Chapter 18 - The Elasticities of Demand and Supply

1		The elasticity of demand for a service tells us each of the following except
			A)	how big a price decrease would be necessary to induce a 10 percent increase in quantity demanded.
			B)	how much of an increase in total revenue would be generated by a 5 percent cut in price.
			C)	how much total profit would be affected by a 1 percent price increase.
			D)	how big a percent decrease in quantity demanded would result from a 1 percent increase in price.
2		Statement I: The elasticity of demand for a good measures the change in quantity demanded in response to a change in price. Statement II: If the price of a service is decreased by 2 percent and quantity demanded rises by 2 percent, demand is elastic.
			A)	Statement I is true and statement II is false.
			B)	Statement II is true and statement I is false.
			C)	Both statements are true.
			D)	Both statements are false.
3		Which of the following elasticities is the most inelastic?
			A)	1
			B)	100
			C)	.4
			D)	.09
4		If a 9 percent price increase led to a 4 percent decline total revenue, then
			A)	demand is elastic.
			B)	demand is inelastic.
			C)	demand is unit elastic.
			D)	there is not enough information to determined if demand is elastic, inelastic, or unit elastic.
5		A vertical demand curve would be
			A)	perfectly inelastic.
			B)	inelastic.
			C)	unit elastic.
			D)	elastic.
			E)	perfectly elastic.
6		When demand is perfectly inelastic and price is raised from $2 to $4, total revenue will
			A)	decline.
			B)	stay the same.
			C)	rise.
			D)	double.
7		Which point on the demand curve shown in Figure 18.1 is most inelastic?
			A)	point A
			B)	point B
			C)	point C
			D)	point D
			E)	point E
8		If a service has many substitutes its elasticity of demand will tend to be ______, and over time its elasticity of demand will tend to get _______.
			A)	high, higher
			B)	low, lower
			C)	high, lower
			D)	low, higher
9		Statement I: There is no such thing as false advertising. Statement II: Most advertising has virtually no effect on demand.
			A)	Statement I is true and statement II is false.
			B)	Statement II is true and statement I is false.
			C)	Both statements are true.
			D)	Both statements are false.
10		A horizontal supply curve
			A)	is elastic.
			B)	is perfectly elastic.
			C)	is unit elastic.
			D)	is inelastic.
			E)	is perfectly inelastic.
11		As we go from the market period to the short run, the supply of a product tends to become _______ elastic; as we go from the short run to the long run, the supply of a product tends to become _____ elastic.
			A)	more, more
			B)	less, less
			C)	less, more
			D)	more, less
12		If the demand for a service is perfectly elastic and the supply is elastic, the burden of a tax on that service will be borne
			A)	entirely by the buyer.
			B)	more by the buyer than the seller.
			C)	equally by the buyer and the seller.
			D)	more by the seller than the buyer.
			E)	entirely by the seller.
13		For the product shown in Figure 18.2, how would the tax burden be distributed?
			A)	The buyer would pay the entire tax.
			B)	The buyer would pay most of the tax.
			C)	The buyer and seller would each pay half the tax.
			D)	The seller would pay most of the tax.
			E)	The seller would pay all of the tax.
14		When price goes up from $100 to $101, quantity demanded goes down from 5 to 4. Demand is
			A)	very elastic.
			B)	slightly elastic.
			C)	unit elastic.
			D)	slightly inelastic.
			E)	very inelastic.
15		The fountain of youth is discovered on private property and the owner bottles the water and sells it. (Assume that if you drink a bottle a day, you'll get progressively younger.) The demand for this water would be
			A)	very elastic.
			B)	slightly elastic.
			C)	unit elastic.
			D)	slightly inelastic.
			E)	very inelastic.