Deck 5: Price Elasticity of Demand and Supply

Question 1

Suppose that a jewelry store found that when it increased prices by 10 percent, sales revenue increased by 3 percent. Which of the following is true about the price elasticity of demand for the store's goods?

A) Demand is perfectly inelastic.
B) Demand is inelastic, but not perfectly.
C) Demand is unitary classic.
D) Demand is elastic, but not perfectly.
E) Demand is perfectly elastic.

Answer 1

B

Question 2

When demand is price inelastic:

A) price and total revenue move in the same direction.
B) price and total revenue move in the opposite direction.
C) total revenue increases whether price goes up or down.
D) total revenue decreases whether price goes up or down.

Answer 2

A

Question 3

Over the elastic portion of a demand curve, a decrease in price causes:

A) an increase in total revenue.
B) a decrease in total revenue.
C) no change in total revenue.
D) an increase in quantity demanded, but anything can happen to revenue.

Answer 3

A

Question 4

A local Krispy Kreme doughnut shop reduced the price of its doughnuts from $4 per dozen to $3.50 per dozen, and as a result, the daily sales increased from 300 to 400 dozen. This indicates that the price elasticity of demand for the doughnuts was:

A) elastic.
B) inelastic.
C) of unitary elasticity.
D) indeterminate; more information is needed to determine the price elasticity of demand.

Question 5

If a decrease in the price of movie tickets increases the total revenue of movie theaters, this is evidence that demand is:

A) price elastic.
B) price inelastic.
C) unit elastic with respect to price.
D) perfectly inelastic.

Question 6

Price elasticity of demand is defined as the ratio of the:

A) percentage increase in price to an increase in quantity demanded.
B) unit change in quantity demanded to the dollar change in price.
C) maximum amount that consumers will pay to increase quantity.
D) percentage change in quantity demanded to the percentage change in price, other things being equal.

Question 7

If demand is price elastic, a decrease in price causes:

A) an increase in total revenue.
B) a decrease in total revenue.
C) no change in total revenue.
D) an increase in quantity, but anything can happen to revenue.

Question 8

If a demand curve for a good were completely vertical, it would be considered:

A) perfectly elastic.
B) perfectly inelastic.
C) of unitary elasticity.
D) relatively inelastic.

Question 9

Price elasticity of demand refers to the:

A) percentage increase in price in response to a percentage increase in quantity demanded.
B) percentage decrease in price in response to a percentage increase in income.
C) minimum amount that consumers will pay for a percentage change in quantity demanded or supplied.
D) responsiveness of quantity demanded to a change in the price of a good.

Question 10

An increase in total revenue results occurs from which of the following?

A) Price decreases when demand is inelastic.
B) Price increases when demand is elastic.
C) Price decreases when demand is elastic.
D) Price increases when demand is unitary elastic.

Question 11

The price elasticity of demand for gasoline measures the:

A) responsiveness of gasoline producers to changes in the quality of gasoline.
B) responsiveness of customers to changes in the price of gasoline.
C) responsiveness of consumer preferences to changes in the quality of gasoline.
D) both a and c above.

Question 12

Suppose an increase in symphony tickets prices reduces the total revenue. This is evidence that demand is:

A) price elastic.
B) price inelastic.
C) unitary elastic.
D) perfectly elastic.

Question 13

Suppose that Starbucks reduces the price of its premium coffee from $2.20 to $1.80 per cup, and as a result, the quantity sold per day increased from 350 to 450. Over this price range, the price elasticity of demand for Starbucks coffee is:

A) 0.40.
B) 0.80.
C) 1.25.
D) 2.50.

Question 14

Price elasticity of demand refers to the ratio of the:

A) percentage change in price of a good in response to a percentage change in quantity demanded.
B) percentage change in price of a good to a percentage increase in income.
C) percentage change in the quantity demanded of a good to a percentage change in its price.
D) none of these.

Question 15

A perfectly elastic demand curve has an elasticity coefficient of:

A) 0.
B) 1.
C) less than 1.
D) infinity.

Question 16

Suppose you are the manager of a local water company, and you are instructed to get consumers to reduce their water consumption by 10 percent. If the price elasticity of demand for water is 0.25, by how much would you have to raise the price of water?

A) 10 percent
B) 25 percent
C) 40 percent
D) 100 percent

Question 17

If the quantity demanded increases by 20 percent in response to a 10 percent decrease in price, demand is classified as:

A) unstable.
B) relatively inelastic.
C) relatively elastic.
D) of unitary elasticity.

