Microeconomics Canada in the Global Environment Canadian 9th Edition By Parkin – Test Bank
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Sample Questions
Chapter 4 Elasticity
4.1 Price Elasticity of Demand
1) A price elasticity of demand of 2 means that a 10 percent
increase in price will result in a
1. A) 2
percent decrease in quantity demanded.
2. B) 20
percent decrease in quantity demanded.
3. C) 5
percent decrease in quantity demanded.
4. D) 2
percent increase in quantity demanded.
5. E) 20
percent increase in quantity demanded.
Answer: B
Diff: 2 Type: MC
Topic: Price Elasticity of Demand
2) The price elasticity of demand is a units-free measure of the
responsiveness of the ________ when all other influences on buying plans remain
the same.
1. A)
quantity demanded to a change in the price of a substitute or complement
2. B)
quantity demanded to a change in income
3. C)
quantity demanded of a good to a change in its price
4. D)
price to a change in quantity demanded
5. E)
quantity demanded of a good to a change in supply
Answer: C
Diff: 1 Type: MC
Topic: Price Elasticity of Demand
3) The concept used by economists to indicate the responsiveness
of the quantity demanded of a good to a change in its price is the
1. A)
cross elasticity of demand.
2. B)
income elasticity of demand.
3. C)
substitute elasticity of demand.
4. D)
price elasticity of demand.
5. E)
elasticity of supply.
Answer: D
Diff: 1 Type: MC
Topic: Price Elasticity of Demand
4) If a 10 percent rise in price leads to an 8 percent decrease
in quantity demanded, the price elasticity of demand is
1. A)
0.8.
2. B)
1.25.
3. C) 8.
4. D)
0.125.
5. E)
80.
Answer: A
Diff: 2 Type: MC
Topic: Price Elasticity of Demand
5) If a large percentage drop in the price level results in a
small percentage increase in the quantity demanded,
1. A)
demand is inelastic.
2. B)
demand is elastic.
3. C)
demand is unit elastic.
4. D)
the price elasticity of demand is close to infinity.
5. E)
the price elasticity of demand is zero.
Answer: A
Diff: 2 Type: MC
Topic: Price Elasticity of Demand
6) The price of apples falls by 5 percent and quantity of apples
demanded increases by 6 percent. We conclude that the demand for apples is
1. A)
perfectly elastic.
2. B)
unit elastic.
3. C)
elastic.
4. D)
perfectly inelastic.
5. E)
inelastic.
Answer: C
Diff: 2 Type: MC
Topic: Price Elasticity of Demand
7) The price of oranges rises by 3 percent and quantity of
oranges demanded decreases by 3 percent. We conclude that the demand for
oranges is
1. A)
inelastic.
2. B)
elastic.
3. C)
perfectly inelastic.
4. D)
perfect elastic.
5. E)
unit elastic.
Answer: E
Diff: 2 Type: MC
Topic: Price Elasticity of Demand
8) The price of plums falls by 7 percent and quantity of plums
demanded increases by 6.75 percent. We conclude that the demand for plums is
1. A)
inelastic.
2. B)
perfectly elastic.
3. C)
perfectly inelastic.
4. D)
elastic.
5. E)
unit elastic.
Answer: A
Diff: 2 Type: MC
Topic: Price Elasticity of Demand
9) The price of good A falls
by 10 percent and quantity of good A demanded
does not change. We conclude that the demand for good A is
1. A)
perfectly elastic.
2. B)
inelastic.
3. C)
perfectly inelastic.
4. D)
elastic.
5. E)
unit elastic.
Answer: C
Diff: 2 Type: MC
Topic: Price Elasticity of Demand
10) Which one of the following illustrates an inelastic demand?
1. A) A
10 percent rise in price leads to a 5 percent decrease in quantity demanded.
2. B) A
10 percent rise in price leads to a 20 percent decrease in quantity demanded.
3. C) A
price elasticity of demand equal to infinity
4. D) A
price elasticity of demand equal to 1.0.
5. E) A
price elasticity of demand equal to 2.0
Answer: A
Diff: 2 Type: MC
Topic: Price Elasticity of Demand
11) Which one of the following illustrates an elastic demand?
1. A) A
10 percent rise in price leads to a 5 percent decrease in quantity demanded.
2. B) A
10 percent rise in price leads to a 20 percent decrease in quantity demanded.
