Page 516 - Krugmans Economics for AP Text Book_Neat

Tackle the Test: Multiple-Choice Questions
1. A perfectly elastic demand curve is b. The slope of the demand curve is one.
a. upward sloping. c. The demand curve is vertical.
b. vertical. d. The demand curve is horizontal.
c. not a straight line. e. The price of the good is high.
d. horizontal.
4. Which of the following is correct for a price increase? When
e. downward sloping.
demand is , total revenue will .
2. Which of the following would cause the demand for a good to Demand Total Revenue
be relatively inelastic? a. inelastic decrease
a. The good has a large number of close substitutes. b. elastic decrease
b. Expenditures on the good represent a large share of c. unit-elastic increase
consumer income. d. unit-elastic decrease
c. There is ample time to adjust to price changes. e. elastic increase
d. The good is a necessity.
5. Total revenue is maximized when demand is
e. The price of the good is in the upper left section of a linear
a. elastic.
demand curve.
b. inelastic.
3. Which of the following is true if the price elasticity of demand c. unit-elastic.
for a good is zero? d. zero.
a. The slope of the demand curve is zero. e. infinite.

Tackle the Test: Free-Response Questions
1. Draw a correctly labeled graph of a perfectly inelastic 2. Draw a correctly labeled graph illustrating a demand curve
demand curve. that is a straight line and is neither perfectly elastic nor
a. What is the price elasticity of demand for this good? perfectly inelastic.
b. What is the slope of the demand curve for this good? a. On your graph, indicate the half of the demand curve along
c. Is this good more likely to be a luxury or a necessity? which demand is elastic.
Explain. b. In the elastic range, how will an increase in price affect total
revenue? Explain.

Answer (5 points)
Price
D

0 Quantity
1 point: A graph with “Price” (or “P”) on the vertical axis, “Quantity” (or “Q”) on
the horizontal axis, and a vertical line labeled “Demand” (or “D”)

1 point: Zero
1 point: Infinite or undefined
1 point: Necessity
1 point: Since you have to have a necessity (such as a life-saving medicine),
you do not change the quantity you purchase when price changes.

474 section 9 Behind the Demand Curve: Consumer Choice