Professional Documents
Culture Documents
Macroeconomics For Today 9th Edition Tucker Test Bank 1
Macroeconomics For Today 9th Edition Tucker Test Bank 1
1305926390 9781305926394
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.
ANSWER: b
DIFFICULTY: Moderate
NATIONAL STANDARDS: United States - BUSPROG: Reflective Thinking - BUSPROG: Analytic
TOPICS: Price Elasticity of Demand
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.
ANSWER: a
DIFFICULTY: Moderate
NATIONAL STANDARDS: United States - BUSPROG: Reflective Thinking - BUSPROG: Analytic
TOPICS: Price Elasticity of Demand
3. Suppose the Pleasant Corporation cuts the price of its American Girl dolls by 10 percent, and as a result, the quantity of
the dolls sold increases by 25 percent. This indicates that the price elasticity of demand for the dolls over this range is:
a. 2.5.
b. 0.4.
c. 0.5.
d. 5.0.
ANSWER: a
DIFFICULTY: Challenging
NATIONAL STANDARDS: United States - BUSPROG: Reflective Thinking - BUSPROG: Analytic
Cengage Learning Testing, Powered by Cognero Page 1
TOPICS: Price Elasticity of Demand
5. 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.
ANSWER: c
DIFFICULTY: Moderate
NATIONAL STANDARDS: United States - BUSPROG:Analytic:Ref - BUSPROG: Analytic
TOPICS: Price Elasticity of Demand
6. Suppose you are the manager of a local water company, and you are instructed to get consumers to reduce their water
consumption by 10 percent. If the price elasticity of demand for water is 0.25, by how much would you have to raise the
price of water?
a. 10 percent
b. 25 percent
c. 40 percent
d. 100 percent
ANSWER: c
DIFFICULTY: Challenging
NATIONAL STANDARDS: United States - BUSPROG: Reflective Thinking - BUSPROG: Analytic
TOPICS: Price Elasticity of Demand
7. If the quantity demanded increases by 20 percent in response to a 10 percent decrease in price, demand is classified as:
a. unstable.
b. relatively inelastic.
c. relatively elastic.
d. of unitary elasticity.
ANSWER: c
DIFFICULTY: Moderate
NATIONAL STANDARDS: United States - BUSPROG: Reflective Thinking - BUSPROG: Analytic
TOPICS: Price Elasticity of Demand
10. If the demand for cigarettes is highly inelastic, this indicates that:
a. higher cigarette prices will increase the demand for cigarettes.
b. the price elasticity coefficient of cigarettes exceeds 1.
c. the price elasticity coefficient of cigarettes equals 1.
d. the quantity of cigarettes purchased by consumers is not very responsive to a change in the price of cigarettes.
ANSWER: d
DIFFICULTY: Easy
NATIONAL STANDARDS: United States - BUSPROG: Reflective Thinking - BUSPROG: Analytic
TOPICS: Price Elasticity of Demand
13. If demand is inelastic, an increase in the price of a good will cause total revenue to:
a. fall.
b. remain constant since the decrease in quantity sold is exactly offset by the price increase.
c. rise.
d. rise if it is a normal good and fall if it is an inferior good.
ANSWER: c
DIFFICULTY: Moderate
NATIONAL STANDARDS: United States - BUSPROG: Reflective Thinking - BUSPROG: Analytic
TOPICS: Price Elasticity of Demand
18. If a decrease in the price of movie tickets increases the total revenue of movie theaters, this is evidence that demand is:
a. price elastic.
b. price inelastic.
c. unit elastic with respect to price.
d. perfectly inelastic.
ANSWER: a
DIFFICULTY: Moderate
NATIONAL STANDARDS: United States - BUSPROG: Reflective Thinking - BUSPROG: Analytic
TOPICS: Price Elasticity of Demand
20. Over the elastic portion of a demand curve, a decrease in price causes:
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.
ANSWER: a
DIFFICULTY: Moderate
NATIONAL STANDARDS: United States - BUSPROG: Reflective Thinking - BUSPROG: Analytic
TOPICS: Price Elasticity of Demand
21. 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
Cengage Learning Testing, Powered by Cognero Page 5
ANSWER: c
DIFFICULTY: Moderate
NATIONAL STANDARDS: United States - BUSPROG: Reflective Thinking - BUSPROG: Analytic
TOPICS: Price Elasticity of Demand
22. If the percentage change in the quantity demanded of a good is less than the percentage change in price, price
elasticity of demand is:
a. elastic.
b. inelastic.
c. perfectly inelastic.
d. unitary elastic.
ANSWER: b
DIFFICULTY: Moderate
NATIONAL STANDARDS: United States - BUSPROG: Reflective Thinking - BUSPROG: Analytic
TOPICS: Price Elasticity of Demand
23. If the percentage change in the quantity demanded of a good is greater than the percentage change in price, price
elasticity of demand is:
a. elastic.
b. inelastic.
c. perfectly inelastic.
d. perfectly elastic.
ANSWER: a
DIFFICULTY: Moderate
NATIONAL STANDARDS: United States - BUSPROG: Reflective Thinking - BUSPROG: Analytic
TOPICS: Price Elasticity of Demand
24. If the percentage change in the quantity demanded of a good equals the percentage change in price, price elasticity of
demand is:
a. elastic.
b. inelastic.
c. perfectly elastic.
d. unitary elastic.
ANSWER: d
DIFFICULTY: Moderate
NATIONAL STANDARDS: United States - BUSPROG: Reflective Thinking - BUSPROG: Analytic
TOPICS: Price Elasticity of Demand
25. Along the elastic range of a demand curve, a decrease in price causes:
a. no change in total revenue.
b. a decrease in total revenue.
c. an increase in total revenue.
d. an unpredictable change in total revenue.
ANSWER: c
DIFFICULTY: Moderate
NATIONAL STANDARDS: United States - BUSPROG: Reflective Thinking - BUSPROG: Analytic
26. If a decrease in the price of theater tickets increases the total revenue earned by the theater, this is evidence that
demand is:
a. price elastic.
b. price inelastic.
c. unitary elastic.
d. perfectly inelastic.
ANSWER: a
DIFFICULTY: Moderate
NATIONAL STANDARDS: United States - BUSPROG: Reflective Thinking - BUSPROG: Analytic
TOPICS: Price Elasticity of Demand
27. Along the elastic range of a demand curve, a price change causes:
a. a change in total revenue in the opposite direction.
b. a change in total revenue in the same direction.
c. no change in total revenue.
d. an unpredictable change in the total revenue.
ANSWER: a
DIFFICULTY: Moderate
NATIONAL STANDARDS: United States - BUSPROG: Reflective Thinking - BUSPROG: Analytic
TOPICS: Price Elasticity of Demand
28. Suppose the president of a college argues that a 25 percent tuition increase will raise revenues for the college. It can be
concluded that the president thinks that demand to attend this college is:
a. elastic.
b. inelastic, but not perfectly inelastic.
c. unitary elastic.
d. perfectly elastic.
ANSWER: b
DIFFICULTY: Challenging
NATIONAL STANDARDS: United States - BUSPROG: Reflective Thinking - BUSPROG: Analytic
TOPICS: Price Elasticity of Demand
29. 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.
ANSWER: c
DIFFICULTY: Moderate
NATIONAL STANDARDS: United States - BUSPROG: Reflective Thinking - BUSPROG: Analytic
TOPICS: Price Elasticity of Demand
30. The price elasticity of demand for a vertical demand curve is:
Cengage Learning Testing, Powered by Cognero Page 7
a. perfectly elastic.
b. perfectly inelastic.
c. unitary elastic.
d. elastic.
e. inelastic.
ANSWER: b
DIFFICULTY: Moderate
NATIONAL STANDARDS: United States - BUSPROG: Reflective Thinking - BUSPROG: Analytic
TOPICS: Price Elasticity of Demand
31. The president of Tucker Motors says, "Lowering the price won't sell a single additional Tucker car." The president
believes that the price elasticity of demand is:
a. perfectly elastic.
b. perfectly inelastic.
c. unitary elastic.
d. elastic.
e. inelastic.
ANSWER: b
DIFFICULTY: Challenging
NATIONAL STANDARDS: United States - BUSPROG: Reflective Thinking - BUSPROG: Analytic
TOPICS: Price Elasticity of Demand
32. If the price elasticity of demand is computed for two products, and product A measures .79, and product B measures
1.6, then:
a. product A is more price elastic than product B.
b. product B is more price elastic than product A.
c. consumers are more sensitive to price changes in product A than in product B.
d. product B is more price inelastic than product A.
e. products A and B must be substitutes.
ANSWER: b
DIFFICULTY: Moderate
NATIONAL STANDARDS: United States - BUSPROG: Reflective Thinking - BUSPROG: Analytic
TOPICS: Price Elasticity of Demand
35. In Exhibit 5-1, the demand curve between points b and c is:
a. price elastic.
b. price inelastic.
c. unit elastic.
d. perfectly elastic.
e. perfectly inelastic.
ANSWER: b
DIFFICULTY: Challenging
NATIONAL STANDARDS: United States - BUSPROG: Reflective Thinking - BUSPROG: Analytic
TOPICS: Price Elasticity of Demand
36. In Exhibit 5-1, between points a and b, the price elasticity of demand measures:
a. 0.67.
b. 1.5.
c. 2.0.
d. 1.56.
e. 1.0.
ANSWER: e
DIFFICULTY: Challenging
NATIONAL STANDARDS: United States - BUSPROG: Reflective Thinking - BUSPROG: Analytic
TOPICS: Price Elasticity of Demand
38. If demand price elasticity measures 2, this implies that consumers would:
a. buy twice as much of the product if the price drops 10 percent.
b. require a 2 percent drop in price to increase their purchases by 1 percent.
c. buy 2 percent more of the product in response to a 1 percent drop in price.
d. require at least a $2 increase in price before showing any response to the price increase.
e. buy twice as much of the product if the price drops 1 percent.
ANSWER: c
DIFFICULTY: Challenging
NATIONAL STANDARDS: United States - BUSPROG: Reflective Thinking - BUSPROG: Analytic
TOPICS: Price Elasticity of Demand
39. If the demand curve over a certain range is "price elastic," this implies that the:
a. percentage change in the quantity demanded exceeds one.
b. percentage change in the quantity demanded exceeds the percentage change in product price.
c. percentage change in price exceeds the percentage change in quantity demanded.
d. product is non-reactive.
e. product has no good substitute.
ANSWER: b
DIFFICULTY: Challenging
NATIONAL STANDARDS: United States - BUSPROG: Reflective Thinking - BUSPROG: Analytic
TOPICS: Price Elasticity of Demand
41. 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.
Cengage Learning Testing, Powered by Cognero Page 10
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.
ANSWER: d
DIFFICULTY: Challenging
NATIONAL STANDARDS: United States - BUSPROG: Reflective Thinking - BUSPROG: Analytic
TOPICS: Price Elasticity of Demand
43. 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.
ANSWER: b
DIFFICULTY: Moderate
NATIONAL STANDARDS: United States - BUSPROG: Reflective Thinking - BUSPROG: Analytic
TOPICS: Price Elasticity of Demand
44. If Herbert, the hair stylist, raises the price of his cuts from $13 to $15 and finds the number of cuts falls from 300 to
260, then the demand for Herbert's cuts in this range is:
a. price inelastic.
b. price elastic.
c. unit elastic.
d. cross elastic.
e. income inelastic.
ANSWER: c
DIFFICULTY: Challenging
NATIONAL STANDARDS: United States - BUSPROG: Reflective Thinking - BUSPROG: Analytic
TOPICS: Price Elasticity of Demand
46. If Pete raises his price of muffins from $2 to $3 and his sales revenue increases from $35,000 to $38,000, then:
a. the demand for Pete's muffins in this range is price elastic.
b. the demand for Pete's muffins in this range is price inelastic.
c. the demand for Pete's muffins in this range is unit elastic.
d. the percentage change in quantity demanded must exceed the percentage change in product price.
e. this is impossible since this would violate the law of demand.
