Question 1

Along the inelastic portion of a demand curve,

Accepted Answer

A) the change in price will always be less than the change in quantity demanded. 
B) the percentage change in price will be less than the percentage change in quantity demanded. 
C) the change in price will always be more than the change in quantity demanded. 
D) the percentage change in price will be more than the percentage change in quantity demanded. 
A) the change in price will always be less than the change in quantity demanded. 
B) the percentage change in price will be less than the percentage change in quantity demanded. 
C) the change in price will always be more than the change in quantity demanded. 
D) the percentage change in price will be more than the percentage change in quantity demanded.

Question 2

Making drugs, such as cocaine, illegal results in a higher price than would be present if the drugs were legal. All else constant, the higher price results in drug users spending

Accepted Answer

A) more on drugs if the demand for drugs is inelastic. 
B) more on drugs if the demand for drugs is elastic. 
C) less on drugs if the demand for drugs is inelastic. 
D) more on drugs if the demand for drugs is unitary elastic. 
A) more on drugs if the demand for drugs is inelastic. 
B) more on drugs if the demand for drugs is elastic. 
C) less on drugs if the demand for drugs is inelastic. 
D) more on drugs if the demand for drugs is unitary elastic.

Question 3

Which of the following most directly reflects the law of diminishing marginal utility?

Accepted Answer

A) After watching two football games, Terry decides to watch a third game. 
B) A sports fan enjoys watching Monday night football rather than going to the theater. 
C) After listening to three compact discs, Kim decides to go bowling rather than listen to a fourth disc. 
D) A musician receives the biggest ovation of the evening after playing the final number of a recital. 
A) After watching two football games, Terry decides to watch a third game. 
B) A sports fan enjoys watching Monday night football rather than going to the theater. 
C) After listening to three compact discs, Kim decides to go bowling rather than listen to a fourth disc. 
D) A musician receives the biggest ovation of the evening after playing the final number of a recital.

Question 4

Suppose you are the manager of a local water company, and you are instructed to get consumers to reduce their water consumption by 10 percent. If the price elasticity of demand for water is -.25, by how much would you have to raise the price of water?

Accepted Answer

A) 10 percent 
B) 25 percent 
C) 40 percent 
D) 100 percent 
A) 10 percent 
B) 25 percent 
C) 40 percent 
D) 100 percent

Question 5

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 6

If a 10 percent increase in income induced a group of consumers to reduce their yearly purchases of potatoes by 5 percent, for these consumers,

Accepted Answer

A) the income elasticity of potatoes equals approximately 1.05. 
B) the income elasticity of potatoes is 0.5. 
C) potatoes are a luxury good. 
D) potatoes are an inferior good. 
A) the income elasticity of potatoes equals approximately 1.05. 
B) the income elasticity of potatoes is 0.5. 
C) potatoes are a luxury good. 
D) potatoes are an inferior good.

Question 7

In the mythical nation of Oz, gasoline used to sell for $1 a gallon, and the natives purchased 100,000 gallons a week. Four years ago, the price rose to $3 a gallon, and the natives reduced their quantity demanded to 90,000 gallons a week. Calculate the price elasticity for this change. Today, gas again sells for $1 a gallon in Oz, but the natives are only buying 70,000 gallons a week. What gives?

Accepted Answer

Four years ago, the initial price increa

Question 8

Bob goes out to dinner three times per week, usually either to the local steak house or a Chinese restaurant in town. If the steak house were to raise its prices, Bob would probably (1) be less inclined to eat at the steak house and more inclined to eat at the Chinese restaurant when he did go out and (2) eat out fewer times per week because at the higher prices he cannot afford to eat out as much.

Accepted Answer

A) Part 1 is an example of the substitution effect, part 2 of the income effect. 
B) Part 1 is an example of the income effect, part 2 of the substitution effect. 
C) Part 1 is an example of the law of diminishing marginal utility, part 2 of the substitution effect. 
D) Part 1 is an example of the proportions hypothesis, part 2 of the income effect. 
A) Part 1 is an example of the substitution effect, part 2 of the income effect. 
B) Part 1 is an example of the income effect, part 2 of the substitution effect. 
C) Part 1 is an example of the law of diminishing marginal utility, part 2 of the substitution effect. 
D) Part 1 is an example of the proportions hypothesis, part 2 of the income effect.

