Deck 6: Elasticity

Question 1

For product XYZ, the price elasticity of demand has an absolute value of 3.5.This means that quantity demanded will increase by

A) 1 percent for each 3.5 percent decrease in price, ceteris paribus.
B) 1 unit for each $3.50 decrease in price, ceteris paribus.
C) 3.5 percent for each 1 percent decrease in price, ceteris paribus.
D) 3.5 units for each $1 decrease in price, ceteris paribus.

Answer 1

3.5 percent for each 1 percent decrease in price, ceteris paribus.

Question 2

Technically the elasticity number is negative because

A) When price falls quantity demanded will rise, but for simplicity economists take the absolute value of the elasticity number.
B) When price falls quantity demanded will fall, but for simplicity economists take the absolute value of the elasticity number.
C) When price rises quantity demanded will rise, but for simplicity economists take the absolute value of the elasticity number.
D) The demand curve is upward-sloping.

Answer 2

When price falls quantity demanded will rise, but for simplicity economists take the absolute value of the elasticity number.

Question 3

If the price of sandals increases by 10 percent and the quantity demanded falls by 20 percent, then the price elasticity of demand in absolute value is

A) .2.
B) 2.
C) 20 percent.
D) 2 percent.

Answer 3

2.

Question 4

Price elasticity of demand shows how

A) To compute the slope of the demand curve.
B) Responsive the quantity demanded is to a change in price.
C) Responsive the quantity demanded is to a change in the price of related goods.
D) Responsive the price is to a change in demand.

Question 5

If the price of cell phones increases by 5 percent and the quantity demanded falls by 2 percent, the absolute value of the price elasticity of demand is

A) 5.0.
B) 0.4.
C) 2.1.
D) 5 percent.

Question 6

If the elasticity of demand is 3, and the price rises by 15 percent, then

A) The quantity demanded will increase by 5 percent.
B) The quantity demanded will fall by 45 percent.
C) The quantity demanded will rise by 4.5 percent.
D) The percentage change in quantity demanded will fall as income rises.

Question 7

Price elasticity looks at

A) The law of demand.
B) How much quantity demanded changes after a change in price.
C) The degree to which price changes with a change in quantity demanded.
D) Why the law of demand is untrue.

Question 8

Price elasticity of demand refers to

A) How responsive producers are to a change in the cost of production.
B) How sensitive buyers are to a change in price.
C) How buyers respond to a change in income.
D) How buyers react to a change in the price of a substitute good.

Question 9

If the price elasticity of demand is 0.6, then a 10 percent increase in the price of the good will lead to a ________ in the quantity demanded.

A) 6 percent increase
B) 6 percent decrease
C) 0.6 percent increase
D) 0.6 percent decrease

Question 10

To find the average percentage change in price,

A) The change in price is divided by the average price.
B) The change in quantity is divided by the average quantity.
C) The change in quantity is divided by the change in price.
D) The percentage change in quantity demanded is divided by the percentage change in price.

Question 11

When demand is elastic, the absolute number for price elasticity will be

A) Greater than 0.
B) Less than 1.
C) Greater than 1.
D) Equal to 1.

Question 12

Suppose the quantity demanded of ski boats falls from 4.0 million to 3.0 million as a result of an average price increase from $20,000 to $25,000 per boat.The absolute value of the price elasticity of demand is closest to

A) 0.20.
B) 1.29.
C) 0.78.
D) 0.29.

Question 13

If the price increases by 10 percent, and the quantity demanded falls by 5 percent, the absolute value of the price elasticity will be

A) 0.5.
B) 5.0.
C) 50.
D) -5.0.

Question 14

If demand is price-elastic, then

A) The elasticity number E is greater than 1.
B) The elasticity number E is less than 1.
C) The elasticity number E is equal to 1.
D) The elasticity number E is 0.

