Question 1

An increase in the consumption of a good resulting from a reduction in price that makes the good cheaper in relation to other goods is called the

Accepted Answer

A) substitution effect. 
B) income effect. 
C) real balance effect. 
D) inelasticity effect. 
A) substitution effect. 
B) income effect. 
C) real balance effect. 
D) inelasticity effect.

Question 2

If a 20 percent reduction in the price of airline tickets between Chicago and New York leads to a 50 percent increase in the quantity of tickets purchased,the price elasticity of demand for the tickets is

Accepted Answer

A) -0.20. 
B) -0.40. 
C) -0.50. 
D) -2.50. 
A) -0.20. 
B) -0.40. 
C) -0.50. 
D) -2.50.

Question 3

Suppose the state of New York imposes a one dollar per pack tax on cigarettes,which increases their price by 30 percent,and as a result,the quantity sold declines by 20 percent.The price elasticity of demand for cigarettes is equal to

Accepted Answer

A) -0.20. 
B) -0.67. 
C) -1.50. 
D) -3.00. 
A) -0.20. 
B) -0.67. 
C) -1.50. 
D) -3.00.

Question 4

Why do economists use the concept of elasticity in addition to measurement of the slope of the demand curve?

Accepted Answer

A) Mathematical equations are favored over graphical analysis. 
B) Elasticities are independent of the units of measure. 
C) The concept of elasticity can be used in other areas of economics,whereas the slope of the demand curve is only useful in demand analysis. 
D) These terms are interchangeable,but elasticity has the more professional sound. 
A) Mathematical equations are favored over graphical analysis. 
B) Elasticities are independent of the units of measure. 
C) The concept of elasticity can be used in other areas of economics,whereas the slope of the demand curve is only useful in demand analysis. 
D) These terms are interchangeable,but elasticity has the more professional sound.

Question 5

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

Accepted Answer

A) 2.5. 
B) 0.4. 
C) 0.5. 
D) 5. 
E) inelastic. 
A) 2.5. 
B) 0.4. 
C) 0.5. 
D) 5. 
E) inelastic.

Question 6

"I'm tired of eating cold pizza for breakfast.Today I'm going to the make some oatmeal instead." This statement most clearly reflects the

Accepted Answer

A) law of increasing returns to scale. 
B) second law of demand. 
C) law of diminishing marginal utility. 
D) law of comparative advantage. 
A) law of increasing returns to scale. 
B) second law of demand. 
C) law of diminishing marginal utility. 
D) law of comparative advantage.

Question 7

Figure 7-12
  
-Refer to Figure 7-12.When price falls from $50 to $40,it can be inferred that demand between those two prices is

Accepted Answer

A) inelastic,since total revenue decreases from $8,000 to $5,000. 
B) inelastic,since total revenue increases from $5,000 to $8,000. 
C) elastic,since total revenue increases from $5,000 to $8,000. 
D) unit elastic,since total revenue increases from $5,000 to $8,000. 
A) inelastic,since total revenue decreases from $8,000 to $5,000. 
B) inelastic,since total revenue increases from $5,000 to $8,000. 
C) elastic,since total revenue increases from $5,000 to $8,000. 
D) unit elastic,since total revenue increases from $5,000 to $8,000.

Question 8

Elaine values the utility of her first cup of coffee at $1;a second cup,$.75;and a third cup,$.50.If Elaine drinks three cups of coffee for breakfast,her marginal utility is equal to

Accepted Answer

A) $.50,the value of her last cup of coffee. 
B) $1.00,the value of her first cup of coffee. 
C) $2.25. 
D) $1.50. 
A) $.50,the value of her last cup of coffee. 
B) $1.00,the value of her first cup of coffee. 
C) $2.25. 
D) $1.50.

Question 9

When a good is more broadly defined,

Accepted Answer

A) the more substitutes it has,so demand will be more price-elastic. 
B) the less substitutes it has,so demand will be more price-elastic. 
C) the more substitutes it has,so demand will be less price-elastic. 
D) the less substitutes it has,so demand will be less price-elastic 
A) the more substitutes it has,so demand will be more price-elastic. 
B) the less substitutes it has,so demand will be more price-elastic. 
C) the more substitutes it has,so demand will be less price-elastic. 
D) the less substitutes it has,so demand will be less price-elastic

Question 10

Figure 7-7
  
-In the price range between $3 and $4,the price elasticity of the demand curve depicted in Figure 7-7 is

Accepted Answer

A) highly elastic. 
B) approximately equal to -0.33. 
C) approximately equal to -3. 
D) of unitary elasticity. 
A) highly elastic. 
B) approximately equal to -0.33. 
C) approximately equal to -3. 
D) of unitary elasticity.