3. C) A
price elasticity of demand equal to 0.2
4. D) A
price elasticity of demand equal to 1.0
5. E) A
price elasticity of demand equal to zero
Answer: B
Diff: 2 Type: MC
Topic: Price Elasticity of Demand
12) If a 12 percent fall in price results in an 8 percent
increase in quantity demanded, the price elasticity of demand equals
1. A)
0.96.
2. B)
0.12.
3. C)
0.67.
4. D)
1.5.
5. E)
0.8.
Answer: C
Diff: 2 Type: MC
Topic: Price Elasticity of Demand
13) The demand for good A is
unit elastic if
1. A) a
5 percent fall in the price of A results
in an infinite increase in the quantity of A
2. B) a
5 percent rise in the price of A results
in a 10 percent decrease in the quantity of A
3. C)
any increase in the price of A results
in a 1 percent decrease in the quantity of A
4. D) a
5 percent rise in the price of A results
in no change in the quantity of A
5. E) a
5 percent rise in the price of A results
in a 5 percent decrease in the quantity of A
Answer: E
Diff: 2 Type: MC
Topic: Price Elasticity of Demand
14) Demand is inelastic if
1. A) a
small change in price results in a large change in quantity demanded.
2. B)
the quantity demanded is very responsive to a change in price.
3. C)
the price elasticity of demand is 0.2.
4. D)
the price does not change when supply increases.
5. E) a
10 percent change in price results in a 1 percent change in the quantity
supplied.
Answer: C
Diff: 2 Type: MC
Topic: Price Elasticity of Demand
15) If the demand curve for a good is a horizontal line, then
the good has
1. A)
zero income elasticity.
2. B)
price elasticity of demand equal to zero.
3. C)
infinite price elasticity of demand.
4. D) a
price elasticity of demand that is likely to rise in the short run.
5. E) a
price elasticity of demand that is likely to fall in the short run.
Answer: C
Diff: 2 Type: MC
Topic: Price Elasticity of Demand
16) If a 10 percent rise in the price of goods leads to a 10
percent decrease in quantity demanded, the demand curve for this good
1. A) is
vertical.
2. B) is
horizontal.
3. C)
has slope equal to 1.
4. D) is
a straight line with slope equal to 10.
5. E)
none of the above
Answer: E
Diff: 2 Type: MC
Topic: Price Elasticity of Demand
17) A unit elastic demand
1. A)
means that the ratio of a change in quantity demanded to a change in price is
equal to 1.
2. B)
means that the ratio of a percentage change in quantity demanded to a
percentage change in price is equal to 1.
3. C)
means that the ratio of a change in price to a change in quantity demanded is
equal to 1.
4. D) is
illustrated by a horizontal demand curve.
5. E) is
illustrated by a vertical demand curve.
Answer: B
Diff: 2 Type: MC
Topic: Price Elasticity of Demand
18) Suppose a rise in the price of a good from $6.50 to $7.50
leads to a decrease in the quantity demanded from 10,500 to 9,500 units. In
this range of demand, the price elasticity of demand is
14. A)
14.
15. B) 7.
16. C)
1,000.
17. D) 1.
18. E)
0.7.
Answer: E
Diff: 2 Type: MC
Topic: Price Elasticity of Demand
19) A fall in the price of a good from $11.50 to $8.50 results
in an increase in the quantity demanded from 19,200 to 20,800 units. The price
elasticity of demand is
1. A)
0.27.
2. B)
3.75.
3. C)
0.08.
4. D)
8.0.
5. E)
30.
Answer: A
Diff: 2 Type: MC
Topic: Price Elasticity of Demand
20) A fall in the price of a good from $10.50 to $9.50 results
in an increase in the quantity demanded from 18,800 to 21,200 units. The price
elasticity of demand is
1. A)
0.8.
2. B)
1.25.
3. C)
1.2.
4. D)
8.0.
5. E)
2.4.
Answer: C
Diff: 2 Type: MC
Topic: Price Elasticity of Demand
21) Suppose the quantity of root beer demanded decreases from
105,000 litres per week to 95,000 litres per week when the price rises by 5
percent. The price elasticity of demand
2. A) is
2.0.
3. B) is
0.5.
4. C) is
10.
5. D) is
inelastic.
6. E)
cannot be computed unless we know the original price and the new price.
