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Chapter 6: ELASTICITY AND DEMAND

Multiple Choice

6-1 Use the figure below, which shows a linear demand curve and the associated total revenue curve, to

answer the question.

The price for which 100 units can be sold is $_____.

a. 10

b. 15

c. 25

d. 45

e. 50

Answer: d

Difficulty: EasyDifficulty: 01 Easy

Topic: Total revenuePrice Elasticity and Total Revenue

AACSB: AnalyticAACSB: Reflective Thinking

Blooms: Understand

Learning Objective: 6.2Learning Objective: 06-02



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The price at which total revenue is maximized is $_____.

a. 10

b. 15

c. 20

d. 25

e. 30

Answer: d

Difficulty: HardDifficulty: 03 Hard

Topic: Price Elasticity and Total Revenue

Topic: Total revenue

AACSB: Analytic

Blooms: Analyze


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The marginal revenue of the 100th unit is $_____.

a. 0

b. 20

c. 40

d. 50

e. cannot tell from the information provided

Answer: c

Difficulty: MediumDifficulty: 02 Medium

Topic: Marginal revenueMarginal Revenue, Demand, and Price Elasticity

AACSB: Analytic

Blooms: Apply






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The marginal revenue of the 700th unit is $_____ and demand is __________ at this point.

a. –20; elastic

b. –20; inelastic

c. 15; elastic

d. 15; inelastic

Answer: b


Topic: Marginal revenueTopic: Marginal Revenue, Demand, and Price Elasticity

AACSB: Analytic

Blooms: Apply


6-5 Use the figure below, which shows a linear demand curve and the associated total revenue curve,

to answer the question.

The maximum possible total revenue is $_________.

a. 10,500

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b. 11,000

c. 11,500

d. 12,000

e. 12,500

Answer: e


Topic: Marginal Revenue, Demand, and Price Elasticity


AACSB: Analytic

Blooms: Apply


6-6 The Interior Department recently announced that it will increase the entrance fees at Yellowstone

National Park in order to increase park revenues. The Interior Department must believe that

a. park goers are very responsive to price changes.

b. the demand for park services is elastic.

c. the percentage increase in fees will be greater than the percentage decrease in the number

of park visitors.

d. demand is unitary elastic, and thus the number of visitors will NOT decrease.

Answer: c


Topic: ElasticityThe Price Elasticity of Demand


Blooms: Understand


6-7 Which of the following will NOT affect the elasticity of demand for a product?

a. the number of substitutes

b. how long consumers have to adapt to price changes

c. the cost of producing the product

d. the percentage of the consumer’s budget spent on the product

e. all of the above will affect the elasticity of demand for a product

Answer: c


Topic: The Price Elasticity of Demand

Topic: Elasticity


Blooms: Remember


6-8 If the demand for umbrellas is price inelastic,

a. changes in price do not affect the number of umbrellas demanded.

b. if more umbrellas are sold as the result of a price decrease, total expenditures by

consumers on umbrellas will decrease.

c. the percentage change in price is less than the percentage change in quantity demanded.

d. the percentage change in quantity demanded is greater than the percentage change in

price.

e. none of the above



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Answer: b



Topic: Elasticity


Blooms: Understand


6-9

In the figure above, what is the point price elasticity of demand when price is $60?

a. −0.50

b. −0.75

c. −1.00

d. −1.60

e. −2.00

Answer: c


Topic: Marginal revenueCalculating Price Elasticity of Demand



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AACSB: Analytic

Blooms: Apply


6-10


a. −0.50

b. −0.75

c. −1.00

d. −1.60

e. −2.00

Answer: e


Topic: Calculating Price Elasticity of Demand

Topic: Elasticity

AACSB: Analytic

Blooms: Apply


6-11



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In the figure above, what is the interval elasticity of demand over the price range $60 to $80?

a. −0.75

b. −1.10

c. −1.00

d. −1.40

e. −2.00

Answer: d



Topic: Arc elasticity

AACSB: Analytic

Blooms: Apply


6-12



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In the figure above, if price INCREASES from $60 to $80, an arrow representing the PRICE

effect

a. will point upward.

b. will point downward.

c. will be longer than (and in opposite direction of) the arrow representing the quantity

effect.

d. will be shorter than (and in the opposite direction of) the arrow representing the quantity

effect.

e. both a and d

Answer: e



Topic: Elasticity

AACSB: Analytic

Blooms: Apply


6-13



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In the figure above, if price DECREASES from $80 to $60, an arrow representing the

QUANTITY effect



c. will be shorter than (and in the opposite direction of) the arrow representing the price

effect.

d. will be shorter than (and in the same direction of) the arrow representing the price effect.

e. will point in the opposite direction in which total revenue will move.

