Deck 6: Elasticity

Question 1

If price and total revenue are directly related, demand is inelastic.

Answer 1

True

Question 2

An income elasticity coefficient of −1.8 means the product is a normal good.

Answer 2

False

Question 3

If the coefficient of income elasticity of demand is positive, the product is an inferior good.

Answer 3

False

Question 4

A linear demand curve has a constant elasticity over the full range of the curve.

Question 5

A cross elasticity of demand coefficient of +2.5 indicates that the two products are substitutes.

Question 6

Cross elasticity of demand measures the effect of a change in the price of one product on the quantity demanded of another product.

Question 7

If the quantity demanded for Good A increases from 40 to 60 when price decreases from $9 to $7, price elasticity of demand in this price range is 1.6.

Question 8

The smaller the number of good substitutes for a product, the greater will be the price elasticity of demand for it.

Question 9

Generally speaking, the demand for luxury goods is more price elastic than is the demand for necessities.

Question 10

If the elasticity coefficient of supply is 0.7, supply is elastic.

Question 11

The greater the ease of shifting resources from product X to product Y in the production process, the greater is the elasticity of supply of product Y.

Question 12

If the demand for wheat is highly price inelastic, an extraordinarily large crop may reduce farm incomes.

Question 13

If the coefficient of cross elasticity of demand is positive, the two products are complementary goods.

Question 14

Supply curves for antiques tend to be highly inelastic.

Question 15

If the percentage change in quantity demanded is less than the percentage change in price, then demand is said to be elastic.

Question 16

Generally speaking, the smaller the percentage of one's total budget devoted to a particular product, the more price elastic will be the demand for that product.

Question 17

Income elasticity measures the effect of a change in income on the purchases of some good or service.

Question 18

We would expect the coefficient of cross elasticity of demand for DVD players and DVDs to be positive.

Question 19

If price changes and total revenue changes in the opposite direction, demand is relatively elastic.

Question 20

A good with a price-elasticity of demand coefficient of 0.75 has a demand that is price-inelastic.

Question 21

The supply of tickets to a major sporting event held in an enclosed stadium with a fixed number of seats, such as the Super Bowl or a World Series game, is perfectly inelastic.

Question 22

A state government seeking to increase its excise-tax revenues is more likely to increase the tax rate on items with elastic demand.

Question 23

The price elasticity of supply determines how much price would change as a result of a change in demand.

Question 24

You notice that whenever incomes rise by 5 percent, people buy 3 percent more of Good A. This suggests that Good A has a negative income elasticity of demand.

Question 25

Given that the demand for grains is price-inelastic, we would expect that if the harvest of grains increases significantly, other factors constant, then grain farmers' total revenues would increase.

Question 26

When demand is price-elastic, an increase in price will lead to increased total consumer spending for the product.

Question 27

Over a longer time period after a price change, the price elasticity of supply tends to decrease.

Question 28

If changes in demand cause significant changes in equilibrium price, then supply must be relatively inelastic.

Question 29

Whenever a product is put on special sale at a discounted price, total revenue from the product increases. This indicates that the coefficient of elasticity for the product is greater than 1.

Question 30

In the price range where demand is elastic, if the seller of the good raises its price, then total revenues will increase.

Question 31

If the price-elasticity coefficient for a product is 0.68 and the seller wants to raise revenues by changing its price, then the seller should cut the price of the product.

Question 32

Price elasticity of demand tends to be low for goods with few close substitutes.

Question 33

The supply of antiques is highly inelastic. Thus, increases in demand would have a small effect on price.

Question 34

A product that is successfully advertised and has loyal buyers would have a low price-elasticity coefficient.

Question 35

A normal good would have a positive price-elasticity of demand.

Question 36

The demand for cocaine among addicts is relatively elastic.

Question 37

A positive cross-elasticity of demand between two goods indicates that the two goods are both normal goods.

