Chapter 5/Elasticity and Its Applications ? 179
63. Refer to Figure 5-2. Which of the following price changes would result in no change in sellers’ total revenue?
a. The price increases from $6 to $9. b. The price increases from $9 to $15. c. The price decreases from $12 to $9. d. The price decreases from $9 to $5. ANS: C PTS: 1 DIF: 3 REF: 5-1 TOP: Total revenue MSC: Applicative 64. When the price of kittens was $25 each, the pet shop sold 20 per month. When they raised the price to $35 each, they
sold 14 per month. The price elasticity of demand for kittens is about a. 1.66. b. 1.06. c. 0.94. d. 0.60. ANS: B PTS: 1 DIF: 2 REF: 5-1 TOP: Price elasticity of demand MSC: Applicative
65. When the local used bookstore prices economics books at $15.00 each, they generally sell 70 books per month. If
they lower the price to $7.00, sales increase to 90 books per month. Given this information, we know that the price elasticity of demand for economics books is about
a. 2.91, and an increase in price from $7.00 to $15.00 results in an increase in total revenue. b. 2.91, and an increase in price from $7.00 to $15.00 results in a decrease in total revenue. c. 0.34, and an increase in price from $7.00 to $15.00 results in an increase in total revenue. d. 0.34, and an increase in price from $7.00 to $15.00 results in a decrease in total revenue. ANS: C PTS: 1 DIF: 2 REF: 5-1 TOP: Price elasticity of demand | Total revenue MSC: Applicative 66. Demand is said to be inelastic if the
a. quantity demanded changes proportionately more than price. b. price changes proportionately more than income.
c. quantity demanded changes proportionately less than price. d. quantity demanded changes proportionately the same as price. ANS: C PTS: 1 DIF: 2 REF: 5-1 TOP: Inelastic demand MSC: Definitional 67. Demand is said to be unit elastic if
a. quantity demanded changes by the same percent as the price. b. quantity demanded changes by a larger percent than the price.
c. the demand curve shifts by the same percentage amount as the price. d. quantity demanded does not respond to a change in price. ANS: A PTS: 1 DIF: 2 REF: 5-1 TOP: Price elasticity of demand MSC: Definitional
68. Elasticity of demand is closely related to the slope of the demand curve. The more responsive buyers are to a change
in price, the
a. steeper the demand curve will be. b. flatter the demand curve will be.
c. further to the right the demand curve will sit.
d. closer to the vertical axis the demand curve will sit. ANS: B PTS: 1 DIF: 2 REF: 5-1 TOP: Price elasticity of demand MSC: Interpretive
69. The flatter the demand curve through a given point, the
a. greater the price elasticity of demand at that point. b. smaller the price elasticity of demand at that point.
c. closer the price elasticity of demand will be to the slope of the curve.
d. greater the absolute value of the change in total revenue when there is a movement from that point upward and to
the left along the demand curve.
ANS: A PTS: 1 DIF: 3 REF: 5-1 TOP: Price elasticity of demand MSC: Analytical
180 ? Chapter 5/Elasticity and Its Applications
70. A perfectly elastic demand implies that
a. buyers will not respond to any change in price.
b. any rise in price above that represented by the demand curve will result in a quantity demanded of zero. c. quantity demanded and price change by the same percent as we move along the demand curve. d. price will rise by an infinite amount when there is a change in quantity demanded. ANS: B PTS: 1 DIF: 2 REF: 5-1 TOP: Perfectly elastic demand MSC: Interpretive 71. The case of perfectly elastic demand is illustrated by a demand curve that is
a. vertical. b. horizontal.
c. downward-sloping but relatively steep. d. downward-sloping but relatively flat. ANS: B PTS: 1 DIF: 1 REF: 5-1 TOP: Perfectly elastic demand MSC: Interpretive
72. The smaller the price elasticity of demand, the
a. steeper the demand curve will be through a given point. b. flatter the demand curve will be through a given point.
c. more strongly buyers respond to a change in price between any two prices P1 and P2.
d. larger the decrease in equilibrium price when the supply curve shifts rightward from S1 to S2. ANS: A PTS: 1 DIF: 3 REF: 5-1 TOP: Price elasticity of demand MSC: Analytical
73. In the case of perfectly inelastic demand,
a. the change in quantity demanded equals the change in price.