Answer: a



Topic: Elasticity

AACSB: Analytic

Blooms: Apply


6-14



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a. −0.50

b. −0.75

c. −1.00

d. −1.50

e. −2.00

Answer: a



Topic: Elasticity

AACSB: Analytic

Blooms: Apply


6-15

In the figure above, what is demand elasticity over the price range $40 to $60?

a. −2.00

b. −1.00

c. −0.50

d. −0.95

e. −0.71

Answer: e




AACSB: Analytic

Blooms: Apply




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6-16

In the figure above, if price INCREASES from $40 to $60, an arrow representing the PRICE

effect



c. will be longer than (and in opposite direction of) the arrow representing the quantity

effect.

d. will be shorter than (and in the opposite direction of) the arrow representing the quantity

effect.

e. both a and c

Answer: e



Topic: Elasticity

AACSB: Analytic

Blooms: Apply


6-17



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In the figure above, if price DECREASES from $60 to $40, an arrow representing the

QUANTITY effect

a. will point downward.

b. will be shorter than (and in opposite direction of) the arrow representing the price effect.

c. will be shorter than (and in same direction of) the arrow representing the price effect.

d. will point in the direction in which total revenue will move.

e. both a and d

Answer: b



Topic: Elasticity


Blooms: Understand


6-18 The cross-price elasticity of demand between goods X and Y

a. measures the responsiveness of the quantity of X demanded to changes in the price of Y.

b. is the percentage change in the price of Y divided by the percentage change in the

quantity of X demanded.

c. is greater than zero if X and Y are substitutes.

d. both a and c

e. all of the above

Answer: d


Topic: Cross-price elasticityOther Demand Elasticities


Blooms: Remember


6-19 Marginal revenue

a. is the change in total revenue when output increases by one unit.

b. is always greater than zero.

c. measures the slope of the total revenue curve.



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d. both a and c

e. all of the above

Answer: d




Blooms: Understand


6-20 When marginal revenue is positive,

a. demand is elastic.

b. marginal revenue is greater than price.

c. decreasing price will decrease total revenue.

d. both b and c

e. all of the above

Answer: a




Blooms: Understand


6-21 Use the figure to calculate the income elasticity of demand when income increases from $25,000

to $30,000:



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a. −0.10

b. −1.10

c. 0.1818

d. 0.20

e. 1.10

Answer: e


Topic: Other Demand Elasticities

Topic: Income elasticity

AACSB: Analytic

Blooms: Apply


6-22 Use the figure to calculate the income elasticity of demand when income increases from $25,000

to $30,000:



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a. −1.0

b. −0.1818

c. 0.1818

d. −1.5

e. 1.2

Answer: a


Topic: Other Demand Elasticities

Topic: Income elasticity

AACSB: Analytic

Blooms: Apply


6-23 Use the figure below to calculate the cross-price elasticity of demand for good X when the price

of good Y increases from $12 to $14:

a. 0.645 b. 0.42

c. 0.20

d. 2.00

e. 15.38

Answer: b


Topic: Cross-price elasticityTopic: Other Demand Elasticities

AACSB: Analytic

Blooms: Apply




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6-24 When demand is inelastic,

a. quantity sold does not increase when price decreases.

b. selling one more unit of output causes marginal revenue to increase.

c. selling one more unit of output cause total revenue to increase.

d. Bbuyers are not very responsive to changes in the price of the product.

e. Tthe percentage change in quantity demanded will exceed the percentage change in price

(in absolute value).

