Deck 7: Consumer Choice and Elasticity

Question 1

Why is the current U.S. tax-treatment of health insurance purchased through one's employer discriminatory?

A) Health insurance should not be a tax-deductible expense for anyone.
B) The system gives preferential tax treatment to self-employed individuals.
C) The system imposes higher taxes on the direct purchase of health insurance because it is not tax deductible.
D) The system gives preferential tax treatment to people who purchase health insurance directly from a provider.

Answer 1

The system imposes higher taxes on the direct purchase of health insurance because it is not tax deductible.

Question 2

Third-party payments by either the government or an insurance company accounted for ____ of the 2011 healthcare expenditures, compared to ____ paid by third parties in 1960. (Fill in the blanks)

A) 40 percent; 20 percent
B) 20 percent; 40 percent
C) 86 percent; 45 percent
D) 96 percent; 73 percent

Answer 2

86 percent; 45 percent

Question 3

Federal tax legislation makes it cheaper for individuals and families to pay for health care

A) by purchasing an insurance policy through their employer rather than paying for it directly with their own money.
B) by purchasing an insurance policy through their employer rather than directly purchasing health insurance from the company of their choice.
C) directly rather than through an insurance policy offered through their employer.
D) by both a and b above.

Answer 3

by both a and b above.

Question 4

If a third party pays a larger and larger share of the purchasing price of a good, economic theory indicates that

A) the total expenditures (including those made by the third party) on the good will decline.
B) the demand for the good will decrease.
C) consumers will have a stronger incentive to economize on their use of the good.
D) suppliers will have less incentive to provide the good at low prices.

Question 5

During the last three decades, the real (adjusted for inflation) expenditures

A) on Medicare have grown rapidly, but the real expenditures on Medicaid have been virtually constant.
B) on the Medicare program have been virtually constant but the real expenditures on Medicaid have increased substantially.
C) on both Medicare and Medicaid have increased substantially.
D) on both Medicare and Medicaid have been virtually constant.

Question 6

When health insurance is purchased primarily through one's employer,

A) direct purchase of health insurance becomes cheaper.
B) the benefits of the healthcare insurance are fully taxable.
C) it is more costly for employees to switch jobs and move to areas where jobs are available.
D) the overall number of people without health insurance decreases.

Question 7

Which of the following is fully tax deductible (it is either subtracted or excluded from taxable income) under the current tax system of the United States?

A) Out-of-pocket medical expenses.
B) Healthcare insurance purchased through one's employer.
C) Healthcare insurance purchased directly by an individual or family.
D) All of the above.

Question 8

During the last four decades, the share of health-care expenditures paid for by third parties (either the government or insurance companies)

A) has remained relatively constant.
B) fell from approximately 60 percent in 1960 to 75 percent in recent years.
C) increased from approximately 45 percent in 1960 to over 85 percent in recent years.
D) declined during the 15 years following the passage of Medicare but has been increasing since 1980.

Question 9

Given the current structure of health-care finance, which of the following is most likely to occur when the baby boom generation begins to retire and the elderly population increases rapidly during the years following 2010?

A) The demand for health-care services will decrease.
B) The prices of health-care services will grow less rapidly than has been the case during the last three decades.
C) The real (adjusted for inflation) expenditures on Medicare and the taxes to finance the program will tend to decline.
D) The health-care inflation and spending growth of recent decades will continue or even accelerate.

Question 10

Does it make any difference whether health-care expenditures are paid for by the consumer or by a third party (the government or an insurance company, for example)?

A) No; the quantity of health-care service demanded is not influenced by either the price of health care or who is paying for it.
B) Yes; consumers of health care will have a stronger incentive to economize when they are buying the service with their own money.
C) Yes; consumers of health-care services will have a stronger incentive to economize when the services are paid for by a third party.
D) No; health care is an essential service, and therefore, the incentive to economize on it is unaffected by who is paying for the service.

Question 11

As the share of healthcare expenditures paid for by third parties has grown, both healthcare prices and total expenditures have increased rapidly. Is this surprising?

