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Chapter 5 /Elasticity and Its Application ? 323

124. Refer to Figure 5-5. The maximum value of total revenue corresponds to a price of

a. $18. b. $30. c. $42. d. $48.

ANS: B

NAT: Analytic MSC: Applicative

DIF: 2

LOC: Elasticity

REF: 5-1

TOP: Total revenue | Price elasticity of demand

125. Refer to Figure 5-5. At a price of $48 per unit, sellers' total revenue amounts to

a. $150. b. $200. c. $288. d. $364.

ANS: C

NAT: Analytic MSC: Definitional

DIF: 1

LOC: Elasticity

REF: 5-1

TOP: Total revenue | Price elasticity of demand

126. Refer to Figure 5-5. At a price of $12 per unit, sellers' total revenue amounts to

a. $150. b. $200. c. $288. d. $364.

ANS: C

NAT: Analytic MSC: Definitional

DIF: 1

LOC: Elasticity

REF: 5-1

TOP: Total revenue | Price elasticity of demand

127. Refer to Figure 5-5. At a price of $30 per unit, sellers' total revenue amounts to

a. $150. b. $200. c. $288. d. $450.

ANS: D

NAT: Analytic MSC: Definitional

DIF: 1

LOC: Elasticity

REF: 5-1

TOP: Total revenue | Price elasticity of demand

324 ? Chapter 5 /Elasticity and Its Application

Figure 5-6

Price222018161412108642CBADemand100200300400500600700800900Quantity128. Refer to Figure 5-6. Using the midpoint method, the price elasticity of demand between point A and point B

is a. 1. b. 1.5. c. 2. d. 2.5.

ANS: D

NAT: Analytic MSC: Applicative

DIF: 2

LOC: Elasticity

REF: 5-1

TOP: Midpoint method | Price elasticity of demand

129. Refer to Figure 5-6. Using the midpoint method, the price elasticity of demand between point B and point C

is

a. 0.5. b. 0.75. c. 1.0. d. 1.3.

ANS: B

NAT: Analytic MSC: Applicative

DIF: 2

LOC: Elasticity

REF: 5-1

TOP: Midpoint method | Price elasticity of demand

130. Refer to Figure 5-6. If the price decreased from $18 to $6,

a. total revenue would increase by $1,200, and demand is elastic between points A and C. b. total revenue would increase by $800, and demand is elastic between points A and C. c. total revenue would decrease by $1,200, and demand is inelastic between points A and C. d. total revenue would decrease by $800, and demand is inelastic between points A and C.

ANS: A

NAT: Analytic MSC: Applicative

DIF: 2

LOC: Elasticity

REF: 5-1

TOP: Total revenue | Price elasticity of demand

131. Refer to Figure 5-6. Sellers’ total revenue would increase if the price

a. increased from $4 to $6. b. increased from $16 to $18. c. decreased from $8 to $6. d. All of the above are correct.

ANS: A

NAT: Analytic MSC: Applicative

DIF: 2

LOC: Elasticity

REF: 5-1

TOP: Total revenue | Price elasticity of demand

Chapter 5 /Elasticity and Its Application ? 325

132. Refer to Figure 5-6. Sellers’ total revenue would increase if the price

a. increased from $6 to $8. b. decreased from $18 to $16. c. decreased from $16 to $15. d. All of the above are correct.

ANS: D

NAT: Analytic MSC: Applicative

DIF: 2

LOC: Elasticity

REF: 5-1

TOP: Total revenue | Price elasticity of demand

133. Refer to Figure 5-6. Which of the following price changes would result in no change in sellers’ total revenue?

a. The price increases from $6 to $9. b. The price increases from $9 to $15. c. The price decreases from $12 to $9. d. The price decreases from $9 to $5.

ANS: C

NAT: Analytic MSC: Applicative

DIF: 3

LOC: Elasticity

REF: 5-1

TOP: Total revenue | Price elasticity of demand

134. Suppose demand is perfectly inelastic, and the supply of the good in question decreases. As a result,

a. the equilibrium quantity decreases, and the equilibrium price is unchanged. b. the equilibrium price increases, and the equilibrium quantity is unchanged. c. the equilibrium quantity and the equilibrium price both are unchanged. d. buyers’ total expenditure on the good is unchanged.

ANS: B

NAT: Analytic MSC: Applicative

DIF: 2

LOC: Elasticity

REF: 5-1

TOP: Perfectly inelastic demand

135. Suppose demand is perfectly elastic, and the supply of the good in question decreases. As a result,

a. the equilibrium quantity decreases, and the equilibrium price is unchanged. b. the equilibrium price increases, and the equilibrium quantity is unchanged. c. the equilibrium quantity and the equilibrium price both are unchanged. d. buyers’ total expenditure on the good is unchanged.

ANS: A

NAT: Analytic MSC: Applicative

DIF: 2

LOC: Elasticity

REF: 5-1

TOP: Perfectly elastic demand

136. A perfectly elastic demand implies that

a. buyers will not respond to any change in price.

b. any rise in price above that represented by the demand curve will result in a quantity demanded of

zero.

c. quantity demanded and price change by the same percent as we move along the demand curve. d. price will rise by an infinite amount when there is a change in quantity demanded.

ANS: B

NAT: Analytic MSC: Interpretive

DIF: 2

LOC: Elasticity

REF: 5-1

TOP: Perfectly elastic demand

137. The case of perfectly elastic demand is illustrated by a demand curve that is

a. vertical. b. horizontal.

c. downward-sloping but relatively steep. d. downward-sloping but relatively flat.