Question 18

Suppose the Pleasant Corporation cuts the price of its American Girl dolls by 10 percent, and as a result, the quantity of the dolls sold increases by 25 percent. This indicates that the price elasticity of demand for the dolls over this range is:

A) 2.5.
B) 0.4.
C) 0.5.
D) 5.0.

Question 19

If demand is inelastic, an increase in the price of a good will cause total revenue to:

A) fall.
B) remain constant since the decrease in quantity sold is exactly offset by the price increase.
C) rise.
D) rise if it is a normal good and fall if it is an inferior good.

Question 20

If the demand for cigarettes is highly inelastic, this indicates that:

A) higher cigarette prices will increase the demand for cigarettes.
B) the price elasticity coefficient of cigarettes exceeds 1.
C) the price elasticity coefficient of cigarettes equals 1.
D) the quantity of cigarettes purchased by consumers is not very responsive to a change in the price of cigarettes.

Question 21

The president of Tucker Motors says, "Lowering the price won't sell a single additional Tucker car." The president believes that the price elasticity of demand is:

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

Question 22

Suppose the president of a college argues that a 25 percent tuition increase will raise revenues for the college. It can be concluded that the president thinks that demand to attend this college is:

A) elastic.
B) inelastic, but not perfectly inelastic.
C) unitary elastic.
D) perfectly elastic.

Question 23

If the price elasticity of demand is computed for two products, and product A measures .79, and product B measures 1.6, then:

A) product A is more price elastic than product B.
B) product B is more price elastic than product A.
C) consumers are more sensitive to price changes in product A than in product B.
D) product B is more price inelastic than product A.
E) products A and B must be substitutes.

Question 24

Using the midpoints formula, what would be price elasticity of demand for a gallbladder operation if the number of operations fell from 6,000 to 4,000 per week after its price increased from $6,000 to $10,000?

A) 0.25.
B) 0.50.
C) 0.80.
D) 1.25

Question 25

If the percentage change in the quantity demanded of a good is greater than the percentage change in price, price elasticity of demand is:

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

Question 26

If demand price elasticity measures 2, this implies that consumers would:

A) buy twice as much of the product if the price drops 10 percent.
B) require a 2 percent drop in price to increase their purchases by 1 percent.
C) buy 2 percent more of the product in response to a 1 percent drop in price.
D) require at least a $2 increase in price before showing any response to the price increase.
E) buy twice as much of the product if the price drops 1 percent.

Question 27

If a decrease in the price of theater tickets increases the total revenue earned by the theater, this is evidence that demand is:

A) price elastic.
B) price inelastic.
C) unitary elastic.
D) perfectly inelastic.

Question 28

The price elasticity of demand for a vertical demand curve is:

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

Question 29

Exhibit 5-1 Demand curve
​
In Exhibit 5-1, between points a and b, the price elasticity of demand measures:

A) 0.67.
B) 1.5.
C) 2.0.
D) 1.56.
E) 1.0.

Question 30

Along the elastic range of a demand curve, a decrease in price causes:

A) no change in total revenue.
B) a decrease in total revenue.
C) an increase in total revenue.
D) an unpredictable change in total revenue.

Question 31

Suppose Good Food's supermarket raises the price of its steak and finds its total revenue from steak sales does not change. This is evidence that price elasticity of demand for steak is:

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

Question 32

If the demand curve is unit elastic, this implies that:

A) consumers do not react to a change in product price.
B) the good can only be purchased in units of 1.
C) this good has no good substitutes.
D) the good is a basic food staple.
E) the percentage change in the quantity demanded = the percentage change in product price.

Question 33

If the demand curve over a certain range is "price elastic," this implies that the:

A) percentage change in the quantity demanded exceeds one.
B) percentage change in the quantity demanded exceeds the percentage change in product price.
C) percentage change in price exceeds the percentage change in quantity demanded.
D) product is non-reactive.
E) product has no good substitute.

Question 34

Exhibit 5-1 Demand curve
​
In Exhibit 5-1, the demand curve between points b and c is:

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

Question 35

Exhibit 5-1 Demand curve
​
In Exhibit 5-1, the demand curve between points a and b is:

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

Question 36

If the percentage change in the quantity demanded of a good is less than the percentage change in price, price elasticity of demand is:

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

Question 37

Exhibit 5-1 Demand curve
​
In Exhibit 5-1, between points b and c, the price elasticity of demand measures

A) 4.27.
B) 1.5.
C) 1.56.
D) 0.636.
E) 0.425.