A) Yes; third-party payments provide healthcare consumers with a strong incentive to economize, and therefore, the growth of expenditures is particularly surprising.
B) No; third-party payments weaken the incentive of healthcare consumers to economize, and therefore, the rapid growth of expenditures is an expected result.
C) Yes; the price increases are surprising because healthcare suppliers have a strong incentive to provide the services at a low price when they are paid for by a third party.
D) No; the growth of third-party payments will reduce the demand for healthcare, which will lead to both higher prices and expenditure levels.

Question 12

A 2.9 percent payroll tax (1.45 percent levied on both the employee and the employer) imposed on current workers is used to finance the

A) Medicaid program that provides healthcare for the poor.
B) hospitalization costs of Medicare beneficiaries.
C) cost of physician services supplied to the elderly.
D) healthcare costs of both the elderly and the poor.

Question 13

Which of the following is the best example of a health care service with a large public good component?

A) A hair-growing treatment provided to a twenty-five year-old single man.
B) Heart bypass surgery provided to an employee and paid for by employer-funded insurance.
C) A vaccine that reduces the incidence of a communicable disease.
D) A hip replacement provided to a senior citizen.

Question 14

As third-party payments and government expenditures on healthcare increased following the passage of Medicare and Medicaid,

A) total expenditures on healthcare declined.
B) the incentive of consumers to economize on their use of healthcare services increased.
C) the incentive of suppliers to provide healthcare services at a low cost increased.
D) both the prices of healthcare services and total expenditures on those services increased rapidly.

Question 15

The growth of third-party payments (payments by insurers and the government) of healthcare services during the last four decades has been accompanied by

A) a reduction in expenditures on healthcare as a share of the economy.
B) an increase in the sensitivity of consumers to the prices of healthcare services.
C) persistent increases in the prices of healthcare services and rapid growth in the total expenditures on healthcare.
D) an increase in the incentive of suppliers to provide healthcare services at a low cost.

Question 16

Which of the following is true about health care?

A) The growth of third-party payments during the last several decades has helped control inflation in the health-care sector.
B) Public policy encourages Americans to purchase low deductible/low co-payment health insurance coverage through their employers.
C) Low deductible health insurance coverage encourages health-care consumers to search for the best prices.
D) The 2.9 percent Medicare payroll tax is sufficient to cover the cost of the promised future health-care services to senior citizens.

Question 17

Which of the following grew rapidly during the years following the passage of the Medicare and Medicaid programs?

A) The share of healthcare expenditures financed by third parties.
B) The prices of healthcare relative to the prices of other goods and services.
C) Expenditures on healthcare as a share of the economy.
D) All of the above.

Question 18

What percentage of U.S. healthcare expenditures is currently paid for by a third party, either the government or an insurance company?

A) Less than 10 percent.
B) Approximately 30 percent.
C) Approximately 50 percent.
D) More than 85 percent.

Question 19

Which of the following is true about health care?

A) Health care in Canada and most of the European countries is a socialized industry.
B) Socialization of the healthcare industry eliminates the problem of scarcity in the healthcare industry.
C) The high-income countries of Europe are able to provide as much healthcare, free of charge, as their citizens want.
D) All of the above are true.

Question 20

Real expenditures on Medicare and Medicaid

A) rose during the 1970s and 1980s, but they have been declining since 1990.
B) fell during the 1970s and 1980s, but they have been increasing since 1990.
C) increased at about the same rate as real GDP during the last three decades.
D) have approximately doubled during each of the last three decades.

Question 21

If the supply of health-care services is highly inelastic and larger government subsidies lead to an increase in the demand for the services,

A) the prices of health-care services will rise by only a small amount, but the quantity supplied will increase substantially.
B) the prices of health-care services will rise substantially, but the quantity supplied will increase by only a small amount.
C) both health-care prices and the quantity of the services supplied will increase substantially.
D) the prices of health-care services will decline, but there will be only a small change in the quantity supplied.

Question 22

Which of the following would encourage consumers to economize on health-care expenditures and producers to supply health-care services more efficiently?

