Ch. 04 Practice MC
1.
The demand for a product is inelastic with respect to price if:
A. consumers are largely unresponsive to a per unit price change.
B. the elasticity coefficient is greater than 1.
C. a drop in price is accompanied by a decrease in the quantity demanded.
D. a drop in price is accompanied by an increase in the quantity demanded.
2.
Which of the following is not characteristic of the demand for a commodity that is elastic?
A. The relative change in quantity demanded is greater than the relative change in price.
B. Buyers are relatively sensitive to price changes.
C. Total revenue declines if price is increased.
D. The elasticity coefficient is less than one.
3.
If the demand for product X is inelastic, a 4 percent increase in the price of X will:
A. decrease the quantity of X demanded by more than 4 percent.
B. decrease the quantity of X demanded by less than 4 percent.
C. increase the quantity of X demanded by more than 4 percent.
D. increase the quantity of X demanded by less than 4 percent.
4.
A perfectly inelastic demand schedule:
A. rises upward and to the right, but has a constant slope.
B. can be represented by a line parallel to the vertical axis.
C. cannot be shown on a two-dimensional graph.
D. can be represented by a line parallel to the horizontal axis.
5.
The larger the coefficient of price elasticity of demand for a product, the:
A. larger the resulting price change for an increase in supply.
B. more rapid the rate at which the marginal utility of that product diminishes.
C. less competitive will be the industry supplying that product.
D. smaller the resulting price change for an increase in supply.
6.
The price elasticity of demand is generally:
A. negative, but the minus sign is ignored.
B. positive, but the plus sign is ignored.
C. positive for normal goods and negative for inferior goods.
D. positive because price and quantity demanded are inversely related.
7.
For a linear demand curve:
A. elasticity is constant along the curve.
B. elasticity is unity at every point on the curve.
C. demand is elastic at low prices.
D. demand is elastic at high prices.
8.
The above diagram shows two product demand curves. On the basis of this diagram we can say that:
A. over range P1P2 price elasticity of demand is greater for D1 than for D2.
B. over range P1P2 price elasticity of demand is greater for D2 than for D1.
C. over range P1P2 price elasticity is the same for the two demand curves.
D. not enough information is given to compare price elasticities.
9.
The price elasticity of demand for beef is about 0.60. Other things equal, this means that a 20 percent
increase in the price of beef will cause the quantity of beef demanded to:
A. increase by approximately 12 percent.
B. decrease by approximately 12 percent.
C. decrease by approximately 32 percent.
D. decrease by approximately 26 percent.
10. Refer to the above diagram. Between prices of $5.70 and $6.30:
A. D1 is more elastic than D2.
B. D2 is an inferior good and D1 is a normal good.
C. D1 and D2 have identical elasticities.
D. D2 is more elastic than D1.
11. Suppose the price of local cable TV service increased from $16.20 to $19.80 and as a result the number
of cable subscribers decreased from 224,000 to 176,000. Along this portion of the demand curve, price
elasticity of demand is:
A. 0.8.
B. 1.2.
C. 1.6.
D. 8.0
12. Other things the same, if a price change causes total revenue to change in the opposite direction, demand
is:
A. perfectly inelastic.
B. relatively elastic.
C. relatively inelastic.
D. of unit elasticity.
13. In which of the following cases will total revenue increase?
A. price falls and demand is inelastic
B. price falls and supply is elastic
C. price rises and demand is inelastic
D. price rises and demand is elastic
14. The total-revenue test for elasticity:
A. is equally applicable to both demand and supply.
B. does not apply to demand because price and quantity are inversely related.
C. does not apply to supply because price and quantity are directly related.
D. applies to the short-run supply curve, but not to the long-run supply curve.
15. If the University Chamber Music Society decides to raise ticket prices to provide more funds to finance
concerts, the Society is assuming that the demand for tickets is:
A. parallel to the horizontal axis.
B. shifting to the left.
C. inelastic.
D. elastic.
16. The state legislature has cut Gigantic State University's appropriations. GSU's Board of Regents decides
to increase tuition fees to compensate for the loss of revenue. The board is assuming that the:
A. demand for education at GSU is elastic.
B. demand for education at GSU is inelastic.
C. coefficient of price elasticity of demand for education at GSU is unity.
D. coefficient of price elasticity of demand for education at GSU is greater than unity.
17. Which of the following is correct?
A. If the demand for a product is inelastic, a change in price will cause total revenue to change in the
opposite direction.
B. If the demand for a product is inelastic, a change in price will cause total revenue to change in the
same direction.
C If the demand for a product is inelastic, a change in price may cause total revenue to change in either
. the opposite or the same direction.
D. The price elasticity coefficient applies to demand, but not to supply.
18. Refer to the above diagram. Total revenue at price P1 is indicated by area(s):
A. C +
D.
B. A +
B.
C. A +
C.
