Deck 5: Elasticity of Demand and Supply

Question 1

) Based on the information in Exhibit 5­2, the demand for the good is__________ and an increase in price from $40 to $60 per unit will__________ total revenue.

A)unit elastic; increase
B)elastic; decrease
C)unit elastic; not change
D)inelastic; increase
E)elastic; decrease

Answer 1

B

Question 2

The general term elasticity refers to a relationship between

A)quantity demanded and price only
B)quantity supplied and price only
C)quantity supplied or demanded and price only
D)quantity supplied or demanded and anything other than price
E)percentage changes in any two variables

Answer 2

E

Question 3

Use the information in Exhibit 5­2 to calculate the value of price elasticityof demand.

A)­2/3
B)­1/3
C)­3/5
D)­5/3
E)0

Answer 3

D

Question 4

The midpoint price between $20 and $40 is

A)$10
B)$20
C)$30
D)$15
E)$200

Question 5

)Elasticity is always

A)measured in dollars
B)measured in dollars per unit of quantity
C)measured in units of quantity
D)measured in units of quantity per dollar
E)independent of the units of measurement

Question 6

In calculating price elasticity of demand, which of the following is assumedto be constant?

A)the price of the product itself
B)the quantity demanded of the product
C)total revenue received from the sale of the product
D)the prices of all other products
E)none of the above

Question 7

Elasticity measures

A)whether a price increase causes quantity demanded to increase or decrease
B)the strength of an economy's tendency to recover from recession
C)the responsiveness of decision makers to changes in prices, income, or other variables
D)the profitability of investment in an industry
E)the long­run flexibility of prices in the economy

Question 8

If the price of Pepsi­Cola increases from 40 cents to 50 cents per can andthe quantity demanded decreases from 100 cans to 50 cans, then, accordingto the midpoint formula, the value of price elasticity of demand for Pepsi­Cola is

A)­0.5
B)­0.25
C)­1
D)­3
E)­2

Question 9

Price elasticity of demand is typically negative because

A)as price decreases, quantity demanded decreases
B)as price decreases, quantity demanded increases
C)as price decreases, demand decreases
D)as price decreases, demand increases
E)consumers rarely respond to a change in price

Question 10

"More elastic" means

A)unchanging
B)less desirable
C)more desirable
D)less responsive
E)more responsive

Question 11

The midpoint quantity between 100 and 300 units is

A)100 units
B)200 units
C)300 units
D)150 units
E)20,000 units

Question 12

When quantity is measured in gallons, the price elasticity of demand formilk will be __________ the price elasticity when quantity is measured inquarts.

A)the same as
B)four times
C)one quarter
D)two times
E)less than

Question 13

The price elasticity of demand is equal to the slope of the demand curve.

Question 14

If a $1 increase in price leads to a 3­unit decrease in quantity demanded,then demand must be elastic.

Question 15

Price elasticity of demand is useful because it measures __________responsiveness to changes in __________.

A)taxpayers'; demand
B)producers'; supply
C)consumers'; price
D)consumers'; demand
E)producers'; income

Question 16

If the value of the price elasticity of demand is ­0.2, this means that a

A)20 percent decrease in price causes a 1 percent increase in quantity demanded
B)0.2 percent decrease in price causes a 1 percent increase in quantity demanded
C)5 percent decrease in price causes a 1 percent increase in quantity demanded
D)0.2 percent decrease in price causes a 0.2 percent increase in quantity demanded
E)100 percent decrease in price causes a 200 percent increase in quantity demanded

Question 17

If an increase in the price of a product from $1 to $2 per unit leads to adecrease in the quantity demanded from 100 to 80 units, then the value ofprice elasticity of demand is

A)elastic
B)inelastic
C)unit elastic
D)suggestive of an inferior good
E)equal to ­20

Question 18

A good synonym for elasticity would be

A)stability
B)volatility
C)stickiness
D)demand
E)responsiveness

Question 19

Another word for elasticity is

A)responsiveness
B)happiness
C)bonus
D)profit
E)surplus

Question 20

The price elasticity of demand helps determine the effect of price changeson a firm's

A)property taxes
B)profits
C)quantity supplied
D)revenues
E)total costs

Question 21

Unit elastic demand occurs when

A)a one­unit increase in price leads to a one­unit decrease in quantity demanded
B)a 1% increase in price leads to a one­unit decrease in quantity demanded
C)price elasticity of demand is positive
D)price elasticity of demand is exactly zero
E)price elasticity of demand is exactly ­1

Question 22

Demand is unit elastic whenever

A)price elasticity has an absolute value of 1
B)price elasticity has an absolute value greater than 1
C)price elasticity has an absolute value less than 1
D)price elasticity is negative
E)consumers always respond to a one­dollar change in price by decreasing their quantity demanded by one
Unit

Question 23

The price elasticity of demand

A)is of no use to producers
B)tells producers what will happen to total profit if they change product price
C)tells producers what will happen to quantity supplied if they change product price
D)tells producers what will happen to total revenue if they change product price
E)tells producers what will happen to price in the following time period

Question 24

As price decreases along a linear demand curve, price elasticity of demanddecreases.

