consumers typically ____ to price changes (when compared to the long run).
a. are very responsive
b. are more demand
sensitive
c. are less demand sensitive
d. do not respond at all
e. overreact

34. The price elasticity of demand for a particular good is influenced by which of the following factors?
a. b and c.
b. The income of the buyers.
c. The availability of substitutes.
d. The level of competition among sellers.
e. How many uses the good has.

35. The long-run price elasticity of demand is usually larger than the short-run price elasticity of demand
because:
a. demand curves tend to become steeper over time.
b. economists take the absolute value of long-run price elasticities but not of short-run
elasticities.
c. people have more time to find substitute goods.
d. incomes tend to rise over time.
e. supply curves change over time.

36. Which of the following statements is not true?

a. Price elasticity of demand for basic foods is low.
b. When price elasticity of demand is very high, we say there is brand loyalty.
c. The availability and price of substitutes affect the elasticity of demand for a good or
service.
d. When goods have very low prices, the elasticity of demand is usually quite low.
e. Elasticities increase as the price of the good increases.

37. Sally recently got a 15 percent raise. She now purchases 7.5 percent more steak dinners. Sally's
income elasticity for steak dinners is:
a. 0.5.
b. 0.75.
c. 1.5.
 d. 2.0.

38. The sign of the price elasticity coefficient for a normal good will:
a. always be negative.
b. always be positive.
c. be positive if demand is elastic but negative if demand is
inelastic.
d. be positive if demand is inelastic but negative if demand is
elastic.

39. If bus travel is an inferior good, then its income elasticity of demand will be:
a. strictly greater than one.
b. positive.
c. equal to zero.
d. negative.

40. If the cross-elasticity of demand for two goods is negative, this means that:
a. only the poor will buy the
goods.
b. they are normal goods.
c. the goods are substitutes.
d. the goods are complements.

41. If the cross-elasticity of demand for two goods is positive, this means that the goods are:
a. normal goods.
b. inferior goods.
c. substitutes.
d. complements.

42. The number of satellite dishes increased by 50 percent when the average monthly price of cable TV
increased by 10 percent. Assuming that other factors are held constant, satellite dishes and cable TV are
classified as:
a. complements.
b. unrelated goods.
c. substitutes.
d. social goods.
Answer Key

1. b

2. a

3. c

4. a

5. d

6. a

7. c

8. c

9. d

10. b

11. c

12. a

13. a

14. b

15. a

16. e

17. c

18. a

19. a

20. e

21. c
22. b

23. d

24. a

25. d

26. c

27. a

28. a

29. b

30. a

31. c

32. d

33. c

34. a

35. c

36. b

37. a

38. b

39. d

40. d

41. c

42. c