ANS: B

NAT: Analytic MSC: Interpretive

DIF: 1

LOC: Elasticity

REF: 5-1

TOP: Perfectly elastic demand

326 ? Chapter 5 /Elasticity and Its Application

138. When small changes in price lead to infinite changes in quantity demanded, demand is perfectly

a. elastic, and the demand curve will be horizontal. b. inelastic, and the demand curve will be horizontal. c. elastic, and the demand curve will be vertical. d. inelastic, and the demand curve will be vertical.

ANS: A

NAT: Analytic MSC: Interpretive

DIF: 2

LOC: Elasticity

REF: 5-1

TOP: Perfectly elastic demand

139. For a horizontal demand curve,

a. slope is undefined, and price elasticity of demand is equal to 0. b. slope is equal to 0, and price elasticity of demand is undefined. c. slope and price elasticity of demand both are undefined. d. slope and price elasticity of demand both are equal to 0.

ANS: B

NAT: Analytic MSC: Interpretive

DIF: 2

LOC: Elasticity

REF: 5-1

TOP: Perfectly elastic demand

140. In the case of perfectly inelastic demand,

a. the change in quantity demanded equals the change in price.

b. the percentage change in quantity demanded equals the percentage change in price.

c. infinitely-large changes in quantity demanded result from very small changes in the price. d. quantity demanded stays the same whenever price changes.

ANS: D

NAT: Analytic MSC: Interpretive

DIF: 2

LOC: Elasticity

REF: 5-1

TOP: Perfectly inelastic demand

141. When demand is perfectly inelastic, the demand curve will be

a. negatively sloped, because buyers decrease their purchases when the price rises.

b. vertical, because buyers purchase the same amount as before whenever the price rises or falls. c. positively sloped, because buyers increase their purchases when price rises.

d. positively sloped, because buyers increase their total expenditures when price rises.

ANS: B

NAT: Analytic MSC: Interpretive

DIF: 2

LOC: Elasticity

REF: 5-1

TOP: Perfectly inelastic demand

142. When demand is perfectly inelastic, the price elasticity of demand

a. is zero, and the demand curve is vertical. b. is zero, and the demand curve is horizontal.

c. approaches infinity, and the demand curve is vertical. d. approaches infinity, and the demand curve is horizontal.

ANS: A

NAT: Analytic MSC: Interpretive

DIF: 2

LOC: Elasticity

REF: 5-1

TOP: Perfectly inelastic demand

143. A perfectly inelastic demand implies that buyers

a. decrease their purchases when the price rises.

b. purchase the same amount as before when the price rises or falls. c. increase their purchases only slightly when the price falls. d. respond substantially to an increase in price.

ANS: B

NAT: Analytic MSC: Interpretive

DIF: 2

LOC: Elasticity

REF: 5-1

TOP: Perfectly inelastic demand

Chapter 5 /Elasticity and Its Application ? 327

144. Alice says that she would buy one banana split a day regardless of the price. If she is telling the truth,

a. Alice's demand for banana splits is perfectly inelastic. b. Alice's price elasticity of demand for banana splits is 1. c. Alice's income elasticity of demand for banana splits is 0. d. None of the above answers is correct.

ANS: A

NAT: Analytic MSC: Interpretive

DIF: 2

LOC: Elasticity

REF: 5-1

TOP: Perfectly inelastic demand

145. For a vertical demand curve,

a. slope is undefined, and price elasticity of demand is equal to 0. b. slope is equal to 0, and price elasticity of demand is undefined. c. slope and price elasticity of demand both are undefined. d. slope and price elasticity of demand both are equal to 0.

ANS: A

NAT: Analytic MSC: Interpretive

DIF: 2

LOC: Elasticity

REF: 5-1

TOP: Perfectly inelastic demand

146. In which of these instances is demand said to be perfectly inelastic?

a. An increase in price of 2% causes a decrease in quantity demanded of 2%. b. A decrease in price of 2% causes an increase in quantity demanded of 0%. c. A decrease in price of 2% causes a decrease in total revenue of 0%. d. The demand curve is horizontal.

ANS: B

NAT: Analytic MSC: Interpretive

DIF: 2

LOC: Elasticity

REF: 5-1

TOP: Perfectly inelastic demand

147. When the price of good A is $50, the quantity demanded of good A is 500 units. When the price of good A

rises to $70, the quantity demanded of good A falls to 400 units. Using the midpoint method,

a. the price elasticity of demand for good A is 1.50, and an increase in price will result in an increase

in total revenue for good A.

b. the price elasticity of demand for good A is 1.50, and an increase in price will result in a decrease in

total revenue for good A.

c. the price elasticity of demand for good A is 0.67, and an increase in price will result in an increase

in total revenue for good A.

d. the price elasticity of demand for good A is 0.67, and an increase in price will result in a decrease in

total revenue for good A.

ANS: NAT: TOP: MSC: C DIF: 2 REF: 5-1 Analytic LOC: Elasticity

Midpoint method | Total revenue | Price elasticity of demand Analytical

148. Consider airfares on flights between New York and Minneapolis. When the airfare is $250, the quantity

demanded of tickets is 2,000 per week. When the airfare is $280, the quantity demanded of tickets is 1,700 per week. Using the midpoint method,

a. the price elasticity of demand is about 1.43, and an increase in the airfare will cause airlines' total

revenue to decrease.

b. the price elasticity of demand is about 1.43, and an increase in the airfare will cause airlines' total

revenue to increase.

c. the price elasticity of demand is about 0.70, and an increase in the airfare will cause airlines' total

revenue to decrease.

d. the price elasticity of demand is about 0.70, and an increase in the airfare will cause airlines' total

revenue to increase.

ANS: NAT: TOP: MSC: A DIF: 2 REF: 5-1 Analytic LOC: Elasticity

Midpoint method | Total revenue | Price elasticity of demand Applicative