Chapter 4-6 Questions PDF

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Chapter 4-6 questions...

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Microeconomics 12e, Ragan - Ch 4 Name___________________________________

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) Consider two demand curves and the same price change for both. If the resulting percentage change in quantity demanded is greater for one (D1) than the other (D2), we can conclude

1)

A) that D1 is elastic and D2 is inelastic. B) that D1 is inelastic and D 2 is elastic. C) that D1 is more elastic than D 2. D) that D2 is more elastic than D 1. E) nothing about their relative elasticities. 2) The price elasticity of demand measures the responsiveness of

2)

A) supply to demand changes. B) quantity demanded to changes in the price. C) the price to changes in quantity demanded. D) demand to supply changes. E) equilibrium changes 3) When the percentage change in quantity demanded is greater than the percentage change in price that brought it about, demand is said to be

3)

A) elastic. B) zero elastic. C) unit elastic. D) inelastic. E) unelastic. 4) When the percentage change in quantity demanded is less than the percentage change in price tha brought it about, demand is said to be A) unit elastic. B) inelastic. C) zero elastic. D) elastic. E) unelastic.

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4)

5) The formula for the own-price elasticity of demand for a commodity can be written as which of the following? change in price A) change in quantity demanded B)

change in quantity demanded change in price

C)

percentage change in price percentage change in quantity demanded

D)

percentage change in quantity demanded percentage change in price

E)

percentage change in one price percentage change in the other price

6) Suppose that the quantity of a good demanded rises from 90 units to 110 units when the price falls from $1.20 to 80 cents per unit. The price elasticity of demand for this product is A) 4.0

B) 1.5

C) 0.5

D) 1.0

5)

6)

E) 2.0

7) If the price elasticity of demand is 0.5, then a 10 percent increase in price results in a

7)

A) 5 percent decrease in total revenues. B) 0.5 percent decrease in quantity demanded C) 5 percent decrease in quantity demanded. D) 50 percent reduction in quantity demanded. E) 5 percent increase in quantity demanded. 8) Suppose that the quantity of beer demanded falls from 103 000 litres per week to 97 000 litres per week as a result of a 10 percent increase in its price. The price elasticity of demand for beer is therefore

8)

A) 1.97. B) 1.03. C) 6.0. D) 0.6. E) impossible to compute unless we know the before and after prices. 9) Suppose that the quantity demanded of skipping ropes rises from 1250 to 1750 units when the price falls from $1.25 to $0.75 per unit. The price elasticity of demand for this product is A) 1/3.

B) 3/2.

C) 2.

D) 1.

2

E) 2/3.

9)

The table below shows the demand schedule for museum admissions in a small city. Price (per visit per person) $10 $8 $6 $4 $2

Quantity Demanded (thousands of personvisits per year) 2 4 6 8 10

TABLE 4-1 10) Refer to Table 4-1. The elasticity of demand for museum admissions is

10)

A) greater at higher prices than at lower prices. B) elastic at all points on the demand curve. C) constant at all points on the demand curve. D) inelastic at all points on the demand curve. E) greater at lower prices than at higher prices. 11) Refer to Table 4-1. Between the prices of $8 and $10, the elasticity of demand is A) 2/3.

B) 1/3.

C) 2.

D) 1.

11) E) 3.

12) If the price elasticity of demand for some good is 2.7, a 10 percent increase in the price results in

12)

A) a 27 percent increase in the quantity demanded. B) a 2.7 percent decrease in the quantity demanded C) a 2.7 percent increase in the quantity demanded D) There is not enough information to answer this question. E) a 27 percent decrease in the quantity demanded 13) As the price for some product increases from $4.00 to $5.00 per unit, quantity demanded decreases from 400 to 300 units per month. For this segment of the demand curve, the price elasticity of demand is A) 7/9.

B) 7.

C) 1.

D) 9.

E) 9/7.

14) As the price for some product decreases from $4.00 to $3.00 per unit, quantity demanded increases from 400 to 500 units per day. For this segment of the demand curve, the price elasticity of demand is A) 1.

B) 7.

C) 9/7.

D) 7/9.

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13)

E) 9.

14)

15) Which of the following illustrates elastic demand?