Question 25

Demand is inelastic if

A)the percentage change in price is greater than the percentage change in quantity demanded
B)the percentage change in price is less than the percentage change in quantity demanded
C)the percentage change in price is equal to the percentage change in quantity demanded
D)the value of price elasticity is equal to ­1
E)the value of price elasticity is less than ­1

Question 26

Demand is inelastic only if

A)price elasticity has an absolute value of 1
B)price elasticity has an absolute value greater than 1
C)price elasticity has an absolute value less than 1
D)price elasticity is negative
E)consumers do not respond to a change in price

Question 27

If the price of Pepsi­Cola increases from 50 cents to 60 cents per can andthe quantity demanded decreases from 100 cans to 50 cans, then the demandfor Pepsi­Cola is

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

Question 28

If demand is elastic, a decrease in price leads to a decrease in totalrevenue.

Question 29

Suppose that you allow yourself $50 per month to spend on compact disks.You spend exactly this much every month regardless of the price ofcompact disks.Therefore, your demand for CDs

A)is elastic
B)is inelastic
C)is unit elastic
D)cannot be characterized unless we know the price of a disk
E)cannot be characterized unless we know the price and quantity of compact disks purchased

Question 30

If demand is inelastic, the percentage change in price is greater than theresulting percentage change in quantity demanded.

Question 31

If a 5% increase in price leads to an 8% decrease in quantity demanded,demand is

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

Question 32

) What is the price elasticity of demand in Exhibit 5­4?

A)0
B)­1
C)negative infinity
D)1
E)­100

Question 33

Price elasticity of demand is calculated as

A)the percentage change in quantity demanded divided by the percentage change in price
B)the percentage change in price divided by the percentage change in quantity demanded
C)the absolute change in quantity demanded divided by the absolute change in price
D)the absolute change in price divided by the absolute change in quantity demanded
E)none of the above

Question 34

Total revenue is the same for every price­quantity combination along a unitelastic demand curve.

Question 35

If an increase in the price of a product from $1 to $2 per unit leads to adecrease in the quantity demanded from 100 to 80 units, then the value ofprice elasticity of demand is

A)­1/3
B)­2 1/3
C)­1/4
D)­3
E)­2/3

Question 36

A perfectly elastic demand curve is

A)a vertical straight line
B)a horizontal straight line
C)a downward­sloping straight line
D)an upward­sloping straight line
E)not a straight line

Question 37

If a firm facing a perfectly elastic demand curve raises its price,

A)it will still sell exactly the same amount of output as it did at the lower price
B)it will lose some, but not all, of its sales
C)its sales will decrease to zero
D)its sales will increase
E)it is impossible to predict what will happen to its sales

Question 38

Demand is elastic whenever

A)price elasticity has an absolute value of 1
B)price elasticity has an absolute value greater than 1
C)price elasticity has an absolute value less than 1
D)price elasticity is negative
E)consumers respond to a change in price

Question 39

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

Question 40

If an increase in the price of a product from $100 to $200 per unit leads to adecrease in the quantity demanded from 10 to 8 units, then demand is

A)elastic
B)inelastic
C)unit elastic
D)0
E)inferior

Question 41

If the demand for ptyalin is unit elastic, then

A)total revenue decreases as quantity demanded increases
B)total revenue increases as quantity demanded increases
C)total revenue increases as price increases
D)total revenue remains constant as price increases
E)total revenue decreases as price increases

Question 42

The absolute value of the price elasticity of demand at the midpoint of alinear demand curve is always

A)greater than one
B)less than one
C)one
D)zero
E)infinity

Question 43

In Exhibit 5­5, what is the total revenue at point a?

