econ chpt 6 practice

If the price elasticity of demand for a given product is 0.7, this means that

the percentage change in quantity demanded is 0.7 times the percentage change in price.

if quantity demanded fell by 1 percent, price would fall by 7 percent.

if price was raised 7 percent, quantity demanded would fall by 0.7 percent.

if price was raised 7 percent, quantity demanded would rise 0.7 percent

the percentage change in quantity demanded is 0.7 times the percentage change in price.

Elasticity = % change in quantity demanded / % change in price.

Suppose that when the price of a good falls from $12 to $9, the quantity demanded of that good rises from 310 units to 350 units. What is the approximate price elasticity of demand between these two prices?

0.42

2.36

0.68

3.80

0.42

(350 - 310) / [(350 + 310) / 2]

40 / 330 = 0.1212

2. Percentage change in price:

(12 - 9) / [(12 + 9) / 2]

3 / 10.5 = 0.2857

3. Price elasticity of demand:

0.1212 / 0.2857 = 0.42

If the percentage change in quantity demanded is less than the percentage change in price for good Y, then the demand for good Y is

inelastic.

unit elastic.

elastic.

perfectly elastic.

inelastic

If the percentage change in quantity demanded is equal to the percentage change in price for good Z, then demand for good Z is

inelastic.

unit elastic.

elastic

perfectly elastic.

unit elastic.

If quantity demanded is completely unresponsive to changes in the price of good XYZ, then demand for good XYZ is

inelastic.

unit elastic.

elastic

perfectly elastic.

perfectly inelastic.

perfectly inelastic.

Suppose at a price of $4 and at a price of $6, John purchases 40 units of good X. Given this information, we know that

John's entire demand curve for good X is perfectly elastic.

John's entire demand curve for good X is inelastic.

John's demand for good X is perfectly inelastic between the prices of $4 and $6.

John's demand for good X is perfectly elastic between the prices of $4 and $6.

John's demand for good X is perfectly inelastic between the prices of $4 and $6.

Perfectly inelastic = price changes, but quantity demanded stays the same

If the price of good X rises and the demand for good X is elastic, then the percentage __________ in quantity demanded is __________ the percentage rise in price, and total revenue __________.

fall; greater than; rises

fall; less than; falls

fall; equal to; remains constant

fall; greater than; falls

fall; greater than; falls

Price goes from $10 to $11 (10% increase).

• Customers buy 20% fewer items.

• The seller makes less money because they lose more sales than they gain from the higher price.

For a certain good, when price rises from $90 to $98, quantity demanded falls from 7,400 to 6,500. The price elasticity of demand here is approximately _____________, making the demand for this good ____________ in the price range between $90 and $98.

1.52; inelastic

1.52; elastic

1.86; elastic

0.66; elastic

1.52; elastic

Step 1: Calculate the percentage change in quantity:

900 / 6,950 = 12.95%

Step 2: Calculate the percentage change in price:

8 / 94 = 8.51%

Step 3: Divide:

12.95 / 8.51 = 1.52

Since 1.52 is greater than 1, demand is elastic.

Correct answer: 1.52; elastic (Choice 2).

The fewer substitutes for a good,

the lower its income elasticity of demand.

the higher its income elasticity of demand.

the lower its price elasticity of demand.

the higher its price elasticity of demand.

the lower its price elasticity of demand.

Consumers have fewer alternatives, so they are less likely to change how much they buy when the price increases.

The price elasticity of demand would most likely be highest for which of the following goods?

Food (in general)

Cars (in general)

Clothing (in general)

Ford cars

Ford cars

The more specific the good, the higher its price elasticity because consumers have more substitutes.

Which of the following statements is false?

Ham has a higher price elasticity of demand than meat.

Peaches have a higher price elasticity of demand than fruit.

Soap has a higher price elasticity of demand than Ivory brand soap.

Carrots have a higher price elasticity of demand than vegetables.

Soap has a higher price elasticity of demand than Ivory brand soap.

Vernon spends the following percentages of his budget on the goods A, B, C, and D: 23 percent on good A, 11 percent on good B, 1 percent on good C, and 3 percent on good D. For which good is price elasticity of demand the highest, ceteris paribus?