ANSWER: b
DIFFICULTY: Moderate
NATIONAL STANDARDS: United States - BUSPROG: Reflective Thinking - BUSPROG: Analytic
TOPICS: Price Elasticity of Demand
47. You are part of a local community theater group. It is the goal of the group to increase the amount of revenue earned
through ticket sales. Mary says the obvious solution is to increase ticket prices. Is Mary correct?
a. Mary is correct if the demand for tickets is price inelastic.
b. Mary is incorrect if the demand for tickets is price inelastic.
c. Mary is correct. The increase in ticket prices will always increase revenue.
d. Mary is incorrect. The increase in ticket prices will never increase revenue.
e. Mary is incorrect. The way to increase revenue is to decrease ticket prices.
ANSWER: a
DIFFICULTY: Moderate
NATIONAL STANDARDS: United States - BUSPROG: Reflective Thinking - BUSPROG: Analytic
TOPICS: Price Elasticity of Demand
48. Elasticity measures how "sensitive" consumers are by measuring their change in ____ as the price of the product
changes.
a. attitude
b. income
c. quantity demanded
d. supply
e. taxes
ANSWER: c
DIFFICULTY: Easy
NATIONAL STANDARDS: United States - BUSPROG:Analytic:Ref - BUSPROG: Analytic
TOPICS: Price Elasticity of Demand
50. Suppose you are on a committee seeking to increase revenue from your city’s bus system. If demand is _______, you
would recommend raising the fare.
a. perfectly elastic
b. elastic
c. unitary elastic
d. inelastic
ANSWER: d
DIFFICULTY: Easy
NATIONAL STANDARDS: United States - BUSPROG:Analytic:Ref - BUSPROG: Analytic
TOPICS: Price Elasticity of Demand
51. A _______ demand curve has a price elasticity of demand that is perfectly elastic.
a. vertical
b. rectangular hyperbola
c. horizontal
d. circular
ANSWER: c
DIFFICULTY: Moderate
NATIONAL STANDARDS: United States - BUSPROG: Reflective Thinking - BUSPROG: Analytic
TOPICS: Price Elasticity of Demand
52. A _______ demand curve has a price elasticity of demand that is perfectly inelastic.
a. circular
b. horizontal
c. rectangular hyperbola
d. vertical
ANSWER: d
DIFFICULTY: Moderate
NATIONAL STANDARDS: United States - BUSPROG: Reflective Thinking - BUSPROG: Analytic
TOPICS: Price Elasticity of Demand
53. 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.
Cengage Learning Testing, Powered by Cognero Page 13
e. Cannot be determined.
ANSWER: a
DIFFICULTY: Moderate
NATIONAL STANDARDS: United States - BUSPROG: Reflective Thinking - BUSPROG: Analytic
TOPICS: Price Elasticity of Demand
55. 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.
ANSWER: a
DIFFICULTY: Challenging
NATIONAL STANDARDS: United States - BUSPROG: Reflective Thinking - BUSPROG: Analytic
TOPICS: Price Elasticity of Demand Variations along a Demand Curve
56. Since it is always a negative number, economists use the convention of taking the absolute value of:
a. income elasticity of demand.
b. cross price elasticity of demand.
c. price elasticity of supply.
d. price elasticity of demand.
e. any elasticity calculation.
ANSWER: d
DIFFICULTY: Moderate
NATIONAL STANDARDS: United States - BUSPROG: Reflective Thinking - BUSPROG: Analytic
TOPICS: Price Elasticity of Demand
57. 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
Cengage Learning Testing, Powered by Cognero Page 14
ANSWER: b
DIFFICULTY: Challenging
NATIONAL STANDARDS: United States - BUSPROG: Reflective Thinking - BUSPROG: Analytic
TOPICS: Price Elasticity of Demand
58. Tara buys four music cassettes when the price is $10 and two cassettes when the price is $14. Her price elasticity of
demand is:
a. 0.
b. 1.
c. 2.
d. 3.
e. 4.
ANSWER: c
DIFFICULTY: Challenging
NATIONAL STANDARDS: United States - BUSPROG: Reflective Thinking - BUSPROG: Analytic
TOPICS: Price Elasticity of Demand
59. 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.
ANSWER: a
DIFFICULTY: Challenging
NATIONAL STANDARDS: United States - BUSPROG: Reflective Thinking - BUSPROG: Analytic
TOPICS: Price Elasticity of Demand Variations along a Demand Curve
60. If the price elasticity of demand for football tickets is estimated to be 4.5, then a 10 percent increase in football ticket
prices would be expected to cause a:
a. 4.5 percent decrease in quantity demanded.
b. 4.5 percent increase in quantity demanded.
c. 45 percent decrease in quantity demanded.
d. 45 percent increase in quantity demanded.
e. 450 percent increase in quantity demanded
ANSWER: c
DIFFICULTY: Challenging
NATIONAL STANDARDS: United States - BUSPROG: Reflective Thinking - BUSPROG: Analytic
TOPICS: Price Elasticity of Demand
61. A health club sells 50 memberships when the monthly price is $60 and 70 memberships when the monthly price is
$40. The price elasticity of demand for memberships at this health club is (using the average values method):
a. 0.25.
b. 0.6.
c. 1.0.
d. 1.1.
62. Within different price ranges along a linear demand curve, elasticities are:
a. constant.
b. different.
c. equal.
d. the same as slope.
e. negative 1.
ANSWER: b
DIFFICULTY: Challenging
NATIONAL STANDARDS: United States - BUSPROG: Reflective Thinking - BUSPROG: Analytic
TOPICS: Price Elasticity of Demand Variations along a Demand Curve
63. If demand for a good is price elastic, then the price elasticity will be:
a. equal to one.
b. equal to zero.
c. greater than one.
d. less than one.
e. less than zero.
ANSWER: c
DIFFICULTY: Moderate
NATIONAL STANDARDS: United States - BUSPROG: Reflective Thinking - BUSPROG: Analytic
TOPICS: Price Elasticity of Demand
64. An economist estimates that .67 is the price elasticity of demand for disposable diapers. This suggests that disposable
diaper producers could:
a. advertise more to raise the price elasticity of demand.
b. encourage more parents to use cloth diapers.
c. lower the price of disposable diapers to raise more revenue.
d. raise the price of disposable diapers to raise more revenue.
e. maximize revenues by staying at the current price.
ANSWER: d
DIFFICULTY: Challenging
NATIONAL STANDARDS: United States - BUSPROG: Reflective Thinking - BUSPROG: Analytic
TOPICS: Price Elasticity of Demand
65. If demand is price elastic, then when price decreases, total revenue:
a. decreases.
b. increases.
c. does not change.
d. is less than one.
e. is negative.
Cengage Learning Testing, Powered by Cognero Page 16
ANSWER: b
DIFFICULTY: Moderate
NATIONAL STANDARDS: United States - BUSPROG: Reflective Thinking - BUSPROG: Analytic
TOPICS: Price Elasticity of Demand
66. 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.
ANSWER: e
DIFFICULTY: Challenging
NATIONAL STANDARDS: United States - BUSPROG: Reflective Thinking - BUSPROG: Analytic
TOPICS: Price Elasticity of Demand
67. The short-run price elasticity of demand for airline travel is .05, while the long-run elasticity is 2.36. This means that a
significant increase in airline ticket prices will cause airline companies to:
a. collect less revenue from short-notice travelers.
b. collect more revenue from travelers who book well in advance.
c. lose money on short-notice travelers.
d. collect less revenue from travelers who book well in advance.
e. lose many of its short-notice travelers.
ANSWER: d
DIFFICULTY: Challenging
NATIONAL STANDARDS: United States - BUSPROG: Reflective Thinking - BUSPROG: Analytic
TOPICS: Price Elasticity of Demand
68. 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.
ANSWER: c
DIFFICULTY: Challenging
NATIONAL STANDARDS: United States - BUSPROG: Reflective Thinking - BUSPROG: Analytic
TOPICS: Price Elasticity of Demand Variations along a Demand Curve
69. A public transit company finds that when it reduces the price of a bus ticket, total revenues remain the same. One can
conclude from this that:
a. the demand curve is horizontal, reflecting infinite price elasticity.
b. the company sells the same number of bus tickets both before and after the price change.
c. the demand curve for bus tickets must have shifted to the right.
d. the firm is operating in a range of the demand curve that is unit elastic.
e. the price should be lowered further so that a larger quantity can be sold.
Cengage Learning Testing, Powered by Cognero Page 17
ANSWER: d
DIFFICULTY: Challenging
NATIONAL STANDARDS: United States - BUSPROG: Reflective Thinking - BUSPROG: Analytic
TOPICS: Price Elasticity of Demand
70. It is Valentine's Day and Jason is desperately looking all over town for a dozen roses to give to Judy. Most likely,
Jason's price elasticity of demand is:
a. infinitely large.
b. negative.
c. equal to one.
d. greater than one.
e. less than one.
ANSWER: e
DIFFICULTY: Moderate
NATIONAL STANDARDS: United States - BUSPROG: Reflective Thinking - BUSPROG: Analytic
TOPICS: Price Elasticity of Demand
71. Sally is an average shopper, with average income. When she is in the store she buys a few items which cost more than
$20, several items which cost between $5 and $20, and many items which cost less than $1. The price elasticity of Sally's
demand for these goods most likely ____.
a. increases as the price decreases
b. decreases as the price decreases
c. increases as the price increases
d. decreases as the price increases
e. remains constant over all price ranges
ANSWER: c
DIFFICULTY: Challenging
NATIONAL STANDARDS: United States - BUSPROG: Reflective Thinking - BUSPROG: Analytic
TOPICS: Price Elasticity of Demand
73. Which statement about price elasticity of demand along a linear demand curve is true?
a. As the quantity demanded increases, so does the buyer's sensitivity to price.
b. When price elasticity of demand is equal to 1, consumers are indifferent to subtle price changes.
c. The ratio of current price to quantity demanded is a good estimate of the elasticity of demand.
d. As the prices of goods increase, the elasticity of demand increases.
74. 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
ANSWER: a
DIFFICULTY: Challenging
NATIONAL STANDARDS: United States - BUSPROG: Reflective Thinking - BUSPROG: Analytic
TOPICS: Price Elasticity of Demand
76. Larissa is a famous attorney with a great reputation in court. She charges her clients $300 for each hour she spends
working on their cases. If she earned $450,000 in hourly wages last year, and by raising her rates to $350 per hour her
income increased to $490,000 what can we say about the elasticity of demand for Larissa's legal services?
a. It is approximately equal to 2.3.
b. It is approximately equal to 1.6.
c. It is approximately equal to 1.0.
d. It is approximately equal to 0.45.
e. It is approximately equal to 0.1.
ANSWER: d
DIFFICULTY: Challenging
NATIONAL STANDARDS: United States - BUSPROG: Reflective Thinking - BUSPROG: Analytic
TOPICS: Price Elasticity of Demand
77. Dana is an art historian who needs to travel to Italy to do research. Art historians usually don't have a lot of money,
and therefore are very sensitive to price changes. Dana's funding agency pays her a fixed amount to travel. At current
exchange rates, Dana can stay in Italy for 35 days. If the exchange rate improves by 10 percent, she can stay for 40 days.
What is Dana's price elasticity of demand for days spent in Italy?
a. It is approximately equal to 2.3.
b. It is approximately equal to 1.6.
Cengage Learning Testing, Powered by Cognero Page 19
c. It is approximately equal to 1.4.
d. It is approximately equal to 0.4.
e. It is approximately equal to 0.1.
ANSWER: c
DIFFICULTY: Challenging
NATIONAL STANDARDS: United States - BUSPROG: Reflective Thinking - BUSPROG: Analytic
TOPICS: Price Elasticity of Demand
78. The data in Exhibit 5-2 shows that price elasticity of demand is:
a. increasing as the price decreases.
b. decreasing as the price increases.
c. increasing as the quantity increases.
d. decreasing as the quantity decreases.
e. decreasing as the quantity increases.
