Student name:__________

1) The price elasticity of demand for a good measures the

responsiveness of

that good.
A) demand to a 1 percent change in price of that good. D) price to a 1
percent change in the
B) price to a 1 percent change in the demand for that quantity demanded of that
good. good.
C) quantity demanded to a 1 percent change in price of

2) The price elasticity of demand is a measure of

C) the demand for a

A) the change in quantity demanded of a good that good.
results from a change in its price. D) how consumers
B) the change in price of a good that results from a respond to excess demand.
change in its quantity demanded.

3) The percentage change in quantity demanded that

results from a 1 percent change in price is known as the

D) cross-price
A) price elasticity of supply. elasticity of demand.
B) price elasticity of demand.
C) income elasticity of demand.

4) When calculating price elasticity of demand, if the

percentage change in price is negative, then the percentage
change in quantity demanded is typically

Version 1 1
 C) less than one.
A) greater than one. D) negative.
B) positive.

5) If the price of cheese falls by 1 percent and the

quantity demanded rises by 3 percent, then the price elasticity
of demand for cheese is equal to

C) 0.333.
A) 30. D) 3.
B) 0.30.

6) If the price of cheese falls by 1 percent and the

quantity demanded rises by 1 percent, then the price elasticity
of demand for cheese is equal to

C) 1.
A) 10. D) 0.01.
B) 100.

7) If the price of textbooks increases by one percent and

the quantity demanded falls by one-half percent, then the
price elasticity of demand is equal to

C) 2.
A) 0.05. D) 5.
B) 0.5.

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8) If the price of textbooks increases by one percent and for textbooks is
the quantity demanded falls by one-half percent, then demand

C) elastic.
A) negative. D) unit elastic.
B) inelastic.

9) If the price of textbooks increases by one percent and

the quantity demanded falls by four thirds percent, then
demand for textbooks is

C) elastic.
A) negative. D) inelastic.
B) positive.

10) The price elasticity of demand is typically expressed

as a positive number because

negative, so the formula

A) price and quantity move in the same direction. yields a positive number.
B) the demand curve has a positive slope.
C) it's convenient to use absolute values.
D) both the numerator and the denominator are

11) If the absolute value of the price elasticity of demand

for tickets to a football game is 2, then if the price increases
by 1 percent, quantity demanded decreases by

C) 2 percent.
A) 0.5 percent. D) 4 percent.
B) 1 percent.

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12) If the absolute value of the price elasticity of demand
for cell phone service is 3, then if the price of cell phone
service increases by 1 percent, quantity demanded would

D) decrease by 3
A) increase by 0.33 percent. percent.
B) decrease by 0.33 percent.
C) increase by 3 percent.

13) If 20 percent increase in the price of a good leads to a

60 percent decrease in the quantity demanded, then what is
the price elasticity of demand?

C) 1/3
A) 30 D) 1/6
B) 3

14) If 10 percent increase in the price of a good leads to a

24 percent decrease in the quantity demanded, then what is
the price elasticity of demand?

C) 5/24
A) 2 2/5 D) 24
B) 5/12

15) If a 10 percent decrease in the price of a good leads to

a 20 percent increase in the quantity demanded, then what is
the price elasticity of demand?

A) 0.5

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 B) 2 D) 20
C) 10

16) If a 20 percent decrease in the price of a good leads to

a 20 percent increase in the quantity demanded, then what is
the price elasticity of demand?

C) 0.01
A) 100 D) 1
B) 0.1

17) If the price elasticity of demand for pineapples is 0.75,

then a 4 percent increase in the price of pineapples will lead to
a

demanded.
A) 3 percent decrease in the quantity of pineapples D) 0.75 percent
demanded. increase in the quantity of
B) 3 percent increase in the quantity of pineapples pineapples demanded.
demanded.
C) 0.75 percent decrease in the quantity of pineapples

18) If the price elasticity of demand for pineapples is 1.5,

then a 2 percent increase in the price of pineapples will lead to
a

demanded.
A) 3 percent decrease in the quantity of pineapples D) 3 percent
demanded. increase in the quantity of
B) 0.5 percent increase in the quantity of pineapples pineapples demanded.
demanded.
C) 0.5 percent decrease in the quantity of pineapples

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19) If the price elasticity of demand for chicken is 2, then
a 20 percent decrease in the price of chicken will lead to a

chicken.
A) 10 percent decrease in the quantity demanded of D) 40 percent
chicken. increase in the quantity
B) 10 percent increase in the quantity demanded of demanded of chicken.
chicken.
C) 40 percent decrease in the quantity demanded of

20) If the price elasticity of demand for food is 0.03, then

a 6 percent increase in the price of food will lead to a ______
decrease in quantity demanded.

C) 1.8 percent
A) 0.018 percent D) 18 percent
B) 0.18 percent

21) If the price elasticity of demand for food is 0.3, then a

7 percent decrease in the price of food will lead to a ______
increase in quantity demanded.

C) 2.1 percent
A) 21 percent D) 4 percent
B) 0.4 percent

22) If the price elasticity of demand for cigarettes is 0.55,

and the price of cigarettes increases by 10 percent, then the
quantity of cigarettes demanded will fall by

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 C) 55 percent.
A) 0.55 percent. D) 550 percent.
B) 5.5 percent.

23) The demand for a good is elastic if the price elasticity

of demand is

C) less than one.

A) equal to one. D) equal to zero.
B) greater than one.

24) If the price elasticity of demand for a good is greater

than one, then the demand for that good is

C) unit elastic.
A) elastic. D) perfectly elastic.
B) inelastic.