D. A.
19. Refer to the above diagram. If price falls from $10 to $2, total revenue:
A. rises from A + B to A + B + D + C and demand is elastic.
B. falls from A + D to B + C and demand is inelastic.
C. rises from C + D to B + A and demand is elastic.
D. falls from A + B to B + C and demand is inelastic.
20. The more time consumers have to adjust to a change in price:
A. the smaller will be the price elasticity of demand.
B. the greater will be the price elasticity of demand.
C. the more likely the product is a normal good.
D. the more likely the product is an inferior good.
21. Which of the following generalizations is not correct?
A. The larger an item is in one's budget, the greater the price elasticity of demand.
B. The price elasticity of demand is greater for necessities than it is for luxuries.
C. The larger the number of close substitutes available, the greater will be the price elasticity of demand
for a particular product.
D. The price elasticity of demand is greater the longer the time period under consideration.
22. If price and total revenue vary in opposite directions, demand is:
A. perfectly inelastic.
B. perfectly elastic.
C. relatively inelastic.
D. relatively elastic.
23. The price elasticity of supply measures how:
A. easily labor and capital can be substituted for one another in the production process.
B. responsive the quantity supplied of X is to changes in the price of X.
C. responsive the quantity supplied of Y is to changes in the price of X.
D. responsive quantity supplied is to a change in incomes.
24. The main determinant of elasticity of supply is the:
A. number of close substitutes for the product available to consumers.
B. amount of time the producer has to adjust inputs in response to a price change.
C. urgency of consumer wants for the product.
D. number of uses for the product.
25. Refer to the above table. Over the $8-$6 price range, supply is:
A. inelastic.
B. elastic.
C. perfectly inelastic.
D. perfectly elastic.
26. The supply of product X is elastic if the price of X rises by:
A. 5 percent and quantity supplied rises by 7 percent.
B. 8 percent and quantity supplied rises by 8 percent.
C. 10 percent and quantity supplied remains the same.
D. 7 percent and quantity supplied rises by 5 percent.
27. Refer to the above diagram and assume that price increases from $2 to $10. The coefficient of the price
elasticity of supply (midpoint formula) relating to this price change is about:
A. 5 and supply is elastic.
B. 1 and supply is unit elastic.
C. .25 and supply is inelastic.
D. 2.5 and supply is elastic.
28. Refer to the above diagram and assume that price decreases from $10 to $2. The coefficient of the price
elasticity of supply (midpoint formula) relating to this price change is about:
A. 4 and supply is elastic.
B. 1 and supply is unit elastic.
C. .5 and supply is inelastic.
D. .25 and supply is inelastic.
29. The above diagram concerns supply adjustments to an increase in demand (D1 to D2) in the immediate
market period, the short run, and the long run. Supply curves S1, S2, and S3 apply to the:
A. immediate market period, long run, and short run respectively.
B. immediate market period, short run, and long run respectively.
C. long run, short run, and immediate market period respectively.
D. short run, long run, and immediate market period respectively.
30. If the supply of product X is perfectly elastic, an increase in the demand for it will increase:
A. equilibrium quantity but reduce equilibrium price.
B. equilibrium quantity but equilibrium price will be unchanged.
C. equilibrium price but reduce equilibrium quantity.
D. equilibrium price but equilibrium quantity will be unchanged.
31. Suppose the price of a product rises and the total revenue of sellers increases.
A. It can be concluded that the demand for the product is elastic.
B. It can be concluded that the supply of the product is elastic.
C. It can be concluded that the supply of the product is inelastic.
D. No conclusion can be reached with respect to the elasticity of supply.
32. A supply curve that is parallel to the horizontal axis suggests that:
A. the industry is organized monopolistically.
B. the relationship between price and quantity supplied is inverse.
C. a change in demand will change price in the same direction.
D. a change in demand will change the equilibrium quantity but not price.
33. The supply of known Monet paintings is:
A. perfectly elastic.
B. perfectly inelastic.
C. relatively elastic.
D. relatively inelastic.
34. Refer to the above information and assume the stadium capacity is 5,000. If the Mudhens' management
charges $7 per ticket:
A. some fans who want to see the game will find that tickets are not available.
B. there will be 2,000 empty seats.
C. there will be 1,000 empty seats.
D. the game will be sold out.
35. Refer to the above information. Over the $9-$7 price range, demand is:
A. perfectly elastic.
B. perfectly inelastic.
C. elastic.
D. inelastic.
36. Refer to the above information. If the Mudhens' management wanted to maximize total revenue from the
game, it would set the ticket price at:
