Chapter Four Review

Multiple Choice
Identify the letter of the choice that best completes the statement or answers the question.

____	1.	What determines the price and the quantity produced of most goods?
a.	the consumer’s perception of necessity	
b.	the interaction of supply and demand	
c.	the availability of substitutes for the goods	
d.	the quality of the goods that are produced	

____	2.	How is future price related to current demand?
a.	If the price is expected to rise, current demand will drop.	
b.	If the price is expected to fall, current demand will rise.	
c.	If the price is expected to rise, current demand will rise.	
d.	Future price is not related to current demand.	

____	3.	What determines how a change in prices will affect total revenue for a company?
a.	elasticity of demand	c.	values of elasticity	
b.	the company’s pricing policy	d.	the consumers’ incomes	

____	4.	What kind of system is the United States economy based on?
a.	cause and effect	c.	market	
b.	centralized	d.	production	

____	5.	Ceteris paribus, or “all other things held constant,” is an assumption that has which of the following effects on a demand schedule?
a.	It takes only prices into account.	
b.	It considers the effects of all possible changes on demand.	
c.	It is accurate no matter what changes occur.	
d.	It is accurate only at one price level.	

____	6.	How did the existence of the baby boom generation change demand in the United States?
a.	Demand was raised for different goods with each age the baby boomers reached.	
b.	After they reached the teenage years, the baby boomers were integrated into the society and no longer affected demand.	
c.	People were poorer because they had so many children, so demand was lowered.	
d.	The baby boomers did not raise demand until they became adults, when they had their own money to spend.	

____	7.	What does it mean when the demand for a product is inelastic?
a.	People will not buy any of the product when the price goes up.	
b.	A price increase does not have a significant impact on buying habits.	
c.	Customers are sensitive to the price of the product.	
d.	There are very few satisfactory substitutes for the product.	

____	8.	What kind of table lists the quantity of a good that a person will buy at different prices?
a.	demand schedule	c.	market demand schedule	
b.	demand curve	d.	market demand curve	

____	9.	What is a basic principle of the law of demand?
a.	The higher the price, the more people will want the good.	
b.	Everyone has a limited income that they will spend.	
c.	When a good’s price is lower, people will buy more of it.	
d.	Services are of interest in the same way that goods are.	

____	10.	What kind of changes would be expected in the demand of a country that has a growing population?
a.	a rise in the demand for recreation	
b.	a shift in the demand for high-quality food	
c.	a rise in the demand for shelter	
d.	a lowering in the demand for automobiles	

____	11.	What does unitary elastic demand mean?
a.	The elasticity of demand is mathematically determined.	
b.	The elasticity of demand is different at each unit on the price range.	
c.	The demand is inelastic at a low price but becomes elastic as the price rises.	
d.	The percentage change in quantity demanded is exactly equal to the percentage change in price.	

____	12.	What is a company’s total revenue?
a.	the price of a company’s goods	
b.	the amount a company receives for selling its goods	
c.	the amount of goods a company can expect to sell	
d.	the amount of profit a company can expect to make	

____	13.	When prices rise, which of the following happens to income?
a.	It goes down.	c.	It rises to meet prices.	
b.	It buys less.	d.	It is used to buy different things.	

____	14.	Which of the following goods would be likely to be bought in the same quantity even if it doubled in price?
a.	shoes	c.	pencils	
b.	telephones	d.	computers	

____	15.	Which of the following events could cause the demand curve for sports magazines to shift to the right?
a.	The publisher cuts the price of an issue from $3.95 to $2.50.	
b.	The price of an issue of a popular computer game magazine rises from $2.95 to $3.95.	
c.	A star basketball player interests thousands of people in professional sports for the first time.	
d.	A local library buys a subscription to the sports magazine for its reading room.	

____	16.	The price of movie tickets in a town has risen from $7 to $9. What is the most likely effect of the change in price?
a.	The demand curve for movie tickets will move right.	
b.	The quantity demanded of movie tickets will increase.	
c.	The demand curve for movie tickets will move left.	
d.	The quantity demanded of movie tickets will decrease.	

____	17.	Alex receives a raise at work and continues to work the same number of hours each week. His demand for $3 t-shirts, which he considers an inferior good, will
a.	increase.	c.	stay the same.	
b.	decrease.	d.	have no relation to his income.	

____	18.	Demand for movie rentals is highly elastic. A video store that raises the price of a rental will
a.	lose revenue.	c.	possibly gain or lose revenue.	
b.	gain revenue.	d.	see no change in revenue.	

____	19.	When movie rentals were $2.95, Sara rented ten movies a month. The price of a rental increased by fifty cents and Sara decided to rent two fewer movies a month. When the price increased by one more dollar, Sarah decided to cut the number of movies she rented in half. What is her quantity demanded by month at the current price?
a.	five	c.	four	
b.	one	d.	two	

____	20.	Which of these events could permanently shift a individual’s demand curve for umbrellas to the right?
a.	He buys a car so he no longer needs to walk to and wait at a bus stop every morning to get to work.	
b.	He moves from a desert community to a rainy city by the ocean.	
c.	The price of umbrellas decreases significantly as inexpensive umbrellas are imported from China.	
d.	Weather forecasters predict that a major hurricane will hit his city the following week.	

