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# ECON 202

Refer to the above graph. Consider a situationwhere price decreases from P2 to P1. In this price range, demandis relatively

inelastic because the loss in total revenue (areas D + G + I + J) is greater than the gain in total revenue (areas C + F + H).

elastic because the loss in total revenue (areas C + F + H) is greater than the gain in total revenue (area J).

elastic because the loss in total revenue(area J) is less than the gain in total revenue(areas C + F + H).

D. inelastic because the gain in total revenue (area J) is less than the loss in total revenue (areasC + F + H).

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: II

Topic: The Total-Revenue Test

237.

Refer to the figure above. At the equilibrium point in this market, the sellers' total revenues are equal to

A. \$300. B. \$50. C. \$360. D. \$150.

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: II

Topic: The Total-Revenue Test

238.

In the figure above, if the equilibrium price of the productincreased from \$5 to the presentprice of \$6 due to a supply shift, then total revenue would have

increased by \$300.

decreased by \$100.

decreased by \$300.

D. stayed the same.

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: II

Topic: The Total-Revenue Test

You are the sales manager for a software company and have been informed that the price elasticity of demand for your most popular software is less than 1. In order to increase total revenues from that product, you should

A. increase the price of the software.

decrease the price of the software.

hold the price of the software constant.

increase the supply of the software.

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: II

Topic: The Total-Revenue Test

A firm produces and sells two goods, A and B. Good A is known to have many close substitutes; good B makes up a significant portionof most families'budgets. From these facts, we would expect that the demand for Good A would be _, while that of Good B would be .

A. elastic; elastic also

inelastic; inelastic also

elastic; inelastic

inelastic; elastic

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Remember Difficulty: 01 Easy

Learning Objective: 06-03 List the factorsthat affect price elasticity of demand and describesome applications of price elasticity of demand.

Test Bank: II

Topic: Determinants of Price Elasticity of Demand

A firm produces and sells two goods, A and B. Good A is known to have many close substitutes; good B makes up a significant portion of most families'budgets. A price increase for each good would most likelycause total revenuesfrom good A to

increase and total revenues from good B to decrease

increase and total revenues from good B to increase.

decrease and total revenues from good B to increase.

D. decrease and total revenuesfrom good B to decrease.

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Remember Difficulty: 01 Easy

Learning Objective: 06-03 List the factorsthat affect price elasticity of demand and describesome applications of price elasticity of demand.

Test Bank: II

Topic: Determinants of Price Elasticity of Demand

In some markets consumers may buy many different brands of a product. Which of the statements below best represents a situationwhere demand for a particular brand would be very elastic?

A. "The different brands are almost identical. I always buy the cheapest."

"I use so little of that product that when I do buy it, I don't pay much attentionto the price."

"The brand I buy is so superior to other available brands that I hardlyconsider the others."

"I pinch pennies in buying other products, but like most people,I feel I owe it to myself to get the best brand of this product."

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Remember Difficulty: 01 Easy

Learning Objective: 06-03 List the factorsthat affect price elasticity of demand and describesome applications of price elasticity of demand.

Test Bank: II

Topic: Determinants of Price Elasticity of Demand

Which of the following is not characteristic of a productwith relatively inelastic demand?

A. The good is regarded by consumers as a necessity.

B. There are a largenumber of good substitutes for the good.

Buyers spend a small percentage of their total income on the product.

Consumers have had only a short time period to adjustto changes in price.

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Remember Difficulty: 01 Easy

Learning Objective: 06-03 List the factorsthat affect price elasticity of demand and describesome applications of price elasticity of demand.

Test Bank: II

Topic: Determinants of Price Elasticity of Demand

What is the most likely effect of the development of rental movies and online movie streamingon the movie theater (or cinema)industry?

decreased costs of producing movies

increased demand for movie theater tickets

movie theater tickets become an inferiorgood

D. increased price elasticity of demand for movie theater tickets

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Remember Difficulty: 01 Easy

Learning Objective: 06-03 List the factorsthat affect price elasticity of demand and describesome applications of price elasticity of demand.

