Deck 4: The Firm and the Consumer

Question 1

If the price elasticity of demand is equal to 4, a 1 percent increase in price will cause the quantity demanded to ____ by ____ percent.

A) increase; 1/4
B) decrease; 1/4
C) increase; 4
D) decrease; 25
E) decrease; 4

Answer 1

decrease; 4

Question 2

Price is the same as

A) cost
B) marginal revenue
C) average revenue
D) total revenue
E) quantity

Answer 2

average revenue

Question 3

Average revenue is

A) the price at which a product is sold multiplied by the cost of producing the product.
B) the price at which a product is sold divided by the number of units of the product sold.
C) total revenue divided by the number of units of the product sold.
D) the number of units of the product sold divided by the price at which the product is sold.
E) total revenue divided by the average price.

Answer 3

total revenue divided by the number of units of the product sold.

Question 4

Scanners at checkout registers record demand information on a continuous basis. Which of the following is not true?

A) Walmart was one of the first firms to implement such a system.
B) Data about every transaction are analyzed at corporate headquarters.
C) The system is used to keep track of sales and prices and to automatically order more inventory.
D) With this information, firms track individual consumers' buying habits.
E) Government requires the use of such systems to facilitate tax revenue collection

Question 5

Total revenue is the

A) price at which a product is sold multiplied by the cost of producing the product.
B) price at which a product is sold multiplied by the number of units of the product that is sold.
C) price at which a product is sold multiplied by the number of units of the product that is produced.
D) average price of a product divided by the number of units of the product that is sold.
E) none of these.

Question 6

Figure 4.1

In Figure 4.1, what is the curve marked III?

A) Demand
B) Marginal revenue
C) Average revenue
D) Marginal cost
E) Average total cost

Question 7

To say there is an elastic demand for a product means that

A) there are relatively few substitutes, few competitors, and a short time period under consideration.
B) consumers are very responsive to a change in the price of the product.
C) consumers are not very responsive to a change in the price of the product.
D) if the price rises by some percentage, then the quantity demanded will fall by a smaller percentage.
E) there is a positive relationship between price and total revenue.

Question 8

A product with an inelastic demand means that

A) consumers are relatively sensitive to a change in the price of the product.
B) consumers are relatively insensitive to a change in the quantity demanded.
C) producers are relatively sensitive to a change in the quantity demanded.
D) producers are relatively insensitive to a change in the price of the product.
E) consumers are relatively insensitive to a change in the price of the product.

Question 9

If a 1 percent change in the price of a good causes a 1 percent change in the quantity demanded of that good, the price elasticity of demand is

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

Question 10

The price elasticity of demand for a product measures

A) how much price changes given a change in demand.
B) the slope of the demand curve for that product.
C) changes in demand.
D) how responsive consumers are to a price change.
E) how responsive producers are to a price change.

Question 11

A product with an elastic demand means that

A) consumers are relatively sensitive to a change in the price of the product.
B) consumers are relatively insensitive to a change in the quantity demanded.
C) consumers are relatively insensitive to a change in the price of the product.
D) producers are relatively insensitive to a change in the price of the product.
E) producers are relatively sensitive to a change in the quantity demanded.

Question 12

Elasticity is a measure of

A) how quickly a particular market reaches equilibrium.
B) the change in income associated with increased education.
C) the responsiveness of one variable to a change in another variable.
D) the effect of an increase in the number of consumers in a particular market.
E) how quickly expansion can take place in an economy.

Question 13

Demand provides a great deal of information to a business. A business can learn about the demand for its products by conducting a survey

A) asking people what they would be willing to pay for one unit of a certain product.
B) carried out at dinnertime asking about the prices of various goods.
C) conducted in a shopping mall asking about various goods.
D) in a focus group.
E) all of these

Question 14

To sell one more unit of output, the seller must make one more and sell it for

A) the same price as the last unit sold
B) less than the price at which the last unit sold
C) more than the price at which the last unit sold
D) the cost of the resources used to produce it
E) the marginal revenue

Question 15

Suppose 200 DVDs are rented when the price is $4. If the price drops by $.80, the number of DVDs rented increases to 220. Which of the following statements about the price elasticity of demand is true?

A) The elasticity of demand is equal to 5.
B) Demand is elastic.
C) Demand is inelastic.
D) Demand is unit elastic.
E) The elasticity of demand is equal to 2.

