Deck 5: Elasticity and Its Applications

Question 1

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 move away from 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.

Answer 1

D

Question 2

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.

Answer 2

A

Question 3

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.

Answer 3

A

Question 4

The demand for Chocolate Chip Cookie Dough 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 5

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 6

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

A)direction of the effect on the market.
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 7

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 8

Holding all other forces constant,when the price of gasoline rises,the number of gallons of gasoline demanded would fall substantially over a ten-year period because

A)buyers tend to be much less sensitive to a change in price when given more time to react.
B)buyers tend to be much more sensitive to a change in price when given more time to react.
C)buyers will have substantially more income over a ten-year period.
D)the quantity supplied of gasoline increases very little in response to an increase in the price of gasoline.

Question 9

Elasticity improves our understanding of supply and demand by adding

A)measures of equity.
B)measures of efficiency.
C)a quantitative element to our analysis.
D)a qualitative element to our analysis.

Question 10

When quantity demanded responds strongly to changes in price,demand is said to be

A)fluid.
B)elastic.
C)dynamic.
D)highly variable.

Question 11

Demand is said to be inelastic if

A)buyers respond substantially to changes in the price of the good.
B)demand shifts only slightly when the price of the good changes.
C)the quantity demanded changes only slightly when the price of the good changes.
D)the price of the good responds only slightly to changes in demand.

Question 12

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 13

Demand is said to be elastic if

A)the price of the good responds substantially to changes in demand.
B)demand shifts substantially when income or the expected future price of the good changes.
C)buyers do not respond much to changes in the price of the good.
D)buyers respond substantially to changes in the price of the good.

Question 14

If demand is inelastic,then

A)buyers do not respond much to a change in price.
B)buyers respond substantially to a change in price, but the response is very slow.
C)buyers do not alter their quantities demanded much in response to advertising, fads, or general changes in tastes.
D)the demand curve is very flat.

Question 15

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 often does not apply.
D)All of the above are correct.

Question 16

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 fast the price of a good responds to a shift of the supply curve or demand curve.
D)how much buyers and sellers respond to changes in market conditions.

Question 17

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 18

If a person only occasionally buys a cup of coffee,his demand for coffee is probably

A)represented by a vertical or nearly-vertical demand curve.
B)not easily represented by a demand schedule or demand curve.
C)inelastic.
D)elastic.

Question 19

Other things equal,the demand for a good tends to be more inelastic,the

A)fewer the available substitutes.
B)longer the time period considered.
C)more the good is considered a luxury good.
D)more narrowly defined is the market for the good.

Question 20

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 21

It is likely that

A)the demand for flat-screen computer monitors is more elastic than the demand for monitors in general.
B)the demand for grandfather clocks is more elastic than the demand for wristwatches.
C)the demand for cardboard is more elastic over a long period of time than over a short period of time.
D)All of the above are correct.

Question 22

Economists compute the price elasticity of demand as the

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

Question 23

The midpoint method is used to compute elasticity because it

A)automatically computes a positive number instead of a negative number.
B)results in an elasticity that is the same as the slope of the demand curve.
C)gives the same answer regardless of the direction of change.
D)automatically rounds quantities to the nearest whole unit.

Question 24

If the price elasticity of demand for a good is 4.0,then a 10 percent increase in price results in a

A)0.4 percent decrease in the quantity demanded.
B)2.5 percent decrease in the quantity demanded.
C)4 percent decrease in the quantity demanded.
D)40 percent decrease in the quantity demanded.

Question 25

Suppose the price of Twinkies decreases from $1.45 to $1.25 and,as a result,the quantity of Twinkies demanded increases from 2,000 to 2,200.Using the midpoint method,the price elasticity of demand for Twinkies in the given price range is

A)2.00.
B)1.55.
C)1.00.
D)0.64.

Question 26

When the price of bubble gum is $0.50,the quantity demanded is 400 packs per day.When the price falls to $0.40,the quantity demanded increases to 600.Given this information and using the midpoint method,we know that the demand for bubble gum is

A)inelastic.
B)elastic.
C)unit elastic.
D)perfectly inelastic.

