Refer to figure 5-1. with reference to graph b, at a price of $5, total revenue equals:

Chapter 5—Elasticity

MULTIPLE CHOICE

1. What is the definition of price elasticity of demand?

a .

the slope of the demand curve divided by the price

b .

the slope of the demand curve

c. the percentage change in price divided by the percentage change in quantity demanded

d .

the percentage change in quantity demanded divided by the percentage change in price

1. What does the price elasticity of demand measure?

a .

the responsiveness of price to a change in quantity demanded

b .

the responsiveness of quantity demanded to a change in price

c. the responsiveness of quantity demanded to a change in income

d .

the responsiveness of quantity demanded to a change in quantity supplied

1. What term accurately describes demand when the quantity demanded is very responsive to changes in price?

a .

independent

b .

elastic

c. unit elastic

d inelastic

1. What term accurately describes demand when the quantity demanded is NOT very responsive to changes in price?

a .

unit elastic

b .

inelastic

c. independent

d .

elastic

1. Bailey's Barber Shop knows that a 5 percent increase in the price of their haircuts results in a 15 percent decrease in the number of haircuts purchased. What is the elasticity of demand facing Bailey's Barber Shop?

a .

0.

b .

0.

c. 0.

d .

3.

1. Iron Mike’s steel mill finds that a 10 percent increase in its price leads to a 14 percent decrease in the quantity it is able to sell. What term accurately describes the demand curve for the mill’s output?

a .

inelastic

b .

elastic

c. unit elastic

d .

perfectly elastic

1. The Shoe Emporium reduces the price of its shoes by 50 percent and finds that the quantity demanded for its shoes more than doubles. What term accurately describes the demand for shoes from The Shoe Emporium?

a inelastic

.

1. If the price elasticity of demand coefficient for herbal tea is estimated to be 0, what would a 10 percent decrease in price likely lead to?

a .

a 10 percent decrease in the quantity of herbal tea demanded

b .

a 5 percent decrease in the quantity of herbal tea demanded

c. a 10 percent increase in the quantity of herbal tea demanded

d a 5 percent increase in the quantity of herbal tea demanded

1. As you move down (southeast) along a demand curve, what happens to the elasticity?

a .

It becomes larger.

b .

It stays constant at zero.

c. It stays constant at one.

d .

It becomes smaller.

1. The nation's largest cable TV company tested the effect of a price reduction for premium movie channels. It increased prices from $9 to $12 and found virtually no change in the number of customers. What does this illustrate?

a .

The demand curve for the premium movie channels has shifted to the right.

b .

The demand for premium movie channels is very elastic in this price range.

c. The supply curve for premium movie channels has shifted to the left.

d .

The demand for premium movie channels is very inelastic in this price range.

1. Which of the following statements best describes inelastic demand?

a .

The demand curves appear to be fairly flat.

b .

The percentage change in quantity demanded results from a price change greater than the percentage change in price.

c. Price elasticity of demand is greater than one.

d .

Consumers are not very responsive to changes in price.

1. If the demand curve for a life-saving medicine is perfectly inelastic, what result will a reduction in supply have on the equilibrium price and equilibrium quantity?

a .

The price will rise and the quantity will rise.

b .

The price will rise and the quantity will stay the same.

c. The price will stay the same and the quantity will fall.

1. Refer to Figure 5-1. What graph best illustrates a relatively inelastic (but NOT perfectly inelastic) demand curve?

a .

Graph A

b .

Graph B

c. Graph C

d .

Graph D

1. If the demand curve for a product is vertical, then what is the elasticity of demand?

a .

equal to zero

b .

equal to one

c. greater than one, but less than infinity

d .

equal to infinity

1. If the demand curve for a product is horizontal, then what is the elasticity of demand?

a .

equal to zero

b .

equal to one

c. greater than one, but less than infinity

d .

equal to infinity

1. What term accurately describes demand when the quantity demanded changes in the same proportion as the price?

a .

inelastic

b .

independent

c. elastic

d unit elastic

.

1. Suppose that Lance purchases one pizza per month when the price is $19 and three pizzas per month when the price is $15. What is the price elasticity of Lance’s demand curve?

a .

0.

b .

2.

c. 4.

d .

6.

1. Suppose that Joan plays golf five times per month when the price is $40 and four times per month when the price is $50. What is the price elasticity of Joan’s demand curve?

a .

0.

b .

0.

c. 1.

d .

10.

1. Suppose that Percy eats a 200-gram steak eight times per month when the price is $10 and six times per month when the price is $12. What is the price elasticity of Percy’s demand curve?

a .

0.

b .

1.

c. 1.

d 1.

1. If makers of snake anti-venom implement significant price increases, it is unlikely to significantly affect the use of anti-venom for treating poisonous snakebites. What term accurately describes the demand for anti-venom among users?

a .

unit elastic

b .

unit inelastic

c. elastic

d .

inelastic

1. Which of the following best describes the relationship between the elasticity of demand and the availability of substitutes?

a .

The elasticity of demand will remain constant as the availability of substitutes decrease.

b .

The elasticity of demand will increase as the availability of substitutes decreases.

c. The elasticity of demand will decrease as the availability of substitutes remains constant.

d .

The elasticity of demand will increase as the availability of substitutes increases.

1. Which of the following will have the most elastic demand?

a .

pizza from a restaurant

b .

Pizza Hut pizza

c. pizza from Pizza Hut on the corner of Main Street and 8th Avenue

d .

pizza

1. Which of the following is likely to have the most inelastic demand?

a .

insulin, for diabetics

b pizza from a restaurant

c. a one-week vacation at Disney World

d .

a new Land Rover

1. Which of the following statements best describes the demand for toothpaste?

a .