A) An increase in out-of-pocket expenditures by health-care consumers.
B) Decreased reliance on personal Medical Savings Accounts and health-care expenditures from the accounts.
C) Decreased reliance on the purchase of catastrophic health insurance coverage and less reliance on insurance with first-dollar coverage and small co-payments.
D) The establishment of a national health-care system that would provide coverage to all people.

Question 23

When a third party pays a larger and larger share of the purchasing price of a good, economic theory indicates that the

A) demand for the good will decline.
B) consumers of the good will have less and less incentive to economize on its use.
C) suppliers of the good will have a stronger incentive to provide the good at low prices.
D) prices of the good will tend to decline with the passage of time.

Question 24

Over the last forty years, the price index of healthcare services

A) declined slightly relative to the overall consumer price index.
B) fell by approximately 50 percent compared to the overall consumer price index.
C) increased at twice the rate of the overall consumer price index.
D) rose during a brief period following the passage of Medicare and Medicaid but has been relatively stable since that time.

Question 25

Economic theory indicates that the growth of subsidies to healthcare consumers and accompanying expansion in third-party payments will

A) place downward pressure on the prices of healthcare services.
B) lead to higher healthcare prices.
C) increase the incentive of consumers to economize on their purchases of healthcare services.
D) increase the incentive of healthcare providers to provide their services at economical prices.

Question 26

"When a third party (for example, an insurance company or the government) pays all or most of the cost of a good or service, the incentive of consumers to shop for the best value per dollar spent and of producers to offer the item at an economical price is substantially reduced." This statement is

A) essentially true.
B) false; consumers will still have a strong incentive to search for the most economical price even if someone else is paying the bill.
C) false; producers will still have a strong incentive to keep prices low even if consumers are non-responsive to price differences among suppliers.
D) false; the party paying for the good will not influence the incentive of either consumers or producers to economize.

Question 27

The only two options to control the growth of healthcare spending are

A) price controls and political rationing or competition and market prices.
B) taxation or political mandates.
C) subsidizing of healthcare insurance or government provision of healthcare.
D) free healthcare or subsidized healthcare.

Question 28

Healthcare price controls will lead to

A) more innovative healthcare treatments.
B) waiting lines and lengthy delays for treatment.
C) higher quality healthcare services.
D) an increase in the supply of healthcare services.

Question 29

Economic theory indicates that as a larger share of medical services are paid for by a third party (for example, insurance companies or the government) rather than directly by the consumer,

A) consumers will have a stronger incentive to economize.
B) consumers will have a weaker incentive to economize and the prices of medical services will rise more rapidly than would otherwise be the case.
C) consumers will have a weaker incentive to economize, but medical service suppliers will have a stronger incentive to keep prices low.
D) the suppliers of medical services will have more incentive to economize.

Question 30

Which of the following contributes to the poor performance of the healthcare industry?

A) An increasing share of healthcare costs is paid for directly by consumers.
B) The tax system discourages the purchase of healthcare through employers, while offering advantages to those who purchase healthcare plans directly.
C) State regulations often force insurers to cover items such as in-vitro fertilization, drug rehabilitation, and marriage counseling, which drive up insurance costs.
D) State regulations make it attractive for health insurers to provide only low-cost, catastrophic health insurance.

Question 31

Economic theory indicates that the growth of subsidies to healthcare consumers and accompanying expansion in third-party payments will

A) lead to higher healthcare prices.
B) lead to lower healthcare prices.
C) reduce the incentive of consumers to economize.
D) increase the incentive of healthcare providers to provide their services at a low cost.
E) do both a and c above.

Question 32

Growth in the share of health-care expenditures covered by third parties (for example, insurance or government programs) will

A) place downward pressure on the prices of health-care services.
B) reduce the incentive of suppliers to provide consumers with health-care services at a low cost.
C) make consumers more sensitive to the price of health-care services.
D) make it easier to control the growth of health-care expenditures.