A)$4
B)$5
C)$10
D)$50
E)$100

Question 44

If the demand for swordfish is price elastic and the price of swordfishincreases, then

A)the quantity of swordfish demanded will increase
B)the total revenue from swordfish sales will decrease
C)the total revenue from swordfish sales will increase
D)the total revenue from swordfish sales will not change
E)whether total revenue rises or falls depends on how much the price of swordfish increases

Question 45

Along a linear demand curve,

A)both the slope and price elasticity are constant
B)the price elasticity is constant, but the slope varies
C)total revenues are constant
D)the slope is constant, but the price elasticity varies
E)total revenues are negative

Question 46

If the administration raises tuition on our campus in order to increaserevenue, it will

A)not be successful if the demand curve slopes downward
B)be successful if demand is elastic
C)be successful if demand is inelastic
D)be successful if supply is elastic
E)be successful if supply is inelastic

Question 47

Wheat farmers in Kansas would benefit from a devastating crop failure inNorth Dakota (another major wheat­producing state) if the U.S.demand forwheat is

A)inelastic
B)elastic
C)unit elastic
D)downward sloping
E)perfectly elastic

Question 48

Which of the following describes a situation in which demand must beelastic?

A)Total revenue increases by 15 percent when the price of corndogs rises by 15 percent.
B)Total revenue increases by less than 15 percent when the price of corndogs rises by 15 percent.
C)Total revenue decreases by more than 15 percent when the price of corndogs rises by 15 percent.
D)Total revenue increases by $15 when the price of corndogs rises by $15.
E)Total revenue increases by more than $15 when the price of corndogs rises by $15.

Question 49

The total revenue from selling trucks is equal to

A)the price of a truck times the quantity sold
B)the change in quantity sold divided by the change in price
C)average cost times quantity produced
D)the price of a truck times the quantity produced
E)the price of a truck times the price elasticity of demand

Question 50

Elasticity rises as price falls along a linear, downward­sloping demandcurve.

Question 51

John spends exactly the same dollar amount on candy bars each week,regardless of their price.John's demand curve for candy bars is

A)upward­sloping
B)backward­bending
C)perfectly inelastic
D)perfectly elastic
E)unit elastic

Question 52

If a price reduction leads to larger total revenue, demand is

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

Question 53

Along a linear demand curve, as the price increases from zero,

A)demand decreases
B)demand increases
C)quantity demanded increases
D)total revenue first increases but eventually decreases
E)total revenue first decreases but eventually increases

Question 54

Price elasticity is unit elastic at the midpoint of a linear, downward­slopingdemand curve.

Question 55

If the price of Pepsi­Cola increases from 50 cents to 60 cents per can andthe quantity demanded decreases from 100 cans to 50 cans, then the Pepsi­Cola Company could increase its total revenue by

A)lowering price
B)decreasing quantity supplied
C)leaving price the same
D)raising price
E)decreasing supply

Question 56

If the demand for a product is price inelastic,

A)producers' revenues will increase if supply increases
B)producers' revenues will increase if supply decreases
C)a small change in price will cause a large shift in the demand curve
D)a large change in price will cause a small shift in the demand curve
E)a small change in price will cause a small shift in the demand curve

Question 57

If demand is price elastic, total revenue is

A)directly related to quantity demanded
B)inversely related to quantity demanded
C)directly related to price
D)directly related to price and inversely related to quantity demanded
E)not related to either price or to quantity demanded

Question 58

Which of the following describes a situation in which demand must beinelastic?

A)Total revenue decreases by 10 percent when the price of spats rises by 10 percent.
B)Total revenue decreases by less than 10 percent when the price of spats rises by 10 percent.
C)Total revenue increases by more than 10 percent when the price of spats rises by 10 percent.
D)Total revenue decreases by $10 when the price of spats rises by $10.
E)Total revenue decreases by more than $10 when the price of spats rises by $10.

Question 59

If a firm raises the price of its product, its total revenue will

A)always increase
B)increase only if demand is price inelastic
C)increase only if demand is price elastic
D)remain constant, regardless of price elasticity of demand
E)never increase

Question 60

Total revenue is maximized where demand is inelastic.

Question 61

) Which of the following is not true in the range of the total revenue curvelabeled A in Exhibit 5­8?

A)Demand is inelastic.
B)Total revenue is increasing.
C)Total revenue is positive.
D)Demand is elastic.
E)Demand elasticity decreases as total revenue increases.

Question 62

We can tell that demand is elastic as price falls between point a and point bin Exhibit 5­6 because

A)quantity demanded is increasing
B)total revenue is increasing
C)total revenue is decreasing
D)total revenue is unchanged
E)the demand curve slopes downward

Question 63

If the sellers in the cigarette industry formed a cartel and decided to setprice along a straight­line downward­sloping demand curve, which pointwould they choose if they wanted to gain the highest total revenue?

A)The point nearest the vertical axis, where the price is highest.
B)The point nearest the horizontal axis, where quantity demanded is greatest.
C)One of the points higher up on the demand curve, where demand is elastic.
D)One of the points lower down on the demand curve, where demand is inelastic.
E)The point of unit elasticity, in the middle of the demand curve.

