1.According to the total revenue test, a price cut increases total revenue if demand is

A) inelastic.

B) perfectly inelastic.

C) elastic.

D) unit elastic.

2.Demand is inelastic when a price ________ results in total revenue ________.

A) rise; decreasing

B) fall; increasing

C) rise, increasing

D) fall, remaining the same

3.Demand is elastic when a price ________ results in total revenue ________.

A) rise, decreasing

B) fall, decreasing

C) rise, increasing

D) fall; remaining constant

4.When the demand for a good is inelastic and its price increases, the total revenue from the sale of the good will ________.

A) increase

B) decrease initially and then increase

C) decrease

D) not change

5.To maximize its revenue,

A) a firm facing inelastic demand should always raise its price.

B) a firm facing elastic demand should always raise its price.

C) a firm should always charge the highest price possible regardless of the elasticity of demand.

D) None of the above answers is correct.

6.The demand for a good is elastic if

A) an increase in its price results in an increase in total revenue.

B) a decrease in its price results in a decrease in total revenue.

C) an increase in its price results in a decrease in total revenue.

D) the good is a necessity.

7.As the price of cell phones fell during the last decade, consumers' total expenditures on cell phones increased. If the demand curve for cell phones did not shift, this fact means that the demand for cell phones

A) must have shifted leftward.

B) must be upward sloping.

C) is elastic.

D) is inelastic.

8.If your demand for gasoline is inelastic, when the price of gasoline falls, which of the following occurs?

A) Your demand curve for gasoline will shift leftward.

B) Your demand curve for gasoline will shift rightward.

C) Your total expenditure on gasoline will increase.

D) Your total expenditure on gasoline will decrease.

9.An increase in subway fares in New York City will boost your expenditures on subway rides if

A) the supply of subway rides is elastic.

B) the supply of subway rides is inelastic.

C) your demand for subway rides is elastic.

D) your demand for subway rides is inelastic.

10. Which goods have more elastic demands?

A) goods with many substitutes

B) goods which are necessities

C) goods with few substitutes

D) goods whose purchase represents a small percentage of income

11. The more substitutes available for a product, the

A) larger is its price elasticity of demand.

B) smaller is its income elasticity of demand.

C) smaller is its price elasticity of demand.

D) larger is its income elasticity of demand.

12. Most corn produced in the United States is used for animal feed. The demand for corn is inelastic. These facts mean that

A) there are many substitutes for corn in feeding animals.

B) there are few substitutes for corn in feeding animals.

C) there are no substitutes for corn in feeding animals.

D) animals are not buying the corn themselves, so we cannot learn anything from these facts.

13. A determinant of the price elasticity of demand is

A) whether the good is a durable or a nondurable.

B) the availability of resources used in the production of the product.

C) how well consumers like the good.

D) the proportion of the consumer's total budget spent on the good.

14. If goods are complements, then their

A) cross elasticities are positive.

B) income elasticities are positive.

C) income elasticities are negative.

D) cross elasticities are negative.

15. The income elasticity of demand is a measure of the responsiveness of the

A) quantity of a good demanded to changes in income.

B) consumer's income to a change in the price of the goods he or she consumes.

C) quantity of a good demanded to changes in its price.

D) quantity of a good demanded to changes in another good's price.

16. The income elasticity of demand is

A) always positive.

B) always negative.

C) negative for a normal good and positive for an inferior good.

D) positive for a normal good and negative for an inferior good.

17. Suppose Target decided to lower the price on all shirts as part of its Back to School promotion. The cross elasticity of demand between pants and shirts is negative. Lowering the price on shirts will ________ the demand for pants because shirts and pants are ________.

A) increase; substitutes

B) decrease; substitutes

C) increase; complements

D) decrease; complements

18. A rise in the price of good A shifts the ________ good B rightward if the cross elasticity of demand between A and B is ________.

A) demand curve for; negative

B) demand curve for; positive

C) supply curve of; negative

D) supply curve of; positive

19. The cross elasticity of demand between Coca-Cola and Pepsi-Cola is ________ so that Coke and Pepsi are ________.

A) positive; complements

B) positive; substitutes

C) negative; normal goods

D) negative; substitutes

20. A 10 percent decrease in the price of a Pepsi decreases the demand for a Coca-Cola by 50 percent. The cross elasticity of demand between a Pepsi and Coca-Cola is

A) 50.

B) 10.

C) 5.

D) 0.20.

21. The concept of elasticity of supply measures the responsiveness of the

A) quantity supplied to a change in the price.

B) price to a change in the quantity supplied.

C) quantity supplied to a change in the quantity demanded.

D) quantity demanded to a change in the quantity supplied.

22. The price elasticity of supply is calculated as the

A) quantity supplied divided by the per unit cost of production.

B) quantity supplied divided by the percentage change in quantity demanded.

C) percentage change in quantity supplied divided by the percentage change in price.

D) percentage change in price divided by the percentage change in quantity demanded.

23. On most days the price of a rose is $1 and 80 roses are purchased. On Valentine's Day the demand increases so that the price of a rose rises to $2 and 320 roses are purchased. Therefore, the price elasticity of

A) demand for roses is about 1.8.

B) demand for roses is about 0.55.

C) supply of roses is about 1.8.

D) supply of roses is about 0.55.

24. The elasticity of supply equals ________ if the supply curve is vertical.

A) 0

B) 1

C) infinity

D) -1

25. The elasticity of supply equals ________ if the supply curve is horizontal.

A) 0

B) 1

C) infinity

D) -1

26. If a good is produced using inputs for which there are no substitutes, the good's

A) elasticity of supply is likely to be small.

B) elasticity of supply is likely to be large.

C) elasticity of demand will be small.

D) elasticity of demand will be large.

27. Goods and services that can be produced by using commonly available resources that could be allocated to a wide variety of alternative tasks have a supply that is

A) elastic.

B) inelastic.

C) unit elastic.

D) perfectly inelastic.

28. As time passes after a change in the price, the supply of a good or service

A) becomes more elastic.

B) becomes less elastic.

C) initially becomes more elastic and then becomes less elastic.

D) initially becomes less elastic and then becomes more elastic.

29. The elasticity of supply does NOT depend on

A) resource substitution possibilities.

B) the fraction of income spent on the product.

C) the time elapsed since the price change.

D) none of the above because all of the factors listed affect the elasticity of supply.

30. An important determinant of the price elasticity of supply is

A) whether the good is a durable or a nondurable.

B) the time period firms have to adjust to a new price.

C) how well consumers like the commodity.

D) the proportion of the consumer's total budget spent on the good.