Question 1

An individual's demand curve for a good is derived by

Accepted Answer

A) varying the income level and observing the resulting total utility derived from both goods. 
B) varying the price of one good and observing the resulting quantities of the other good. 
C) shifting the budget line to the left and calculating the loss in total utility. 
D) varying the price of one good and observing the resulting quantities demanded of that good. 
A) varying the income level and observing the resulting total utility derived from both goods. 
B) varying the price of one good and observing the resulting quantities of the other good. 
C) shifting the budget line to the left and calculating the loss in total utility. 
D) varying the price of one good and observing the resulting quantities demanded of that good.

Question 2

When the price of designer jeans goes from $85 to $60, the quantity demanded increases from 100,000 to 120,000. Over this price range, the

Accepted Answer

A) demand for the jeans is elastic. 
B) demand for the jeans is inelastic. 
C) demand for the jeans is of unitary elasticity. 
D) arc elasticity of demand for the jeans is -4. 
A) demand for the jeans is elastic. 
B) demand for the jeans is inelastic. 
C) demand for the jeans is of unitary elasticity. 
D) arc elasticity of demand for the jeans is -4.

Question 3

If the price elasticity of demand for grapes was 2.5,

Accepted Answer

A) the demand for grapes would be considered inelastic. 
B) an increase in the price of grapes would decrease total consumer spending on grapes. 
C) consumer purchases are less sensitive to a change in the price of grapes than to a change in the price of bananas, which have a price elasticity of 1.6. 
D) the income elasticity for grapes must also be 2.5. 
A) the demand for grapes would be considered inelastic. 
B) an increase in the price of grapes would decrease total consumer spending on grapes. 
C) consumer purchases are less sensitive to a change in the price of grapes than to a change in the price of bananas, which have a price elasticity of 1.6. 
D) the income elasticity for grapes must also be 2.5.

Question 4

Other things constant, the price elasticity of demand for a product will tend to be smaller (more inelastic) if

Accepted Answer

A) people spend a large share of their income on the product. 
B) people spend an insignificant share of their income on the product. 
C) the population in the market area is large. 
D) there are many good substitutes for the product. 
A) people spend a large share of their income on the product. 
B) people spend an insignificant share of their income on the product. 
C) the population in the market area is large. 
D) there are many good substitutes for the product.

Question 5

If consumers would be willing to purchase the same quantity of a good no matter what its price was, the demand curve would

Accepted Answer

A) be a vertical line, and demand would be perfectly inelastic. 
B) be a horizontal line, and the demand would be perfectly elastic. 
C) not exist. 
D) be identical to the supply curve for the good. 
A) be a vertical line, and demand would be perfectly inelastic. 
B) be a horizontal line, and the demand would be perfectly elastic. 
C) not exist. 
D) be identical to the supply curve for the good.

Question 6

Figure 7-11
  
-Refer to Figure 7-11. As price falls from PA to PB, we could use the three demand curves to calculate three different values of the price elasticity of demand. Which of the three demand curves would produce the smallest elasticity?

Accepted Answer

A) D₁ 
B) D₂ 
C) D₃ 
D) All of the above are equally elastic. 
A) D₁ 
B) D₂ 
C) D₃ 
D) All of the above are equally elastic.

Question 7

If the board of regents of a major state university system plans to raise tuition in order to increase revenues, the regents must believe student demand is

Accepted Answer

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

Question 8

Assume that a college student purchases only coffee and Snickers. The substitution effect associated with a decrease in the price of a Snickers will result in

Accepted Answer

A) an increase in the consumption of coffee only. 
B) a decrease in the consumption of coffee only. 
C) an increase in the consumption of Snickers and a decrease in the consumption of coffee. 
D) a decrease in the consumption of Snickers and an increase in the consumption of coffee. 
A) an increase in the consumption of coffee only. 
B) a decrease in the consumption of coffee only. 
C) an increase in the consumption of Snickers and a decrease in the consumption of coffee. 
D) a decrease in the consumption of Snickers and an increase in the consumption of coffee.

Question 9

When the price of a good falls, consumers buy more of the good because it is cheaper relative to competing goods. This statement describes the

Accepted Answer

A) consumer equilibrium effect. 
B) price effect. 
C) income effect. 
D) substitution effect. 
A) consumer equilibrium effect. 
B) price effect. 
C) income effect. 
D) substitution effect.

