328 ? Chapter 5 /Elasticity and Its Application

149. When the local used bookstore prices economics books at $15.00 each, it generally sells 70 books per month.

If it lowers the price to $7.00, sales increase to 90 books per month. Given this information, we know that the price elasticity of demand for economics books is about

a. 2.91, and an increase in price from $7.00 to $15.00 results in an increase in total revenue. b. 2.91, and an increase in price from $7.00 to $15.00 results in a decrease in total revenue. c. 0.34, and an increase in price from $7.00 to $15.00 results in an increase in total revenue. d. 0.34, and an increase in price from $7.00 to $15.00 results in a decrease in total revenue.

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

Midpoint method | Total revenue | Price elasticity of demand Applicative

150. Harry's Barber Shop increased its total monthly revenue from $1,500 to $1,800 when it raised the price of a

haircut from $5 to $9. The price elasticity of demand for Harry's Haircuts is a. 0.567. b. 0.700. c. 1.429. d. 2.200.

ANS: NAT: TOP: MSC: B DIF: 3 REF: 5-1 Analytic LOC: Elasticity

Midpoint method | Total revenue | Price elasticity of demand Applicative

151. Barb's Bakery earned $200 in total revenue last month when it sold 100 loaves of bread. This month it earned

$300 in total revenue when it sold 60 loaves of bread. The price elasticity of demand for Barb's bread is a. 0.27. b. 0.58. c. 1.25. d. 1.71.

ANS: NAT: TOP: MSC: B DIF: 3 REF: 5-1 Analytic LOC: Elasticity

Midpoint method | Total revenue | Price elasticity of demand Applicative

152. Suppose that when the price of corn is $2 per bushel, farmers can sell 10 million bushels. When the price of

corn is $3 per bushel, farmers can sell 8 million bushels. Which of the following statements is true? a. The demand for corn is income inelastic, and so an increase in the price of corn will increase the

total revenue of corn farmers.

b. The demand for corn is income elastic, and so an increase in the price of corn will increase the total

revenue of corn farmers.

c. The demand for corn is price inelastic, and so an increase in the price of corn will increase the total

revenue of corn farmers.

d. The demand for corn is price elastic, and so an increase in the price of corn will increase the total

revenue of corn farmers.

ANS: NAT: TOP: MSC: C DIF: 3 REF: 5-1 Analytic LOC: Elasticity

Midpoint method | Total revenue | Price elasticity of demand Applicative

Chapter 5 /Elasticity and Its Application ? 329

153. Suppose that when the price of beer is $2 per bottle, firms can sell 4 million bottles. When the price of beer is

$3 per bottle, firms can sell 2 million bottles. Which of the following statements is true?

a. The demand for beer is income inelastic, and so an increase in the price of beer will increase the

total revenue of beer producers.

b. The demand for beer is income elastic, and so an increase in the price of beer will increase the total

revenue of beer producers.

c. The demand for beer is price inelastic, and so an increase in the price of beer will increase the total

revenue of beer producers.

d. The demand for beer is price elastic, and so an increase in the price of beer will increase the total

revenue of beer producers.

ANS: NAT: TOP: MSC: D DIF: 3 REF: 5-1 Analytic LOC: Elasticity

Midpoint method | Total revenue | Price elasticity of demand Applicative

154. Suppose that 50 candy bars are demanded at a particular price. If the price of candy bars rises from that price

by 5 percent, the number of candy bars demanded falls to 48. Using the midpoint approach to calculate the price elasticity of demand, it follows that the

a. demand for candy bars in this price range is unit elastic.

b. price increase will decrease the total revenue of candy bar sellers.

c. price elasticity of demand for candy bars in this price range is about 1.22. d. price elasticity of demand for candy bars in this price range is about 0.82.

ANS: NAT: TOP: MSC: D DIF: 3 REF: 5-1 Analytic LOC: Elasticity

Midpoint method | Total revenue | Price elasticity of demand Applicative

155. Suppose that 500 candy bars are demanded at a particular price. If the price of candy bars rises from that price

by 10 percent, the number of candy bars demanded falls to 480. Using the midpoint approach to calculate the price elasticity of demand, it follows that the

a. demand for candy bars in this price range is unit elastic.

b. price increase will decrease the total revenue of candy bar sellers.

c. price elasticity of demand for candy bars in this price range is about 0.41. d. price elasticity of demand for candy bars in this price range is about 0.24.

ANS: NAT: TOP: MSC: C DIF: 3 REF: 5-1 Analytic LOC: Elasticity

Midpoint method | Total revenue | Price elasticity of demand Applicative

156. When demand is inelastic, a decrease in price will cause

a. an increase in total revenue. b. a decrease in total revenue.

c. no change in total revenue, but an increase in quantity demanded. d. no change in total revenue, but a decrease in quantity demanded.

ANS: B

NAT: Analytic MSC: Applicative

DIF: 2

LOC: Elasticity

REF: 5-1

TOP: Total revenue | Price elasticity of demand

157. When demand is elastic, a decrease in price will cause

a. an increase in total revenue. b. a decrease in total revenue.

c. no change in total revenue, but an increase in quantity demanded. d. no change in total revenue, but a decrease in quantity demanded.