A. $5.
B. $7.
C. $9.
D. $13.
37. An antidrug policy which reduces the supply of heroin might:
A. increase street crime because the addict's demand for heroin is highly inelastic.
B. reduce street crime because the addict's demand for heroin is highly elastic.
C. reduce street crime because the addict's demand for heroin is highly inelastic.
D. increase street crime because the addict's demand for heroin is highly elastic.
38. Studies of the minimum wage suggest that the price elasticity of demand for teenage workers is relatively
inelastic. This means that:
A. an increase in the minimum wage would increase the total incomes of teenage workers as a group.
B. an increase in the minimum wage would decrease the total incomes of teenage workers as a group.
C. the unemployment effect of an increase in the minimum wage would be relatively large.
D. the cross elasticity of demand between teenage and adult workers is positive and very large.
39. Refer to the above data. Suppose quantity demanded increased by 12 units at each price, changing the
equilibrium price in a direction and an amount for you to determine. Over that price range, supply is:
A. perfectly elastic.
B. perfectly inelastic.
C. elastic.
D. inelastic.
40. Refer to the above data. Suppose quantity supplied declined by 23 units at each price, changing the
equilibrium price in a direction and amount for you to determine. Over that price range, demand is:
A. elastic.
B. inelastic.
C. perfectly elastic.
D. perfectly inelastic.
41. The price of old baseball cards rises rapidly with increases in demand because:
A. the supply of old baseball cards is price inelastic.
B. the supply of old baseball cards is price elastic.
C. the demand for old baseball cards is price inelastic.
D. the demand for old baseball cards is price elastic.
42. The formula for cross elasticity of demand is percentage change in:
A. quantity demanded of X/percentage change in price of X.
B. quantity demanded of X/percentage change in income.
C. quantity demanded of X/percentage change in price of Y.
D. price of X/percentage change in quantity demanded of Y.
43. The larger the positive cross elasticity coefficient of demand between products X and Y, the:
A. stronger their complementariness.
B. greater their substitutability.
C. smaller the price elasticity of demand for both products.
D. the less sensitive purchases of each are to increases in income.
44. Refer to the above diagrams. The case of an inferior good is represented by figure:
A. A.
B. B.
C. C.
D. D.
45. Refer to the above diagrams. The case of complementary goods is represented by figure:
A. A.
B. B.
C. C.
D. D.
46. Assume that a 3 percent increase in income across the economy produces a 1 percent decline in the
quantity demanded of good X. The coefficient of income elasticity of demand for good X is:
A. negative and therefore X is an inferior good.
B. negative and therefore X is a normal good.
C. positive and therefore X is an inferior good.
D. positive and therefore X is a normal good.
47. Which type of goods is most adversely affected by recessions?
A. Goods for which the income elasticity coefficient is relatively low or negative.
B. Goods for which the income elasticity coefficient is relatively high and positive.
C. Goods for which the cross elasticity coefficient is positive.
D. Goods for which the cross elasticity coefficient is negative.
48. Which of the following goods (with their respective income elasticity coefficients in parentheses) will
most likely suffer a decline in demand during a recession?
A. Dinner at a nice restaurant (+1.8)
B. Chicken purchased at the grocery store for preparation at home (+0.25)
C. Facial tissue (+0.6)
D. Plasma screen and LCD TVs (+4.2)
49. Which of the following goods will least likely suffer a decline in demand during a recession?
A. Dinner at a nice restaurant
B. iPods
C. Toothpaste
D. Plasma screen and LCD TVs
50. (Consider This) Elastic demand is analogous to a __________ and inelastic demand to a ________.
A. normal wrench; socket wrench
B. tight rubber band; loose rubber band
C. Ace bandage; firm rubber tie-down
D. one-foot ruler; tape measure
Ch. 04 Practice MC Key
1. A
2. D
3. B
4. B
5. D
6. A
7. D
8. A
9. B
10. A
11. B
12. B
13. C
14. C
15. C
16. B
17. B
18. B
19. D
20. B
21. B
22. D
23. B
24. B
25. A
26. A
27. C
28. D
29. C
30. B
31. D
32. D
33. B
34. C
35. C
36. B
37. A
38. A
39. D
40. B
41. A
42. C
43. B
44. B
45. C
46. A
47. B
48. D
49. C
50. C
Ch. 04 Practice MC Summary
Category
AACSB: Analytic
AACSB: Reflective Thinking
Blooms: Level 1 Remember
Blooms: Level 2 Understand
Blooms: Level 3 Apply
Blooms: Level 4 Analyze
Difficulty: 1 Easy
Difficulty: 2 Medium
Difficulty: 3 Hard
Learning Objective: 04-01 Discuss price elasticity of demand and how it can be applied.
Learning Objective: 04-02 Explain the usefulness of the total revenue test for price elasticity of demand.
Learning Objective: 04-03 Describe price elasticity of supply and how it can be applied.
Learning Objective: 04-04 Apply cross elasticity of demand and income elasticity of demand.
McConnell - Chapter 04
Topic: Applications of price elasticity
Topic: Cross and income elasticity
Topic: Determinants of price elasticity
Topic: Elasticity of supply
Topic: Price elasticity of demand
Topic: Total revenue test
Type: Graph
Type: Table
# of Questions
23
27
10
11
18
11
10
29
11
21
9
12
8
60
8
8
3
11
12
8
9
6