Question 15

If the price of the iPod falls by 3 percent and the price elasticity of demand for iPods is 2.0, then quantity demanded will fall by what percentage?

A) 5 percent.
B) 6 percent.
C) 0.6 percent.
D) 60 percent.

Question 16

Assume the price elasticity of demand for JT Chip Co.chips is 4.0.If the company decreases the price of each bag of chips from $1.89 to $1.49, the number of bags sold will

A) Decrease by 78 percent.
B) Increase by 95 percent.
C) Increase by 48 percent.
D) Increase by 78 percent.

Question 17

Assume the price elasticity of demand for U.S.Frisbee Co.Frisbees is 0.5.If the company increases the price of each Frisbee from $12 to $16, the number of Frisbees demanded will

A) Decrease by 14.3 percent.
B) Decrease by 33.3 percent.
C) Increase by 20.0 percent.
D) Increase by 7.0 percent.

Question 18

The basic formula for price elasticity is

A) The percentage change in price divided by the percentage change in quantity demanded.
B) The change in quantity demanded divided by the change in price.
C) The percentage change in income divided by the percentage change in price.
D) The percentage change in quantity demanded divided by the percentage change in price.

Question 19

Suppose a university raises its tuition by 6 percent and as a result the enrollment of students decreases by 3 percent.The absolute value of the price elasticity of demand is

A) 0.5.
B) 2.0.
C) 8.0.
D) 6.0.

Question 20

To find the average percentage change in quantity demanded,

A) The change in price is divided by the percentage change in quantity demanded.
B) The change in quantity demanded is divided by the change in price.
C) The change in quantity demanded is divided by the average quantity.
D) The change in price is divided by the average price.

Question 21

Which of the following would most likely have a price elasticity coefficient greater than 1?

A) Cigarettes.
B) Gasoline in the short run.
C) Electricity.
D) Airline travel in the long run.

Question 22

If demand is very inelastic,

A) The demand curve will be very flat.
B) The demand curve will be horizontal.
C) The demand curve will be very steep.
D) The demand curve is upward-sloping.

Question 23

Ceteris paribus, the longer the time period, the

A) Smaller the income elasticity for the good.
B) Less elastic the demand for the good.
C) More unitary elastic the demand for the good.
D) More elastic the demand for the good.

Question 24

Which of the following products will have more inelastic demand?

A) New cars.
B) Fresh flowers.
C) Fast food.
D) Medicines.

Question 25

When the percentage change in quantity demanded is less than the percentage change in price, ceteris paribus,

A) Demand is elastic.
B) Demand is inelastic.
C) Demand is unitary elastic.
D) Elasticity is impossible to calculate.

Question 26

If the price elasticity of demand for cigarettes is 0.4,

A) The demand is very elastic.
B) A 10 percent increase in price will cause quantity demanded to fall by 40 percent.
C) The demand is very inelastic.
D) A 5 percent decrease in price will cause quantity demanded to rise by 10 percent.

Question 27

Ceteris paribus, as the number of substitutes for a good increases, the

A) Price elasticity of demand should become smaller.
B) Price elasticity of demand should become larger.
C) Cross-price elasticity of demand should become negative.
D) Income elasticity of demand should become negative.

Question 28

The demand will be _______________ if the consumer has _________ substitute goods to choose from

A) elastic; less
B) inelastic; more
C) elastic; more
D) elastic; no

Question 29

If demand is perfectly elastic,

A) The demand curve is vertical.
B) The demand curve is very steep.
C) The demand curve is horizontal.
D) The demand curve has a zero slope.

Question 30

A demand curve that is perfectly inelastic is

A) Horizontal.
B) Vertical.
C) Upward-sloping.
D) Downward-sloping.

Question 31

A demand curve that is completely elastic is

A) Horizontal.
B) Vertical.
C) Upward-sloping.
D) Downward-sloping.

Question 32

Which of the following products will have elastic demand?

