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Quiz 6 Chapter 20

Name: __________________________ Date: _____________ 1. The price elasticity of demand is defined as the: A) Percentage change in quantity demanded times the percentage change in price. B) Unit change in price divided by the unit change in quantity demanded. C) Percentage change in quantity demanded divided by the percentage change in price. D) Unit change in quantity demanded times the unit change in price. 2. Assume the price elasticity of demand for U.S. Frisbee Co. frisbees is 0.5. If the company increases the price of each frisbee from $6 to $8, the number of frisbees sold will: A) Decrease by 14.3 percent. B) Decrease by 33.3 percent. C) Increase by 20.0 percent. D) Increase by 7.0 percent. 3. The price elasticity of demand is calculated using percentage changes in order to: A) Avoid mistaking elasticity with slope. B) Make elasticity a percentage figure. C) Avoid problems associated with units of measurement. D) Find a constant elasticity along each demand curve. 4. Assume the price elasticity of demand has an absolute value of 4 for a particular good. This means that quantity demanded will decrease by: A) 4 percent for each 1 percent increase in price, ceteris paribus. B) 1 unit for each $4 increase in price, ceteris paribus. C) 1 percent for each 4 percent increase in price, ceteris paribus. D) 4 units for each $1 increase in price, ceteris paribus. 5. When the percentage change in quantity demanded is less than the percentage change in price, ceteris paribus: A) Demand is elastic. B) Demand is inelastic. C) Demand is unitary elastic. D) Elasticity is impossible to calculate.

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6. A demand curve is described as perfectly elastic if: A) The same quantity is purchased regardless of price. B) The same price is charged regardless of quantity sold. C) Only price can change. D) It is vertical. 7. When the percentage change in quantity demanded is greater than the percentage change in price, ceteris paribus: A) Demand is unitary elastic. B) Demand is inelastic. C) Demand is elastic. D) Elasticity is impossible to calculate. 8. Which of the following influences the price elasticity of demand? A) Availability of substitutes. B) Price relative to budget. C) Length of time. D) All of the above. 9. Which of the following would be most likely to have a price-elasticity coefficient greater than 1? A) Cigarettes. B) Coffee. C) An addictive drug. D) Restaurant meals. 10. Which of the following would be most likely to have a price-elasticity coefficient less than 1? A) An addictive drug. B) Airline travel. C) Restaurant meals. D) New cars. 11. Which of the following causes demand to be more elastic with respect to price? A) Shorter periods of time to adjust to a change in price. B) A steeper demand curve for a given price and quantity. C) Fewer substitutes. D) A high ratio of price to income.

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12. If the price elasticity of demand is 2.0, and a firm raises its price by 10 percent, the quantity sold by the firm will: A) Increase by 10 percent. B) Decrease by 10 percent. C) Decrease by 20 percent. D) Increase by 20 percent. 13. When demand is price inelastic, ceteris paribus: A) An increase in price leads to lower total revenue. B) An increase in total revenue means quantity rises. C) An increase in total revenue indicates a reduction in price. D) An increase in price leads to greater total revenue. 14. Suppose the income elasticity of demand for U.S. automobiles is 2.0. If the level of income decreases by 1 percent, the number of U.S. automobiles sold will, ceteris paribus: A) Rise 0.5 percent. B) Rise 2.0 percent. C) Fall 0.5 percent. D) Fall 2.0 percent. 15. Other things being equal, if income increases and as a result, the demand for good X increases, then good X is: A) An inferior good. B) A luxury good. C) A substitute good. D) A normal good. 16. Other things being equal, if the price of good X increases and as a result, the demand for good Y increases: A) Goods X and Y are inferior goods. B) Goods X and Y are normal goods. C) Goods X and Y are complementary goods. D) Goods X and Y are substitute goods.

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17. If goods X and Y are complementary goods, an increase in the price of X will, ceteris paribus: A) Decrease the demand for X. B) Decrease the demand for Y. C) Increase the demand for Y. D) Not change the demand for Y. 18. If the price elasticity of demand for a product is 2.5, then a price cut from $2.00 to $1.80 will: A) increase the quantity demanded by about 2.5 percent. B) decrease the quantity demanded by about 2.5 percent. C) increase the quantity demanded by about 25 percent. D) increase the quantity demanded by about 250 percent. 19. The price elasticity of demand is: 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. 20. When the percentage change in price is greater than the resulting percentage change in quantity demanded: A) a decrease in price will increase total revenue. B) demand may be either elastic or inelastic. C) an increase in price will increase total revenue. D) demand is elastic. 21. The Illinois Central Railroad once asked the Illinois Commerce Commission for permission to increase its commuter rates by 20 percent. The railroad argued that declining revenues made this rate increase essential. Opponents of the rate increase contended that the railroad's revenues would fall because of the rate hike. It can be concluded that: A) both groups felt that the demand was elastic but for different reasons. B) both groups felt that the demand was inelastic but for different reasons. C) the railroad felt that the demand for passenger service was inelastic and opponents of the rate increase felt it was elastic. D) the railroad felt that the demand for passenger service was elastic and opponents of the rate increase felt it was inelastic.

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22. If the demand for farm products is price inelastic, a good harvest will cause farm revenues to: A) increase. B) decrease. C) be unchanged. D) either increase or decrease, depending on what happens to supply. 23. 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. 24. The elasticity of demand for a product is likely to be greater: A) if the product is a necessity, rather than a luxury good. B) the greater the amount of time over which buyers adjust to a price change. C) the smaller the proportion of one's income spent on the product. D) the smaller the number of substitute products available. 25. 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. 26. If price and total revenue vary in opposite directions,demand is: A) perfectly inelastic B) perfectly elastic C) relatively inelastic D) relatively elastic 27. The demand for a necessity whose cost is a small component of one's total income is: A) perfectly inelastic B) perfectly elastic C) relatively inelastic D) relatively elastic

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28. 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. 29. The smaller the number of good substitutes for a product, the greater will be the price elasticity of demand for it. A) True B) False 30. If price and total revenue are directly related, demand is inelastic. A) True B) False

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