25) If the price elasticity of demand for a good is between

zero and one, then the demand for that good is

C) unit elastic.
A) perfectly elastic. D) inelastic.
B) elastic.

26) The demand for a good is inelastic with respect to

price if the price elasticity of demand is

B) greater than one.

A) equal to one.

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 C) less than one.
D) equal to negative one.

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27) The demand for a good is unit elastic with respect to
price if the price elasticity of demand is

D) greater than
A) equal to one. negative one.
B) greater than one.
C) less than one.

28) If the price elasticity of demand for a good equals one,

then the demand for that good is

C) unit elastic.
A) elastic. D) perfectly elastic.
B) inelastic.

29) When the price of hot dogs is $1.50 each, 500 hot
dogs are sold every day. After the price falls to $1.35 each,
510 hot dogs are sold every day. At the original price, what is
the price elasticity of demand for hot dogs?

C) 2
A) 66.67 D) 0.2
B) 5

30) When the price of hot dogs is $1.75 each, 200 hot
dogs are sold every day. After the price falls to $0.25 each,
250 hot dogs are sold every day. At the original price, what is
the price elasticity of demand for hot dogs?

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 C) 0.29
A) 33.33 D) 14.29
B) 100

31) When the price of NBA tickets is $25 each, 30,000

tickets are sold. After the price rises to $30 each, 20,000
tickets are sold. At the original price, the demand for NBA
ticket is

C) unit elastic.
A) elastic. D) perfectly elastic.
B) inelastic.

32) If the percentage change in the price of a good is less

than the resulting percentage change in the quantity demanded
of that good, then the demand for that good is

D) perfectly
A) elastic. inelastic.
B) inelastic.
C) unit elastic.

33) If consumers respond to a 10% price reduction by

buying twice as much of a particular good, we would
conclude that

D) the price
A) there was excess demand at the original price. elasticity of demand at the
B) there was excess supply at the original price. original price was less than
C) the price elasticity of demand at the original price one.
was greater than one.

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34) Suppose a 10% increase in the price of aspirin leads to
a 5% decrease in the quantity demanded of aspirin. The
demand for aspirin, therefore, is

D) perfectly
A) elastic. inelastic.
B) inelastic.
C) unit elastic.

35) If the percentage change in the price of a good is equal

to the percentage change in the quantity demanded of that
good, then the demand for that good is

C) unit elastic.
A) elastic. D) perfectly elastic.
B) inelastic.

36) If the demand for a good is highly elastic, that good is

likely to have

D) few close
A) many close complements. substitutes.
B) few close complements.
C) many close substitutes.

37) If consumers can easily switch to a close substitute

when the price of a good increases, demand for that good is
likely to be

A) elastic.

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 B) inelastic. D) perfectly
C) unit elastic. inelastic.

38) When the demand for a good is inelastic, that good is

likely to have

D) few close
A) many close complements. substitutes.
B) few close complements.
C) many close substitutes.

39) All else equal, the price elasticity of demand tends to

be higher when

good.
A) a good has many substitutes. D) supply
B) the time horizon is relatively short. increases.
C) people spend a small fraction of their budget on the

40) If consumers cannot readily switch to a close

substitute when the price of a good increases, the demand for
that good is likely to be

C) unit elastic.
A) elastic. D) perfectly elastic.
B) inelastic.

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41) Which of the following is likely to have the highest price elasticity of demand?

A) Shoes
B) Running shoes
C) Nike running shoes
D) The price elasticity of demand will be the same for
all of the answers listed.

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42) For which of the following products is demand likely
to be least elastic with respect to price?

D) Green beans
A) Food
B) Vegetables
C) Green vegetables

43) Suppose the company that owns the vending machines

on your campus has doubled the price of a can of soda. They
then notice that they are selling approximately 15 percent
fewer sodas. The price elasticity of demand for sodas from the
campus vending machines, therefore, is

C) elastic.
A) inelastic. D) infinite.
B) unit elastic.

44) Suppose the company that owns the vending machines

on your campus has doubled the price of a can of soda. If they
then still sell almost the same number of sodas per day, this
suggests

campus.
A) students do not have good nutritional information. D) the price
elasticity of demand for
B) soda purchases represent a large fraction of soda is equal to 1.
students' budgets.
C) there are few other places to purchase soda on

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45) Suppose the price of a Snickers candy bar is $2 at both bar at the grocery store.
the airport and the grocery store. The price elasticity of
demand for a Snickers candy bar at an airport is likely to be
______ the price elasticity of demand for a Snickers candy

C) greater than
A) less than D) the reciprocal of
B) equal to

46) All else equal, the price elasticity of demand for a

good tends to be lower

C) in the long run.

A) if the good has few close substitutes. D) if the good has
B) if the good represents a large share of a consumer's many close substitutes.
budget.

47) Jeans, in general, have fewer close substitutes than a

specific brand of jeans. Therefore, the demand for jeans, in
general, will be _______ than the demand for a specific brand
of jeans.

C) more unit elastic

A) more elastic D) less inelastic
B) less elastic

48) Satellite TV is a close substitute for cable TV. Small

satellite dishes were developed that made it less costly for
individual consumers to subscribe to satellite TV service. This
caused the price elasticity of demand for cable TV service to

B) become less
A) become more inelastic. elastic.

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 C) become more elastic. D) shift to the left.

49) Suppose that the demand for electricity has been found
to be price inelastic. The most likely explanation for this
finding is that

D) electricity is
A) electricity is a luxury good. sold in a monopoly market.
B) the fraction of income spent on electricity is large.
C) few substitutes for electricity exist.

