Deck 5: Elasticities of Demand and Supply

Question 1

If the price of a good rises, then moving along a demand curve the percentage change in the quantity demanded will be

A) undefined.
B) zero.
C) positive.
D) negative.
E) either positive, negative or zero depending on how the demand curve shifted.

Answer 1

negative.

Question 2

If the percentage change in the quantity demanded is not zero, but is less than the percentage change in the price, demand is

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

Answer 2

inelastic.

Question 3

If a good has many close substitutes, then its demand is most likely

A) elastic.
B) unit elastic.
C) inelastic.
D) perfectly inelastic.
E) elastic or inelastic depending on whether the price of the good is increasing or decreasing.

Answer 3

elastic.

Question 4

If a product is narrowly defined, it is likely to

A) have few substitutes, and therefore its demand is less elastic.
B) be unique and have many substitutes.
C) be unique, and therefore its demand is inelastic.
D) have a larger proportion of income spent on it.
E) have many substitutes and therefore its demand is elastic.

Question 5

Suppose the Adelaide Crows football team raises ticket prices by 13 per cent and as a result the quantity of tickets demanded decreases by 21 per cent. This response means that the demand for Crows tickets is

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

Question 6

Perfectly inelastic demand means that consumers

A) will buy a certain quantity, regardless of price.
B) decrease their consumption as price rises.
C) will buy a huge, almost infinite amount more, if the price falls just a little.
D) increase their consumption as price rises.
E) are willing to buy any quantity of the good at a given price, but none at higher prices.

Question 7

Of the following, which good has the most elastic demand?

A) Breakfast food
B) Breakfast cereal
C) Sultana Bran purchased at a Woolworths supermarket
D) Food
E) Sultana Bran

Question 8

Suppose the price of a box of breakfast cereal rises from $4 to $6. Using the midpoint method, what is the percentage change in price?

A) 67 per cent
B) 40 per cent
C) 50 per cent
D) 33 per cent
E) None of the above answers is correct.

Question 9

To determine the price elasticity of demand, we

A) compare the change in the quantity to the change in price.
B) compare the percentage change in the quantity demanded to the percentage change in price.
C) need information on consumers' incomes.
D) divide the quantity by the price.
E) need to know how much is available.

Question 10

If the price elasticity of demand for opera tickets in Sydney is 1.00, then the demand for opera tickets in Sydney is

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

Question 11

Suppose you are working as a tutor charging $85 per hour. If your fee increases from $85 to $93 per hour, using the midpoint method, what is the percentage change in price?

A) 8.99 per cent
B) 9.12 per cent
C) 9.41 per cent
D) 8.00 per cent
E) 8.62 per cent

Question 12

The price elasticity of demand measures which of the following?

A) How responsive the quantity demanded is to changes in price.
B) The rate at which demand changes when price changes.
C) The slope of the demand curve.
D) The percentage-slope of the demand curve.
E) None of these correctly defines what price elasticity of demand measures.

Question 13

If the percentage change in price is 10 per cent and demand is elastic, then the percentage change in the quantity demanded

A) is larger than 10 per cent.
B) equals 10 per cent.
C) equals 0 per cent.
D) is greater than 0 per cent but less than 10 per cent.
E) More information is needed to determine the magnitude of the change in the quantity demanded.

Question 14

Which of the following statements is correct?

A) The larger the proportion of income spent on a good, the smaller the elasticity of demand.
B) The demand for New Balance shoes is more elastic than the demand for shoes in general.
C) The demand for a narrowly defined good is less elastic than the demand for a more broadly defined good.
D) The demand for luxuries is less elastic than the demand for necessities.
E) The demand for salt is very elastic.

Question 15

Suppose the demand for oranges sold from one roadside stand in South Australia is perfectly elastic. As a result, a 7 per cent increase in the price charged by the owner of this stand leads to

A) a virtually infinite increase in the quantity demanded at this stand.
B) no change in the quantity demanded at this stand.
C) zero peaches sold by this stand.
D) a 7 per cent decrease in the quantity demanded at this stand.
E) a 7 per cent decrease in demand at this stand.