Question 38

Demand price elasticity measures:

A) how much supply will change as price changes.
B) how consumers change their purchases in response to a change in income.
C) how consumers change their purchases in response to a change in the price of a substitute good.
D) how consumers change their purchases in response to a change in the price of a product.
E) the change in price brought about by a change in consumer demand.

Question 39

Along the elastic range of a demand curve, a price change causes:

A) a change in total revenue in the opposite direction.
B) a change in total revenue in the same direction.
C) no change in total revenue.
D) an unpredictable change in the total revenue.

Question 40

If the percentage change in the quantity demanded of a good equals the percentage change in price, price elasticity of demand is:

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

Question 41

As price decreases and we move down further along a linear demand curve, the price elasticity of demand will:

A) decrease.
B) increase.
C) stay the same.
D) approach infinity.
E) increase or decrease.

Question 42

If Herbert, the hair stylist, raises the price of his cuts from $13 to $15 and finds the number of cuts falls from 300 to 260, then the demand for Herbert's cuts in this range is:

A) price inelastic.
B) price elastic.
C) unit elastic.
D) cross elastic.
E) income inelastic.

Question 43

​ A _______ demand curve has a price elasticity of demand that is perfectly elastic.

A) ​vertical
B) ​rectangular hyperbola
C) ​horizontal
D) ​circular

Question 44

Demand price elasticity is measured by the:

A) percentage change in income / percentage change in price.
B) percentage change in quantity demanded / percentage change in income.
C) percentage change in price / percentage change in quantity demanded.
D) percentage change in quantity demanded / percent change in price.
E) percentage change in total revenue / percentage change in price.

Question 45

Which of the statements below does not describe a demand curve that is unit elastic?

A) The percentage change in the quantity demanded = percentage change in product price.
B) An increase in product price will not change total revenue.
C) The price elasticity of demand equals one.
D) A change in price does not change quantity demanded.
E) A decrease in product price will not change total revenue.

Question 46

If a straight-line demand curve slopes down, price elasticity will:

A) remain the same at all points on the demand curve.
B) change between any two points along the demand curve.
C) always be greater than one.
D) always equal one.
E) always be less than one.

Question 47

If the quantity of bread demanded rises 2 percent when the price of bread declines 10 percent, then the price elasticity of demand is:​

A) ​0.2.
B) ​1.
C) ​ 2.
D) 10.​
E) ​ Cannot be determined.

Question 48

If the price elasticity of demand for football tickets is estimated to be 4.5, then a 10 percent increase in football ticket prices would be expected to cause a:

A) 4.5 percent decrease in quantity demanded.
B) 4.5 percent increase in quantity demanded.
C) 45 percent decrease in quantity demanded.
D) 45 percent increase in quantity demanded.
E) 450 percent increase in quantity demanded

Question 49

If Sam, the Pizza Man, lowers the price of his pizzas from $6 to $5 and finds that sales increase from 400 to 600 pizzas per week, then the demand for Sam's pizzas in this range is:

A) price inelastic.
B) price elastic.
C) unit elastic.
D) cross elastic.
E) income inelastic.

Question 50

Tara buys four music cassettes when the price is $10 and two cassettes when the price is $14. Her price elasticity of demand is:

A) 0.
B) 1.
C) 2.
D) 3.
E) 4.

Question 51

Leo's Bakery reduces the price of wheat bread from $3 to $1 and finds that quantity demanded increases from 100 to 122 loaves. Leo calculates that his price elasticity of demand for wheat bread is:

A) 0.
B) 0.2.
C) 1.0.
D) 1.5.
E) 2.0

Question 52

If the price elasticity of demand for a product measures .45,

A) this good has many available substitutes.
B) this good must be a nonessential good.
C) this good is a high-priced good.
D) a decrease in price will increase total revenue.
E) this good is demand price inelastic.

Question 53

You are part of a local community theater group. It is the goal of the group to increase the amount of revenue earned through ticket sales. Mary says the obvious solution is to increase ticket prices. Is Mary correct?

A) Mary is correct if the demand for tickets is price inelastic.
B) Mary is incorrect if the demand for tickets is price inelastic.
C) Mary is correct. The increase in ticket prices will always increase revenue.
D) Mary is incorrect. The increase in ticket prices will never increase revenue.
E) Mary is incorrect. The way to increase revenue is to decrease ticket prices.

