1. Price elasticity of demand is defined as

a. the percentage change in price divided by the percentage change in quantity demanded

b. the percentage change in quantity demanded divided by the percentage change in price

c. the change in quantity demanded divided by the change in price

d. the change in price divided by the change in quantity demanded

e. the quantity demanded divided by the price

2. If the price of Pepsi-Cola increases from 40 cents to 50 cents per can and the quantity demanded decreases from 100 cans to 50 cans, then, according to the midpoint formula, the value of price elasticity of demand for Pepsi-Cola is

a. -0.5

b. -0.25

c. -1

d. -3

e. -2

3. If the value of the price elasticity of demand is -0.2, this means that a

a. 20 percent decrease in price causes a 1 percent increase in quantity demanded

b. 0.2 percent decrease in price causes a 1 percent increase in quantity demanded

c. 5 percent decrease in price causes a 1 percent increase in quantity demanded

d. 0.2 percent decrease in price causes a 0.2 percent increase in quantity demanded

e. 100 percent decrease in price causes a 200 percent increase in quantity demanded

4. If a 5% increase in price leads to an 8% decrease in quantity demanded, demand is

a. perfectly elastic

b. elastic

c. unit elastic

d. inelastic
    1. perfectly inelastic

Exhibit 0060

Quantity Price

Old 20 $40

New 10 $60

5. Based on the information in Exhibit 0060, we can determine that the demand for the good is __________ and an increase in price from $40 to $60 per unit will __________ total revenue.

a. unit elastic; increase

b. elastic; decrease

c. unit elastic; not change

d. inelastic; increase

e. elastic; decrease

6. In Exhibit 0062, what is the total revenue at point a?

a. $4

b. $5

c. $10

d. $50

e. $100

7. If officials raise tuition on our campus in order to increase revenue, it will

a. not be successful if the demand curve slopes downward

b. be successful if demand is elastic

c. be successful if demand is inelastic

d. be successful if supply is elastic

e. be successful if supply is inelastic

8. Demand is more elastic

a. in the short run than in the long run

b. for necessities than for luxuries

c. for food than for hamburgers

d. for goods with many substitutes than for goods with only a few

e. for broadly defined goods than for narrowly defined ones

9. A successful advertising campaign would likely

a. increase price elasticity of demand by stressing the uniqueness of the product

b. reduce price elasticity of demand by stressing the uniqueness of the product

c. reduce price elasticity of demand by informing consumers of the availability of substitutes

d. not alter the demand curve

e. generally make the demand curve shift inward

10. Which of the following tends to make demand for a good more elastic?

a. A reduction in the number of substitutes for the good.

b. Consumers have a long time to adjust to a price change.

c. The amount spent on the good is a small proportion of the consumer's budget.

d. The good is broadly defined.

e. The good is a necessity.

11. Consider Exhibit 0072. Between the prices of $5 and $6, which supply curve is most elastic and which is least elastic?

a. S1 is most elastic; S2 is least elastic.

b. S1 is most elastic; S3 is least elastic.

c. S3 is most elastic; S1 is least elastic.

d. S3 is most elastic; S2 is least elastic.

e. S2 is most elastic; S3 is least elastic.

12. Negative cross-price elasticity of demand indicates that

a. the product is an inferior good

b. the product is a necessity

c. the product is a luxury

d. the two products are substitutes

e. the two products are complements

13. An increase in demand increases both the equilibrium price and quantity. Which of the following is true?

  1. Both price and quantity rise more in the short run than in the long run.
  2. Both price and quantity rise more in the long run than in the short run.
  3. Price rises more in the short run than in the long run and quantity rises more in the long run than in the short run.
  4. Price rises more in the long run than in the short run and quantity rises more in the short run than in the long run.

 

Answer Key

1.

> b

TOPIC: Calculating Price Elasticity of Demand

MI_5e05 Ch 5 #11 (MC #11) DIF: 1

2.

> d

TOPIC: Calculating Price Elasticity of Demand

MI_5e05 Ch 5 #14 (MC #14) DIF: 3

3.

> c

TOPIC: Calculating Price Elasticity of Demand

MI_5e05 Ch 5 #15 (MC #15) DIF: 5

4.

> b

TOPIC: Calculating Price Elasticity of Demand

MI_5e05 Ch 5 #28 (MC #28) DIF: 3

5.

> b

TOPIC: Elasticity and Total Revenue

MI_5e05 Ch 5 #47 (MC #47) DIF: 3

6.

> d

TOPIC: Price Elasticity and the Linear Demand Curve

MI_5e05 Ch 5 #57 (MC #57) DIF: 1

7.

> c

TOPIC: Price Elasticity and the Linear Demand Curve

MI_5e05 Ch 5 #58 (MC #58) DIF: 1

8.

> d

TOPIC: Availability of Substitutes

MI_5e05 Ch 5 #134 (MC #134) DIF: 3

9.

> b

TOPIC: Availability of Substitutes

MI_5e05 Ch 5 #137 (MC #137) DIF: 3

10.

> b

TOPIC: A Matter of Time

MI_5e05 Ch 5 #149 (MC #149) DIF: 3

11.

> b

TOPIC: Determinants of Supply Elasticity

MI_5e05 Ch 5 #176 (MC #176) DIF: 3

12.

> e

TOPIC: Cross-Price Elasticity of Demand

MI_5e05 Ch 5 #236 (MC #236) DIF: 3

13.

> c

TOPIC: Differences in long- and short-run elasticities