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Hilda's Hair Hysteria earned $3,750 in total revenue last month when it sold 125 haircuts. This month it earned $3,600 in total revenue when it sold 90 haircuts. The price elasticity of demand for Hilda's Hair Hysteria is


A) 0.33.
B) 0.88.
C) 1.14.
D) 7.98.

E) B) and D)
F) None of the above

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Scenario 5-2 Suppose the demand function for good X is given by: Scenario 5-2 Suppose the demand function for good X is given by: where is the quantity demanded of good X, is the price of good X, and is the price of good Y, which is related to good X. -Refer to Scenario 5-2. Using the midpoint method, if the price of good X is constant at $10 and the price of good Y decreases from $10 to $8, the cross price elasticity of demand is about A) 0.57, and X and Y are substitutes. B) -0.22, and X and Y are complements. C) -0.80, and X and Y are complements. D) -2.57, and X and Y are complements. where Scenario 5-2 Suppose the demand function for good X is given by: where is the quantity demanded of good X, is the price of good X, and is the price of good Y, which is related to good X. -Refer to Scenario 5-2. Using the midpoint method, if the price of good X is constant at $10 and the price of good Y decreases from $10 to $8, the cross price elasticity of demand is about A) 0.57, and X and Y are substitutes. B) -0.22, and X and Y are complements. C) -0.80, and X and Y are complements. D) -2.57, and X and Y are complements. is the quantity demanded of good X, Scenario 5-2 Suppose the demand function for good X is given by: where is the quantity demanded of good X, is the price of good X, and is the price of good Y, which is related to good X. -Refer to Scenario 5-2. Using the midpoint method, if the price of good X is constant at $10 and the price of good Y decreases from $10 to $8, the cross price elasticity of demand is about A) 0.57, and X and Y are substitutes. B) -0.22, and X and Y are complements. C) -0.80, and X and Y are complements. D) -2.57, and X and Y are complements. is the price of good X, and Scenario 5-2 Suppose the demand function for good X is given by: where is the quantity demanded of good X, is the price of good X, and is the price of good Y, which is related to good X. -Refer to Scenario 5-2. Using the midpoint method, if the price of good X is constant at $10 and the price of good Y decreases from $10 to $8, the cross price elasticity of demand is about A) 0.57, and X and Y are substitutes. B) -0.22, and X and Y are complements. C) -0.80, and X and Y are complements. D) -2.57, and X and Y are complements. is the price of good Y, which is related to good X. -Refer to Scenario 5-2. Using the midpoint method, if the price of good X is constant at $10 and the price of good Y decreases from $10 to $8, the cross price elasticity of demand is about


A) 0.57, and X and Y are substitutes.
B) -0.22, and X and Y are complements.
C) -0.80, and X and Y are complements.
D) -2.57, and X and Y are complements.

E) All of the above
F) None of the above

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Table 5-3 Consider the following demand schedule. Table 5-3 Consider the following demand schedule. -Refer to Table 5-3. Using the midpoint method, what is the price elasticity of demand between $0 and $3? A) 0.11 B) 0.22 C) 0.40 D) 2.00 -Refer to Table 5-3. Using the midpoint method, what is the price elasticity of demand between $0 and $3?


A) 0.11
B) 0.22
C) 0.40
D) 2.00

E) None of the above
F) A) and B)

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The demand for Godiva mint chocolates is likely quite elastic because


A) there are many close substitutes.
B) this particular type of chocolate is viewed as a luxury by many chocolate lovers.
C) the market is narrowly defined.
D) All of the above are correct.

E) A) and B)
F) B) and C)

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If the price elasticity of demand for a good is 0.5, then a 5 percent increase in price results in a


A) 0.1 percent decrease in the quantity demanded.
B) 1 percent decrease in the quantity demanded.
C) 2.5 percent decrease in the quantity demanded.
D) 10 percent decrease in the quantity demanded.

E) A) and B)
F) C) and D)

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When the price of a good is $5, the quantity demanded is 100 units per month; when the price is $7, the quantity demanded is 80 units per month. Using the midpoint method, the price elasticity of demand is about


A) 0.22.
B) 0.67.
C) 1.33.
D) 1.50.

E) A) and B)
F) All of the above

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Scenario 5-6 Consider the markets for mobile and landline telephone service. Suppose that when the average income of residents of Plainville is $55,000 per year, the quantity demanded of landline telephone service is 12,500 and the quantity demanded of mobile service is 28,000. Suppose that when the price of mobile service rises from $100 to $120 per month, the quantity demanded of landline service decreases to 11,000. Suppose also that when the average income increases to $60,000, the quantity demanded of mobile service increases to 33,000. -Refer to Scenario 5-6. Using the midpoint method, what is the income elasticity of demand for mobile service?

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For a particular good, a 12 percent increase in price causes a 3 percent decrease in quantity demanded. Which of the following statements is most likely applicable to this good?


A) There are many substitutes for this good.
B) The good is a necessity.
C) The market for the good is narrowly defined.
D) The relevant time horizon is long.

E) A) and C)
F) None of the above

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If the price elasticity of demand for a good is 0.8, then a 12 percent increase in the quantity demanded must be the result of


A) a 0.06 percent decrease in the price.
B) a 1.5 percent decrease in the price.
C) a 9.6 percent decrease in the price.
D) a 15 percent decrease in the price.

