# Chapter 5 Practice MC Flashcards

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1

Price elasticity of demand is defined a

1. the percentage change in price divided by the percentage change in quantity demanded
2. the percentage change in quantity demanded divided by the percentage change in price
3. the change in quantity demanded divided by the change in price
4. the change in price divided by the change in quantity demanded
5. the quantity demanded divided by the price

2

If an increase in the price of a product from \$1 to \$2 per unit leads to a decrease in the quantity demanded from 100 to 80 units, then the value of price elasticity of demand is

1. elastic
2. inelastic
3. unit elastic
4. suggestive of an inferior good
5. equal to -20

3

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

1. 20 percent decrease in price causes a 1 percent increase in quantity demanded
2. 0.2 percent decrease in price causes a 1 percent increase in quantity demanded
3. 5 percent decrease in price causes a 1 percent increase in quantity demanded
4. 0.2 percent decrease in price causes a 0.2 percent increase in quantity demanded
5. 100 percent decrease in price causes a 200 percent increase in quantity demanded

4 1. Use the information in Exhibit 5-2 to calculate the value of price elasticity of demand
2. -2/3
3. -1/3
4. -3/5
5. -5/3
6. 0

5

Based on the information in Exhibit 5-2, the demand for the good is __________ and an increase in price from \$40 to \$60 per unit will __________ total revenue.

1. unit elastic; increase
2. elastic; decrease
3. unit elastic; not change
4. inelastic; increase
5. elastic; decrease

6

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

1. perfectly elastic
2. elastic
3. unit elastic
4. inelastic
5. perfectly inelastic

7

If an increase in the price of a product from \$100 to \$200 per unit leads to a decrease in the quantity demanded from 10 to 8 units, then demand is

1. elastic
2. inelastic
3. unit elastic
4. 0
5. inferior

8

Demand is inelastic only if

1. price elasticity has an absolute value of 1
2. price elasticity has an absolute value greater than 1
3. price elasticity has an absolute value less than 1
4. price elasticity is negative
5. consumers do not respond to a change in price

9

Demand is inelastic if

1. the percentage change in price is greater than the percentage change in quantity demanded
2. the percentage change in price is less than the percentage change in quantity demanded
3. the percentage change in price is equal to the percentage change in quantity demanded
4. the value of price elasticity is equal to -1
5. the value of price elasticity is less than -1 (e.g., -3)

10

Demand is unit elastic whenever

1. price elasticity has an absolute value of 1
2. price elasticity has an absolute value greater than 1
3. price elasticity has an absolute value less than 1
4. price elasticity is negative
5. consumers always respond to a one-dollar change in price by decreasing their quantity demanded by one unit

11

Demand is elastic whenever

1. price elasticity has an absolute value of 1
2. price elasticity has an absolute value greater than 1
3. price elasticity has an absolute value less than 1
4. price elasticity is negative
5. consumers respond to a change in price

12

A perfectly elastic demand curve is

1. a vertical straight line
2. a horizontal straight line
3. a downward-sloping straight line
4. an upward-sloping straight line
5. not a straight line

13

If a firm facing a perfectly elastic demand curve raises its price

1. it will still sell exactly the same amount of output as it did at the lower price
2. it will lose some, but not all, of its sales
3. its sales will decrease to zero
4. its sales will increase
5. it is impossible to predict what will happen to its sales

14

A perfectly inelastic demand curve is

1. a vertical straight line
2. a horizontal straight line
3. a downward-sloping straight line
4. an upward-sloping straight line
5. not a straight line

15

If a firm raises the price of its product, its total revenue will

1. always increase
2. increase only if demand is price inelastic
3. increase only if demand is price elastic
4. remain constant, regardless of price elasticity of demand
5. never increase

16

If a price reduction leads to larger total revenue, demand is

1. perfectly inelastic
2. inelastic
3. unit elastic
4. elastic
5. perfectly elastic

17

John spends exactly the same dollar amount on candy bars each week, regardless of their price. John's demand curve for candy bars is

1. upward-sloping
2. backward-bending
3. perfectly inelastic
4. perfectly elastic
5. unit elastic

18

If the administration raises tuition on our campus in order to increase revenue, it will

1. not be successful if the demand curve slopes downward
2. be successful if demand is elastic
3. be successful if demand is inelastic
4. be successful if supply is elastic
5. be successful if supply is inelastic