A) Gasoline.
B) Cigarettes.
C) European travel.
D) Alcohol.

Question 33

Which of the following is not a determinant of the price elasticity of demand?

A) The number of substitute goods available.
B) The share of a consumer's budget.
C) The amount of income the consumer has.
D) The time frame-whether it is in the short run or long run.

Question 34

When demand is inelastic

A) The percentage change in price is greater than the percentage change in quantity demanded.
B) Buyers are very sensitive to changes in price.
C) The product in demand has many substitute goods.
D) The percentage change in quantity demanded is greater than the percentage change in price.

Question 35

Which of the following would most likely have a price elasticity coefficient less than 1?

A) Coffee.
B) Televisions.
C) Fresh fish.
D) New cars.

Question 36

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

A) Automobiles.
B) Pickup trucks.
C) Hondas.
D) The Hondas one Honda dealer sells.

Question 37

Which of the following causes demand to be more elastic with respect to price?

A) Shorter periods of time to adjust to a change in price.
B) A steeper demand curve for a given price and quantity.
C) Fewer substitutes.
D) A high ratio of price to income.

Question 38

The price elasticity of demand is equal to

A) The percentage change in quantity demanded times the percentage change in price.
B) The unit change in price divided by the unit change in quantity demanded.
C) The percentage change in quantity demanded divided by the percentage change in price.
D) The unit change in quantity demanded times the unit change in price.

Question 39

Which of the following does not influence the price elasticity of demand?

A) The availability of substitutes.
B) The price of the item relative to the consumer's budget.
C) Costs of production.
D) The length of time.

Question 40

If the demand for a product is elastic, then

A) The percentage change in quantity demanded is greater than the percentage in price.
B) The percentage change in price is greater than the percentage change in quantity demanded.
C) The change in the quantity demanded is greater than the change in income.
D) Buyers are not very sensitive to a change in price.

Question 41

Total revenue is

A) Price times income.
B) Quantity sold times price.
C) Equal to total profit.
D) Equal to costs of production.

Question 42

If the price of Good X falls and total revenue rises, then

A) Demand for Good X is inelastic.
B) Demand for Good X is unitary elastic.
C) Demand for Good X is elastic.
D) The price elasticity of demand for Good X is equal to 1.

Question 43

If the price elasticity of demand is equal to 2, the good has _____ demand.

A) elastic
B) inelastic
C) unitary elastic
D) restrictive

Question 44

Higher prices will increase total revenue if

A) Demand is elastic.
B) Demand is unitary elastic.
C) Demand is inelastic.
D) The price elasticity of demand is zero.

Question 45

Carter has budgeted $40 per month for candy bars.No matter how the price of candy bars changes, he spends exactly $40 per month.Carter's price elasticity of demand for candy bars must

A) Equal zero.
B) Be unitary.
C) Be very inelastic since the amount he spends is not responsive to a price change.
D) Be very elastic since the quantity he demands will change significantly if the price changes.

Question 46

Total revenue is equal to

A) The income from sales.
B) Profit.
C) Cost of production.
D) Total revenue minus total cost.

Question 47

The demand is more price-elastic

A) In the long run.
B) If the product is a necessity.
C) If the product is a small part of the consumer's budget.
D) If the product has very few substitutes.

Question 48

A price decrease will cause total revenue to fall if

A) Demand is elastic.
B) Demand is inelastic.
C) Demand is unitary elastic.
D) The price elasticity of demand is less than zero.

Question 49

Maximum total revenue occurs when

A) The absolute value of the price elasticity of demand is 1.0.
B) Price multiplied by quantity is 1.0.
C) The absolute value of the price elasticity of demand is 100.

Question 50

If the elasticity of demand for cigarettes is 0.4, a seller should

A) Increase price to increase total revenue.
B) Decrease price to increase total revenue.
C) Reduce price to maximize profits.
D) Increase price because the percentage change in quantity demanded will be greater than the price effect. If price elasticity of demand is 0.4, then demand is very inelastic. That means the seller can increase price and increase total revenue.