Question 11

Suppose there are only two goods,apples and oranges.What happens if the price of each good increases by 15 percent?

Accepted Answer

A) The consumer will substitute apples for oranges. 
B) The consumer will substitute oranges for apples. 
C) There is no substitution effect because relative prices have remained constant. 
D) Demand for both goods increases. 
E) Demand for both goods decreases. 
A) The consumer will substitute apples for oranges. 
B) The consumer will substitute oranges for apples. 
C) There is no substitution effect because relative prices have remained constant. 
D) Demand for both goods increases. 
E) Demand for both goods decreases.

Question 12

Which of the following describes a situation in which demand must be inelastic?

Accepted Answer

A) Total revenue decreases by 10 percent when the price of jeans rises by 10 percent. 
B) Total revenue decreases by less than 10 percent when the price of jeans rises by 10 percent. 
C) Total revenue increases by more than 10 percent when the price of jeans rises by 10 percent. 
D) Total revenue decreases by $10 when the price of jeans rises by $10. 
E) Total revenue decreases by more than $10 when the price of jeans rises by $10. 
A) Total revenue decreases by 10 percent when the price of jeans rises by 10 percent. 
B) Total revenue decreases by less than 10 percent when the price of jeans rises by 10 percent. 
C) Total revenue increases by more than 10 percent when the price of jeans rises by 10 percent. 
D) Total revenue decreases by $10 when the price of jeans rises by $10. 
E) Total revenue decreases by more than $10 when the price of jeans rises by $10.

Question 13

A recent study on enrollment at a liberal arts college concluded that demand elasticity is 0.91.The administration is considering a tuition increase to help balance the budget.The revenue-maximizing decision is to

Accepted Answer

A) decrease tuition,which should boost enrollment enough to balance the budget. 
B) decrease tuition,which would bring in more revenue. 
C) leave tuition as is-an increase would not help balance the budget. 
D) increase tuition,which would generate more revenue. 
A) decrease tuition,which should boost enrollment enough to balance the budget. 
B) decrease tuition,which would bring in more revenue. 
C) leave tuition as is-an increase would not help balance the budget. 
D) increase tuition,which would generate more revenue.

Question 14

If the quantity demanded of a product fell from 11,000 to 10,000 when price rose from $9 to $10,the price elasticity of demand over this range is equal to approximately

Accepted Answer

A) -0.1. 
B) -0.05. 
C) -0.9. 
D) -1.1. 
A) -0.1. 
B) -0.05. 
C) -0.9. 
D) -1.1.

Question 15

Which of the following describes a situation in which demand must be elastic?

Accepted Answer

A) The price of pens rises by 10 cents,and quantity of pens demanded falls by 50. 
B) The price of pens rises by 10 cents,and total revenue rises. 
C) A 20 percent increase in the price of pens leads to a 20 percent decrease in the quantity of pens demanded. 
D) Total revenue does not change when the price of pens rises. 
E) Total revenue decreases when the price of pens rises. 
A) The price of pens rises by 10 cents,and quantity of pens demanded falls by 50. 
B) The price of pens rises by 10 cents,and total revenue rises. 
C) A 20 percent increase in the price of pens leads to a 20 percent decrease in the quantity of pens demanded. 
D) Total revenue does not change when the price of pens rises. 
E) Total revenue decreases when the price of pens rises.

Question 16

The demand for a product is likely to be more elastic when

Accepted Answer

A) the share of the total budget spent on the product is small. 
B) more complementary products are available. 
C) the consumer has a short time to adjust to price changes. 
D) more good substitutes for the product are available. 
A) the share of the total budget spent on the product is small. 
B) more complementary products are available. 
C) the consumer has a short time to adjust to price changes. 
D) more good substitutes for the product are available.

Question 17

"Because of the unseasonably cold weather,Florida orange growers expect (1)fewer bushels of oranges to be harvested,(2)a higher market price for oranges,and (3)larger total revenues from this year's crop." This statement would most likely be correct if the

Accepted Answer

A) demand for Florida oranges was elastic. 
B) demand for Florida oranges was unitary elastic. 
C) demand for Florida oranges was inelastic. 
D) income elasticity of Florida oranges was negative. 
A) demand for Florida oranges was elastic. 
B) demand for Florida oranges was unitary elastic. 
C) demand for Florida oranges was inelastic. 
D) income elasticity of Florida oranges was negative.