Answer: A
Diff: 2 Type: MC
Topic: Price Elasticity of Demand
22) Suppose that the price elasticity of demand for bottled
water in Sackville, New Brunswick is 1.5, while the price elasticity of demand
for bottled water in Prince Albert, Saskatchewan is 0.93. This implies that the
demand in Sackville is ________ and demand in Prince Albert is ________.
1. A)
unit elastic; unit elastic
2. B)
perfectly elastic; inelastic
3. C)
inelastic; elastic
4. D)
elastic; inelastic
5. E)
elastic; unit elastic
Answer: D
Diff: 2 Type: MC
Topic: Price Elasticity of Demand
23) Suppose the government of Nova Scotia wants to reduce the
consumption of electricity by 5 percent. The price elasticity of demand for
electricity is 0.40. You advise the Nova Scotia government to
12. A)
raise the price of electricity by 12.5 percent.
13. B)
raise the price of electricity by 2 percent.
14. C)
lower the price of electricity by 12.5 percent.
15. D)
stay away from the market for electricity and let the market mechanism fix the
problem.
16. E)
lower the price of electricity by 2 percent.
Answer: A
Diff: 2 Type: MC
Topic: Price Elasticity of Demand
24) Suppose the Lethbridge Computer Company decides to increase
the quantity of computers it sells by 6 percent. If the price elasticity of
demand is 3.5, the company must
1. A)
raise the price of a computer by 1.714 percent.
2. B)
raise the price of a computer by 0.21 percent.
3. C)
lower the price of a computer by 0.21 percent.
4. D)
lower the price of a computer by 1.714 percent.
5. E)
lower the price of a computer by 0.58 percent.
Answer: D
Diff: 2 Type: MC
Topic: Price Elasticity of Demand
25) If the demand for salmon in Cape Breton, Nova Scotia, is
unit elastic, the price elasticity of demand for salmon equals
1. A)
1.0.
2. B)
100.0.
3. C)
0.10.
4. D)
zero.
5. E)
10.0.
Answer: A
Diff: 2 Type: MC
Topic: Price Elasticity of Demand
26) At a price of $15, Jack’s quantity demanded of good A is the same as
when the price rises to $16. Jack’s demand for good A is
1. A)
elastic.
2. B)
inelastic.
3. C)
perfectly elastic.
4. D)
unit elastic.
5. E)
perfectly inelastic.
Answer: E
Diff: 2 Type: MC
Topic: Price Elasticity of Demand
27) Which one of the following will yield a measured price
elasticity of demand of 5.0? A 10 percent rise in price results in a
1. A) 10
percent decrease in quantity demanded.
2. B) 5
percent decrease in quantity demanded.
3. C) 2
percent decrease in quantity demanded.
4. D) 50
percent decrease in quantity demanded.
5. E)
0.5 percent decrease in quantity demanded.
Answer: D
Diff: 2 Type: MC
Topic: Price Elasticity of Demand
Use the table below to answer the following questions.
Table 4.1.1
Demand schedule for good A.
28) Refer to Table 4.1.1. The price elasticity of demand when
the price rises from $6 a unit to $7 a unit is
1. A)
1.0.
2. B)
2.0.
3. C)
2.6.
4. D)
0.5.
5. E)
1.3.
Answer: C
Diff: 2 Type: MC
Topic: Price Elasticity of Demand
29) Refer to Table 4.1.1. Demand is unit elastic when the price
falls from
7. A) $8
to $7.
8. B) $7
to $6.
9. C) $6
to $5.
10. D) $5
to $4.
11. E) $4
to $3.
Answer: D
Diff: 2 Type: MC
Topic: Price Elasticity of Demand
30) Refer to Table 4.1.1. If the price of good A falls from
$4 to $3,
1. A)
total revenue will increase.
2. B)
total revenue will remain constant.
3. C)
demand is elastic in this range.
4. D)
demand is unit elastic in this range.
5. E)
demand is inelastic in this range.
Answer: E
Diff: 2 Type: MC
Topic: Price Elasticity of Demand
31) For which one of the following will demand be the most price
inelastic?
1. A)
milk
2. B)
Happy Cow brand milk
3. C)
Happy Cow brand milk in Regina
4. D)
Happy Cow brand milk at Ralph’s Grocery Store in Regina
5. E)
All of the above will exhibit the same price elasticity of demand.
Answer: A
Diff: 2 Type: MC
Topic: Price Elasticity of Demand
32) For which one of the following is demand likely to be most
inelastic?