Question 38

The law of supply indicates that the price-elasticity of supply coefficient would have a negative sign.

Question 39

We would expect the cross-elasticity of demand between popcorn and potato chips to be negative.

Question 40

We would expect the income elasticity of demand for steak to be positive, and that for hamburger to be negative.

Question 41

Suppose that as the price of Y falls from $9 to $8, the quantity of Y demanded increases from 1,000 to 1,250. Then the absolute value of the price elasticity (using the midpoint formula)is approximately

A)250.
B)2.25.
C)1.89.
D)0.53.

Question 42

When the price of candy bars decreased from $0.50 to $0.40, the quantity demanded changed from 10,000 per day to 12,000 per day. In this price range, the price-elasticity coefficient (based on the midpoint formula)for candy bars is

A)1.
B)2.
C)1.22.
D)0.82.

Question 43

The price of season tickets to a performing arts theater decreases by 4 percent. As a result, the quantity demanded increases by 6 percent. The price elasticity of demand for season tickets is

A)0.67.
B)6.7.
C)1.5.
D)0.15.

Question 44

If a firm can sell1,000 units of product A at $8 per unit and1,200 at $6, then

A)the price elasticity of demand is approximately 1.57.
B)A is a complementary good.
C)the price elasticity of demand is approximately 0.64.
D)A is an inferior good.

Question 45

Suppose you are given the following data on demand for a product. The price elasticity of demand (based on the midpoint formula)when price decreases from $9 to $7 is

A)0.63.
B)1.16.
C)1.6.
D)2.27.

Question 46

The price elasticity of demand for a popular sporting event is 0.5. If the price of a ticket to this event increases by 12 percent, the quantity of tickets demanded will

A)decrease by 24 percent.
B)decrease by 6 percent.
C)increase by 6 percent.
D)increase by 24 percent.

Question 47

If the price elasticity of demand for a product is 1.5, then a price cut from$3.00 to$2.70 will

A)increase the quantity demanded by about 1.5 percent.
B)decrease the quantity demanded by about 1.5 percent.
C)increase the quantity demanded by about 15 percent.
D)increase the quantity demanded by about 30 percent.

Question 48

The price elasticity of demand for widgets is 0.8. Assuming no change in the demand curve for widgets, an increase in sales of 16 percent implies a(n)

A)1 percent reduction in price.
B)12 percent reduction in price.
C)20 percent reduction in price.
D)40 percent reduction in price.

Question 49

Suppose the price elasticity of demand for beef is about 1.2. Other things equal, this means that a 15 percent increase in the price of beef will cause the quantity of beef demanded to

A)increase by approximately 8 percent.
B)decrease by approximately 18 percent.
C)decrease by approximately 8 percent.
D)decrease by approximately 12 percent.

Question 50

Suppose we find that the price elasticity of demand for a product is 1.25 when its price is increased by 8 percent. We can conclude that quantity demanded

A)increased by 0.16 percent.
B)decreased by 10 percent.
C)decreased by 0.8 percent.
D)decreased by 0.16 percent.

Question 51

The price of product X is reduced from $50 to $45 and, as a result, the quantity demanded increases from 120 to 140 units. Therefore, demand for X in this price range

A)has declined.
B)is of unit elasticity.
C)is inelastic.
D)is elastic.

Question 52

Blossom, Inc., sells 900 bottles of perfume a month when the price is $10. A huge increase in resource costs forces Blossom to raise the price to $12, and the firm only manages to sell 750 bottles of perfume. Using the midpoint formula, the price elasticity of demand coefficient is

A)1 and elastic.
B)1.4 and elastic.
C)1 and unit elastic.
D)1.67 and elastic.

Question 53

If the price elasticity of demand for a product is equal to 0.5, then a decrease in price of 10 percent will increase quantity demanded by

A)20 percent.
B)0.5 percent.
C)5 percent.
D)0.05 percent.

