Multiple Choice
Identify the
letter of the choice that best completes the statement or answers the question.
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| 1. | Price
elasticity of demand is defined as a. | the percentage change in price divided by the percentage change
in quantity demanded | b. | the percentage change in quantity demanded divided by the
percentage change in price | c. | the change in quantity demanded divided by the change in
price | d. | the change in price divided by the change in quantity
demanded | e. | the quantity demanded divided by the
price | | |
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| 2. | 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 the value of price elasticity of demand is a. | elastic | b. | inelastic | c. | unit
elastic | d. | suggestive of an inferior good | e. | equal to
-20 | | |
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| 3. | 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. | 0.2 percent
decrease in price causes a 1 percent increase in quantity demanded | c. | 5 percent
decrease in price causes a 1 percent increase in quantity demanded | d. | 0.2 percent
decrease in price causes a 0.2 percent increase in quantity demanded | e. | 100 percent
decrease in price causes a 200 percent increase in quantity demanded | | |
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| 4. | If a
5% increase in price leads to an 8% decrease in quantity demanded, demand is a. | perfectly
elastic | b. | elastic | c. | unit
elastic | d. | inelastic | e. | perfectly
inelastic | | |
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| 5. | If
the price of Pepsi-Cola increases from 50 cents to 60 cents per can and the quantity demanded
decreases from 100 cans to 50 cans, then the demand for Pepsi-Cola is a. | unit
elastic | b. | perfectly elastic | c. | perfectly
inelastic | d. | relatively elastic | e. | relatively
inelastic | | |
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| 6. | If
officials raise tuition on our campus in order to increase 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 | | |
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| 7. | If
demand is unit elastic, a price reduction will a. | increase revenues | b. | reduce
revenues | c. | reduce quantity demanded | d. | have no effect
on revenues | e. | increase profits | | |
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| 8. | Which
of the following describes a situation in which demand must be elastic? a. | Total revenue
increases by 15 percent when the price of corndogs rises by 15 percent. | b. | Total revenue
increases by less than 15 percent when the price of corndogs rises by 15
percent. | c. | Total revenue decreases by more than 15 percent when the price
of corndogs rises by 15 percent. | d. | Total revenue increases by $15 when the price of corndogs rises
by $15. | e. | Total revenue increases by more than $15 when the price of
corndogs rises by $15. | | |
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| 9. | Along
a straight-line downward-sloping demand curve, elasticity is a. | constant, but
its value cannot be determined without measurement | b. | constant and
equal to an absolute value of one | c. | greater at higher prices | d. | greater at lower
prices | e. | greater in the middle | | |
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| 10. | Dusty
Rags, Inc. provides janitorial services to retail stores. Dusty had been charging $10 per hour and
selling 400 hours of service per week at that rate. When he raised his price to $15 per hour, his
customers cut back to 300 weekly hours of service. Which of the following is true? a. | Revenue went
from $4,000 per week to $4,500 per week, indicating that the demand curve for his services must have
shifted to the right. | b. | Revenue went from $4,000 per week to $4,500 per week,
indicating that the demand for his services must be elastic. | c. | Revenue went
from $4,000 per week to $4,500 per week, indicating that the demand for his services must be
inelastic. | d. | Revenue went from $400 to $300 per week, indicating that demand
must be elastic. | e. | Revenue went from $10 to $15 per week, indicating that demand
must be inelastic. | | |
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| 11. | If a
tripling of price triples the quantity of a good supplied, the price elasticity of supply for this
good is
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| 12. | Consider Exhibit 0072. Between the prices of $5 and $6, which supply curve is most
elastic and which is least elastic? a. | S1 is most elastic; S2 is least
elastic. | b. | S1 is most elastic; S3 is least
elastic. | c. | S3 is most elastic; S1 is least
elastic. | d. | S3 is most elastic; S2 is least
elastic. | e. | S2 is most elastic; S3 is least
elastic. | | |
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| 13. | If we
wanted to prove that macaroni is an inferior good, we would test the __________ of macaroni and get a
__________. a. | cross-price
elasticity; negative number | b. | income elasticity; number less than 1 | c. | income
elasticity; positive number | d. | price elasticity of demand; number greater than negative
1 | e. | income
elasticity; negative number | | |
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| 14. | The
cross-price elasticity of demand between pancakes and waffles is positive. This indicates all of the
following except one. Which is the exception? a. | Pancakes and
waffles are substitutes. | b. | An increase in the price of pancakes will shift the demand
curve for waffles to the right. | c. | An increase in the price of waffles will shift the demand curve
for pancakes to the right. | d. | A decrease in the supply of waffles will shift the demand curve
for pancakes to the right. | e. | Pancake demand and waffle demand are price
elastic. | | |
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| 15. | Negative cross-price elasticity of demand indicates that a. | the product is
an inferior good | b. | the product is a necessity | c. | the product is a
luxury | d. | the two products are substitutes | e. | the two products
are complements | | |
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