Question 9

Jack, a music major, is perusing Jill's notes for her economics class, where she has written that "total revenues will rise with price rises only if demand is elastic." Jack tells Jill this is nonsense because firms can always increase their revenues by raising price. How should Jill respond?

Accepted Answer

Jill should point out that her statement

Question 10

Consider a consumer who purchases two goods, X and Y. If the price of good Y falls, then the substitution effect by itself will

Accepted Answer

A) cause the consumer to buy more of good Y and less of good X. 
B) cause the consumer to buy more of good X and less of good Y. 
C) not affect the amount of goods X and Y that the consumer buys. 
D) result in an upward-sloping demand for good Y because of the substitution effect. 
A) cause the consumer to buy more of good Y and less of good X. 
B) cause the consumer to buy more of good X and less of good Y. 
C) not affect the amount of goods X and Y that the consumer buys. 
D) result in an upward-sloping demand for good Y because of the substitution effect.

Question 11

Figure 7-3
  
-Figure 7-3 depicts a demand curve with a price elasticity that is

Accepted Answer

A) perfectly elastic, implying that consumers will purchase as much as can be supplied at the market price. 
B) relatively inelastic, implying that a percent increase in price results in a smaller percent reduction in sales. 
C) unitary, implying that a percent change in price leads to an equal percent change in quantity demanded. 
D) perfectly inelastic, implying that the same amount will be purchased regardless of the price of the good. 
A) perfectly elastic, implying that consumers will purchase as much as can be supplied at the market price. 
B) relatively inelastic, implying that a percent increase in price results in a smaller percent reduction in sales. 
C) unitary, implying that a percent change in price leads to an equal percent change in quantity demanded. 
D) perfectly inelastic, implying that the same amount will be purchased regardless of the price of the good.

Question 12

Tele-Com, Inc., a large cable TV company, tested the effect of a price reduction for the Disney Channel. It lowered prices from $10.75 to $7.95 and found that the number of customers more than doubled. This means the

Accepted Answer

A) demand curve for the Disney Channel shifted to the right. 
B) supply curve of the Disney Channel shifted to the left. 
C) demand for the Disney Channel is elastic in this price range. 
D) demand for the Disney Channel is inelastic in this price range. 
A) demand curve for the Disney Channel shifted to the right. 
B) supply curve of the Disney Channel shifted to the left. 
C) demand for the Disney Channel is elastic in this price range. 
D) demand for the Disney Channel is inelastic in this price range.

Question 13

If the price of tickets to Disney World increases 10 percent, and as a result, attendance falls by 15 percent, the demand for the tickets is

Accepted Answer

A) elastic. 
B) inelastic. 
C) of unitary elasticity. 
D) indeterminate. 
A) elastic. 
B) inelastic. 
C) of unitary elasticity. 
D) indeterminate.

Question 14

New York City increased regulated taxi fares by 17.5 percent and expected taxi revenue to increase by the same amount. The taxi commission believed taxi demand was

Accepted Answer

A) unit elastic. 
B) somewhat elastic. 
C) perfectly elastic. 
D) perfectly inelastic. 
E) somewhat inelastic 
A) unit elastic. 
B) somewhat elastic. 
C) perfectly elastic. 
D) perfectly inelastic. 
E) somewhat inelastic

Question 15

Use the diagram below to answer this question.  
For this demand curve, the price elasticity of demand is

Accepted Answer

A) more elastic at $3 than at $2. 
B) more elastic at $2 than at $3. 
C) identical at $2 to that at $3. 
D) equal to 1.0 over the range from $3 to $2. 
A) more elastic at $3 than at $2. 
B) more elastic at $2 than at $3. 
C) identical at $2 to that at $3. 
D) equal to 1.0 over the range from $3 to $2.

Question 16

If the price of gasoline goes up, and Dan now buys fewer candy bars because he has to spend more on gas, this would best be explained by

Accepted Answer

A) the substitution effect. 
B) the income effect. 
C) the highly elastic demand for gasoline. 
D) all of the above. 
A) the substitution effect. 
B) the income effect. 
C) the highly elastic demand for gasoline. 
D) all of the above.

Question 17

Sally is on her college golf team and only uses Titleist golf balls. She states: "I don't care what the price is, I will only buy Titleists." Is this a believable assertion?