Answer: d



Topic: Elasticity

AACSB: Analytic

Blooms: Apply


6-25 To answer the question, refer to the following table showing a demand schedule:

Price Quantity

demanded

$200 1000

150 1400

100 1800

If price falls from $200 to $150, what is the elasticity of demand over this range?

a. −0.625

b. −1.0

c. −1.17

d. −2.5

e. −3.0

Answer: c




AACSB: Analytic

Blooms: Apply



Price Quantity

demanded

$200 1000

150 1400

100 1800

As output increases from 1,000 to 1,400 what is marginal revenue?

a. $25

b. $50




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c. –$400

d. −$25

e. −$75

Answer: a



AACSB: Analytic

Blooms: Apply



Price Quantity

demanded

$200 1000

150 1400

100 1800

If price falls from $200 to $150,

a. arrows representing the price and quantity effects both point down.

b. an arrow representing the price effect points down and is longer than an arrow for the

quantity effect.

c. an arrow representing the price effect points down and is shorter than an arrow for the

quantity effect.

d. arrows representing the price and quantity effects both point up.

e. total revenue moves in the same direction as the arrow representing the price effect.

Answer: c




AACSB: Analytic

Blooms: Apply



Price Quantity

demanded

$200 1000

150 1400

100 1800

If price falls from $150 to $100, what is the elasticity of demand over this range?

a. −0.625

b. −1.0

c. −1.17

d. −2.5

e. −3.0




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Answer: a




AACSB: Analytic

Blooms: Apply



Price Quantity

demanded

$200 1000

150 1400

100 1800

As quantity demandedoutput rises from 1,400 to 1,800, what is marginal revenue?

a. $25

b. $50

c. −$400

d. −$50

e. −$75

Answer: e



AACSB: Analytic

Blooms: Apply



Price Quantity

demanded

$200 1000

150 1400

100 1800



b. an arrow representing the price effect points down and is longer than an arrow for the

quantity effect.

c. an arrow representing the quantity effect points up and is shorter than an arrow for the

price effect.

d. arrows representing the price and quantity effects both point up.

e. total revenue moves in the same direction as the arrow representing the quantity effect.

Answer: e







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Blooms: Understand



Price Quantity

demanded

$200 1000

150 1400

100 1800



b. an arrow representing the price effect points down and is shorter than an arrow for the

quantity effect.

c. total revenue moves in the same direction as the arrow representing the price effect.

d. the arrow representing the price effect points down and the arrow representing the

quantity effect points up.

e. both c and d

Answer: e




AACSB: Analytic

Blooms: Apply



Price Quantity

demanded

$200 1000

150 1400

100 1800

If price rises from $100 to $150,

a. arrows representing the price and quantity effects both point upward.

b. an arrow representing the price effect points upward and is shorter than an arrow for the

quantity effect, which points downward.

c. total revenue moves up, or increase, as indicated by the direction of the arrow

representing the price effect.

d. the arrow representing the price effect points down and the arrow representing the

quantity effect points up.

e. both c and d



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Answer: c




AACSB: Analytic

Blooms: Apply


6-33 When the price of corn dogs is $0.50, 10,000 corn dogs are demanded. When the price of corn

dogs is $1.20, 5,000 are demanded. What is the price elasticity of demand for corn dogs?

a. −0.40

b. −0.81

c. −1.20

d. −1.40

Answer: b



Topic: Elasticity

AACSB: Analytic

Blooms: Apply


6-34 Suppose that the Houston Rockets' management is considering a plan in which fans who donate

blood can attend games for $35 instead of the usual $450. If both ticket revenues and blood

donations rise with this plan, which of the following is true?

a. The demand for Houston Rockets' tickets is price elastic.

b. The demand for Houston Rockets' tickets is price inelastic.

c. The demand for blood donations is price elastic.

d. The demand for blood donations is price inelastic.

Answer: a



Topic: Elasticity


Blooms: Understand


6-35 If the price elasticity of DVD recorders is −0.3 and price increases 20%, what happens to the

quantity of DVD recorders demanded?

a. quantity decreases by 26%

b. quantity decreases by 6%

c. quantity increases by 15%

d. quantity increases by 21%

Answer: b




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Topic: ElasticityTopic: Calculating Price Elasticity of Demand

AACSB: Analytic

Blooms: Apply


6-36 If the price elasticity of demand for a good is −0.8 and quantity demanded decreases by 40%,

price must have

a. increased by 5%.

b. increased by 32%.

c. decreased by 20%.

d. decreased by 32%.


