Deck 5: Elasticity and Its Application

Question 1

A demand curve that is horizontal is perfectly inelastic.This means the elasticity is equal to one.

Answer 1

False

Question 2

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

Answer 2

True

Question 3

Major Australian supermarket chains have been fighting to sell milk at the lowest price.The fact that they place such importance on the price must mean that they consider demand for milk to be somewhat price inelastic.

Answer 3

False

Question 4

Over three years the elasticity of demand for oil heaters will be greater than over ten years.

Question 5

The price of a hamburger increases by 25 per cent and the quantity of hamburgers demanded per week falls by 50 per cent.The price elasticity of demand is two.

Question 6

The concept of the slope is the best way to measure the responsiveness of demand to changes in its determinants.

Question 7

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

Question 8

A good experiences a shift of the demand curve so that it is now flatter than before.Suppose that the market price and quantity demanded does not change.This means that the good has now become inelastic.

Question 9

Goods tend to have more elastic demand over shorter time horizons.

Question 10

The demand for a good is inelastic if the quantity demanded decreases only a small amount after a small increase in the price.

Question 11

Demand is unit elastic if the elasticity is greater than one.

Question 12

The demand for apples is generally more elastic than the demand for Australian apples.

Question 13

The price elasticity of demand for a product will tend to be higher if fewer good substitutes for it are available.

Question 14

A linear demand curve always has the same elasticity over its entire length.

Question 15

The demand curve for a market may be different depending on how widely the market is defined.

Question 16

If the price elasticity of demand is equal to zero, demand is elastic.

Question 17

The demand for a good is said to be elastic if a small price decrease leads to a substantial increase in the quantity demanded.

Question 18

A perfectly vertical demand curve means that demand is perfectly inelastic.The price elasticity of demand will be zero.

Question 19

The midpoint method will often give you two different values of elasticity depending on whether you calculate the elasticity from point A to point B or point B to point A.

Question 20

If the measured elasticity is less than one it means that the demand for this good is inelastic.

Question 21

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

Question 22

The income elasticity of demand measures how hours worked changes when the hourly wage changes.

Question 23

The midpoint method is used to calculate elasticity because it gives the same answer regardless of the direction of the change between two points.

Question 24

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

Question 25

The supply of farmland is more elastic than is the supply of wheat.

Question 26

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

Question 27

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

Question 28

The cross-price elasticity of demand will be positive for complement goods and negative for substitute goods.

Question 29

Given a linear demand curve has a constant slope, it follows that the elasticity of the linear demand curve is also always constant.

Question 30

The demand for basic foodstuffs such as wheat is usually elastic.

Question 31

If the price of forest-products rises, the price elasticity of supply will be more responsive in the long run than in the short run.

Question 32

If the price of one good goes up, and this causes the quantity demanded of another good to go down, the cross-price elasticity of demand will be negative.

Question 33

Price elasticity over any range of a demand curve is measured by the slope of the demand curve over that range.

Question 34

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

Question 35

Slope is the ratio of the changes in two variables, while elasticity is the ratio of the percentage changes in two variables.

Question 36

As price elasticity of demand increases, the demand curve gets steeper and steeper.

Question 37

If you enjoy buying luxury goods more than buying groceries, your income elasticity of demand for luxury goods will be less elastic than for groceries.

Question 38

If the price elasticity of demand is elastic, reduced demand for a good will create a greater fall in revenue than the increase in revenue created by the increase in price.

Question 39

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 40

If the price elasticity of demand is 1.5, a price decrease will cause total revenue to increase.

Question 41

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

Question 42

The elasticity of demand for toasted muesli would increase if:

A)there was an increase in complements for toasted muesli
B)the definition of the toasted muesli market was made very broad
C)toasted muesli was considered a luxury product
D)the effect of a price rise was measured over a long period of time

Question 43

The elasticity of demand for a good tends to increase if:

A)there is an increase in the availability of complements
B)there is an increase in the availability of substitutes
C)the market is considered over a longer period of time
D)the definition of the market is broadened

Question 44

The price elasticity of demand measures how responsive:

A)buyers are to a change in price
B)buyers are to a change in advertising by sellers
C)sellers are to a change in price
D)buyers are to a change in their tastes

Question 45

In general, elasticity is:

A)the friction that develops between buyer and seller in a market
B)a measure of how much government intervention is prevalent in a market
C)a measure of how much buyers and sellers respond to changes in market conditions
D)a measure of the competitive nature of a market

Question 46

Demand is said to be elastic if:

A)the price of the good responds substantially to changes in demand
B)the supply of the good responds weakly to changes in demand
C)the quantity demanded responds substantially to changes in the quantity supplied of the good
D)the quantity demanded responds substantially to changes in the price of the good

Question 47

A person who likes to be on the sea in a boat would tend to have what type of demand for boats?

A)elastic
B)inelastic
C)unit elastic
D)weak

Question 48

A policy reducing the supply of drugs will be less effective for reducing drug-use and drug-related crime than a policy which reduces the quantity demanded of drugs.

