Department of Economics
University of Lethbridge
Econ 1010A
Practice Questions – Chapter 5
Use the following to answer question 1:
P
A
4
S1
3
2
1
0
0
1
2
3
Q
1. Refer to the graph above. Point A on the supply curve, S1 is
A) elastic.
B) inelastic.
C) unit elastic.
D) unknown because one cannot say from the graph.
2. The demand for a good is price inelastic. Which of the following would be an
explanation for this?
A) The good is a necessity.
B) The good is specifically defined.
C) The good is a large portion of one's total income.
D) The time interval considered is long.
3. The Honalulu tourism commission recently proposed a 7% tax on hotel rooms to pay for
an outdoor amphitheater. A Purdue University economist estimates that the tax would
result in a 6% increase in the price of hotel rooms. If the elasticity of demand is 1.33,
what is the expected change in quantity demanded?
A) 12.5%.
B) -12.5%.
C) 8%.
D) -8%.
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4. Kuo S. Huang estimates that with every 20% increase in income, the quantity of grapes
purchased rises by 11.2%. From this information one would conclude that grapes are
A) a luxury.
B) not demanded.
C) an inferior good.
D) a normal good.
Price
Use the following to answer question 5:
10
9
8
7
6
5
4
3
2
1
0
A
B
C
D
1 2 3 4 5 6 7 8 9 10
Quantity
5. Refer to the graph above. Using the mid-point formula and a 2-unit quantity arc, the
approximate elasticity of point D is
A) 1/4.
B) 1.
C) 2/3.
D) 3/2.
6. Which of the following most likely correctly orders goods from most to least demand
elastic?
A) bicycles, non-motor transportation, transportation.
B) transportation, bicycles, non-motor transportation.
C) Advil, headache-relieving medicine, Aspirin
D) headache-relieving medicine, Advil, Aspirin
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7. A perfectly elastic supply curve would
A) intersect the two axes at the origin.
B) intersect the horizontal axis.
C) be horizontal.
D) be vertical.
8. The price elasticity of demand is defined as
A) the change in quantity demanded divided by the change in price.
B) the percentage change in quantity demanded divided by percentage change in price.
C) the change in price divided by the change in quantity demanded.
D) the percentage change in price divided by the percentage change in quantity
demanded.
Price
Use the following to answer question 9:
8
7
6
5
4
3
2
1
0
25
50
75
100
Quantity
9. Refer to the graph above. Reducing price from $5 to $4 would result in
A) an increase in total revenue, an increase in total cost, and an unknown change in
profit.
B) an increase in total revenue, a decrease in total cost, and an increase in profit.
C) a decrease in total revenue, an increase in total cost, and a decrease in profit.
D) a decrease in total revenue, a decrease in total cost, and an unknown change in
profit.
10. In general, the greater the elasticity
A) the smaller the responsiveness of price to changes in quantity.
B) the smaller the responsiveness of quantity to changes in price.
C) the larger the responsiveness of price to changes in quantity.
D) the larger the responsiveness of quantity to changes in price.
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11. Using the mid-point formula, compute the approximate elasticity of supply from the
following data:
Price
$100
90
Initial situation
New situation
A) .2.
B) .5.
C) 2.0.
D) 5.0.
Quantity
500
400
Revenue in
thousand of dollars
Use the following to answer question 12:
10
9
8
7
6
5
4
3
2
1
0
C
B
E
F
A
2
D
G
4
6
8 10 12 14 16
Quantity
12. Refer to the graph above. Between points E and F demand is
A) inelastic.
B) elastic.
C) unit elastic.
D) perfectly elastic.
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Use the following to answer question 13:
5
A
Price
4
3
B
2
C
1
D
1
2
3
4
Quantity
5
13. Refer to the graph above. At which point is elasticity one?
A) A.
B) B.
C) C.
D) D.
14. Which of the following statements is true about a demand curve that is a straight line?
A) The slope and the elasticity are the same at all points.
B) The slope remains the same, but elasticity rises as you move down the demand
curve.
C) The slope remains the same, but elasticity falls as you move down the demand
curve.
D) The slope and the elasticity fall as you move down the demand curve.
15. If quantity demanded does not change when the price changes, the demand
A) is elastic.
B) is inelastic.
C) has unit elasticity.
D) is perfectly inelastic.
16. Along a straight line demand curve beginning at the price where demand intersects the
price axis
A) as price declines, revenue declines.
