Deck 5: Price Elasticity of Demand and Supply

Question 1

Price elasticity of demand measures:

A) the change in price brought about by a change in consumer demand.
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.

Answer 1

D

Question 2

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) percentage change in the quantity demanded of a good to a percentage change in income.

Answer 2

C

Question 3

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

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

Answer 3

A

Question 4

An increase in total revenue results 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 5

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 6

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 7

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 8

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 9

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

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

Question 10

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 11

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 12

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.

Question 13

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 14

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 15

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 16

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

Question 17

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

Question 18

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 perfectly elastic
D) Demand is elastic, but not perfectly.

Question 19

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

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

Question 20

A perfectly inelastic demand curve has an elasticity coefficient of:

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

Question 21

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) a 0.2 percent decrease in price causes a 1 percent increase in quantity demanded.
C) a 5 percent decrease in price causes a 1 percent increase in quantity demanded.
D) a 0.2 percent decrease in price causes a 0.2 percent increase in quantity demanded.

Question 22

Exhibit 5-1 Demand curve

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

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

Question 23

The short-run price elasticity of demand for airline travel is 0.05, 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.

Question 24

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) inelastic.
B) elastic.
C) unit elastic.
D) inferior.

Question 25

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.

Question 26

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.

Question 27

Exhibit 5-1 Demand curve

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

A) 0.425.
B) 1.571.
C) 0.143
D) 0.636.

Question 28

If a revenue-maximizing firm is told that the price elasticity of demand is equal to one, it should:

A) raise prices 1 percent.
B) lower prices 1 percent.
C) raise prices until the elasticity becomes very high.
D) keep the price where it is.

Question 29

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.

Question 30

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

A) the demand for Pete's muffins in this range is elastic.
B) the demand for Pete's muffins in this range is 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.

Question 31

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

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

Question 32

Exhibit 5-1 Demand curve

In Exhibit 5-1, between points a and b, the price elasticity of demand is:

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

Question 33

An economist estimates that the price elasticity of demand for disposable diapers is 0.67. 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.

Question 34

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.

Question 35

Exhibit 5-1 Demand curve

If demand price elasticity is 2, consumers would:

A) buy twice as much of the product in response to a 10 percent decrease in prie.
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 decrease in price.
D) buy twice as much of the product in response to a 1 percent decrease in price.

Question 36

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

A) demand is inelastic.
B) total revenue increases as a result of the price increase
C) total revenue decreases as a result of the price increase.
D) demand is unit elastic.

Question 37

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) if the price is lowered further total revenue will increase.
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.

Question 38

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) 2.
C) 5.
D) 10.

Question 39

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.

Question 40

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

A) the elasticity of total revenue.
B) the price elasticity of surpluses .
C) the price elasticity of shortages .
D) price elasticity of demand.

Question 41

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.

Question 42

If a 5 percent decrease in the price of a good produces a 5 percent increase in the quantity demanded, the price elasticity of demand is:

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

Question 43

If a good has a price elasticity of demand coefficient less than one, then:

A) this good has an elastic demand.
B) this good has an inelastic demand.
C) a 10 percent increase in the price will result in a greater than 10 percent decrease in the quantity demanded.
D) the demand curve will be vertical.

Question 44

Exhibit 5-9 Supply and Demand Curves for Good X

As shown in Exhibit 5-9, the price elasticity of demand for good X between points E and B is:

A) 3/7 = 0.43.
B) 7/3 = 2.33.
C) 1/2 = 0.50.
D) 1.

Question 45

Consider the market for bicycles. If a dealer cuts prices by 10 percent and sells 20 percent more bikes, then demand for bicycles is:

A) inelastic, and total revenue will increase.
B) elastic, and total revenue will increase.
C) inelastic, and total revenue will decrease.
D) elastic, and total revenue will decrease.

Question 46

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

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

Question 47

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.

Question 48

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 49

Exhibit 5-4 Demand curves for silver

Assume that a wealthy buyer, Mr. Hunt, declares that he will purchase any amount of silver at a price of $125 an ounce. In Exhibit 5-4, which graph illustrates the shape of the demand curve for silver?

A) Graph A.
B) Graph B.
C) Graph C.
D) Graph D.

Question 50

Any change in price along a perfectly inelastic demand curve produces:

A) greater change in the quantity demanded.
B) less change in the quantity demanded.
C) no change in the quantity demanded.
D) infinite change in the quantity demanded.

Question 51

If New York City expects that an increase in bus fares will raise mass transit revenues, it must think that the demand for bus travel is:

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

Question 52

Suppose the Good Food supermarket increases the price of a pound of bananas from $.75 to $1.25 and finds that the quantity of bananas it sells per month drops from 1,500 to 1,000. The price elasticity of demand coefficient for bananas in this price range is:

A) 0.80.
B) 3.00.
C) 2.00.
D) 0.50.

Question 53

What does the "price elasticity of demand" measure? What does a price elasticity of demand coefficient of 1.2 mean? Does the product have an elastic, unitary elastic or inelastic demand?

Question 54

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

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

Question 55

A 10 percent rise in the price of housing reduces the quantity demanded of housing by 3 percent. We can conclude that the demand for housing is:

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

Question 56

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

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.