15)

A) a price elasticity of 0.8 B) A 10 percent increase in price causes a 20 percent decrease in quantity demanded C) a price elasticity of 1.0 D) A 10 percent increase in price causes a 5 percent decrease in quantity demanded E) A 10 percent increase in price causes a 10 percent reduction in quantity demanded 16) If per capita income increases by 10 percent and household expenditures on fur coats increase by 15 percent, one can conclude that the price elasticity of demand for fur coats is

16)

A) elastic. B) positive. C) unity. D) inelastic. E) not determinable from the information given.

FIGURE 4-1 17) Refer to Figure 4- 1. In diagram 1, the price elasticity of demand

17)

A) at point A is less than at point C. B) is equal at points A, B, and C. C) at point A is equal to that at point C. D) at point A is greater than at point C. E) none of the above. 18) Refer to Figure 4- 1. The price elasticity of demand is equal to one along the entire demand curve in A) diagram 2 only.

B) diagram 1 only.

C) both diagrams.

D) neither diagram.

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18)

19) A perfectly horizontal demand curve shows that the own-price elasticity of demand is

19)

A) zero. B) less than one. C) unity. D) not defined. E) infinite. 20) A vertical demand curve shows that the own-price elasticity of demand is

20)

A) zero. B) less than one. C) infinity. D) unity. E) not defined. 21) The price elasticity of demand for a product tends to be greater the

21)

A) fewer close substitutes for it there are. B) more broadly the product is defined. C) lower its price. D) more close substitutes for it there are. E) shorter the time span being considered. 22) Which of the following statements would you expect to be true about the demand elasticities for cornflakes and food?

22)

A) Because cornflakes is food, but not all food is cornflakes, cornflakes would have a lower price elasticity of demand. B) Food has a lower price elasticity of demand because it is more broadly defined. C) Food has a higher price elasticity of demand because it is a necessity. D) Compared with food, cornflakes has a lower price elasticity of demand because it is specifically defined. E) Because cornflakes is food, cornflakes would have the same price elasticity of demand as food. 23) With a downward-sloping straight-line demand curve, price elasticity of demand is A) increasing to the midpoint of the curve and then decreasing. B) rising continuously with price increases. C) constant everywhere on it. D) decreasing continuously with price increases. E) indeterminate.

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23)

24) Price elasticity of demand

24)

A) is greater than one if the percentage increase in the commodity's price is greater than the percentage decline in quantity demanded. B) usually increases over time. C) is higher for an entire group of related products than it is for a particular product in that group. D) is a positive number because price and quantity demanded move in the same direction. E) is very small when good substitutes are readily available for the commodity 25) Suppose you are shown two intersecting demand curves that are drawn on the same scale. At the point of intersection, one of the demand curves is steeper than the other. Which of the following could explain the difference in slopes?

25)

A) The steeper one applies for the short run whereas the flatter one applies for the long run. B) The steeper one is probably the demand curve for a luxury good. C) The flatter one is for a good with no close substitutes. D) The steeper one has a higher income elasticity of demand. E) It is not possible to compare the slopes of different demand curves. 26) If demand is unit elastic at all prices, then the demand curve is

26)

A) perfectly horizontal. B) upward sloping. C) a straight line. D) a rectangular hyperbola. E) a parabola. 27) Suppose egg producers succeed in permanently raising the price of their product by 15 percent, and as a result the quantity demanded falls by 15 percent in the short run. In the long run we can expect the quantity demanded to fall by A) 100 percent. B) 15 percent. C) 0 percent. D) more than 15 percent. E) between 0 and 15 percent.

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27)

28) When the percentage change in quantity demanded resulting from a price change is less than the percentage change in price, demand is said to be

28)

A) zero elastic. B) inelastic C) perfectly elastic D) elastic. E) unit elastic. 29) A demand curve that is the shape of a rectangular hyperbola

29)

A) has the same elasticity as a straight- line demand curve. B) has an elasticity of 100 percent over the whole curve. C) is unit elastic over the whole curve. D) is elastic over the whole curve. E) is inelastic over the whole curve. 30) If household income increases by 50 percent and desired household expenditure on vacation travel increases by 15 percent, the price elasticity of demand for vacation travel is

30)