Question 33

Under the current structure of Medicare, the movement of the baby boom generation into the retirement phase of life will

A) increase the demand for medical services and the share of those services financed by third parties.
B) push both healthcare prices and expenditures upward.
C) cause Medicare expenditures to increase and necessitate the need for higher taxes to finance the program.
D) do all of the above.

Question 34

During the last four decades,

A) the total expenditures of Americans on health care have been relatively constant.
B) the share of health-care expenditures covered by a third party (either the government or an insurance company) has increased substantially.
C) the prices of health-care services have risen but not as rapidly as the general level of prices.
D) health-care providers have lowered prices in response to the rapid increase in medical technology.

Question 35

Under the current structure of Medicare, economic theory indicates that the movement of the baby boom generation into the retirement phase of life will

A) reduce the share of healthcare services paid for by a third party.
B) push both healthcare prices and expenditures upward.
C) increase the incentive of suppliers to provide healthcare services at a low cost.
D) increase the incentive of consumers to economize on their use of healthcare.

Question 36

Economic analysis indicates that the increasing government expenditures and growth of third-party payments accompanying the Medicare and Medicaid programs

A) reduced the demand for healthcare services.
B) reduced the incentive of consumers to economize on their use of healthcare.
C) increased the incentive of consumers to economize on their use of healthcare.
D) placed downward pressure on the prices of healthcare services.

Question 37

Under the current structure of Medicare, the movement of the baby boom generation into the retirement phase of life will

A) reduce the overall demand for medical services because the elderly will not have to pay for hospitalization in the future.
B) place downward pressure on healthcare prices.
C) cause Medicare expenditures to increase and necessitate the need for higher taxes to finance the program.
D) do all of the above.

Question 38

As the Medicare program is expanded to cover the cost of prescription drugs for the elderly, other things constant, this will lead to

A) an increase in demand and higher prices for prescription drugs.
B) an increase in demand and lower prices for prescription drugs.
C) reduction in demand and lower prices for prescription drugs.
D) reduction in demand and higher prices for prescription drugs.

Question 39

Have market forces failed in keeping healthcare costs under control?

A) Yes; in most high-income countries healthcare is a socialized industry and costs have been kept low.
B) Yes; the government has allowed market forces to determine costs, yet healthcare spending continues to rise rapidly.
C) No; government regulations have undermined the operation of markets and created perverse incentives that have led to rising prices and soaring healthcare expenditures.
D) No; market forces have been allowed to determine costs and those costs have remained low relative to the consumer price index.

Question 40

Concerning health care, which of the following is true?

A) More than half of medical bills are paid for directly by consumers.
B) Healthcare insurance provided by one's employer is counted as personal income.
C) State mandated coverage of medical procedures like in-vitro fertilization, drug rehabilitation, and acupuncture, make health insurance more affordable.
D) Regulations prevent consumers from purchasing a health insurance plan offered in another state.

Question 41

Which of the following would help control the future growth of healthcare prices and expenditures?

A) An increase in the share of healthcare costs paid for either directly or from personal medical savings accounts.
B) The substitution of catastrophic (high deductibility) health insurance for low co-payment plans.
C) More reliance on expansion in the supply of medical services rather than stimulation of demand.
D) All of the above.

Question 42

Special savings accounts that individuals would pay into and then use to pay for medical expenses (or use to purchase a catastrophic health insurance policy) are called

A) Medicare accounts.
B) comprehensive insurance plans.
C) medical savings accounts.
D) Health Maintenance Organizations (HMOs).

Question 43

If governments provide free healthcare services,

A) this illustrates that governments can provide healthcare more economically than private firms.
B) output and consumption of other goods will not be sacrificed.
C) resources with alternative uses are allocated to healthcare and there is an opportunity cost of these resources.
D) the opportunity cost of the resources used to supply healthcare is zero.

Question 44

The Affordable Care Act will subsidize the purchase of health insurance for which of the following groups?

A) Doctors and nurses regardless of income.
B) Individuals and families with incomes between 133 percent and 400 percent of the poverty level.
C) Employees who belong to a labor union.
D) All workers employed by firms with fewer than 50 full-time employees.