50) Suppose that there is only one small clothing store in

the remote village of Green Acres, and until recently the
townspeople bought their shirts there. As more people in
Green Acres become connected to the Internet, the price
elasticity of demand for shirts at the Green Acres store will

D) remain the
A) increase because the Internet offers more same, but the demand will
substitutes. decrease as more people
B) decrease because the Internet offers more shop online.
substitutes.
C) remain the same, but the quantity demanded will
decrease as more people shop online.

51) All else equal, the price elasticity of demand for small-
budget items such as soap tends to be ______ than the price
elasticity of demand for big-ticket items such as flat-screen
TVs.

A) higher

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 B) lower D) the same
C) very high

52) All else equal, compared to small-budget items such

as paper towels, the price elasticity of demand for big-ticket
items such as refrigerators is

C) very low.
A) higher. D) equal.
B) lower.

53) You would expect the price elasticity of demand for

transportation generally to be

tickets when bus tickets are

A) the same as price elasticity of the demand for bus expensive, but less than
tickets. price elasticity of the
B) greater than price elasticity of the demand for bus demand for bus tickets
tickets. when the prices of bus
C) less than price elasticity of the demand for bus tickets fall.
tickets.
D) greater than price elasticity of the demand for bus

54) Demand tends to be ______ in the short run than in

the long run.

C) more variable
A) more elastic D) less important
B) less elastic

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55) Suppose you have one hour to catch a flight to Miami for gas is likely to be
for spring break, and it takes 45 minutes to drive to the ______ than it would be if
airport. Your car is almost out of gas and the price of gas at you had several hours
the closest gas station is higher than at other gas stations that before the flight.
are much farther away. To you, the price elasticity of demand

C) more variable
A) higher D) no different
B) lower

56) Assume the price of gasoline doubles tonight and

remains at that price for the next two years. Compared with
the long-run price elasticity of demand for gasoline, the short-
run price elasticity of demand for gasoline will be ______.

C) the same
A) higher D) lower
B) more variable

57) The reason a brand name item (e.g., Tyson chicken)

has a larger price elasticity than a class of items (e.g.,
chicken) is that

D) there are fewer

A) there are fewer substitutes for Tyson chicken than substitutes for chicken
for chicken generally. generally than for Tyson
B) it takes a lot of time to adjust to a substitute brand chicken.
of chicken.
C) the share of income spent on "chicken" is larger
than spent on "Tyson Chicken".

58) Suppose that the short-run price elasticity of demand demand is 1.2. One would
for electricity is 0.03, and the long-run price elasticity of classify the short-run

Version 1 18
elasticity as being ___________ and the long-run elasticity as being ____________.

D) inelastic; elastic
A) elastic; elastic
B) elastic; inelastic
C) inelastic; unit elastic

59) Economists have found that the price elasticity of

demand for water is higher in the summer than in the winter.
Why is this likely to be so?

recreation.
A) Winter is longer than summer, and price elasticity D) People take
is lower over longer time horizons. more vacations in the
B) Summer is longer than winter, and price elasticity summer and so use less
is higher over longer time horizons. water at home.
C) Winter water use tends to be for necessities such as
cleaning and cooking, and summer water use tends to be for
both necessities and non-necessities such as gardening and

60) If the elasticity of demand for the latest Taylor Swift

album is 1.4, this means

D) a 5 percent
A) few substitutes for the American Idol album exist. increase in the price leads
to a 7 percent decrease in
B) a 1 percent increase in the price leads to a 14 quantity demanded.
percent decrease in quantity demanded.
C) a 10 percent decrease in the price leads to a 140
percent increase in quantity demanded.

61) Suppose you learn that in 1900, households spent about 40 percent of their

Version 1 19
budget on food, and today, they spend about 10 percent of price elasticity of demand
their budget on food. All else equal, this suggests that the for food

D) is probably
A) is probably negative. higher now than it was in
B) has always been very high. 1900.
C) is probably lower now than it was in 1900.

62) If the quantity demanded of a good is Q when the

price for the good is P, the price elasticity of demand for that
good at that point is

D) Q ×P ×
A) (P/Q) × (1/slope). (1/slope).
B) (Q/P) × (1/slope).
C) (P/Q) × (slope).

63) If the absolute value of slope of the demand curve is

2.5, price is $6 per unit, and the quantity demanded is 8 units,
then the price elasticity of demand is

C) 1.6.
A) 0.3. D) 1.875.
B) 0.533.

64) If the absolute value of slope of the demand curve is

2.5, price is $6 per unit, and the quantity demanded is 8 units,
then the price elasticity of demand is

C) 1.6.
A) 1.875. D) 0.3.
B) 0.533.

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65) If the absolute value of the slope of the demand curve
is 0.25, price is $8 per unit, and quantity demanded is 12
units, then demand for this good is

C) unit elastic.
A) perfectly elastic. D) inelastic.
B) elastic.

66) The accompanying graph depicts demand.

The slope of the demand curve (ignoring the negative sign) is

C) 1.
A) 2. D) 0.5.
B) 1.5.

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67) The accompanying graph depicts demand.

The price elasticity of demand at point A is

Version 1 22
 C) 2/5.
A) 5/2. D) 8/5.
B) 5/8.

68) The accompanying graph depicts demand. At point A, demand is

C) unit elastic.
A) inelastic. D) perfectly elastic.
B) elastic.

69) The accompanying graph depicts demand.