Answer: e



AACSB: Analytic

Blooms: Apply



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6-37 The demand for heart surgery is price inelastic. So it follows that

a. the percentage change in price is less than the resulting percentage change in quantity

demanded.

b. if the price of heart surgery increases, total expenditure by consumers on heart surgery

will rise.

c. changes in price do not affect the number of operations demanded.

d. both a and b

e. all of the above

Answer: b





Blooms: Understand


6-38 If the quantity of Harley-Davidson motorcycles demanded decreases by 10% when the price

increases by 20%, the price elasticity of demand for Harley-Davidson motorcycles is:

a. −0.50

b. −2.0

c. −10.0

d. −20.0

Answer: a



Topic: Elasticity

AACSB: Analytic

Blooms: Apply


6-39 If the quantity of gidgets demanded increases when the price of gadgets decreases

a. gidgets and gadgets are substitutes.

b. gidgets and gadgets are complements.

c. gidgets are normal goods, while gadgets are inferior goods.

d. gadgets are normal goods, while gidgets are inferior goods.

Answer: b




Blooms: Understand


6-40 If the price elasticity of demand for Harley-Davidson motorcycles is −1.2 and quantity demanded

increases by 24%, price must have

a. decreased by 20%.

b. increased by 20%.



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c. decreased by 28.8%.

d. decreased by 0.05%.

Answer: a



AACSB: Analytic

Blooms: Apply


6-41 Which of the following would tend to DECREASE the elasticity of demand for good X?

a. The cost of producing X decreases.

b. Several firms which used to produce substitutes for X go out of business.

c. Consumers begin spending a smaller percentage of their income on X.

d. both b and c

e. all of the above

Answer: d


Topic: ElasticityFactors Affecting Price Elasticity of Demand


Blooms: Understand


6-42 If the demand for plastic surgery is price inelastic,

a. changes in price do not affect the number of operations.

b. then when more plastic surgery is performed, total expenditures on plastic surgery will

decrease.

c. the percentage change in price is less than the percentage change in quantity.

d. both b and c

e. both a and b

Answer: b


Topic: Factors Affecting Price Elasticity of Demand



Blooms: Understand


6-43 If a drought increases the price of corn by 10% and decreases the quantity of corn demanded by

5%, then demand for corn is

a. elastic and total revenue to corn farmers will decrease.

b. inelastic and total revenue to corn farmers will decrease.

c. elastic and total revenue to corn farmers will increase.

d. inelastic and total revenue to corn farmers will increase.

Answer: d



Topic: Elasticity




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Blooms: Understand


6-44 Which of the following would tend to INCREASE the elasticity of demand for good X?

a. a new discovery allows firms to produce X at a much lower cost.

b. the percent of a consumer’s income spent on good X declines.

c. a new product, Y, which can be used in place of X, is introduced.

d. both b and c

e. all of the above

Answer: c



Topic: Elasticity


Blooms: Understand


6-45 If E1 is the demand elasticity for a product after a price change has been in effect one day, E2 is

the demand elasticity for that product after one week, and E3 is demand elasticity for that product

after one month,

a. |E1| > |E2| > |E3|

b. |E2| > |E3| > |E1|

c. |E3| > |E1| > |E2|

d. |E3|> |E2| > |E1|

Answer: d



Topic: Elasticity


Blooms: Understand


6-46 E1 is demand elasticity for Minute Mmaid orange juice, E2 is demand elasticity for all orange

juice, and E3 is demand elasticity for all fruit drinks. Then

a. |E1| > |E2| > |E3|

b. |E2| > |E3| > |E1|

c. |E3| > |E1| > |E2|

d. |E3| > |E2| > |E1|

Answer: a



Topic: Elasticity


Blooms: Understand


6-47 Consider the statement: "When the British government tripled university fees for foreign



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students in Great Britain, about one-half of them left to study in other countries." The

implied price elasticity of demand by foreigners for a British education is (in absolute

value)

a. less than 1.

b. equal to 1.

c. between 1.0 and 1.5.

d. greater than 1.5.

Answer: a



Topic: Elasticity


Blooms: Understand


6-48 Consider the statement: "When the British government tripled university fees for foreign students

in Great Britain, about one-half of them left to study in other countries." This move will

___________ university revenues from foreign students in Great Britain.

a. decrease

b. not change

c. increase

d. cannot determine without further information

Answer: c



Topic: Elasticity


Blooms: Understand


6-49 The demand for good X will be more elastic than the demand for good Y when

a. good X has fewer substitutes than good Y.

b. good X accounts for a larger percentage of a typical consumer's budget than good Y.

c. consumers have more time to adjust to a change in the price of good X than they have

time to adjust to a change in the price of good Y.

