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# ECON 202

*Test Bank: I Topic: Price Elasticity of Demand*

Which of the following is *not *characteristic of the demand for a commodity that is elastic?

The relative change in quantity demanded is greater than the relative change in price.

Buyers are relatively sensitive to price changes.

__C__. Total revenue increases if price is increased.

D. The elasticity coefficient is greater than one.

*AACSB: Knowledge Application Accessibility: Keyboard Navigation*

*Blooms: Understand Difficulty: 02 Medium*

*Learning Objective: 06-01 Discuss price elasticity of demand and how it is calculated.*

*Test Bank: I Topic: Price Elasticity of Demand*

If the demand for product X is inelastic, a 4 percent decreasein the price of X will

decrease the quantityof X demandedby more than 4 percent.

decrease the quantityof X demanded by less than 4 percent.

increase the quantity of X demanded by more than 4 percent.

__D__. increase the quantity of X demanded by less than 4 percent.

*AACSB: Knowledge Application Accessibility: Keyboard Navigation*

*Blooms: Understand Difficulty: 02 Medium*

*Learning Objective: 06-01 Discuss price elasticity of demand and how it is calculated.*

*Test Bank: I Topic: Price Elasticity of Demand*

If a firm can sell 3,000 units of productA at $10 per unit and 5,000 at $8, then

the price elasticity of demandis 0.44.

A is a complementary good.

__C__. the price elasticity of demand is 2.25.

D. A is an inferior good.

*AACSB: Knowledge Application Accessibility: Keyboard Navigation*

*Blooms: Understand Difficulty: 02 Medium*

*Learning Objective: 06-01 Discuss price elasticity of demand and how it is calculated.*

*Test Bank: I Topic: Price Elasticity of Demand*

A perfectly inelastic demand schedule

A. rises upward and to the right but has a constantslope.

__B__. can be represented by a line parallel to the vertical axis.

cannot be shown on a two-dimensional graph.

can be represented by a line parallel to the horizontalaxis.

*AACSB: Knowledge Application Accessibility: Keyboard Navigation*

*Blooms: Understand Difficulty: 02 Medium*

*Learning Objective: 06-01 Discuss price elasticity of demand and how it is calculated.*

*Test Bank: I Topic: Price Elasticity of Demand*

The larger the coefficient of price elasticity of demandfor a product, the

larger the resulting price change for an increase in supply.

more rapidthe rate at which the marginal utility of that product diminishes.

less competitive will be the industry supplying that product.

__D__. smaller the resulting price change for an increase in supply.

*AACSB: Knowledge Application Accessibility: Keyboard Navigation*

*Blooms: Understand Difficulty: 02 Medium*

*Learning Objective: 06-01 Discuss price elasticity of demand and how it is calculated.*

*Test Bank: I Topic: Price Elasticity of Demand*

Most demand curves are relatively elastic in the upper-left portion because the original price

and quantity from which the percentage changes in price and quantityare calculated are both large.

and quantity from which the percentage changes in price and quantityare calculated are both small.

from which the percentage price change is calculated is small and the original quantity from which the percentage change in quantity is calculated is large.

__D__. from which the percentage price change is calculated is large and the originalquantity from which the percentage change in quantity is calculated is small.

*AACSB: Knowledge Application Accessibility: Keyboard Navigation*

*Blooms: Understand Difficulty: 02 Medium*

*Learning Objective: 06-01 Discuss price elasticity of demand and how it is calculated.*

*Test Bank: I Topic: Price Elasticity of Demand*

The priceelasticity of demand for widgetsis 0.80. Assumingno change in the demand curve for widgets, a 16 percentincrease in sales impliesa

1 percent reduction in price.

12 percent reduction in price.

__C__. 20 percent reduction in price.

D. 40 percent reduction in price.

*AACSB: Knowledge Application Accessibility: Keyboard Navigation*

*Blooms: Understand Difficulty: 02 Medium*

*Learning Objective: 06-01 Discuss price elasticity of demand and how it is calculated.*

*Test Bank: I Topic: Price Elasticity of Demand*

Suppose Aiyanna's Pizzeria currently faces a linear demand curve and is charginga very high price per pizza and doing very little business.Aiyanna now decidesto lower pizza prices by 5 percentper week for an indefinite period of time. We can expect that each successive week,

demand will become more price elastic.

price elasticity of demand will not change asprice is lowered.

