Multiple Choice
Identify the
letter of the choice that best completes the statement or answers the question.
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| 1. | A
person who has high cholesterol and must exercise an hour every day has what type of demand for
exercise equipment? a. | elastic | b. | unit
elastic | c. | inelastic | d. | weak | | |
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| 2. | Which
of the following is NOT a determinant of the price elasticity of demand for a
product? a. | time | b. | price | c. | market
definition | d. | substitutes | | |
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| 3. | A
perfectly inelastic demand implies that buyers a. | decrease their purchases when the price
rises. | b. | purchase the same amount when the price rises or
falls. | c. | increase their purchases only slightly when the price
falls. | d. | respond substantially to an increase in
price. | | |
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Figure 5-3
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| 4. | Refer
to Figure 5-3. If price falls in the C range of the demand curve we can expect total revenue
to a. | increase. | b. | decrease. | c. | stay the
same. | d. | decrease, then increase. | | |
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| 5. | The
local pizza restaurant makes such great bread sticks that consumers do not respond much to a change
in the price. If the owner is only interested in increasing revenue, he should a. | lower the price
of the bread sticks. | b. | leave the price of the bread sticks
alone. | c. | raise the price of the bread sticks. | d. | reduce
costs. | | |
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| 6. | For a
vertical demand curve, slope a. | is undefined and elasticity equals 0. | b. | equals 0 and
elasticity is undefined. | c. | and elasticity are both undefined. | d. | and elasticity
are both equal to 0. | | |
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| 7. | To
determine whether a good is considered normal or inferior, one would consider the
good's a. | income
elasticity of demand. | b. | price elasticity of demand. | c. | price elasticity
of supply. | d. | cross-price elasticity of demand. | | |
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| 8. | If
the cross-price elasticity of two goods is negative, then those two goods are a. | substitutes. | b. | complements. | c. | normal
goods. | d. | inferior goods. | | |
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| 9. | The
demand for caviar tends to be income a. | elastic because it is relatively
expensive. | b. | inelastic because it is packaged in small
containers. | c. | elastic because buyers generally feel that they can do without
it. | d. | inelastic
because it is scarce. | | |
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| 10. | Suppose the price elasticity of demand for basketballs is 1.20. A 15 percent increase
in price will result in a. | an 18 percent decrease in the quantity of basketballs
demanded. | b. | a 15 percent decrease in the quantity of basketballs
demanded. | c. | an 8 percent reduction in the number of basketballs
demanded. | d. | a 12.5 percent reduction in the number of basketballs
demanded. | | |
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| 11. | In
the short run, the quantity supplied is a. | very responsive to price changes. | b. | not very
responsive to price changes. | c. | indifferent to price changes. | d. | totally
responsive to price changes. | | |
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Figure 5-9
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| 12. | Refer
to Figure 5-9. The elasticity of supply from point A to point C, using the midpoint method would be
approximately a. | 2.67. | b. | 1.33. | c. | 0.75. | d. | 0.375. | | |
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| 13. | A
linear supply curve has a a. | constant slope and changing elasticity of
supply. | b. | changing slope and a constant elasticity of
supply. | c. | both a constant slope and a constant elasticity of
supply. | d. | both a changing slope and a changing elasticity of
supply. | | |
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| 14. | If
the quantity supplied is the same regardless of price, then the supply curve would
be a. | elastic. | b. | perfectly elastic. | c. | perfectly
inelastic. | d. | inelastic. | | |
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| 15. | OPEC
successfully raised the world price of oil in the 1970s and early 1980s primarily due
to a. | an inelastic
demand for oil and a reduction in the amount of oil supplied. | b. | a reduction in
the amount of oil supplied and a world-wide oil embargo. | c. | a world-wide oil
embargo and an elastic demand for oil. | d. | a reduction in the amount of oil supplied and an elastic demand
for oil. | | |
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Figure 5-11
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| 16. | Refer
to Figure 5-11. When a new, more productive strawberry was developed which caused supply to increase,
strawberry farmers' total revenue a. | fell from $6000 to $5250 since demand is
elastic. | b. | fell from $6000 to $5250 since demand is
inelastic. | c. | rose from $5250 to $6000 since demand is
elastic. | d. | fell from $6000 to $5250 since supply is
elastic. | | |
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| 17. | There
are fewer farmers in the United States today than 200 years ago because of a. | more educational
opportunities and increases in farm technology. | b. | increased
government regulations in farming and increased farm technology. | c. | an elastic food
demand and more attractive urban alternatives to farming. | d. | increases in
farm technology and an inelastic food demand. | | |
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Figure 5-12
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| 18. | Refer
to Figure 5-12. Which supply curve is most likely the long-run supply curve? a. | S1 | b. | S2 | c. | S3 | d. | All of the above are equally likely to be the long-run supply
curve. | | |
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| 19. | Barb's Bakery made $200 last month selling 100 loaves of bread. This month it made
$300 selling 60 loaves of bread. The price elasticity of demand for Barb's bread is a. | 0.583. | b. | 1.25. | c. | 0.266. | d. | 1.11. | | |
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| 20. | When
her income increased from $10,000 to $20,000, Heather's consumption of macaroni decreased from 10
pounds to 5 pounds and her consumption of soy-burgers increased from 2 pounds to 4 pounds. We can
conclude that for Heather, a. | macaroni and soy-burgers are both normal goods with income
elasticities equal to 1. | b. | macaroni is an inferior good and soy-burgers are normal goods;
both have income elasticities of 1. | c. | macaroni is an inferior good with an income elasticity of -1
and soy-burgers are normal goods with an income elasticity of 1. | d. | macaroni and
soy-burgers are both inferior goods with income elasticities equal to -1. | | |
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True/False
Indicate whether the sentence or statement is true
or false.
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| 21. | The
flatter the demand curve that passes through a given point, the more inelastic the
demand.
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| 22. | A
government program that reduces land under cultivation hurts farmers but helps
consumers.
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Short Answer
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| | 23. | Consider the following pairs of goods. Which would you expect to have the more elastic
demand? Why?
a. | water or
diamonds | b. | insulin or nasal
decongestant spray | c. | food in general or breakfast cereal | d. | gasoline over the course of a week or gasoline over the course
of a year | e. | personal
computers or IBM personal computers | | |
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| | 24. | Use
the graph shown to answer the following questions. Put the correct letter in the
blank.
a. | The elastic section of the graph is represented by section
_______. | b. | The inelastic
section of the graph is represented by section _______. | c. | The unit elastic section of the graph is represented by section
_______. | d. | The portion of
the graph in which a decrease in price would cause total revenue to fall would be
_________. | e. | The portion of the graph in which a decrease in price would
cause total revenue to rise would be _________. | f. | The portion of the graph in which a decrease in price would not
cause a change in total revenue would be _________. | g. | The section of the graph in which total revenue would be at a
maximum would be _______. | h. | The section of the graph in which elasticity is greater than 1
is _______. | i. | The section of the graph in which elasticity is equal to 1 is
______. | j. | The section of
the graph in which elasticity is less than 1 is _______. | | |
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| | 25. | Using
the midpoint method, compute the elasticity of demand between points A and B. Is this portion of the
curve elastic or inelastic? Interpret your answer with regard to price and quantity demanded. Now
compute the elasticity of demand between points B and C. Is this portion of the curve elastic or
inelastic?
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