ANSWER: e
DIFFICULTY: Moderate
NATIONAL STANDARDS: United States - BUSPROG: Reflective Thinking - BUSPROG: Analytic
TOPICS: Price Elasticity of Demand
79. 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.
ANSWER: a
DIFFICULTY: Moderate
NATIONAL STANDARDS: United States - BUSPROG: Reflective Thinking - BUSPROG: Analytic
TOPICS: Price Elasticity of Demand
80. 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.
ANSWER: e
DIFFICULTY: Moderate
NATIONAL STANDARDS: United States - BUSPROG: Reflective Thinking - BUSPROG: Analytic
Cengage Learning Testing, Powered by Cognero Page 20
TOPICS: Price Elasticity of Demand
81. 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.
ANSWER: c
DIFFICULTY: Challenging
NATIONAL STANDARDS: United States - BUSPROG: Reflective Thinking - BUSPROG: Analytic
TOPICS: Price Elasticity of Demand
82. 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.
ANSWER: b
DIFFICULTY: Moderate
NATIONAL STANDARDS: United States - BUSPROG: Reflective Thinking - BUSPROG: Analytic
TOPICS: Price Elasticity of Demand Variations along a Demand Curve
83. If a supplier faces a perfectly horizontal demand curve and sets his price slightly higher than the demand curve itself,
he can expect:
a. no change in his total revenues.
b. everyone to begin buying his product.
c. a complete loss of revenues.
d. a new demand curve.
e. a relative increase in income.
ANSWER: c
DIFFICULTY: Challenging
NATIONAL STANDARDS: United States - BUSPROG: Reflective Thinking - BUSPROG: Analytic
TOPICS: Price Elasticity of Demand Variations along a Demand Curve
84. Using Exhibit 5-3, whose elasticity of demand is greatest when the price falls from $7 to $6?
a. Albert
b. Betty
c. Carl
d. Dana
e. Edward
ANSWER: a
DIFFICULTY: Moderate
NATIONAL STANDARDS: United States - BUSPROG: Reflective Thinking - BUSPROG: Analytic
TOPICS: Price Elasticity of Demand
85. Using Exhibit 5-3, in general, whose demand for orange juice is the most inelastic?
a. Albert
b. Betty
c. Carl
d. Dana
e. Edward
ANSWER: c
DIFFICULTY: Moderate
NATIONAL STANDARDS: United States - BUSPROG: Reflective Thinking - BUSPROG: Analytic
TOPICS: Price Elasticity of Demand
86. Using Exhibit 5-3, in general, whose demand for orange juice is the most elastic?
a. Albert
b. Betty
c. Carl
d. Dana
e. Edward
ANSWER: e
DIFFICULTY: Moderate
NATIONAL STANDARDS: United States - BUSPROG: Reflective Thinking - BUSPROG: Analytic
TOPICS: Price Elasticity of Demand
87. Using Exhibit 5-3, whose "quantity demanded" experiences the largest percentage increase when the price falls from
$2 to $1?
a. Albert
b. Betty
c. Carl
d. Dana
e. Edward
ANSWER: a
DIFFICULTY: Easy
NATIONAL STANDARDS: United States - BUSPROG:Analytic:Ref - BUSPROG: Analytic
TOPICS: Price Elasticity of Demand
Cengage Learning Testing, Powered by Cognero Page 22
88. 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.
ANSWER: d
DIFFICULTY: Challenging
NATIONAL STANDARDS: United States - BUSPROG: Reflective Thinking - BUSPROG: Analytic
TOPICS: Price Elasticity of Demand
90. Firms would like to know the price elasticity of demand for their products because it helps determine the effect of
price changes on the firms':
a. property taxes.
b. competitors' profits.
c. quantity supplied.
d. revenues.
e. total costs.
ANSWER: d
DIFFICULTY: Moderate
NATIONAL STANDARDS: United States - BUSPROG: Reflective Thinking - BUSPROG: Analytic
TOPICS: Price Elasticity of Demand
91. 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.
ANSWER: d
DIFFICULTY: Challenging
NATIONAL STANDARDS: United States - BUSPROG: Reflective Thinking - BUSPROG: Analytic
TOPICS: Price Elasticity of Demand
Cengage Learning Testing, Powered by Cognero Page 23
92. If the value of the price elasticity of demand is 0.2, this means that:
a. a 20 percent decrease in price causes a 1 percent increase in quantity demanded.
b. a 0.2 percent decrease in price causes a 1 percent increase in quantity demanded.
c. a 5 percent decrease in price causes a 1 percent increase in quantity demanded.
d. a 0.2 percent decrease in price causes a 0.2 percent increase in quantity demanded.
e. a 100 percent decrease in price causes a 200 percent increase in quantity demanded.
ANSWER: c
DIFFICULTY: Challenging
NATIONAL STANDARDS: United States - BUSPROG: Reflective Thinking - BUSPROG: Analytic
TOPICS: Price Elasticity of Demand
93. If an increase in the price of a product from $1 to $2 per unit leads to a decrease in the quantity demanded from 100 to
80 units, then demand is:
a. elastic.
b. inelastic.
c. of unitary elasticity.
d. 0.
e. inferior.
ANSWER: b
DIFFICULTY: Moderate
NATIONAL STANDARDS: United States - BUSPROG: Reflective Thinking - BUSPROG: Analytic
TOPICS: Price Elasticity of Demand
94. If an increase in the price of a product from $1 to $2 per unit leads to a decrease in the quantity demanded from 100 to
80 units, then according to the averaging equation, the value of price elasticity of demand in absolute terms is:
a. 0.33.
b. 2.33.
c. 0.25.
d. 3.
e. 0.66.
ANSWER: a
DIFFICULTY: Challenging
NATIONAL STANDARDS: United States - BUSPROG: Reflective Thinking - BUSPROG: Analytic
TOPICS: Price Elasticity of Demand
95. 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.
ANSWER: c
DIFFICULTY: Moderate
NATIONAL STANDARDS: United States - BUSPROG: Reflective Thinking - BUSPROG: Analytic
TOPICS: Price Elasticity of Demand
97. Which of the following describes a situation in which demand must be inelastic?
a. Total revenue decreases by 10 percent when the price of spats rises by 10 percent.
b. Total revenue decreases by less than 10 percent when the price of spats rises by 10 percent.
c. Total revenue increases by more than 10 percent when the price of spats rises by 10 percent.
d. Total revenue decreases by $10 when the price of spats rises by $10.
e. Total revenue decreases by more than $10 when the price of spats rises by $10.
ANSWER: c
DIFFICULTY: Moderate
NATIONAL STANDARDS: United States - BUSPROG: Reflective Thinking - BUSPROG: Analytic
TOPICS: Price Elasticity of Demand
98. Which of the following describes a situation in which demand must be elastic?
a. Total revenue increases by 15 percent when the price of corn dogs rises by 15 percent.
b. Total revenue increases by less than 15 percent when the price of corn dogs rises by 15 percent.
c. Total revenue decreases by more than 15 percent when the price of corn dogs rises by 15 percent.
d. Total revenue increases by $15 when the price of corn dogs rises by $15.
e. Total revenue increases by more than $15 when the price of corn dogs rises by $15.
ANSWER: c
DIFFICULTY: Moderate
NATIONAL STANDARDS: United States - BUSPROG: Reflective Thinking - BUSPROG: Analytic
TOPICS: Price Elasticity of Demand
101. Consider the market for bicycles. If a dealer cuts prices by 10 percent and sells 20 percent more bikes, then demand
for bicycles is:
a. inelastic, and total revenue will increase.
b. elastic, and total revenue will increase.
c. inelastic, and total revenue will decrease.
d. elastic, and total revenue will decrease.
e. unit elastic, and total revenue will remain the same.
ANSWER: b
DIFFICULTY: Moderate
NATIONAL STANDARDS: United States - BUSPROG: Reflective Thinking - BUSPROG: Analytic
TOPICS: Price Elasticity of Demand
102. The percentage change in the quantity demanded of film divided by the percentage change in the price of cameras
indicates:
a. the price elasticity of demand for film.
b. the price elasticity of demand for cameras.
c. the price elasticity of supply for film.
d. the price elasticity of supply for cameras.
e. nothing, because the two goods fall into the broadly defined category of photographic equipment.
ANSWER: a
DIFFICULTY: Moderate
NATIONAL STANDARDS: United States - BUSPROG: Reflective Thinking - BUSPROG: Analytic
TOPICS: Price Elasticity of Demand
103. Governments can use price elasticity of demand to estimate how changes in excise tax rates will affect:
a. income.
b. prices.
c. tax revenues.
d. government spending.
e. profits.
ANSWER: c
DIFFICULTY: Moderate
NATIONAL STANDARDS: United States - BUSPROG: Reflective Thinking - BUSPROG: Analytic
TOPICS: Price Elasticity of Demand
105. If the quantity of concert tickets sold decreases by 10 percent when the price increases by 5 percent, the price
elasticity of demand over this range of the demand curve is:
a. price elastic.
b. price inelastic.
c. perfectly inelastic.
d. unitary elastic.
ANSWER: a
DIFFICULTY: Moderate
NATIONAL STANDARDS: United States - BUSPROG: Reflective Thinking - BUSPROG: Analytic
TOPICS: Price Elasticity of Demand Variations along a Demand Curve
107. Suppose the Good Food supermarket increases the price of a pound of bananas from $.75 to $1.25 and finds that the
quantity of bananas it sells per month drops from 1,500 to 1,000. The price elasticity of demand coefficient for bananas in
this price range is:
a. 0.80. b. 3.00.
c. 2.00. d. 0.50.
ANSWER: a
DIFFICULTY: Challenging
NATIONAL STANDARDS: United States - BUSPROG: Reflective Thinking - BUSPROG: Analytic
TOPICS: Price Elasticity of Demand
108. Suppose the quantity demanded is 1,000 million bushels of peaches per year when the price is $3 per bushel and
1,500 million bushels when the price is $1 per bushel. The price elasticity of demand in this range of the demand curve is:
a. elastic. b. inelastic.
c. unitary elastic. d. infinitely elastic.
ANSWER: b
DIFFICULTY: Moderate
NATIONAL STANDARDS: United States - BUSPROG: Reflective Thinking - BUSPROG: Analytic
TOPICS: Price Elasticity of Demand Variations along a Demand Curve
109. If a 5 percent decrease in the price of a good produces a 5 percent increase in the quantity demanded, the price
elasticity of demand is:
a. perfectly elastic.
b. perfectly inelastic.
c. elastic.
d. inelastic.
e. unitary elastic.
ANSWER: e
DIFFICULTY: Moderate
NATIONAL STANDARDS: United States - BUSPROG: Reflective Thinking - BUSPROG: Analytic
TOPICS: Price Elasticity of Demand
110. Suppose there is no change in total revenue when the price changes. The demand curve for this good is:
a. perfectly elastic.
b. perfectly inelastic.
c. elastic.
Cengage Learning Testing, Powered by Cognero Page 28
d. inelastic.
e. unitary elastic.
ANSWER: e
DIFFICULTY: Easy
NATIONAL STANDARDS: United States - BUSPROG:Analytic:Ref - BUSPROG: Analytic
TOPICS: Price Elasticity of Demand
111. Any change in price along a perfectly inelastic demand curve produces:
a. greater change in the quantity demanded.
b. less change in the quantity demanded.
c. no change in the quantity demanded.
d. infinite change in the quantity demanded.
ANSWER: c
DIFFICULTY: Easy
NATIONAL STANDARDS: United States - BUSPROG:Analytic:Ref - BUSPROG: Analytic
TOPICS: Price Elasticity of Demand
112. A perfectly elastic demand curve has a price elasticity of demand coefficient of:
a. zero.
b. 1.
c. greater than 1, but less than infinity.
d. less than 1, but greater than zero.
e. infinity.