Test Bank: II

Topic: Determinants of Price Elasticity of Demand

The demand for Cheerios cereal is more price-elastic than the demand for cereals as a whole. This is best explained by the fact that

Cheerios are a luxury.

Cereals are a necessity.

C. there are more substitutes for Cheerios than for cereals as a whole.

D. consumption of cereals as a whole is greater than consumption of Cheerios.

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Remember Difficulty: 01 Easy

Learning Objective: 06-03 List the factorsthat affect price elasticity of demand and describesome applications of price elasticity of demand.

Test Bank: II

Topic: Determinants of Price Elasticity of Demand

Which of the following factors will make the demand for a productrelatively elastic?

A. There are few substitutes.

B. The time interval considered is long.

The good is considered a necessity.

Purchases of the good require a small portionof consumers' budgets.

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Remember Difficulty: 01 Easy

Learning Objective: 06-03 List the factorsthat affect price elasticity of demand and describesome applications of price elasticity of demand.

Test Bank: II

Topic: Determinants of Price Elasticity of Demand

The price elasticity of demand increases with the length of the period considered because

consumers' incomes will increase over time.

the demand curve will shift outward as time passes.

all prices will increaseover time.

D. consumers will be better able to find substitutes.

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Remember Difficulty: 01 Easy

Learning Objective: 06-03 List the factorsthat affect price elasticity of demand and describesome applications of price elasticity of demand.

Test Bank: II

Topic: Determinants of Price Elasticity of Demand

You are the only seller of eggs in town, and the price-elasticity coefficient for eggs is known to be 0.8. If you want to increaseyour sales quantityby 10 percent through a price change, what should you do to price?

A. increase price by 12.5 percent

reduce price by 12.5 percent

increase price by 8 percent

reduce price by 8 percent

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Remember Difficulty: 01 Easy

Learning Objective: 06-03 List the factorsthat affect price elasticity of demand and describesome applications of price elasticity of demand.

Test Bank: II

Topic: Determinants of Price Elasticity of Demand

Which product is most likely to be the most price elastic?

milk

housing

clothing

D. automobiles

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Remember Difficulty: 01 Easy

Learning Objective: 06-03 List the factorsthat affect price elasticity of demand and describesome applications of price elasticity of demand.

Test Bank: II

Topic: Determinants of Price Elasticity of Demand

If in the short run the demand for mass transit is inelastic and in the long run the demand is elastic, then a price

A. increase will decrease totalrevenue in the short run but increasetotal revenue in the long run.

B. increase will increase total revenue in the short run but decreasetotal revenue in the long run.

decrease will increasetotal revenue in the short run but decreasetotal revenue in the long run.

decrease will decreasetotal revenue in the short run and decrease total revenue in the long run.

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Remember Difficulty: 01 Easy

Learning Objective: 06-03 List the factorsthat affect price elasticity of demand and describesome applications of price elasticity of demand.

Test Bank: II

Topic: Determinants of Price Elasticity of Demand

A study of mass-transit systems in American citiesrevealed that in the long run, revenues generally decline after substantial fare increases. This would suggest that

A. the demand for mass transit is price-elastic in the long run.

the demand for mass transit is price-inelastic in the long run.

mass-transit service deteriorates in the long run as price rises.

there are few good substitutes for such systems in urban areas.

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Remember Difficulty: 01 Easy

Learning Objective: 06-03 List the factorsthat affect price elasticity of demand and describesome applications of price elasticity of demand.

Test Bank: II

Topic: Determinants of Price Elasticity of Demand

The Bear Corporation finds that its total spending on machine parts increases after the priceof machine parts falls, other things being equal.Which of the following is true about the Bear Corporation's demand for machine parts with the price change?

A. It is unit elastic.

B. It is price elastic.

It is price inelastic.

It is perfectly inelastic.

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Remember Difficulty: 01 Easy

Learning Objective: 06-03 List the factorsthat affect price elasticity of demand and describesome applications of price elasticity of demand.