Question 18

The marginal value of a commodity to a consumer

Accepted Answer

A) increases as more of the good is consumed. 
B) is exactly equal to price for all units purchased by the consumer. 
C) is measured by the height of the individual consumer's demand curve. 
D) is equal to the area above the price and below the individual consumer's demand curve. 
A) increases as more of the good is consumed. 
B) is exactly equal to price for all units purchased by the consumer. 
C) is measured by the height of the individual consumer's demand curve. 
D) is equal to the area above the price and below the individual consumer's demand curve.

Question 19

If the price of steak rises from $6 to $10 per pound,and the quantity purchased falls from 90 to 70 pounds,the price elasticity of demand (in absolute value)is

Accepted Answer

A) 0.2. 
B) 0.5. 
C) 1.0. 
D) 2.0. 
A) 0.2. 
B) 0.5. 
C) 1.0. 
D) 2.0.

Question 20

Members of Alpha fraternity have developed a strong liking for Coca-Cola.Beta fraternity members buy the same amount of Coke but believe Pepsi is just about as good.From this,we can infer that

Accepted Answer

A) Alpha members will not care what the price of Coke is. 
B) compared to Alpha members,Betas will have a smaller price elasticity of demand for Coke. 
C) compared to Alpha members,Betas will have a larger price elasticity of demand for Coke. 
D) Alpha members will increase their purchases by a larger amount of Pepsi than Beta members in response to a "50 cents off" sale on a case of Pepsi. 
A) Alpha members will not care what the price of Coke is. 
B) compared to Alpha members,Betas will have a smaller price elasticity of demand for Coke. 
C) compared to Alpha members,Betas will have a larger price elasticity of demand for Coke. 
D) Alpha members will increase their purchases by a larger amount of Pepsi than Beta members in response to a "50 cents off" sale on a case of Pepsi.

Exam 20: Consumer Choice and Elasticity

An increase in the consumption of a good resulting from a reduction in price that makes the good cheaper in relation to other goods is called the

If a 20 percent reduction in the price of airline tickets between Chicago and New York leads to a 50 percent increase in the quantity of tickets purchased,the price elasticity of demand for the tickets is

Suppose the state of New York imposes a one dollar per pack tax on cigarettes,which increases their price by 30 percent,and as a result,the quantity sold declines by 20 percent.The price elasticity of demand for cigarettes is equal to

Why do economists use the concept of elasticity in addition to measurement of the slope of the demand curve?

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

"I'm tired of eating cold pizza for breakfast.Today I'm going to the make some oatmeal instead." This statement most clearly reflects the

Figure 7-12 -Refer to Figure 7-12.When price falls from $50 to $40,it can be inferred that demand between those two prices is

Elaine values the utility of her first cup of coffee at $1;a second cup,$.75;and a third cup,$.50.If Elaine drinks three cups of coffee for breakfast,her marginal utility is equal to

When a good is more broadly defined,

Figure 7-7 -In the price range between $3 and $4,the price elasticity of the demand curve depicted in Figure 7-7 is

Suppose there are only two goods,apples and oranges.What happens if the price of each good increases by 15 percent?

Which of the following describes a situation in which demand must be inelastic?

A recent study on enrollment at a liberal arts college concluded that demand elasticity is 0.91.The administration is considering a tuition increase to help balance the budget.The revenue-maximizing decision is to

If the quantity demanded of a product fell from 11,000 to 10,000 when price rose from $9 to $10,the price elasticity of demand over this range is equal to approximately

Which of the following describes a situation in which demand must be elastic?

The demand for a product is likely to be more elastic when

"Because of the unseasonably cold weather,Florida orange growers expect (1)fewer bushels of oranges to be harvested,(2)a higher market price for oranges,and (3)larger total revenues from this year's crop." This statement would most likely be correct if the

The marginal value of a commodity to a consumer

If the price of steak rises from $6 to $10 per pound,and the quantity purchased falls from 90 to 70 pounds,the price elasticity of demand (in absolute value)is

Members of Alpha fraternity have developed a strong liking for Coca-Cola.Beta fraternity members buy the same amount of Coke but believe Pepsi is just about as good.From this,we can infer that

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