Question 51

If the price elasticity of demand is 1.0, and a firm raises its price by 10 percent, the total revenue will

A) Rise by 10 percent.
B) Fall by 10 percent.
C) Not change.
D) Rise by 100 percent.

Question 52

If demand is elastic, then

A) An increase in price will reduce total revenue.
B) An increase in price will increase total revenue.
C) A decrease in price will reduce total revenue.
D) A decrease in price will have no effect on total revenue.

Question 53

If Carmen's Coffee Company wants to increase total revenue and the price elasticity of demand is 0.43, the company should

A) Increase the price of its coffee.
B) Decrease the price of its coffee.
C) Keep the price constant since a price increase or decrease will cause total revenue to fall.
D) Advertise since this is the only option that will increase total revenue.

Question 54

If the demand for cigarettes is inelastic,

A) Total revenue will rise if the price of cigarettes rises.
B) No matter how high the price goes, the quantity demanded will not fall.
C) Total revenue will fall if the price of cigarettes rises.
D) A price reduction will actually cause the quantity demanded to fall.

Question 55

The local baseball team owner hires you to help maximize the team's profits.You are told that costs are constant because enough help is always hired for a full stadium, so assume your task is to maximize revenues from ticket sales.Your advice to the owner should be to

A) Set the ticket price in the inelastic region of the demand curve in order to increase revenues.
B) Raise the price as high as possible until the number of tickets sold begins to fall.
C) Set the price as low as possible to make sure the stadium is always full.
D) Set the price of tickets at the unitary elasticity price.

Question 56

The total revenue effect of a movement along a demand curve can best be predicted using the

A) Law of diminishing marginal utility.
B) Price elasticity of demand.
C) Utility-maximizing rule.
D) Law of demand.

Question 57

Assume the price elasticity of demand for MC Pretzel Co.pretzels is 0.8.If the company increases the price of each bag of pretzels, total revenue will

A) Decrease because fewer bags will be sold.
B) Increase because demand is elastic and revenue will rise.
C) Increase because the percentage increase in price is greater than the percentage change in quantity demanded.
D) Be impossible to predict because the percentage change in price is not known.

Question 58

A price change will have no effect on total revenue if demand is

A) Elastic.
B) Unitary.
C) Inelastic.
D) Perfectly elastic.

Question 59

Assume a good has a downward-sloping, linear demand curve.Starting at a price of zero, as the price of the good increases, total revenue

A) Increases indefinitely.
B) Decreases indefinitely because the quantity sold will decrease.
C) Is constant.
D) Increases, then decreases.

Question 60

When demand is price-inelastic, ceteris paribus, an increase in

A) Price leads to lower total revenue.
B) Total revenue means quantity rises.
C) Total revenue indicates a reduction in price.
D) Price leads to greater total revenue.

Question 61

In the $80 to $40 price range in Figure 20.1, demand is

A) Perfectly price-elastic.
B) Price-inelastic.
C) Unitary elastic.
D) Price-elastic.

Question 62

A grocery store put salt on sale but found that total revenues fell.This can be explained by which of the following?

A) The demand for salt is very elastic.
B) The demand curve for salt is vertical.
C) The demand for salt is inelastic.
D) The demand for salt is unitary elastic.

Question 63

Over the price range from $180 to $120 in Figure 20.1, ceteris paribus,

A) Demand is elastic.
B) Total revenue is maximized.
C) Demand is increasing.
D) Utility is maximized.

Question 64

Suppose the price of soccer shoes decreases by 7 percent and as a result, there is a 12 percent rise in the quantity of shin guards demanded.The value of the cross-price elasticity of demand is

A) -1.71
B) -0.58.
C) 1.71.
D) 0.58.