ANSWER: e
DIFFICULTY: Challenging
NATIONAL STANDARDS: United States - BUSPROG: Reflective Thinking - BUSPROG: Analytic
TOPICS: Price Elasticity of Demand Variations along a Demand Curve
113. A demand curve that has constant price elasticity of demand coefficient equals to one at all points is a(n):
a. rectangular hyperbola.
b. downward-sloping straight line.
c. upward-sloping straight line.
d. none of these.
ANSWER: a
DIFFICULTY: Moderate
NATIONAL STANDARDS: United States - BUSPROG: Reflective Thinking - BUSPROG: Analytic
TOPICS: Price Elasticity of Demand Variations along a Demand Curve
115. In Exhibit 5-5, the change in total revenue resulting from a change in price from A to D indicates that the demand
curve is:
a. elastic.
b. inelastic.
c. unitary elastic.
d. nonelastic.
ANSWER: a
DIFFICULTY: Challenging
NATIONAL STANDARDS: United States - BUSPROG: Reflective Thinking - BUSPROG: Analytic
TOPICS: Price Elasticity of Demand Variations along a Demand Curve
116. In Exhibit 5-5, the total revenue at point B on the demand curve equals:
a. OA.
b. CB.
c. AB.
d. OABC.
e. None of these.
ANSWER: d
DIFFICULTY: Moderate
NATIONAL STANDARDS: United States - BUSPROG: Reflective Thinking - BUSPROG: Analytic
TOPICS: Price Elasticity of Demand Variations along a Demand Curve
118. You are on a campus committee which sets the ticket prices for basketball games. The committee wants to increase
the total money generated from ticket sales. When should the committee choose to lower its ticket prices?
a. Always.
b. Never.
c. When demand for basketball tickets is elastic.
d. When demand for basketball tickets is inelastic.
ANSWER: c
DIFFICULTY: Moderate
NATIONAL STANDARDS: United States - BUSPROG: Reflective Thinking - BUSPROG: Analytic
TOPICS: Price Elasticity of Demand
119. 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.
ANSWER: a
DIFFICULTY: Moderate
NATIONAL STANDARDS: United States - BUSPROG: Reflective Thinking - BUSPROG: Analytic
TOPICS: Price Elasticity of Demand
120. 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.
ANSWER: b
DIFFICULTY: Moderate
NATIONAL STANDARDS: United States - BUSPROG: Reflective Thinking - BUSPROG: Analytic
TOPICS: Price Elasticity of Demand
121. If a decrease in the price of football tickets increases the total revenue of the athletic department, this is evidence that
demand is:
a. price elastic.
Cengage Learning Testing, Powered by Cognero Page 31
b. price inelastic.
c. unit elastic with respect to price.
d. perfectly inelastic.
ANSWER: a
DIFFICULTY: Easy
NATIONAL STANDARDS: United States - BUSPROG: Reflective Thinking - BUSPROG: Analytic
TOPICS: Price Elasticity of Demand
122. If the percentage change in the quantity demanded of a good is greater than the percentage change in price, price
elasticity of demand is:
a. elastic.
b. inelastic.
c. perfectly inelastic.
d. perfectly elastic.
ANSWER: a
DIFFICULTY: Easy
NATIONAL STANDARDS: United States - BUSPROG:Analytic:Ref - BUSPROG: Analytic
TOPICS: Price Elasticity of Demand
123. Suppose the president of a textbook publisher argues that a 10 percent increase in the price of textbooks will raise
total revenue for the publisher. It can be concluded that the company president thinks that demand for textbooks is:
a. unitary elastic.
b. inelastic.
c. elastic.
d. perfectly inelastic.
ANSWER: b
DIFFICULTY: Moderate
NATIONAL STANDARDS: United States - BUSPROG: Reflective Thinking - BUSPROG: Analytic
TOPICS: Price Elasticity of Demand
124. If the quantity of tickets to the fair sold decreases by 10 percent when the price increases by 5 percent, the price
elasticity of demand over this range of the demand curve is:
a. price elastic.
b. price inelastic.
c. perfectly inelastic.
d. unitary elastic.
ANSWER: a
DIFFICULTY: Moderate
NATIONAL STANDARDS: United States - BUSPROG: Reflective Thinking - BUSPROG: Analytic
TOPICS: Price Elasticity of Demand Variations along a Demand Curve
125. There is no change in total revenue when the demand curve for a good is:
a. unitary elastic.
b. perfectly inelastic.
c. elastic.
d. inelastic.
126. If a good has a price elasticity of demand coefficient less than one, then:
a. this good has an elastic demand.
b. this good has an inelastic demand.
c. a 10 percent increase in the price will result in a greater than 10 percent decrease in the quantity demanded.
d. the demand curve will be vertical.
ANSWER: b
DIFFICULTY: Easy
NATIONAL STANDARDS: United States - BUSPROG:Analytic:Ref - BUSPROG: Analytic
TOPICS: Price Elasticity of Demand
130. In Exhibit 5-6, if promoters lower their ticket price form $30 to $20, then:
a. they will receive less money from their ticket sales.
b. people will continue to buy the same number of tickets.
c. customers will spend less total money on concert tickets.
d. both ticket sales and total revenue will rise.
ANSWER: d
DIFFICULTY: Moderate
NATIONAL STANDARDS: United States - BUSPROG: Reflective Thinking - BUSPROG: Analytic
TOPICS: Price Elasticity of Demand Variations along a Demand Curve
131. In Exhibit 5-6, the demand curve for concert tickets shown above is classified as:
a. inelastic.
b. elastic.
c. unitary elastic.
d. cross elastic.
ANSWER: b
DIFFICULTY: Moderate
NATIONAL STANDARDS: United States - BUSPROG: Reflective Thinking - BUSPROG: Analytic
TOPICS: Price Elasticity of Demand Variations along a Demand Curve
133. In Exhibit 5-7, if promoters charge a price of $10 per ticket, then their total revenue is:
a. $240,000.
b. $300,000.
c. $333,333.
d. $800,000.
ANSWER: b
DIFFICULTY: Moderate
NATIONAL STANDARDS: United States - BUSPROG: Reflective Thinking - BUSPROG: Analytic
TOPICS: Price Elasticity of Demand Variations along a Demand Curve
134. In Exhibit 5-7, if promoters raise their prices from $10 to $40 per ticket, then their total revenue will:
a. increase.
b. decrease.
c. remain unchanged.
d. react unpredictably.
ANSWER: a
DIFFICULTY: Moderate
NATIONAL STANDARDS: United States - BUSPROG: Reflective Thinking - BUSPROG: Analytic
TOPICS: Price Elasticity of Demand Variations along a Demand Curve
136. 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.
ANSWER: c
DIFFICULTY: Moderate
NATIONAL STANDARDS: United States - BUSPROG: Reflective Thinking - BUSPROG: Analytic
137. Other things constant, the price elasticity of demand for a product will be smaller (more inelastic) if:
a. people spend a large share of their income on the product.
b. people spend an insignificant share of their income on the product.
c. the population in the market area is large.
d. there are many good substitutes for the product.
ANSWER: b
DIFFICULTY: Moderate
NATIONAL STANDARDS: United States - BUSPROG: Reflective Thinking - BUSPROG: Analytic
TOPICS: Determinants of Price Elasticity of Demand
142. 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
ANSWER: c
DIFFICULTY: Moderate
NATIONAL STANDARDS: United States - BUSPROG: Reflective Thinking - BUSPROG: Analytic
TOPICS: Determinants of Price Elasticity of Demand
143. Which of the following events would increase the price elasticity of demand for Chicago Bears tickets that sell at a
price of $20?
a. b and c.
b. The Bears are having a successful season.
c. The visiting team is having a successful season.
d. The Bears have been defeated in their previous seven games.
e. The weather on game day will be warm.
ANSWER: d
DIFFICULTY: Moderate
NATIONAL STANDARDS: United States - BUSPROG: Reflective Thinking - BUSPROG: Analytic
Cengage Learning Testing, Powered by Cognero Page 37
TOPICS: Determinants of Price Elasticity of Demand
144. 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.
ANSWER: a
DIFFICULTY: Moderate
NATIONAL STANDARDS: United States - BUSPROG: Reflective Thinking - BUSPROG: Analytic
TOPICS: Determinants of Price Elasticity of Demand
145. If the short-run price elasticity of demand for hospital care is .27, then the long-run price elasticity is expected to be:
a. greater than .27.
b. greater than 1.
c. less than .27.
d. equal to .27.
e. less than 0.
ANSWER: a
DIFFICULTY: Moderate
NATIONAL STANDARDS: United States - BUSPROG: Reflective Thinking - BUSPROG: Analytic
TOPICS: Determinants of Price Elasticity of Demand
146. 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.
ANSWER: c
DIFFICULTY: Challenging
NATIONAL STANDARDS: United States - BUSPROG: Reflective Thinking - BUSPROG: Analytic
TOPICS: Determinants of Price Elasticity of Demand
148. In the long run, price elasticities of demand are usually ____.
Cengage Learning Testing, Powered by Cognero Page 38
a. less than they are in the short run because people can adjust
b. the same as they are in the short run because tastes don't change
c. greater than they are in the short run because prices rise over time
d. less than they are in the short run because real prices fall over time
e. greater than they are in the short run because consumers have time to adjust
ANSWER: e
DIFFICULTY: Moderate
NATIONAL STANDARDS: United States - BUSPROG: Reflective Thinking - BUSPROG: Analytic
TOPICS: Determinants of Price Elasticity of Demand
149. The price elasticity of demand coefficient for a good will be greater:
a. if close substitutes exist.
b. if minor complements exist.
c. in the short-run.
d. if a small portion of the budget will be spent on it.
ANSWER: a
DIFFICULTY: Easy
NATIONAL STANDARDS: United States - BUSPROG: Reflective Thinking - BUSPROG: Analytic
TOPICS: Determinants of Price Elasticity of Demand
150. Which of the following goods is likely to have the most elastic demand curve?
a. Tobacco products.
b. Gasoline.
c. Medical care.
d. Honda automobiles.
ANSWER: d
DIFFICULTY: Moderate
NATIONAL STANDARDS: United States - BUSPROG: Reflective Thinking - BUSPROG: Analytic
TOPICS: Determinants of Price Elasticity of Demand
153. In differentiating between the short- and long-run elasticities, when economists talk about short-run elasticities,
a. b and c.
b. there is no need to mention short versus long run.
c. the only issues are price and quantity.
d. short-run elasticities are usually higher.
e. short-run elasticities are usually lower.
ANSWER: e
DIFFICULTY: Challenging
NATIONAL STANDARDS: United States - BUSPROG: Reflective Thinking - BUSPROG: Analytic
TOPICS: Determinants of Price Elasticity of Demand
155. The price elasticity of demand coefficient for a good will be greater:
a. if close substitutes exist.
b. if minor complements exist.
c. in the short-run.
d. if a small portion of the budget will be spent on it.
ANSWER: a
DIFFICULTY: Moderate
NATIONAL STANDARDS: United States - BUSPROG: Reflective Thinking - BUSPROG: Analytic
TOPICS: Determinants of Price Elasticity of Demand
156. The price elasticity of demand coefficient for a good will be lower:
a. if there are few substitutes for the good.
b. if expenditure on it is a small part of one's budget.
c. both a and b are true.
d. neither a nor b are true.
ANSWER: c
DIFFICULTY: Moderate
NATIONAL STANDARDS: United States - BUSPROG: Reflective Thinking - BUSPROG: Analytic
TOPICS: Determinants of Price Elasticity of Demand
158. 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.
ANSWER: a
DIFFICULTY: Challenging
NATIONAL STANDARDS: United States - BUSPROG: Reflective Thinking - BUSPROG: Analytic
TOPICS: Other Elasticity Measures
159. 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.
ANSWER: b
DIFFICULTY: Easy
NATIONAL STANDARDS: United States - BUSPROG:Analytic:Ref - BUSPROG: Analytic
TOPICS: Other Elasticity Measures
160. If the income elasticity of demand for a good is negative, this means that:
a. only the poor will buy the good.
b. as incomes fall, less will be spent on the good.
c. as incomes rise, the demand for the good will fall.
d. the good does not obey the law of demand.
