Questions Self-Test Chapter 3
MULTIPLE CHOICE 1. The concept of elasticity is used to a. analyze how much the economy is capable of expanding. b. determine the level of government invention in the economy. c. analyze supply and demand with greater precision. d. calculate consumer credit purchases. ANS: C 2. If a good is a necessity, demand for the good would tend to be a. elastic. b. horizontal. c. unit elastic. d. inelastic. ANS: D 3. If a good is a luxury, demand for the good would tend to be a. inelastic. b. elastic. c. unit elastic. d. horizontal. ANS: B 4. Demand for a good would tend to be more inelastic the a. fewer the available substitutes. b. longer the time period considered. c. more the good is considered a luxury good. d. more narrowly defined the market is. ANS: A 5. A binding price ceiling causes a. a shortage, which cannot be eliminated through market adjustment. b. a surplus, which cannot be eliminated through market adjustment. c. a shortage, which is temporary, since market adjustment will cause price to rise. d. a surplus, which is temporary, since market adjustment will cause price to rise. ANS: A 6. Which of the following are reason policymakers impose taxes? a. to attempt to make markets more efficient b. to influence market outcomes c. to raise revenue for public use d. All of the above are correct. e. Both b and c are correct. ANS: E
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7. When the price of bubble is gum $0.50, the quantity demanded is 400 packs per day. When the price falls to $0.40, the quantity demanded increases to 600. Given this information and using the midpoint method, you know that the demand for bubble gum is a. inelastic. b. elastic. c. unit elastic. d. perfectly inelastic. ANS: B 8. Suppose the price of Twinkies is reduced from $1.45 to $1.25 and, as a result, the quantity of Twinkies demanded increases from 2,000 to 2,200. Using the midpoint method, the price elasticity of demand for Twinkies in the given price range is a. 2.00. b. 1.55. c. 1.00. d. .64. ANS: D 9. When the local used bookstore prices economics books at $15.00 each, they generally sell 70 per month. If they lower the price to $7.00 each they sell 90. Given this, we know that the elasticity of demand for economics books is a. 2.91, so this store should lower price to raise total revenue. b. 2.91, so this store should raise price to raise total revenue. c. 0.34, so this store should lower price to raise total revenue. d. 0.34, so this store should raise price to raise total revenue. ANS: D 10. Demand is said to be unit elastic if a. quantity demanded changes by the same percent as the price. b. quantity demanded changes by a larger percent than the price. c. the demand curve shifts by the same percentage amount as the price. d. quantity demanded does not respond to a change in price. ANS: A
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