Question 1

The price of an airline ticket rises as the amount of time between purchase and flight departure gets smaller. The airlines base the policy on the assumption that
A) consumers are not aware of airline prices.
B) consumer demand is unrelated to prices.
C) consumer demand becomes more elastic as departure time approaches.
D) consumer demand becomes more inelastic as departure time approaches.

Accepted Answer

As the departure time approaches, consumers have fewer alternatives and are more likely to need to travel, making their demand more inelastic. This allows airlines to charge higher prices.

Question 2

If the price of gloves increases, total expenditures on gloves will decline if
A) the demand for gloves is inelastic.
B) the demand for gloves is elastic.
C) the quantity of gloves purchased is unresponsive to changes in price.
D) there are few good substitutes for gloves.

Accepted Answer

If the demand for gloves is elastic, an increase in price will lead to a proportionally larger decrease in quantity demanded, resulting in a decline in total expenditures.

Question 3

If the price of tuna fish increases from 50 cents to 60 cents per can and the quantity demanded decreases from 100 cans to 50 cans, then the tuna fish producer could increase its total revenue by
A) lowering price.
B) decreasing quantity supplied.
C) leaving price the same.
D) raising price.
E) decreasing supply.

Accepted Answer

When the price was 50 cents, the revenue was 50 cents * 100 cans = $50. When the price increased to 60 cents, the revenue became 60 cents * 50 cans = $30. Lowering the price back to 50 cents would increase revenue back to $50, which is higher than $30.

Question 4

If the income elasticity of demand for a good is negative, this implies that
A) only the poor will buy the good.
B) as incomes fall, less will be spent on the good.
C) as incomes rise, the demand for the good will fall.
D) the good does not obey the law of demand.

Accepted Answer

A negative income elasticity of demand indicates that the good is an inferior good, meaning that as incomes rise, the demand for the good will fall.

Question 5

A good with a high income elasticity is generally considered to be
A) an inferior good.
B) a luxury good.
C) a necessity.
D) inexpensive, relative to other goods.

Accepted Answer

A luxury good is a good with a high income elasticity. This means that as income increases, the demand for luxury goods increases more than proportionally.

Question 6

Assuming that bus travel is an inferior good, an increase in consumer income, other things being equal, will cause
A) an upward movement along the demand curve for bus travel.
B) a downward movement along the demand curve for bus travel.
C) a rightward shift in the demand curve for bus travel.
D) a leftward shift in the demand curve for bus travel.

Accepted Answer

An increase in consumer income will decrease the demand for an inferior good, causing a leftward shift in the demand curve.

Question 7

If the demand for a good is elastic, then total revenue
A) increases as price increases.
B) remains constant as quantity demanded increases.
C) increases as price decreases.
D) decreases as quantity demanded increases.
E) decreases as price decreases.

Accepted Answer

When demand is elastic, a decrease in price leads to a proportionally larger increase in quantity demanded, resulting in an increase in total revenue.

Question 8

If a Pizza Hut restaurant near campus reduces its pizza prices by 15 percent, and as a result, its total revenue from pizza sales increases, this indicates that the price elasticity of demand was
A) elastic.
B) of unitary elasticity.
C) inelastic.
D) equal to 0.15.

Accepted Answer

When the price elasticity of demand is elastic, a decrease in price leads to an increase in total revenue, indicating that the percentage change in quantity demanded is greater than the percentage change in price.

Question 9

A 20 percent increase in the price of flour reduces flour consumption by about 10 percent. Such a price increase causes households to
A) spend less on flour.
B) spend more on flour.
C) spend the same amount on flour as before.
D) consume more goods like salt and baking powder, which are flour complements.

Accepted Answer

The price elasticity of demand for flour is inelastic (less than 1), meaning the percentage decrease in quantity demanded is less than the percentage increase in price. Therefore, total expenditure on flour increases.

Question 10

If the demand for a product increases as the result of a decline in income, it can be concluded that the
A) product is an inferior good.
B) demand for the product is inelastic.
C) price elasticity of demand for the product equals unity.
D) demand for the product is elastic.

Accepted Answer

An inferior good is one for which demand increases when consumer income falls, as consumers opt for cheaper alternatives.

Question 11

If the income elasticity of a good is positive, we can conclude that the good is
A) an inferior good.
B) a normal good.
C) a luxury good.
D) a necessity.

Accepted Answer

A positive income elasticity indicates that as income increases, the demand for the good also increases, which is characteristic of a normal good.

Question 12

Which of the following describes a situation in which demand must be inelastic?
A) Total revenue decreases by 10 percent when the price of jeans rises by 10 percent.
B) Total revenue decreases by less than 10 percent when the price of jeans rises by 10 percent.
C) Total revenue increases by more than 10 percent when the price of jeans rises by 10 percent.
D) Total revenue decreases by $10 when the price of jeans rises by $10.
E) Total revenue decreases by more than $10 when the price of jeans rises by $10.

Accepted Answer

The answer of Which of the following describes a situation...

Question 13

Assuming that bus travel is an inferior good, a decrease in consumer income, other things being equal, will cause
A) a downward movement along the demand curve for bus travel.
B) no change in the demand curve for bus travel.
C) an upward movement along the demand curve for air travel.
D) a rightward shift in the demand curve for bus travel.