Question 27

If the price elasticity of demand for a good is 0.94,then which of the following events is consistent with a 4 percent decrease in the quantity of the good demanded?

A)a 0.235 percent increase in the price of the good
B)a 2.350 percent increase in the price of the good
C)a 3.760 percent increase in the price of the good
D)a 4.255 percent increase in the price of the good

Question 28

Using the midpoint method,the price elasticity of demand for a good is computed to be approximately 0.78.Which of the following events is consistent with a 4.68 percent decrease in the quantity of the good demanded?

A)a 3.65 increase in the price of the good
B)a 16.67 percent increase in the price of the good
C)an increase in the price of the good from $48.00 to $50.97
D)an increase in the price of the good from $65.00 to $66.98

Question 29

If the quantity demanded of a certain good responds only slightly to a change in the price of the good,then

A)the demand for the good is said to be elastic.
B)the demand for the good is said to be inelastic.
C)the law of demand does not apply to the good.
D)the demand curve for the good shifts only slightly in response to a change in price.

Question 30

The value of the price elasticity of demand for a good will be relatively large when

A)there are no good substitutes available for the good.
B)the time period in question is relatively short.
C)the good is a luxury as opposed to a necessity.
D)All of the above are correct.

Question 31

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

A)consumers to move away from 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 32

The greater the price elasticity of demand,the

A)more likely the product is a necessity.
B)smaller the responsiveness of quantity demanded to a change in price.
C)greater the percentage change in price over the percentage change in quantity demanded.
D)greater the responsiveness of quantity demanded to a change in price.

Question 33

Suppose you calculate the price elasticity of demand for a certain good and you report that the elasticity is 0.8.The fact that the elasticity is a positive number means that

A)when the price of the good increases, the quantity demanded increases in response.
B)demand for the good is elastic.
C)you have dropped the minus sign and reported the absolute value of the elasticity.
D)the good has close substitutes and/or the good is a luxury.

Question 34

A good will have a more inelastic demand,

A)the greater the availability of close substitutes.
B)the broader the definition of the market.
C)the longer the period of time.
D)the more it is regarded as a luxury.

Question 35

Using the midpoint method,the price elasticity of demand for a good is computed to be approximately 1.5.Which of the following events is consistent with a 3.5 percent increase in the price of the good?

A)The quantity of the good demanded decreases from 25,294 to 24,000.
B)The quantity of the good demanded decreases from 50,000 to 48,847.
C)The quantity of the good demanded decreases by 2.33 percent.
D)The quantity of the good demanded decreases by 4.29 percent.

Question 36

It is likely that

A)the demand for natural gas is more elastic over a short period of time than over a long period of time.
B)the demand for smoke alarms is more elastic than the demand for Persian rugs.
C)the demand for bourbon whiskey is more elastic than the demand for alcoholic beverages in general.
D)All of the above are correct.

Question 37

If the price elasticity of demand for a good is 1.65,then a 3 percent decrease in price results in a

A)0.55 percent increase in the quantity demanded.
B)1.82 percent increase in the quantity demanded.
C)4.95 percent increase in the quantity demanded.
D)5.55 percent increase in the quantity demanded.

Question 38

The main reason for using the midpoint method to calculate an elasticity is that it

A)gives the same answer regardless of whether the price increases or decreases.
B)recognizes that prices are usually increasing, not decreasing.
C)rounds prices to the nearest dollar and quantities to the nearest whole unit.
D)uses fewer numbers than alternative methods.

Question 39

Suppose there is a 6 percent increase in the price of good X and a resulting 6 percent decrease in the quantity of X demanded.Price elasticity of demand for X is

A)0.
B)1.
C)6.
D)36.

Question 40

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

A)the time horizon
B)the steepness or flatness of the supply curve for the good
C)the definition of the market for the good
D)the availability of substitutes for the good

Question 41

Demand is elastic if elasticity is

A)less than 1.
B)equal to 1.
C)equal to 0.
D)greater than 1.

Question 42

Demand is said to have unit elasticity if elasticity is

A)less than 1.
B)greater than 1.
C)equal to 1.
D)equal to 0.