Question 10

Table 7-1
  
-Refer to Table 7-1. Whose demand does not conform to the law of demand?

Accepted Answer

A) Aaron's 
B) Angela's 
C) Austin's 
D) Alyssa's 
A) Aaron's 
B) Angela's 
C) Austin's 
D) Alyssa's

Question 11

When the price of a product increases, the passage of time usually causes the price elasticity of demand for the product to become

Accepted Answer

A) less elastic. 
B) more elastic. 
C) smaller and smaller in an absolute value. 
D) approximately equal to zero in the long run because of scarcity. 
A) less elastic. 
B) more elastic. 
C) smaller and smaller in an absolute value. 
D) approximately equal to zero in the long run because of scarcity.

Question 12

A recent increase in the supply of oranges caused the price to drop from $5 to $3 per bushel, and quantity demanded to rise from 10,000 bushels to 25,000 bushels. This indicates that the price elasticity of demand for oranges in this price range is

Accepted Answer

A) -0.33. 
B) -0.58. 
C) -1. 
D) -1.71. 
A) -0.33. 
B) -0.58. 
C) -1. 
D) -1.71.

Question 13

An inferior good is a good whose quantity demanded

Accepted Answer

A) rises when its price falls. 
B) falls when the price of a related good falls. 
C) falls when the consumer's total utility rises. 
D) rises when the consumer's income falls. 
A) rises when its price falls. 
B) falls when the price of a related good falls. 
C) falls when the consumer's total utility rises. 
D) rises when the consumer's income falls.

Question 14

Coach Ballford: "To increase our revenue from football games, we need to lower ticket prices." University President Smith: "Coach, that would be counterproductive; a reduction in ticket prices would reduce our revenue, not increase it." Which of the following best explains this disagreement?

Accepted Answer

A) The coach thinks that demand is elastic, whereas the university president thinks that demand is inelastic. 
B) The coach thinks that demand is inelastic, whereas the university president thinks that demand is elastic. 
C) The coach believes that lower ticket prices will increase attendance, but the university president must not believe attendance will increase when prices are lowered. 
D) Although both the coach and the president believe demand is of unitary elasticity, they disagree about how much attendance will rise. 
A) The coach thinks that demand is elastic, whereas the university president thinks that demand is inelastic. 
B) The coach thinks that demand is inelastic, whereas the university president thinks that demand is elastic. 
C) The coach believes that lower ticket prices will increase attendance, but the university president must not believe attendance will increase when prices are lowered. 
D) Although both the coach and the president believe demand is of unitary elasticity, they disagree about how much attendance will rise.

Question 15

Suppose that Starbucks reduces the price of its premium coffee from $2.20 to $1.80 per cup, and as a result, the quantity sold per day increased from 350 to 450. Over this price range, the absolute value of the price elasticity of demand for Starbucks coffee is

Accepted Answer

A) 0.40. 
B) 0.80. 
C) 1.25. 
D) 2.50. 
E) 4. 
A) 0.40. 
B) 0.80. 
C) 1.25. 
D) 2.50. 
E) 4.

Question 16

If Joe's income increased and as a result he purchased more wine and less fast food,

Accepted Answer

A) wine is a normal good and fast food an inferior good for Joe. 
B) wine is an inferior good and fast food a normal good for Joe. 
C) both wine and fast food are inferior goods for Joe. 
D) both wine and fast food are normal goods for Joe. 
A) wine is a normal good and fast food an inferior good for Joe. 
B) wine is an inferior good and fast food a normal good for Joe. 
C) both wine and fast food are inferior goods for Joe. 
D) both wine and fast food are normal goods for Joe.

Question 17

Which of the following is true regarding the price elasticity of demand?

Accepted Answer

A) Demand is generally more elastic in the long run than in the short run. 
B) Along a single demand curve, demand elasticity decreases as you move down the curve (to lower prices). 
C) A demand curve that is flatter (has a less steep slope) is relatively more elastic than a demand curve that has a steeper slope. 
D) All of the above are true. 
A) Demand is generally more elastic in the long run than in the short run. 
B) Along a single demand curve, demand elasticity decreases as you move down the curve (to lower prices). 
C) A demand curve that is flatter (has a less steep slope) is relatively more elastic than a demand curve that has a steeper slope. 
D) All of the above are true.

