CH5 Scheduled Quiz - Question Pool

True/False
Indicate whether the statement is true or false.
1. Goods with close substitutes tend to have more elastic demands than do goods
without close substitutes.
a. True
b. False
2. The demand for Rice Krispies is more elastic than the demand for cereal in
general.
a. True
b. False
3. Demand for a good is said to be inelastic if the quantity demanded increases
slightly when the price falls by a large amount.
a. True
b. False
4. Even the demand for a necessity such as gasoline will respond to a change in
price, especially over a longer time horizon.
a. True
b. False
5. Suppose that when the price rises by 20% for a particular good, the quantity
demanded of that good falls by 10%. The price elasticity of demand for this good
is equal to 2.0.
a. True
b. False
6. At the point of intersection, two linear demand curves must have the same price
elasticity.
a. True
b. False
7. The flatter the demand curve that passes through a given point, the more elastic
the demand.
a. True
b. False
8. A linear, downward-sloping demand curve has a constant price elasticity, because
its slope is fixed, regardless of the size of the market.
a. True
b. False
9. Price elasticity of demand along a linear, downward-sloping demand curve
increases as price falls.
a. True
b. False
10. The midpoint method is used to calculate elasticity between two points because
it gives the same answer regardless of the direction of the change.
a. True
b. False
11. If demand is perfectly elastic, the demand curve is horizontal, and the price
elasticity of demand equals 1.
a. True
b. False

12. If demand is perfectly inelastic, the demand curve is vertical, and the price
elasticity of demand equals 0.
a. True
b. False
13. If we observe that when the price of chocolate increases by 10%, total revenue
increases by 10%, then the demand for chocolate is unit price elastic.
a. True
b. False
14. If a firm is facing elastic demand, then the firm should decrease price to
increase revenue.
a. True
b. False
15. When demand is inelastic, a decrease in price increases total revenue.
a. True
b. False
16. The income elasticity of demand is defined as the percentage change in quantity
demanded divided by the percentage change in price.
a. True
b. False
17. If
an
a.
b.

the income elasticity of demand for a good is negative, then the good must be
inferior good.
True
False

18. If we observe that when consumers incomes rise by 10%, the quantity demanded of
ice cream increases by 5%, then ice cream is an inferior good.
a. True
b. False
19. If the cross-price elasticity of demand for two goods is negative, then the two
goods are complements.
a. True
b. False
20. Cross-price elasticity is used to determine whether goods are inferior or normal
goods.
a. True
b. False
21. If the price elasticity of supply is 2 and the quantity supplied decreases by
6%, then the price must have decreased by 3%.
a. True
b. False
22. Supply is said to be inelastic if the quantity supplied responds substantially
to changes in the price and elastic if the quantity supplied responds only
slightly to price.
a. True
b. False
23. Supply tends to be more elastic in the short run and more inelastic in the long
run.
a. True
b. False
24. If a supply curve is horizontal, then supply is said to be perfectly elastic,
and the price elasticity of supply approaches infinity.
a. True
b. False

25. If a t-shirt manufacturer supplies 1,000 t-shirts per week when the price of
t-shirts is $10 and supplies 1,200 t-shirts per week when the price of t-shirts
is $12, the price elasticity of supply is 2.
a. True
b. False
26. A government program that reduces land under cultivation hurts farmers but helps
consumers.
a. True
b. False
27. A government program that pays farmers not to plant corn on part of their land
can help farmers not only through the subsidy payments to farmers who participate
in the program but also by raising the market price of corn.
a. True
b. False
28. A discovery that increases wheat yields per acre hurts farmers by increasing
supply and lowering their total revenues.
a. True
b. False
29. Drug interdiction, which reduces the supply of drugs, may decrease drug-related
crime because the demand for drugs is inelastic.
a. True
b. False
30. Drug interdiction, which reduces the supply of drugs, will likely be a less
effective policy than educating consumers to reduce their demand for drugs
because the drug interdiction policy will lower drug prices and reduce the
quantity of drugs demanded.
a. True
b. False
31. A Just Say No drug education policy that successfully educates consumers to
reduce their demand for drugs will lower drug prices and reduce the quantity of
drugs demanded.
a. True
b. False
32. If a company has idle machines, its elasticity of supply will be very low.
a. True
b. False
33. When the supply of wheat decreases, the total amount spent by wheat buyers also
will decrease.
a. True
b. False
34. The total revenue in a market is equal to the total amount paid by buyers.
a. True
b. False
35. In a given market, when demand is constant over some period of time, total
revenue may increase or decrease over time, depending on the elasticity of
demand.
a. True
b. False
36. For a given seller, a decrease in price may very well translates into an
increase in revenue.
a. True
b. False

37. Something as simple as buying habits can slow down market adjustments, but they
are unlikely to prevent adjustments over time.
a. True
b. False
38. In
in
a.
b.

the 1970s, the Organization of Petroleum Exporting Countries (OPEC)succeeded

increasing the price of petroleum by reducing the elasticity of supply.
True
False

39. A demand curve that is unit elestic over its entire range must have a
non-constant slope.
a. True
b. False
40. The elasticity of demand is normally reported as an absolute value so that
larger numbers can be interpreted as reflecting larger market responses, even
though the ratio of percentage change in quantity to percentage change in price
is always negative.
a. True
b. False