ANSWER: c
DIFFICULTY: Easy
NATIONAL STANDARDS: United States - BUSPROG: Reflective Thinking - BUSPROG: Analytic
TOPICS: Other Elasticity Measures
161. A study of consumers in an area found that as family income increased from $25,000 per year to $35, 000 per year,
other factors held constant, the number of houses purchased increased from 7,000 per year to 11,000 per year. This
finding indicates an income elasticity of demand coefficient for housing over this family income range of:
a. 0.22.
b. 0.75.
Cengage Learning Testing, Powered by Cognero Page 41
c. 1.33.
d. 4.50.
ANSWER: c
DIFFICULTY: Moderate
NATIONAL STANDARDS: United States - BUSPROG: Reflective Thinking - BUSPROG: Analytic
TOPICS: Other Elasticity Measures
162. 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.
ANSWER: d
DIFFICULTY: Easy
NATIONAL STANDARDS: United States - BUSPROG:Analytic:Ref - BUSPROG: Analytic
TOPICS: Other Elasticity Measures
163. For which of the following medical goods or services is the income elasticity of demand largest?
a. Emergency services after a car accident.
b. Measles shots.
c. Physical examinations for life insurance applications.
d. Medical tests to diagnose specific symptoms.
e. Face-lifts.
ANSWER: e
DIFFICULTY: Moderate
NATIONAL STANDARDS: United States - BUSPROG: Reflective Thinking - BUSPROG: Analytic
TOPICS: Other Elasticity Measures
164. The income elasticity of demand for shoes is estimated to be 1.50. We can conclude that shoes:
a. have a relatively steep demand curve.
b. have a relatively flat demand curve
c. are a normal good.
d. are an inferior good.
ANSWER: c
DIFFICULTY: Moderate
NATIONAL STANDARDS: United States - BUSPROG: Reflective Thinking - BUSPROG: Analytic
TOPICS: Other Elasticity Measures
165. The number of CDs purchased increased by 50 percent when consumer income increased by 10 percent. Assuming
other factors are held constant, CDs would be classified as:
a. social goods.
b. normal goods.
c. Giffen goods.
d. inferior goods.
ANSWER: b
DIFFICULTY: Easy
Cengage Learning Testing, Powered by Cognero Page 42
NATIONAL STANDARDS: United States - BUSPROG:Analytic:Ref - BUSPROG: Analytic
TOPICS: Other Elasticity Measures
168. If we measure the income elasticity of a good as −1.8, this means this good is a(n):
a. luxury good.
b. substitute good.
c. complementary good.
d. inferior good.
e. good from the food group.
ANSWER: d
DIFFICULTY: Moderate
NATIONAL STANDARDS: United States - BUSPROG: Reflective Thinking - BUSPROG: Analytic
TOPICS: Other Elasticity Measures
169. If a consumer's purchases of a product increases as income increases, this good is classified as a(n):
a. superior good.
b. inferior good.
c. substitute good.
d. complementary good.
e. normal good.
ANSWER: e
DIFFICULTY: Moderate
NATIONAL STANDARDS: United States - BUSPROG: Reflective Thinking - BUSPROG: Analytic
TOPICS: Other Elasticity Measures
Cengage Learning Testing, Powered by Cognero Page 43
170. When economists look at the percentage change in quantity demanded generated by a change in income, they are
looking at:
a. price elasticity of demand.
b. income elasticity of demand.
c. price elasticity of supply.
d. cross elasticity of demand.
e. cross elasticity of supply.
ANSWER: b
DIFFICULTY: Moderate
NATIONAL STANDARDS: United States - BUSPROG: Reflective Thinking - BUSPROG: Analytic
TOPICS: Other Elasticity Measures
171. If a 1 percent change in income generates a greater than 1 percent change in quantity demanded of boating
expenditures, then boating is an:
a. example of Engel's law.
b. inferior good.
c. income inelastic good.
d. income elastic good.
e. example of a substitute good.
ANSWER: d
DIFFICULTY: Moderate
NATIONAL STANDARDS: United States - BUSPROG: Reflective Thinking - BUSPROG: Analytic
TOPICS: Other Elasticity Measures
172. Suppose the value of income elasticity of demand for a private college education is equal to 1.5. This means that:
a. every $1 increase in income provides an incentive for a $1.50 increase in expenditures on private college
education.
b. every $1.50 increase in income provides an incentive for a $1 increase in expenditures on private college
education.
c. a 10 percent increase in income causes a 15 percent increase in the quantity of private college education
purchased.
d. a 15 percent increase in income causes a 10 percent increase in the quantity of private college education
purchased.
e. a 10 percent decrease in private college tuition will have a large enough income effect to increase spending on
private college education by 15 percent.
ANSWER: c
DIFFICULTY: Moderate
NATIONAL STANDARDS: United States - BUSPROG: Reflective Thinking - BUSPROG: Analytic
TOPICS: Other Elasticity Measures
173. If the income elasticity of demand for a good is .59, then it is what type of good?
a. Price elastic.
b. Price inelastic.
c. Income inelastic.
d. Income elastic.
e. Inferior.
Cengage Learning Testing, Powered by Cognero Page 44
ANSWER: c
DIFFICULTY: Moderate
NATIONAL STANDARDS: United States - BUSPROG: Reflective Thinking - BUSPROG: Analytic
TOPICS: Other Elasticity Measures
174. The Smith family buys much more macaroni when someone in the family is laid off. This means that the Smiths'
____ is negative.
a. demand curve for macaroni
b. income elasticity for macaroni
c. Engel's law
d. income
e. price elasticity of demand for macaroni
ANSWER: b
DIFFICULTY: Moderate
NATIONAL STANDARDS: United States - BUSPROG: Reflective Thinking - BUSPROG: Analytic
TOPICS: Other Elasticity Measures
175. If the income elasticity for a particular good is 0.8, we would expect to see more of that good:
a. d and e.
b. consumed in wealthier countries.
c. on supermarket shelves.
d. consumed in poorer countries.
e. consumed in low-income communities.
ANSWER: a
DIFFICULTY: Moderate
NATIONAL STANDARDS: United States - BUSPROG: Reflective Thinking - BUSPROG: Analytic
TOPICS: Other Elasticity Measures
176. 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.
ANSWER: d
DIFFICULTY: Moderate
NATIONAL STANDARDS: United States - BUSPROG: Reflective Thinking - BUSPROG: Analytic
TOPICS: Other Elasticity Measures
177. 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.
ANSWER: c
DIFFICULTY: Moderate
NATIONAL STANDARDS: United States - BUSPROG: Reflective Thinking - BUSPROG: Analytic
Cengage Learning Testing, Powered by Cognero Page 45
TOPICS: Other Elasticity Measures
178. 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: c
DIFFICULTY: Easy
NATIONAL STANDARDS: United States - BUSPROG:Analytic:Ref - BUSPROG: Analytic
TOPICS: Other Elasticity Measures
179. The number of cases of Coca-Cola bought increased by 50 percent when the price of pretzels declined by 10 percent.
Assuming other factors are held constant, Coca-Cola and pretzels are classified as:
a. complements.
b. unrelated goods.
c. substitutes.
d. social goods.
ANSWER: a
DIFFICULTY: Easy
NATIONAL STANDARDS: United States - BUSPROG:Analytic:Ref - BUSPROG: Analytic
TOPICS: Other Elasticity Measures
180. The number of computers bought increased by 20 percent when the price of on-line services declined by 10 percent.
Assuming other factors are held constant, computers and on-line services are classified as:
a. complements.
b. unrelated goods.
c. substitutes.
d. social goods.
ANSWER: a
DIFFICULTY: Easy
NATIONAL STANDARDS: United States - BUSPROG:Analytic:Ref - BUSPROG: Analytic
TOPICS: Other Elasticity Measures
181. To determine whether two goods are substitutes or complements, an economist would estimate the:
a. price elasticity of demand.
b. income elasticity of demand.
c. cross-elasticity of demand.
d. price elasticity of supply.
ANSWER: c
DIFFICULTY: Moderate
NATIONAL STANDARDS: United States - BUSPROG: Reflective Thinking - BUSPROG: Analytic
TOPICS: Other Elasticity Measures
182. If automobiles and gasoline are complements, then their cross-elasticity coefficient will be:
a. strictly greater than one.
Cengage Learning Testing, Powered by Cognero Page 46
b. positive.
c. equal to zero.
d. negative.
ANSWER: d
DIFFICULTY: Moderate
NATIONAL STANDARDS: United States - BUSPROG: Reflective Thinking - BUSPROG: Analytic
TOPICS: Other Elasticity Measures
185. If a 1 percent decrease in the price of product A brings about a 3 percent increase in the sales of product B, then:
a. products A and B are complementary.
b. the cross elasticity of demand between these two products is positive.
c. products A and B are substitutes.
d. the demand for these products is inelastic.
e. the total revenue earned from product A will decrease.
ANSWER: a
DIFFICULTY: Moderate
NATIONAL STANDARDS: United States - BUSPROG: Reflective Thinking - BUSPROG: Analytic
TOPICS: Other Elasticity Measures
186. If a 10 percent decrease in the price of product A brings about a 3 percent increase in the sales of product B, then:
a. products A and B are complementary.
b. the cross elasticity of demand between these two products is positive.
c. products A and B are substitutes.
d. the demand for these products is inelastic.
Cengage Learning Testing, Powered by Cognero Page 47
e. the total revenue earned from product A will decrease.
ANSWER: a
DIFFICULTY: Moderate
NATIONAL STANDARDS: United States - BUSPROG: Reflective Thinking - BUSPROG: Analytic
TOPICS: Other Elasticity Measures
189. If John purchases 10 percent more compact discs when his income increases 5 percent, then:
a. his total expenditure on compact discs will fall as his income increases.
b. compact discs would be classified as an inferior good.
c. compact discs would be price elastic.
d. compact discs would be income inelastic.
e. compact discs would be income elastic.
ANSWER: e
DIFFICULTY: Challenging
NATIONAL STANDARDS: United States - BUSPROG: Reflective Thinking - BUSPROG: Analytic
TOPICS: Other Elasticity Measures
191. If Jackie needs special film to go with her new camera, then for her these two goods have what type of relationship?
a. Substitute.
b. Complementary.
c. Nonlinked.
d. Reversed.
e. Insensitive.
ANSWER: b
DIFFICULTY: Easy
NATIONAL STANDARDS: United States - BUSPROG:Analytic:Ref - BUSPROG: Analytic
TOPICS: Other Elasticity Measures
192. The cross elasticity between Rolaids and Tums is expected to be:
a. negative.
b. positive.
c. zero.
d. one.
e. infinite.
ANSWER: b
DIFFICULTY: Moderate
NATIONAL STANDARDS: United States - BUSPROG: Reflective Thinking - BUSPROG: Analytic
TOPICS: Other Elasticity Measures
193. We would expect the cross elasticity between tennis racquets and tennis balls to be:
a. negative.
b. positive.
c. zero.
d. one.
e. infinite.
ANSWER: a
DIFFICULTY: Moderate
NATIONAL STANDARDS: United States - BUSPROG: Reflective Thinking - BUSPROG: Analytic
TOPICS: Other Elasticity Measures
194. The cross elasticity between two goods, X and Y, is positive. From this, we can conclude that goods X and Y are:
a. substitute goods.
b. complementary goods.
c. unrelated goods.
d. inferior goods.
e. normal goods.
ANSWER: a
DIFFICULTY: Easy
NATIONAL STANDARDS: United States - BUSPROG:Analytic:Ref - BUSPROG: Analytic
Cengage Learning Testing, Powered by Cognero Page 49
TOPICS: Other Elasticity Measures
195. If two goods were to become even stronger substitutes than before, an economist would expect the cross elasticity to
become:
a. positive.
b. one.
c. zero.
d. smaller.
e. larger.