Accepted Answer

Probably not. While another golf ball mi

Question 18

Terri currently consumes 10 hamburgers and 2 shirts per month. At her current rates of consumption, her marginal utility of hamburgers is 10 and her marginal utility of shirts is 50. If the price of hamburgers is $2 each, while the price of a shirt is $25, Terri

Accepted Answer

A) is maximizing her utility. 
B) could improve her total utility by buying fewer hamburgers and more shirts. 
C) could improve her total utility by buying fewer shirts and more hamburgers. 
D) could improve her total utility by spending less on both goods. 
A) is maximizing her utility. 
B) could improve her total utility by buying fewer hamburgers and more shirts. 
C) could improve her total utility by buying fewer shirts and more hamburgers. 
D) could improve her total utility by spending less on both goods.

Question 19

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 20

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.

Exam 7: Consumer Choice and Elasticity

Along the inelastic portion of a demand curve,

Making drugs, such as cocaine, illegal results in a higher price than would be present if the drugs were legal. All else constant, the higher price results in drug users spending

Which of the following most directly reflects the law of diminishing marginal utility?

Suppose you are the manager of a local water company, and you are instructed to get consumers to reduce their water consumption by 10 percent. If the price elasticity of demand for water is -.25, by how much would you have to raise the price of water?

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

If a 10 percent increase in income induced a group of consumers to reduce their yearly purchases of potatoes by 5 percent, for these consumers,

Jack, a music major, is perusing Jill's notes for her economics class, where she has written that "total revenues will rise with price rises only if demand is elastic." Jack tells Jill this is nonsense because firms can always increase their revenues by raising price. How should Jill respond?

Consider a consumer who purchases two goods, X and Y. If the price of good Y falls, then the substitution effect by itself will

Figure 7-3 -Figure 7-3 depicts a demand curve with a price elasticity that is

Tele-Com, Inc., a large cable TV company, tested the effect of a price reduction for the Disney Channel. It lowered prices from $10.75 to $7.95 and found that the number of customers more than doubled. This means the

If the price of tickets to Disney World increases 10 percent, and as a result, attendance falls by 15 percent, the demand for the tickets is

New York City increased regulated taxi fares by 17.5 percent and expected taxi revenue to increase by the same amount. The taxi commission believed taxi demand was

Use the diagram below to answer this question. For this demand curve, the price elasticity of demand is

If the price of gasoline goes up, and Dan now buys fewer candy bars because he has to spend more on gas, this would best be explained by

Sally is on her college golf team and only uses Titleist golf balls. She states: "I don't care what the price is, I will only buy Titleists." Is this a believable assertion?

Terri currently consumes 10 hamburgers and 2 shirts per month. At her current rates of consumption, her marginal utility of hamburgers is 10 and her marginal utility of shirts is 50. If the price of hamburgers is $2 each, while the price of a shirt is $25, Terri

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

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

The Economic Approach

A: Some Tools of the Economist

B: Some Tools of the Economist

A: Supply, Demand, and the Market Process

B: Supply, Demand, and the Market Process

A: Supply and Demand: Applications and Extensions

B: Supply and Demand: Applications and Extensions

Difficult Cases for the Market and the Role of Government

The Economics of Collective Decision-Making

A: Costs and the Supply of Goods

B: Costs and the Supply of Goods

A: Price Takers and the Competitive Process

B: Price Takers and the Competitive Process

Price-Searcher Markets With Low Entry Barriers

A: Price-Searcher Markets With High Entry Barriers

B: Price-Searcher Markets With High Entry Barriers

The Supply of and Demand for Productive Resources

Earnings, Productivity, and the Job Market

Investment, the Capital Market, and the Wealth of Nations

Income Inequality and Poverty

Appendix: Government Spending and Taxation

Appendix: the Economics of Social Security

Appendix: the Stock Market: Its Function, Performance, and Potential As an Investment Opportunity

Appendix: Great Debates in Economics: Keynes Versus Hayek

Appendix: the Crisis of 2008: Causes and Lessons for the Future

Appendix: Lessons From the Great Depression

Appendix: the Economics of Healthcare

Appendix:education: Problems and Performance

Appendix: Earnings Differences Between Men and Women

Appendix: the Question of Resource Exhaustion

Appendix: Do Labor Unions Increase the Wages of Workers

Appendix: Difficult Environmental Cases and the Role of Government

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