Question 16

The price elasticity of demand measures the extent to which the quantity demanded changes when

A) the price of the good changes.
B) consumer preferences change.
C) the price of a related good changes.
D) both the demand and supply of the good change.
E) the expected future price of a good changes.

Question 17

If the demand for a good is elastic, then

A) the quantity demanded divided by the price exceeds 1.00.
B) a change in the quantity demanded is smaller than the change in price.
C) a change in price leads to a smaller percentage change in the quantity demanded.
D) people substantially decrease the quantity of the good they buy if its price increases by a small percentage.
E) people do not change the quantity they demand when the price of the good changes.

Question 18

Which of the following does NOT influence the price elasticity of demand?

A) Whether the good is a necessity or a luxury.
B) The amount by which the demand curve shifts when the price of another good changes.
C) The number of substitutes available to consumers.
D) The time period buyers have to respond to a price change.
E) The price of the good relative to total income.

Question 19

The longer the time that has elapsed since the price of a good changed, the

A) steeper the demand curve.
B) more elastic the demand for that good.
C) fewer substitutes available for the good.
D) smaller the amount of that good bought.
E) less elastic the demand for that good.

Question 20

When the percentage change in the quantity demanded equals the percentage change in price, then demand is

A) elastic.
B) inelastic.
C) unit elastic.
D) undefined.
E) irrelevant.

Question 21

Suppose the price of a ticket to a Rolling Stones concert is $41 and, at that price, the quantity of tickets demanded is 17,000 per concert. Using the midpoint method of calculating percentage changes, if the Rolling Stones raises the price to $48 and the quantity demanded decreases to 16,000, the price elasticity of demand for their concert tickets is

A) 6.06.
B) 0.93.
C) 1.00.
D) 0.39.
E) 15.73.

Question 22

When the price of a cup of coffee falls from $3.00 to $2.50, the quantity demanded increases from 1,000 per month to 1,150 per month. Using the midpoint method, the price elasticity of demand is

A) 0.77.
B) 1.30.
C) 0.07.
D) 2.50.
E) 3.00.

Question 23

A 10 per cent increase in price leads to a 20 per cent decrease in the quantity demanded. The price elasticity of demand is equal to

A) 10.0.
B) 20.0.
C) 2.0.
D) 1.0.
E) 0.5.

Question 24

If a 10 per cent price increase generates a 10 per cent decrease in quantity demanded, then demand is

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

Question 25

If the price elasticity of demand for a good is 2, then a 10 per cent increase in the price of that good ________ the quantity demanded by ________ per cent.

A) increases; 20
B) decreases; 20
C) increases; 8
D) decreases; 10
E) decreases; 2

Question 26

If a good is a necessity, it has ________ substitutes and its demand is ________.

A) poor; elastic
B) many; elastic
C) many; inelastic
D) poor; inelastic
E) many; precisely unit elastic

Question 27

We calculate the price elasticity of demand as the

A) ratio of the percentage change in price to the percentage change in quantity.
B) change in quantity divided by the change in price.
C) ratio of the percentage change in the quantity demanded to the percentage change in price.
D) equilibrium quantity divided by the equilibrium price.
E) percentage change in the quantity demanded divided by the percentage change in income.

Question 28

The data in the table above give two points on the demand curve for pizza. Using the midpoint method, when the price of a pizza falls from $10 to $9, what is the percentage change in price?

A) 1.0 per cent
B) 8.2 per cent
C) 5.0 per cent
D) 15.5 per cent
E) 10.5 per cent

Question 29

When the price of Cosmopolitan magazine decreases from $5 to $3, the quantity demanded increases from 600,000 to 1,000,000 copies each month. Using the midpoint method, the price elasticity of demand equals

A) 1.
B) 1/2.
C) 1/3.
D) 2.
E) 3.

Question 30

Using the table above, what is the elasticity of demand between the prices of $9 and $7?