Accepted Answer

A decrease in consumer income increases the demand for inferior goods, causing a rightward shift in the demand curve for bus travel.

Question 14

Suppose a city that operates local electric and natural gas companies wants to raise revenues by increasing its rates for electricity and natural gas. The price rise will increase city revenues if the elasticity of demand for electricity and natural gas is
A) inelastic.
B) elastic.
C) negative.
D) equal to −1.

Accepted Answer

If the demand is inelastic, consumers will not significantly reduce their consumption when prices increase, leading to higher total revenue for the city.

Question 15

Goods that consumers regard as luxuries generally have
A) an income elasticity equal to 1.
B) an income elasticity less than 1.
C) an income elasticity greater than 1.
D) a negative income elasticity.

Accepted Answer

Luxuries have an income elasticity greater than 1 because as income increases, the demand for luxury goods increases by a proportionally larger amount.

Question 16

Which of the following describes a situation in which demand must be inelastic?
A) The price of vitamins rises by 10 cents, and quantity of vitamins demanded falls by 50.
B) The price of vitamins rises by 10 cents, and total revenue rises.
C) A 20 percent increase in the price of vitamins leads to a 20 percent decrease in the quantity of vitamins demanded.
D) Total revenue does not change when the price of vitamins rises.
E) Total revenue decreases when the price of vitamins rises.

Accepted Answer

When demand is inelastic, an increase in price leads to an increase in total revenue because the percentage change in quantity demanded is less than the percentage change in price.

Question 17

New York City increased regulated taxi fares by 17.5 percent and expected taxi revenue to increase by the same amount. The taxi commission believed taxi demand was
A) unit elastic.
B) somewhat elastic.
C) perfectly elastic.
D) perfectly inelastic.
E) somewhat inelastic

Accepted Answer

The answer of New York City increased regulated taxi fares...

Question 18

Which of the following describes a situation in which demand must be elastic?
A) The price of dish soap rises by 10 cents, and quantity of dish soap demanded falls by 50.
B) The price of dish soap rises by 10 cents, and total revenue rises.
C) A 20 percent increase in the price of dish soap leads to a 20 percent decrease in the quantity of dish soap demanded.
D) Total revenue does not change when the price of dish soap rises.
E) Total revenue decreases when the price of dish soap rises.

Accepted Answer

When demand is elastic, an increase in price leads to a decrease in total revenue, as consumers reduce their quantity demanded significantly.

Question 19

A recent study on enrollment at a liberal arts college concluded that demand elasticity is 0.65. The administration is considering a tuition increase to help balance the budget. The revenue-maximizing decision is to
A) decrease tuition, which should boost enrollment enough to balance the budget.
B) decrease tuition, which would bring in more revenue.
C) leave tuition as is-an increase would not help balance the budget.
D) increase tuition, which would generate more revenue.

Accepted Answer

Since the demand elasticity is less than 1 (inelastic), increasing tuition will lead to a proportionally smaller decrease in enrollment, thus increasing total revenue.

Question 20

If rice is an inferior good,
A) the income elasticity of demand for rice will be positive.
B) an increase in income will cause the demand curve for rice to shift to the left.
C) an increase in income will cause consumers to buy more rice at the current market price.
D) a reduction in income would not affect the demand for rice, but it would increase the quantity demanded.

Accepted Answer

For an inferior good, an increase in income leads to a decrease in demand, causing the demand curve to shift to the left.

Quiz 7: Consumer Choice and Elasticity

The price of an airline ticket rises as the amount of time between purchase and flight departure gets smaller. The airlines base the policy on the assumption that

If the price of gloves increases, total expenditures on gloves will decline if

If the price of tuna fish increases from 50 cents to 60 cents per can and the quantity demanded decreases from 100 cans to 50 cans, then the tuna fish producer could increase its total revenue by

If the income elasticity of demand for a good is negative, this implies that

A good with a high income elasticity is generally considered to be

Assuming that bus travel is an inferior good, an increase in consumer income, other things being equal, will cause

If the demand for a good is elastic, then total revenue

If a Pizza Hut restaurant near campus reduces its pizza prices by 15 percent, and as a result, its total revenue from pizza sales increases, this indicates that the price elasticity of demand was

A 20 percent increase in the price of flour reduces flour consumption by about 10 percent. Such a price increase causes households to

If the demand for a product increases as the result of a decline in income, it can be concluded that the

If the income elasticity of a good is positive, we can conclude that the good is

Which of the following describes a situation in which demand must be inelastic?

Assuming that bus travel is an inferior good, a decrease in consumer income, other things being equal, will cause

Suppose a city that operates local electric and natural gas companies wants to raise revenues by increasing its rates for electricity and natural gas. The price rise will increase city revenues if the elasticity of demand for electricity and natural gas is

Goods that consumers regard as luxuries generally have

Which of the following describes a situation in which demand must be inelastic?

New York City increased regulated taxi fares by 17.5 percent and expected taxi revenue to increase by the same amount. The taxi commission believed taxi demand was

Which of the following describes a situation in which demand must be elastic?

A recent study on enrollment at a liberal arts college concluded that demand elasticity is 0.65. The administration is considering a tuition increase to help balance the budget. The revenue-maximizing decision is to

If rice is an inferior good,