# Chapter 6 Review Questions

Total word count: 2462
Pages: 9

### Calculate the Price

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275 words
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 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 B) a measure of the responsiveness of the change in the quantity demanded of a good to the changes in income C) a measure of the responsiveness of the change in the quantity demanded of a good to the change in price of another good D) none of the above 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 B) the responsiveness of the quantity supplied of a good to changes in its price C) the price elasticity of supply D) all of the above 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 ______ A) is constant; is constant B) changes from one point to another; is constant C) is constant; changes from one point to another D) none of the above C) is constant; changes from one point to another Who benefits from the concept of elasticity? A) business managers B) policy makers C) both business managers and policy makers D) neither business managers or policy makers; only economists believe C) both business managers and policy makers How is the price elasticity of demand measured? A) by dividing the percentage change in the product’s price by the percentage change in the quantity demanded of a product B) by multiplying the percentage change in the product’s price by the percentage change in the quantity demanded of a product C) by dividing the percentage change in the quantity demanded of a product by the percentage change in the product’s price D) by multiplying the percentage change in the quantity demanded of a product by the percentage change in the product’s price 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 A) Decreases B) Increases C) stays the same D) none B) Increases How do economists avoid confusion over units in the computation of elasticity? A) by using index numbers rather than whole numbers B) by using percentage changes rather than simple differences C) by using aggregate values rather than simple values D) by using the same number as the value of the slope of the curve 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? A) The slope is calculated using percentage changes in quantity and price, whereas elasticity is calculated using simple numerical changes B) The slope is calculated using changes in quantity and price, whereas elasticity is calculated using percentage changes C) Both slope and elasticity must be calculated using percent changes D) Neither the slope nor the value of elasticity can be calculated using simple numerical changes 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 B) The value is always positive C) The value may be positive or negative depending on the value of the slope of the demand curve D) The value is positive when the slope is negative and negative when the slope is positive 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? A) The law of demand is violated in both markets B) The demand for hamburgers is more elastic than the demand for textsbooks C) A 10% increase in the price of hamburgers will result in a 13% increase in the quantity of hamburgers demanded 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 B) The percentage change in quantity demanded will be less than the percentage change in price C) The percentage change in quantity demanded will be equal to the percentage change in price D) The percentage change in quantity demanded will be unrelated to the percentage change 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 A) elastic B) unit-elastic C)inelastic D)none of the above B) unit-elastic Which of the following is true if quantity demanded is not very responsive to price? A) The percent change in quantity demanded will be less than the percent change in price B) the price elasticity of demand will be less than 1 in absolute value C) Demand is inelastic D) all of the above 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 A) -25 B)-0.8 C) -1.25 D) -20 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 A) inelastic B) elastic C) unit-elastic D) vertical 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? A) the value of elasticity we would get would be the same whether we apply it to price increases or price decreases B) we would get a different value for price increases than price decreases C) The values we would get would be the same if the demand curve is downward sloping D) the values would always coincide with the value of the slope of the demand curve especially if the demand curve is linear 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 B) is greater than one C) is less than one D) none of the above A) equals to one When quantity demanded is completely unresponsive to price, what is the value of price elasticity of demand? A) 0 B) 1 C) a number between 0 and 1 D) a negative number 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 B) no change in quantity demanded C) a change in quantity demanded exactly equal to the change in price D) a very small change in quantity demanded 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 B) is greater than one C) equals to one D) is none of the above A) is less than one Which of the following statement is true? A) The more substitutes available for a product, the greater the price elasticity of demand B) The more time that passes, the more elastic the demand for a product becomes C) the demand curve for a luxury is more elastic than the demand curve for a necessity D) all of the above D) all of the above Which of the following statement is true? A) the fewer substitutes available for a product, the greater the price elasticity of demand B) the time that passes, the more inelastic the demand for a product becomes C) the demand curve for a luxury is less elastic than the demand curve for a necessity D) the more narrowly defined a product is, the larger the price elasticity of demand 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 B) the same as the price elasticity of demand for all breakfast cereals C) smaller than the price elasticity of demand for all types of breakfast cereals D) neither larger nor smaller than the price elasticity of demand for any type of cereal 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 B) more; smaller C) less; larger D) unit; larger 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 A) more elastic than her demand for books B) less elastic than her demand for books C) elastic D) unit elastic 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 A) decreases B) increases C) stays the same D) none of the above 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 B) inelastic; decrease C) elastic; increase D) elastic; decrease A) inelastic; increase When demand is elastic, how will an increase in price affect total revenue? A) Total revenue will rise B) total revenue will fall C) Total revenue will be unaffected by the change in price D) Total revenue may rise or fall, but the affect will depend on the size of the price change B) total revenue will fall What is the effect of a cut in price when demand is inelastic? A) an increase in total revenue B) a decrease in total revenue C) no effect on total revenue D) a change in total revenue by an amount equal to the cut in price B) total revenue will fall When is a change in price exactly offset by a proportional change in quantity demanded, leaving revenue unaffected? A) never B) when demand is elastic C) when demand is inelastic D) when demand is unit elastic 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 B) an increase; negative C) a decrease; positive D) a decrease; negative 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 A) an increase; positive B) an increase; negative C) a decrease; positive D) a decrease; negative D) a decrease; negative What is the cross-priced elasticity of demand for two products that are unrelated? A) 0 B) 1 C) infinite D) negative 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 B) close compliments C) unrelated D) identical A) close substitutes the price elasticity of supply always has A) a negative value B) a positive value C) a zero value D) none of the above B) a positive value If the income elasticity for SUVs is greater than 1, what is the good considered? A) a necessity B) a luxury C) a substitute good D) an inferior good B) a luxury The income elasticity for peanut butter is -3. This defines peanut butter as what type of good? A) a good with elastic demand B) an inferior good C) a good that is a compliment for jelly D) a necessity B) an inferior good What is true about quantity demanded if a good is considered a necessity? A) it is very responsive to changes in income B) it is not very responsive to changes in income C) It is unrelated to changes in income D) it is always the same regardless of price choices B) it is not very responsive to changes in income The income elasticity for a normal good is _____ and for an inferior good is _____ A) positive;positive B) negative;negative C) positive; negative D) none of the above 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 A) the supply of corn is inelastic B) the supply of corn is elastic C) the demand for corn is inelastic D) the demand for corn is elastic D) the demand for corn is elastic When demand increases, equilibrium price will rise ______ when supply is ____ elastic. A) more; more B) less; less C) more; less D) None of the above. Supply elasticity does not affect the impact of a shift in demand on the equilibrium price. C) more; less Passage of time (Price elasticity of demand) — The more time passes____________ the more elastic the demand for a product becomes. Availability of close substitutes (Price elasticity of demand) — in general, if a product has more substitutes available it will have more_________. If a product has fewer substitutes available, it will have ___________ more elastic demand, less elastic demand luxuries versus necessities (Price elasticity of demand) The demand curve for a luxury is_________ than the demand curve for a necessity. 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) In general, the demand for a good will be more_______ the larger the share of the good in the average consumers budget. 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

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