Question 54

When the price of a product is increased 8 percent, the quantity demanded decreases 20 percent. The price-elasticity of demand coefficient for this product is

A)2.5.
B)25.
C)0.4.
D)4.

Question 55

Suppose that as the price of Y falls from$3.00 to $2.80, the quantity of Y demanded increases from200 to 210. Then the absolute value of the price elasticity (using the midpoint formula)is approximately

A)0.6.
B)1.41.
C)0.71.
D)1.5.

Question 56

When the price of a product is increased 5 percent, the quantity demanded decreases 2 percent. The price-elasticity-of-demand coefficient for this product is

A)0.4.
B)4.
C)2.5.
D)25.

Question 57

The price elasticity of demand for widgets is 0.4. Assuming no change in the demand curve for widgets, a 6 percent decrease in sales implies a(n)

A)13.5 percent increase in price.
B)18 percent increase in price.
C)15 percent increase in price.
D)2.4 percent increase in price.

Question 58

Answer the question based on the following data. Over which of the following price ranges is the demand elastic?

A)$12-$10
B)$8-$6
C)$10-$8
D)$14-$12

Question 59

Suppose the price of local cable TV service increased from$15.00 to$20.00 and as a result the number of cable subscribers decreased from 248,000 to 200,000. Along this portion of the demand curve, using the midpoint method, price elasticity of demand is approximately

A)1.33.
B)0.72.
C)4.
D)0.6.

Question 60

If the demand for product X is inelastic, a 10 percent decrease in the price of X will

A)decrease the quantity of X demanded by more than 10 percent.
B)decrease the quantity of X demanded by less than 10 percent.
C)increase the quantity of X demanded by more than 10 percent.
D)increase the quantity of X demanded by less than 10 percent.

Question 61

Suppose that the price of product X rises by 12 percent and the quantity supplied of X increases by 8 percent. The coefficient of price elasticity of supply for good X is

A)negative, and therefore X is an inferior good.
B)positive, and therefore X is a normal good.
C)less than 1, and therefore supply is inelastic.
D)more than 1, and therefore supply is elastic.

Question 62

Suppose that a 10 percent increase in the price of normal good Y causes a 5 percent decrease in the quantity demanded of normal good X. The coefficient of cross elasticity of demand is

A)negative, and therefore these goods are substitutes.
B)positive, and therefore these goods are substitutes.
C)negative, and therefore these goods are complements.
D)positive, and therefore these goods are complements.

Question 63

The following data table relates to the supply schedule of a product. Over which of the following price ranges is the price-elasticity of supply less than 1?

A)$5 to $10
B)$25 to $30
C)It is less than one over all price ranges.
D)$20 to $25

Question 64

Answer the question based on the following data. What is the price elasticity of demand over the range of $18 to $20?

A)0.31
B)3.28
C)1.38
D)0.73

Question 65

Answer the question based on the following table, which shows a demand schedule. Total revenues will increase if price

A)rises from $4 to $5.
B)falls from $3 to $2.
C)falls from $4 to $3.
D)rises from $1 to $2.

Question 66

The supply of product X is inelastic (but not perfectly inelastic)if the price of X rises by

A)4 percent and quantity supplied rises by 6 percent.
B)7 percent and quantity supplied rises by 7 percent.
C)12 percent and quantity supplied remains the same.
D)5 percent and quantity supplied rises by 2 percent.

Question 67

A price increase from $25 to $32 results in an increase in quantity supplied from 830 units to 940 units. The price elasticity of supply in this price range is

A)1.61.
B)0.5.
C)1.98.
D)0.62.

Question 68

You are the only seller of eggs in town, and the price-elasticity coefficient for eggs is known to be 0.5. If you want to increase your sales quantity by 6 percent through a price change, what should you do to the price?

