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

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

Answer 2

True

Question 3

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

Answer 3

True

Question 4

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

Question 5

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

Question 6

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

Question 7

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

Question 8

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

Question 9

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 10

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

Question 11

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

Question 12

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

Question 13

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

Question 14

Measures of elasticity enhance our ability to study the magnitudes of changes.

Question 15

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

Question 16

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

Question 17

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

Question 18

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

Question 19

Elasticity measures how responsive quantity is to changes in price.

Question 20

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 21

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

Question 22

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

Question 23

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

Question 24

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

Question 25

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

Question 26

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

Question 27

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

Question 28

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

Question 29

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

Question 30

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

Question 31

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

Question 32

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 33

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

Question 34

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

Question 35

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

Question 36

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

Question 37

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

Question 38

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

Question 39

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

Question 40

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

Question 41

Recently,in Smalltown,the price of Twinkies fell from $0.80 to $0.70.As a result,the quantity demanded of Ho-Ho's decreased from 120 to 100.What would be the appropriate elasticity to compute? Using the midpoint method,compute this elasticity.What does your answer tell you?

Question 42

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

Question 43

In general,elasticity is a measure of

A) the extent to which advances in technology are adopted by producers.
B) the extent to which a market is competitive.
C) how firms' profits respond to changes in market prices.
D) how much buyers and sellers respond to changes in market conditions.

Question 44

When the Shaffers had a monthly income of $4,000,they usually ate out 8 times a month.Now that the couple makes $4,500 a month,they eat out 10 times a month.Compute the couple's income elasticity of demand using the midpoint method.Explain your answer.(Is a restaurant meal a normal or inferior good to the couple?)

Question 45

You own a small town movie theatre.You currently charge $5 per ticket for everyone who comes to your movies.Your friend who took an economics course in college tells you that there may be a way to increase your total revenue.Given the demand curves shown,answer the following questions.

a.What is your current total revenue for both groups?
b.The elasticity of demand is more elastic in which market?
c.Which market has the more inelastic demand?
d.What is the elasticity of demand between the prices of $5 and $2 in the adult market? Is this elastic or inelastic?
e.What is the elasticity of demand between $5 and $2 in the children's market? Is this elastic or inelastic?
f.Given the graphs and what your friend knows about economics,he recommends you increase the price of adult tickets to $8 each and lower the price of a child's ticket to $3.How much could you increase total revenue if you take his advice?

Question 46

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

Question 47

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

Question 48

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.

Question 49

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 50

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

Question 51

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

Question 52

Elasticity is

A) a measure of how much buyers and sellers respond to changes in market conditions.
B) the study of how the allocation of resources affects economic well-being.
C) the maximum amount that a buyer will pay for a good.
D) the value of everything a seller must give up to produce a good.

Question 53

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

Question 54

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

Question 55

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

Question 56

When studying how some event or policy affects a market,elasticity provides information on the

A) equity effects on the market by identifying the winners and losers.
B) magnitude of the effect on the market.
C) speed of adjustment of the market in response to the event or policy.
D) number of market participants who are directly affected by the event or policy.

Question 57

Consider the following pairs of goods.For which of the two goods would you expect the demand to be more price elastic? Why?
a.
water or diamonds
b.
insulin or nasal decongestant spray
c.
food in general or breakfast cereal
d.
gasoline over the course of a week or gasoline over the course of a year
e.
personal computers or IBM personal computers

Question 58

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 59

Using the midpoint method,compute the elasticity of demand between points A and B.Is demand along this portion of the curve elastic or inelastic? Interpret your answer with regard to price and quantity demanded.Now compute the elasticity of demand between points B and C.Is demand along this portion of the curve elastic or inelastic?

Question 60

Use the graph shown to answer the following questions.Put the correct letter(s)in the blank.
a.The elastic section of the graph is represented by section from _______.
b.The inelastic section of the graph is represented by section from _______.
c.The unit elastic section of the graph is represented by section _______.
d.The portion of the graph in which a decrease in price would cause total revenue to fall would be from _________.
e.The portion of the graph in which a decrease in price would cause total revenue to rise would be from _________.
f.The portion of the graph in which a decrease in price would not cause a change in total revenue would be _________.
g.The section of the graph in which total revenue would be at a maximum would be _______.
h.The section of the graph in which elasticity is greater than 1 is _______.
i.The section of the graph in which elasticity is equal to 1 is ______.
j.The section of the graph in which elasticity is less than 1 is _______.

Question 61

The demand for Werthers candy is likely

A) elastic because candy is expensive relative to other snacks.
B) elastic because there are many close substitutes for Werthers.
C) elastic because Werthers are regarded as a necessity by many people.
D) inelastic because it is usually eaten quickly,making the relevant time horizon short.

Question 62

If the price of natural gas rises,when is the price elasticity of demand likely to be the highest?