Test Bank: II

Topic: Determinants of Price Elasticity of Demand

You are the newly appointedsales manager of the Rock Computer Tablets Company and have been charged with the task of increasing revenues. Your economics consultants have informed you that at presentprice and outputlevels, price elasticity of demand for your productis less than one. You should

A. decrease prices.

B. increase prices.

hold prices constantand increase supply.

cut advertising expenditures to save money.

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Remember Difficulty: 01 Easy

Learning Objective: 06-03 List the factorsthat affect price elasticity of demand and describesome applications of price elasticity of demand.

Test Bank: II

Topic: Determinants of Price Elasticity of Demand

If demand for farm crops is inelastic, a good harvestwill cause farm revenues to

increase because of the increase in the quantity that farmers can sell.

increase because of a downward movement along the supply curve, encouraging an increasein demand.

C. decrease because of a percentage fall in price that is greaterthan the percentage increasein quantity sold.

D. remain unchanged, because the increase in quantity that can be sold will be matched by an equal decrease in price.

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Remember Difficulty: 01 Easy

Learning Objective: 06-03 List the factorsthat affect price elasticity of demand and describesome applications of price elasticity of demand.

Test Bank: II

Topic: Determinants of Price Elasticity of Demand

A union argues that a price cut will boost the revenues of the firm, while management argues that the opposite is true. This suggeststhat the price elasticity of demand is

unit-elastic from the union's perspective and unit-inelastic from management's perspective.

perfectly inelastic from the union's perspective and perfectlyelastic from management's perspective.

C. elastic from the union's perspective, inelastic from management's perspective.

D. inelastic from the union's perspective, elastic from management's perspective.

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Remember Difficulty: 01 Easy

Learning Objective: 06-03 List the factorsthat affect price elasticity of demand and describesome applications of price elasticity of demand.

Test Bank: II

Topic: Determinants of Price Elasticity of Demand

If the demand for a productis elastic, then

A. a highertax on the product will generate more tax revenue.

B. a higher tax on the product will generate less tax revenue.

total revenue will decrease as price decreases.

total revenue will remain constant as price increases.

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Remember Difficulty: 01 Easy

Learning Objective: 06-03 List the factorsthat affect price elasticity of demand and describesome applications of price elasticity of demand.

Test Bank: II

Topic: Determinants of Price Elasticity of Demand

Sony is considering a 10 percentprice reduction on its HD TV sets. If the price-elasticity coefficient for the sets in this price range is 0.75, then the price cut will cause

A. sales quantity to increase and revenues to also increase.

B. sales quantity to increase but revenues to decrease.

sales quantity to decreaseand revenues to also decrease.

sales quantity to decreasebut revenues to increase.

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Remember Difficulty: 01 Easy

Learning Objective: 06-03 List the factorsthat affect price elasticity of demand and describesome applications of price elasticity of demand.

Test Bank: II

Topic: Determinants of Price Elasticity of Demand

The price elasticity of demand for a textbook is estimated to be 1 no matter what the price orquantity demanded. In this case,

A. a 10 percentincrease in pricewill result in a 10 percentincrease in total revenues.

B. a 10 percent increase in pricewill result in a 10 percentdecrease in the quantitydemanded.

a 10 percent increase in price will resultin a 10 percentdecrease in total revenues.

a 10 percent increase in price will resultin a 10 percentincrease in quantity demanded.

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: II

Topic: The Total-Revenue Test

An increase in the price of tickets to a popularsporting event will increasetotal revenue if

there are many substitutes for this form of entertainment.

the ticket is considered to be a luxury.

D. the fans are price conscious.

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Remember Difficulty: 01 Easy

Learning Objective: 06-03 List the factorsthat affect price elasticity of demand and describesome applications of price elasticity of demand.

Test Bank: II

Topic: Determinants of Price Elasticity of Demand

A state government wants to increasethe taxes on cigarettes to increase tax revenue.Because cigarettes are addictive, we would expect its demand to be

elastic. Thus, the government's cigarette-tax revenues would rise with a tax increase.

elastic. Thus, the government's cigarette-tax revenues would fall with a tax increase.

inelastic. Thus,the government's cigarette-tax revenues would fall with a tax increase.