__C__. demand will become less price elastic.

D. the elasticity of supply will increase.

*AACSB: Knowledge Application Accessibility: Keyboard Navigation*

*Blooms: Understand Difficulty: 02 Medium*

*Learning Objective: 06-01 Discuss price elasticity of demand and how it is calculated.*

*Test Bank: I Topic: Price Elasticity of Demand*

The priceelasticity of demand of a straight-line demand curve is

__A__. elastic in high-price rangesand inelastic in low-price ranges.

elastic but does not change atvarious points on the curve.

inelastic but does not change at variouspoints on the curve.

1 at all points on the curve.

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*Blooms: Understand Difficulty: 02 Medium*

*Learning Objective: 06-01 Discuss price elasticity of demand and how it is calculated.*

*Test Bank: I Topic: Price Elasticity of Demand*

A leftward shift in the supply curve of product X will increaseequilibrium price to a greater extent the

more elastic the supplycurve.

larger the elasticity of demand coefficient.

more elastic the demand forthe product.

__D__. more inelastic the demand for the product.

*AACSB: Knowledge Application Accessibility: Keyboard Navigation*

*Blooms: Understand Difficulty: 02 Medium*

*Learning Objective: 06-01 Discuss price elasticity of demand and how it is calculated.*

*Test Bank: I Topic: Price Elasticity of Demand*

If the demand for bacon is relatively elastic,a 10 percentdecline in the price of bacon will

A. decrease the amount demanded by more than 10 percent.

__B__. increase the amount demanded by more than 10 percent.

decrease the amount demandedby less than 10 percent.

increase the amount demanded by less than 10 percent.

*AACSB: Knowledge Application Accessibility: Keyboard Navigation*

*Blooms: Understand Difficulty: 02 Medium*

*Learning Objective: 06-01 Discuss price elasticity of demand and how it is calculated.*

*Test Bank: I Topic: Price Elasticity of Demand*

The price elasticity of demand is generally

__A__. negative, but the minus sign is ignored.

positive, but the plus sign is ignored.

positive for normal goods and negative for inferior goods.

positive because price and quantitydemanded are inversely related.

*AACSB: Knowledge Application Accessibility: Keyboard Navigation*

*Blooms: Understand Difficulty: 02 Medium*

*Learning Objective: 06-01 Discuss price elasticity of demand and how it is calculated.*

*Test Bank: I Topic: Price Elasticity of Demand*

For a lineardemand curve,

elasticity is constant along the curve.

elasticity is unity at every point on the curve.

demand is elastic at relatively low prices.

__D__. demand is elastic at relatively high prices.

*AACSB: Knowledge Application Accessibility: Keyboard Navigation*

*Blooms: Understand Difficulty: 02 Medium*

*Learning Objective: 06-01 Discuss price elasticity of demand and how it is calculated.*

*Test Bank: I Topic: Price Elasticity of Demand*

The price of productX is reducedfrom $100 to $90 and, as a result,the quantity demanded increases from 50 to 60 units. Therefore, demand for X in this price range

has declined.

is of unit elasticity.

is inelastic.

__D__. is elastic.

*AACSB: Knowledge Application Accessibility: Keyboard Navigation*

*Blooms: Understand Difficulty: 02 Medium*

*Learning Objective: 06-01 Discuss price elasticity of demand and how it is calculated.*

*Test Bank: I Topic: Price Elasticity of Demand*

20.

The diagram shows two product demand curves. On the basis of this diagram, we can say that

__A__. over range *P*1*P*2, price elasticity of demand is greater for *D*1 than for *D*2.

over range *P*1*P*2, price elasticity of demand is greater for *D*2 than for *D*1.

over range *P*1*P*2, price elasticity is the same for the two demand curves.

not enough information is given to compare price elasticities.

*AACSB: Knowledge Application*

*Blooms: Understand Difficulty: 02 Medium*

*Learning Objective: 06-01 Discuss price elasticity of demand and how it is calculated.*

*Test Bank: I Topic: Price Elasticity of Demand*

Suppose we find that the price elasticity of demand for a product is 3.5 when its price is increasedby 2 percent.We can conclude that quantity demanded

A. increased by 7 percent.

__B__. decreased by 7 percent.

decreased by 9 percent.

decreased by 1.75 percent.

