Question 1

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 2

When a good is more broadly defined,

Accepted Answer

A) the more substitutes it has so the more elastic is its demand. 
B) the fewer substitutes it has so the more elastic is its demand. 
C) the more substitutes it has so the less elastic is its demand. 
D) the fewer substitutes it has so the less elastic is its demand. 
A) the more substitutes it has so the more elastic is its demand. 
B) the fewer substitutes it has so the more elastic is its demand. 
C) the more substitutes it has so the less elastic is its demand. 
D) the fewer substitutes it has so the less elastic is its demand.

Question 3

Mr. Jones always buys gasoline at the corner station with his credit card. Now a new station (that does not accept credit cards) is built on the other corner and offers the same quality of gasoline for $.05 less per gallon. Is Jones irrational if he continues to buy gasoline at the old station?

Accepted Answer

A) Yes; such action would clearly violate the law of demand. If the price is lower across the street, Jones should go there. 
B) Not necessarily; he may think the ease and convenience of using the credit card is worth the extra cost. 
C) Yes; his actions imply that the law of diminishing returns does not apply to gasoline. 
D) Not enough information is given to determine if his actions are rational. 
A) Yes; such action would clearly violate the law of demand. If the price is lower across the street, Jones should go there. 
B) Not necessarily; he may think the ease and convenience of using the credit card is worth the extra cost. 
C) Yes; his actions imply that the law of diminishing returns does not apply to gasoline. 
D) Not enough information is given to determine if his actions are rational.

Question 4

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

Accepted Answer

A) the demand for apples is inelastic. 
B) the demand for apples is elastic. 
C) the quantity of apples purchased is unresponsive to changes in price. 
D) there are few good substitutes for apples. 
A) the demand for apples is inelastic. 
B) the demand for apples is elastic. 
C) the quantity of apples purchased is unresponsive to changes in price. 
D) there are few good substitutes for apples.

Question 5

If demand price elasticity measures 2, this implies that consumers would

Accepted Answer

A) buy twice as much of the product if the price drops 10 percent. 
B) require a 2 percent drop in price to increase their purchases by 1 percent. 
C) buy 2 percent more of the product in response to a 1 percent drop in price. 
D) require at least a $2 increase in price before showing any response to the price increase. 
E) buy twice as much of the product if the price drops 1 percent. 
A) buy twice as much of the product if the price drops 10 percent. 
B) require a 2 percent drop in price to increase their purchases by 1 percent. 
C) buy 2 percent more of the product in response to a 1 percent drop in price. 
D) require at least a $2 increase in price before showing any response to the price increase. 
E) buy twice as much of the product if the price drops 1 percent.

Question 6

You and your college roommate eat three packages of Ramen noodles each week. After graduation last month, both of you were hired at several times your college income. You still enjoy Ramen noodles very much and buy even more, but your roommate plans to buy fewer Ramen noodles in favor of foods she prefers more. When looking at income elasticity of demand for Ramen noodles,

Accepted Answer

A) yours would be negative and your roommate's would be positive. 
B) yours would be positive and your roommate's would be negative. 
C) yours would be zero and your roommate's would approach infinity. 
D) yours would approach infinity and your roommate's would be zero. 
A) yours would be negative and your roommate's would be positive. 
B) yours would be positive and your roommate's would be negative. 
C) yours would be zero and your roommate's would approach infinity. 
D) yours would approach infinity and your roommate's would be zero.

Question 7

If a 10 percent rise in price leads to a reduction in quantity demanded of more than 10 percent,

Accepted Answer

A) demand is elastic. 
B) demand is inelastic. 
C) elasticity of demand is unitary. 
D) None of the above is correct. 
A) demand is elastic. 
B) demand is inelastic. 
C) elasticity of demand is unitary. 
D) None of the above is correct.

Question 8

If the demand for a product increases as the result of an increase in income, it can be concluded that the

Accepted Answer

A) product is an inferior good. 
B) demand for the product is inelastic. 
C) price elasticity of demand for the product equals unity. 
D) product is a normal good. 
A) product is an inferior good. 
B) demand for the product is inelastic. 
C) price elasticity of demand for the product equals unity. 
D) product is a normal good.

Question 9

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 10

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 Pepsi-Cola Company could increase its total revenue by

Accepted Answer

A) lowering price. 
B) decreasing quantity supplied. 
C) leaving price the same. 
D) raising price. 
E) decreasing supply. 
A) lowering price. 
B) decreasing quantity supplied. 
C) leaving price the same. 
D) raising price. 
E) decreasing supply.

Question 11

If Mr. Smith thinks the last dollar spent on shirts yields less 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 increase his spending on shirts. 
C) increase 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 increase his spending on shirts. 
C) increase his spending on shirts. 
D) increase his spending on cola and decrease his spending on shirts.