A) immediately after the price increase
B) one month after the price increase
C) three months after the price increase
D) one year after the price increase

Question 63

When consumers face rising gasoline prices,they typically

A) reduce their quantity demanded more in the long run than in the short run.
B) reduce their quantity demanded more in the short run than in the long run.
C) do not reduce their quantity demanded in the short run or the long run.
D) increase their quantity demanded in the short run but reduce their quantity demanded in the long run.

Question 64

The price elasticity of demand measures

A) buyers' responsiveness to a change in the price of a good.
B) the extent to which demand increases as additional buyers enter the market.
C) how much more of a good consumers will demand when incomes rise.
D) the movement along a supply curve when there is a change in demand.

Question 65

Which of the following is likely to have the most price inelastic demand?

A) mint-flavored toothpaste
B) toothpaste
C) Colgate mint-flavored toothpaste
D) a generic mint-flavored toothpaste

Question 66

The price elasticity of demand for a good measures the willingness of

A) consumers to buy less of the good as price rises.
B) consumers to avoid monopolistic markets in favor of competitive markets.
C) firms to produce more of a good as price rises.
D) firms to cater to the tastes of consumers.

Question 67

How does the concept of elasticity allow us to improve upon our understanding of supply and demand?

A) Elasticity allows us to analyze supply and demand with greater precision than would be the case in the absence of the elasticity concept.
B) Elasticity provides us with a better rationale for statements such as "an increase in x will lead to a decrease in y" than we would have in the absence of the elasticity concept.
C) Without elasticity,we would not be able to address the direction in which price is likely to move in response to a surplus or a shortage.
D) Without elasticity,it is very difficult to assess the degree of competition within a market.

Question 68

For a good that is a necessity,demand

A) tends to be inelastic.
B) tends to be elastic.
C) has unit elasticity.
D) cannot be represented by a demand curve in the usual way.

Question 69

For a good that is a luxury,demand

A) tends to be inelastic.
B) tends to be elastic.
C) has unit elasticity.
D) cannot be represented by a demand curve in the usual way.

Question 70

Which of the following statements about the price elasticity of demand is correct?

A) The price elasticity of demand for a good measures the willingness of buyers of the good to buy less of the good as its price increases.
B) Price elasticity of demand reflects the many economic,psychological,and social forces that shape consumer tastes.
C) Other things equal,if good x has close substitutes and good y does not have close substitutes,then the demand for good x will be more elastic than the demand for good y.
D) All of the above are correct.

Question 71

The price elasticity of demand measures how much

A) quantity demanded responds to a change in price.
B) quantity demanded responds to a change in income.
C) price responds to a change in demand.
D) demand responds to a change in supply.

Question 72

A 10 percent increase in gasoline prices reduces gasoline consumption by about

A) 6 percent after one year and 2.5 percent after five years.
B) 2.5 percent after one year and 6 percent after five years.
C) 10 percent after one year and 20 percent after five years.
D) 0 percent after one year and 1 percent after five years.

Question 73

A person who takes a prescription drug to control high cholesterol most likely has a demand for that drug that is

A) inelastic.
B) unit elastic.
C) elastic.
D) highly responsive to changes in income.

Question 74

For a good that is a necessity,

A) quantity demanded tends to respond substantially to a change in price.
B) demand tends to be inelastic.
C) the law of demand does not apply.
D) All of the above are correct.

Question 75

The demand for Neapolitan ice cream is likely quite elastic because

A) ice cream must be eaten quickly.
B) this particular flavor of ice cream is viewed as a necessity by many ice-cream lovers.
C) the market is broadly defined.
D) other flavors of ice cream are good substitutes for this particular flavor.

Question 76

Which of the following is likely to have the most price inelastic demand?

A) white chocolate chip with macadamia nut cookies
B) Mrs.Field's chocolate chip cookies
C) milk chocolate chip cookies
D) cookies

Question 77

Which of the following statements about the consumers' responses to rising gasoline prices is correct?

A) About 10 percent of the long-run reduction in quantity demanded arises because people drive less and about 90 percent arises because they switch to more fuel-efficient cars.
B) About 90 percent of the long-run reduction in quantity demanded arises because people drive less and about 10 percent arises because they switch to more fuel-efficient cars.
C) About half of the long-run reduction in quantity demanded arises because people drive less and about half arises because they switch to more fuel-efficient cars.
D) Because gasoline is a necessity,consumers do not decrease their quantity demanded in either the short run or the long run.

Question 78

There are very few,if any,good substitutes for motor oil.Therefore,

A) the demand for motor oil would tend to be inelastic.
B) the demand for motor oil would tend to be elastic.
C) the demand for motor oil would tend to respond strongly to changes in prices of other goods.
D) the supply of motor oil would tend to respond strongly to changes in people's tastes for large cars relative to their tastes for small cars.

Question 79

Goods with many close substitutes tend to have

A) more elastic demands.
B) less elastic demands.
C) price elasticities of demand that are unit elastic.
D) income elasticities of demand that are negative.

Question 80

If the price of milk rises,when is the price elasticity of demand likely to be the lowest?

A) immediately after the price increase
B) one month after the price increase
C) three months after the price increase
D) one year after the price increase