CHAPTER 5 - ECO111

The price elasticity of demand measures how much

• quantity demanded responds to a change in price.

• quantity demanded responds to a change in income

• price responds to a change in demand.

• demand responds to a change in supply

If the cross-price elasticity of two goods is negative, then those two goods are

• necessities.

• complements.

• normal goods.

• inferior goods.

The cross-price elasticity of demand can tell us whether goods are

• normal or inferior.

• elastic or inelastic.

• luxuries or necessities.

• complements or substitutes.

Assume that a 4 percent decrease in income results in a 6 percent increase in the quantity demanded of a good. The income elasticity of demand for the good is

• negative and therefore the good is an inferior good.

• negative and therefore the good is a normal good.

• positive and therefore the good is an inferior good.

• positive and therefore the good is a normal good.

Assume that a 4 percent increase in income results in a 2 percent increase in the quantity demanded of a good. The income elasticity of demand for the good is

• negative and therefore the good is an inferior good.

• negative and therefore the good is a normal good.

• positive and therefore the good is a normal good.

• positive and therefore the good is an inferior good.

Income elasticity of demand measures how

• the quantity demanded changes as consumer income changes.

• consumer purchasing power is affected by a change in the price of a good.

• the price of a good is affected when there is a change in consumer income.

• many units of a good a consumer can buy given a certain income level.

An increase in price causes an increase in total revenue when

• demand is elastic.

• demand is inelastic.

• demand is unit elastic.

• All of the above are possible.

If the demand for textbooks is inelastic, then a decrease in the price of textbooks will

• increase total revenue of textbook sellers.

• decrease total revenue of textbook sellers.

• not change total revenue of textbook sellers.

• There is not enough information to answer this question.

191.  If the demand for donuts is elastic, then a decrease in the price of donuts will

• increase total revenue of donut sellers.

• decrease total revenue of donut sellers.

• not change total revenue of donut sellers.

• There is not enough information to answer this question.

Total revenue

• always increases as price increases.

• increases as price increases, as long as demand is elastic.

• decreases as price increases, as long as demand is inelastic.

• remains unchanged as price increases when demand is unit elastic.