The price elasticity of demand at point B is

Version 1 23
 C) 3.
A) 3/4. D) 1/3.
B) 4/3.

70) The accompanying graph depicts demand. The price elasticity of

demand at point C is

C) 3/4.
A) 3/16. D) 3/8.
B) 16/3.

71) The accompanying graph depicts demand.

The price elasticity of demand at point D is

Version 1 24
 C) 2/5.
A) 5/2. D) 2.
B) 1/2.

72) The accompanying graph depicts demand. At point D, demand is

D) perfectly price
A) price inelastic. elastic.
B) price elastic.
C) unit elastic.

73) Suppose two demand curves intersect and so have a

point in common. At that point, demand shown by the steeper
curve will be _______ the flatter curve.

D) more likely to
A) more elastic than be unit elastic than
B) less elastic than
C) as elastic as

74) Refer to the

accompanying graph.

Version 1 25
What is the price elasticity of demand at point A?

Version 1 26
 C) 0.33
A) 3 D) 0.2
B) 2

75) Refer to the accompanying graph. What is the price

elasticity of demand when the price of rice is $3 per pound?

C) 0.75
A) 0.5 D) 2
B) 0.67

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76) Refer to the accompanying figure. What is the price
elasticity of demand when the price of rice is $6 per pound?

C) 2
A) 0.5 D) 3
B) 0.67

77) Refer to the accompanying figure. The absolute value

of the slope of the demand curve D1 is ______, and the
absolute value of the slope of demand curve D2 is ______.

C) 5/4; 4/5
A) 1/2; 2 D) 4/5; 5/4
B) 2; 1/2

Version 1 28
78) Refer to the accompanying figure. For demand curve
D1, what is the price elasticity of demand when P = 12?

C) 4
A) 12 D) 3
B) 6

Version 1 29
79) Refer to the accompanying figure. When the price is
equal to 8, the price elasticity of demand for the demand
curve D1 is ______ and for D2 the price elasticity of demand
is _____.

C) 4; 4
A) 4; 1 D) 2; 4
B) 1; 4

80) Refer to the accompanying figure. At P = 8 and Q =

4, D1 is ______ elastic than D2, which is shown graphically
as D1 being _____ D2.

D) less; steeper
A) more; flatter than than
B) more; steeper than
C) less; flatter than

81) Refer to the

accompanying figure.

Version 1 30
When P = 4, the price elasticity of demand for the demand
curve D1 is ______ and D2 is ______.

C) 1/3; 3
A) 3; 3 D) 1/3; 2/3
B) 2/3; 1/3

82) Refer to the accompanying figure. At P = 4, how does

the price elasticity of demand for D1 compare to that for D2?

will be greater than one.

A) It will be equal for D1 and D2.
B) It will be greater for D1 than for D2.
C) It will be lower for D1 than D2.
D) The price elasticity of demand for both D1 and D2

83) As one moves down along a linear demand curve (i.e., from high price, low

Version 1 31
quantity pairs to low price, high quantity pairs), demand

D) becomes less
A) becomes more elastic. elastic.
B) increases.
C) decreases.

84) On a given linear demand curve, as price increases

demand becomes

C) more negative.
A) more elastic. D) more variable.
B) less elastic.

85) At the midpoint of a straight-line demand curve, the

price elasticity of demand is

C) equal to one.
A) greater than one. D) zero.
B) less than one.

86) Suppose the price P on a given demand curve results

in a price elasticity of demand equal to 1. Any price higher
than P will lie on the ______ part of the demand curve, and
any price lower than P will lie on the ______ part of the
demand curve.

D) elastic; unit
A) elastic; inelastic elastic
B) unit elastic; inelastic
C) inelastic; elastic

Version 1 32
87) The price elasticity of demand equals 1

D) whenever the
A) whenever the slope of a straight-line demand curve slope of a straight-line
is greater than 1 in absolute value. demand curve equals zero.
B) at the midpoint of a straight-line demand curve.
C) whenever the slope of a straight-line demand curve
is less than 1 in absolute value.

88) If consumers completely cease purchasing a product

when its price increases by any amount, then demand is

C) unit elastic.
A) inelastic. D) perfectly elastic.
B) perfectly inelastic.

89) If the demand curve is horizontal, then demand is

C) elastic.
A) perfectly inelastic. D) perfectly elastic.
B) unit elastic.

90) If a demand curve is horizontal at P = $5, then the

price elasticity of demand is

C) 0.
A) 5. D) infinite.
B) 0.2.

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91) For any horizontal demand curve, the price elasticity of demand is

D) equal to the
A) 0. price of the good.
B) 1.
C) infinite.

92) If the percentage change in quantity demanded is zero

for any percentage change in the price of the good, demand is
classified as

C) unit elastic.
A) inelastic. D) perfectly elastic.
B) perfectly inelastic.

93) If the slope of a demand curve is infinite, then the

price elasticity of demand is

D) equal to the
A) zero. price of the good.
B) infinite.
C) one.

94) A demand curve that is drawn as a vertical line has a

price elasticity of demand equal to

C) infinity.
A) 0. D) the quantity.
B) 1.

Version 1 34
95) If the demand curve for open-heart surgery is vertical open-heart surgery is
for people with serious heart conditions, then the demand for ______ with respect to
price.

D) perfectly
A) unit elastic inelastic
B) inelastic
C) perfectly elastic

96) If the demand curve for a good is a vertical line at Q

= 1, then a decrease in the price of that good will

D) not change the

A) decrease the quantity demanded. quantity demanded.
B) increase the quantity demanded.
C) lead the quantity demanded to fall to zero.

