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

After downing three glasses of lemonade on a hot summer afternoon, Todd says, "You would have to pay me to drink another glass!" This statement best illustrates

Accepted Answer

A) the law of demand. 
B) the substitutability among goods. 
C) the law of diminishing marginal utility. 
D) that chocolate candy bars are an inferior good. 
A) the law of demand. 
B) the substitutability among goods. 
C) the law of diminishing marginal utility. 
D) that chocolate candy bars are an inferior good.

Question 3

If a 30 percent decline in the price of gasoline leads to a 15 percent rise in expenditures on gasoline, the price elasticity of demand for gasoline in this range must be

Accepted Answer

A) 2. 
B) elastic. 
C) 0.5. 
D) inelastic. 
A) 2. 
B) elastic. 
C) 0.5. 
D) inelastic.

Question 4

When the price elasticity of demand is greater than one, it means that demand is

Accepted Answer

A) inelastic and the percent change in quantity is greater than the percent change in price. 
B) inelastic and the percent change in quantity is less than the percent change in price. 
C) elastic and the percent change in quantity is greater than the percent change in price. 
D) elastic and the percent change in quantity is less than the percent change in price. 
A) inelastic and the percent change in quantity is greater than the percent change in price. 
B) inelastic and the percent change in quantity is less than the percent change in price. 
C) elastic and the percent change in quantity is greater than the percent change in price. 
D) elastic and the percent change in quantity is less than the percent change in price.

Question 5

If bus travel is an inferior good, then its income elasticity of demand will be

Accepted Answer

A) strictly greater than one. 
B) positive. 
C) equal to zero. 
D) negative. 
A) strictly greater than one. 
B) positive. 
C) equal to zero. 
D) negative.

Question 6

Fred, a poor college student, states: "I eat tuna sandwiches five times a week. When I graduate and get a real job, I will never purchase tuna again." Is Fred planning on breaking the law of demand?

Accepted Answer

For normal goods, we expect consumers to

Question 7

Compared to the long run, consumers typically ____ to price changes in the short run.

Accepted Answer

A) are very responsive 
B) are more demand sensitive 
C) are less demand sensitive 
D) do not respond at all 
E) overreact 
A) are very responsive 
B) are more demand sensitive 
C) are less demand sensitive 
D) do not respond at all 
E) overreact

Question 8

The price elasticity of demand for a commodity is determined primarily by the

Accepted Answer

A) size of the consumer surplus. 
B) attractiveness of the substitutes for the good. 
C) incomes of consumers. 
D) availability of complementary goods. 
A) size of the consumer surplus. 
B) attractiveness of the substitutes for the good. 
C) incomes of consumers. 
D) availability of complementary goods.

Question 9

If a Pizza Hut restaurant near campus reduces its pizza prices by 15 percent, and as a result, its total revenue from pizza sales increases, this indicates that the price elasticity of demand was

Accepted Answer

A) elastic. 
B) of unitary elasticity. 
C) inelastic. 
D) equal to 0.15. 
A) elastic. 
B) of unitary elasticity. 
C) inelastic. 
D) equal to 0.15.

Question 10

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

Accepted Answer

A) an upward movement along the demand curve for bus travel. 
B) a downward movement along the demand curve for bus travel. 
C) a rightward shift in the demand curve for bus travel. 
D) a leftward shift in the demand curve for bus travel. 
A) an upward movement along the demand curve for bus travel. 
B) a downward movement along the demand curve for bus travel. 
C) a rightward shift in the demand curve for bus travel. 
D) a leftward shift in the demand curve for bus travel.

Question 11

All else equal, if a firm raises its price by 20 percent and the firm's total revenue falls by 20 percent,

Accepted Answer

A) demand must be elastic. 
B) demand must be inelastic. 
C) demand must be unit elastic. 
D) the price elasticity of demand must be equal to 1. 
A) demand must be elastic. 
B) demand must be inelastic. 
C) demand must be unit elastic. 
D) the price elasticity of demand must be equal to 1.

Question 12

If the price of apples increases, total expenditures on apples will decline if

Accepted Answer

A) there are few substitutes for apples. 
B) the supply of apples is inelastic. 
C) the demand for apples is elastic. 
D) apples are a normal good. 
A) there are few substitutes for apples. 
B) the supply of apples is inelastic. 
C) the demand for apples is elastic. 
D) apples are a normal good.

Question 13

When demand is price inelastic,

Accepted Answer

A) price and total revenue move in the same direction. 
B) price and total revenue move in the opposite direction. 
C) total revenue increases whether price goes up or down. 
D) total revenue decreases whether price goes up or down. 
A) price and total revenue move in the same direction. 
B) price and total revenue move in the opposite direction. 
C) total revenue increases whether price goes up or down. 
D) total revenue decreases whether price goes up or down.

Question 14

Figure 7-14
  
-Refer to Figure 7-14. Which supply curve represents perfectly inelastic supply?

