5.5 Integrative Questions
1) Suppose an increase in supply lowers the price from $10 to $8 and increases the quantity demanded from 100 units to 130 units. Using the midpoint method, the elasticity of demand equals
A) 1.17.
B) 0.85.
C) 0.26.
D) 1.56.
E) None of the above answers is correct.
2) Suppose a decrease in supply raises the price from $4.00 to $5.50 and decreases the quantity demanded from 2,000 to 1,500. Using the midpoint method, the elasticity of demand equals
A) 2.10.
B) 1.11.
C) 0.90.
D) 0.72.
E) None of the above answers is correct.
3) The total revenue test says that if a price decrease leads to
A) an increase in total revenue, demand is income elastic.
B) a decrease in total revenue, demand is income inelastic.
C) a decrease in total revenue, demand is price inelastic.
D) a decrease in total revenue, supply is price inelastic.
E) a decrease in total revenue, supply is price elastic.
4) The total revenue test says that if a price decrease leads to
A) an increase in total revenue, supply is elastic.
B) a decrease in total revenue, supply is unit elastic.
C) a decrease in total revenue, supply is inelastic.
D) an increase in total revenue, supply is inelastic.
E) None of the above answers is correct.
5) If demand is ________, a price cut ________ the total revenue.
A) elastic; increases
B) unit elastic; decreases
C) inelastic; increases
D) inelastic; does not change
E) normal; decreases
6) If you spend a large portion of your income on a good,
A) supply of that good would be price elastic.
B) demand for that good is more elastic than if you spent a smaller portion of your income on the good.
C) supply of that good is price inelastic.
D) demand for that good is less elastic than if you spent a smaller portion of your income on the good.
E) the good must be able to be produced at a constant (or gently rising) opportunity cost.
7) A ________ curve means that ________.
A) horizontal demand; a change in price does not change total revenue
B) horizontal demand; the elasticity of demand is less than 1
C) horizontal supply; the elasticity of supply is infinite
D) horizontal supply; the elasticity of demand is infinite
E) vertical demand; a change in price does not change total revenue
8) The cross elasticity of demand
A) means that an increase in the demand for one good leads to a decrease in demand for another good.
B) measures how a change in the price of one good impacts the demand for another good.
C) measures how a change in supply impacts the demand for the good.
D) means that an increase in the price of one good leads to an increase in the price of another good.
E) measures how a change in income impacts the demand for the good.
9) Which of the following is true?
i.The demand for a good is elastic if when its price changes, the percentage change in the quantity demanded exceeds the percentage change in price.
ii.Price elasticity of demand equals the percentage change in price divided by the percentage change in the quantity demanded.
iii.If demand is price inelastic, a rise in price leads to a decrease in total revenue.
A) only i
B) only ii
C) only iii
D) i and ii
E) ii and iii
10) Which of the following is true?
i.The supply of a good is inelastic if when its price changes, the percentage change in the quantity supplied exceeds the percentage change in price.
ii.Price elasticity of supply equals the percentage change in the quantity supplied divided by the percentage change in price.
iii.If demand is price elastic, a rise in price leads to a decrease in total revenue.
A) only i
B) only ii
C) only iii
D) i and ii
E) ii and iii
11) Which of the following is true?
i.The easier it is to find substitutes for a good, the more price elastic the demand for the good is.
ii.The demand for a good is more price elastic the smaller the proportion of income spent on it.
iii.If demand is price elastic, lowering the price leads to a decrease in total revenue.
A) only i
B) only ii
C) only iii
D) i and ii
E) i and iii
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