Question 54

Since it is always a negative number, economists use the convention of taking the absolute value of:

A) income elasticity of demand.
B) cross price elasticity of demand.
C) price elasticity of supply.
D) price elasticity of demand.
E) any elasticity calculation.

Question 55

As one moves down a straight-line, down-sloping demand curve, price elasticity will:

A) change from elastic, to unit elastic, then to inelastic.
B) remain the same between any two points.
C) change from inelastic, to elastic, then to unit elastic.
D) change from unit elastic, to elastic, then to inelastic.
E) change from elastic, to inelastic, then to unit elastic.

Question 56

​Suppose you are on a committee seeking to increase revenue from your city's bus system. If demand is _______, you would recommend raising the fare.

A) ​perfectly elastic
B) ​elastic
C) ​unitary elastic
D) ​inelastic

Question 57

Elasticity measures how "sensitive" consumers are by measuring their change in ____ as the price of the product changes.

A) attitude
B) income
C) quantity demanded
D) supply
E) taxes

Question 58

If Pete raises his price of muffins from $2 to $3 and his sales revenue increases from $35,000 to $38,000, then:

A) the demand for Pete's muffins in this range is price elastic.
B) the demand for Pete's muffins in this range is price inelastic.
C) the demand for Pete's muffins in this range is unit elastic.
D) the percentage change in quantity demanded must exceed the percentage change in product price.
E) this is impossible since this would violate the law of demand.

Question 59

​ A _______ demand curve has a price elasticity of demand that is perfectly inelastic.

A) ​circular
B) ​horizontal
C) ​rectangular hyperbola
D) ​vertical

Question 60

If a 10 percent cut in price causes a 15 percent increase in sales, then:

A) total revenue will decrease.
B) demand is price inelastic in this range.
C) demand is price elastic in this range.
D) demand is unit elastic in this range.
E) total revenue will remain the same.

Question 61

It is Valentine's Day and Jason is desperately looking all over town for a dozen roses to give to Judy. Most likely, Jason's price elasticity of demand is:

A) infinitely large.
B) negative.
C) equal to one.
D) greater than one.
E) less than one.

Question 62

If demand is price elastic, then when price decreases, total revenue:

A) decreases.
B) increases.
C) does not change.
D) is less than one.
E) is negative.

Question 63

Avital and Joshua each have their own business selling lemonade in front of their houses. When they each charge 25 cents per glass, their total revenues are equal. However, when they each charge 40 cents per glass, Avital's revenues are bigger than Joshua's revenues. This is because:

A) Joshua faces a more inelastic demand curve.
B) Avital faces a more elastic demand curve.
C) Joshua faces a more elastic demand curve.
D) Avital faces a less inelastic demand curve.
E) there is a market failure.

Question 64

Exhibit 5-2 Price and quantity demanded data $$\begin{array} { | c | c | } \hline \text { Price } & \text { Quantity Demanded } \\\hline 5 & 20 \\4 & 25 \\3 & 30 \\2 & 35 \\1 & 40 \\\hline\end{array}$$

-The data in Exhibit 5-2 shows that price elasticity of demand is:

A) increasing as the price decreases.
B) decreasing as the price increases.
C) increasing as the quantity increases.
D) decreasing as the quantity decreases.
E) decreasing as the quantity increases.

Question 65

If a supplier faces a perfectly horizontal demand curve and sets his price slightly higher than the demand curve itself, he can expect:

A) no change in his total revenues.
B) everyone to begin buying his product.
C) a complete loss of revenues.
D) a new demand curve.
E) a relative increase in income.

Question 66

If demand for a good is price elastic, then the price elasticity will be:

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

Question 67

On a part of the demand curve where the price elasticity of demand is less than 1, a decrease in price:

A) is impossible.
B) will increase total revenue.
C) will decrease total revenue.
D) raises the price elasticity of demand.
E) decreases quantity demanded.

Question 68

Which statement about price elasticity of demand along a linear demand curve is true?

A) As the quantity demanded increases, so does the buyer's sensitivity to price.
B) When price elasticity of demand is equal to 1, consumers are indifferent to subtle price changes.
C) The ratio of current price to quantity demanded is a good estimate of the elasticity of demand.
D) As the prices of goods increase, the elasticity of demand increases.
E) When an individual buys 4 units of a good his/her elasticity of demand for each unit increases.