1. A)
diamonds
2. B)
insulin for a diabetic
3. C)
potatoes
4. D)
gasoline
5. E)
books
Answer: B
Diff: 2 Type: MC
Topic: Price Elasticity of Demand
33) Demand will be more inelastic the
1. A)
higher the income level.
2. B)
lower the income level.
3. C)
longer the passage of time after a price increase.
4. D)
fewer good substitutes that are available.
5. E)
larger the fraction of income spent on the good.
Answer: D
Diff: 2 Type: MC
Topic: Price Elasticity of Demand
34) Demand will be more elastic the
1. A)
higher the income level.
2. B)
lower the income level.
3. C)
longer the passage of time after a price increase.
4. D)
fewer substitutes are available.
5. E)
smaller the fraction of income spent on the good.
Answer: C
Diff: 2 Type: MC
Topic: Price Elasticity of Demand
Use the figure below to answer the following question.
Figure 4.1.1
35) Figure 4.1.1 illustrates a linear demand curve. Comparing
the price elasticity in the $2 to $3 price range with the elasticity in the $8
to $9 range, we can conclude
1. A)
that demand is more elastic in the $8 to $9 price range.
2. B)
that demand is more elastic in the $2 to $3 price range.
3. C)
that the price elasticity of demand is the same in both price ranges.
4. D)
nothing without numerical information about quantities.
5. E)
that the price elasticity of demand is zero in both price ranges because the
demand curve is a straight-line demand curve.
Answer: A
Diff: 2 Type: MC
Topic: Price Elasticity of Demand
Use the figure below to answer the following questions.
Figure 4.1.2
36) Figure 4.1.2 illustrates a linear demand curve. If the price
falls from $13 to $11,
1. A)
total revenue increases.
2. B)
total revenue decreases.
3. C)
total revenue remains unchanged.
4. D)
total revenue initially increases then decreases.
5. E)
total revenue initially decreases then increases.
Answer: A
Diff: 2 Type: MC
Topic: Price Elasticity of Demand
37) Figure 4.1.2 illustrates a linear demand curve. If the price
falls from $4 to $2,
1. A)
total revenue increases.
2. B)
total revenue decreases.
3. C)
total revenue remains unchanged.
4. D)
the quantity demanded increases by more than 10 percent.
5. E)
the percentage change in quantity demanded is more than the percentage change
in price.
Answer: B
Diff: 2 Type: MC
Topic: Price Elasticity of Demand
38) The quantity of apples demanded decreases by 8 percent when
the price rises by 8 percent. The demand for apples is
1. A)
unit elastic.
2. B)
inelastic.
3. C)
elastic.
4. D)
perfectly elastic.
5. E)
perfectly inelastic.
Answer: A
Diff: 1 Type: MC
Topic: Price Elasticity of Demand
39) A perfectly vertical demand curve indicates that the price
elasticity of demand for the good is
1. A)
zero.
2. B)
greater than zero but less than 1.
3. C) 1.
4. D)
greater than 1.
5. E)
negative.
Answer: A
Diff: 1 Type: MC
Topic: Price Elasticity of Demand
40) Factors that influence the price elasticity of demand include
1. A)
the closeness of substitutes.
2. B)
the price of complements but not the price of substitutes.
3. C)
income.
4. D)
preferences.
5. E)
the price of substitutes and complements.
Answer: A
Diff: 2 Type: MC
Topic: Price Elasticity of Demand
41) A given percentage rise in the price of a good is likely to
result in a larger percentage decrease in the quantity of the good demanded
1. A)
the shorter the passage of time.
2. B)
the larger the proportion of income spent on it.
3. C)
the harder it is to obtain good substitutes.
4. D)
all of the above
5. E)
none of the above
Answer: B
Diff: 2 Type: MC
Topic: Price Elasticity of Demand
42) Suppose a fall in the price of a good from $10 to $8 leads
to an increase in quantity demanded from 20 to 24 units. The price elasticity
of demand is
1. A) 1.
2. B)
9/11.
3. C)
11/9.
4. D)
2.0.
5. E)
4.5/11.
Answer: B
Diff: 2 Type: MC
Topic: Price Elasticity of Demand
43) For which one of the following will demand be the most price
elastic?
1. A)
daily newspapers
2. B)
Ontario newspapers
3. C)
Toronto newspapers
4. D)
the Toronto Star
5. E)
Each of the above will exhibit the same price elasticity of demand.