Question 43

Figure 5-1

Refer to Figure 5-1.Suppose the point labeled B is the "halfway point" on the demand curve and it corresponds to a price of $5.00.Then,between prices of $4.90 and $5.10,

A)the price elasticity of demand is less than 1.
B)the price elasticity of demand is equal to 1.
C)the price elasticity of demand is greater than 1.
D)any of the above could be correct, depending on the quantities demanded at prices of $4.90 and $5.10.

Question 44

Figure 5-1

Refer to Figure 5-1.Assume the section of the demand curve labeled C corresponds to prices between $0 and $15.Then,when the price changes between $7 and $9,

A)quantity demanded changes proportionately less than the price.
B)quantity demanded changes proportionately more than the price.
C)quantity demanded changes the same amount proportionately as price.
D)the price elasticity of demand is greater than 1.

Question 45

Consider airfares on flights between New York and Minneapolis.When the airfare is $250,the quantity demanded of tickets is 2,000 per week.When the airfare is $280,the quantity demanded of tickets is 1,700 per week.Using the midpoint method,

A)the price elasticity of demand is about 1.43 and an increase in the airfare will cause airlines' total revenue to decrease.
B)the price elasticity of demand is about 1.43 and an increase in the airfare will cause airlines' total revenue to increase.
C)the price elasticity of demand is about 0.70 and an increase in the airfare will cause airlines' total revenue to decrease.
D)the price elasticity of demand is about 0.70 and an increase in the airfare will cause airlines' total revenue to increase.

Question 46

The price elasticity of demand for bread

A)is computed as the percentage change in quantity demanded of bread divided by the percentage change in price of bread.
B)depends, in part, on the availability of close substitutes for bread.
C)reflects the many economic, social, and psychological forces that influence consumers' tastes for bread.
D)All of the above are correct.

Question 47

Figure 5-2

Refer to Figure 5-2.If the price decreased from $18 to $6,

A)total revenue would increase by $1,200 and demand is elastic between points A and C.
B)total revenue would increase by $800 and demand is elastic between points A and C.
C)total revenue would decrease by $1,200 and demand is inelastic between points A and C.
D)total revenue would decrease by $800 and demand is inelastic between points A and C.

Question 48

When the price of a good is $5,the quantity demanded is 100 units per month;when the price is $7,the quantity demanded is 80 units per month.Using the midpoint method,the price elasticity of demand is about

A)0.22.
B)0.67.
C)1.33.
D)1.50.

Question 49

Figure 5-1

Refer to Figure 5-1.Assume the section of the demand curve labeled A corresponds to prices between $8 and $16.Then,when the price changes between $9 and $10,

A)quantity demanded changes proportionately less than the price.
B)quantity demanded changes proportionately more than the price.
C)quantity demanded changes the same amount proportionately as price.
D)the price elasticity of demand is less than 1.

Question 50

The midpoint method for calculating elasticities is convenient in that it allows us to

A)ignore the percentage change in quantity demanded and instead focus entirely on the percentage change in price.
B)calculate the same value for the elasticity, regardless of whether the price increases or decreases.
C)assume that sellers' total revenue stays constant when the price changes.
D)restrict all elasticity values to between 0 and 1.

Question 51

Figure 5-1

Refer to Figure 5-1.Assume the section of the demand curve labeled A corresponds to prices between $6 and $12.Then,when the price increases from $8 to $10,

A)the percent decrease in the quantity demanded exceeds the percent increase in the price.
B)the percent increase in the price exceeds the percent decrease in the quantity demanded.
C)sellers' total revenue increases as a result.
D)it is possible that the quantity demanded fell from 550 to 500 as a result.

Question 52

Figure 5-2

Refer to Figure 5-2.The elasticity of demand between point B and point C,using the midpoint method,is

A)0.5.
B)0.75.
C)1.0.
D)1.3.

Question 53

Figure 5-1

Refer to Figure 5-1.The section of the demand curve labeled A represents the

A)elastic section of the demand curve.
B)inelastic section of the demand curve.
C)unit elastic section of the demand curve.
D)perfectly elastic section of the demand curve.