Question 49

Demand is said to be inelastic if:

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

Question 50

If a good is a necessity, demand for the good would tend to be:

A)elastic
B)unit elastic
C)inelastic
D)horizontal

Question 51

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

Question 52

Suppose a coffee plantation in Colombia increases the quantity of coffee beans it supplies by 5% when it learns that the price of a coffee at cafes in Melbourne has risen by 25%.The Colombian producer's price elasticity of supply of coffee beans is 0.2.

Question 53

If a person has very little concern for her health, her demand for healthcare would tend to be:

A)elastic
B)inelastic
C)unit elastic
D)horizontal

Question 54

Economists use the concept of price elasticity of demand to measure how much:

A)sellers respond to changes in the price of the good
B)worse off consumers are when the price of the good rises
C)demand responds to changes in buyers' incomes
D)buyers respond to changes in the price of the good

Question 55

In the 1970s OPEC generated high prices for oil but could not sustain this in the mid-80s and 90s.The reason was that both the supply and demand elasticity for oil is less elastic in the short run than in the long run.

Question 56

Price elasticity of supply is defined as the percentage change in quantity supplied divided by the percentage change in price.

Question 57

The concept of elasticity is used to:

A)analyse how much the economy is capable of expanding
B)analyse supply and demand with greater precision
C)determine the level of government invention in the economy
D)calculate consumer credit purchases

Question 58

While an increase in total agricultural production may benefit farmers as a group, it will not benefit an individual farmer to increase his production.

Question 59

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

Question 60

If you think good wine is a necessity but cheese is a luxury, then your demand for wine will be more ______ than your demand for cheese:

A)elastic
B)inelastic
C)unit elastic
D)strong

Question 61

Suppose that the slope of the demand curve becomes flatter at a given price.This means that the price elasticity of demand at this point will:

A)increase
B)decrease
C)not change
D)be zero

Question 62

NARRBEGIN: 5-2 Graph 5-2
In Graph 5-2, the elasticity of demand from point A to point B, using the midpoint method, would be:

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

Question 63

The demand for a good tends to be more elastic:

A)the longer the period of time
B)the greater the availability of close substitutes
C)the narrower the definition of the market
D)all of the above are correct

Question 64

NARRBEGIN: 5-1 Graph 5-1
In Graph 5-1, the section of the demand curve labelled C represents the:

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

Question 65

NARRBEGIN: 5-2 Graph 5-2
In Graph 5-2, the elasticity of demand from point B to point C, using the midpoint method, would be:

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

Question 66

Demand is said to be unit elastic if:

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

Question 67

Demand is classed as inelastic if the elasticity coefficient is:

A)less than one
B)equal to one
C)greater than one
D)equal to zero

Question 68

Suppose that there are many substitutes for crocodile-leather handbags.This would mean that the:

A)supply of crocodile-leather handbags would tend to be price elastic
B)demand for crocodile-leather handbags would tend to be price elastic
C)demand for crocodile-leather handbags would tend to be price inelastic
D)demand for crocodile-leather handbags would tend to be income elastic

Question 69

Demand would be classed as elastic if the elasticity coefficient was:

A)greater than two
B)less than, or equal to, zero
C)equal to one
D)less than one

Question 70

Suppose there is a 10 per cent increase in the price of fish and a resulting five per cent decrease in the quantity of fish demanded.The price elasticity of demand for fish is:

A)10
B)5
C)2
D)1/2

Question 71

A perfectly inelastic 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 no output demanded
C)price and quantity demanded respond proportionally
D)price will rise by an infinite amount when there is a change in quantity demanded

Question 72

NARRBEGIN: 5-2 Graph 5-2
Refer to Graph 5-2.If there is a four per cent decrease in the price of a good and this leads to a 12 per cent increase in the quantity demanded then the price elasticity is:

A)3 and elastic
B)3 and inelastic
C)0.3 and elastic
D)0.3 and inelastic

Question 73

Economists compute the price elasticity of demand as the:

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

Question 74

Suppose the price of product X is increased from $8.00 to $10.00 and as a result, the quantity of X demanded decreases from 1500 to 1000.Using the midpoint method, the price elasticity of demand for X in the given price range is:

A)2.00
B)1.80
C)1.00
D)0.40

Question 75

Holding all other forces constant, when the price of gasoline rises, the number of gallons of gasoline demanded would fall substantially over a 10-year period because:

A)buyers tend to be much less sensitive to a change in price when given more time to react
B)buyers will have substantially more income over a 10-year period
C)buyers tend to be much more sensitive to a change in price when given more time to react
D)none of these answers are correct

Question 76

NARRBEGIN: 5-1 Graph 5-1
In Graph 5-1, the point on the demand curve labelled B represents the:

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

Question 77

A perfectly inelastic demand curve will be:

A)vertical
B)horizontal
C)downward sloping to the right
D)have an infinite elasticity

Question 78

Demand is perfectly inelastic if elasticity is:

A)less than one
B)equal to one
C)greater than one
D)equal to zero

Question 79

NARRBEGIN: 5-1 Graph 5-1
In Graph 5-1, the section of the demand curve labelled A represents the:

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

Question 80

Suppose the price of product X is reduced from $16.00 to $12.00 and, as a result, the quantity of X demanded increases from 300 to 450.Using the midpoint method, the price elasticity of demand for X in the given price range is:

A)1.40
B)1.00
C)0.40
D)0.29