Answer: D
Diff: 2 Type: MC
Topic: Price Elasticity of Demand
44) Suppose this coming winter France will have unusually bad weather,
and that next year’s wine crop will be substantially reduced. Select the best
statement.
1. A)
The French wine supply will increase as price rises.
2. B) If
the demand for French wine is elastic, wine producers will experience an
increase in total revenue.
3. C)
The initial change in the market will create a surplus of French wine.
4. D) In
the final equilibrium, price and quantity will be higher.
5. E)
None of the above
Answer: E
Diff: 2 Type: MC
Topic: Price Elasticity of Demand
Use the table below to answer the following question.
Table 4.1.2
|
Price per Volleyball |
Quantity Demanded |
|
$19 |
55 |
|
$21 |
45 |
45) Refer to Table 4.1.2. The table shows two points on the
demand curve for volleyballs. What is the price elasticity of demand between these
two points?
2. A)
2.5
3. B)
2.0
4. C)
0.5
5. D)
0.4
6. E)
5.0
Answer: B
Diff: 2 Type: MC
Topic: Price Elasticity of Demand
46) If the price elasticity of demand is 2, then a 1 percent
fall in price
1. A)
doubles the quantity demanded.
2. B)
decreases the quantity demanded by half.
3. C)
increases the quantity demanded by 2 percent.
4. D)
decreases the quantity demanded by 2 percent.
5. E)
increases the quantity demanded by 0.5 percent.
Answer: C
Diff: 1 Type: MC
Topic: Price Elasticity of Demand
47) The demand for a good will be more price inelastic,
1. A)
the higher is its price.
2. B)
the larger is the percentage of income spent on it.
3. C)
the longer is the passage of time since a price change.
4. D)
the smaller the supply of the good.
5. E)
the fewer substitutes are available for the good.
Answer: E
Diff: 1 Type: MC
Topic: Price Elasticity of Demand
48) A union leader who claims that “higher wages increase living
standards without causing unemployment” believes that the demand for labour is
1. A)
income elastic.
2. B)
income inelastic.
3. C)
perfectly elastic.
4. D)
perfectly inelastic.
5. E)
unit elastic.
Answer: D
Diff: 2 Type: MC
Topic: Price Elasticity of Demand
49) Business people speak about price elasticity of demand
without using the actual term. Which one of the following statements reflects
elastic demand for a good?
1. A) “A
price cut won’t help me. It won’t increase sales, and I’ll just get less money
for each unit.”
2. B) “I
don’t think a price cut will make any difference to my bottom line. What I may
gain from selling more I would lose on the lower price.”
3. C)
“My customers are real bargain hunters. Since I set my prices just a few cents
below my competitors, customers have flocked to the store, and sales are
booming.”
4. D)
“With the recent economic recovery, people have more income to spend and sales
are booming, even at the previous prices.”
5. E) “A
very cold winter has increased my sales of skates and hockey sticks.”
Answer: C
Diff: 2 Type: MC
Topic: Price Elasticity of Demand
50) If a rise in price results in a decrease in total revenue,
then the price elasticity of demand is
1. A)
negative.
2. B)
zero.
3. C)
greater than zero but less than 1.
4. D)
equal to 1.
5. E)
greater than 1.
Answer: E
Diff: 2 Type: MC
Topic: Price Elasticity of Demand
51) Suppose that Simon Fraser University decides to raise
tuition fees to increase the total revenue it receives from students. This
policy works only if the demand for a Simon Fraser University education is
1. A)
unit elastic.
2. B)
inelastic.
3. C)
elastic.
4. D) greater
than the demand for a University of Western Ontario education.
5. E)
perfectly elastic.
Answer: B
Diff: 2 Type: MC
Topic: Price Elasticity of Demand
52) The demand for a good is perfectly elastic when the price
elasticity of demand is
1. A) equal
to infinity.
2. B)
between infinity and 1.
3. C)
equal to 1.
4. D)
between 1 and zero.
5. E)
equal to zero.
Answer: A
Diff: 1 Type: MC
Topic: Price Elasticity of Demand
53) When the price elasticity of demand is ________, demand for
the good is perfectly inelastic.
