Deck 6: Demand and Elasticity

Question 1

A line that is perfectly elastic has an elasticity of demand of zero.

Answer 1

False

Question 2

Elasticity of demand equals the ratio of the percentage change in quantity demanded to the percentage change in the price of the good.

Answer 2

True

Question 3

A vertical demand curve has an elasticity of demand equal to zero.

Answer 3

True

Question 4

The quantity demanded in a market depends on many things, but the concept of elasticity focuses on the effect of changes in the price of the good.

Question 5

The elasticity formula solves the units problem because percentages are unaffected by the units of measure.

Question 6

Price elasticity of demand can be written as percentage change in Q divided by percentage change in P.

Question 7

Elasticity computations related to demand carry a minus sign to show that the demand curve is negatively sloped.

Question 8

The law of demand states that a lower price increases the amount of a commodity that people are willing to buy.

Question 9

The price elasticity of demand measure is generally stated as an absolute value.

Question 10

The market demand curve shows how the quantity demanded of a product, during a specified time period, changes as the price of that product changes.

Question 11

A horizontal demand curve is perfectly elastic because a change in price will induce an infinite change in quantity demanded.

Question 12

A straight-line demand curve has the same elasticity throughout its length.

Question 13

Perfectly elastic demand curves are vertical.

Question 14

Price elasticity of demand is a numerical measure of how much quantity demanded rises as price falls or quantity demanded falls as price rises.

Question 15

Elasticity is a measure of the responsiveness of change in quantity demanded to a change in price.

Question 16

The demand curve depicts quantities demanded that have been gathered as prices have changed over time.

Question 17

Elasticity of demand is calculated using percentage changes in both price and quantity.

Question 18

A horizontal demand curve is perfectly elastic because a change in price will not induce a change in quantity demanded.

Question 19

Perfectly inelastic demand curves are vertical.

Question 20

Elasticity of demand equals the ratio of the percentage change in the price of a good to the percentage change in the quantity demanded.

Question 21

Demand elasticity equals quantity times price.

Question 22

The unit-elastic demand curve bends in the middle toward the origin of the graph and at either end moves closer to the axes.

Question 23

As one moves down a straight-line demand curve, the elasticity decreases.

Question 24

A unit-elastic demand curve will be concave toward the origin.

Question 25

Buyers' expenditures and sellers' revenues are always identical.

Question 26

The elasticity of a straight-line demand curve is the same as its slope.

Question 27

The slope of the demand curve conveys all the useful information about elasticity.

Question 28

As one moves down a straight-line demand curve away from the vertical axis, demand becomes less elastic and then inelastic.

Question 29

When the goods of competing companies are identical, consumers have no reason to prefer one product over the other so the demand curve for each manufacturer will be perfectly elastic.

Question 30

Elasticity of demand is another way to measure slope.

Question 31

Total expenditure equals price times quantity.

Question 32

The elasticity of a demand curve at any point can be ascertained by its steepness.

Question 33

A demand curve with an elasticity of 1.0 is a unit-elastic demand curve.

Question 34

Total expenditure equals price times elasticity.

Question 35

If demand is elastic, an increase in price will decrease total revenue.

Question 36

As one moves down a straight-line demand curve, the elasticity increases.

Question 37

The elasticity of any demand curve is the same as its slope.

Question 38

A demand curve with an elasticity of 1.0 is said to be an elastic demand curve.

Question 39

The difference between slope and elasticity is that slope measures absolute change and elasticity measures percentage change.

Question 40

A straight-line demand curve has an elasticity that becomes smaller as we move from left to right along the schedule.

Question 41

A demand curve with unit elasticity can never touch either the vertical or horizontal axes.

Question 42

The ratio of the percentage change in quantity demanded to the percentage change in income is known as the cross elasticity of demand.

Question 43

If a demand curve is unit elastic, then P times Q will remain constant when P changes.

Question 44

If demand is unit elastic, then a 10 percent increase in the price will lead to a 10 percent increase in quantity demanded.

Question 45

If demand is inelastic, a drop in price will raise total expenditure.

Question 46

If there are many close substitutes available for a good, its elasticity of demand will be higher.

Question 47

Necessities such as food and shelter have inelastic demand.

Question 48

If a product constitutes a large portion of a consumer's income, demand will be more inelastic.