D. inelastic. Thus,the government's cigarette-tax revenues would rise with a tax increase.

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Remember Difficulty: 01 Easy

Learning Objective: 06-03 List the factorsthat affect price elasticity of demand and describesome applications of price elasticity of demand.

Test Bank: II

Topic: Determinants of Price Elasticity of Demand

An auto rental company lowers the price of its rentalsto increase its market share. The price cut increases quantity demanded, but total revenue decreases. This resultsuggests that over this price range, the demand for the auto rentals is

A. elastic.

B. inelastic.

unit elastic.

perfectly elastic.

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Remember Difficulty: 01 Easy

Learning Objective: 06-03 List the factorsthat affect price elasticity of demand and describesome applications of price elasticity of demand.

Test Bank: II

Topic: Determinants of Price Elasticity of Demand

Considering the price-elasticityof demand for wheat, we would expect that if the supply of wheat increases, other factorsconstant, then wheat farmers' total revenues would

A. increase because the demand is price-inelastic.

B. decrease because the demand is price-inelastic.

increase because the demand is price-elastic.

decrease because the demand is price-elastic.

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Remember Difficulty: 01 Easy

Learning Objective: 06-03 List the factorsthat affect price elasticity of demand and describesome applications of price elasticity of demand.

Test Bank: II

Topic: Determinants of Price Elasticity of Demand

If the government imposes an excise tax on a good, it will collect the most tax revenues from it if the demand for the good is

A. elastic.

B. inelastic.

unit elastic.

perfectly elastic.

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Remember Difficulty: 01 Easy

Learning Objective: 06-03 List the factorsthat affect price elasticity of demand and describesome applications of price elasticity of demand.

Test Bank: II

Topic: Determinants of Price Elasticity of Demand

If the government tightens up on drug dealers and raises the costs of dealingillegal drugs, then the drug addicts'dollar expenditures to feed their addiction willtend to

increase because their demand is price-elastic.

decrease because their demand is price-Inelastic.

decrease because their demand is price-elastic.

D. increase because their demand is price-Inelastic.

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Remember Difficulty: 01 Easy

Learning Objective: 06-03 List the factorsthat affect price elasticity of demand and describesome applications of price elasticity of demand.

Test Bank: II

Topic: Determinants of Price Elasticity of Demand

If sellers could price-discriminate and charge two different prices to two differentgroups of buyers in orderto increase revenues, then the sellers would charge

A. a higher price to the buyers whose demand is elastic.

B. a higher price to the buyers whose demand is inelastic.

a higher price to the buyers whose demand is unit-elastic.

the same price, actually,because price-discrimination will result in lower revenues.

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Remember Difficulty: 01 Easy

Learning Objective: 06-03 List the factorsthat affect price elasticity of demand and describesome applications of price elasticity of demand.

Test Bank: II

Topic: Determinants of Price Elasticity of Demand

Movie theaters charge lower prices to see a movie in the afternoonthan in the evening because there is an

inelastic supply of movies in the evening.

elastic demand to see movies in the evening.

C. elastic demand to see moviesin the afternoon.

D. inelastic demand to see movies in the afternoon.

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Remember Difficulty: 01 Easy

Learning Objective: 06-03 List the factorsthat affect price elasticity of demand and describesome applications of price elasticity of demand.

Test Bank: II

Topic: Determinants of Price Elasticity of Demand

When universities announce a large tuitionincrease and follow it with an announcement that more financialaid will be available, they are assumingthat students who pay full tuition

A. have elastic demand and students who use financial aid have inelastic demand.

B. have inelastic demand and students who use financial aid have elastic demand.

view a college education as an inferior good and students who use financial aid view it as a normal good.

view a college education as a normal good and students who use financial aid view it as an inferior good.

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Remember Difficulty: 01 Easy

Learning Objective: 06-03 List the factorsthat affect price elasticity of demand and describesome applications of price elasticity of demand.

Test Bank: II

Topic: Determinants of Price Elasticity of Demand

The coefficient of price-elasticityof supply for a productis 2 if

a 1 percentdecrease in the pricecauses a 0.2 percentdecrease in quantitysupplied.

a 2 percentdecrease in price causes a 1 percent decreasein quantity supplied.