A) 4
B) 6
C) 1
D) 2
E) 1/4

Question 31

The data in the table above give two points on the demand curve for pizza. Using the midpoint method, when the price of a pizza falls from $10 to $9, what is the price elasticity of demand?

A) 0.9
B) 0.6
C) 0.5
D) 2.1
E) 8.6

Question 32

A product's price elasticity of demand is likely to be greater

A) the less time consumers have to adjust to price changes.
B) if consumers spend a small proportion of income on the product.
C) if it only has a few substitutes.
D) if the product is a luxury good rather than a necessity.
E) Both answers C and D are correct.

Question 33

If a 30 per cent price increase generates a 20 per cent decrease in quantity demanded, then demand is

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

Question 34

If the price elasticity of demand for a product is 2.5, then a price increase of 1.5 per cent decreases the quantity demanded by

A) 5.00 per cent.
B) 3.75 per cent.
C) 3.50 per cent.
D) 1.00 per cent.
E) 1.55 per cent.

Question 35

When the price of pizzas rises by 4 per cent, the quantity demanded decreases 10 per cent. What is the price elasticity of demand for pizza?

A) 0.4
B) 40.0
C) 25.0
D) 2.5
E) 10.0

Question 36

If a 2 per cent change in price leads to a ________ per cent change in the quantity demanded, then demand is ________.

A) 3; inelastic
B) 2; elastic
C) 0; perfectly elastic
D) 1; inelastic
E) 1; unit elastic

Question 37

Using the table above, the elasticity of demand is equal to 1 at a price of

A) $6.
B) $3.
C) $5.
D) $8.
E) $1.

Question 38

Using the data in the table above, when the price of a skirt rises from $20 to $35, what is the price elasticity of demand? (Use the midpoint method.)

A) 0.33
B) 1.00
C) 1.33
D) 3.00
E) 0.25

Question 39

Demand for a product tends to be more elastic the longer the time period considered because

A) sellers have more time to expand production.
B) buyers get used to the new price.
C) buyers have more time to search for substitutes.
D) the inverse relationship between the price and the quantity demanded weakens over time.
E) price increases over time make the price larger relative to buyers' incomes.

Question 40

The demand for a necessity generally is

A) unit elastic.
B) infinitely elastic.
C) very elastic.
D) inelastic.
E) unaffected by income.

Question 41

At the midpoint of a linear, downward-sloping demand curve, the price elasticity of demand is

A) less than one but greater than zero.
B) zero.
C) infinite.
D) greater than one.
E) equal to one.

Question 42

In the figure above, using the midpoint method, what is the price elasticity of demand when the price falls from $8 to $7?

A) 0.4
B) 5.0
C) 4.0
D) 0.5
E) 0.25

Question 43

Which of the following is correct? i. All linear demand curves have a constant slope and a constant price elasticity of demand.
Ii) The price elasticity of demand changes while moving along a downward-sloping linear demand curve.
Iii) The magnitude of the slope of all linear demand curves is equal to the price elasticity of demand.

A) i only
B) i, ii and iii
C) iii only
D) i and ii
E) ii only

Question 44

If the price elasticity of demand for petrol equals 0.3, then an increase in the price of a litre of petrol from $3.70 to $3.90

A) leads to no change in total revenue.
B) makes the demand for petrol elastic.
C) increases total revenue.
D) decreases total revenue.
E) Both answers B and D are correct.

Question 45

If a bakery raises the price of its bread by 11 per cent and the quantity demanded decreases by 11 per cent, then the demand for its bread is ________ and the bakery's total revenue ________.

A) unit elastic; increases
B) elastic; does not change
C) unit elastic; decreases
D) unit elastic; does not change
E) inelastic; does not change

Question 46

In the figure above, what happens to total revenue as we move from point A to point B?

A) It remains constant.
B) It decreases.
C) It becomes negative.
D) It increases.
E) More information about the elasticity of demand is needed to determine if it increases, decreases or does not change.

Question 47

In the figure above, if the price falls from $8 to $7, demand is

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

Question 48

In the figure above, using the midpoint method, the price elasticity of demand when the price falls from $7 to $6 is equal to

A) 0.40.
B) 2.50.
C) 0.62.
D) 1.00.
E) 1.63.