b. the percentage change in quantity demanded equals the percentage change in price.
c. infinitely-large changes in quantity demanded result from very small changes in the price. d. quantity demanded stays the same whenever price changes. ANS: D PTS: 1 DIF: 2 REF: 5-1 TOP: Perfectly inelastic demand MSC: Interpretive
74. When demand is perfectly inelastic, the demand curve will be
a. negatively sloped, because buyers decrease their purchases when the price rises.
b. vertical, because buyers purchase the same amount as before whenever the price rises or falls.
c. positively sloped, because buyers respond by increasing the market quantity demanded of the good when price
rises.
d. positively sloped, because buyers respond by increasing their total expenditure on the good when price rises. ANS: B PTS: 1 DIF: 2 REF: 5-1 TOP: Perfectly inelastic demand MSC: Interpretive
75. When small changes in price lead to infinite changes in quantity demanded, demand is perfectly
a. elastic and the demand curve will be horizontal. b. inelastic and the demand curve will be horizontal. c. elastic and the demand curve will be vertical. d. inelastic and the demand curve will be vertical. ANS: A PTS: 1 DIF: 2 REF: 5-1 TOP: Perfectly elastic demand MSC: Interpretive 76. When quantity moves proportionately the same amount as price, demand is
a. elastic and the price elasticity of demand is 1.
b. perfectly elastic and the price elasticity of demand is infinitely large. c. perfectly inelastic and the price elasticity of demand is 0. d. unit elastic and the price elasticity of demand is 1. ANS: D PTS: 1 DIF: 2 REF: 5-1 TOP: Price elasticity of demand MSC: Interpretive
Chapter 5/Elasticity and Its Applications ? 181
77. When demand is perfectly inelastic, the price elasticity of demand
a. is zero and the demand curve is vertical. b. is zero and the demand curve is horizontal.
c. approaches infinity and the demand curve is vertical. d. approaches infinity and the demand curve is horizontal. ANS: A PTS: 1 DIF: 2 REF: 5-1 TOP: Perfectly inelastic demand MSC: Interpretive
78. A perfectly inelastic demand implies that buyers
a. decrease their purchases when the price rises.
b. purchase the same amount as before when the price rises or falls. c. increase their purchases only slightly when the price falls. d. respond substantially to an increase in price. ANS: B PTS: 1 DIF: 2 REF: 5-1 TOP: Perfectly inelastic demand MSC: Interpretive
79. Suppose demand is perfectly inelastic and the supply of the good in question decreases. As a result,
a. the equilibrium quantity decreases and the equilibrium price is unchanged. b. the equilibrium price increases and the equilibrium quantity is unchanged. c. the equilibrium quantity and the equilibrium price both are unchanged. d. buyers’ total expenditure on the good is unchanged. ANS: B PTS: 1 DIF: 2 REF: 5-1
TOP: Perfectly inelastic demand | Equilibrium price | Equilibrium quantity MSC: Applicative 80. Suppose demand is perfectly elastic and the supply of the good in question decreases. As a result,
a. the equilibrium quantity decreases and the equilibrium price is unchanged. b. the equilibrium price increases and the equilibrium quantity is unchanged. c. the equilibrium quantity and the equilibrium price both are unchanged. d. buyers’ total expenditure on the good is unchanged. ANS: A PTS: 1 DIF: 2 REF: 5-1
TOP: Perfectly elastic demand | Equilibrium price | Equilibrium quantity MSC: Applicative 81. Alice says that she would buy one banana split a day regardless of the price. If she is telling the truth,
a. Alice's demand for banana splits is perfectly inelastic. b. Alice's price elasticity of demand for banana splits is 1. c. Alice's income elasticity of demand for banana splits is 0. d. None of the above answers is correct. ANS: A PTS: 1 DIF: 2 REF: 5-1 TOP: Perfectly inelastic demand MSC: Interpretive
82. Jean-Paul says that he will spend exactly 75 cents a day on M&Ms, regardless of the price of M&Ms. Jean-Paul’s
demand for M&Ms is a. perfectly elastic. b. unit elastic.
c. perfectly inelastic.
d. None of the above answers is correct. ANS: B PTS: 1 DIF: 2 REF: 5-1 TOP: Price elasticity of demand MSC: Interpretive
182 ? Chapter 5/Elasticity and Its Applications
83. Which of the following expressions is valid for the price elasticity of demand?
?Q1?Q2?/???Q2?Q1?/2?? a. Price elasticity of demand =
?P1?P2?/?1?/2???P2?P?b. Price elasticity of demand = c. d.