C. a 1 percentdecrease in price causes a 2 percent decreasein quantity supplied.

D. a 2 percent decreasein price causes a 2 percentdecrease in quantitysupplied.

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Understand Difficulty: 02 Medium

Learning Objective: 06-04 Describeprice elasticity of supplyand how it can be applied.

Test Bank: II

Topic: Price Elasticity of Supply

The lawof supply suggests that the price-elasticity of supply is

A. positive.

negative.

always greater than 1.

always less than 1.

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Understand Difficulty: 02 Medium

Learning Objective: 06-04 Describeprice elasticity of supplyand how it can be applied.

Test Bank: II

Topic: Price Elasticity of Supply

Suppose the price elasticity of supply for crude oil is 2.5. How much would price have to rise to increase production by 20 percent?

A. 8 percent

12.5 percent

20 percent

45 percent

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Understand Difficulty: 02 Medium

Learning Objective: 06-04 Describeprice elasticity of supplyand how it can be applied.

Test Bank: II

Topic: Price Elasticity of Supply

271.

In the graph above, what is the price elasticity of supply (using the midpointformula) between points A and B?

A. 1

3

2 D. 1/3

AACSB: Knowledge Application

Blooms: Understand Difficulty: 02 Medium

Learning Objective: 06-04 Describeprice elasticity of supplyand how it can be applied.

Test Bank: II

Topic: Price Elasticity of Supply

272.

In the graph above, what would happen to price and to total revenue if the equilibrium moved from point B to point A?

A. Price would fall and total revenue would increase.

B. Price would fall and total revenue would also decrease.

Price would rise and total revenue would also increase.

Price would rise and total revenue would decrease.

AACSB: Knowledge Application

Blooms: Understand Difficulty: 02 Medium

Learning Objective: 06-04 Describeprice elasticity of supplyand how it can be applied.

Test Bank: II

Topic: Price Elasticity of Supply

If a producthas a short-runelasticity of supply equaltozero, then an increase in the demand for the productwill

A. have no effect on price or quantitysold.

B. increase price and leave quantity sold unchanged.

increase price and reduce the quantitysold to zero.

leave the price unchangedand reduce the quantitysold.

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Understand Difficulty: 02 Medium

Learning Objective: 06-03 List the factorsthat affect price elasticity of demand and describesome applications of price elasticity of demand.

Learning Objective: 06-04 Describeprice elasticity of supplyand how it can be applied.

Test Bank: II

Blooms: Understand Difficulty: 02 Medium

LearningObjective: 20-08 Discussthe probable incidenceof U.S. taxes and how the distribution of income betweenrich and poor is affectedby government taxes, transfers, and spending.

Test Bank:I Topic: ProbableIncidence of U.S. Taxes

Overall, the U.S. tax system (combinedfederal, state, and local) is

highly progressive.

B. slightlyprogressive.

slightly regressive.

highly regressive.

Blooms: Understand Difficulty: 02 Medium

LearningObjective: 20-08 Discussthe probable incidenceof U.S. taxes and how the distribution of income betweenrich and poor is affectedby government taxes, transfers, and spending.

Test Bank:I Topic: ProbableIncidence of U.S. Taxes

In 2013, the top 1 percentof all taxpayersin the United States paid what percentage of the federal income tax?

23.4 percent

B. 37.8 percent

39.6 percent

58.5 percent

AACSB: Knowledge Application

Blooms: Understand Difficulty: 02 Medium

Learning Objective: 06-04 Describeprice elasticity of supplyand how it can be applied.

Test Bank: II

Topic: Price Elasticity of Supply

282.

Refer to the graph above. The time horizon depicted in the graph

A. must be the immediate market period.

B. cannot be the immediate market period.

must be the long run, not the short run.

can be determined by focusingon the demand curve.

AACSB: Knowledge Application

Blooms: Understand Difficulty: 02 Medium

Learning Objective: 06-04 Describeprice elasticity of supplyand how it can be applied.

Test Bank: II

Topic: Price Elasticity of Supply

Economists distingu