B) as price declines, revenue rises.
C) as price declines, revenue declines then rises.
D) as price declines, revenue rises then declines.
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17. If the percentage increase in the quantity supplied is greater than the percentage
increase in the price, the supply
A) is elastic.
B) is inelastic.
C) has unit elasticity.
D) is perfectly elastic.
Use the following to answer question 18:
5
A
Price
4
3
B
2
C
1
D
1
2
3
4
Quantity
5
18. Refer to the graph above. At which point is elasticity infinite?
A) A.
B) B.
C) C.
D) D.
19. Which of the following is not an example of price discrimination?
A) Airlines charge higher fares to business travelers than to leisure travelers for the
same seats.
B) Most cars don't sell at list price. Price is negotiated with each customer.
C) When price of land rises, landowners do not increase the quantity of land supplied.
D) Peak-fare prices are higher than non-peak-fare prices.
20. Substitutes
A) are goods that are used in conjunction with one another.
B) have a negative income elasticity.
C) have a positive income elasticity.
D) have a positive cross-price elasticity.
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21. Elasticity of supply is greater the longer the time period considered for which of the
following reasons?
A) The longer the time period the lower the marginal cost of production.
B) The longer the time period the more elastic is demand for a producer's product.
C) The longer the time period the more options are available for producers to change
production.
D) The longer the time period the fewer options are available for producers to change
production.
Price
Use the following to answer question 22:
A
(E=1)
Quantity
22. Refer to the graph above. You have just been hired and are told to raise price. To look
good when you do so, you want revenue to rise. Therefore, which of the following is
true?
A) You'd rather be at point A.
B) You'd rather be below point A.
C) You'd rather be above point A.
D) You need more information to decide which point you'd rather be at.
23. The Chicago Board of Trade has a fixed number of seats. In 1997 full membership
prices at the Board rose tremendously reflecting higher trading volumes. You can
conclude that
A) demand for membership has shifted to the right along a perfectly inelastic supply
curve.
B) demand for membership has shifted to the right along a perfectly elastic supply
curve.
C) supply of memberships has shifted to the left along a perfectly inelastic demand
curve.
D) supply of membership has shifted to the left along a perfectly elastic demand curve.
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24. George Davis has estimated that the for every one percent increase in the price of
natural Christmas trees, the demand for artificial trees rises by .188%. From this
information one can conclude that
A) the income elasticity of demand for natural Christmas trees is less than one.
B) natural Christmas trees are luxuries.
C) natural and artificial Christmas trees are substitutes.
D) natural and artificial Christmas trees are complements.
Price
Use the following to answer question 25:
18
16
14
12
10
8
6
4
2
0
A
B
C
D
1
2
3
4
5
6
7
Quantity
25. Refer to the graph above. Using the mid-point formula, the approximate elasticity of arc
AB is
A) 3.
B) 1/3.
C) 1/5.
D) 5.
26. A price elasticity of demand for a good or service of 1.8 tells us that
A) the price changes by $1.80 when quantity changes by one unit.
B) quantity demanded falls by 1.8% when price rises by 1%.
C) the price rises by 1.8% when quantity demanded falls by 1%.
D) quantity demanded falls by 1.8 units when price changes by $1.
27. For complements
A) cross price elasticity of demand is negative.
B) cross price elasticity of demand is positive.
C) price elasticity of demand is negative.
D) price elasticity of demand is positive.
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28. Which of the following statements regarding the relationship between elasticity of
demand and revenue is true?
A) If elasticity is greater than one, a rise in price lowers total revenue.
B) If elasticity is greater than one, a decline in price decreases total revenue.
C) If elasticity is less than one, a decline in price increases total revenue.
D) If elasticity is less than one, a rise in price lowers total revenue.
29. The more specifically or narrowly a good is defined
A) the more substitutes it has and therefore the more elastic is its demand.
B) the more substitutes it has and therefore the more inelastic is its demand.
C) the fewer substitutes it has and therefore the more inelastic is its demand.
D) the more unit elastic is its demand.
30. GreenTree Corporation sells live Christmas trees. It observes that when it increases the
price of Christmas trees by 10%, revenue rises by 25%. The demand for Christmas trees
must be
A) inelastic.
B) elastic.
C) unit elastic.
D) perfectly elastic.
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Answer Key for Chapter 5
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A
A
D
D
A
A
C
B
A
D
C
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B
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D
A
A
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D
C
B
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B
A
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A
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