The price elasticity of demand is… |
A) a measure of the responsiveness of the change in the quantity demanded of a good to the changes in its price |

If you know the value of the price elasticity of demand, then which of the following can you compute? |
A) the effect of a price change on quantity demanded |

Fill in the blanks. Along a linear demand curve, the slope _______ while the price elasticity of demand ______ |
C) is constant; changes from one point to another |

Who benefits from the concept of elasticity? |
C) both business managers and policy makers |

How is the price elasticity of demand measured? |
C) by dividing the percentage change in the quantity demanded of a product by the percentage change in the product’s price |

As the price of the good increases, its price elasticity of demand, in absolute value |
B) Increases |

How do economists avoid confusion over units in the computation of elasticity? |
B) by using percentage changes rather than simple differences |

Which of the following statements about the slope and the price elasticity of demand is correct? |
B) The slope is calculated using changes in quantity and price, whereas elasticity is calculated using percentage changes |

Which of the following is true about the value of the price elasticity of demand? |
A) The value is always negative |

If we find that the price elasticity of demand for hamburgers is 1.3, while the price elasticity of demand for textbooks is -0.6, which of the following can we say is true? |
B) The demand for hamburgers is more elastic than the demand for textbooks |

What happens when the quantity demanded is very responsive to changes in price? |
A) The percentage change in quantity demanded will be greater than the percentage change in price |

If a 10% increase in the price of one good leads to a 10% reduction in the quantity demanded, then the demand for that good is |
B) unit-elastic |

Which of the following is true if quantity demanded is not very responsive to price? |
D) all of the above |

If a 20% increase in the price of red bull energy drinks results in a decrease in the quantity demanded of 25%, the price elasticity of demand is |
C) -1.25 |

If a 20% increase in the price of red bull energy drinks results in a decrease in the quantity demanded of 25%, we say demand for RedBull is _______ in this range |
B) elastic |

Which of the following would occur when calculating the price elasticity between two points on a demand curve if we are not using the midpoint formula? |
B) we would get a different value for price increases than price decreases |

Along a linear demand curve, total revenue is maximized when the price elasticity of demand, in absolute value, |
A) equals to one |

When quantity demanded is completely unresponsive to price, what is the value of price elasticity of demand? |
A) 0 |

If demand is perfectly elastic, then what is the impact of an increase in price? |
A) a decrease in quantity demanded to zero |

On the lower part of a linear demand curve, below the midpoint, the price elasticity of demand in absolute value, |
A) is less than one |

Which of the following statement is true? |
D) all of the above |

Which of the following statement is true? |
D) the more narrowly defined a product is, the larger the price elasticity of demand |

The price elasticity of demand for a particular brand of raisin bran is, in absolute value, |
A) larger than the price elasticity of demand for all breakfast cereals |

In general, the price elasticity of demand for a good will be _____ elastic, the _____ the share of the good in the average customer’s budget. |
A) less; smaller |

Sarah spends 2% of her weekly budget on gum, and she spends 50% of her weekly budget on books. All else equal, we would expect her demand for chewing gum to be |
B) less elastic than her demand for books |

As you move upward along a linear demand curve, the price elasticity of demand in absolute value |
B) increases |

On the lower part of a linear demand curve below the midpoint, the demand is _____ and raising the price causes total revenue to _____ |
A) inelastic; increase |

When demand is elastic, how will an increase in price affect total revenue? |
B) total revenue will fall |

What is the effect of a cut in price when demand is inelastic? |
B) total revenue will fall |

When is a change in price exactly offset by a proportional change in quantity demanded, leaving revenue unaffected? |
D) when demand is unit elastic |

An increase in the price of a substitute for iPads will lead to _____ in quantity demanded of iPads, so the cross-price elasticity of demand will be _______ |
A) an increase; positive |

An increase in the price of a compliment for DVDs will lead to _____ in the quantity demanded for DVDs, so the cross-price elasticity of demand will be |
D) a decrease; negative |

What is the cross-priced elasticity of demand for two products that are unrelated? |
A) 0 |

If Amazon.com raises its price by 10% and, as a result, the quantity of books demanded on Barnesandnobles.com increases by 35%, what do consumers consider the two websites to be? |
A) close substitutes |

the price elasticity of supply always has |
B) a positive value |

If the income elasticity for SUVs is greater than 1, what is the good considered? |
B) a luxury |

The income elasticity for peanut butter is -3. This defines peanut butter as what type of good? |
B) an inferior good |

What is true about quantity demanded if a good is considered a necessity? |
B) it is not very responsive to changes in income |

The income elasticity for a normal good is _____ and for an inferior good is _____ |
C) positive; negative |

Suppose that an innovation in harvesting technology increases the supply of corn. Corn farmers will experience an increase in total revenue when |
D) the demand for corn is elastic |

When demand increases, equilibrium price will rise ______ when supply is ____ elastic. |
C) more; less |

Passage of time (Price elasticity of demand) |
the more elastic the demand for a product becomes. |

Availability of close substitutes (Price elasticity of demand) |
more elastic demand, less elastic demand |

luxuries versus necessities (Price elasticity of demand) |
More Elastic |

Definition of the market (Price elasticity of demand)The more narrowly we define a market, the more______ demand will be. |
Elastic |

Share of a good in consumers budget (Price elasticity of demand) |
Elastic |

If the products are substitutes then the cross-price elasticity of demand will be______ |
Positive— EX: two brands of tablet computers |

If the products are complements then the cross-price elasticity of demand will be______ |
Negative– EX: Tablet computers and applications downloaded from online stores. |

If the products are unrelated then the cross-price elasticity of demand will be______ |
zero– EX: tablet computers and peanut butter |

# Chapter 6 Review Questions

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