97) A perfectly elastic demand curve has a slope of

______ while a perfectly inelastic demand curve has a slope
of ______.

C) 0; 1
A) infinity; 0 D) 0; infinity
B) 1; 0

98) When the price of insulin is $10, consumers demand

100 units; when the price is $15, consumers demand 100
units; and when the price is $20, consumers demand 100
units. Based on this information, the demand for insulin is

C) perfectly
A) unit elastic.
B) perfectly elastic.

Version 1 35
inelastic.
D) elastic.

Version 1 36
99) Refer to the accompanying figure. Let εX denote the
price elasticity of demand at point X. Which of the following
describes the relationship between εA, εB, and εC?

C) εC> εB> εA
A) εA> εC> εB D) εB> εC> εA
B) εA> εB> εC

100) Refer to the accompanying figure. Assume the slopes

of the two demand curves are the same. Let eA denote the
price elasticity of demand at point A, and let eB denote the
price elasticity of demand at point B.

Which of the following statements is correct?

A) eA > eB

Version 1 37
 B) eA < eB D) eA ÷ eB < 0
C) eA = eB

101) Refer to the accompanying figure. At a price of $2, the

total expenditure on lattes each hour equals

Version 1 38
 C) $60.
A) $30. D) $80.
B) $40.

102) Refer to the accompanying figure. If the price of a

latte increases from $2.00 to $2.50

Version 1 39
 depend on the supply
A) total expenditure would increase. curve.
B) total expenditure would stay the same.
C) total expenditure would decrease.
D) the change in total expenditure, if any, would

103) Refer to the accompanying figure. Suppose this

demand curve shows the demand for lattes at a single coffee
shop that charges $2.00 for a latte. If the manager wants to
increase total revenue, what should the manager do?

D) Reduce the
A) Increase the price from $2.00 to $3.00. price from $2.00 to $1.75.
B) Increase the price from $2.00 to $2.50.
C) Reduce the price from $2.00 to $1.00.

Version 1 40
104) Refer to the accompanying figure. If the price of this
good is initially $3, and price falls by a few cents, then what
will happen to total expenditure on this good?

D) Total
A) Total expenditure will rise. expenditure will fall to 0.
B) Total expenditure will not change.
C) Total expenditure will fall.

105) If demand is ______ with respect to price, a price

increase will ______ total revenue.

D) inelastic;
A) elastic; increase decrease
B) inelastic; increase
C) unit elastic; decrease

106) To increase total revenue, firms with ______ demand

should lower price, and firms with ______ demand should
increase price.

C) inelastic; elastic
A) elastic; unit D) unit; inelastic
B) elastic; inelastic

Version 1 41
107) A firm that produces a good with many substitutes will most likely find that

A) lowering its price will increase total revenue.

B) lowering its price will decrease total revenue.
C) raising its price will increase total revenue.
D) lowering its price will not affect total revenue.

Version 1 42
108) Which of the following determines whether a firm will
earn higher revenues when it raises its price?

higher revenues when they

A) The cost of the firm's inputs. increase price.
B) Government regulation of the industry.
C) The price elasticity of demand.
D) None of these, because companies always earn

109) Suppose that a new drug (A) has been approved to Demand for the new drug
treat a life-threatening disease. The demand for that drug is is ______ while demand
shown on the accompanying graph by demand curve A. Prior for one brand of the over-
to approval of this drug, the only treatment for this condition the-counter pain relievers
was any one of several nonprescription, or over-the-counter, is ______.
pain relievers. The demand for one brand of the several
nonprescription pain relievers is also shown on the graph as
demand curve B.

A) the line labeled

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A; the line labeled B D) the vertical line
B) the line labeled B; the line labeled A at 100; the line labeled A
C) the horizontal line at $60; the line labeled B

110) Suppose that a new drug (A) has been approved to

treat a life-threatening disease. The demand for that drug is
shown on the accompanying graph by demand curve A. Prior
to approval of this drug, the only treatment for this condition
was any one of several nonprescription, or over-the-counter,
pain relievers. The demand for one brand of the several
nonprescription pain relievers is also shown on the graph as
demand curve B.

At a price of $15 (the price at which the two demand curves

intersect), the price elasticity of demand for the new drug is
______ the price elasticity of demand for the over-the-counter
pain reliever.

C) the same as
A) greater than D) the reciprocal of
B) less than

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111) Suppose that a new drug (A) has been approved to
treat a life-threatening disease. The demand for that drug is
shown on the accompanying graph by demand curve A. Prior
to approval of this drug, the only treatment for this condition
was any one of several nonprescription, or over-the-counter,
pain relievers. The demand for one brand of the several
nonprescription pain relievers is also shown on the graph as
demand curve B.

The manufacturer of the new drug would ______ total

revenue by increasing the price from $15 to $16.

D) experience an
A) increase uncertain change in
B) decrease
C) experience no change in

112) Suppose that a new

Version 1 45
drug (A) has been approved to treat a life-threatening disease.
The demand for that drug is shown on the accompanying
graph by demand curve A. Prior to approval of this drug, the
only treatment for this condition was any one of several
nonprescription, or over-the-counter, pain relievers. The
demand for one brand of the several nonprescription pain
relievers is also shown on the graph as demand curve B.

The manufacturer of the

over-the-counter pain
reliever would _______
total revenue by increasing
the price from $15 to $16.

