Econ Multiple Choice Answer Key

1. Using the midpoint method, the price elasticity of demand for a good is computed to be approximately 0.75. Which of the following events is consistent with a 10 percent decrease in the quantity of the good demanded? a. a 7.5 increase in the price of the good b. a 13.33 percent increase in the price of the good c. an increase in the price of the good from $7.50 to $10 d. an increase in the price of the good from $10 to $17.50 ANSWER: b Table 5-1 Good Price Elasticity of Demand A 1.9 B 0.8 2. Refer to Table 5-1. Which of the following is consistent with the elasticities given in Table 5-1? a. A is a luxury and B is a necessity. b. A is a good after an increase in income and B is that same good after a decrease in income. c. A has fewer substitutes than B. d. A is a good immediately after a price increase and B is that same good 3 years after the price increase. ANSWER: a 3. Refer to Table 5-1. Which of the following is consistent with the elasticities given in Table 5-1? a. A is laundry detergent and B is Tide. b. A is Diet Pepsi and B is soda. c. A is food and B is a yacht. d. A is toilet paper and B is candles. ANSWER: b 4. For a particular good, a 5 percent increase in price causes a 2 percent decrease in quantity demanded. Which of the following statements is most likely applicable to this good? a. There are many close substitutes for this good. b. The good is a luxury. c. The market for the good is broadly defined. d. The relevant time horizon is long. ANSWER: a 5. For a particular good, a 3 percent increase in price causes a 10 percent decrease in quantity demanded. Which of the following statements is most likely applicable to this good? a. The relevant time horizon is short. b. The good is a necessity. c. The market for the good is broadly defined. d. There are many close substitutes for this good. ANSWER: d 6. For a particular good, a 10 percent increase in price causes a 3 percent decrease in quantity demanded. Which of the following statements is most likely applicable to this good? a. The relevant time horizon is short. b. The good is a luxury. c. The market for the good is narrowly defined. d. There are many close substitutes for this good. ANSWER: 7. a Studies indicate that the price elasticity of demand for cigarettes is about 0.4. A government policy aimed at reducing smoking changed the price of a pack of cigarettes from $2 to $6. According to the midpoint method, the government policy should have reduced smoking by a. 30%. b. 40%. c. 80%. d. 250%. ANSWER: b Table 5-2 Price Quantity $250 0 $200 30 $150 70 $100 110 $50 150 $0 190 8. Refer to Table 5-2. Using the midpoint method, if the price falls from $200 to $150, the absolute value of the price elasticity of demand is a. 5.3. b. 2.8. c. 0.8. d. 0.36. ANSWER: 9. b Refer to Table 5-2. Using the midpoint method, if the price falls from $150 to $100, the absolute value of the price elasticity of demand is a. 0.4. b. 0.9. c. 1.1. d. 2. ANSWER: c 10. Refer to Table 5-2. Using the midpoint method, if the price falls from $100 to $50, the absolute value of the price elasticity of demand is a. 0.31. b. 0.46. c. 1.25. d. 2.17 ANSWER: b 11. The flatter the demand curve through a given point, the a. greater the price elasticity of demand at that point. b. smaller the price elasticity of demand at that point. c. closer the price elasticity of demand will be to the slope of the curve. d. greater the absolute value of the change in total revenue when there is a movement from that point upward and to the left along the demand curve. ANSWER: a 12. The smaller the price elasticity of demand, the a. steeper the demand curve will be through a given point. b. flatter the demand curve will be through a given point. c. more strongly buyers respond to a change in price between any two prices P1 and P2. d. smaller the decrease in equilibrium price when the supply curve shifts rightward from S1 to S2. ANSWER: a 13. When demand is elastic, a decrease in price will cause a. an increase in total revenue. b. a decrease in total revenue. c. no change in total revenue but an increase in quantity demanded. d. no change in total revenue but a decrease in quantity demanded. ANSWER: a 14. Skip’s Sealcoating Service increased its total monthly revenue from $12,000 to $13,500 when it raised the price of driveway repairs from $600 to $750. The price elasticity of demand for Skip’s Sealcoating Service is a. 0.11. b. 0.47. c. 1.12. d. 2.11. ANSWER: b 15. If the price elasticity of demand for aluminum foil is 1.45, then a 2.4% decrease in the price of aluminum foil will increase the quantity demanded of aluminum foil by a. 1.66%, and aluminum foil sellers' total revenue will increase as a result. b. 1.66%, and aluminum foil sellers' total revenue will decrease as a result. c. 3.48%, and aluminum foil sellers' total revenue will increase as a result. d. 3.48%, and aluminum foil sellers' total revenue will decrease as a result. ANSWER: c 16. Suppose an airline determines that its customers traveling for business have inelastic demand and its customers traveling for vacations have an elastic demand. If the airline's objective is to increase total revenue, it should a. increase the price charged to vacationers and decrease the price charged to business travelers. b. decrease the price charged to vacationers and increase the price charged to business travelers. c. decrease the price to both groups of customers. d. increase the price for both groups of customers. ANSWER: Figure 5-10 b 17. Refer to Figure 5-10. If rectangle D is larger than rectangle A, then a. demand is elastic between prices P1 and P2. b. a decrease in price from P2 to P1 will cause an increase in total revenue. c. the magnitude of the percent change in price between P1 and P2 is smaller than the magnitude of the corresponding percent change in quantity demanded. d. All of the above are correct. ANSWER: d