ANS: A

NAT: Analytic MSC: Applicative

DIF: 2

LOC: Elasticity

REF: 5-1

TOP: Total revenue | Price elasticity of demand

330 ? Chapter 5 /Elasticity and Its Application

158. When demand is inelastic, an increase in price will cause

a. an increase in total revenue. b. a decrease in total revenue.

c. no change in total revenue, but an increase in quantity demanded. d. no change in total revenue, but a decrease in quantity demanded.

ANS: A

NAT: Analytic MSC: Applicative

DIF: 2

LOC: Elasticity

REF: 5-1

TOP: Total revenue | Price elasticity of demand

159. When demand is elastic, an increase in price will cause

a. an increase in total revenue. b. a decrease in total revenue.

c. no change in total revenue, but an increase in quantity demanded. d. no change in total revenue, but a decrease in quantity demanded.

ANS: B

NAT: Analytic MSC: Applicative

DIF: 2

LOC: Elasticity

REF: 5-1

TOP: Total revenue | Price elasticity of demand

160. Which of the following could be the price elasticity of demand for a good for which a decrease in price would

increase revenue? a. 0 b. 0.2 c. 1 d. 2.1

ANS: D

NAT: Analytic MSC: Interpretive

DIF: 2

LOC: Elasticity

REF: 5-1

TOP: Total revenue | Price elasticity of demand

161. Which of the following could be the price elasticity of demand for a good for which an increase in price would

increase revenue? a. 0.2 b. 1 c. 1.5

d. All of the above could be correct.

ANS: A

NAT: Analytic MSC: Interpretive

DIF: 2

LOC: Elasticity

REF: 5-1

TOP: Total revenue | Price elasticity of demand

162. Which of the following could be the price elasticity of demand for a good for which a decrease in price would

decrease revenue? a. 0.5 b. 1 c. 1.5

d. All of the above could be correct.

ANS: A

NAT: Analytic MSC: Interpretive

DIF: 2

LOC: Elasticity

REF: 5-1

TOP: Total revenue | Price elasticity of demand

163. Which of the following could be the price elasticity of demand for a good for which an increase in price would

decrease revenue? a. 0 b. 0.5 c. 1 d. 1.5

ANS: D

NAT: Analytic MSC: Interpretive

DIF: 2

LOC: Elasticity

REF: 5-1

TOP: Total revenue | Price elasticity of demand

Chapter 5 /Elasticity and Its Application ? 331

164. Which of the following is not possible?

a. Demand is elastic, and a decrease in price causes an increase in revenue. b. Demand is unit elastic, and a decrease in price causes an increase in revenue. c. Demand is inelastic, and an increase in price causes an increase in revenue.

d. Demand is perfectly inelastic, and an increase in price causes an increase in revenue.

ANS: B

NAT: Analytic MSC: Applicative

DIF: 2

LOC: Elasticity

REF: 5-1

TOP: Total revenue | Price elasticity of demand

165. If demand is price inelastic, then when price rises,

a. total revenue will fall. b. total revenue will rise.

c. total revenue will remain unchanged.

d. total revenue may rise, fall, or remain unchanged. More information is need to determine the

change in total revenue with certainty.

ANS: B

NAT: Analytic MSC: Analytical

DIF: 2

LOC: Elasticity

REF: 5-1

TOP: Total revenue | Price elasticity of demand

Figure 5-7

The following graph shows the linear demand curve for a particular good.

20181614121086422468101214PriceD16Quantity166. Refer to Figure 5-7. For prices above $8, demand is price

a. elastic, and total revenue will rise as price rises. b. inelastic, and total revenue will rise as price rises. c. elastic, and total revenue will fall as price rises. d. inelastic, and total revenue will fall as price rises.

ANS: C

NAT: Analytic MSC: Applicative

DIF: 2

LOC: Elasticity

REF: 5-1

TOP: Total revenue | Price elasticity of demand

167. Refer to Figure 5-7. For prices below $6, demand is price

a. elastic, and total revenue will rise as price rises. b. inelastic, and total revenue will rise as price rises. c. elastic, and total revenue will fall as price rises. d. inelastic, and total revenue will fall as price rises.

ANS: B

NAT: Analytic MSC: Applicative

DIF: 2

LOC: Elasticity

REF: 5-1

TOP: Total revenue | Price elasticity of demand

332 ? Chapter 5 /Elasticity and Its Application

Figure 5-8

10Price987654321D12345678Quantity168. Refer to Figure 5-8. For prices above $5, demand is price

a. elastic, and raising price will increase total revenue. b. inelastic, and raising price will increase total revenue. c.elastic, and lowering price will increase total revenue. d. inelastic, and lowering price will increase total revenue.

ANS: C

DIF: 2

REF: 5-1

NAT: Analytic LOC: Elasticity

TOP: Total revenue MSC: Interpretive

169. Refer to Figure 5-8. For prices below $5, demand is price

a. elastic, and raising price will increase total revenue. b.inelastic, and raising price will increase total revenue. c. elastic, and lowering price will increase total revenue. d. inelastic, and lowering price will increase total revenue.

ANS: B

DIF: 2

REF: 5-1

NAT: Analytic LOC: Elasticity

TOP: Total revenue MSC: Interpretive

| Price elasticity of demand

| Price elasticity of demand