D) experience an
A) increase uncertain change in
B) decrease
C) experience no change in

113) Suppose that a new

drug (A) has been
approved to treat a life-
threatening disease. The
demand for that drug is
shown on the
accompanying graph by
demand curve A. Prior to
approval of this drug, the
only treatment for this
condition was any one of

Version 1 46
several nonprescription, or over-the-counter, pain relievers.
The demand for one brand of the several nonprescription pain A likely reason for the
relievers is also shown on the graph as demand curve B. difference in the slopes of
the demand curves is that

Administration and the

A) the over-the-counter pain reliever has many other is not.
substitutes, but the new drug does not. D) one market is in
B) one drug is new on the market, but the other has equilibrium and the other
been available for a long time. is not.
C) one drug is heavily regulated by the Food and Drug

114) Suppose that a new

drug (A) has been
approved to treat a life-
threatening disease. The
demand for that drug is
shown on the
accompanying graph by
demand curve A. Prior to
approval of this drug, the
only treatment for this
condition was any one of
several nonprescription, or
over-the-counter, pain

Version 1 47
relievers. The demand for one brand of the several
nonprescription pain relievers is also shown on the graph as If the manufacturer of the
demand curve B. new drug chose to increase
its price from $30 to $35,
consumers would buy
______ doses and have
_____ total expenditures.

C) more; lower
A) more; higher D) fewer; higher
B) fewer; lower

115) Suppose that a new drug (A) has been approved to

treat a life-threatening disease. The demand for that drug is
shown on the accompanying graph by demand curve A. Prior
to approval of this drug, the only treatment for this condition
was any one of several nonprescription, or over-the-counter,
pain relievers. The demand for one brand of the several
nonprescription pain relievers is also shown on the graph as
demand curve B.

If the manufacturer of the

Version 1 48
new drug chose to increase its price from $70 to $75,
consumers would buy ______ doses and have ______ total
expenditures.

C) more; lower
A) more; higher D) fewer; higher
B) fewer; lower

116) If the San Diego Opera decreases the price of their

opera tickets and their total revenue falls, then this suggests
that, at the original price, the demand for tickets to the San
Diego Opera was

D) either elastic or
A) unit elastic. inelastic.
B) elastic.
C) inelastic.

117) Diet Coke is a close substitute for Diet Pepsi. When

Coca-Cola introduced Diet Coke in 1982, the price elasticity
of demand for Diet Pepsi ______ and PepsiCo's ability to
raise revenues through price increases ______.

D) had no effect;
A) increased; was reduced was reduced
B) increased; increased
C) decreased; was reduced

118) When Taylor raised the price of earrings at Taylor's

Boutique, her total revenue from selling earrings increased.
This suggests that

A) the demand for

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Taylor's earrings at the original price was elastic. D) the demand for
B) there are many other boutiques competing with Taylor's earrings at the
Taylor. original price was inelastic.
C) there was excess demand for earrings at the
original price.

119) The owner of a pizza shop observes that when she

raises the price of a large pizza, her total revenue decreases,
and when she lowers the price of a large pizza, her total
revenue increases. This suggests that

D) the demand for

A) pizza lovers act irrationally. her large pizzas is inelastic
B) the demand for her large pizzas is elastic with with respect to price.
respect to price.
C) there are few good substitutes for a large pizza.

120) When Joe's Gas raises its price for regular unleaded
gasoline, total revenue from regular unleaded gas falls to zero.
It must be the case that

regular unleaded gasoline.

A) the demand for Joe's regular unleaded gasoline is D) consumers are
perfectly elastic. switching to premium
B) the demand for Joe's regular unleaded is inelastic. grades of gasoline.
C) there are not many good substitutes for Joe's

121) If the demand for electricity is inelastic, and the local

utility wants to increase its total revenue, it should _______
its price.

A) reduce

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 B) raise D) frequently
C) not change change

122) Suppose that total expenditures for coffee reach a

maximum at a price of $5 per pound. At this price, the
demand for coffee is

D) perfectly
A) elastic. inelastic.
B) inelastic.
C) unit elastic.

123) Suppose that Rohan had been charging $1 per pound

for potatoes. When Rohan lowered the price to $0.90 per
pound, his total revenue fell. When Rohan raised the price to
$1.10, total revenue also fell. Which of the following could
explain this?

D) The price
A) $1 is the equilibrium price for potatoes. elasticity of demand for
B) At 90 cents, there is excess demand for potatoes. potatoes is equal to 1 at a
C) $1.10 is more than Rohan's customers' reservation price of $1 per pound.
prices.

124) At a price of $20 each, the demand for t-shirts from a

group's fundraising activity is unit elastic. Thus, the group's
total revenue from selling t-shirts ______ at a price of $20
each.

B) reaches its
A) will equal $0. minimum.

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 C) reaches its maximum. D) will equal $1.

125) The responsiveness of the quantity demanded of one

good to a change in the price of a different good is measured
by the

D) cross-price
A) price elasticity of demand. elasticity of demand.
B) income elasticity of demand.
C) price elasticity of supply.

126) If two products are substitutes, then the

D) cross-price
A) income elasticity of demand for both will be high. elasticity of demand
between them will be
B) price elasticity of demand for both will be positive. positive.
C) cross-price elasticity of demand between them will
be negative.

127) If cross-price elasticity of demand between two goods

is positive, the two goods are

C) complements.
A) substitutes. D) normal.
B) inferior.

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128) The cross-price elasticity of demand between two goods that are substitutes
can never be
A) negative.
B) less than one.
C) greater than one.
D) positive.

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129) If bagels and cereal are substitutes, then the cross-
price elasticity of demand between bagels and cereal will be

D) less than zero.