It will likely be income elastic and price elastic.

b .

It will likely be income inelastic and price elastic.

c. It will likely be income inelastic and price inelastic.

d .

It will likely be income elastic and price inelastic.

1. When is price elasticity of demand said to be greater?

a .

when there are fewer available substitutes

b .

the longer the period of time consumers have to adjust to price changes

c. the shorter the period of time consumers have to adjust to price changes

d .

when the elasticity of supply is greater

1. The larger the proportion of income spent on a product, other things equal, what is indicated?

a .

The consumer's demand is more inelastic.

b .

The consumer's demand curve is more vertical.

c. The consumer's demand is more elastic.

d .

The consumer's demand is more unit elastic.

1. What tends to happen to the price elasticity of demand as the time period considered grows longer?

a It converges to zero.

1. A recent study at a liberal arts college concluded that demand elasticity is 0. for college courses. The administration is considering a tuition increase to help balance the budget. What might an economist advise the school to do?

a .

Leave tuition unchanged, as a change in tuition is unlikely to enhance the school's budget by increasing revenue.

b .

Decrease tuition because demand for courses is elastic.

c. Decrease tuition in order to increase revenue by boosting enrolment.

d .

Increase tuition in order to increase revenue.

1. When will a price cut increase the total revenue a firm receives?

a .

when demand for its product is inelastic

b .

when demand for its product is unit inelastic

c. when demand for its product is unit elastic

d .

when demand for its product is elastic

1. A jeweller cut prices in his store by 20 percent and the dollar value of his sales fell by 20 percent. What is this indicative of?

a .

inelastic demand

b .

elastic demand

c. a vertical demand curve

d .

a horizontal demand curve

1. When the local symphony recently raised its price for tickets to their summer concerts in the park, the symphony's total revenue actually decreased. What does this indicate about the elasticity of demand for symphony tickets?

a .

It is elastic.

b It is unit elastic.

c. It is unit inelastic.

d .

It is inelastic.

1. When the price of ulcer medication increased by $20 per 100 tablets, a drug company's revenue increased by $10 million. What must its elasticity of demand coefficient (in absolute terms) be?

a .

zero

b .

less than one

c. greater than one

d .

infinitely large

The elasticity in the vicinity of five different points along a demand curve varies as follows:

TABLE 5-

Point A B C D E

Elasticity 1 0 1 0 2.

1. Refer to Table 5-3. At what points would a price increase be accompanied by an increase in total revenue?

a .

A, C, and E

b .

A and E

c. B and D

d A and D

1. Refer to Figure 5-2. Compared to Graph A, what type of demand curve does Graph B represent?

a .

a unit inelastic curve

b .

a relatively elastic curve

c. a relatively inelastic curve

d .

a unit elastic curve

1. Refer to Figure 5-2. With reference to Graph A, at a price of $10, what is total revenue equal to?

a .

$

b .

$

c. $

d .

$

1. Refer to Figure 5-2. With reference to Graph A, at a price of $5, what is total revenue equal to?

a .

$

b .

$

c. $

d .

$

1. Refer to Figure 5-2. With reference to Graph B, at a price of $5, what is total revenue equal to?

a .

$

b .

$

c. $

d $

.

1. Most passenger trains operate far below full capacity. Under what circumstances would reducing travel fares be likely to increase total revenue?

a .

if demand is unit inelastic

b .

if demand is inelastic

c. if demand is unit elastic

d .

if demand is elastic

1. The demand for a product is unit elastic. At a price of $20, 10 units of a product are sold. If the price is increased to $40, what would one expect sales to equal?

a .

0 units

b .

5 units

c. 10 units

d .

20 units

1. A "war on drugs" is waged and, as a result, a larger quantity of drugs flowing into Canada is seized and more drug traffickers are arrested. If demand for drugs is inelastic, what effect would one expect this to have on the total expenditure on drugs?

a .

It would be zero.

b .

It would increase.

c. It would stay constant.

d .

It would decrease.

1. A 25 percent decrease in the price of breakfast cereal leads to a 20 percent increase in the quantity of cereal demanded. What will result?

a Total revenue will decrease.

c. the section of the curve where the percentage change in quantity is larger than the percentage change in price

d the section of the curve where the curve is elastic

1. Refer to Figure 5-3. Elasticity varies along a linear demand curve. What does Graph B represent?

a .

the section of the curve where the curve is inelastic

b .

the section of the curve where Ed is < 1

c. the section of the curve where, starting at P 1 , an increase in price will lead to an increase in total revenue

d .

the section of the curve where the percentage change in quantity is larger than the percentage change in price

1. Refer to Figure 5-3. How would price elasticity of demand along a linear demand curve be described?

a .

It is always equal to one.

b .

It is constant.

c. It is more elastic to the northwest than to the southeast.

d .

It is less elastic to the northwest than to the southeast.

1. If demand is unit elastic, what is the relationship between revenue and prices?

a .

Revenue falls as price rises.

b .

Revenue rises as price falls.

c. Revenue and prices rise and fall together.

d .

Revenue remains constant as price rises or falls.

1. A 10 percent increase in the price of soda leads to a 20 percent increase in the quantity of iced tea demanded. What can we conclude from this information?

a .

The elasticity of demand for iced tea is 2 and is elastic.

b .

The cross-price elasticity of demand for iced tea is -2.

c. The cross-price elasticity of demand for soda is -0.

What happens to total revenue when price increases and demand is elastic?

What happens to total revenue when price increases?

What is total revenue and how is it used to determine if a product is elastic or inelastic?

What happens to total revenue tr if the price decreases on a product with demand that is price elastic?