Question 16

Demand provides a great deal of information to a business. A business can learn about the demand for its products by comparing

A) number of customers.
B) prices and quantities of different products.
C) prices and quantities at different times.
D) levels of income.
E) all of these.

Question 17

Price elasticity of demand is measured by the

A) percentage change in quantity demanded divided by the percentage change in price.
B) change in price divided by the change in quantity demanded.
C) change in demand divided by the change in price.
D) percentage change in quantity supplied divided by the percentage change in price.
E) percentage change in price divided by the percentage change in quantity demanded.

Question 18

Price elasticity of demand is a measure of the

A) extent of competition in the market.
B) percentage change in price times the percentage change in quantity demanded.
C) absolute change in price.
D) degree of consumer responsiveness to changes in price.
E) percentage change in the prices of two products.

Question 19

Price elasticity of demand shows

A) that income is a function of demand.
B) the degree of consumer sensitivity to price changes.
C) shifts in demand in response to changes in consumer preferences.
D) the extent to which a demand schedule changes in response to changes in consumer income and taste.
E) that consumers are usually indifferent to changes in price.

Question 20

Marginal revenue is

A) the price at which a product is sold multiplied by the cost of producing the product.
B) the price at which a product is sold divided by the number of units of the product sold.
C) the change in total revenue divided by the change in quantity sold.
D) the change in quantity sold divided by the change in total revenue.
E) the additional cost to produce one more unit of output.

Question 21

Assume that the price elasticity of demand is 0.20. Given a 10 percent increase in price, we will see a

A) 20 percent increase in the quantity demanded.
B) 2 percent decrease in the quantity demanded.
C) 20 percent decrease in the quantity demanded.
D) 0.2 percent decrease in the quantity demanded.
E) 2 percent increase in the quantity demanded.

Question 22

Suppose 50 loaves of bread are demanded at a particular price. If that price rises by 4 percent, the quantity demanded of bread decreases to 45 loaves, which means

A) demand is elastic.
B) demand is unit elastic.
C) the price elasticity of demand is equal to 0.8.
D) demand is inelastic.
E) consumers are very unresponsive to a price change.

Question 23

A price elasticity of demand greater than 1 means that

A) the product has a unitary elastic demand.
B) the product has an elastic demand.
C) total revenue (or total consumer expenditures) will rise if price rises.
D) the product has an inelastic demand.
E) the percentage change in quantity demanded is less than the percentage change in price.

Question 24

The price elasticity of demand for a product is 2, which implies that

A) if the price increases by 1 percent, the quantity demanded will decrease by 2 percent.
B) if the price increases by 1 unit, the quantity demanded will decrease by 2 units.
C) if the price increases by 1 percent, the quantity demanded will increase by 1 percent.
D) if the quantity demanded increases by 1 percent, the price will decrease by 2 percent.
E) the change in quantity demanded divided by the change in price is equal to 2.

Question 25

If the percentage change in quantity demanded for a product is greater than zero and is smaller than the percentage change in price that caused it, then demand for the good is

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

Question 26

If 100 units of product L are sold at a unit price of $10 and only 25 units are sold at a unit price of $20, one can conclude that demand for L is

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

Question 27

Suppose that the price elasticity of demand for firms A, B, C, and D is 0, 0.5, 1, and 1.5, respectively. An increase in the price would lead to a reduction in the quantity demanded for

A) all four firms.
B) firms B, C, and D.
C) firms C and D.
D) firm D.
E) none of the firms; the answer cannot be determined from the information given.

Question 28

When the price of a good increases by 50 percent, quantity demanded decreases by 2 percent. What is the price elasticity of demand?

A) 1/25
B) 2
C) 25
D) 50
E) It is impossible to determine from the information given.

Question 29

What would be the consequences of a 10 percent decrease in price for a good whose price elasticity of demand is 5?

A) A 50 percent decrease in quantity demanded
B) A 5 percent increase in quantity demanded
C) A 50 percent increase in quantity demanded
D) A decrease in quantity demanded by 1/5
E) An increase in quantity demanded by 1/5

Question 30

If the price of a product decreases by 10 percent and the quantity demanded increases by 5 percent, then

A) the producer should lower the price further to sell more and further increase total revenue.
B) the producer should raise the price, but not as high as it was, to increase total revenue.
C) the producer should raise the price higher than where it was to experience higher total revenue.
D) total revenue will not be affected by price changes.
E) the producer should change the price back to where it was before the change.