Question 57

Suppose the president of a textbook publisher argues that a 10 percent increase in the price of textbooks will raise total revenue for the publisher. It can be concluded that the company president thinks that demand for textbooks is:

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

Question 58

If Stimpson University increases tuition in order to increase its revenue, 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.

Question 59

Suppose there is no change in total revenue when the price changes. The demand curve for this good is:

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

Question 60

If the price elasticity of demand coefficient equals 2 then:

A) a 7 percent decrease in the price will result in a 14 percent decrease in the quantity demanded.
B) a price decrease will increase total revenue.
C) the good has an inelastic demand.
D) there is likely few substitutes, a short time period under consideration, or this good accounts for a relatively small percentage of consumers' budgets.

Question 61

What happens to total revenue if price increases and demand is inelastic? Why?

Question 62

Suppose a good has a downward-sloping, straight-line demand curve. If the price elasticity of demand is 2.5 when the price is $10 per unit, then the price elasticity of demand when the price is $7 per unit could be

A) approaching infinity.
B) 2.7.
C) 2.5.
D) 1.7.

Question 63

Exhibit 5-7 Demand curve for concert tickets

According to Exhibit 5-7, the demand for concert tickets between the prices of $10 and $40 is:

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

Question 64

Suppose the quantity demanded is 1,000 million bushels of peaches per year when the price is $3 per bushel and 1,500 million bushels when the price is $1 per bushel. The price elasticity of demand in this range of the demand curve is:

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

Question 65

The demand for a product is likely to be more elastic

A) the shorter the time the consumer has to adjust to price changes.
B) the lower the price of the good.
C) the fewer the number of good substitutes.
D) the less the essential nature of the good.

Question 66

Exhibit 5-5 Demand curve for computers

In Exhibit 5-5, the change in total revenue resulting from a change in price from A to D indicates that the demand curve is:

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

Question 67

If the quantity of bananas sold increases by 5 percent when the price decreases by 10 percent, the price change occurs in the

A) bottom half of the downward-sloping straight-line demand curve and total revenue decreases from this price change.
B) bottom half of the downward-sloping straight-line demand curve and total revenue increases from this price change.
C) top half of the downward-sloping straight-line demand curve and total revenue decreases from this price change.
D) top half of the downward-sloping straight-line demand curve and total revenue increases from this price change.

Question 68

Exhibit 5-5 Demand curve for computers

In Exhibit 5-5, the total revenue at point E on the demand curve equals:

A) OD.
B) FE.
C) DE.
D) ODEF.

Question 69

The elastic portion of the downward-sloping straight-line demand curve lies:

A) at the intersection with the supply curve.
B) above the point of unit elasticity.
C) anywhere to the right of the current market price.
D) below the point where total revenue is maximized.

Question 70

A perfectly elastic demand curve has a price elasticity of demand coefficient of:

A) zero.
B) infinity.
C) greater than 1, but less than infinity.
D) less than 1, but greater than zero.

Question 71

Exhibit 5-7 Demand curve for concert tickets

In Exhibit 5-7, if promoters raise their prices from $10 to $40 per ticket, then their total revenue will:

A) increase because demand is inelastic in this price range.
B) increase because demand is elastic in this price range.
C) decrease because demand is inelastic in this price range.
D) decrease because demand is elastic in this price range.

Question 72

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.

Question 73

Other things constant, the price elasticity of demand for a product will be smaller (more inelastic) if:

A) people spend a large share of their income on the product.
B) people spend an insignificant share of their income on the product.
C) the population in the market area is large.
D) there are many good substitutes for the product.

Question 74

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

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

Question 75

If the quantity of concert tickets sold decreases by 10 percent when the price increases by 5 percent, this market is operating in which section of its downward-sloping straight-line demand curve?

A) the section above the point of unit elasticity
B) the point equal to unit elasticity
C) the section below the point of unit elasticity
D) This market show elastic demand which could occur at any point along the demand curve.

Question 76

Exhibit 5-6 Demand curve for concert tickets

In Exhibit 5-6, the demand curve for concert tickets shown above between the prices of $20 and $30 is

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

Question 77

Exhibit 5-6 Demand curve for concert tickets

In Exhibit 5-6, if promoters lower their ticket price from $30 to $20, then:

A) ticket sales will increase but total revenue will decrease because demand is inelastic between $30 and $20.
B) both ticket sales and total revenue will increase because demand is inelastic between $30 and $20.
C) ticket sales will decrease but total revenue will increase because demand is elastic between $30 and $20.
D) both ticket sales and total revenue will increase because demand is elastic between $30 and $20.

Question 78

The demand for a product is likely to be more elastic:

A) the smaller the share of the total budget spent on the product.
B) when more complementary products are available.
C) in the short run than in the long run.
D) when more good substitutes for the product are available.

Question 79

Exhibit 5-5 Demand curve for computers

In Exhibit 5-5, the total revenue at point B on the demand curve equals:

A) OA.
B) CB.
C) AB.
D) OABC.

Question 80

The demand for gasoline will be most elastic

A) 1 day after the price change.
B) 1 week after the price change.
C) 1 month after the price change.
D) 1 year after the price change.