Question 1

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 the price elasticity of demand at a given point is (P/Q)× (1/slope).

Question 2

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 percent increase in the price leads to a 14 percent decrease in quantity demanded.
C)a 10 percent decrease in the price leads to a 140 percent increase in quantity demanded.
D)a 5 percent increase in the price leads to a 7 percent decrease in quantity demanded.

Accepted Answer

The price elasticity of demand is given by the absolute value of the percentage change in quantity demanded divided by the percentage change in price. Here, |-7/5| = 1.4.

Question 3

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 4

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

Accepted Answer

The formula for the price elasticity of demand at a given point is (P/Q)× (1/slope). Here, (5/4)× (1/0.5)= 5/2. Since this is greater than one, demand is elastic at point A.

Question 5

The accompanying 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 formula for the price elasticity of demand at a given point is (P/Q)× (1/slope). Here, (4/6)× (1/0.5)= 4/3.

Question 6

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

If the price elasticity of demand is less than one, demand is inelastic, and if it is greater than one, demand is elastic.

Question 7

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 8

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 9

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 10

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 11

Suppose that the demand for electricity has been found to be price inelastic. The most likely explanation for this finding is that:
A)electricity is a luxury good.
B)the fraction of income spent on electricity is large.
C)few substitutes for electricity exist.
D)electricity is sold in a monopoly market.

Accepted Answer

Goods with few substitutes have lower price elasticity because buyers cannot readily shift to another product if the price of the good rises.

Question 12

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.

Question 13

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

The demand for necessities is less price elastic than the demand for non-necessities.

Question 14

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 15

Suppose that there is only one small clothing store in the remote village of Green Acres, and until recently the townspeople bought their shirts there. As more people in Green Acres become connected to the Internet, the price elasticity of demand for shirts at the Green Acres store will:
A)increase because the Internet offers more substitutes.
B)decrease because the Internet offers more substitutes.
C)remain the same, but the quantity demanded will decrease as more people shop online.
D)remain the same, but the demand will decrease as more people shop online.

Accepted Answer

The Internet connection provides more substitute sources of buying shirts, and goods with more substitutes have a greater price elasticity of demand.

Question 16

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 17

The accompanying 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 formula for the price elasticity of demand at a given point is (P/Q)× (1/slope). Here, (5/4)× (1/0.5)= 5/2.

Question 18

Suppose you learn that in 1,900, 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 1,900.
D)is probably higher now than it was in 1,900.

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 19

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

When consumers have less time to adjust to price changes, the price elasticity of demand will be lower.

Question 20

The accompanying 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 formula for slope is rise/run, here 1/2 or, 0.5.

Quiz 4: Elasticity

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:

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

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

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

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

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

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:

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:

Suppose that the demand for electricity has been found to be price inelastic. The most likely explanation for this finding is that:

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?

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 that there is only one small clothing store in the remote village of Green Acres, and until recently the townspeople bought their shirts there. As more people in Green Acres become connected to the Internet, the price elasticity of demand for shirts at the Green Acres store will:

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.

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

Suppose you learn that in 1,900, 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:

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 ________.

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