Question 49

Moving downward along a linear (straight-line) downward-sloping demand curve, the

A) demand becomes less elastic.
B) quantity demanded decreases.
C) price elasticity of demand does not change.
D) total revenue never changes.
E) demand becomes more elastic.

Question 50

If demand is inelastic and the price falls, the total revenue

A) might rise, fall or remain constant.
B) rises.
C) remains constant.
D) falls.
E) becomes negative.

Question 51

Krispy Kreme raises the price of its donuts. The price elasticity of demand for Krispy Kreme donuts equals 5.0. What happens to Krispy Kremes' total revenue?

A) It becomes negative.
B) It increases.
C) Nothing.
D) It decreases.
E) It might change, but more information is needed to determine if it increases, decreases or does not change.

Question 52

If a 2 per cent rise in price leads to a 4 per cent decrease in quantity demanded, then demand is

A) elastic and total revenue increases.
B) elastic, but we cannot tell what happens to total revenue without more information.
C) elastic and total revenue decreases.
D) inelastic and total revenue decreases.
E) Total revenue decreases but we cannot tell if the demand is elastic or inelastic without more information.

Question 53

In the figure above, using the midpoint method, the price elasticity of demand when the price falls from $6 to $5 is equal to

A) 1.63.
B) 1.10.
C) 2.50.
D) 0.91.
E) 1.00.

Question 54

If demand is price inelastic and the price is lowered, which of the following occurs?

A) The total revenue of the firms selling the product is unchanged.
B) The total expenditure increases and the total revenue decreases.
C) The total expenditure decreases and the total revenue increases.
D) The total revenue of the firms selling the product decreases.
E) The quantity sold decreases.

Question 55

You own a small store. Your cashier thinks you should raise prices to increase your total revenue and your customer thinks you should lower prices to increase your total revenue. The cashier thinks the price elasticity of demand is ________ and the customer believes the price elasticity of demand is ________.

A) elastic; inelastic
B) unit elastic; elastic
C) inelastic; inelastic
D) elastic; elastic
E) inelastic; elastic

Question 56

When minced beef is $3 per kilo, Ms. Rush buys 6 kilos. When minced beef is $2 per kilo, Ms. Rush buys 10 kilo. Describe Ms. Rush's demand between these two prices.

A) Unit elastic
B) Elastic
C) Inelastic
D) Perfectly elastic
E) Perfectly inelastic

Question 57

KFC raises the price of its chicken nuggets. The price elasticity of demand for KFC chicken nuggets is 0.8. What happens to KFC's total revenue?

A) It decreases.
B) Nothing.
C) It increases.
D) It becomes negative.
E) It might change, but more information is needed to determine if it increases, decreases or does not change.

Question 58

The price of the good multiplied by the quantity sold is its

A) total spending.
B) total quantity.
C) total cost.
D) total income.
E) total revenue.

Question 59

If the supply of a good decreases and it causes total revenue to increase, this shows that the good has a(n)

A) elastic demand.
B) inelastic supply.
C) elastic supply.
D) unit elastic demand.
E) inelastic demand.

Question 60

In the figure above, what is the total revenue at point A?

A) $150
B) $170
C) $20
D) $3,000
E) 150 quantity units

Question 61

A firm raises the price it charges. The firm's total revenue does not change. What can we conclude about the price elasticity of demand?

A) Demand is elastic.
B) Demand is perfectly elastic.
C) Demand is unit elastic.
D) Demand is inelastic.
E) Not enough information is given to conclude anything about price elasticity of demand.

Question 62

The price elasticity of supply measures

A) the percentage change in supply from a percentage change in demand.
B) how the equilibrium price changes in response to a change in the equilibrium quantity supplied.
C) the slope of the supply curve.
D) the extent to which the quantity supplied of a good changes when the price of a good changes, other things remaining the same.
E) Both answers B and C are correct.

Question 63

When a firm raises the price of its product, what happens to its total revenue?

