Question 1

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

Accepted Answer

A demand curve that is horizontal is actually perfectly elastic, not perfectly inelastic. A perfectly inelastic demand curve is vertical. The elasticity of a perfectly elastic demand curve is infinity, while the elasticity of a perfectly inelastic demand curve is zero.

Question 2

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

Accepted Answer

This statement is true because necessities such as food, housing, and basic healthcare tend to be required regardless of their price, and consumers are less likely to reduce their consumption of these goods when their prices increase. On the other hand, luxuries such as high-end electronics or vacations are more discretionary and consumers are more likely to reduce their consumption of these goods when their prices increase. Therefore, necessities have price inelastic demands, while luxuries have price elastic demands.

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.

Accepted Answer

Demand for milk is considered price elastic because consumers are sensitive to price changes, which is why supermarkets compete on price to attract customers. If demand were inelastic, consumers would buy similar quantities regardless of price changes, reducing the incentive for price competition.

Question 4

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

Accepted Answer

Over a longer period, such as ten years, consumers have more time to adjust their behavior and find alternatives, making the demand for oil heaters more elastic compared to a shorter period like three 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.

Accepted Answer

Price elasticity of demand is calculated as the percentage change in quantity demanded divided by the percentage change in price. In this case, the price has increased by 25% and the quantity demanded has fallen by 50%, which means the percentage change in quantity demanded is twice the percentage change in price. Therefore, the price elasticity of demand is 2, making statement A true.

Question 6

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

Accepted Answer

The concept of elasticity, not slope, is the best way to measure the responsiveness of demand to changes in its determinants, as it provides a unit-free measure allowing for comparison across different goods and services.

Question 7

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

Accepted Answer

When a good has a close substitute, consumers have more options to choose from and can easily switch to another similar product if the price of the original product increases. This makes the demand for the product more elastic as consumers are more price-sensitive and are willing to switch to a different product if the price of their original choice becomes too high. On the other hand, goods without close substitutes experience less substitution and have a more inelastic demand.

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.

Accepted Answer

If the demand curve becomes flatter, it means that the good has become more elastic, not inelastic. This is because a flatter demand curve means that a small change in price leads to a larger change in quantity demanded, indicating more sensitivity to price changes and thus greater elasticity.

Question 9

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

Accepted Answer

Goods tend to have more elastic demand over longer time horizons because consumers have more time to adjust their behavior and find substitutes.

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.

Accepted Answer

Inelastic demand means that a change in price will have a relatively small effect on the quantity demanded.

Question 11

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

Accepted Answer

Demand is considered unit elastic if the elasticity is equal to one, not greater than one.

Question 12

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

Accepted Answer

The demand for Australian apples is likely to be more elastic than the demand for apples in general, as there are many other types of apples available in the market which consumers can substitute for Australian apples. This means that a price increase for Australian apples could lead to a significant decrease in demand, as consumers may switch to other types of apples or even other types of fruits.

Question 13

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

Accepted Answer

The price elasticity of demand for a product tends to be lower if fewer good substitutes are available, as consumers have fewer alternatives and are less sensitive to price changes.

Question 14

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

Accepted Answer

A linear demand curve can have different elasticities at different points along the curve, depending on the price and quantity demanded at that point. The elasticity of a linear demand curve is generally calculated as the percentage change in quantity demanded divided by the percentage change in price, which can vary at different points along the curve.

Question 15

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

Accepted Answer

The demand curve for a market can vary depending on factors such as the specific products or services included, the geographic region, and the target demographic. Thus, the wider or narrower the market definition, the different the demand curve may be.

Question 16

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

Accepted Answer

If the price elasticity of demand is equal to zero, demand is perfectly inelastic. Elastic demand occurs when the price elasticity of demand is greater than zero.

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.

Accepted Answer

This is the definition of elastic demand.

Question 18

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

Accepted Answer

A perfectly vertical demand curve means that no matter how much the price changes, the quantity demanded remains the same. This is indicative of perfectly inelastic demand, where the price elasticity of demand is 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.

Accepted Answer

The midpoint method for calculating elasticity is designed to give a consistent elasticity value regardless of whether you calculate it from point A to point B or from point B to point A, because it uses the average of the initial and final quantities and prices in its formula.

Question 20

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

Accepted Answer

If the measured elasticity is less than one, it indicates that the percentage change in quantity demanded is less than the percentage change in price, meaning the demand is inelastic.

Quiz 5: Elasticity and Its Application