ANSWER: e
DIFFICULTY: Moderate
NATIONAL STANDARDS: United States - BUSPROG: Reflective Thinking - BUSPROG: Analytic
TOPICS: Other Elasticity Measures
196. When the price of bread increases by 3 percent, the quantity demanded of crackers increases by 2 percent. The cross
elasticity of demand between crackers and bread is:
a. 0.67.
b. 1.5.
c. 2.5.
d. 3.2.
e. 5.0.
ANSWER: a
DIFFICULTY: Moderate
NATIONAL STANDARDS: United States - BUSPROG: Reflective Thinking - BUSPROG: Analytic
TOPICS: Other Elasticity Measures
197. Which of the following pairs is most likely to represent substitute goods?
a. Hamburgers and hamburger rolls.
b. Movies and popcorn.
c. Beer and pretzels.
d. Shoes and shoelaces.
e. Pork and beef.
ANSWER: e
DIFFICULTY: Easy
NATIONAL STANDARDS: United States - BUSPROG:Analytic:Ref - BUSPROG: Analytic
TOPICS: Other Elasticity Measures
198. Which of the following pairs is most likely to represent complementary goods?
a. Hotels and campgrounds.
b. Butter and margarine.
c. Bacon and eggs.
d. Miniature golf and bowling.
e. Coffee and tea.
ANSWER: c
DIFFICULTY: Easy
NATIONAL STANDARDS: United States - BUSPROG:Analytic:Ref - BUSPROG: Analytic
Cengage Learning Testing, Powered by Cognero Page 50
TOPICS: Other Elasticity Measures
199. An increase in the price of good X causes the demand for good Y to shift inward. One can conclude that X and Y are:
a. complements.
b. substitutes.
c. unrelated goods.
d. normal goods.
e. exceptions to the law of demand.
ANSWER: a
DIFFICULTY: Moderate
NATIONAL STANDARDS: United States - BUSPROG: Reflective Thinking - BUSPROG: Analytic
TOPICS: Other Elasticity Measures
200. The cross elasticity between two goods is 2.5. These goods are:
a. perfect complements.
b. imperfect complements.
c. unrelated.
d. substitutes.
e. inferior.
ANSWER: d
DIFFICULTY: Moderate
NATIONAL STANDARDS: United States - BUSPROG: Reflective Thinking - BUSPROG: Analytic
TOPICS: Other Elasticity Measures
201. There are three goods you are interested in purchasing, X, Y and Z. You notice that the price of Z has fallen. Given
that the cross price elasticity between Z and Y is −1.5; the cross price elasticity between Y and X is 3.0, and the cross
price elasticity between Z and X is 0.50. It would make sense that:
a. Z and X are complements; Y and X are substitutes.
b. Y and X are substitutes; Y is complementary to Z.
c. X and Z are unrelated; Y is complementary to X.
d. X and Z are complements; Y and Z are substitutes.
ANSWER: b
DIFFICULTY: Challenging
NATIONAL STANDARDS: United States - BUSPROG: Reflective Thinking - BUSPROG: Analytic
TOPICS: Other Elasticity Measures
202. If goods X and Y are such that the cross price elasticity between them is negative, and if the income elasticity of X is
negative, then these goods are:
a. inferior complements.
b. luxury complements.
c. income elastic substitutes.
d. normal substitutes.
e. income elastic complements.
ANSWER: a
DIFFICULTY: Challenging
NATIONAL STANDARDS: United States - BUSPROG: Reflective Thinking - BUSPROG: Analytic
203. The cross price elasticities among substitute goods will be extremely high when:
a. b and d.
b. they are very similar to each other.
c. people are consuming them frequently.
d. people consume them in equal quantities.
e. they are imperfect substitutes.
ANSWER: b
DIFFICULTY: Challenging
NATIONAL STANDARDS: United States - BUSPROG: Reflective Thinking - BUSPROG: Analytic
TOPICS: Other Elasticity Measures
206. As cities prospered and per-capita incomes increased, the demand for bus travel diminished. This suggests that:
a. cities could raise revenue by increasing bus fares.
b. the demand for bus travel is price elastic.
c. bus travel and automobile travel are complements.
d. bus travel is an inferior good.
ANSWER: d
DIFFICULTY: Moderate
NATIONAL STANDARDS: United States - BUSPROG: Reflective Thinking - BUSPROG: Analytic
TOPICS: Other Elasticity Measures
207. If the economy is in recession and the number of used baby clothing stores increases, then:
Cengage Learning Testing, Powered by Cognero Page 52
a. used baby clothes are a necessity.
b. used baby clothes are an inferior good.
c. used baby clothes are a normal good.
d. new baby clothes are a luxury.
e. used baby clothes have price-elastic demand.
ANSWER: b
DIFFICULTY: Moderate
NATIONAL STANDARDS: United States - BUSPROG: Reflective Thinking - BUSPROG: Analytic
TOPICS: Other Elasticity Measures
208. As the economy recovers from a recession, we should expect that demand for:
a. inferior goods will fall and demand for non-inferior goods will rise.
b. all goods will rise.
c. inferior goods will rise and demand for non-inferior goods will fall.
d. all goods will fall.
e. complements will fall.
ANSWER: a
DIFFICULTY: Easy
NATIONAL STANDARDS: United States - BUSPROG:Analytic:Ref - BUSPROG: Analytic
TOPICS: Other Elasticity Measures
209. The value of cross elasticity of demand between orange soda and grape soda is:
a. negative.
b. positive.
c. 0.
d. between −1 and 0.
e. less than −1.
ANSWER: b
DIFFICULTY: Moderate
NATIONAL STANDARDS: United States - BUSPROG: Reflective Thinking - BUSPROG: Analytic
TOPICS: Other Elasticity Measures
210. The price elasticity of demand between rifles and bullets is likely to be:
a. negative, because the goods are complements.
b. positive, because the goods are complements.
c. negative, because the goods are substitutes.
d. positive, because the goods are substitutes.
ANSWER: a
DIFFICULTY: Easy
NATIONAL STANDARDS: United States - BUSPROG:Analytic:Ref - BUSPROG: Analytic
TOPICS: Other Elasticity Measures
211. The price elasticity of demand between milk and soda is likely to be:
a. negative, because the goods are complements.
b. positive, because the goods are complements.
c. negative, because the goods are substitutes.
Cengage Learning Testing, Powered by Cognero Page 53
d. positive, because the goods are substitutes.
e. 0, because the goods are not usually consumed by the same person at one time.
ANSWER: d
DIFFICULTY: Moderate
NATIONAL STANDARDS: United States - BUSPROG: Reflective Thinking - BUSPROG: Analytic
TOPICS: Other Elasticity Measures
213. In order to prove that Dr. Pepper and 7-Up are substitutes, the FTC should test the ____ and get a ____.
a. price elasticity of demand; number less than 1
b. income elasticity; positive number
c. price elasticity; negative number
d. price elasticity of demand; number greater than 1
e. cross-price elasticity; positive number
ANSWER: e
DIFFICULTY: Challenging
NATIONAL STANDARDS: United States - BUSPROG: Reflective Thinking - BUSPROG: Analytic
TOPICS: Other Elasticity Measures
214. Suppose that the quantity of apples sold increases by 30 percent after the price of pears increases by 15 percent. What
is the coefficient of cross elasticity of demand?
a. 3.0.
b. 1.5.
c. 0.2.
d. 2.0.
e. 0.3.
ANSWER: d
DIFFICULTY: Moderate
NATIONAL STANDARDS: United States - BUSPROG: Reflective Thinking - BUSPROG: Analytic
TOPICS: Other Elasticity Measures
215. As the period for firms to expand output is lengthened, the elasticity of the market supply curve will:
a. approach zero.
b. increase.
c. decrease.
d. remain the same since time does not affect the elasticity of market supply.
Cengage Learning Testing, Powered by Cognero Page 54
ANSWER: b
DIFFICULTY: Moderate
NATIONAL STANDARDS: United States - BUSPROG: Reflective Thinking - BUSPROG: Analytic
TOPICS: Other Elasticity Measures
217. If the price elasticity is supply coefficient is greater than one, then supply is:
a. elastic.
b. inelastic.
c. perfectly elastic.
d. perfectly inelastic.
ANSWER: a
DIFFICULTY: Moderate
NATIONAL STANDARDS: United States - BUSPROG: Reflective Thinking - BUSPROG: Analytic
TOPICS: Other Elasticity Measures
220. If the price elasticity of supply equals zero, this implies that:
a. suppliers can easily change the quantity supplied of the product as the price of the product changes.
Cengage Learning Testing, Powered by Cognero Page 55
b. the period under consideration is a very long-run time period.
c. the supply curve is perfectly vertical.
d. the percentage change in quantity supplied exceeds the percentage change in product price.
e. the percentage change in quantity supplied equals the percentage change in product price.
ANSWER: c
DIFFICULTY: Moderate
NATIONAL STANDARDS: United States - BUSPROG: Reflective Thinking - BUSPROG: Analytic
TOPICS: Other Elasticity Measures
222. Suppose that when price is $10, quantity supplied is 20. When price is $6, quantity supplied is 12 units. The price
elasticity of supply is:
a. 0.5.
b. 0.8.
c. 1.0.
d. 1.5.
e. 2.0.
ANSWER: c
DIFFICULTY: Moderate
NATIONAL STANDARDS: United States - BUSPROG: Reflective Thinking - BUSPROG: Analytic
TOPICS: Other Elasticity Measures
224. If a tripling of price triples the quantity of a good supplied, the price elasticity of supply for this good is:
a. 3.
b. 300.
Cengage Learning Testing, Powered by Cognero Page 56
c. 1.
d. −1.
e. −3.
ANSWER: c
DIFFICULTY: Easy
NATIONAL STANDARDS: United States - BUSPROG:Analytic:Ref - BUSPROG: Analytic
TOPICS: Other Elasticity Measures
225. As shown in Exhibit 5-8, the price elasticity of demand for good X between points E and Z is:
a. 3/13 = 0.23.
b. 13/3 = 4.33.
c. 1/3 = 0.33.
d. 1.
ANSWER: a
DIFFICULTY: Moderate
NATIONAL STANDARDS: United States - BUSPROG: Reflective Thinking - BUSPROG: Analytic
TOPICS: Price Elasticity of Demand
226. As shown in Exhibit 5-8, the price elasticity of supply for good X between points E and X is:
a. 1/5 = 0.20.
b. 1/11 = 0.91.
c. 1/2 = 0.50.
d. 5/11 = 0.45.
ANSWER: d
DIFFICULTY: Moderate
NATIONAL STANDARDS: United States - BUSPROG: Reflective Thinking - BUSPROG: Analytic
TOPICS: Price Elasticity of Demand
227. As shown in Exhibit 5-8, assuming good X is a normal good, a decrease in consumer income, other factors held
constant, will move the equilibrium from point E to point:
a. X.
Cengage Learning Testing, Powered by Cognero Page 57
b. Z.
c. Y.
d. W.
ANSWER: c
DIFFICULTY: Easy
NATIONAL STANDARDS: United States - BUSPROG:Analytic:Ref - BUSPROG: Analytic
TOPICS: Other Elasticity Measures
228. As shown in Exhibit 5-8, assuming good X is an inferior good, a decrease in consumer income, other factors held
constant, will move the equilibrium from point E to point:
a. X.
b. W.
c. Z.
d. Y.
ANSWER: a
DIFFICULTY: Moderate
NATIONAL STANDARDS: United States - BUSPROG: Reflective Thinking - BUSPROG: Analytic
TOPICS: Other Elasticity Measures
229. As shown in Exhibit 5-8, assuming goods X and Y are substitutes, a decrease in the price of Y, other factors held
constant, will move the equilibrium from point E to point:
a. W.
b. X.
c. Y.
d. Z.
