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CHAPTER 4 (please note that page numbers are not correct for this chapter) 47) If the Price elasticity of Demand for a product is 2.5, then a price cut from $2.00 to $1.80 will: A) B) C) D)

increase the quantity demanded by about 2.5 percent. decrease the quantity demanded by about 2.5 percent. increase the quantity demanded by about 25 percent. increase the quantity demanded by about 250 percent.

Ans: C Level: Moderate Main Topic: 4.1 Price elasticity of Demand Subtopic: The price elasticity coefficient and formula Type: Calculation

Page: 106

48) If the demand for bacon is relatively elastic, a 10 percent decline in the price of bacon will: A) B) C) D)

decrease the amount demanded by more than 10 percent. increase the amount demanded by more than 10 percent. decrease the amount demanded by less than 10 percent. increase the amount demanded by less than 10 percent.

Ans: B Level: Easy Main Topic: 4.1 Price elasticity of Demand Page: 106 Subtopic: The price elasticity coefficient and formula Type: Application

49) Suppose you are given the following data on demand for a product. The Price elasticity of Demand when price decreases from $9 to $7 is: Price $10 9 8 7 6

A) B) C) D)

Quantity demanded 30 40 50 60 70

.63. 1.16. 1.60. 2.27.

Ans: C Level: Moderate Main Topic: 4.1 Price elasticity of Demand Subtopic: The price elasticity coefficient and formula Type: Calculation

Page: 106

50) A leftward shift in the supply curve of product X will increase equilibrium price to a greater extent the: A) more elastic the supply curve. B) larger the elasticity of demand coefficient. C) more elastic the demand for the product. D) more inelastic the demand for the product. Ans: D Level: Difficult Main Topic: 4.1 Price elasticity of Demand Subtopic: Graphical analysis Type: Application

Page: 108

51) Consider these parallel demand curves. Which curve is relatively more elastic at P 1?

A) B) C) D)

AA BB Cannot be determined. Both have the same slope; therefore both have the same elasticity.

Ans: B Level: Difficult Main Topic: 4.1 Price elasticity of Demand Subtopic: Graphical analysis Type: Graphic

Page: 108

52) In which of the following instances will total revenue decline? A) B) C) D)

price rises and supply is elastic price falls and demand is elastic price rises and demand is inelastic price rises and demand is elastic

Ans: D Level: Difficult Main Topic: 4.2 The total revenue test Subtopic: Elastic Type: Application

Page: 110-111

53) A manufacturer of frozen pizzas found that total revenue decreased when price was lowered from $5 to $4. It was also found that total revenue decreased when price was raised from $5 to $6. Thus, A) the demand for pizza is elastic above $5 and inelastic below $5. B) the demand for pizza is elastic both above and below $5. C) the demand for pizza is inelastic above $5 and elastic below $5. D) $5 is not the equilibrium price of pizza. Ans: A Level: Difficult Main Topic: 4.2 The total revenue test Subtopic: Elastic Type: Application

Page: 110-111

Use the following to answer questions 54-59:

54) Refer to the above graph. If the price is P3, then the total revenue is represented by areas: A) B) C) D)

B + C + D. E + F + G. B + C + D + E + F + G. A + B + C + D + E + F + G.

Ans: C Level: Difficult Main Topic: 4.2 The total revenue test Page: 110-111 Subtopic: Price elasticity and the total-revenue curve Type: Graphic

55) Refer to the above graph. If the price decreases from P3 to P2, then the loss in total revenue is areas: A) B + E and the gain in total revenue is areas H + I. B) H + I and the gain in total revenue is areas A + B + C. C) E + F + G and the gain in total revenue is areas H + I + J. D) A + B + C + D and the gain in total revenue is E + F + G. Ans: A Level: Difficult Main Topic: 4.2 The total revenue test Page: 110-111 Subtopic: Price elasticity and the total-revenue curve Type: Graphic

56) Refer to the above graph. If the price increases from P1 to P2, then the gain in total revenue is areas: A) B + E and the loss in total revenue is areas H + I + J. B) C + F + H and the loss in total revenue is area J. C) E + F + G and the loss in total revenue is area J. D) A + B + C and the loss in total revenue is areas G + I + J. Ans: B Level: Difficult Main Topic: 4.2 The total revenue test Page: 110-111 Subtopic: Price elasticity and the total-revenue curve Type: Graphic

57) Refer to the above graph. If the price decreases from P4 to P3, then the gain in total revenue is areas: A) E + F + G and the loss in total revenue is areas A + B + C + D. B) A + B + C + D and the loss in total revenue is area E. C) E + F + G and the loss in total revenue is area A. D) B + C + D and the loss in total revenue is area A. Ans: C Level: Difficult Main Topic: 4.2 The total revenue test Page: 110-111 Subtopic: Price elasticity and the total-revenue curve Type: Graphic

58) Refer to the above graph. Consider a situation where price increases from P3 to P4. In this price range, demand is relatively: A) inelastic because the loss in total revenue (areas E + F + G) is greater than the gain in total revenue (area A). B) elastic because the loss in total revenue (areas E + F + G) is greater than the gain in total revenue (area A). C) elastic because the loss in total revenue (area A) is greater than the gain in total revenue (areas E + F + G). D) inelastic because the loss in total revenue (area A) is greater than the gain in total revenue (areas E + F + G). Ans: B Level: Difficult Main Topic: 4.2 The total revenue test Page: 110-111 Subtopic: Price elasticity and the total-revenue curve Type: Graphic

59) Refer to the above graph. Consider a situation where price decreases from P2 to P1. In this price range, demand is relatively: A) inelastic because the loss in total revenue (areas D + G + I + J) is greater than the gain in total revenue (areas C + F + H). B) elastic because the loss in total revenue (areas C + F + H) is greater than the gain in total revenue (area J). C) elastic because the loss in total revenue (area J) is less than the gain in total revenue (areas C + F + H). D) inelastic because the gain in total revenue (area J) is less than the loss in total revenue (areas C + F + H). Ans: D Level: Difficult Main Topic: 4.2 The total revenue test Page: 110-111 Subtopic: Price elasticity and the total-revenue curve Type: Graphic

60) For an increase in demand the price effect is smallest and the quantity effect is largest: A) B) C) D)

when supply is least elastic. in the long run. in the short run. in the immediate market period.

Ans: B Level: Difficult Main Topic: 4.3 Price elasticity of supply Subtopic: The long run Type: Application

Page: 116...