Question 45

If a third party pays for an individual to consume a good, how is the decision making of consumers affected? How does this affect the actions of suppliers?

Question 46

Which of the following would increase the incentive of healthcare consumers to economize and help reduce the future growth of healthcare prices in the United States?

A) An increase in the share of healthcare costs paid for either directly or from personal medical savings accounts.
B) Subsidies that would encourage consumers to purchase low co-payment insurance plans.
C) A new government program that would cover the cost of prescription drugs purchased by all healthcare consumers.
D) A reduction in the eligibility age for the coverage of Medicare from 65 to 55 years of age.

Question 47

Which of the following would encourage consumers to economize on their use of healthcare and producers to provide it more efficiently?

A) A reduction in out-of-pocket healthcare expenditures.
B) Government subsidies that encourage people to purchase health insurance policies with first-dollar coverage and small co-payments.
C) Medicare reform that at least partially substituted defined benefits (funds that could be used to pay for healthcare or the purchase of insurance) for the present cost reimbursement system.
D) All of the above.

Question 48

Which of the following is a predictable impact of the Patient Protection and Affordable Care Act ?

A) A reduction in the prices of health care services.
B) A reduction in total expenditures on health care.
C) An increase in the number of part-time employees relative to full-time workers.
D) A lower overall rate of unemployment.

Question 49

The phase out of the subsidies for the purchase of health insurance will increase the implicit marginal tax rate on earnings for which of the following groups?

A) The elderly.
B) Individuals and families with incomes between 133 percent and 400 percent of the poverty level.
C) Individuals and families with incomes of more than 400 percent of the poverty level.
D) All workers employed by firms with fewer than 50 full-time employees.

Question 50

Which of the following would help to avert a healthcare crisis?

A) Requiring employers to pick up 100 percent of the healthcare costs for their employees.
B) Discouraging medical savings accounts since these provide additional funds for medical care, and therefore, they are likely to drive up medical prices.
C) Discouraging the purchase of health insurance plans with small co-payments.
D) Structural changes that would increase the competitiveness of the health insurance and medical services markets.

Question 51

Which of the following would help control the future costs of healthcare?

A) A new government program that would cover the cost of prescription drugs purchased by all healthcare consumers.
B) An increase in the share of healthcare expenditures financed with low co-payment insurance.
C) Allowing consumers to purchase healthcare insurance from out-of-state providers.
D) An increase in the tax benefits of purchasing healthcare through one's employer.

Question 52

Which of the following would help control the future growth of healthcare prices and expenditures?

A) Greater reliance on government financed healthcare reimbursement plans.
B) An increase in the share of healthcare expenditures financed with low co-payment insurance.
C) An increase in the share of healthcare cost paid for either directly or from personal medical savings accounts.
D) The finance of prescription drugs for the elderly with a low co-payment insurance plan under Medicare.

Question 53

Which of the following would increase the incentive of consumers to economize and of producers to provide medical services at economical prices?

A) Substitution of catastrophic health insurance plans for low deductible, low co-payment plans.
B) More reliance on medical savings accounts rather than insurance.
C) Equalization of tax treatment between out-of-pocket medical expenses and employer-provided health insurance.
D) All of the above.

Question 54

From the standpoint of economic efficiency, which of the following is a major advantage of medical savings accounts?

A) They encourage healthcare consumers to purchase low-deductible, low co-payment medical insurance plans.
B) They guarantee that no American will ever have to pay another medical bill.
C) They encourage healthcare consumers to economize.
D) They will force employers to pay a larger share of the medical expenses of their employees.

Question 55

When the 2010 Patient Protection and Affordable Care Act is fully implemented, it will

A) require employers with 50 or more employees to provide approved health insurance for their employees or pay a $2000 fine annually for each full-time employee.
B) expand the supply of doctors and other medical services.
C) require all members of Congress and congressional staff employees to purchase their health insurance through the government operated exchanges.
D) make it legal for individuals to purchase health insurance from an insurer in another state.

