Chapter: Demand and Elasticity
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1. Price elasticity of demand is defined as
a. slope divided by price.
b. percentage change in price divided by percentage change in quantity demanded.
c. percentage change in quantity demanded divided by percentage change in price.
d. the inverse of the price elasticity of supply.


2. From Figure 1 above, we can infer that demand is _______________ between P = 12 and P = 10 and _______________ between P = 6 and P = 4.
a. elastic; elastic
b. elastic; inelastic
c. inelastic; elastic
d. inelastic; inelastic

3. A demand curve is described as perfectly inelastic if
a. the same quantity is purchased regardless of price.
b. the same price is charged regardless of quantity sold.
c. neither price nor quantity demanded ever change.
d. only quantity demanded can change.

4. Along a perfectly elastic demand curve,
a. the slope is always zero.
b. the price elasticity of demand is infinite.
c. consumer purchases will respond dramatically to a change in price.
d. All of the above are true.

5. Elasticity provides a guide to both
a. market stability and change in revenue as price changes.
b. responsiveness of quantity demanded to a change in price and market stability.
c. responsiveness of quantity demanded to a change in price and change in revenue as price changes.
d. technological change and change in revenue as price changes.

6. If the marginal cost of producing vanity license plates is virtually zero (by prison inmates with little else to do), then states would maximize their profits on plate sales at the point on a linear demand curve where
a. demand is inelastic.
b. demand is elastic.
c. demand is unit elastic.
d. the demand curve crosses the horizontal axis.

7. When the price of penicillin tablets increases by $5 per dozen, the drug company's revenue increases by $6 million. Its elasticity of demand (in absolute terms) must be
a. zero.
b. greater than one.
c. less than one.
d. infinitely large.

8. The relationship between a change in consumer income and a resulting change in demand for a good is
a. demand elasticity.
b. income elasticity of demand.
c. cross-elasticity of income demand.
d. supply elasticity.

9. Historical data on prices and quantities sold do not provide the basis for drawing an accurate demand curve because
a. reporters who gather these data are often wrong.
b. factors other than price may change over time.
c. they do not include measures of price close to the quantity axis.
d. they sometimes tend to be clustered around one point.

10. Other things equal, a highly elastic demand schedule will tend to have which characteristic?
a. It will be relatively shallow.
b. It will be relatively steep.
c. It will be perfectly vertical.
d. It will be positively sloped.



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