Deck 5: Elasticity and Its Application

Question 1

The demand for gasoline will respond more to a change in price over a period of five weeks than over a period of five years.

Answer 1

False

Question 2

In general, demand curves for luxuries tend to be price elastic.

Answer 2

True

Question 3

Even the demand for a necessity such as gasoline will respond to a change in price, especially over a longer time horizon.

Answer 3

True

Question 4

Goods with close substitutes tend to have more elastic demands than do goods without close substitutes.

Question 5

Demand for a good is said to be inelastic if the quantity demanded increases slightly when the price falls by a large amount.

Question 6

Suppose that when the price rises by 10% for a particular good, the quantity demanded of that good falls by 20%. The price elasticity of demand for this good is equal to 2.0.

Question 7

The demand for Rice Krispies is more elastic than the demand for cereal in general.

Question 8

Suppose that when the price rises by 20% for a particular good, the quantity demanded of that good falls by 10%. The price elasticity of demand for this good is equal to 2.0.

Question 9

Demand for a good is said to be inelastic if the quantity demanded increases substantially when the price falls by a small amount.

Question 10

Demand is inelastic if the price elasticity of demand is greater than 1.

Question 11

The demand for soap is more elastic than the demand for Dove soap.

Question 12

The demand for desserts tends to be more inelastic than the demand for red velvet cake.

Question 13

The price elasticity of demand is defined as the percentage change in price divided by the percentage change in quantity demanded.

Question 14

If the price of calculators increases by 15% and the quantity demanded per week falls by 45% as a result, then the price elasticity of demand is 3.

Question 15

Elasticity measures how responsive quantity is to changes in price.

Question 16

Necessities tend to have inelastic demands, whereas luxuries tend to have elastic demands.

Question 17

The price elasticity of demand is defined as the percentage change in quantity demanded divided by the percentage change in price.

Question 18

In general, demand curves for necessities tend to be price elastic.

Question 19

The demand for bread is likely to be more elastic than the demand for solid-gold bread plates.

Question 20

Measures of elasticity enhance our ability to study the magnitudes of changes in quantities in response to changes in prices or income.

Question 21

Price elasticity of demand along a linear, downward-sloping demand curve increases as price falls.

Question 22

If we observe that when the price of chocolate increases by 10%, quantity demanded falls by 5%, then the demand for chocolate is price inelastic.

Question 23

When demand is inelastic, a decrease in price increases total revenue.

Question 24

If a firm is facing inelastic demand, then the firm should decrease price to increase revenue.

Question 25

If a firm is facing elastic demand, then the firm should decrease price to increase revenue.

Question 26

If demand is perfectly elastic, the demand curve is horizontal, and the price elasticity of demand equals 1.

Question 27

If the price elasticity of demand is equal to 1, then demand is unit elastic.

Question 28

If the price elasticity of demand is equal to 0, then demand is unit elastic.

Question 29

The income elasticity of demand is defined as the percentage change in quantity demanded divided by the percentage change in income.

Question 30

An advantage of using the midpoint method to calculate the price elasticity of demand is that it uses the metric system.

Question 31

If demand is perfectly inelastic, the demand curve is vertical, and the price elasticity of demand equals 0.

Question 32

If we observe that when the price of chocolate increases by 10%, total revenue increases by 10%, then the demand for chocolate is unit price elastic.

Question 33

The midpoint method is used to calculate elasticity between two points because it gives the same answer regardless of the direction of the change.

Question 34

Along the elastic portion of a linear demand curve, total revenue rises as price rises.

Question 35

The flatter the demand curve that passes through a given point, the more elastic the demand.

Question 36

A linear, downward-sloping demand curve has a constant elasticity but a changing slope.

Question 37

Price elasticity of demand along a linear, downward-sloping demand curve decreases as price falls.

Question 38

If we observe that when the price of chocolate decreases by 10%, quantity demanded increases by 25%, then the demand for chocolate is price elastic.

Question 39

The income elasticity of demand is defined as the percentage change in quantity demanded divided by the percentage change in price.

Question 40

The flatter the demand curve that passes through a given point, the more inelastic the demand.

Question 41

When the price of knee braces increased by 25 percent, the Brace Yourself Company increased its quantity supplied of knee braces per week by 75 percent. BYC's price elasticity of supply of knee braces is 0.33.

Question 42

The cross-price elasticity of demand for bacon and eggs likely would be negative because bacon and eggs are complements for many people.