d. both b and c

e. all of the above

Answer: c



Topic: Elasticity


Blooms: Understand




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6-50 Perfume industry statistics show that over the past five years, the number of bottles of perfume

sold decreased by 30%, but the total dollar amount spent by consumers was unchanged. This

means that

a. consumers were unresponsive to changes in price, i.e., the percentage change in quantity

demanded was less than the percentage change in price.

b. demand was elastic.

c. demand was inelastic.

d. demand was unitary elastic.

e. both a and c

Answer: d



Topic: Elasticity


Blooms: Understand


6-51 The fact that the cross-price elasticity of natural gas with respect to the price of fuel oil is 0.4

implies that

a. natural gas and fuel oil are substitutes.

b. natural gas is a normal good.

c. the quantity of natural gas demanded will decrease by 1.6% when the price of fuel oil

decreases by 4%.

d. both a and c

Answer: d




Blooms: Understand


6-52 Demand is (more elastic / less elastic) in the short run than in the long run

a. (more elastic) because goods account for a larger percentage of the consumer's budget in

the short run than in the long run.

b. (less elastic) because goods account for a smaller percentage of the consumer's budget in

the short run than in the long run.

c. (more elastic) because consumers have less time to adapt to a price change in the short

run than in the long run.

d. (less elastic) because consumers have less time to adapt to a price change in the short run

than in the long run.

Answer: d



Topic: Elasticity


Blooms: Understand




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6-53 Total revenue increased for a firm operating in the elastic range of its demand curve. Which of

the following statements is correct?

a. The firm must have raised price.

b. The firm must have lowered price.

c. Quantity demanded must have increased.

d. both a and c

e. both b and c

Answer: e





Blooms: Understand


6-54 When demand is elastic,

a. marginal revenue is negative.

b. the percentage change in price exceeds the percentage change in quantity.

c. an increase in price causes total revenue to rise.

d. both b and c


Answer: e



Topic: Elasticity


Blooms: Understand


6-55 When marginal revenue is zero,

a. P < MR.

b. P = MR.

c. a small increase in price causes no change in total revenue.

d. a small decrease in price causes no change in total revenue.

e. both c and d

Answer: e




Blooms: Understand




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6-56 Refer to the following graph to answer the question:

The price elasticity of demand over the price interval $90 to $110 is

a. −0.5

b. −1.0

c. −1.5

d. −2.0

e. −0.4

Answer: d


Topic: Arc elasticityTopic: Calculating Price Elasticity of Demand

AACSB: Analytic

Blooms: Apply




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Suppose price rises from $90 to $110. Using representative arrows, the price effect is a relatively

________ (short, long) arrow pointing _______ (upward, downward).

a. short; upward

b. short; downward

c. long; upward

d. long; downward

Answer: a




Blooms: Understand






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Suppose price rises from $90 to $110. Using representative arrows, the quantity effect is a

relatively ________ (short, long) arrow pointing _______ (upward, downward).

a. short; upward

b. short; downward

c. long; upward

d. long; downward

Answer: d




Blooms: Understand




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Suppose price rises from $90 to $110. Total revenue moves in the ________ (same, opposite)

direction as the dominant effect. In this case, total revenue ____________ (increases, decreases,

stays the same) because the quantity effect is _________ (larger than, smaller than, the same as)

the price effect.

a. same; increases; larger than

b. same; decreases; smaller than

c. same; decreases; larger than

d. opposite; increases; larger than

e. opposite; decreases; smaller than

Answer: c




Blooms: Understand




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Over the price range $90 to $110, marginal revenue is ________ and demand is ________.

a. greater than one; inelastic

b. positive; elastic

c. negative; inelastic

d. less than one; elastic


Answer: b



AACSB: Analytic

Blooms: Apply




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6-61 Refer to the following figure. When price is $15 and quantity demanded is 1,000, what is the

point elasticity of demand?

a. −3

b. −1/3

c. −1

d. −5

e. −2/3

Answer: a



AACSB: Analytic

Blooms: Apply


6-62 Refer to the following figure. What is the equation for marginal revenue?