Good A

Good B

Good C

Good D

Good A

larger the percentage of your budget spent on a good, the higher its price elasticity of demand

A good will tend to have a low price elasticity of demand if

the good has few substitutes.

a person spends a high percentage of his or her budget on the good.

a person has a long period of time to adjust to price changes.

the good is a luxury.

the good has few substitutes.

The shorter the period of time consumers have to adjust to price changes, the __________ the __________ elasticity of demand.

lower; income

lower; price

higher; income

higher; price

lower; price

Shorter time to adjust = lower price elasticity.

• Longer time to adjust = higher price elasticity

If two goods are substitute goods,

an increase in the price of one will cause a decrease in the demand for the other.

an increase in the price of one will cause an increase in the demand for the other.

the price elasticity of demand for both goods will be greater than 1.

the price elasticity of demand for both goods will be less than 1.

an increase in the price of one will cause an increase in the demand for the other.

If the price of good A decreases by 10 percent and the quantity demanded of good B increases by 10 percent, this is evidence that goods A and B are

substitute for one another.

complement goods to one another.

both inferior goods.

both normal goods.

complement goods to one another.

If the price of a good rises and as a result total revenue falls, then it must be true that

cross elasticity of demand for the good is negative.

price elasticity of demand for the good is less than 1.

income elasticity of demand for the good is positive.

price elasticity of demand for the good is greater than 1.

price elasticity of demand for the good is greater than 1.

When price increases and total revenue decreases, demand is elastic (elasticity > 1).

Elastic (greater than 1): Price ↑, Total Revenue ↓

• Inelastic (less than 1): Price ↑, Total Revenue ↑

• Unit elastic (equal to 1): Total Revenue stays the same

If the cross elasticity of demand for good A with respect to good B is +2.7, then good A is

an inferior good.

a normal good.

a substitute for good B.

a complement to good B.

a substitute for good B.

Positive cross elasticity (+) = Substitutes

• Negative cross elasticity (−) = Complements

• Zero cross elasticity = Unrelated goods

If Jack bought 12 DVDs last year when his income was $40,000 and he buys 14 DVDs this year when his income is $43,000, then his income elasticity of demand is ______________ which means that DVDs are a(n) ______________ good for Jack.

+0.41; normal

-0.47; inferior

+2.13; normal

+0.59; inferior

+2.13; normal

% Change = (New Value - Old Value) / [(New Value + Old Value) / 2] × 100

For Jack's problem:

(14 - 12) / [(14 + 12) / 2] × 100 = 15.38%

(43,000 - 40,000) / [(43,000 + 40,000) / 2] × 100 = 7.23%

15.38 / 7.23 = 2.

If for good Z income elasticity is less than 1 but greater than zero, then demand for good Z is income __________, and good Z is a(n) __________ good.

inelastic; normal

inelastic; inferior

elastic; normal

elastic; an inferior

inelastic; normal

Income elasticity between 0 and 1 = Normal, income-inelastic good.

• Income elasticity greater than 1 = Normal, income-elastic good.

• Income elasticity below 0 = Inferior good.

If the percentage change in quantity demanded of a good is equal to the percentage change in buyer's income, then the good is said to be

income elastic.

income inelastic.

income unit elastic.

price unit elastic.

income unit elastic.

Suppose a producer decides that if the price of his or her product is $10, the quantity supplied will be 1,000 units, and if the price is $11, the quantity supplied will be 1,100. The supply of the good is

elastic

inelastic.

perfectly elastic.

unit elastic.

unit elastic.

% change in quantity supplied = (1,100 - 1,000) / 1,050 = 9.52%

• % change in price = (11 - 10) / 10.50 = 9.52%
  Elasticity = 9.52% / 9.52% = 1

  
  

The demand curve for good X is generally highly inelastic at and around the current price. If we assume that the supply curve is neither perfectly elastic nor perfectly inelastic, then who will pay the greater share of a tax placed on the production of good X?

The buyers will pay the greater share.

The sellers will pay the greater share.

The buyers and the sellers will pay equal shares.

There is not enough information to answer the question.

The buyers will pay the greater share.