Question 64

) Refer to Exhibit 5­11.What can be said of the price elasticity of demand forthis good?

A)Demand is inelastic.
B)Demand is unit elastic.
C)Demand is elastic.
D)Demand is perfectly elastic.
E)Not enough information is given to determine elasticity.

Question 65

) Between points b and c in Exhibit 5­7, price decreases by $1, quantitydemanded increases by 10,

A)total revenue decreases by $1, and demand is elastic
B)total revenue decreases by $1, and demand is inelastic
C)total revenue increases by $40, and demand is elastic
D)total revenue increases by $40, and demand is inelastic
E)and total revenue increases by $80

Question 66

Exhibit 5­7 Which of the following is true between points g and h in Exhibit 5­7?

A)Total revenue remains constant at $180.
B)Total revenue falls by $12.
C)Total revenue falls by $60.
D)Total revenue falls by $180.
E)Demand is elastic.

Question 67

In Exhibit 5­10, between the two equilibrium prices shown, demand is

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

Question 68

Along a downward­sloping linear demand curve,

A)slope is constant and elasticity is changing
B)slope is changing and elasticity is constant
C)both slope and elasticity are constant
D)both slope and elasticity are changing
E)no generalizations can be made about slope

Question 69

Along a linear demand curve, total revenue is maximized when demand is

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

Question 70

) Which of the following statements is true in the range of the total revenuecurve labeled B in Exhibit 5­8?

A)Demand is elastic.
B)Demand is inelastic.
C)Demand is unit elastic.
D)We cannot tell anything about elasticity of demand because this is a total revenue curve.
E)Demand is perfectly elastic.

Question 71

Dusty Rags, Inc.provides janitorial services to retail stores.Dusty had beencharging $10 per hour and selling 400 hours of service per week at that rate.When he raised his price to $15 per hour, his customers cut back to 300weekly hours of service.Which of the following is true?

A)Revenue went from $4,000 per week to $4,500 per week, indicating that the demand curve for his services
Must have shifted to the right.
B)Revenue went from $4,000 per week to $4,500 per week, indicating that the demand for his services must
Be elastic.
C)Revenue went from $4,000 per week to $4,500 per week, indicating that the demand for his services must
Be inelastic.
D)Revenue went from $400 to $300 per week, indicating that demand must be elastic.
E)Revenue went from $10 to $15 per week, indicating that demand must be inelastic.

Question 72

Along a linear demand curve, as the price rises, demand becomes more

A)steep
B)elastic
C)inelastic
D)unit elastic
E)variable

Question 73

Along a straight­line downward­sloping demand curve, elasticity is

A)constant, but its value cannot be determined without measurement
B)constant and equal to an absolute value of one
C)greater at higher prices
D)greater at lower prices
E)greater in the middle

Question 74

The total revenue curve that corresponds to a downward­sloping lineardemand curve

A)slopes downward
B)slopes upward
C)is a horizontal line
D)first rises, then falls
E)first falls, then rises

Question 75

Along a downward­sloping linear demand curve, total revenue is greatest ifdemand is

A)inelastic
B)elastic
C)inelastic when prices are high
D)elastic when prices are high
E)unit elastic

Question 76

It has been suggested that if NHL hockey teams would lower ticket prices,they could increase revenue from ticket sales.Which of the followingassumptions forms the basis for this suggestion?

A)Both d and e are correct.
B)All of the following are correct.
C)Demand for NHL hockey is income inelastic.
D)Demand for NHL hockey is price elastic.
E)There are many substitutes for NHL hockey.

Question 77

) In Exhibit 5­7, demand is unit elastic

A)between points a and d
B)between points d and e
C)between points e and g
D)only at the top and bottom of the curve
E)anywhere along the curve

Question 78

In Exhibit 5­8, which of the following statements is true at a quantity of 10?

A)Demand is elastic.
B)Demand is inelastic.
C)Demand is unit elastic.
D)We cannot tell anything about elasticity of demand because this is a total revenue curve.
E)Demand is perfectly elastic.

Question 79

Suppose consumers spent $42 million on Christmas trees last year when theaverage tree cost $30 and this year spent $42 million when the average treecosts $25.Assuming nothing else changed, this data suggests that

A)consumers bought the same number of Christmas trees this year as last year
B)the price of Christmas trees stayed the same
C)total revenues to tree producers rose this year
D)the demand for trees is unit elastic
E)the demand for trees is inelastic

Question 80

Exhibit 5­9 Between points a and b on the demand curve in Exhibit 5­9, demand is

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