ANSWER: c
DIFFICULTY: Moderate
NATIONAL STANDARDS: United States - BUSPROG: Reflective Thinking - BUSPROG: Analytic
TOPICS: Other Elasticity Measures
230. In Exhibit 5-8, the price elasticity of supply for good X between points Y and E is:
a. 1/5 = 0.20.
b. 5/3 = 1.66.
c. 3/5 = 0.60.
d. 1.
ANSWER: c
DIFFICULTY: Moderate
NATIONAL STANDARDS: United States - BUSPROG: Reflective Thinking - BUSPROG: Analytic
TOPICS: Other Elasticity Measures
231. In Exhibit 5-8, the price elasticity of supply for good X between points E and X is:
a. 7/5 = 1.40.
b. 1/5 = 0.20.
c. 5/7 = 0.71.
d. 1.
ANSWER: c
Cengage Learning Testing, Powered by Cognero Page 58
DIFFICULTY: Moderate
NATIONAL STANDARDS: United States - BUSPROG: Reflective Thinking - BUSPROG: Analytic
TOPICS: Other Elasticity Measures
232. If the quantity of rental units increases by 10 percent when the monthly rental price doubles, the supply of rental
units, other factors held constant, is:
a. elastic.
b. inelastic.
c. perfectly elastic.
d. perfectly inelastic.
ANSWER: b
DIFFICULTY: Moderate
NATIONAL STANDARDS: United States - BUSPROG: Reflective Thinking - BUSPROG: Analytic
TOPICS: Other Elasticity Measures
233. Assume 300 billion pounds of Ostrich meat is produced per year when the price is 50 cents per pound, and 500
billion pounds when the price is 60 cents per pound. The supply of Ostrich meat, other factors held constant, is:
a. price elastic.
b. price inelastic.
c. income elastic.
d. income inelastic.
ANSWER: a
DIFFICULTY: Challenging
NATIONAL STANDARDS: United States - BUSPROG: Reflective Thinking - BUSPROG: Analytic
TOPICS: Other Elasticity Measures
234. As shown in Exhibit 5-9, the price elasticity of demand for good X between points E and B is:
a. 3/7 = 0.43.
b. 7/3 = 2.33.
c. 1/2 = 0.50.
d. 1.
ANSWER: a
Cengage Learning Testing, Powered by Cognero Page 59
DIFFICULTY: Moderate
NATIONAL STANDARDS: United States - BUSPROG: Reflective Thinking - BUSPROG: Analytic
TOPICS: Price Elasticity of Demand
235. As shown in Exhibit 5-9, the price elasticity of demand for good X between points E and D is:
a. 1/5 = 0.20.
b. 3/7 = 0.43.
c. 1/2 = 0.50.
d. 1.
ANSWER: d
DIFFICULTY: Moderate
NATIONAL STANDARDS: United States - BUSPROG: Reflective Thinking - BUSPROG: Analytic
TOPICS: Price Elasticity of Demand
236. As shown in Exhibit 5-9, assuming good X is a normal good, an increase in consumer income, other factors held
constant, could move the equilibrium from point E to point:
a. A.
b. B.
c. C.
d. D.
ANSWER: c
DIFFICULTY: Easy
NATIONAL STANDARDS: United States - BUSPROG:Analytic:Ref - BUSPROG: Analytic
TOPICS: Other Elasticity Measures
237. As shown in Exhibit 5-9, assuming good X is an inferior good, an increase in consumer income, other factors held
constant, could move the equilibrium from point E to point:
a. A.
b. B.
c. C.
d. D.
ANSWER: a
DIFFICULTY: Easy
NATIONAL STANDARDS: United States - BUSPROG:Analytic:Ref - BUSPROG: Analytic
TOPICS: Other Elasticity Measures
238. As shown in Exhibit 5-9, assuming goods X and Y are substitutes, an increase in the price of Y, other factors held
constant, could move the equilibrium from point E to point:
a. A.
b. B.
c. C.
d. D.
ANSWER: c
DIFFICULTY: Easy
NATIONAL STANDARDS: United States - BUSPROG:Analytic:Ref - BUSPROG: Analytic
Cengage Learning Testing, Powered by Cognero Page 60
TOPICS: Other Elasticity Measures
239. In Exhibit 5-9, the price elasticity of supply for good X between points A and E is:
a. 3/5 = 0.60.
b. 5/3 = 1.66.
c. 1/2 = 0.50.
d. 1.
ANSWER: a
DIFFICULTY: Moderate
NATIONAL STANDARDS: United States - BUSPROG: Reflective Thinking - BUSPROG: Analytic
TOPICS: Other Elasticity Measures
240. In Exhibit 5-9, the price elasticity of supply for good X between points E and C is:
a. 7/5 = 1.40.
b. 1/5 =0.20.
c. 5/7 = 0.71.
d. 1.
ANSWER: c
DIFFICULTY: Moderate
NATIONAL STANDARDS: United States - BUSPROG: Reflective Thinking - BUSPROG: Analytic
TOPICS: Other Elasticity Measures
241. If the federal government placed a 50 cent per pack excise tax on cigarette manufacturers, and if as a result, the price
to consumers of a pack of cigarettes went up by 40 cents, the:
a. actual burden of this tax falls mostly on consumers.
b. actual burden of this tax falls mostly on manufacturers.
c. actual burden of the tax would be shared equally by producers and consumers.
d. tax would clearly be a progressive tax.
ANSWER: a
DIFFICULTY: Moderate
NATIONAL STANDARDS: United States - BUSPROG: Reflective Thinking - BUSPROG: Analytic
TOPICS: Other Elasticity Measures
242. An excise tax levied on a product will impose a smaller relative burden on consumers (and a larger relative burden
on sellers) when:
a. the supply of the product is relatively inelastic.
b. the supply of the product is relatively elastic.
c. the demand for the product is relatively elastic.
d. either a or c is true.
ANSWER: d
DIFFICULTY: Challenging
NATIONAL STANDARDS: United States - BUSPROG: Reflective Thinking - BUSPROG: Analytic
TOPICS: Other Elasticity Measures
243. The more elastic the supply of a product, the more the actual burden of a tax on the product will:
a. fall on sellers.
b. fall on buyers.
Cengage Learning Testing, Powered by Cognero Page 61
c. fall equally on both buyers and sellers.
d. create a smaller deadweight loss (or excess burden).
ANSWER: b
DIFFICULTY: Challenging
NATIONAL STANDARDS: United States - BUSPROG: Reflective Thinking - BUSPROG: Analytic
TOPICS: Other Elasticity Measures
244. The more inelastic the demand for a product, the more the actual burden of a tax on the product will:
a. fall on sellers.
b. fall on buyers.
c. fall equally on both buyers and sellers.
d. create a larger deadweight loss (or excess burden).
ANSWER: b
DIFFICULTY: Challenging
NATIONAL STANDARDS: United States - BUSPROG: Reflective Thinking - BUSPROG: Analytic
TOPICS: Other Elasticity Measures
245. Using supply and demand analysis, which of the following is true?
a. The burden of a tax on production cannot be determined on the basis of who actually pays the tax.
b. The burden of a tax on production is always split evenly between consumers and sellers.
c. Consumers bear the entire burden of a per unit tax on production.
d. Sellers bear the entire burden of a per unit tax on production.
ANSWER: a
DIFFICULTY: Challenging
NATIONAL STANDARDS: United States - BUSPROG: Reflective Thinking - BUSPROG: Analytic
TOPICS: Other Elasticity Measures
246. If the government wants to raise tax revenue and shift most of the tax burden to the consumers, it would impose a tax
on a good with a:
a. flat (elastic) demand curve and a steep (inelastic) supply curve.
b. steep (inelastic) demand curve and a flat (elastic) supply curve.
c. steep (inelastic) demand curve and steep (inelastic) demand curve.
d. flat (elastic) demand curve and a flat (elastic) supply curve.
ANSWER: b
DIFFICULTY: Challenging
NATIONAL STANDARDS: United States - BUSPROG: Reflective Thinking - BUSPROG: Analytic
TOPICS: Other Elasticity Measures
247. If the government wants to raise tax revenue and shift most of the tax burden to the sellers it would impose a tax on a
good with a:
a. flat (elastic) demand curve and a steep (inelastic) supply curve.
b. steep (inelastic) demand curve and a flat (elastic) supply curve.
c. steep (inelastic) demand curve and steep (inelastic) demand curve.
d. flat (elastic) demand curve and a flat (elastic) supply curve.
ANSWER: a
DIFFICULTY: Challenging
Cengage Learning Testing, Powered by Cognero Page 62
NATIONAL STANDARDS: United States - BUSPROG: Reflective Thinking - BUSPROG: Analytic
TOPICS: Other Elasticity Measures
248. A law requiring sellers to pay the government a tax per pack on cigarettes has the effect of:
a. shifting the supply curve to the right.
b. shifting the demand curve to the right.
c. shifting the supply curve to the left.
d. shifting the demand curve to the left.
ANSWER: c
DIFFICULTY: Moderate
NATIONAL STANDARDS: United States - BUSPROG: Reflective Thinking - BUSPROG: Analytic
TOPICS: Other Elasticity Measures
249. Assuming the demand curve is more elastic (flatter) than the supply curve, which of the following is true?
a. The full tax is always passed to the consumer no matter how flat (elastic) the demand curve is.
b. The full tax is always passed to the seller no matter how flat (elastic) the demand curve is.
c. The smaller the portion of a sales tax that is passed to the consumer.
d. It does not make any difference how flat (elastic) the demand curve is; the tax is always split evenly between
buyer and seller.
ANSWER: c
DIFFICULTY: Challenging
NATIONAL STANDARDS: United States - BUSPROG: Reflective Thinking - BUSPROG: Analytic
TOPICS: Other Elasticity Measures
250. If the government wants to raise tax revenue and shift most of the tax burden to the sellers, it would impose a tax on a
good with a:
a. steep (inelastic) demand curve and steep (inelastic) demand curve.
b. steep (inelastic) demand curve and a flat (elastic) supply curve.
c. flat (elastic) demand curve and a steep (inelastic) supply curve.
d. flat (elastic) demand curve and a flat (elastic) supply curve.
ANSWER: c
DIFFICULTY: Challenging
NATIONAL STANDARDS: United States - BUSPROG: Reflective Thinking - BUSPROG: Analytic
TOPICS: Other Elasticity Measures
251. If a government tax has as its purpose the raising of revenue, it would be best to place the tax on a product which:
a. is a non-essential.
b. has a highly elastic demand.
c. has many good substitutes.
d. has a highly inelastic demand.
e. has a unit elastic demand curve.
ANSWER: d
DIFFICULTY: Moderate
NATIONAL STANDARDS: United States - BUSPROG: Reflective Thinking - BUSPROG: Analytic
TOPICS: Other Elasticity Measures
252. To raise the most tax revenue, governments should consider taxing goods with:
Cengage Learning Testing, Powered by Cognero Page 63
a. income elastic demands.
b. price inelastic demands.
c. income elastic demands.
d. income inelastic demands.
e. cross price elastic demands.
ANSWER: b
DIFFICULTY: Challenging
NATIONAL STANDARDS: United States - BUSPROG: Reflective Thinking - BUSPROG: Analytic
TOPICS: Other Elasticity Measures
253. Good A has a price elasticity of demand of .27, while good B has a price elasticity of demand of 2.9. To raise the
most tax revenue, the government should:
a. place a unit tax on good A.
b. place a unit tax on good B.
c. raise the price elasticity of demand for good A.
d. subsidize the production of good B.
e. cut its spending for various social programs.
ANSWER: a
DIFFICULTY: Challenging
NATIONAL STANDARDS: United States - BUSPROG: Reflective Thinking - BUSPROG: Analytic
TOPICS: Other Elasticity Measures
254. In the country of Bora Bora, consumers buy large quantities of alcohol, tobacco, and coffee. Last year, the prices of
these goods each increased by 10 percent. The quantities demanded for these goods fell by 10, 3, and 8 percent,
respectively. If the government is thinking about imposing a unit tax on one of these goods, which good should they
choose to tax to raise the most tax revenue, and why?
a. Alcohol; because the price elasticity is highest.
b. Tobacco; because the price elasticity is lowest.
c. Coffee; because it will have the lowest tax elasticity.
d. Tobacco; because it will have the highest tax elasticity.
e. Alcohol; because the burden of taxation would be more even.