Question 43

Supply tends to be more elastic in the short run and more inelastic in the long run.

Question 44

If the price elasticity of supply is 2 and the quantity supplied decreases by 6%, then the price must have decreased by 3%.

Question 45

If a supply curve is horizontal, then supply is said to be perfectly elastic, and the price elasticity of supply approaches infinity.

Question 46

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

Question 47

Cross-price elasticity is used to determine whether goods are substitutes or complements.

Question 48

Supply is said to be inelastic if the quantity supplied responds substantially to changes in the price and elastic if the quantity supplied responds only slightly to price.

Question 49

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

Question 50

Supply and demand both tend to be more elastic in the long run and more inelastic in the short run.

Question 51

The cross-price elasticity of garlic salt and onion salt is -2, which indicates that garlic salt and onion salt are substitutes.

Question 52

Price elasticity of supply measures how much the quantity supplied responds to changes in the price.

Question 53

A government program that reduces land under cultivation hurts farmers but helps consumers.

Question 54

Normal goods have negative income elasticities of demand, while inferior goods have positive income elasticities of demand.

Question 55

Cross-price elasticity is used to determine whether goods are inferior or normal goods.

Question 56

Cross-price elasticity of demand measures how the quantity demanded of one good changes as the price of another good changes.

Question 57

If the income elasticity of demand for a good is negative, then the good must be an inferior good.

Question 58

If a t-shirt manufacturer supplies 1,000 t-shirts per week when the price of t-shirts is $10 and supplies 1,200 t-shirts per week when the price of t-shirts is $12, the price elasticity of supply is 2.

Question 59

If we observe that when consumers' incomes rise by 10%, the quantity demanded of ice cream increases by 5%, then ice cream is an inferior good.

Question 60

If we observe that when the price of ice cream rises by 10%, ice cream manufacturers increase the quantity supplied of ice cream by 20%, then the price elasticity of supply is 2.

Question 61

A discovery that increases wheat yields per acre helps farmers by increasing both supply and total revenues.

Question 62

Drug interdiction, which reduces the supply of drugs, may decrease drug-related crime because the demand for drugs is inelastic.

Question 63

If a firm that produces honey is facing elastic demand, then the firm would decrease price to increase revenue.

Question 64

Normal goods have positive income elasticities of demand, while inferior goods have negative income elasticities of demand.

Question 65

Helen's Honey Hut supplies 20 jars of honey per week when the price of honey is $6 per jar and supplies 30 jars per week when the price of is $8 per jar, so the price elasticity of supply over this price range is 1.4.

Question 66

A "Just Say No" drug education policy that successfully educates consumers to reduce their demand for drugs will lower drug prices and reduce the quantity of drugs demanded.

Question 67

If the price elasticity of supply is 0.5 and the quantity supplied decreases by 6%, then the price must have decreased by 3%.

Question 68

A government program that pays farmers not to plant corn on part of their land can help farmers not only through the subsidy payments to farmers who participate in the program but also by raising the market price of corn.

Question 69

Drug interdiction, which reduces the supply of drugs, will likely be a less effective policy than educating consumers to reduce their demand for drugs because the drug interdiction policy will lower drug prices and reduce the quantity of drugs demanded.

Question 70

Suppose that good X has few close substitutes and that good Y has many close substitutes. Which good would you expect to have more price elastic demand?

Question 71

A government program that reduces land under cultivation can help farmers by raising prices but hurts consumers.

Question 72

If we observe that when the price of chocolate candy bars increases by 10%, quantity demanded decreases total by 10%, then the demand for chocolate candy bars is unit price elastic.

Question 73

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

Question 74

Necessities tend to have elastic demands, whereas luxuries tend to have inelastic demands.

Question 75

A discovery that increases wheat yields per acre hurts farmers by increasing supply and lowering their total revenues.

Question 76

The measure of how willing consumers are to buy less of a good as its price rises is called

Question 77

Demand is elastic if the price elasticity of demand is greater than 1.

Question 78

The OPEC oil cartel has difficulty maintaining high prices in the long run because the supply of oil is more inelastic in the long run than in the short run.

Question 79

If we observe that when a consumer's income rises by 10%, the quantity demanded of chocolate candy bars increases by 15%, then chocolate candy bars are are a normal good for that consumer.

Question 80

OPEC failed to maintain a high price of oil in the long run, partly because both the supply of oil and the demand for oil are more elastic in the long run than in the short run.