A) greater than one.
B) less than one.
C) greater than zero.

130) If the cross-price elasticity of demand between lettuce

and salad dressing is negative, then when the price of lettuce
rises, the demand for salad dressing will ______.

D) become more
A) increase inelastic
B) decrease
C) remain the same

131) If the demand for salad dressing increases when the

price of lettuce decreases, the cross-price elasticity of demand
between salad dressing and lettuce will be ______ because
these two goods are ______.

D) negative;
A) equal to 1; inelastic complements
B) zero; inferior
C) negative; substitutes

132) The cross-price

elasticity of demand
between bread and

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potatoes is estimated to be 0.5. This implies bread and potatoes are

C) unrelated.
A) normal goods. D) complements.
B) substitutes.

133) The cross-price elasticity of demand between beer and

popcorn is estimated to be 0. This implies beer and popcorn
are

C) unrelated.
A) complements. D) normal goods.
B) substitutes.

134) If the cross-price elasticity of demand between

blueberries and yogurt is negative, then the two goods are

C) complements.
A) substitutes. D) inferior goods.
B) normal goods.

135) If the cross-price elasticity of demand between two

goods is −1.2, then the two goods are

C) complements.
A) inferior. D) substitutes.
B) elastically demanded.

136) Suppose that if the

price of plane tickets
increased, more people

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would choose to travel by train. If this happened, you would know that

train tickets is negative.

A) plane tickets are an inferior good. D) plane tickets
B) the cross-price elasticity between plane tickets and and train tickets are
train tickets is positive. complements.
C) the cross-price elasticity between plane tickets and

137) If most consumer goods and services are ______, then

most income elasticities are ______.

D) normal; positive
A) normal; negative
B) inferior; positive
C) normal; greater than one

138) During recessions, when some workers lose their jobs

and have lower incomes, sales of durable goods (goods with a
life expectancy of 3 years or more) decline. Apparently,
durable goods are

C) complements.
A) substitutes. D) inferior goods.
B) normal goods.

139) In surveying their alumni, State U's economics

department discovered that ramen noodle consumption
declined once students graduated and found jobs. One
conclusion the survey team might draw from this result is that

B) the equilibrium
A) there is excess demand for ramen noodles. price for ramen noodles is

Version 1 56
too high. D) ramen noodles
C) college graduates have a high reservation price for are an inferior good.
ramen noodles.

140) If your income elasticity of demand for hot dogs is

negative, then

D) you must not

A) your demand curve for hot dogs is not downward enjoy eating hot dogs.
sloping.
B) hot dogs are an inferior good for you.
C) hot dogs have no close substitutes for you.

141) A change in consumers' incomes causes a change in

for inferior goods.

A) demand. D) the cross-price
B) supply. elasticity of demand.
C) the demand for normal goods but not the demand

142) If the income elasticity for a particular good is

negative, then

purchase less of the good.

A) the good is a normal good. D) the good is a
B) as income increases, consumers will tend to luxury good.
purchase more of the good.
C) as income increases, consumers will tend to

143) Suppose you believe that plaid flannel shirts are an inferior good, and you

Version 1 57
want to test this with economic data. You expect to find that the income elasticity for
plaid flannel shirts is

C) greater than one.

A) close to zero. D) less than zero.
B) greater than zero, but less than one.

144) You have found data that indicates that the income
elasticity of demand for generic (unbranded) shampoo is −0.7.
You should conclude that generic shampoo:

D) is an inferior
A) is a normal good. good.
B) has inelastic demand.
C) is below its equilibrium price.

145) The percentage change in quantity supplied that

results from a 1 percent change in price is known as the

D) cross-price
A) cross-price elasticity of supply. elasticity of demand.
B) slope of the supply curve.
C) price elasticity of supply.

146) The price elasticity of supply at a point is the

in price.
A) percentage change in quantity supplied divided by D) change in price
the percentage change in price. divided by the change in
B) percentage change in price divided by the quantity supplied.
percentage change in quantity supplied.
C) change in quantity supplied divided by the change

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147) If a 1 percent increase in the price of oranges leads to
a five percent increase in the quantity supplied, the price
elasticity of supply for oranges is ______.

C) 5
A) 1/5 D) 2
B) 1/2

148) Suppose an increase in the price of golf clubs from

$75 to $125 leads to an increase in quantity supplied from 200
units to 300 units. The price elasticity of supply for golf clubs
at the original price of $75 is ______, so supply is ______.

C) 4/3; elastic
A) 2; elastic D) 3/4; inelastic
B) 2; inelastic

149) Suppose an increase in the price of hamburger from $3

to $4 leads to an increase in quantity supplied from 100 units
to 150 units. At the original price, the price elasticity of
supply for hamburgers is ______ so supply is ______.

C) 3/2; elastic
A) 2/3; elastic D) 3/2; inelastic
B) 2/3; inelastic

150) Suppose an
increase in the price of
hamburger from $3 to
$3.50 leads to an increase

Version 1 59
in quantity supplied from 100 units to 180 units. At the ______ so supply is
original price, the price elasticity of supply for hamburgers is ______.

C) 24/5; elastic
A) 5/24; elastic D) 5/24; inelastic
B) 24/5; inelastic

151) Refer to the accompanying figure. What is the slope of

the supply curve?

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 C) 1/2
A) 4 D) 1
B) 2

152) Refer to the accompanying figure. What is the price

elasticity of supply at point A?

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 C) 1
A) 4 D) 1/2
B) 2

153) Refer to the accompanying figure. What is the price

elasticity of supply at point B and point C?