Question 31

Price elasticity of demand is the

A) change in price due to a change in quantity demanded.
B) change in quantity demanded due to a change in price.
C) change in total expenditure due to a change in price.
D) percentage change in quantity demanded due to a percentage change in price.
E) percentage change in price due to a percentage change in quantity demanded.

Question 32

When a university increased tuition by 10 percent, the number of students enrolled in fell by 15 percent. This university is faced with a(n) ____ demand.

A) elastic
B) inelastic
C) unit elastic
D) infinitely elastic
E) perfectly inelastic

Question 33

If demand for a good is inelastic, one can conclude that

A) the good is a necessity.
B) quantity demanded does not respond to price changes.
C) total revenue will decrease when the price increases.
D) the change in quantity demanded is less than the change in price.
E) the percentage change in price is greater than the percentage change in quantity demanded.

Question 34

If a price increase from $20 to $40 causes quantity demanded to decrease from 100 units to 50 units, one can conclude that demand for the product is

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

Question 35

If demand is unit elastic, a 25 percent increase in price will result in

A) a 25 percent change in total revenue.
B) no change in the quantity demanded.
C) a 1 percent decrease in the quantity demanded.
D) a 25 percent decrease in the quantity demanded.
E) a 100 percent change in the quantity demanded.

Question 36

If the percentage change in quantity demanded of a good is less than infinite and is greater than the percentage change in price that caused it, then the demand for the good is

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

Question 37

The formula for the price elasticity of demand is the

A) unit change in price times the unit change in quantity demanded.
B) change in price divided by the absolute change in quantity demanded.
C) percentage change in price divided by the percentage change in quantity demanded.
D) percentage change in quantity demanded divided by the percentage change in price.
E) percentage change in price divided by the percentage change in total revenue.

Question 38

Carla buys one soft drink a day regardless of the price. Which of the following statements is correct about Carla?

A) Price elasticity of demand for soft drinks is 0.
B) Price elasticity of demand for soft drinks is 1.
C) Price elasticity of demand for soft drinks is undefined.
D) Total expenditure will decrease if the price of soft drinks increases.
E) There will be an increase in total expenditure if the price of soft drinks decreases.

Question 39

To calculate a price elasticity of demand, we need to

A) divide the percentage change in the price by the percentage change in the quantity demanded.
B) multiply the percentage change in the quantity demanded by the percentage change in the price.
C) know the slope of the demand curve.
D) multiply the percentage change in the price by the percentage change in the quantity demanded.
E) divide the percentage change in the quantity demanded by the percentage change in the price.

Question 40

If demand is perfectly inelastic, then the

A) elasticity of demand is 1.
B) elasticity of demand is -1.
C) demand curve will be nonexistent.
D) demand curve will be a horizontal line.
E) demand curve will be a vertical line.

Question 41

Which of the following would most likely be the price elasticity of demand for a fancy cruise to Hawaii?

A) -0.01
B) -0.50
C) -1
D) -5
E) -10

Question 42

If a change in price causes no response at all in the quantity of the product demanded, then demand for the product is

A) elastic.
B) infinitely elastic.
C) relatively inelastic.
D) perfectly inelastic.
E) unit elastic.

Question 43

Teddy's Burgers decreased the price of their hamburgers by 25 cents, and sold 100 more hamburgers each day. It can be concluded that Teddy's Burgers has a(n) ____ demand for its burgers.

A) inelastic
B) elastic
C) unit elastic
D) perfectly elastic
E) Nothing can be concluded about elasticity for Teddy's Burgers.

Question 44

Which of the following would most likely be the price elasticity of demand for a your economics textbook (assuming you want to earn an "A")?

A) -0.01
B)-0.50
C) -1
D) -5
E) -10

Question 45

Airlines now charge passengers for checking luggage, and for food and blankets in flight. Airlines must have determined that demand for these items is

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

Question 46

Figure 4.2

Refer to Figure 4.2. Observing the changes in quantity demanded as a result of a decrease in price from P₂ to P₁ shows that

A) D is relatively more inelastic than C.
B) A has the largest change in quantity demanded.
C) B is relatively more elastic than D.
D) C has the largest change in quantity demanded.
E) C is relatively more elastic than B.

Question 47

Which of the following would most likely be the price elasticity of demand for high cholesterol medicine prescribed to an overweight person?

A) -0.01
B) -0.50
C) -1
D) -5
E) -10

Question 48

Which of the following would most likely be the price elasticity of demand for seniors at the movie theater?