Question 56

When the 2010 Patient Protection and Affordable Care Act is fully implemented, it will

A) substantially reduce the share of health care expenses paid by a third party.
B) require all Americans to purchase health care insurance from either a private or government source.
C) increase the competitiveness of the health insurance business by allowing people to purchase the insurance across state boundaries.
D) reduce the demand for health care and thereby lead to lower prices for health care services.

Question 57

The Patient Protection and Affordable Care Act will require

A) health insurers to provide coverage to applicants regardless of prior health conditions.
B) all Americans to purchase an approved health insurance policy or pay a tax-penalty for failing to do so.
C) employers with more than 50 full-time employees to either provide approved health insurance for their employees or pay a fine for the failure to do so.
D) all of the above.

Question 58

When the Patient Protection and Affordable Care Act is fully implemented, it will

A) substantially reduce the share of health care expenses paid by a third party.
B) require individuals to pay an annual tax-penalty of up to $695 if they do not have an approved health insurance plan.
C) require firms with fewer than 50 employees to provide health insurance for their workers.
D) make it legal for individuals to purchase health insurance from an insurer in another state.

Question 59

When the 2010 Patient Protection and Affordable Care Act is fully implemented, it will

A) set the prices (reimbursement rates) for more than 7,000 different medical procedures.
B) increase the supply of doctors and other medical services.
C) increase the supply of doctors and other medical services
D) reduce the share of health care expenses paid for by a third party, which will increase the incentive of both consumers and medical providers to economize.
E) All of the above are true.

Question 60

Which of the following groups is most likely to derive substantial benefits from the Patient Protection and Affordable Care Act?

A) Healthy young people.
B) Individuals and families with incomes of more than 400 percent of the poverty level.
C) Individuals with pre-existing health problems.
D) The elderly.

Question 61

Figure 7-8
For a price increase from $10 to $11, the price elasticity of the demand curve depicted in Figure 7-8 is

A) highly inelastic.
B) relatively inelastic.
C) approximately equal to −1.
D) approximately equal to −2.

Question 62

Use the figure below to answer the following question(s).
Figure 7-6
Between $3 and $4, the price elasticity of the demand curve depicted in Figure 7-6 is

A) relatively inelastic.
B) approximately equal to −0.33.
C) approximately equal to −3.
D) both a and b.

Question 63

"I like ice cream, but after eating homemade ice cream last night, I want to have something else for dessert today." This statement most clearly reflects

A) the budget constraint.
B) consumer irrationality.
C) the second law of demand: price elasticity increases with time.
D) the law of diminishing marginal utility.

Question 64

How has public policy influenced the incentives of consumers to economize and suppliers to provide their services economically in the health-care industry?

Question 65

Figure 7-4
Which of the following is true for the demand curve depicted in Figure 7-4?

A) An increase in price from $2 to $3 will reduce total expenditures on the product.
B) In the $2 to $3 range, the price elasticity of the demand curve is approximately unitary.
C) At a price of $2, the price elasticity of the demand curve equals approximately −2.5.
D) In the $2 to $3 range, the demand curve is inelastic.

Question 66

Suppose the state of Colorado imposes a one dollar per pack tax on cigarettes, which increases their price by 30 percent, and as a result, the quantity sold declines by 20 percent. The absolute value of the price elasticity of demand for cigarettes is equal to

A) 0.20.
B) 0.67.
C) 1.50.
D) 3.00.

Question 67

Figure 7-5
Which of the following is true for the demand curve depicted in Figure 7-5?

A) In the $3 to $4 range, the price elasticity of the demand curve equals 1.
B) At a price of $3, the price elasticity of the demand curve equals approximately −3.3.
C) In the $3 to $4 range, the demand curve is inelastic.
D) In the $3 to $4 range, the demand curve is elastic.

Question 68

If a sandwich shop near campus increases its prices by 5 percent, but revenues from its sales are unchanged, the price elasticity of demand for the services offered by the sandwich shop must be

A) elastic.
B) of unitary elasticity.
C) inelastic.
D) equal to 0.5.