Question 54

Figure 5-1

Refer to Figure 5-1.The section of the demand curve labeled C represents the

A)elastic section of the demand curve.
B)perfectly elastic section of the demand curve.
C)unit elastic section of the demand curve.
D)inelastic section of the demand curve.

Question 55

Figure 5-1

Refer to Figure 5-1.Assume,for the good in question,two specific points on the demand curve are (Q = 1,000,P = $40)and (Q = 1,500,P = $30).Then which of the following scenarios is possible?

A)Both of these points lie on section C of the demand curve.
B)The vertical intercept of the demand curve is the point (Q = 0, P = $60).
C)The horizontal intercept of the demand curve is the point (Q = 1,800, P = $0).
D)Any of these scenarios is possible.

Question 56

Figure 5-2

Refer to Figure 5-2.The price elasticity of demand between point A and point B,using the midpoint method,is

A)1.
B)1.5.
C)2.
D)2.5.

Question 57

Figure 5-1

Refer to Figure 5-1.Assume,for the good in question,two specific points on the demand curve are (Q = 2,000,P = $15)and (Q = 2,400,P = $12).Then which of the following scenarios is possible?

A)Both of these points lie on section C of the demand curve.
B)The vertical intercept of the demand curve is the point (Q = 0, P = $22).
C)The horizontal intercept of the demand curve is the point (Q = 5,000, P = $0).
D)Any of these scenarios is possible.

Question 58

For a particular good,a 3 percent increase in price causes a 10 percent decrease in quantity demanded.Which of the following statements is most likely applicable to this good?

A)The relevant time horizon is short.
B)The good is a necessity.
C)The market for the good is broadly defined.
D)There are many close substitutes for this good.

Question 59

Demand is inelastic if elasticity is

A)less than 1.
B)equal to 1.
C)greater than 1.
D)equal to 0.

Question 60

For a particular good,a 2 percent increase in price causes a 12 percent decrease in quantity demanded.Which of the following statements is most likely applicable to this good?

A)There are no close substitutes for this good.
B)The good is a luxury.
C)The market for the good is broadly defined.
D)The relevant time horizon is short.

Question 61

When the price of kittens was $25 each,the pet shop sold 20 per month.When they raised the price to $35 each,they sold 14 per month.The price elasticity of demand for kittens is about

A)1.66.
B)1.06.
C)0.94.
D)0.60.

Question 62

A perfectly elastic demand implies that

A)buyers will not respond to any change in price.
B)any rise in price above that represented by the demand curve will result in a quantity demanded of zero.
C)quantity demanded and price change by the same percent as we move along the demand curve.
D)price will rise by an infinite amount when there is a change in quantity demanded.

Question 63

When the local used bookstore prices economics books at $15.00 each,they generally sell 70 books per month.If they lower the price to $7.00,sales increase to 90 books per month.Given this information,we know that the price elasticity of demand for economics books is about

A)2.91, and an increase in price from $7.00 to $15.00 results in an increase in total revenue.
B)2.91, and an increase in price from $7.00 to $15.00 results in a decrease in total revenue.
C)0.34, and an increase in price from $7.00 to $15.00 results in an increase in total revenue.
D)0.34, and an increase in price from $7.00 to $15.00 results in a decrease in total revenue.

Question 64

When demand is perfectly inelastic,the price elasticity of demand

A)is zero and the demand curve is vertical.
B)is zero and the demand curve is horizontal.
C)approaches infinity and the demand curve is vertical.
D)approaches infinity and the demand curve is horizontal.

Question 65

When quantity moves proportionately the same amount as price,demand is

A)elastic and the price elasticity of demand is 1.
B)perfectly elastic and the price elasticity of demand is infinitely large.
C)perfectly inelastic and the price elasticity of demand is 0.
D)unit elastic and the price elasticity of demand is 1.