A) -0.01
B) -0.50
C)-1
D) -5
E) -10

Question 49

Which of the following goods or services will most likely have an inelastic demand?

A) Pizza
B) Haircuts
C) Dinners at a fancy restaurant
D) Insulin (medication used to treat diabetes)
E) Beer

Question 50

The reason students receive discounts to their athletic events is

A) their demand is less elastic than the general public.
B) they pay for athletic events through mandated fees.
C) their demand is more elastic than the general public.
D) they are too busy studying economics and have to be offered a "good deal".
E) the student section is not premium seating.

Question 51

A price elasticity of demand equal to zero indicates that the demand for a product is

A) relatively inelastic.
B) perfectly inelastic.
C) unit elastic.
D) infinitely elastic.
E) relatively elastic.

Question 52

Figure 4.2

Refer to Figure 4.2. The demand curve E has a price elasticity

A) of infinity.
B) equal to 1.
C) equal to zero.
D) less than 1.
E) that varies at different points along the demand curve.

Question 53

Any change in price that causes a limitless response in the quantity demanded of a product indicates that demand is

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

Question 54

Figure 4.2

Refer to Figure 4.2. The demand curve B is most likely to have a price elasticity of demand that

A) is greater than 1 for the whole curve
B) is less than 1 for the whole curve.
C) is constant.
D) could be greater than, less than, or equal to 1.
E) is equal to 1 for the whole curve.

Question 55

A horizontal demand curve is

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

Question 56

Figure 4.2

In Figure 4.2, which demand curve is least likely to represent demand for high blood pressure medicine?

A) A
B) B
C) C
D) D
E) E

Question 57

Figure 4.2

Refer to Figure 4.2. The demand curve E is most likely to represent the

A) demand for heroin by a drug addict.
B) market demand for wheat.
C) demand for one orchard's apples.
D) demand for a particular brand of breakfast cereal.
E) demand for air conditioning during a hot summer.

Question 58

The demand for Pepsi ____ the demand for "soda".

A) is more elastic than
B) is less elastic than
C) has the same elasticity as
D) cannot be more elastic than
E) is unit elastic, as is

Question 59

If electric rates were increased by 10 percent because of increased prices of fuel oil and natural gas, and the quantity demanded did not change, one could conclude that, in the short run, the demand for electricity is

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

Question 60

Figure 4.2

Refer to Figure 4.2. The demand curve A indicates that

A) consumers can purchase any quantity they want regardless of the price.
B) there is no change in quantity demanded as the price changes.
C) the smallest price change will cause consumers to change their consumption by a large amount.
D) the smallest price increase will cause consumers to switch to the producer with the lowest prices.
E) the price elasticity of demand is equal to 1.

Question 61

Which of the following is a characteristic of an item that has price-elastic demand?

A) A small number of competitors
B) Many substitutes
C) A short time period under consideration
D) A product that accounts for a small percentage of consumers' incomes
E) A necessity for survival

Question 62

Suppose a producer is able to recognize two different groups of customers, one having an elastic demand and the other having an inelastic demand. Price discrimination by the producer would most likely

A) involve decreasing the price for only the group with inelastic demand.
B) involve decreasing the price for only the group with elastic demand.
C) not occur because it is illegal.
D) involve increasing the price for both groups.
E) involve increasing the price only for the group with elastic demand.

Question 63

If a liquor store owner decides that raising the price of beer can pay for the construction of a new building, then the owner is assuming that the

A) percentage increase in the price of beer will cause a smaller percentage decrease in the quantity demanded.
B) percentage increase in the price of beer will cause a greater percentage decrease in the quantity demanded.
C) demand for his or her beer is elastic.
D) percentage increase in the price of beer will cause an equal percentage decrease in the quantity demanded.
E) demand for beer is unit elastic.

Question 64

Assume that a new nuclear power plant wishes to raise consumers' electrical rates to cover the unexpectedly high costs of construction. However, the government regulatory commission refuses to let electrical rates be increased because it says the increase will only worsen the power plant's financial problems. We can conclude that the

A) power plant is arguing that the demand for electricity is elastic, whereas the government is arguing that it is inelastic.
B) power plant should increase its electrical rates if the demand for electricity is elastic.
C) power plant should decrease its electrical rates if the demand for electricity is inelastic.
D) demand for electricity must be unit elastic.
E) power plant is arguing that the demand for electricity is inelastic, whereas the government is arguing that it is elastic.

