Question 1

Suppose that the short-run price elasticity of demand for electricity is 0.03, and the long-run price elasticity of demand is 1.2. One would classify the short-run elasticity as being ___________ and the long-run elasticity as being ____________.
A)elastic; elastic
B)elastic; inelastic
C)inelastic; unit elastic
D)inelastic; elastic

Accepted Answer

In general, demand becomes more elastic in the long run because consumers have more time to adjust their behavior and find substitutes for the good or service. Therefore, a low short-run elasticity (0.03) implies that consumers are not very responsive to changes in electricity prices in the short term (inelastic), while a higher long-run elasticity (1.2) suggests that demand becomes much more sensitive to price changes over time (elastic). Therefore, the correct answer is D) inelastic; elastic.

Question 2

The following graph depicts demand.  The price elasticity of demand at point D is:
A)5/2.
B)1/2.
C)2/5.
D)2.

Accepted Answer

The answer of The following graph depicts demand.  The...

Question 3

Assume the price of gasoline doubles tonight and remains at that price for the next two years. Compared with the long-run price elasticity of demand for gasoline, the short-run price elasticity of demand for gasoline will be ______.
A)higher
B)more variable
C)the same
D)lower

Accepted Answer

In the short-run, consumers have less flexibility to adjust their behavior and find alternatives to using gasoline, so the demand is more inelastic. In the long-run, consumers can adjust their habits, purchase more fuel-efficient cars, or find alternative modes of transportation, resulting in a more elastic demand. Doubling the price of gasoline overnight would have a relatively small impact on the quantity demanded in the short-run, hence the short-run price elasticity of demand is lower than the long-run elasticity.

Question 4

If the elasticity of demand for the latest American Idol album is 1.4, this means
A)few substitutes for the American Idol album exist.
B)a 1% increase in the price leads to a 14% decrease in quantity demanded.
C)a 10% decrease in the price leads to a 140% increase in quantity demanded.
D)a 5% increase in the price leads to a 7% decrease in quantity demanded.

Accepted Answer

Elasticity of demand of 1.4 means a 1% increase in price leads to a 1.4% decrease in quantity demanded. Therefore, a 5% increase in price leads to a 7% decrease in quantity demanded (5% * 1.4 = 7%).

Question 5

The following graph depicts demand.  At point A, demand is:
A)inelastic.
B)elastic.
C)unit elastic.
D)perfectly elastic.

Accepted Answer

At point A, a small change in price results in a relatively larger change in quantity demanded, which indicates elastic demand.

Question 6

If the absolute value of slope of the demand curve is 2.5, price is $6 per unit, and the quantity demanded is 8 units, then the price elasticity of demand is:
A)0.3.
B)0.533.
C)1.6.
D)1.875.

Accepted Answer

The formula for the price elasticity of demand at a given point is (P/Q)× (1/slope). Here, (6/8)× (1/2.5)= 0.3.

Question 7

You would expect the price elasticity of demand for transportation generally to be:
A)the same as price elasticity of the demand for bus tickets.
B)greater than price elasticity of the demand for bus tickets.
C)less than price elasticity of the demand for bus tickets.
D)greater than price elasticity of the demand for bus tickets when bus tickets are expensive, but less than price elasticity of the demand for bus tickets when the prices of bus tickets fall.

Accepted Answer

There are more substitutes for bus tickets than for transportation in general, so the price elasticity of demand for transportation will be less than the price elasticity of demand for bus tickets.

Question 8

If the quantity demanded of a good is Q when the price for the good is P, the price elasticity of demand for that good at that point is:
A)(P/Q) × (1/slope)
B)(Q/P) × (1/slope)
C)(P/Q) × (slope)
D)Q × P × (1/slope)

Accepted Answer

The formula for price elasticity of demand is the percentage change in quantity demanded divided by the percentage change in price. This can be represented as (ΔQ/Q)/(ΔP/P). Using the midpoint formula, this can be simplified to (ΔQ/((Q1+Q2)/2))/(ΔP/((P1+P2)/2)), which further simplifies to (ΔQ/((Q1+Q2)/2)) × ((P1+P2)/2)/ΔP. The slope of the demand curve at a certain point can be found by taking the derivative of the demand function at that point, which gives us the change in quantity demanded over the change in price, or ΔQ/ΔP. Therefore, slope = ΔQ/ΔP. Rearranging our elasticity formula, we get ((ΔQ/Q)/(ΔP/P)) × (P/Q) × (1/slope) = (P/Q) × (1/slope).

Question 9

All else equal, compared to small-budget items such as paper towels, the price elasticity of demand for big-ticket items such as refrigerators is ______.
A)higher
B)lower
C)very low
D)equal

Accepted Answer

Goods that account for a large share of a person's budget have a higher price elasticity of demand than do goods that account for a small share of a person's budget.

Question 10

Demand tends to be ______ in the short run than in the long run.
A)more elastic
B)less elastic
C)more variable
D)less important

Accepted Answer

When consumers have more time to adapt to a price change, the change in quantity demanded will be higher, implying that the price elasticity of demand will be higher in the long run than in the short run.

Question 11

The following graph depicts demand.  The price elasticity of demand at point A is:
A)5/2.
B)5/8.
C)2/5.
D)8/5.

Accepted Answer

The answer of The following graph depicts demand.  The...

Question 12

The following graph depicts demand.  The price elasticity of demand at point C is:
A)3/16.
B)16/3.
C)3/4.
D)3/8.

Accepted Answer

The answer of The following graph depicts demand.  The...

Question 13

The following graph depicts demand.  The slope of the demand curve (ignoring the negative sign) is:
A)2.
B)1.5.
C)1.
D)0.5.

Accepted Answer

The answer of The following graph depicts demand.  The...