Question 66

Suppose demand is perfectly inelastic and the supply of the good in question decreases.As a result,

A)the equilibrium quantity decreases and the equilibrium price is unchanged.
B)the equilibrium price increases and the equilibrium quantity is unchanged.
C)the equilibrium quantity and the equilibrium price both are unchanged.
D)buyers' total expenditure on the good is unchanged.

Question 67

Figure 5-2

Refer to Figure 5-2.Sellers' total revenue would increase if the price

A)increased from $6 to $8.
B)decreased from $18 to $16.
C)decreased from $16 to $15.
D)All of the above are correct.

Question 68

The smaller the price elasticity of demand,the

A)steeper the demand curve will be through a given point.
B)flatter the demand curve will be through a given point.
C)more strongly buyers respond to a change in price between any two prices P₁ and P₂.
D)larger the decrease in equilibrium price when the supply curve shifts rightward from S₁ to S₂.

Question 69

Demand is said to be inelastic if the

A)quantity demanded changes proportionately more than price.
B)price changes proportionately more than income.
C)quantity demanded changes proportionately less than price.
D)quantity demanded changes proportionately the same as price.

Question 70

The case of perfectly elastic demand is illustrated by a demand curve that is

A)vertical.
B)horizontal.
C)downward-sloping but relatively steep.
D)downward-sloping but relatively flat.

Question 71

Demand is said to be unit elastic if

A)quantity demanded changes by the same percent as the price.
B)quantity demanded changes by a larger percent than the price.
C)the demand curve shifts by the same percentage amount as the price.
D)quantity demanded does not respond to a change in price.

Question 72

A perfectly inelastic demand implies that buyers

A)decrease their purchases when the price rises.
B)purchase the same amount as before when the price rises or falls.
C)increase their purchases only slightly when the price falls.
D)respond substantially to an increase in price.

Question 73

Suppose demand is perfectly elastic and the supply of the good in question decreases.As a result,

A)the equilibrium quantity decreases and the equilibrium price is unchanged.
B)the equilibrium price increases and the equilibrium quantity is unchanged.
C)the equilibrium quantity and the equilibrium price both are unchanged.
D)buyers' total expenditure on the good is unchanged.

Question 74

The flatter the demand curve through a given point,the

A)greater the price elasticity of demand at that point.
B)smaller the price elasticity of demand at that point.
C)closer the price elasticity of demand will be to the slope of the curve.
D)greater the absolute value of the change in total revenue when there is a movement from that point upward and to the left along the demand curve.

Question 75

Figure 5-2

Refer to Figure 5-2.Which of the following price changes would result in no change in sellers' total revenue?

A)The price increases from $6 to $9.
B)The price increases from $9 to $15.
C)The price decreases from $12 to $9.
D)The price decreases from $9 to $5.

Question 76

In the case of perfectly inelastic demand,

A)the change in quantity demanded equals the change in price.
B)the percentage change in quantity demanded equals the percentage change in price.
C)infinitely-large changes in quantity demanded result from very small changes in the price.
D)quantity demanded stays the same whenever price changes.

Question 77

When small changes in price lead to infinite changes in quantity demanded,demand is perfectly

A)elastic and the demand curve will be horizontal.
B)inelastic and the demand curve will be horizontal.
C)elastic and the demand curve will be vertical.
D)inelastic and the demand curve will be vertical.

Question 78

Elasticity of demand is closely related to the slope of the demand curve.The more responsive buyers are to a change in price,the

A)steeper the demand curve will be.
B)flatter the demand curve will be.
C)further to the right the demand curve will sit.
D)closer to the vertical axis the demand curve will sit.

Question 79

When demand is perfectly inelastic,the demand curve will be

A)negatively sloped, because buyers decrease their purchases when the price rises.
B)vertical, because buyers purchase the same amount as before whenever the price rises or falls.
C)positively sloped, because buyers respond by increasing the market quantity demanded of the good when price rises.
D)positively sloped, because buyers respond by increasing their total expenditure on the good when price rises.

Question 80

Figure 5-2

Refer to Figure 5-2.Sellers' total revenue would increase if the price

A)increased from $4 to $6.
B)increased from $16 to $18.
C)decreased from $8 to $6.
D)All of the above are correct.