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 C) 3; 2
A) 1/2; 3/4 D) 1; 1
B) 3/4; 1/2

154) Refer to the accompanying figure. If P = $6, then the

price elasticity of supply is

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 C) one.
A) less than zero. D) greater than one.
B) positive, but less than one.

155) Refer to the accompanying figure. If the price rises

from $10 to $14, what will happen to the price elasticity of
supply?

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 D) This cannot be
A) It increases. determined from the
B) It decreases. information provided.
C) It stays the same.

156) It takes many years to train to become an orthopedic

surgeon. This suggests that, in the short run, a sudden
increase in the demand for orthopedic surgeons will

surgeons.
A) not affect the salaries of orthopedic surgeons. D) have little effect
B) have no impact on the number of people who on the number of trained
decide to become orthopedic surgeons. orthopedic surgeons.
C) lead to a large increase in the number of orthopedic

157) The inputs used to produce cupcakes (e.g., flour,

sugar, butter, and labor) are also used to produce cookies,
cakes, muffins, pies, and many other goods. This suggests that

low.
A) the supply curve for cupcakes is downward D) cupcakes are a
sloping. normal good.
B) the elasticity of supply of cupcakes is relatively
high.
C) the elasticity of supply of cupcakes is relatively

158) The price elasticity of supply for the Hope Diamond is

zero because there is only one. Therefore, the supply curve for
the Hope Diamond is

B) perfectly
A) elastic. inelastic.

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 C) unit elastic. D) perfectly elastic.

159) Suppose that each serving of mac & cheese costs

$0.50 to make no matter how many servings are produced.
This means that the price elasticity of supply for mac &
cheese is ______ and the supply curve is ______.

D) infinite;
A) one; perfectly inelastic perfectly elastic
B) zero; perfectly elastic
C) infinite; perfectly inelastic

160) Antony's Pizza uses the same dough, sauce, and

cheese for pizza and calzones. When the price of pizza is low
Antony produces more calzones. For Antony, the supply of
pizza is ______ compared with the supply at a pizza
restaurant that does not serve calzones.

C) higher
A) less price elastic D) lower
B) more price elastic

161) Oil and oil products remain the main fuel for cars,
planes, ships, and power plants. The amount of oil still in the
earth is finite. Given this information, the supply of gasoline
is

D) greater than the

A) relatively elastic. quantity demanded.
B) relatively inelastic.
C) unit elastic.

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162) The championship game will be held next weekend in
your college's 40,000-seat stadium. The supply of tickets to
the game

D) depends on
A) will increase because the price charged will be which teams make it to the
higher. championship game.
B) is elastic.
C) is perfectly inelastic.

163) For Outback Steakhouse, seating capacity is limited in

the short run. In the long run, they can add as many seats as
they want. Therefore, the price elasticity of supply for meals
at Outback would be ______ in the short run than in the long
run.

C) the same
A) higher D) more variable
B) lower

164) You read online that, at current rates of production,

the yearly world supply of food is sufficient to feed the
projected 2050 population of earth, but that after 2050 there
will be massive starvation. This prediction appears to assume
that

than long-run elasticity of

A) the long-run supply of food is perfectly elastic. supply.
B) the long-run supply of food is perfectly inelastic.
C) the short-run supply of food is perfectly elastic.
D) the short-run elasticity of supply of food is greater

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165) In 1985 a desert community stopped pumping water
from a 1,000 foot well because it had run dry. In 2005 the
price of water doubled. The community then drilled the well
deeper and started pumping again. In this community,

D) higher water
A) the supply of water is perfectly inelastic because it prices can reduce quantity
is a finite resource. demanded but cannot
B) water production is characterized by increasing increase quantity supplied.
opportunity costs.
C) markets cannot reach equilibrium because there is a
persistent shortage of water.

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Answer Key

Test name: Chap 04_8e_Frank

1) C
2) A
3) B
4) B
5) D
6) C
7) B
8) B
9) D
10) C
11) C
12) D
13) B
14) A
15) B
16) D
17) A
18) A
19) D

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20) B
21) C
22) B
23) B
24) A
25) D
26) C
27) A
28) C
29) D
30) C
31) A
32) A
33) C
34) B
35) C
36) C
37) A
38) D
39) A
40) B

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41) C
42) A
43) A
44) C
45) A
46) A
47) B
48) C
49) C
50) A
51) B
52) A
53) C
54) B
55) B
56) D
57) D
58) D
59) C
60) D
61) C

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62) A
63) A
64) D
65) B
66) D
67) A
68) B
69) B
70) C
71) C
72) A
73) B
74) A
75) A
76) C
77) B
78) D
79) B
80) D
81) D
82) C

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83) D
84) A
85) C
86) A
87) B
88) D
89) D
90) D
91) C
92) B
93) A
94) A
95) D
96) D
97) D
98) C
99) A
100) A
101) C
102) C
103) D

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104) C
105) B
106) B
107) A
108) C
109) A
110) B
111) A
112) B
113) A
114) D
115) B
116) C
117) A
118) D
119) B
120) A
121) B
122) C
123) D
124) C

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125) D
126) D
127) A
128) A
129) C
130) B
131) D
132) B
133) C
134) C
135) C
136) B
137) D
138) B
139) D
140) B
141) A
142) C
143) D
144) D
145) C

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146) A
147) C
148) D
149) C
150) C
151) C
152) C
153) D
154) D
155) B
156) D
157) B
158) B
159) D
160) B
161) B
162) C
163) B
164) B
165) B

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