Question 49

A tax on cigarettes can be expected to reduce teen smoking more than it reduces adult smoking.

Question 50

The elasticity of demand is determined partly by whether the good is a necessity or a luxury.

Question 51

A rise in price will always result in an increase in the total amount consumers spend on a product.

Question 52

Elasticity of demand is likely to be higher for less-expensive goods, other things being equal.

Question 53

If price goes up 20 percent and quantity demanded declines by 10 percent, total revenue will rise.

Question 54

If demand is elastic, a rise in price will decrease total expenditure.

Question 55

A price increase will always cause a firm's revenue to fall, because they will sell less of the good.

Question 56

A price increase will always increase a firm's revenue.

Question 57

If demand is elastic, an increase in price will increase total revenue.

Question 58

As a price change persists over a long period of time, we should expect the demand elasticity to fall.

Question 59

If demand is unit elastic, then a 10 percent increase in price will lead to a 10 percent drop in quantity demanded.

Question 60

Since an individual spends a small share of her income on salt, the elasticity of demand is likely to be low.

Question 61

Elasticity

A) deals with percentage changes in price and quantity demanded.
B) employs percentage changes calculated in terms of average values of the prices and quantities at issue.
C) is generally stated in absolute value.
D) All of the above are correct.

Question 62

A buyer's response to a change in income is an example of a "change in demand."

Question 63

Two goods are substitutes if a decrease in the price of one raises the quantity demanded of the other.

Question 64

Income elasticity of demand describes how change in income affects the quantity demanded of a good.

Question 65

Two goods with a low cross elasticity of demand are competing in the same market.

Question 66

A correct formula (dropping all minus signs) for the calculation of the elasticity of demand between point Q₁, P₁ and point Q₂, P₂ is

A) [(P₂ -P₁)/(P₂ + P₁)]/[(Q₂ - Q₁)/(Q₂ + Q₁)].
B) [(P₂ - P₁)/P₁]/[(Q₂- Q₁)/Q₁].
C) [(Q₂ - Q₁)/(Q₂ + Q₁)]/[(P₂ - P₁)/(P₂ + P₁)].
D) [(Q₂ - Q₁)/Q₂)]/[(P₂ - P₁)/P₂].

Question 67

If the price of gasoline rises by 20 percent and consumption of gasoline falls 5 percent,

A) demand is elastic.
B) demand is unit-elastic.
C) demand is inelastic.
D) elasticity of demand cannot be calculated.

Question 68

When price falls, demand rises.

Question 69

Cross-elasticity of demand measures the responsiveness of the quantity demanded of one good to a change in the price of another good.

Question 70

A negative cross elasticity indicates that two goods are complements.

Question 71

An accurate demand curve can be derived by examining the quantities of a good that are sold over time as the price varies.

Question 72

Cross-elasticity of demand could be used to measure the responsiveness of the quantity demanded of swimming pools to a change in the price of picnic tables.

Question 73

A decrease in the price of a good will cause a movement along the demand schedule to a higher quantity demanded.

Question 74

Historical demand curves are always suspect because their demand curves are likely to have shifted over time.

Question 75

The formula for price elasticity of demand that is used in practice

A) usually drops all minus signs.
B) usually takes on different values at different points on the demand curve.
C) may calculate the percentage change in price between P₁ and P₂ as " (P₂ - P₁) as a percentage of (P₁ + P₂)/2."
D) All of the above are correct.

Question 76

Price elasticity of demand is defined as

A) slope divided by price.
B) percentage change in price divided by percentage change in quantity demanded.
C) percentage change in quantity demanded divided by percentage change in price.
D) the inverse of the price elasticity of supply.

Question 77

A fall in the price of a competing product will produce an outward shift in the demand curve for most products.

Question 78

Demand curves often do not remain stationary; they shift because of changes in other variables.

Question 79

At $6 per steak, consumers are willing to buy two steaks.At a price of $2, consumers are willing to buy six steaks.The elasticity of the market demand curve between P = $6 and P = $2 (dropping all minus signs) is

A) 0.33.
B) 1.
C) 2.
D) 4.

Question 80

If an increase in quantity demanded of a product reduces the quantity demanded of another, then the two goods are said to be substitutes.