Question 65

If a product has an elastic demand, then we can expect

A) total revenue to rise if price falls.
B) a price increase to increase total revenue.
C) a smaller percentage change in the quantity demanded given some percentage change in the price.
D) the absolute value of the elasticity of demand coefficient to be less than 1.
E) that there are few substitutes for this product.

Question 66

For a downward-sloping straight-line demand curve, the top portion of the curve is generally

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

Question 67

The campus bookstore has reduced prices on pens and pencils in order to increase total revenue from sales of these items. Therefore, the manager of the campus bookstore believes that the demand for pens and pencils at the bookstore is

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

Question 68

When demand is perfectly inelastic, an increase in price will result in

A) a decrease in total revenue.
B) an increase in total revenue.
C) no change in total revenue.
D) a decrease in quantity demanded.
E) an increase in quantity demanded.

Question 69

If a product has an inelastic demand, then

A) there is probably a long time period under consideration.
B) as price increases, total revenue to producers decreases.
C) an increase in the price will decrease total consumer expenditures.
D) there are probably lots of substitutes.
E) there are probably few substitutes.

Question 70

Which of the following is most likely to be a characteristic of a product with elastic demand?

A) The amount spent on the product is a relatively large percentage of consumer's income.
B) There are very few substitutes for the product.
C) There is a short time period under consideration.
D) The product is considered a necessity.
E) There are a small number of competitors from which to purchase the product.

Question 71

Which of the following statements best describes how a business determines whether to increase or decrease the price of the product it sells in order to increase revenues?

A) If the price elasticity of demand is greater than 1, total revenue and price changes move in opposite directions.
B) If the price elasticity of demand is greater than 1, total revenue and price changes move in the same direction.
C) If the price elasticity of demand is less than 1, total revenue and price changes move in opposite directions.
D) The price elasticity of demand has little to do with total revenue, and a firm must focus solely on its cost structure to increase revenues.
E) It will depend on how many firms are competing in the market.

Question 72

If the demand for American automobiles is more elastic in Europe than it is in the United States, we might expect

A) the same price for autos in the United States and Europe.
B) a higher price for autos in the United States than in Europe.
C) a lower price for autos in the United States than in Europe.
D) a less profitable price for autos in the United States than in Europe.
E) a price in Europe that is less than the cost of producing the car in Europe.

Question 73

Which of the following items would be expected to have the lowest price elasticity of demand?

A) Food
B) Green beans
C) Chicken
D) Hamburgers
E) Fish

Question 74

If total revenue falls as price rises, then the demand for the product

A) is elastic.
B) is unit elastic.
C) is inelastic.
D) has a slope greater than 1.
E) is upward sloping.

Question 75

If the university movie theater has decided to increase ticket prices in order to pay for a new movie projector, then we can conclude that

A) the demand for movie viewing at the university is inelastic.
B) tuition and fees will drop.
C) the theater has too many seats to satisfy the demand for movie viewing.
D) the program council chairperson should be fired.
E) the demand for movie viewing at the university is elastic.

Question 76

The demand for a product is said to be inelastic if total consumer expenditures

A) remain constant as price changes.
B) rise more than price rises as a percentage.
C) fall when price falls.
D) fall when price rises.
E) rise less than price as a percentage.

Question 77

Which of the following would most likely have elastic demand?

A) The demand for milk by a household
B) The demand for insulin medication by a diabetes patient
C) The demand for water
D) The demand for new houses
E) The demand for coal over a period of one month

Question 78

If there are few substitutes for a product, few competitors, and a short time period under consideration, then

A) the price elasticity of demand coefficient is equal to-1.
B) this product has an elastic demand.
C) a given percentage change in price will result in a much larger percentage change in the quantity demanded.
D) if price rises, total revenue (or total consumer expenditures) will also rise.
E) the price elasticity of demand is large.

Question 79

A product has an inelastic demand if

A) price falls and total revenue (or total consumer expenditures) rises.
B) price rises and total revenue (or total consumer expenditures) falls.
C) price rises and total revenue (or total consumer expenditures) rises.
D) its slope is less than 1.
E) price changes and there is no change in total revenue (or total consumer expenditures).

Question 80

A price increase from $50 to $60 that causes no change in the quantity demanded of a good indicates that demand for the product is

A) relatively elastic.
B) relatively inelastic.
C) infinitely elastic.
D) perfectly inelastic.
E) unit elastic.