1. A)
equal to infinity
2. B)
greater than 1
3. C)
equal to 1
4. D)
between 1 and zero
5. E)
equal to zero
Answer: E
Diff: 1 Type: MC
Topic: Price Elasticity of Demand
54) When the price elasticity of demand is ________, demand for
the good is elastic.
1. A)
equal to infinity
2. B)
greater than 1
3. C)
equal to 1
4. D)
between 1 and zero
5. E)
equal to zero
Answer: B
Diff: 1 Type: MC
Topic: Price Elasticity of Demand
55) When the price elasticity of demand is ________, demand for
the good is unit elastic.
1. A)
equal to infinity
2. B)
greater than 1
3. C)
equal to 1
4. D)
between 1 and zero
5. E)
equal to zero.
Answer: C
Diff: 1 Type: MC
Topic: Price Elasticity of Demand
56) When the price elasticity of demand is ________, demand for
the good is inelastic.
1. A)
equal to infinity
2. B)
greater than 1
3. C)
equal to 1
4. D)
between 1 and zero
5. E)
equal to zero
Answer: D
Diff: 1 Type: MC
Topic: Price Elasticity of Demand
57) The price elasticity of demand for airplane travel one year
in advance of the departure date is most likely to be
1. A)
equal to infinity.
2. B)
equal to zero.
3. C)
between zero and 1.
4. D)
equal to 1.
5. E)
greater than 1.
Answer: E
Diff: 2 Type: MC
Topic: Price Elasticity of Demand
58) The price elasticity of demand for airplane travel one week
in advance of the departure date is most likely to be
1. A)
equal to infinity.
2. B)
equal to zero.
3. C)
between zero and 1.
4. D)
equal to 1.
5. E)
greater than 1.
Answer: C
Diff: 2 Type: MC
Topic: Price Elasticity of Demand
59) If a price decrease results in an increase in total revenue,
then demand is
1. A)
inelastic.
2. B)
unit elastic.
3. C)
perfectly inelastic.
4. D)
equal to supply.
5. E)
elastic.
Answer: E
Diff: 1 Type: MC
Topic: Price Elasticity of Demand
60) Suppose Swiss Chalet in Moncton knows that the demand for
their half-chicken meals is elastic. If the manager wants to increase total
revenue from half-chicken meal sales, he should
1. A)
lower the price of a half-chicken meal.
2. B)
not change the price of a half-chicken meal.
3. C)
raise the price of a half-chicken meal.
4. D)
decrease the supply of half-chicken meals.
5. E)
hire fewer employees.
Answer: A
Diff: 2 Type: MC
Topic: Price Elasticity of Demand
61) As a result of a poor growing season, the supply curve of
apples shifted leftward, the equilibrium price of apples rose, and total
revenue fell. This suggests that the price elasticity of demand for apples is
1. A)
perfectly inelastic.
2. B)
elastic.
3. C)
inelastic.
4. D)
unit elastic.
5. E)
perfectly elastic.
Answer: B
Diff: 2 Type: MC
Topic: Price Elasticity of Demand
62) Suppose the Nunavut government decides to repair Iqaluit
roads. One way to generate sufficient funds for this plan is to increase taxes
on gasoline. The government will be able to raise total revenue from gasoline
sales only if the demand for gasoline is
1. A)
perfectly elastic.
2. B)
equal to the supply of gasoline.
3. C)
unit elastic.
4. D)
inelastic.
5. E)
elastic.
Answer: D
Diff: 2 Type: MC
Topic: Price Elasticity of Demand
63) Which of the following will have the most elastic demand?
1. A)
frozen desserts
2. B)
ice cream
3. C)
strawberry ice cream
4. D) a
banana split made with strawberry and chocolate ice cream
5. E) a
banana split with Nestle strawberry and chocolate ice cream
Answer: E
Diff: 2 Type: MC
Topic: Price Elasticity of Demand
64) Suppose your annual income is $65 000 and your favourite
magazine costs you $28 a year. Your demand for the magazine is likely to be
1. A)
perfectly elastic.
2. B)
inelastic.
3. C)
unit elastic.
4. D)
elastic.
5. E)
elastic — the same as your demand for all other goods.
Answer: B
Diff: 2 Type: MC
Topic: Price Elasticity of Demand
65) The longer the time that has elapsed since a price change
the more time consumers will have to respond to price changes. As a result,
demand becomes
1. A)
zero.
2. B)
more inelastic.
3. C)
more elastic.
4. D)
perfectly inelastic.