ANSWER: b
DIFFICULTY: Challenging
NATIONAL STANDARDS: United States - BUSPROG: Reflective Thinking - BUSPROG: Analytic
TOPICS: Other Elasticity Measures
255. If an excise tax is placed on a product that has a perfectly inelastic demand, then:
a. the entire tax will be paid by the consumer.
b. the entire tax will be paid by the producer.
c. the consumer and producer will each pay a share of the tax.
d. the incidence of the tax cannot be determined unless we know the coefficient of price elasticity of supply.
e. the tax is progressive.
ANSWER: a
DIFFICULTY: Moderate
NATIONAL STANDARDS: United States - BUSPROG: Reflective Thinking - BUSPROG: Analytic
TOPICS: Other Elasticity Measures
As shown in Exhibit 3-10, assume the government places a $1 per pack sales tax on cigarettes. The percentage of the
burden of taxation paid by consumers of a pack of cigarettes is:
a. zero.
b. 25 percent.
c. 50 percent.
d. 100 percent.
ANSWER: c
DIFFICULTY: Moderate
NATIONAL STANDARDS: United States - BUSPROG: Reflective Thinking - BUSPROG: Analytic
TOPICS: Price Elasticity and the Impact of Taxation
257. As shown in Exhibit 3-10, assume the government places a $1 per pack sales tax on cigarettes. The percentage of the
burden of taxation paid by tobacco sellers is:
a. zero.
b. 50 percent.
c. 75 percent.
d. 100 percent.
ANSWER: b
DIFFICULTY: Moderate
NATIONAL STANDARDS: United States - BUSPROG: Reflective Thinking - BUSPROG: Analytic
TOPICS: Price Elasticity and the Impact of Taxation
258. As shown in Exhibit 3-10, the $1 per pack tax on cigarettes raises tax revenue per day totaling:
Cengage Learning Testing, Powered by Cognero Page 65
a. $5 million.
b. $6 million.
c. $10 million.
d. $15 million.
ANSWER: b
DIFFICULTY: Moderate
NATIONAL STANDARDS: United States - BUSPROG: Reflective Thinking - BUSPROG: Analytic
259. The price elasticity of demand measures consumer responsiveness to a price change.
a. True
b. False
ANSWER: True
DIFFICULTY: Easy
NATIONAL STANDARDS: United States - BUSPROG:Analytic:Ref - BUSPROG: Analytic
TOPICS: Price Elasticity of Demand
260. If the price elasticity of demand for a good is elastic, then consumers are relatively unresponsive with respect to the
quantity purchased when the price changes.
a. True
b. False
ANSWER: False
DIFFICULTY: Easy
NATIONAL STANDARDS: United States - BUSPROG:Analytic:Ref - BUSPROG: Analytic
TOPICS: Price Elasticity of Demand
261. If the price elasticity of demand coefficient equals 2, this means a 10 percent increase in price will result in a 20
percent decrease in the quantity demanded.
a. True
b. False
ANSWER: True
DIFFICULTY: Moderate
NATIONAL STANDARDS: United States - BUSPROG:Analytic:Ref - BUSPROG: Analytic
TOPICS: Price Elasticity of Demand
a. True
b. False
ANSWER: True
Cengage Learning Testing, Powered by Cognero Page 66
DIFFICULTY: Easy
NATIONAL STANDARDS: United States - BUSPROG:Analytic:Ref - BUSPROG: Analytic
TOPICS: Price Elasticity of Demand
263. If the managers of the bus system found that revenues increase when fares are raised, they would conclude that price
elasticity demand for subway service is inelastic.
a. True
b. False
ANSWER: True
DIFFICULTY: Moderate
NATIONAL STANDARDS: United States - BUSPROG:Analytic:Ref - BUSPROG: Analytic
TOPICS: Price Elasticity of Demand
a. True
b. False
ANSWER: False
DIFFICULTY: Easy
NATIONAL STANDARDS: United States - BUSPROG:Analytic:Ref - BUSPROG: Analytic
TOPICS: Price Elasticity of Demand
265. If demand is perfectly inelastic, then the demand curve will be vertical.
a. True
b. False
ANSWER: True
DIFFICULTY: Easy
NATIONAL STANDARDS: United States - BUSPROG:Analytic:Ref - BUSPROG: Analytic
TOPICS: Price Elasticity of Demand
266. If a 10 percent price increase causes the quantity demanded for a good to decrease by 20 percent, demand is elastic.
a. True
b. False
ANSWER: True
DIFFICULTY: Easy
NATIONAL STANDARDS: United States - BUSPROG:Analytic:Ref - BUSPROG: Analytic
TOPICS: Price Elasticity of Demand
267. If a 10 percent price increase causes the quantity demanded for a good to decrease by 5 percent, demand is elastic.
268. If a 10 percent price increase causes the quantity demanded for a good to decrease by 10 percent, demand is unitary
elastic.
a. True
b. False
ANSWER: True
DIFFICULTY: Easy
NATIONAL STANDARDS: United States - BUSPROG:Analytic:Ref - BUSPROG: Analytic
TOPICS: Price Elasticity of Demand
269. If the demand curve for a good is elastic, consumers will spend more on that good when its price increases.
a. True
b. False
ANSWER: False
DIFFICULTY: Easy
NATIONAL STANDARDS: United States - BUSPROG:Analytic:Ref - BUSPROG: Analytic
TOPICS: Price Elasticity of Demand
270. Suppose an economist found that total revenues increase for the bus system when fares were raised, the conclusion is
that the price elasticity demand for subway services over the range of fare increase is inelastic.
a. True
b. False
ANSWER: True
DIFFICULTY: Easy
NATIONAL STANDARDS: United States - BUSPROG:Analytic:Ref - BUSPROG: Analytic
TOPICS: Price Elasticity of Demand
a. True
b. False
ANSWER: True
Cengage Learning Testing, Powered by Cognero Page 68
DIFFICULTY: Easy
NATIONAL STANDARDS: United States - BUSPROG:Analytic:Ref - BUSPROG: Analytic
TOPICS: Price Elasticity of Demand
272. If a good has a price elasticity of demand coefficient greater than 1, total revenue can be increased by raising the
price.
a. True
b. False
ANSWER: False
DIFFICULTY: Moderate
NATIONAL STANDARDS: United States - BUSPROG:Analytic:Ref - BUSPROG: Analytic
TOPICS: Price Elasticity of Demand
273. Other factors held constant, if there are few close substitutes for a good, demand is more elastic for it.
a. True
b. False
ANSWER: False
DIFFICULTY: Moderate
NATIONAL STANDARDS: United States - BUSPROG:Analytic:Ref - BUSPROG: Analytic
TOPICS: Price Elasticity of Demand
274. The fewer the substitutes for a good the greater will be the value of the price elasticity of demand coefficient.
a. True
b. False
ANSWER: False
DIFFICULTY: Easy
NATIONAL STANDARDS: United States - BUSPROG:Analytic:Ref - BUSPROG: Analytic
TOPICS: Determinants of Price Elasticity of Demand
275. Goods with few available substitutes tend to have inelastic demand curves.
a. True
b. False
ANSWER: True
DIFFICULTY: Moderate
NATIONAL STANDARDS: United States - BUSPROG:Analytic:Ref - BUSPROG: Analytic
TOPICS: Determinants of Price Elasticity of Demand
a. True
b. False
ANSWER: False
DIFFICULTY: Moderate
NATIONAL STANDARDS: United States - BUSPROG:Analytic:Ref - BUSPROG: Analytic
TOPICS: Other Elasticity Measures
277. If the income elasticity of demand for a good is negative, the good is an inferior good.
a. True
b. False
ANSWER: True
DIFFICULTY: Easy
NATIONAL STANDARDS: United States - BUSPROG:Analytic:Ref - BUSPROG: Analytic
TOPICS: Other Elasticity Measures
278. If the income elasticity of demand for a good is positive, the good is a normal good.
a. True
b. False
ANSWER: True
DIFFICULTY: Easy
NATIONAL STANDARDS: United States - BUSPROG:Analytic:Ref - BUSPROG: Analytic
TOPICS: Other Elasticity Measures
a. True
b. False
ANSWER: True
DIFFICULTY: Easy
NATIONAL STANDARDS: United States - BUSPROG:Analytic:Ref - BUSPROG: Analytic
TOPICS: Other Elasticity Measures
280. In response to a price change for good Y, if the cross-elasticity of demand for good Y is negative, good X and good
Y are substitutes.
281. In response to a price change for good Y, if the cross-elasticity of demand for good Y is positive, good X and good Y
are complements.
a. True
b. False
ANSWER: False
DIFFICULTY: Moderate
NATIONAL STANDARDS: United States - BUSPROG: Reflective Thinking - BUSPROG: Analytic
TOPICS: Other Elasticity Measures
282. If a supply curve has a constant slope throughout its length, it must have a constant price elasticity throughout its
length.
a. True
b. False
ANSWER: False
DIFFICULTY: Moderate
NATIONAL STANDARDS: United States - BUSPROG: Reflective Thinking - BUSPROG: Analytic
TOPICS: Other Elasticity Measures
283. If the supply of a good is inelastic, a decrease in price must increase total revenue.
a. True
b. False
ANSWER: False
DIFFICULTY: Moderate
NATIONAL STANDARDS: United States - BUSPROG: Reflective Thinking - BUSPROG: Analytic
TOPICS: Other Elasticity Measures
284. Applying supply and demand analysis, other factors held constant, the steeper the supply curve (more inelastic), the
larger the burden of a sales tax that is borne by the sellers.
285. When the government imposes a tax, sellers raise their price by the full amount of the tax.
a. True
b. False
ANSWER: False
DIFFICULTY: Moderate
NATIONAL STANDARDS: United States - BUSPROG: Reflective Thinking - BUSPROG: Analytic
TOPICS: Price Elasticity and the Impact of Taxation
286. Supply-demand analysis shows that a tax collected from sellers is always fully shifted to buyers.
a. True
b. False
ANSWER: False
DIFFICULTY: Moderate
NATIONAL STANDARDS: United States - BUSPROG: Reflective Thinking - BUSPROG: Analytic
TOPICS: Price Elasticity and the Impact of Taxation
287. Applying supply and demand analysis, other factors held constant, the steeper the supply curve (more elastic), the
larger the burden of a sales tax that is borne by the sellers.
a. True
b. False
ANSWER: True
DIFFICULTY: Easy
NATIONAL STANDARDS: United States - BUSPROG:Analytic:Ref - BUSPROG: Analytic
TOPICS: Price Elasticity and the Impact of Taxation
288. What does the “price elasticity of demand” measure? What does a price elasticity of demand coefficient of 1.2 mean?
Does the product have an elastic, unitary elastic or inelastic demand?
ANSWER: The price elasticity of demand measures buyer responsiveness to a price change. If the
price elasticity of demand coefficient equals 1.2, this means that for every 1 percent change
in price there will be a 1.2 percent change in the quantity demanded in the opposite
DIFFICULTY: Moderate
NATIONAL STANDARDS: United States - BUSPROG: Reflective Thinking - BUSPROG: Analytic
TOPICS: Price Elasticity of Demand
289. What happens to total revenue given a price increase and demand is inelastic? Why?
ANSWER: Total revenue will rise if the price rises and demand is inelastic. This is because the
percentage increase in the price exceeds the percentage decrease in the quantity demanded.
Indeed, whenever, the demand is inelastic this means buyers are relatively unresponsive to
a change in the price. Therefore, total revenue rises when price rises.
DIFFICULTY: Moderate
NATIONAL STANDARDS: United States - BUSPROG: Reflective Thinking - BUSPROG: Analytic
TOPICS: Price Elasticity of Demand Variations along a Demand Curve