Question 12

Figure 7-1
  
-Figure 7-1 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 13

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

Accepted Answer

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. 
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.

Question 14

Figure 7-2
  
-Figure 7-2 depicts a demand curve with a price elasticity that is

Accepted Answer

A) perfectly elastic, implying that as much as can be supplied will be purchased 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 as much as can be supplied will be purchased 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 15

A good that takes up a very large percentage of the consumer's budget will tend to have

Accepted Answer

A) an elastic demand. 
B) a perfectly elastic demand. 
C) an inelastic demand. 
D) an upward-sloping demand curve. 
E) very many substitutes. 
A) an elastic demand. 
B) a perfectly elastic demand. 
C) an inelastic demand. 
D) an upward-sloping demand curve. 
E) very many substitutes.

Question 16

A 15 percent increase in the price of beef reduces the quantity of beef consumed by 30 percent. Thus, the demand for beef is ____, and total consumer expenditure (or total firm revenue) will ____ as a result of the price increase. (Fill in the blanks.)

Accepted Answer

A) elastic; increase 
B) elastic; decrease 
C) inelastic; increase 
D) inelastic; decrease 
A) elastic; increase 
B) elastic; decrease 
C) inelastic; increase 
D) inelastic; decrease

Question 17

Ceteris paribus, an increase in the price of a good will cause the

Accepted Answer

A) quantity demanded of the good to increase. 
B) quantity supplied of the good to decrease. 
C) consumer surplus derived from the good to decrease. 
D) demand of the good to increase. 
A) quantity demanded of the good to increase. 
B) quantity supplied of the good to decrease. 
C) consumer surplus derived from the good to decrease. 
D) demand of the good to increase.

Question 18

Cary increases the price of her cakes from $8 to $10 per cake, but her cash receipts decrease by 2 percent. The price elasticity of demand (in the $8 to $10 range) is

Accepted Answer

A) elastic. 
B) inelastic. 
C) 0.02. 
D) 0.25. 
A) elastic. 
B) inelastic. 
C) 0.02. 
D) 0.25.

Question 19

The demand for Chocolate Chip Cookie Dough ice cream is likely quite elastic because

Accepted Answer

A) ice cream must be eaten quickly. 
B) this particular flavor of ice cream is viewed as a necessity by many ice-cream lovers. 
C) the market is broadly defined. 
D) other flavors of ice cream are good substitutes for this particular flavor. 
A) ice cream must be eaten quickly. 
B) this particular flavor of ice cream is viewed as a necessity by many ice-cream lovers. 
C) the market is broadly defined. 
D) other flavors of ice cream are good substitutes for this particular flavor.

Question 20

If the price of hamburger increases, the substitution effect works to

Accepted Answer

A) decrease the quantity of hamburger supplied. 
B) increase the number of hamburger buns demanded. 
C) decrease the quantity of hamburger demanded. 
D) increase the number of hamburger buns supplied. 
A) decrease the quantity of hamburger supplied. 
B) increase the number of hamburger buns demanded. 
C) decrease the quantity of hamburger demanded. 
D) increase the number of hamburger buns supplied.

Exam 7: Consumer Choice and Elasticity

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

When a good is more broadly defined,

Mr. Jones always buys gasoline at the corner station with his credit card. Now a new station (that does not accept credit cards) is built on the other corner and offers the same quality of gasoline for $.05 less per gallon. Is Jones irrational if he continues to buy gasoline at the old station?

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

If demand price elasticity measures 2, this implies that consumers would

If a 10 percent rise in price leads to a reduction in quantity demanded of more than 10 percent,

If the demand for a product increases as the result of an increase in income, it can be concluded that 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

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 Pepsi-Cola Company could increase its total revenue by

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

Figure 7-1 -Figure 7-1 depicts a demand curve with a price elasticity that is

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

Figure 7-2 -Figure 7-2 depicts a demand curve with a price elasticity that is

A good that takes up a very large percentage of the consumer's budget will tend to have

A 15 percent increase in the price of beef reduces the quantity of beef consumed by 30 percent. Thus, the demand for beef is ____, and total consumer expenditure (or total firm revenue) will ____ as a result of the price increase. (Fill in the blanks.)

Ceteris paribus, an increase in the price of a good will cause the

Cary increases the price of her cakes from $8 to $10 per cake, but her cash receipts decrease by 2 percent. The price elasticity of demand (in the $8 to $10 range) is

The demand for Chocolate Chip Cookie Dough ice cream is likely quite elastic because

If the price of hamburger increases, the substitution effect works to

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

Filters

A 15 percent increase in the price of beef reduces the quantity of beef consumed by 30 percent. Thus, the demand for beef is , and total consumer expenditure (or total firm revenue) will as a result of the price increase. (Fill in the blanks.)