A) unity. B) inelastic. C) elastic. D) positive. E) not determinable from the information given. 31) Suppose that the quantity demanded of a good rises from 40 units to 60 units per month when the price falls from $1.05 to 95 cents per unit. The price elasticity of demand for this product is A) 1.0

B) 0.5

C) 1.5

D) 2.0

E) 4.0

32) Which of the following statements would you expect to be true about T- shirts and clothing? A) Compared with clothing, T-shirts have a lower price elasticity of demand because they are specifically defined. B) Because T-shirts are clothing, but not all clothing is T-shirts, T- shirts would have a lower price elasticity of demand than clothing. C) Clothing has a higher price elasticity of demand because it is a necessity D) Clothing has a lower price elasticity of demand because it is more broadly defined. E) T- shirts would have the same price elasticity of demand as clothing

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31)

32)

33) Which of the following illustrates elastic demand?

33)

A) A 5 percent increase in price causes a 2.5 percent decrease in quantity demanded B) A 5 percent increase in price causes a 10 percent decrease in quantity demanded C) a price elasticity of 1.0. D) A 10 percent increase in price causes a 10 percent reduction in quantity demanded E) a price elasticity of 0.8. 34) Suppose that the quantity demanded of paperback novels rises from 80 000 to 120 000 units per month when the price falls from $11 to $9 per unit. The price elasticity of demand for this product is A) 3/2.

B) 1.

C) 2.

D) 1/3.

34)

E) 2/3.

35) If the price elasticity of demand is 1.4, a 10 percent increase in the price of the good results in

35)

A) a 1.4 percent decrease in the quantity demanded B) a 1.4 percent increase in the quantity demanded C) a 14 percent decrease in the quantity demanded D) a 14 percent increase in the quantity demanded. E) There is not enough information to answer this question. 36) If the total expenditure on photocopiers increases when the price of photocopiers rises, the price elasticity of demand is

36)

A) exactly zero. B) less than one (demand is inelastic). C) not determinable from the information given. D) greater than one (demand is elastic). E) equal to one (demand is unit elastic). 37) If the total expenditure on perfume increases when the price of perfume falls, the price elasticity of demand is A) greater than one (demand is elastic). B) less than one (demand is inelastic). C) exactly zero. D) not determinable from the information given. E) unity (demand is unit elastic).

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37)

38) If the value of the price elasticity of demand is 0.6, demand is said to be

38)

A) elastic. B) partially inelastic C) somewhat inelastic D) inelastic E) partially elastic Demand Schedule for Ski Tickets Price ($)

Quantity Demanded (no. of tickets)

120 110 100 90 80 70 60 50 40 30 20 10 0

0 100 200 300 400 500 600 700 800 900 1000 1100 1200

TABLE 4-2 39) Refer to Table 4-2. Using the data provided to plot the demand curve for ski tickets results in a ________ demand curve. Price elasticity along this demand curve is therefore ________ as price is falling.

39)

A) rectangular hyperbola; constant at a value of 1 B) downward sloping and linear; continuously increasing C) horizontal; constant at a value of 8 D) vertical; constant at a value of 0 E) downward sloping and linear; continuously decreasing 40) Refer to Table 4-2. Total expenditure for ski tickets reaches a maximum at a price/quantity demanded combination of A) $100/200

B) $20/1000

C) $60/600

D) $30/90

E) $80/400

41) Refer to Table 4 -2. The price elasticity of demand over the interval of the demand curve between prices of $40 and $20 is A) - 0.33

B) 0.33

C) 1.0

D) 3.0

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40)

E) - 3.0

41)

42) Refer to Table 4-2. Price elasticity over the interval of the demand curve between prices of $90 and $70 is A) 0.5

B) -2.0

C) 1.0

D) - 0.5

42)

E) 2.0

FIGURE 4-2 43) Refer to Figure 4- 2. In part 1 of the figure, the elasticity of demand over the price range $14 to $16 is 43) A) 0. B) less than 1. C) 1. D) greater than 1. E) infinity.

44) Refer to Figure 4- 2. In part 1 of the figure, the elasticity of demand over the price range $12 to $14 is 44) A) 0. B) less than 1. C) 1. D) greater than 1. E) infinity.