5. E)
unit elastic.
Answer: C
Diff: 2 Type: MC
Topic: Price Elasticity of Demand
66) The price of gasoline rises by 25 percent and remains fixed
at the new higher level. Choose the correct statement.
1. A)
The demand for gasoline will increase after consumers adjust their consumption
behaviour to the new higher price.
2. B)
The demand for gasoline will decrease after consumers adjust their consumption
behaviour to the new higher price.
3. C) Initially
after the price change, the price elasticity of demand will be less elastic
than it will be a few years after the price change.
4. D)
The price elasticity of demand for gasoline will decrease in the future.
5. E)
Initially after the price change, the price elasticity of demand will be more
elastic than it will be a few years after the price change.
Answer: C
Diff: 3 Type: MC
Topic: Price Elasticity of Demand
67) The demand for a good is price elastic if
1. A) a
rise in price results in an increase in total revenue.
2. B) a
fall in price results in a decrease in total revenue.
3. C) a
rise in price results in a decrease in total revenue.
4. D)
the good is a necessity.
5. E)
the demand for the good is very insensitive to changes in price.
Answer: C
Diff: 1 Type: MC
Topic: Price Elasticity of Demand
68) The demand for a good is price inelastic if
1. A) a
rise in price results in an increase in total revenue.
2. B) a
rise in price results in a decrease in total revenue.
3. C) an
increase in income results in a decrease in total revenue.
4. D) an
increase in income results in an increase in total revenue.
5. E)
the good is a luxury.
Answer: A
Diff: 1 Type: MC
Topic: Price Elasticity of Demand
69) If the demand for a good is unit elastic, then a 5 percent
increase in price results in
1. A) a
5 percent increase in total revenue.
2. B) a
5 percent decrease in total revenue.
3. C) no
change in total revenue.
4. D) an
increase in total revenue greater than 5 percent.
5. E) an
increase in total revenue less than 5 percent.
Answer: C
Diff: 2 Type: MC
Topic: Price Elasticity of Demand
70) Total revenue from the sale of a good will decrease if
1. A)
income increases and the good is a normal good.
2. B)
its price rises and demand is elastic.
3. C)
its price rises and demand is inelastic.
4. D)
income falls and the good is an inferior good.
5. E)
its price falls and demand is elastic.
Answer: B
Diff: 1 Type: MC
Topic: Price Elasticity of Demand
71) If Saudi Arabia argues that an increase in the supply of oil
will decrease total revenue, then Saudi Arabia believes the demand for oil is
1. A)
income inelastic.
2. B)
income elastic.
3. C)
elastic.
4. D)
inelastic.
5. E)
unit elastic.
Answer: D
Diff: 2 Type: MC
Topic: Price Elasticity of Demand
72) Suppose there is an increase in the cost of resources used
in the production of good A.
Then
1. A) if
the price of A rises,
we know the demand for A is
elastic.
2. B) if
the total revenue from sales of A rises,
we know the demand for A is
elastic.
3. C) if
the total revenue from sales of A falls,
we know the demand for A is
elastic.
4. D)
total revenue will increase because the price of A must rise.
5. E)
total revenue must fall because the quantity bought and sold of A must fall.
Answer: C
Diff: 2 Type: MC
Topic: Price Elasticity of Demand
73) When the price of peanut butter rises by 4 percent, total
revenue decreases by 8 percent. The demand for peanut butter
1. A) is
elastic.
2. B) is
inelastic.
3. C) is
unit elastic.
4. D)
has a price elasticity equal to 1/2.
5. E)
has a price elasticity equal to 2.
Answer: A
Diff: 2 Type: MC
Topic: Price Elasticity of Demand
74) If price elasticity of demand is zero, then as the price
falls,
1. A)
total revenue does not change.
2. B)
quantity demanded does not change.
3. C)
quantity demanded falls to zero.
4. D)
total revenue increases.
5. E)
quantity demanded increases.
Answer: B
Diff: 2 Type: MC
Topic: Price Elasticity of Demand
75) A technological breakthrough lowers the cost of
photocopiers. If the demand for photocopiers is price inelastic, we predict
that photocopier sales
1. A)
fall and total revenue increases.
2. B)
fall and total revenue decreases.
3. C)
rise and total revenue increases.
4. D)
rise and total revenue decreases.
5. E)
rise, but changes in total revenue will depend on elasticity of supply.