19

If the demand for a good is elastic, then total revenue

1. increases as price increases
2. remains constant as quantity demanded increases
3. increases as price decreases
4. decreases as quantity demanded increases
5. decreases as price decreases

20

If demand is unit elastic, a price reduction will

1. increase revenues
2. reduce revenues
3. reduce quantity demanded
4. have no effect on revenues
5. increase profits

21

If the demand for swordfish is price elastic and the price of swordfish increases, then

1. the quantity of swordfish demanded will increase
2. the total revenue from swordfish sales will decrease
3. the total revenue from swordfish sales will increase
4. the total revenue from swordfish sales will not change
5. whether total revenue rises or falls depends on how much the price of swordfish increases

22

Which of the following describes a situation in which demand must be elastic?

1. The price of pens rises by 10 cents, and quantity of pens demanded falls by 50.
2. The price of pens rises by 10 cents, and total revenue rises.
3. A 20 percent increase in the price of pens leads to a 20 percent decrease in the quantity of pens demanded.
4. Total revenue does not change when the price of pens rises.
5. Total revenue decreases when the price of pencils rises.

23

Along a linear demand curve,

1. both the slope and price elasticity are constant
2. the price elasticity is constant, but the slope varies
3. total revenues are constant
4. the slope is constant, but the price elasticity varies
5. total revenues are negative

24

Along a downward-sloping linear demand curve, total revenue is greatest if demand is

1. inelastic
2. elastic
3. inelastic when prices are high
4. elastic when prices are high
5. unit elastic

25

If the managers of a theater plan to raise ticket prices to increase ticket revenues, then they must believe that demand is

1. elastic
2. inelastic
3. unit elastic
4. perfectly elastic
5. income elastic

26

Along a linear demand curve, as the price rises, demand becomes more

1. steep
2. elastic
3. inelastic
4. unit elastic
5. variable

27 Between points a and b on the demand curve in Exhibit 5-9, demand is

1. perfectly elastic
2. elastic
3. perfectly inelastic
4. inelastic
5. unit elastic

28

Given the availability of California oranges, demand for Florida oranges will

1. be less elastic than if there were no California oranges
2. be more elastic than if there were no California oranges
3. have the same elasticity as it would if there were no California oranges
4. be perfectly elastic
5. be perfectly inelastic

29

The more broadly a good is defined,

1. the more substitutes it has so the more elastic is its demand
2. the fewer substitutes it has so the more elastic is its demand
3. the more substitutes it has so the less elastic is its demand
4. the fewer substitutes it has so the less elastic is its demand
5. the more complements it has so the more elastic is its demand

30

Demand is more elastic

1. in the short run than in the long run
2. for necessities than for luxuries
3. for food than for hamburgers
4. for goods with many substitutes than for goods with only a few
5. for broadly defined goods than for narrowly defined ones

31

A good that takes up a very large percentage of the consumer's budget will tend to have

1. an elastic demand
2. a perfectly elastic demand
3. an inelastic demand
4. an upward-sloping demand curve
5. very many substitutes

32

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

1. A reduction in the number of substitutes for the good.
2. Consumers have a long time to adjust to a price change.
3. The amount spent on the good is a small proportion of the consumer's budget.
4. The good is broadly defined.
5. The good is a necessity.

33

Inferior goods have an income elasticity of demand that is

1. positive
2. negative
3. 0
4. greater than 1 in absolute value
5. equal to 1 in absolute value

34

For which of the following goods is the value of income elasticity most likely to be negative?

1. macaroni and cheese
2. champagne
3. airline tickets
4. clothes
5. toothpaste

35

Economists distinguish between normal and inferior goods using

1. price elasticity of demand
2. price elasticity of supply
3. income elasticity of demand
4. cross-price elasticity of demand
5. tax incidence

36

The cross-price elasticity of demand between rifles and bullets is likely to be

1. negative because the goods are complements
2. positive because the goods are complements
3. negative because the goods are substitutes
4. positive because the goods are substitutes
5. 0 because the goods are not substitutes

37

If the cross-price elasticity of demand is -3, then

1. the goods are substitutes
2. one good is price inelastic
3. one good is an inferior good
4. one good is a luxury good
5. the goods are complements

38

If an increase in the price of peanut butter causes a decline in the demand for jelly, then

1. the goods are substitutes
2. jelly is an inferior good
3. the goods are complements
4. both goods are inelastic
5. peanut butter is an inferior good