AP_Krugman_Textbook

474 section 9 Behind the Demand Curve: Consumer Choice

Tackle the Test: Multiple-Choice Questions

1. A perfectly elastic demand curve is
   a. upward sloping.
   b. vertical.
   c. not a straight line.
   d. horizontal.
   e. downward sloping.


2. Which of the following would cause the demand for a good to
   be relatively inelastic?
   a. The good has a large number of close substitutes.
   b. Expenditures on the good represent a large share of
   consumer income.
   c. There is ample time to adjust to price changes.
   d. The good is a necessity.
   e. The price of the good is in the upper left section of a linear
   demand curve.


3. Which of the following is true if the price elasticity of demand
   for a good is zero?
   a. The slope of the demand curve is zero.

b. The slope of the demand curve is one.

c. The demand curve is vertical.

d. The demand curve is horizontal.

e. The price of the good is high.

4. Which of the following is correct for a price increase? When
   demand is , total revenue will.
   Demand Total Revenue
   a. inelastic decrease
   b. elastic decrease
   c. unit-elastic increase
   d. unit-elastic decrease
   e. elastic increase


5. Total revenue is maximized when demand is
   a. elastic.
   b. inelastic.
   c. unit-elastic.
   d. zero.
   e. infinite.

Tackle the Test: Free-Response Questions

1. Draw a correctly labeled graph of a perfectly inelastic
   demand curve.
   a. What is the price elasticity of demand for this good?
   b. What is the slope of the demand curve for this good?
   c. Is this good more likely to be a luxury or a necessity?
   Explain.

Answer (5 points)

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.

0 Quantity

Price D

2. Draw a correctly labeled graph illustrating a demand curve
   that is a straight line and is neither perfectly elastic nor
   perfectly inelastic.
   a. On your graph, indicate the half of the demand curve along
   which demand is elastic.
   b. In the elastic range, how will an increase in price affect total
   revenue? Explain.