A)reduce price by 12 percent
B)increase price by 12 percent
C)reduce price by 3 percent
D)increase price by 3 percent

Question 69

Answer the question based on the following table, which shows a demand schedule. At a price of $2, the total revenues of sellers will be

A)$21.
B)$17.
C)$38.
D)$9.5.

Question 70

Suppose the income elasticity of demand for toys is +2.4. This means that

A)a 4 percent increase in income will increase the purchase of toys by 9.6 percent.
B)a 4 percent increase in income will increase the purchase of toys by 1.67 percent.
C)a 4 percent increase in income will decrease the purchase of toys by 9.6 percent.
D)toys are an inferior good.

Question 71

Suppose the price elasticity of demand for bread is 0.2. If the price of bread falls by 10 percent, the quantity demanded will increase by

A)2 percent and total expenditures on bread will rise.
B)2 percent and total expenditures on bread will fall.
C)20 percent and total expenditures on bread will fall.
D)20 percent and total expenditures on bread will rise.

Question 72

The supply of product X is perfectly inelastic if the price of X rises by

A)2 percent and quantity supplied rises by 3 percent.
B)10 percent and quantity supplied rises by 10 percent.
C)6 percent and quantity supplied stays the same.
D)12 percent and quantity supplied rises by 10 percent.

Question 73

The elasticity of supply of product X is unitary if the price of X rises by

A)4 percent and quantity supplied rises by 6 percent.
B)7 percent and quantity supplied rises by 7 percent.
C)12 percent and quantity supplied stays the same.
D)5 percent and quantity supplied rises by 2 percent.

Question 74

Suppose that the price of peanuts falls from $3.5 to $2.5 per bushel and that, as a result, the total revenue received by peanut farmers changes from $12 to $13 billion. Thus,

A)the demand for peanuts is inelastic.
B)the demand for peanuts is elastic.
C)the demand curve for peanuts has shifted to the right.
D)no inference can be made as to the elasticity of demand for peanuts.

Question 75

At a price of $10 per unit, Gadgets Inc. is willing to supply 14,000 gadgets, while United Gadgets is willing to supply 11,000 gadgets. If the price were to rise to $14 per unit, their respective quantities supplied would rise to 16,000 and 15,000. If these are the only two firms supplying gadgets, what is the elasticity of supply in the market for gadgets?

A)0.64
B)0.8
C)1.12
D)1.56

Question 76

Suppose the income elasticity of demand for toys is -2.5. This means that

A)a 3 percent increase in income will decrease the purchase of toys by 7.5 percent.
B)a 3 percent increase in income will decrease the purchase of toys by 1.2 percent.
C)a 3 percent increase in income will increase the purchase of toys by 7.5 percent.
D)toys are a normal good.

Question 77

The supply of product X is elastic if the price of X rises by

A)1 percent and quantity supplied rises by 5 percent.
B)4 percent and quantity supplied rises by 4 percent.
C)8 percent and quantity supplied remains the same.
D)10 percent and quantity supplied rises by 2 percent.

Question 78

If a firm finds that it can sell $13,000 worth of a product when its price is $5 per unit and $11,000 worth of it when its price is $6, then

A)the demand for the product is elastic in the $6-$5 price range.
B)the demand for the product must have increased.
C)elasticity of demand is 0.74.
D)the demand for the product is inelastic in the $6-$5 price range.

Question 79

Suppose the price elasticity of supply for crude oil is 0.6. How much would price have to rise to increase production by 12 percent?

A)20 percent
B)7.2 percent
C)12 percent
D)15 percent

Question 80

The coefficient of price-elasticity of supply for a product is 1.2 if

A)a 3 percent decrease in the price causes a 0.4 percent decrease in quantity supplied.
B)a 3 percent decrease in price causes a 1.2 percent decrease in quantity supplied.
C)a 3 percent decrease in price causes a 3.6 percent decrease in quantity supplied.
D)a 1.2 percent decrease in price causes a 1.2 percent decrease in quantity supplied.