Question 14

The reason a brand name item (e.g., Tyson chicken) has a larger price elasticity than a class of items (e.g., chicken) is that:
A)there are fewer substitutes for Tyson chicken than for chicken generally.
B)it takes a lot of time to adjust to a substitute brand of chicken.
C)the share of income spent on "chicken" is larger than spent on "Tyson Chicken".
D)there are fewer substitutes for chicken generally than for Tyson chicken.

Accepted Answer

There are other brands of chicken that serve as substitutes for a specific brand of chicken.

Question 15

The following graph depicts demand.  The price elasticity of demand at point B is:
A)3/4.
B)4/3.
C)3.
D)1/3.

Accepted Answer

The price elasticity of demand at point B is calculated as the percentage change in quantity demanded divided by the percentage change in price. From the graph, at point B, the quantity demanded decreases from 400 to 300, which is a 25% decrease (100/400). The price increases from $3 to $4, which is a 33.33% increase ((4-3)/3*100). Therefore, the price elasticity of demand is (25/100) / (33.33/100) = 0.75 / 0.3333 = 2.25 or 4/3.

Question 16

If the absolute value of the slope of the demand curve is 0.25, price is $8 per unit, and quantity demanded is 12 units, then demand for this good is:
A)perfectly elastic.
B)elastic.
C)unit elastic.
D)inelastic.

Accepted Answer

The formula for the price elasticity of demand at a given point is (P/Q)× (1/slope). Here, (8/12)× (1/0.25)= 2.67 (approximately). Since this is greater than 1, we know that the demand for this good is elastic.

Question 17

Suppose you learn that in 1900, households spent about 40 percent of their budget on food, and today, they spend about 10 percent of their budget of food. All else equal, this suggests that the price elasticity of demand for food:
A)is probably negative.
B)has always been very high.
C)is probably lower now than it was in 1900.
D)is probably higher now than it was in 1900.

Accepted Answer

All else equal, the higher the share of your budget you spend on a good, the higher will be the price elasticity of demand for that good. Since households spend a much smaller fraction of their income on food now than in 1900, this suggests that the price elasticity of demand for food has probably fallen over time.

Question 18

Economists have found that the price elasticity of demand for water is higher in the summer than in the winter. Why is this likely to be so?
A)Winter is longer than summer, and price elasticity is lower over longer time horizons.
B)Summer is longer than winter, and price elasticity is higher over longer time horizons.
C)Winter water use tends to be for necessities such as cleaning and cooking, and summer water use tends to be for both necessities and non-necessities such as gardening and recreation.
D)People take more vacations in the summer and so use less water at home.

Accepted Answer

In the summer, people tend to use water for both necessities such as cleaning and cooking, as well as non-necessities such as gardening and recreation. This means that consumers have more flexibility to adjust their water consumption in response to changes in price, resulting in a higher price elasticity of demand. In the winter, however, water use tends to be primarily for necessities, which limits consumers' ability to adjust their usage in response to price changes, leading to a lower price elasticity of demand.

Question 19

All else equal, the price elasticity of demand for small-budget items such as soap tends to be ______ than the price elasticity of demand for big-ticket items such as flat-screen TVs.
A)higher
B)lower
C)very high
D)the same

Accepted Answer

Goods that account for a small share of a person's budget have a lower price elasticity of demand than do goods that account for a large share of a person's budget.

Question 20

Suppose you have one hour to catch a flight to Miami for spring break, and it takes 45 minutes to drive to the airport. Your car is almost out of gas and the price of gas at the closest gas station is higher than at other gas stations that are much farther away. To you, the price elasticity of demand for gas is likely to be ______ than it would be if you had several hours before the flight.
A)higher
B)lower
C)more variable
D)no different

Accepted Answer

When you have little time to find substitutes, the price elasticity of demand will be lower.

Quiz 4: Elasticity

Suppose that the short-run price elasticity of demand for electricity is 0.03, and the long-run price elasticity of demand is 1.2. One would classify the short-run elasticity as being _ and the long-run elasticity as being __.

The following graph depicts demand. The price elasticity of demand at point D is:

Assume the price of gasoline doubles tonight and remains at that price for the next two years. Compared with the long-run price elasticity of demand for gasoline, the short-run price elasticity of demand for gasoline will be ______.

If the elasticity of demand for the latest American Idol album is 1.4, this means

The following graph depicts demand. At point A, demand is:

If the absolute value of slope of the demand curve is 2.5, price is $6 per unit, and the quantity demanded is 8 units, then the price elasticity of demand is:

You would expect the price elasticity of demand for transportation generally to be:

If the quantity demanded of a good is Q when the price for the good is P, the price elasticity of demand for that good at that point is:

All else equal, compared to small-budget items such as paper towels, the price elasticity of demand for big-ticket items such as refrigerators is ______.

Demand tends to be ______ in the short run than in the long run.

The following graph depicts demand. The price elasticity of demand at point A is:

The following graph depicts demand. The price elasticity of demand at point C is:

The following graph depicts demand. The slope of the demand curve (ignoring the negative sign) is:

The reason a brand name item (e.g., Tyson chicken) has a larger price elasticity than a class of items (e.g., chicken) is that:

The following graph depicts demand. The price elasticity of demand at point B is:

If the absolute value of the slope of the demand curve is 0.25, price is $8 per unit, and quantity demanded is 12 units, then demand for this good is:

Suppose you learn that in 1900, households spent about 40 percent of their budget on food, and today, they spend about 10 percent of their budget of food. All else equal, this suggests that the price elasticity of demand for food:

Economists have found that the price elasticity of demand for water is higher in the summer than in the winter. Why is this likely to be so?

All else equal, the price elasticity of demand for small-budget items such as soap tends to be ______ than the price elasticity of demand for big-ticket items such as flat-screen TVs.