____	21.	Jasmine is willing to buy 40 pencils at 25 cents apiece. When the price is ten cents apiece, she is willing to buy 100 pencils. Which of the following statements could be true about Jasmine’s demand for pencils?
a.	She will buy 80 pencils at 15 cents apiece.	
b.	She will buy 20 pencils at 20 cents apiece.	
c.	She will buy 100 pencils at 5 cents apiece.	
d.	None of these statements is likely to be true.	

____	22.	What term describes demand with an elasticity of less than 1?
a.	unitary elastic	c.	low	
b.	inelastic	d.	elastic	

____	23.	The price of a slice of pizza has just increased by $1 from an earlier, low price. Based on Ashley’s demand curve in Figure 4.4, which of the following statements is true?
a.	Ashley will buy two fewer slices of pizza.	
b.	Ashley will buy four slices of pizza.	
c.	Ashley’s quantity demanded is unchanged.	
d.	Ashley will not buy any pizza.	

____	24.	According to Figure 4.4, what is Ashley’s elasticity of demand as the price of a slice of pizza decreases from $2.00 to $1.00?
a.	5.0	c.	2.0	
b.	1.0	d.	4.0	

____	25.	A slice of pizza costs $4.00. Based on Ashley’s demand curve in Figure 4.4, what is her quantity demanded of pizza at this price?
a.	one	
b.	zero	
c.	five	
d.	There is not enough information to answer the question.	

Matching

Identifying Key Terms
Match each term with the correct statement below.
a.	elasticity of demand	f.	total revenue	
b.	substitution effect	g.	normal good	
c.	law of demand	h.	inferior good	
d.	complement	i.	demand curve	
e.	substitute	j.	ceteris paribus	

____	26.	a graphic representation of a demand schedule

____	27.	a good that replaces another demanded good

____	28.	a good that consumers will demand more of when their incomes increase

____	29.	a good that is always used with another good

____	30.	the amount of money a company receives by selling goods or services

____	31.	what happens when consumers react to an increase in a good’s price by consuming less of that good and more of other goods

____	32.	a measure of how people change their buying patterns when prices change

____	33.	the way that a change in price determines whether or not consumers buy goods

Identifying Key Terms
Match each term with the correct statement below.
a.	total revenue	f.	elasticity of demand	
b.	income effect	g.	demand curve	
c.	elastic	h.	substitute	
d.	inferior good	i.	ceteris paribus	
e.	normal good	j.	complement	

____	34.	the change in consumption resulting from a change in real income

____	35.	a good consumed instead of one whose price has risen

____	36.	a good that is bought and used along with another good

____	37.	the assumption that nothing but the price of a good will change

____	38.	a measure of how consumers react to a change in the price of a good

____	39.	demand that is very sensitive to a change in price

____	40.	a graphic representation of the quantities of a good that will be bought at each price

____	41.	a good for which the demand falls when income rises

Short Answer

Reading a Market Demand Schedule

	Number of Teens	Number of Adults	
Product	$1	$2	$3	$1	$2	$3	
Magazine	20	15	5	50	35	20	
Candy Bar	50	25	5	50	40	20	
Video Game	50	40	10	15	10	5	
Figure 4.1