The market for good X is initially in equilibrium at $5. The government then places a tax on the producers of good X, taxing them on each unit of good X they sell. As a result, the supply curve

shifts (down and) rightward from S2 to S1.

shifts (up and) leftward from S1 to S2.

does not shift from S1.

There is not enough information to answer the question.

shifts (up and) leftward from S1 to S2.

A tax increases the producer's cost.

• Higher costs mean producers supply less at every price.

• Less supply = supply curve shifts left and up.

The market for good X is initially in equilibrium at $5. The government then places a per-unit tax on good X, as shown by the shift of S1 to S2. As a result,

consumers end up paying $6.25 per unit, and producers end up receiving $6.25 per unit, but keeping only $4.00 per unit.

consumers end up paying $6.25 per unit, and producers end up receiving $5.00 per unit, but keeping only $4.00 per unit.

consumers end up paying $6.25 per unit, and producers end up receiving and keeping $4.00 per unit.

consumers end up paying $5.00 per unit, and producers end up receiving and keeping $5.00 per unit.

consumers end up paying $6.25 per unit, and producers end up receiving $6.25 per unit, but keeping only $4.00 per unit.

Per-unit tax → consumer price − tax = producer's net price.

If the demand for a good is inelastic and the price of the good decreases, then

total revenue increases.

total revenue decreases.

total revenue is not affected.

the direction of the change in total revenue cannot be determined from the information given.

total revenue decreases.
Inelastic demand + price decreases = total revenue decreases
inelastic demand, price and total revenue move in the same direction.

If the demand for a good is unit elastic and the price of the good increases, then

total revenue increases.

total revenue decreases.

total revenue is not affected.

the direction of the change in total revenue cannot be determined from the information given.

total revenue is not affected.

Unit elastic = total revenue stays the same

Price of Good A	Quantity Demanded of Good A	Quantity Supplied of Good A
$5.50	5	55
$4.50	15	45
$3.50	25	35
$2.50	35	25
$1.50	45	15
$0.50	55	5

When the price decreases from $5.50 to $4.50, the price elasticity of demand is

5.0

0.5

1.0

0.2

5.0

Step 1: Percentage change in quantity demanded

(15 − 5) / [(15 + 5) / 2] × 100 = 100%

Step 2: Percentage change in price

(5.50 − 4.50) / [(5.50 + 4.50) / 2] × 100 = 20%

Step 3: Calculate elasticity

100% / 20% = 5.0

When the cross elasticity of demand between two goods is __________, the goods are __________.

negative; substitutes for one another

negative; complements for one another

positive; normal goods

positive; inferior goods

negative; complements for one another

Positive (+) = Substitutes

• Negative (−) = Complements

Total revenue is defined as

price minus quantity sold.

price multiplied by quantity sold.

price divided by quantity sold.

quantity divided by price sold.

price multiplied by quantity sold.

When quantity demanded of a good increases, total revenue

increases.

decreases.

increases, if demand is elastic.

increases, if demand is inelastic.

increases, if demand is elastic.

increases, if demand is elastic

If price elasticity of demand is 0.5, it follows that a _______ percent decrease in price would cause a _______ percent increase in quantity demanded.

50; 1

2; 1

0.5; 0.5

100; 500

2; 1

Airlines that try to lower fares in order to increase revenue must believe that the demand for airline service is

price inelastic.

income elastic.

income inelastic.

price elastic.

price elastic.

If a 7 percent increase in the price of a commodity results in a 12 percent increase in the quantity supplied, supply is said to be

perfectly elastic.

elastic.

unit elastic.

inelastic.

elastic.

If income elasticity of demand for a good is negative, the good is a(n) __________ good.

normal

inferior

complementary

substitute

inferior

Which of the following is not a determinant of price elasticity of demand for good Z?

the number of substitutes for good Z

the percentage of one's budget spent on good Z

the amount of time that has passed since the price of good Z has changed

the number of resources needed to produce good Z.

the number of resources needed to produce good Z.

If a small increase in the price of a good reduces quantity demanded to zero, demand is ________________ and the price elasticity of demand is equal to _______________.

perfectly inelastic; zero

perfectly elastic; infinity

unit elastic; one

perfectly elastic; zero

perfectly elastic; infinity