E) A) and B)
F) A) and C)

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In which of the following situations will total revenue increase?


A) Price elasticity of demand is 1.2, and the price of the good decreases.
B) Price elasticity of demand is 0.5, and the price of the good increases.
C) Price elasticity of demand is 3.0, and the price of the good decreases.
D) All of the above are correct.

E) C) and D)
F) A) and D)

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Which of the following statements is correct?


A) The demand for medicine is more elastic than the demand for sailboats.
B) The demand for iPads is more elastic than the demand for tablets in general.
C) The demand for cell phones is more elastic over a short period of time than over a long period of time.
D) All of the above are correct.

E) A) and D)
F) None of the above

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Scenario 5-5 Suppose the government is concerned about firms in the United States importing illegal caviar. As a result, the government increases border patrols to catch illegal shipments. U.S. Customs agents perform DNA testing on the caviar to determine if it comes from endangered species of fish. If so, the government destroys the caviar. -Refer to Scenario 5-5. What would we expect to observe in the caviar market?


A) Equilibrium prices and quantities will increase.
B) Equilibrium prices will increase by more if the demand for caviar is elastic than if demand is inelastic.
C) Total revenues to caviar firms will increase if the demand for caviar is inelastic.
D) All of the above are correct.

E) None of the above
F) C) and D)

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Figure 5-4 Figure 5-4 -Refer to Figure 5-4. Assume, for the good in question, two specific points on the demand curve are (Q = 2,000, P = $15) and (Q = 2,400, P = $12) . Then which of the following scenarios is possible? A) Both of these points lie on section BC of the demand curve. B) The vertical intercept of the demand curve is the point (Q = 0, P = $22) . C) The horizontal intercept of the demand curve is the point (Q = 5,000, P = $0) . D) Any of these scenarios is possible. -Refer to Figure 5-4. Assume, for the good in question, two specific points on the demand curve are (Q = 2,000, P = $15) and (Q = 2,400, P = $12) . Then which of the following scenarios is possible?


A) Both of these points lie on section BC of the demand curve.
B) The vertical intercept of the demand curve is the point (Q = 0, P = $22) .
C) The horizontal intercept of the demand curve is the point (Q = 5,000, P = $0) .
D) Any of these scenarios is possible.

E) A) and B)
F) C) and D)

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If the cross-price elasticity of demand for two goods is 1.25, then


A) the two goods are luxuries.
B) the two goods are substitutes.
C) one of the goods is normal and the other good is inferior.
D) the demand for one of the goods conforms to the law of demand, but the demand for the other good violates the law of demand.

E) A) and B)
F) A) and C)

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If the cross-price elasticity of demand for two goods is negative, then the two goods are substitutes.

A) True
B) False

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Table 5-3 Consider the following demand schedule. Table 5-3 Consider the following demand schedule. -Refer to Table 5-3. Using the midpoint method, in which range is demand most elastic? A) $0 to $3 B) $3 to $6 C) $9 to 12 D) $12 to $15 -Refer to Table 5-3. Using the midpoint method, in which range is demand most elastic?


A) $0 to $3
B) $3 to $6
C) $9 to 12
D) $12 to $15

E) A) and D)
F) C) and D)

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Table 5-6 Table 5-6 -Refer to Table 5-6. Using the midpoint method, demand is unit elastic when quantity demanded changes from A) 500 to 400. B) 400 to 300. C) 300 to 200. D) 200 to 100. -Refer to Table 5-6. Using the midpoint method, demand is unit elastic when quantity demanded changes from


A) 500 to 400.
B) 400 to 300.
C) 300 to 200.
D) 200 to 100.

E) All of the above
F) A) and B)

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Holding all other factors constant and using the midpoint method, if a candy manufacturer increases production by 20 percent when the market price of candy increases from $0.50 to $0.60, then supply is


A) inelastic, since the price elasticity of supply is equal to .91.
B) inelastic, since the price elasticity of supply is equal to 1.1.
C) elastic, since the price elasticity of supply is equal to 0.91.
D) elastic, since the price elasticity of supply is equal to 1.1.

E) None of the above
F) B) and C)

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Table 5-7 The following table shows a portion of the demand schedule for a particular good at various levels of income. Table 5-7 The following table shows a portion of the demand schedule for a particular good at various levels of income. -Refer to Table 5-7. Using the midpoint method, at a price of $12, what is the income elasticity of demand when income rises from $5,000 to $10,000? A) 0.00 B) 0.41 C) 1.00 D) 2.45 -Refer to Table 5-7. Using the midpoint method, at a price of $12, what is the income elasticity of demand when income rises from $5,000 to $10,000?


A) 0.00
B) 0.41
C) 1.00
D) 2.45

E) A) and C)
F) A) and B)

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For a vertical demand curve,


A) the slope is undefined, and the price elasticity of demand is equal to 0.
B) the slope is equal to 0, and the price elasticity of demand is undefined.
C) both the slope and price elasticity of demand are undefined.
D) both the slope and price elasticity of demand are equal to 0.

E) A) and D)
F) All of the above

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