*AACSB: Knowledge Application Accessibility: Keyboard Navigation*

*Blooms: Understand Difficulty: 02 Medium*

*Learning Objective: 06-01 Discuss price elasticity of demand and how it is calculated.*

*Test Bank: I Topic: Price Elasticity of Demand*

The priceelasticity of demand for beef is about 0.60. Other things equal, this means that a 20 percent increasein the price of beef will cause the quantityof beef demanded to

A. increase by approximately 12 percent.

__B__. decrease by approximately 12 percent.

decrease by approximately 32 percent.

decrease by approximately 26 percent.

*AACSB: Knowledge Application Accessibility: Keyboard Navigation*

*Blooms: Understand Difficulty: 02 Medium*

*Learning Objective: 06-01 Discuss price elasticity of demand and how it is calculated.*

*Test Bank: I Topic: Price Elasticity of Demand*

If demand for a productis elastic, the value of the price elasticity coefficient is

A. zero.

__B__. greater than one.

equal to one.

less than one.

*AACSB: Knowledge Application Accessibility: Keyboard Navigation*

*Blooms: Understand Difficulty: 02 Medium*

*Learning Objective: 06-01 Discuss price elasticity of demand and how it is calculated.*

*Test Bank: I Topic: Price Elasticity of Demand*

The concept of price elasticity of demand measures

the slopeof the demand curve.

the number of buyers in a market.

the extent to which the demand curve shifts as the result of a price decline.

__D__. the sensitivity of consumerpurchases to pricechanges.

*AACSB: Knowledge Application Accessibility: Keyboard Navigation*

*Blooms: Understand Difficulty: 02 Medium*

*Learning Objective: 06-01 Discuss price elasticity of demand and how it is calculated.*

*Test Bank: I Topic: Price Elasticity of Demand*

25.

Refer to the diagram. Between prices of $5.70 and $6.30,

__A__. *D*1 is more elastic than *D*2.

*D*2 is an inferior good and *D*1 is a normal good.

*D*1 and *D*2 have identical elasticities.

*D*2 is more elastic than *D*1.

*AACSB: Knowledge Application*

*Blooms: Understand Difficulty: 02 Medium*

*Learning Objective: 06-01 Discuss price elasticity of demand and how it is calculated.*

*Test Bank: I Topic: Price Elasticity of Demand*

26.

Refer to the diagram and assume a single good. If the price of the good decreases from $6.30 to $5.70, consumer expenditure would

A. decrease if demand were *D*1 only.

__B__. decrease if demandwere *D*2 only.

decrease if demand were either *D*1 or *D*2.

increase if demand were either *D*1 or *D*2.

*AACSB: Knowledge Application*

*Blooms: Understand Difficulty: 02 Medium*

*Learning Objective: 06-01 Discuss price elasticity of demand and how it is calculated.*

*Test Bank: I Topic: Price Elasticity of Demand*

27.

Refer to the diagram and assume a single good. If the priceof the good increasedfrom $5.70 to $6.30 along *D*1, the price elasticity of demand along this portionof the demand curve would be

A. 0.8.

B. 1.0.

__C__. 1.2.

D. 2.0.

*AACSB: Knowledge Application*

*Blooms: Understand Difficulty: 02 Medium*

*Learning Objective: 06-01 Discuss price elasticity of demand and how it is calculated.*

*Test Bank: I Topic: Price Elasticity of Demand*

Suppose the price of local cable TV service increased from $16.20 to $19.80 and as a result the number of cable subscribers decreased from 224,000 to 176,000. Along this portion of the demand curve, price elasticity of demand is

A. 0.8.

__B__. 1.2.

C. 1.6.

D. 8.0.

*AACSB: Knowledge Application Accessibility: Keyboard Navigation*

*Blooms: Understand Difficulty: 02 Medium*

*Learning Objective: 06-01 Discuss price elasticity of demand and how it is calculated.*

*Test Bank: I Topic: Price Elasticity of Demand*

If the price of hand calculators falls from $10 to $9 and, as a result,the quantity demanded increases from 100 to 125, then

__A__. demand is price elastic.

demand is price inelastic.

demand is unit elastic with respectto price.

not enough information is given to make a statementabout elasticity.

