MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.

1) A price elasticity of demand of 2 means that a 10 percent increase in price will result in a 1) _______
A) 20 percent increase in quantity demanded.
B) 20 percent decrease in quantity demanded.
C) 5 percent decrease in quantity demanded.
D) 2 percent increase in quantity demanded.
E) 2 percent decrease in quantity demanded.

2) If a large percentage drop in the price level results in a small percentage increase in the quantity demanded, 2)
_______

A) the price elasticity of demand is zero.

B) demand is inelastic.
C) the price elasticity of demand is close to infinity.
D) demand is unit elastic.
E) demand is elastic.

3) If a 10 percent rise in the price of goods leads to a 10 percent decrease in quantity demanded, the demand curve for this
good 3) _______

A) has slope equal to 1.

B) is horizontal.
C) is vertical.
D) is a straight line with slope equal to 10.
E) none of the above

4) A fall in the price of a good from $11.50 to $8.50 results in an increase in the quantity demanded from 19,200 to 20,800
units. The price elasticity of demand is 4) _______

A) 8.0. B) 0.27. C) 3.75. D) 0.08. E) 30.

5) Suppose the government of Nova Scotia wants to reduce the consumption of electricity by 5 percent. The price
elasticity of demand for electricity is 0.40. You advise the Nova Scotia government to 5) _______

A) stay away from the market for electricity and let the market mechanism fix the problem.
B) raise the price of electricity by 2 percent.
C) raise the price of electricity by 12.5 percent.
D) lower the price of electricity by 12.5 percent.
E) lower the price of electricity by 2 percent.

6) Factors that influence the price elasticity of demand include 6) _______

A) the closeness of substitutes.
B) preferences.
C) the price of complements but not the price of substitutes.
D) income.
E) the price of substitutes and complements.
7) The demand for a good will be more price inelastic, 7) _______
A) the fewer substitutes are available for the good.
B) the higher is its price.
C) the longer is the passage of time since a price change.
D) the larger is the percentage of income spent on it.
E) the smaller the supply of the good.

8) Total revenue is more likely to rise when the price rises if 8) _______
A) some extended period of time passes.
B) there are few substitutes for the good.
C) a high proportion of income is spent on the good.
D) all of the above
E) none of the above

9) The income elasticity of demand equals the percentage change in ________, other things remaining the same. 9)
_______

A) quantity demanded divided by the percentage change in income

B) quantity demanded divided by the percentage change in price
C) price divided by the percentage change in quantity demanded
D) income divided by the percentage change in quantity demanded
E) price divided by the percentage change in income

10) Fred's income increases from $1,950 per week to $2,050 per week. As a result, he decides to increase the number of
movies he attends each month by 10 percent. Fred's demand for movies is 10) ______

A) income inelastic.
B) price elastic.
C) price inelastic.
D) income elastic.
E) income inferior.

11) If a 10 percent increase in income results in a 5 percent increase in quantity demanded, what is the income elasticity of
demand? 11) ______

A) -0.5 B) 0.5 C) -2.0 D) 2.0 E) 1.5

12) An economic measure that indicates when the demands for two or more goods are related is 12) ______
A) the price elasticity of demand.
B) the normal elasticity of demand.
C) the substitute elasticity of demand.
D) the cross elasticity of demand.
E) the income elasticity of demand.

13) If a rise in the price of good B increases the demand for good A, then 13) ______
A) A and B are substitutes.
B) A and B are complements.
C) the demand for A is price elastic.
D) the cross elasticity of demand between A and B is negative.
E) A is a resource used in the production of B.
14) When Erika's income increases by 6 percent, her demand for tickets to professional hockey games increases by 3
percent. Erika's demand for tickets is income ________. For Erika, hockey tickets are ________ good. 14) ______

A) elastic; an inferior
B) elastic; a normal
C) inelastic; a normative
D) inelastic; a normal
E) inelastic; an inferior

15) If a large percentage fall in the price of good A results in a small percentage decrease in the quantity supplied, then
15) ______

A) demand is elastic.
B) supply is elastic.
C) demand is income inelastic.
D) supply is inelastic.
E) demand is inelastic.

16) A vertical supply curve 16) ______

A) is impossible except in the long run.
B) indicates a shortage of the good.
C) implies an elasticity of supply equal to zero.
D) implies an elasticity of supply equal to infinity.
E) indicates that suppliers are unwilling to produce the good.

17) Preferences for brussels sprouts increase. The price of brussels sprouts will not change if the price elasticity of 17)
______

A) supply is 0.
B) supply is infinity.
C) supply is 1.
D) demand is 1.
E) demand is 0.

18) In the market for farm crops momentary supply is ________. In the market for farm crops, short-run supply is
________. 18) ______

A) positive; negative
B) more elastic than short-run supply; more elastic than long-run supply
C) less elastic than short-run supply; less elastic than long-run supply
D) perfectly elastic; perfectly inelastic
E) negative; positive
19) At a price of $15, Jack's quantity demanded of good A is the same as when the price rises to $16. Jack's demand for
good A is 19) _______

A) unit elastic.
B) perfectly inelastic.
C) elastic.
D) inelastic.
E) perfectly elastic.

Use the table below to answer the following questions.

Table 4.1.1
Demand schedule for good A.

20) Refer to Table 4.1.1. The price elasticity of demand when the price rises from $6 a unit to $7 a unit is 20) _______
A) 2.0. B) 1.3. C) 0.5. D) 1.0. E) 2.6.

Short Q/A

Chapter 4

1) What are the three cases for the price elasticity of demand? Briefly define each.

2) What does a horizontal demand curve indicate about the price elasticity of demand?

3) If the owner of a local movie theater wanted to increase the theater's total revenue from movie admissions,
what should the owner do with ticket prices?
If the good is elastic, increase price; if good is inelastic increase price; if good is unit elastic then max revenue
has been achieved; changing price wont increase revenue.
4) "The fewer the number of substitutes for a good, the more elastic the demand for that good." Is the previous
statement true or false?