	42.	According to Figure 4.1, how many teenagers would buy a candy bar for $2?

	43.	According to Figure 4.1, which product is least appealing to adults at any price?

	44.	According to Figure 4.1, is the elasticity of demand for any of the products, at any of the prices, unitary?

	45.	According to Figure 4.1, how many teens and adults combined would buy a candy bar at $1?

Chapter Four Review
Answer Section

MULTIPLE CHOICE

	1.	ANS:	B	DIF:	Medium	REF:	79-80	OBJ:	2.4.1.1
TOP:	law of demand		

	2.	ANS:	C	DIF:	Medium	REF:	87	OBJ:	2.4.2.2
TOP:	law of demand		

	3.	ANS:	A	DIF:	Medium	REF:	95	OBJ:	2.4.3.4
TOP:	total revenue		

	4.	ANS:	C	DIF:	Medium	REF:	79	OBJ:	2.4.1.1
TOP:	law of demand		

	5.	ANS:	A	DIF:	Medium	REF:	85	OBJ:	2.4.2.1
TOP:	ceteris paribus		

	6.	ANS:	A	DIF:	Medium	REF:	87	OBJ:	2.4.2.2
TOP:	law of demand		

	7.	ANS:	B	DIF:	Medium	REF:	90	OBJ:	2.4.3.1
TOP:	inelastic

	8.	ANS:	A	DIF:	Medium	REF:	81	OBJ:	2.4.1.3
TOP:	market demand schedule

	9.	ANS:	C	DIF:	Medium	REF:	79	OBJ:	2.4.1.1
TOP:	law of demand		

	10.	ANS:	C	DIF:	Medium	REF:	87	OBJ:	2.4.2.2
TOP:	law of demand		

	11.	ANS:	D	DIF:	Medium	REF:	91	OBJ:	2.4.3.1
TOP:	unitary elastic		

	12.	ANS:	B	DIF:	Medium	REF:	95	OBJ:	2.4.3.4
TOP:	total revenue		

	13.	ANS:	B	DIF:	Medium	REF:	86-87	OBJ:	2.4.2.2
TOP:	law of demand		

	14.	ANS:	C	DIF:	Medium	REF:	91-93	OBJ:	2.4.3.1
TOP:	elasticity of demand, inelastic

	15.	ANS:	C	DIF:	Hard	REF:	86	OBJ:	2.4.2.2
TOP:	demand curve		

	16.	ANS:	D	DIF:	Medium	REF:	85	OBJ:	2.4.2.1
TOP:	quantity demanded, demand curve

	17.	ANS:	B	DIF:	Easy	REF:	87	OBJ:	2.4.2.2
TOP:	inferior good		

	18.	ANS:	C	DIF:	Medium	REF:	96	OBJ:	2.4.3.3
TOP:	elasticity, revenues	

	19.	ANS:	C	DIF:	Easy	REF:	81	OBJ:	2.4.1.3
TOP:	quantity demanded	

	20.	ANS:	B	DIF:	Medium	REF:	87	OBJ:	2.4.2.2
TOP:	demand curve, shift	

	21.	ANS:	A	DIF:	Medium	REF:	81	OBJ:	2.4.1.3
TOP:	demand schedule	

	22.	ANS:	D	DIF:	Easy	REF:	91	OBJ:	2.4.3.1
TOP:	elasticity

	23.	ANS:	A	DIF:	Medium	REF:	82	OBJ:	2.4.1.4
TOP:	quantity demanded, demand curve

	24.	ANS:	C	DIF:	Medium	REF:	92	OBJ:	2.4.3.1
TOP:	elasticity, demand curve

	25.	ANS:	B	DIF:	Hard	REF:	83	OBJ:	2.4.1.4
TOP:	demand curve		

MATCHING

	26.	ANS:	I	DIF:	Easy	REF:	82	OBJ:	2.4.1.4
TOP:	demand curve		

	27.	ANS:	E	DIF:	Easy	REF:	88	OBJ:	2.4.2.3
TOP:	substitute

	28.	ANS:	G	DIF:	Easy	REF:	86	OBJ:	2.4.2.1
TOP:	normal good

	29.	ANS:	D	DIF:	Easy	REF:	88	OBJ:	2.4.2.3
TOP:	complement

	30.	ANS:	F	DIF:	Easy	REF:	95	OBJ:	2.4.3.4
TOP:	total revenue		

	31.	ANS:	B	DIF:	Easy	REF:	80	OBJ:	2.4.1.2
TOP:	substitution effect	

	32.	ANS:	A	DIF:	Easy	REF:	90	OBJ:	2.4.3.1
TOP:	elasticity of demand	

	33.	ANS:	C	DIF:	Easy	REF:	79	OBJ:	2.4.1.1
TOP:	law of demand		

	34.	ANS:	B	DIF:	Easy	REF:	80	OBJ:	2.4.1.2
TOP:	income effect		

	35.	ANS:	H	DIF:	Easy	REF:	88	OBJ:	2.4.2.3
TOP:	substitute

	36.	ANS:	J	DIF:	Easy	REF:	88	OBJ:	2.4.2.3
TOP:	complement

	37.	ANS:	I	DIF:	Easy	REF:	85	OBJ:	2.4.2.1
TOP:	ceteris paribus		

	38.	ANS:	F	DIF:	Easy	REF:	90	OBJ:	2.4.3.1
TOP:	elasticity of demand	

	39.	ANS:	C	DIF:	Easy	REF:	90	OBJ:	2.4.3.1
TOP:	elastic

	40.	ANS:	G	DIF:	Easy	REF:	82	OBJ:	2.4.1.4
TOP:	demand curve		

	41.	ANS:	D	DIF:	Easy	REF:	87	OBJ:	2.4.2.2
TOP:	inferior good		

SHORT ANSWER

	42.	ANS:	
25

DIF:	Hard	REF:	81-82	OBJ:	2.4.1.3	TOP:	market demand schedule

	43.	ANS:	
the video game

DIF:	Hard	REF:	81-82	OBJ:	2.4.1.3	TOP:	market demand schedule

	44.	ANS:	
Yes, the demand for the candy bar and the video game is unitary for adults when prices change from $2 to $3.

DIF:	Hard	REF:	81-82	OBJ:	2.4.3.1	TOP:	market demand schedule

	45.	ANS:	
100

DIF:	Hard	REF:	81-82	OBJ:	2.4.1.3	TOP:	market demand schedule