*AACSB: Knowledge Application Accessibility: Keyboard Navigation*

*Blooms: Understand Difficulty: 02 Medium*

*Learning Objective: 06-01 Discuss price elasticity of demand and how it is calculated.*

*Test Bank: I Topic: Price Elasticity of Demand*

A perfectly inelastic demand curve

has a price elasticity coefficient greater than unity.

has a price elasticity coefficient of unity throughout.

__C__. graphs as a line parallel to the verticalaxis.

D. graphs as a line parallel to the horizontal axis.

*AACSB: Knowledge Application Accessibility: Keyboard Navigation*

*Blooms: Understand Difficulty: 02 Medium*

*Learning Objective: 06-01 Discuss price elasticity of demand and how it is calculated.*

*Test Bank: I Topic: Price Elasticity of Demand*

If quantity demanded is completely unresponsive to price changes, demand is

__A__. perfectly inelastic.

perfectly elastic.

relatively inelastic.

relatively elastic.

*AACSB: Knowledge Application Accessibility: Keyboard Navigation*

*Blooms: Understand Difficulty: 02 Medium*

*Learning Objective: 06-01 Discuss price elasticity of demand and how it is calculated.*

*Test Bank: I Topic: Price Elasticity of Demand*

A firm can sell as much as it wants at a constant price. Demandis thus

A. perfectly inelastic.

__B__. perfectly elastic.

relatively inelastic.

relatively elastic.

*AACSB: Knowledge Application Accessibility: Keyboard Navigation*

*Blooms: Understand Difficulty: 02 Medium*

*Learning Objective: 06-01 Discuss price elasticity of demand and how it is calculated. Learning Objective: 06-03 List the factorsthat affect price elasticity of demand and describesome applications of price elasticity of demand.*

*Test Bank: I Topic: Determinants of Price Elasticity of Demand*

*Topic: Price Elasticity of Demand*

A demand curve that is parallelto the horizontalaxis is

A. perfectly inelastic.

__B__. perfectly elastic.

relatively inelastic.

relatively elastic.

*AACSB: Knowledge Application Accessibility: Keyboard Navigation*

*Blooms: Understand Difficulty: 02 Medium*

*Learning Objective: 06-01 Discuss price elasticity of demand and how it is calculated. Learning Objective: 06-03 List the factorsthat affect price elasticity of demand and describesome applications of price elasticity of demand.*

*Test Bank: I Topic: Determinants of Price Elasticity of Demand*

*Topic: Price Elasticity of Demand*

34.

Answer the question on the basis of the following demand schedule.

Price

Quantity Demanded

$6

1

5

2

4

3

3

4

2

5

1

6

If this demand schedule were graphed, we would find that

its slope diminishesas we move southeast down the curve.

its slope diminishesas we move northwest up the curve.

__C__. its slope is constantthroughout.

D. the data are inconsistent with the law ofdemand.

*AACSB: Knowledge Application*

*Blooms: Understand Difficulty: 02 Medium*

*Learning Objective: 06-01 Discuss price elasticity of demand and how it is calculated.*

*Test Bank: I Topic: Price Elasticity of Demand*

*Type: Table*

35.

Answer the question on the basis of the following demand schedule.

Price

Quantity Demanded

$6

1

5

2

4

3

3

4

2

5

1

6

The price elasticity of demand is relatively elastic

__A__. in the $6–$4 price range.

over the entire $6–$1 price range.

in the $3–$1 price range.

in the $6–$5 price range only.

*AACSB: Knowledge Application*

*Blooms: Understand Difficulty: 02 Medium*

*Learning Objective: 06-01 Discuss price elasticity of demand and how it is calculated.*

*Test Bank: I Topic: Price Elasticity of Demand*

*Type: Table*

36.

Answer the question on the basis of the following demand schedule.

Price

Quantity Demanded

$6

1

5

2

4

3

3

4

2

5

1

6

The price elasticity of demand is relatively inelastic

in the $6–$4 price range.

over the entire $6–$1 price range.

__C__. in the $3–$1 price range.

D. in the $6–$5 price range only.

*AACSB: Knowledge Application*

*Blooms: Understand Difficulty: 02 Medium*

*Learning Objective: 06-01 Discuss price elasticity of demand and how it is calculated.*

*Test Bank: I Topic: Price Elasticity of Demand*

*Type: Table*

37.