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a. MR = 4,000 − 0.005P

b. MR = 4,000 − 200Q

c. MR = 4,000 − 200P

d. MR = 20 − 0.01Q

e. MR = 20 − 200Q

Answer: d



AACSB: Analytic

Blooms: Apply


6-63 Refer to the following figure. When quantity demanded is 1,000, what is marginal revenue?

a. $15

b. $7.50

c. 0



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d. $10

e. −$10

Answer: d



AACSB: Analytic

Blooms: Apply


6-64 Refer to the following figure. When price is $10 and quantity demanded is 2,000, what is the

point elasticity of demand?

a. −3

b. −1/3

c. −1

d. −5

e. −2/3

Answer: c




Blooms: Understand




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a. $12

b. $15

c. 0

d. $10

e. −$10

Answer: c




Blooms: Understand


6-66 Refer to the following figure. When price is $5 and quantity demanded is 3,000, what is the point

elasticity of demand?



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a. −3

b. −1/3

c. −1

d. −5

e. −2/3

Answer: b




Blooms: Understand



a. $12

b. $15

c. 0

d. $10

e. −$10

Answer: e




Blooms: Understand




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6-68 Refer to the following figure. The point elasticities of demand for D1, D2, and D3 at a price of $5

are ________, ________, and _______, respectively.

a. −1.4; −0.2; −1.4

b. −0.71; −5; −0.71

c. −1.4; −0.2; −5

d. −12; −6; −12

e. −0.0833; −0.1667; −0.0833

Answer: b



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AACSB: Analytic

Blooms: Apply


6-69 Refer to the following figure. At what prices are demand curves D1, D2, and D3 unitary elastic?

a. $5; $5; $5; respectively

b. $17; $6; $5; respectively

c. $6; $3; $6; respectively

d. $1; $1; $1; respectively

Answer: c



AACSB: Analytic



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Blooms: Apply


6-70 Refer to the following figure. At a price of $10, the point elasticity of demand for D3 is ________

and marginal revenue is _______.

a. −5; positive

b. −0.5; negative

c. −0.2; negative

d. −1; zero

Answer: a



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AACSB: Analytic

Blooms: Apply




a. −5; positive

b. −0.5; negative

c. −0.2; negative

d. −1; zero



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Answer: c



AACSB: Analytic

Blooms: Apply




a. −5; positive

b. −0.5; negative

c. −0.2; negative



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d. −1; zero

Answer: d



AACSB: Analytic

Blooms: Apply


6-73 According to the following figure, the equation for demand is

a. P = 4,000 − 50Q.

b. P = 4,000 − 80Q.

c. Q = 4,000 − 50P.

d. Q = 50 − 80P.


Answer: e



Topic: Inverse demand function

AACSB: Analytic

Blooms: Apply


6-74 According to the following figure, the equation for marginal revenue is

a. MR = 50 − 0.025Q.

b. MR = 4,000 − 2,000Q.



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c. MR = 4,000 − 100Q.

d. MR = 50 − 160Q.


Answer: a




Blooms: Understand


6-75 According to the following figure, demand is unitary elastic at P = $________.

a. 5

b. 10

c. 15

d. 20

e. 25

Answer: e




Blooms: Remember


6-76 According to the following figure, marginal revenue is zero at Q = ________.

a. 1,000 units

b. 2,000 units



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c. 3,000 units

d. 4,000 units


Answer: b




Blooms: Remember


6-77 Suppose the demand for good X is Q = 500P

-1 . This demand curve has a ________ (constant,

variable) elasticity of demand equal to ________.

a. variable; −0.5

b. constant; −0.2

c. constant; −1

d. variable; −2

Answer: c



Topic: Non-linear demand curve


Blooms: Understand




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Fill-in-the-Blank

6-1F The price elasticity of demand for a firm’s product is −2.25 over the range of prices being

considered by the firm’s manager.

a. If the manager increases the price of the product by 8 percent, the manager predicts that

quantity demanded will _____________ by _______ percent.

b. If the manager wishes to increase sales by 25 percent, the manager predicts the price of the

product must be _____________ by _______ percent.

6-2F Fill in the blanks.

a. When demand is inelastic, the __________ effect dominates the __________ effect.

b. When demand is elastic, the __________ effect dominates the __________ effect.

c. When demand is unitary elastic, ___________ effect dominates.

d. When a change in price causes a change in quantity demanded, total revenue always moves

in the ____________ direction as the variable (P or Q) having the _____________ effect.