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45) Refer to Figure 4- 2. In part 1 of the figure, the elasticity of demand for prices below $10 is

45)

A) 0. B) less than 1. C) 1. D) greater than 1. E) infinity. 46) Refer to Figure 4- 2. In part 1 of the figure, the elasticity of demand at $10 is

46)

A) 0. B) less than 1. C) exactly 1. D) greater than 1. E) infinity. 47) Refer to Figure 4- 2. In part 3 of the figure, the elasticity of demand between prices $10 and $20 is

47)

A) 0. B) less than 1. C) exactly 1. D) greater than 1. E) infinity. 48) Refer to Figure 4- 2. In part 3 of the figure, the elasticity of demand between prices $5 and $10 is

48)

A) 0. B) less than 1. C) exactly 1. D) greater than 1. E) infinity. 49) Refer to Figure 4- 2. In part 2 of the figure, the elasticity of demand is A) 0. B) less than 1. C) 1. D) greater than 1. E) infinity.

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49)

50) Refer to Figure 4- 2. The price elasticity of demand is continuously decreasing as the price falls in part(s)

50)

A) 1. B) 2. C) 1, 2, and 3. D) 2, 3, and 4. E) none of the above 51) Refer to Figure 4- 2. The price elasticity of demand is continuously increasing as the price falls in part(s)

51)

A) 1. B) 2. C) 1, 2, and 3. D) 2, 3, and 4. E) none of the above 52) Refer to Figure 4- 2. The price elasticity of demand is constant as price changes in part(s)

52)

A) 1. B) 2. C) 1, 2, and 3. D) 2, 3, and 4. E) none of the above 53) Refer to Figure 4- 2. Demand is inelastic

53)

A) over section (a) of the demand curve in diagram 1. B) over the entire demand curve in diagram 3. C) at the midpoint between sections (a) and (b) of the demand curve in diagram 1 D) over section (b) of the demand curve in diagram 1. E) over the entire demand curve in diagram 1. 54) Refer to Figure 4- 2. There is good reason to suppose that, of the four goods whose demand curves are shown in parts 1-4 of the figure, the good that has the fewest close substitutes is shown in A) part 1. B) part 2. C) part 3. D) part 4. E) -- there is not enough information to even make a good guess.

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54)

55) Refer to Figure 4- 2. As price decreases, total expenditure increases, reaches a maximum, and then decreases for the demand curve in diagram(s) A) 1.

B) 2.

C) 3.

D) 4.

55)

E) 1 and 3.

56) Refer to Figure 4- 2. As price decreases, total expenditure remains constant in diagram(s)

56)

A) 1. B) 2. C) 3. D) 4. E) none of the above 57) A demand curve for which any price -quantity combination yields the same total expenditure reveals a price elasticity of demand equal to

57)

A) one. B) zero. C) infinity. D) not enough information to know. E) some value greater than one but less than infinity 58) If demand is inelastic, an increase in price will cause total expenditure to

58)

A) be negative. B) increase. C) fall to zero. D) remain constant. E) decrease. 59) When a product's price has an inverse relationship with total expenditure, then demand has a price elasticity of A) inverse proportions. B) less than one. C) greater than one. D) one. E) zero.

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59)

60) If total expenditure on a product rises and falls directly with a product's price, then demand for this product has an elasticity of

60)

A) one. B) less than one. C) greater than one. D) direct proportions. E) zero. 61) If the total expenditure on automobiles increases when the price of automobiles rises, the price elasticity of demand for automobiles is

61)

A) equal to one (demand is unit elastic). B) not determinable from the information given. C) less than one (demand is inelastic). D) greater than one (demand is elastic). E) exactly zero. 62) Suppose the current level of output of some good is X. If market demand is inelastic at that quantity, total expenditure on this product would be higher if output was

62)

A) minimized. B) greater than X. C) less than X. D) kept constant. E) maximized. 63) The president of a major nickel-producing company says that an increase in the price of nickel would have no effect on the total amount spent on nickel. If this is true, the price elasticity of demand for nickel is A) not calculable from the information given. B) less than zero. C) more than one. D) exactly one. E) infinitely elastic.

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63)

64) If the total expenditure on clothing decreases when the price of clothing falls, the price elasticity of demand is

64)

A) not determinable from the information given. B) unity (demand is unit elastic). C) greater than one (demand is elastic). D) exactly zero. E) less than one (demand is inelastic). 65) If household expenditures on electricity remain ...