Answer the question on the basis of the following demand schedule.

Price

Quantity Demanded

$6

1

5

2

4

3

3

4

2

5

1

6

The price elasticity of demand is unity

A. throughout the entire price range, because the slope of the demand curve is constant.

__B__. in the $4–$3 price range only.

over the entire $3–$1 price range.

over the entire $6–$4 price range.

*AACSB: Knowledge Application*

*Blooms: Understand Difficulty: 02 Medium*

*Learning Objective: 06-01 Discuss price elasticity of demand and how it is calculated.*

*Test Bank: I Topic: Price Elasticity of Demand*

*Type: Table*

38.

Answer the question on the basis of the following demand schedule.

Price

Quantity Demanded

$6

1

5

2

4

3

3

4

2

5

1

6

Which of the following is *correct*?

__A__. Although the slope of the demand curve is constant, price elasticity declines as we move from high to low price ranges.

Although the slope of the demand curve is constant, price elasticity increases as we move from high to low price ranges.

Although the demand curve is convex to the origin, price elasticity of demandis constant throughout.

A steep slope means demand is inelastic; a flat slope means demand is elastic.

*AACSB: Knowledge Application*

*Blooms: Understand Difficulty: 02 Medium*

*Learning Objective: 06-01 Discuss price elasticity of demand and how it is calculated.*

*Test Bank: I Topic: Price Elasticity of Demand*

*Type: Table*

39.

In which price range of the accompanying demand schedule is demand elastic?

Price

Quantity Demanded

4

2

3

4

2

6

1

8

__A__. $4–$3 B. $3–$2 C. $2–$1

D. below $1

*AACSB: Knowledge Application*

*Blooms: Understand Difficulty: 02 Medium*

*Learning Objective: 06-01 Discuss price elasticity of demand and how it is calculated.*

*Test Bank: I Topic: Price Elasticity of Demand*

*Type: Table*

When the percentage change in price is greaterthan the resulting percentage change in quantity demanded,

a decrease in price will increase total revenue.

demand may be either elastic or inelastic.

__C__. an increase in price will increasetotal revenue.

D. demand is elastic.

*AACSB: Knowledge Application Accessibility: Keyboard Navigation*

*Blooms: Understand Difficulty: 02 Medium*

*Learning Objective: 06-02 Explain the usefulness of the total-revenue test for price elasticity of demand.*

*Test Bank: I Topic: The Total-Revenue Test*

Suppose the price elasticity coefficients of demand are 1.43, 0.67, 1.11, and 0.29 for products W, X, Y, and Z, respectively. A 1 percent decreasein price will increase total revenue in the cases of

__A__. W and Y.

Y and Z.

X and Z.

Z and W.

*AACSB: Knowledge Application Accessibility: Keyboard Navigation*

*Blooms: Understand Difficulty: 02 Medium*

*Learning Objective: 06-02 Explain the usefulness of the total-revenue test for price elasticity of demand.*

*Test Bank: I Topic: The Total-Revenue Test*

42.

Suppose that the total-revenue curve is derived from a particular linear demand curve. That demand curve must be

__A__. inelastic for price declinesthat increase quantity demanded from 6 units to 7 units.

elastic for price declines that increasequantity demanded from 6 units to 7 units.

inelastic for price increases that reduce quantity demanded from 4 units to 3 units.

elastic for price increases that reduce quantitydemanded from 8 units to 7 units.

*AACSB: Knowledge Application*

*Blooms: Understand Difficulty: 02 Medium*

*Learning Objective: 06-02 Explain the usefulness of the total-revenue test for price elasticity of demand.*

*Test Bank: I Topic: The Total-Revenue Test*

43.

Suppose the total-revenue curve is derived from a particular linear demand curve. That demand curve must be

inelastic for price declines that increase quantitydemanded from 2 units to 3 units.

elastic for price declines that increasequantity demanded from 5 units to 6 units.

inelastic for price increases that reduce quantity demanded from 4 units to 3 units.

__D__. elastic for price increasesthat reduce quantity demanded from 4 units to 3 units.

*AACSB: Knowledge Application*

*Blooms: Understand Difficulty: 02 Medium*

*Test Bank: I Topic: The Total-Revenue Test*

44.