Question 69

Suppose that the quantity of chain saws sold increased from 200 to 400 when the price fell from $225 to $175. Over this price range, the absolute value of the price elasticity of demand for chain saws is

A) 0.25.
B) 0.375.
C) 1.0.
D) 2.67.
E) 4.0.

Question 70

Figure 7-2
Figure 7-2 depicts a demand curve with a price elasticity that is

A) perfectly elastic, implying that as much as can be supplied will be purchased at the market price.
B) relatively inelastic, implying that a percent increase in price results in a smaller percent reduction in sales.
C) unitary, implying that a percent change in price leads to an equal percent change in quantity demanded.
D) perfectly inelastic, implying that the same amount will be purchased regardless of the price of the good.

Question 71

If the price of gasoline goes up, and Jacob now buys fewer candy bars because he has to spend more on gas, this would best be explained by

A) the substitution effect.
B) the income effect.
C) the highly elastic demand for gasoline.
D) all of the above.

Question 72

A 10 percent increase in the price of butter reduces butter consumption by about 5 percent. The increase causes households to

A) spend more on butter.
B) spend less on butter.
C) spend the same amount on butter.
D) consume more goods like bread that are complements of butter.

Question 73

Figure 7-3
Figure 7-3 depicts a demand curve with a price elasticity that is

A) perfectly elastic, implying that consumers will purchase as much as can be supplied at the market price.
B) relatively inelastic, implying that a percent increase in price results in a smaller percent reduction in sales.
C) unitary, implying that a percent change in price leads to an equal percent change in quantity demanded.
D) perfectly inelastic, implying that the same amount will be purchased regardless of the price of the good.

Question 74

Use the figure below to answer the following question(s).
Figure 7-6
In the price range between $3 and $4, the price elasticity of the demand curve depicted in Figure 7-6 is

A) highly elastic.
B) approximately equal to −0.33.
C) approximately equal to −3.
D) of unitary elasticity.

Question 75

Studies indicate that the demand for fresh tomatoes is much more elastic than the demand for salt. These findings reflect that

A) tomatoes are a necessity while salt is a luxury.
B) it takes longer for consumers to adjust to a change in the price of salt than to a change in the price of tomatoes.
C) salt will not spoil as easily as fresh tomatoes.
D) more good substitutes exist for fresh tomatoes than for salt.

Question 76

Figure 7-7
In the price range between $3 and $4, the price elasticity of the demand curve depicted in Figure 7-7 is

A) highly elastic.
B) approximately equal to −0.33.
C) approximately equal to −3.
D) of unitary elasticity.

Question 77

Which of the following would be the best example of consumer surplus?

A) Shaniqua does not get cell-phone service because she feels that it is worth less than the $30 a month fee.
B) Nicolas pays $8 for a haircut that is worth $10 to him.
C) Diego buys a house for $104,000, the maximum amount that he would be willing to pay for it.
D) Isabella purchases a book for $20 and uses a credit card to pay for it.

Question 78

If Santiago thinks the last dollar spent on jeans yields less satisfaction than the last dollar spent on shoes, and Santiago is a utility-maximizing consumer, he should

A) decrease his spending on shoes.
B) decrease his spending on shoes and increase his spending on jeans.
C) increase his spending on jeans.
D) increase his spending on shoes and decrease his spending on jeans.

Question 79

If Camila's income rises by 20 percent, and, as a result, she purchases 40 percent more dresses, her income elasticity for dresses is

A) 0.5.
B) 1.0.
C) 2.0.
D) Not enough information is given to answer this question.

Question 80

Figure 7-1
Figure 7-1 depicts a demand curve with a price elasticity that is

A) perfectly elastic, implying that consumers will purchase as much as can be supplied at the market price.
B) relatively inelastic, implying that a percent increase in price results in a smaller percent reduction in sales.
C) unitary, implying that a percent change in price leads to an equal percent change in quantity demanded.
D) perfectly inelastic, implying that the same amount will be purchased regardless of the price of the good.