?Q2?Q1?/???Q1?Q2?/2?? ?P2?P1?/?1?P2?/2???P??P1?P2?/?1?/2???P2?P? Price elasticity of demand =
?Q1?Q2?/???Q2?Q1?/2???P2?P1?/?1?P2?/2???P? Price elasticity of demand =
?Q2?Q1?/???Q1?Q2?/2??DIF: 2 REF: 5-1 MSC: Applicative
ANS: B PTS: 1
TOP: Price elasticity of demand
84. Which of the following expressions can be used to compute the price elasticity of demand?
Q2?Q1P?P2a. Price elasticity of demand = ?1?Q1?Q2?/2?P2?P1?/2b. Price elasticity of demand = c. Price elasticity of demand = d. Price elasticity of demand = ANS: C PTS: 1
TOP: Price elasticity of demand
?Q1?Q2?/2?P2?P1?/2 ??Q1?Q2?/2?P2?P1?/2Q2?Q1P?P2 ?1Q1?Q2P2?P1Q2?Q1P2?P1 ?Q1?Q2P?P12DIF: 3 REF: 5-1 MSC: Analytical
85. For which of the following goods would demand be most elastic?
a. clothing b. blue jeans
c. Tommy Hilfiger jeans
d. All three would have the same elasticity of demand since they are all related. ANS: C PTS: 1 DIF: 2 REF: 5-1 TOP: Price elasticity of demand MSC: Applicative
86. In any market, total revenue is calculated by taking the price of the good and
a. dividing it by the price elasticity of demand. b. multiplying it by the price elasticity of demand. c. multiplying it by the quantity of the good.
d. multiplying it by the quantity of the good and then subtracting the costs of production. ANS: C PTS: 1 DIF: 1 REF: 5-1 TOP: Total revenue MSC: Definitional
87. How does total revenue change as one moves downward and to the right along a linear demand curve?
a. It always increases. b. It always decreases.
c. It first increases, then decreases.
d. It is unaffected by a movement along the demand curve. ANS: C PTS: 1 DIF: 3 REF: 5-1 TOP: Total revenue | Demand curve MSC: Analytical
Chapter 5/Elasticity and Its Applications ? 183
88. On a downward-sloping linear demand curve, total revenue reaches its maximum value at the
a. midpoint of the demand curve. b. lower end of the demand curve. c. upper end of the demand curve.
d. It is impossible to tell without knowing prices and quantities demanded. ANS: A PTS: 1 DIF: 3 REF: 5-1 TOP: Total revenue | Demand curve MSC: Analytical
89. Suppose the point (Q = 2,000, P = $60) is the midpoint on a certain downward-sloping, linear demand curve. Then
a. an increase in price from $40 to $42 will increase total revenue.
b. a decrease in price from $61 to $59 will leave total revenue unchanged. c. the maximum value of total revenue is $120,000. d. All of the above are correct. ANS: D PTS: 1 DIF: 3 REF: 5-1 TOP: Total revenue | Demand curve MSC: Analytical 90. If the price elasticity of demand is 1.5, regardless of which two points on the demand curve are used to compute the
elasticity, then
a. demand is perfectly inelastic and the demand curve is vertical.
b. demand is elastic and the demand curve is a straight, downward-sloping line. c. demand is perfectly elastic and the demand curve is horizontal.
d. demand is elastic and the demand curve is something other than a straight, downward-sloping line. ANS: D PTS: 1 DIF: 3 REF: 5-1 TOP: Price elasticity of demand MSC: Applicative
Figure 5-3 91. Refer to Figure 5-3. If price falls within the A range of the demand curve we can expect total revenue to
a. increase. b. decrease. c. stay the same.
d. This determination cannot be made without further information. ANS: A PTS: 1 DIF: 2 REF: 5-1 TOP: Total revenue MSC: Applicative 92. Refer to Figure 5-3. If price falls within the C range of the demand curve we can expect total revenue to
a. increase. b. decrease. c. stay the same.
d. This determination cannot be made without further information. ANS: B PTS: 1 DIF: 2 REF: 5-1 TOP: Total revenue MSC: Applicative
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