Answer: D
Diff: 1 Type: MC
Topic: Price Elasticity of Demand
76) A decrease in tuition fees will decrease the university’s
total revenue if the price elasticity of demand for university education is
1. A)
negative.
2. B)
greater than zero but less than 1.
3. C) equal
to 1.
4. D)
greater than 1.
5. E)
less than the elasticity of supply.
Answer: B
Diff: 2 Type: MC
Topic: Price Elasticity of Demand
77) The demand for orange juice is price elastic. A severe
frost, which destroys large quantities of oranges will
1. A)
lower the equilibrium price but increase total consumer spending on juice.
2. B)
decrease the equilibrium quantity and decrease total consumer spending on
juice.
3. C)
decrease both the equilibrium quantity and the price of juice.
4. D)
raise the equilibrium price as well as total consumer spending for juice.
5. E)
raise the equilibrium price but leave total consumer spending for juice
constant.
Answer: B
Diff: 2 Type: MC
Topic: Price Elasticity of Demand
78) Tina and Brian work for the same recording company.
Tina claims they would be better off by raising the price of their CDs, while
Brian claims they would be better off by lowering the price. Choose the
correct statement.
1. A)
Tina thinks the demand for CDs has price elasticity of demand equal to zero, and
Brian thinks price elasticity of demand equals 1.
2. B)
Tina thinks the demand for CDs has price elasticity of demand equal to 1, and
Brian thinks price elasticity of demand equals zero.
3. C)
Tina thinks the demand for CDs is price elastic, and Brian thinks it is price
inelastic.
4. D)
Tina thinks the demand for CDs is price inelastic, and Brian thinks it is price
elastic.
5. E)
Tina and Brian should stick to singing and forget about economics.
Answer: D
Diff: 2 Type: MC
Topic: Price Elasticity of Demand
Use the figure below to answer the following question.
Figure 4.1.3
79) Given the relationship shown in Figure 4.1.3 between total
revenue from the sale of a good and the quantity of the good sold, then
1. A)
this is an inferior good.
2. B)
this is a normal good.
3. C)
the price elasticity of demand is zero.
4. D)
demand for this good is perfectly elastic.
5. E)
the price elasticity of demand is 1.
Answer: E
Diff: 2 Type: MC
Topic: Price Elasticity of Demand
80) If the Canucks lower ticket prices and find that total
revenue does not change, then the price elasticity of demand for tickets is
1. A)
zero.
2. B)
greater than zero but less than 1.
3. C)
equal to 1.
4. D)
greater than 1.
5. E)
negative.
Answer: C
Diff: 2 Type: MC
Topic: Price Elasticity of Demand
81) A good has a price elasticity of demand equal to 2. If new
imports lower its price from $1.20 to $0.80, the percentage change in quantity
demanded will be
1. A) an
increase of 80 percent.
2. B) a
decrease of 80 percent.
3. C) a
decrease of 40 percent.
4. D) an
increase of 2 percent.
5. E) an
increase of 40 percent.
Answer: A
Diff: 2 Type: MC
Topic: Price Elasticity of Demand
82) Total revenue is more likely to rise when the price rises if
1. A)
there are few substitutes for the good.
2. B) a
high proportion of income is spent on the good.
3. C)
some extended period of time passes.
4. D)
all of the above
5. E)
none of the above
Answer: A
Diff: 2 Type: MC
Topic: Price Elasticity of Demand
83) Total revenue is more likely to rise when the price falls if
1. A)
there are few substitutes for the good.
2. B) a
low proportion of income is spent on the good.
3. C)
some extended period of time passes.
4. D)
all of the above
5. E)
none of the above
Answer: C
Diff: 2 Type: MC
Topic: Price Elasticity of Demand
84) If the demand for good Z is perfectly inelastic, then the
demand curve for good Z is
1. A)
vertical.
2. B)
horizontal.
3. C)
upward sloping.
4. D)
downward sloping.
5. E)
initially upward sloping and then downward sloping.
Answer: A
Diff: 2 Type: MC
Topic: Price Elasticity of Demand
85) Suppose the demand curve for good X is horizontal. This
shows that the demand for good X is
1. A)
unit elastic.
2. B)
inelastic.
3. C)
perfectly elastic.
4. D)
perfectly inelastic.
5. E)
elastic.
Answer: C
Diff: 2 Type: MC
Topic: Price Elasticity of Demand
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