Question 69

Sally is an average shopper, with average income. When she is in the store she buys a few items which cost more than $20, several items which cost between $5 and $20, and many items which cost less than $1. The price elasticity of Sally's demand for these goods most likely ____.

A) increases as the price decreases
B) decreases as the price decreases
C) increases as the price increases
D) decreases as the price increases
E) remains constant over all price ranges

Question 70

A health club sells 50 memberships when the monthly price is $60 and 70 memberships when the monthly price is $40. The price elasticity of demand for memberships at this health club is (using the average values method):

A) 0.25.
B) 0.6.
C) 1.0.
D) 1.1.
E) 0.83

Question 71

One of the reasons that price elasticities of demand are always stated as positive numbers is because:

A) the numerators and denominators of the formula are both negative.
B) the numerators and denominators of the formula are both positive.
C) price increases always lead to increases in quantity demanded.
D) price decreases always lead to decreases in quantity demanded.
E) price elasticities are always negative, so we ignore the sign.

Question 72

Exhibit 5-2 Price and quantity demanded data $$\begin{array} { | c | c | } \hline \text { Price } & \text { Quantity Demanded } \\\hline 5 & 20 \\4 & 25 \\3 & 30 \\2 & 35 \\1 & 40 \\\hline\end{array}$$

-Using Exhibit 5-2, what is the price elasticity of demand when the price falls from five dollars to four?

A) 1.
B) 1.25.
C) 0.8.
D) 2.0.
E) 0.4.

Question 73

The short-run price elasticity of demand for airline travel is .05, while the long-run elasticity is 2.36. This means that a significant increase in airline ticket prices will cause airline companies to:

A) collect less revenue from short-notice travelers.
B) collect more revenue from travelers who book well in advance.
C) lose money on short-notice travelers.
D) collect less revenue from travelers who book well in advance.
E) lose many of its short-notice travelers.

Question 74

Larissa is a famous attorney with a great reputation in court. She charges her clients $300 for each hour she spends working on their cases. If she earned $450,000 in hourly wages last year, and by raising her rates to $350 per hour her income increased to $490,000 what can we say about the elasticity of demand for Larissa's legal services?

A) It is approximately equal to 2.3.
B) It is approximately equal to 1.6.
C) It is approximately equal to 1.0.
D) It is approximately equal to 0.45.
E) It is approximately equal to 0.1.

Question 75

Looking at the relationship between elasticity and total revenue, we can see that ____.

A) b and c
B) when demand is unit elastic, small price changes don't change total revenue
C) when a good is price inelastic, revenue increases when prices increase
D) when a good is price elastic, revenue increases when prices increase
E) total revenue is maximized when the elasticity has stopped changing

Question 76

An economist estimates that .67 is the price elasticity of demand for disposable diapers. This suggests that disposable diaper producers could:

A) advertise more to raise the price elasticity of demand.
B) encourage more parents to use cloth diapers.
C) lower the price of disposable diapers to raise more revenue.
D) raise the price of disposable diapers to raise more revenue.
E) maximize revenues by staying at the current price.

Question 77

When a 2 percent increase in price generates a greater than 2 percent decrease in quantity demanded, then:

A) demand is price inelastic.
B) total revenue increases.
C) demand is positively sloped.
D) demand is unit elastic.
E) total revenue decreases.

Question 78

Within different price ranges along a linear demand curve, elasticities are:

A) constant.
B) different.
C) equal.
D) the same as slope.
E) negative 1.

Question 79

Dana is an art historian who needs to travel to Italy to do research. Art historians usually don't have a lot of money, and therefore are very sensitive to price changes. Dana's funding agency pays her a fixed amount to travel. At current exchange rates, Dana can stay in Italy for 35 days. If the exchange rate improves by 10 percent, she can stay for 40 days. What is Dana's price elasticity of demand for days spent in Italy?

A) It is approximately equal to 2.3.
B) It is approximately equal to 1.6.
C) It is approximately equal to 1.4.
D) It is approximately equal to 0.4.
E) It is approximately equal to 0.1.

Question 80

A public transit company finds that when it reduces the price of a bus ticket, total revenues remain the same. One can conclude from this that:

A) the demand curve is horizontal, reflecting infinite price elasticity.
B) the company sells the same number of bus tickets both before and after the price change.
C) the demand curve for bus tickets must have shifted to the right.
D) the firm is operating in a range of the demand curve that is unit elastic.
E) the price should be lowered further so that a larger quantity can be sold.