Question 18

Scenario 7-1
Use the information below to answer the following question(s).
JoAnn considers cola and plain sparkling water to be good substitutes. Suppose the price of sugar, a key ingredient used to produce cola, falls.
-Refer to Scenario 7-1. According to the income effect, which of the following is most likely to occur?

Accepted Answer

A) JoAnn will purchase less cola and more sparkling water. 
B) JoAnn will purchase more cola and less sparkling water. 
C) JoAnn will purchase more of most goods due to her higher real income. 
D) JoAnn's demand curve will decrease (shift in), causing her to purchase less cola. 
A) JoAnn will purchase less cola and more sparkling water. 
B) JoAnn will purchase more cola and less sparkling water. 
C) JoAnn will purchase more of most goods due to her higher real income. 
D) JoAnn's demand curve will decrease (shift in), causing her to purchase less cola.

Question 19

Assuming that bus travel is an inferior good, a decrease in consumer income, other things being equal, will cause

Accepted Answer

A) a downward movement along the demand curve for bus travel. 
B) no change in the demand curve for bus travel. 
C) an upward movement along the demand curve for air travel. 
D) a rightward shift in the demand curve for bus travel. 
A) a downward movement along the demand curve for bus travel. 
B) no change in the demand curve for bus travel. 
C) an upward movement along the demand curve for air travel. 
D) a rightward shift in the demand curve for bus travel.

Question 20

Figure 7-16
  
-Which demand curve in Figure 7-16 is perfectly elastic?

Accepted Answer

A) the curve in graph a 
B) the curve in graph b 
C) the curve in graph c 
D) the curve in graph d 
E) the curve in graph e 
A) the curve in graph a 
B) the curve in graph b 
C) the curve in graph c 
D) the curve in graph d 
E) the curve in graph e

Exam 7: Consumer Choice and Elasticity

An individual's demand curve for a good is derived by

When the price of designer jeans goes from $85 to $60, the quantity demanded increases from 100,000 to 120,000. Over this price range, the

If the price elasticity of demand for grapes was 2.5,

Other things constant, the price elasticity of demand for a product will tend to be smaller (more inelastic) if

If consumers would be willing to purchase the same quantity of a good no matter what its price was, the demand curve would

Figure 7-11 -Refer to Figure 7-11. As price falls from PA to PB, we could use the three demand curves to calculate three different values of the price elasticity of demand. Which of the three demand curves would produce the smallest elasticity?

If the board of regents of a major state university system plans to raise tuition in order to increase revenues, the regents must believe student demand is

Assume that a college student purchases only coffee and Snickers. The substitution effect associated with a decrease in the price of a Snickers will result in

When the price of a good falls, consumers buy more of the good because it is cheaper relative to competing goods. This statement describes the

Table 7-1 -Refer to Table 7-1. Whose demand does not conform to the law of demand?

When the price of a product increases, the passage of time usually causes the price elasticity of demand for the product to become

A recent increase in the supply of oranges caused the price to drop from $5 to $3 per bushel, and quantity demanded to rise from 10,000 bushels to 25,000 bushels. This indicates that the price elasticity of demand for oranges in this price range is

An inferior good is a good whose quantity demanded

Coach Ballford: "To increase our revenue from football games, we need to lower ticket prices." University President Smith: "Coach, that would be counterproductive; a reduction in ticket prices would reduce our revenue, not increase it." Which of the following best explains this disagreement?

Suppose that Starbucks reduces the price of its premium coffee from $2.20 to $1.80 per cup, and as a result, the quantity sold per day increased from 350 to 450. Over this price range, the absolute value of the price elasticity of demand for Starbucks coffee is

If Joe's income increased and as a result he purchased more wine and less fast food,

Which of the following is true regarding the price elasticity of demand?

Assuming that bus travel is an inferior good, a decrease in consumer income, other things being equal, will cause

Figure 7-16 -Which demand curve in Figure 7-16 is perfectly elastic?

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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