A) If demand is elastic, total revenue decreases.
B) If demand is elastic, total revenue increases.
C) If demand is unit elastic, total revenue increases.
D) If demand is inelastic, total revenue decreases.
E) If demand is unit elastic, total revenue decreases.

Question 64

During the winter of 2017-2018, the price of heating oil in Canberra increased enormously but the quantity demanded decreased only a little. This response indicates that the demand for heating oil was

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

Question 65

For which of the following would the supply likely be most inelastic?

A) Canned soup
B) A t-shirt
C) An aircraft carrier
D) A toy aeroplane
E) Bottled water

Question 66

When the percentage change in the quantity supplied is less than the percentage change in price, the supply is

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

Question 67

Suppose the current price of barley is $70 per tonne and at that price 100,000 tonnes are grown by a Victorian farmer. If the price of barley rises to $80 and quantity supplied increases to 130,000 tonnes then, using the midpoint method, the price elasticity of supply for barley equals

A) 1.96.
B) 13.33.
C) 26.78.
D) zero.
E) 0.51.

Question 68

If the price of timber increased by 10 per cent and the quantity supplied increased by 20 per cent. Then the supply of timber is

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

Question 69

Which of the following explains why supply is more elastic as more time passes?

A) Sellers try to take advantage of a high price in the short term.
B) It is difficult or impossible to increase the quantity produced in a short period of time.
C) The supply curve becomes generally steeper as more time passes.
D) Consumers have more time to search for substitutes.
E) There is no explanation for this phenomenon.

Question 70

If the price of beef increased by 20 per cent and the quantity supplied increased by 10 per cent, then the supply of beef is

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

Question 71

The figure above shows the supply curve for a good with

A) an inelastic supply.
B) an elastic supply.
C) a perfectly elastic supply.
D) a unit elastic supply.
E) a perfectly inelastic supply.

Question 72

If the price elasticity of supply for a good is 0.75, then

A) the supply is elastic.
B) the supply is inelastic so the demand must also be inelastic.
C) an increase in the price boosts the quantity supplied by a larger percentage.
D) the percentage change in the quantity supplied is less than the percentage change in price.
E) None of the above answers is correct.

Question 73

If the percentage change in the price of a good exceeds the percentage change in the quantity supplied, then the supply is

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

Question 74

The price of one-bedroom apartments in Mildura increased from $55,000 to $65,000 and the quantity of apartments for sale increased from 25 to 30. Using the midpoint method, the price elasticity of supply for apartments in Mildura is equal to

A) 0.916.
B) 0.08.
C) 2.18.
D) 1.09.
E) 0.75.

Question 75

The figure above shows the supply curve for a good with

A) a perfectly inelastic supply.
B) an inelastic supply.
C) a unit elastic supply.
D) a perfectly elastic supply.
E) an elastic supply.

Question 76

If wheat can be produced at a constant opportunity cost, then the supply of wheat is

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

Question 77

In the figure above, when the price falls from $8 to $7, total revenue

A) increases from $120 to $210 so demand is inelastic.
B) decreases from $210 to $120 so demand is inelastic.
C) increases from $120 to $210 so demand is elastic.
D) decreases from $210 to $120 so demand is elastic.
E) increases from $120 to $210, but more information is needed to determine whether demand is elastic, inelastic or unit elastic.

Question 78

Suppose the price of a silk tie rises from $45 to $55. Using the midpoint method, what is the percentage change in price?

A) 20 per cent
B) 100 per cent
C) 10 per cent
D) -10 per cent
E) -20 per cent

Question 79

The price elasticity of demand for an agricultural product is 0.4. This value means that, when the quantity decreases 1 per cent, the price

A) rises 4 per cent.
B) falls 2.5 per cent.
C) rises 2.5 per cent.
D) rises 0.25 per cent.
E) falls 4 per cent.

Question 80

The fact that there is a very limited amount of land in Hong Kong means the supply of new apartments in Hong Kong is

A) limited by the demand.
B) perfectly elastic.
C) elastic.
D) unit elastic.
E) inelastic.