Accepted Answer

A) S₁ 
B) S₂ 
C) S₃ 
D) It is impossible to tell without more information. 
A) S₁ 
B) S₂ 
C) S₃ 
D) It is impossible to tell without more information.

Question 15

An inferior good is distinguished by a

Accepted Answer

A) negative price elasticity of demand. 
B) positive price elasticity of demand. 
C) positive income elasticity of demand. 
D) negative income elasticity of demand. 
A) negative price elasticity of demand. 
B) positive price elasticity of demand. 
C) positive income elasticity of demand. 
D) negative income elasticity of demand.

Question 16

The difference between normal and inferior goods is that

Accepted Answer

A) an increase in price will shift the demand curve for a normal good rightward and the demand curve for an inferior good leftward. 
B) if the price of a normal good increases, individuals who buy it are poorer; for inferior goods, the opposite is true. 
C) an inferior good is something that will not be demanded until quantities of the normal good have been exhausted. 
D) an increase in income will shift the demand curve for a normal good rightward and the demand curve for an inferior good leftward. 
A) an increase in price will shift the demand curve for a normal good rightward and the demand curve for an inferior good leftward. 
B) if the price of a normal good increases, individuals who buy it are poorer; for inferior goods, the opposite is true. 
C) an inferior good is something that will not be demanded until quantities of the normal good have been exhausted. 
D) an increase in income will shift the demand curve for a normal good rightward and the demand curve for an inferior good leftward.

Question 17

John's demand schedule for pizza is indicated below. If the current price of pizza is $1.10 per slice, what is John's consumer surplus if he buys five slices of pizza?

Accepted Answer

A) $0 
B) $1.00 
C) $1.10 
D) $6.50 
A) $0 
B) $1.00 
C) $1.10 
D) $6.50

Question 18

If people spend 30 percent less on movie tickets when movie prices decline 15 percent, the price elasticity of demand for movie tickets at these prices must be

Accepted Answer

A) -3.0. 
B) elastic 
C) -0.5. 
D) inelastic. 
A) -3.0. 
B) elastic 
C) -0.5. 
D) inelastic.

Question 19

If demand is inelastic, an increase in the price of a good will cause total expenditures on the good to

Accepted Answer

A) fall. 
B) remain constant since the decrease in quantity sold is exactly offset by the price increase. 
C) rise. 
D) rise if it is a normal good and fall if it is an inferior good. 
A) fall. 
B) remain constant since the decrease in quantity sold is exactly offset by the price increase. 
C) rise. 
D) rise if it is a normal good and fall if it is an inferior good.

Question 20

If Mr. Smith thinks the last dollar spent on shirts yields more satisfaction than the last dollar spent on cola, and Smith is a utility-maximizing consumer, he should

Accepted Answer

A) decrease his spending on cola. 
B) decrease his spending on cola and decrease his spending on shirts. 
C) decrease his spending on shirts. 
D) increase his spending on cola and decrease his spending on shirts. 
A) decrease his spending on cola. 
B) decrease his spending on cola and decrease his spending on shirts. 
C) decrease his spending on shirts. 
D) increase his spending on cola and decrease his spending on shirts.

Exam 7: 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

After downing three glasses of lemonade on a hot summer afternoon, Todd says, "You would have to pay me to drink another glass!" This statement best illustrates

If a 30 percent decline in the price of gasoline leads to a 15 percent rise in expenditures on gasoline, the price elasticity of demand for gasoline in this range must be

When the price elasticity of demand is greater than one, it means that demand is

If bus travel is an inferior good, then its income elasticity of demand will be

Fred, a poor college student, states: "I eat tuna sandwiches five times a week. When I graduate and get a real job, I will never purchase tuna again." Is Fred planning on breaking the law of demand?

Compared to the long run, consumers typically ____ to price changes in the short run.

The price elasticity of demand for a commodity is determined primarily by the

If a Pizza Hut restaurant near campus reduces its pizza prices by 15 percent, and as a result, its total revenue from pizza sales increases, this indicates that the price elasticity of demand was

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

All else equal, if a firm raises its price by 20 percent and the firm's total revenue falls by 20 percent,

If the price of apples increases, total expenditures on apples will decline if

When demand is price inelastic,

Figure 7-14 -Refer to Figure 7-14. Which supply curve represents perfectly inelastic supply?

An inferior good is distinguished by a

The difference between normal and inferior goods is that

John's demand schedule for pizza is indicated below. If the current price of pizza is $1.10 per slice, what is John's consumer surplus if he buys five slices of pizza?

If people spend 30 percent less on movie tickets when movie prices decline 15 percent, the price elasticity of demand for movie tickets at these prices must be

If demand is inelastic, an increase in the price of a good will cause total expenditures on the good to

If Mr. Smith thinks the last dollar spent on shirts yields more satisfaction than the last dollar spent on cola, and Smith is a utility-maximizing consumer, he should

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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