Question 65

Suppose the price of video games falls from $40 to $20 and as a result the quantity demanded of scooters falls from 40,000 to 10,000 per year.The value of the cross-price elasticity of demand is

A) 1.80.
B) 1.00.
C) 0.83.
D) 0.56.

Question 66

Assume apples and oranges are substitutes.Suppose apple growers launch a successful advertising campaign that convinces consumers apples are a better product.As a result the cross-price elasticity of apples and oranges will become

A) Less negative (move closer to zero).
B) More negative.
C) Less positive (move closer to zero).
D) More positive.

Question 67

MP3 players and MP3 files are complementary goods.The cross-price elasticity of demand between MP3 players and MP3 files is expected to be

A) Positive.
B) Negative.
C) Equal to zero.
D) Undefined.

Question 68

If the price is reduced from $100 to $80 in Figure 20.1, ceteris paribus,

A) Total revenue will decrease.
B) Demand will increase.
C) Quantity demanded will decrease.
D) Total revenue will increase.

Question 69

Refer to Figure 20.2.Comparing the price elasticity of demand at points A and C, we can say that

A) The elasticities are the same because the points are on the same demand curve.
B) Point A has a greater price elasticity of demand.
C) Point C has a greater price elasticity of demand.
D) Demand elasticity is indeterminate because specific price data are not given.

Question 70

The formula for cross-price elasticity is

A) The percentage change in the quantity demanded for one good divided by the percentage change in income.
B) The percentage change in the quantity demanded for one good divided by the percentage change in the price of another good.
C) The percentage change in the price of one good divided by the percentage change in the quantity demanded of another good.
D) The percentage change in the quantity demanded divided by the average change in price.

Question 71

In the $160 to $180 price range in Figure 20.1, the absolute value of the price elasticity of demand is closest to

A) 9.0.
B) 1.0.
C) 5.7.
D) 0.175.

Question 72

On a demand curve, demand is more elastic

A) At higher prices.
B) At lower prices.
C) When demand is unitary.
D) At the middle price.

Question 73

Refer to Figure 20.2.If the area 0P₁AB is less than the area 0P₂CD, we can conclude that the price elasticity of demand between point A and point C is

A) Elastic.
B) Inelastic.
C) Unitary elastic.
D) Impossible to determine. It depends on whether the price has increased or decreased. Lower prices result in higher total revenue (price times quantity) only if demand is elastic.

Question 74

Refer to Figure 20.2.Suppose the areas 0P₁AB and 0P₂CD are equal.We can conclude that the price elasticity of demand between point A and point C is

A) Elastic.
B) Inelastic.
C) Unitary elastic.
D) Impossible to determine. It depends on whether the price has increased or decreased.

Question 75

Cross-price elasticity refers to

A) How responsive consumers are to a change in price.
B) How responsive consumers are to a change in income.
C) How responsive consumers of one good are to a change in the price of another good.
D) How responsive consumers are to a change in quantity demanded.

Question 76

Suppose computer prices at an office supply store fall from $1,000 to $900 and as a result the quantity demanded of typewriters decreases from 40 to 20 per month.The cross-price elasticity of demand is closest to

A) 0.16.
B) 0.2.
C) 5.0.
D) 6.3.

Question 77

When the prices of postage stamps rise, the demand for Internet service increases, ceteris paribus.Postage stamps and Internet service are therefore

A) Elastic.
B) Inelastic.
C) Complements.
D) Substitutes.

Question 78

In Figure 20.1, at what price is the elasticity of demand unitary?

A) $40.
B) $100.
C) $160.
D) $200.

Question 79

In Figure 20.1, total revenue is maximized at the unit price of

A) $50.
B) $60.
C) $80.
D) $100.

Question 80

If the price of a good rises by 10 percent and quantity demanded falls by 20 percent, we can predict that

A) The company's total revenue will increase.
B) The company's total profit will rise.
C) The company's total revenue will decrease.
D) The company's total revenue will remain the same.