6-3F Fill in the blanks.

a. When demand is elastic, a decrease in price causes quantity demanded to ___________ and

total revenue to ________.

b. When demand is inelastic, an increase in price causes quantity demanded to __________

and total revenue to _________.

c. When demand is unitary elastic, an increase in price causes quantity demanded to

_________________ and total revenue to ___________________.

d. If price falls and total revenue rises, demand must be _____________________.

e. If price rises and total revenue stays the same, demand must be ____________________.

f. If price rises and total revenue rises, demand must be _____________________.

6-4F Use the figure below to answer the following questions:

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a. The elasticity of demand over the price interval $11 to $10 is __________.

b. The elasticity of demand over the price interval $7 to $5 is __________.

c. The elasticity of demand over the price interval $5 to $3 is __________.

6-5F Use the linear demand curve shown below to answer the following questions.

a. The point elasticity of demand at a price of $650 is _________.

b. The point elasticity of demand at a price of $220 is _________.

c. Demand is unitary elastic at a price of $_________.

d. As price falls, |E| __________________ (gets larger, gets smaller, stays the same) for a linear

demand curve.

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6-6F In the graph shown below, the demand for good X shifts due to a change in income. Holding

the price of good X constant at $200, answer the following questions:

a. The graph shows how the demand

for X shifts when income decreases from $45,000 to $42,000. Using the information in the graph,

the income elasticity of demand for X is calculated to be _________.

b. Good X is a(n) ____________good.

6-7F In the graph shown below, the demand for good X shifts due to a change in the price of a

related good Y. Holding the price of good X constant at $200, answer the following questions:

a. The graph shows how the demand for X shifts when the price of related good Y decreases



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from $120 to $100. Using the information in the graph, the cross-price elasticity of demand for X

and Y is calculated to be _________.

b. Goods X and Y are ________________.

6-8F Using the following demand schedule, calculate total revenue, marginal revenue, and price

elasticity of demand. Then show the relation among marginal revenue, price, and elasticity of

demand.

Price

Quantity

demanded

Total

revenue

Marginal

revenue

Elasticity of

demand

$100 40 _______ xx xx

90 50 _______ _______ _______

80 60 _______ _______ _______

70 70 _______ _______ _______

60 80 _______ _______ _______

50 90 _______ _______ _______

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6-9F Use the graph below to answer the following questions:

a. The elasticity of demand at a price of $12 is _________.

b. The elasticity of demand at a price of $4 is _________.

c. At point A, if price increases by a small amount, total revenue _____________ (rises, falls,

remains constant), and marginal revenue is __________________ (positive, negative, zero).

d. At point B, if price decreases by a small amount, total revenue _____________ (rises, falls,

remains constant), and marginal revenue is _______________ (positive, negative, zero).

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6-10F Fill in the blanks in the figure below:

a. ________ e. ________

b. ________ f. ________

c. ________ g. ________

d. ________ h. ________

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6-11F Boeing estimates the elasticity of demand for new commercial jets is –1.25. Explain why the

following statements are either true or false (i.e., state whether true or false and explain why.)

a. “The price effect dominates the quantity effect.”

b. “A 4 percent increase in the number of jets sold will require a 5 percent decrease in the

price of jets.”

c. “A 5 percent decrease in the price of jets will increase Boeing’s total revenue.”

Fill-in-the-Blank Answers

6-1F a. decrease; 18

decreased; 11.11

6-2F a. price; quantity

b. quantity; price

c. neither

same; dominant

6-3F a. increase; rise

b. decrease; rise

c. decrease; stay the same

d. elastic

e. unitary elastic

inelastic

6-4F a. −7

b. −1

−0.50

6-5F a. −6.50

b. −0.42

c. $375

gets smaller

6-6F a. 8.29

b. normal

6-7F a. 1.57

substitutes

6-8F Total revenues: 4,000; 4,500; 4,800; 4,900; 4,800; 4,500

Marginal revenues: 50; 30; 10; −10; –30

Elasticities: −2.11; −1.55; −1.15; −0.87; −0.65

6-9F a. −1.50

b. −0.67

c. falls; positive

d. falls; negative


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6-10F a. $64

b. $40

c. 500

d. $20,000

e. 48

f. –16

g. 500

6-11F a. False, the quantity effect dominates the price effect since demand is elastic at –1.25.

b. False, the elasticity would have to be –0.8 in order for a 5 percent decrease in price to cause

quantity demanded to increase by 4 percent.

c. True, a decrease in price when demand is elastic causes total revenue to rise.


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chapter 3: elasticity and demand - uwcentre.ac.cn · b. will be shorter than (and in opposite...

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