Deck 5: Elasticity of demand and supply

Question 1

An economist estimates that 0.67 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)maximise revenues by staying at the current price.

Answer 1

D

Question 2

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

A)The percentage change in the quantity demanded equals the 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.

Answer 2

D

Question 3

When a 2 per cent increase in price generates a greater than 2 per cent 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.

Answer 3

E

Question 4

Suppose the price of a bus ticket rises from $2.75 to $3.75 and the number of tickets sold falls from 10 000 to 8500,the price elasticity of demand is: :

A)0.527.
B)1.
C)-0.527.
D)-1.

Question 5

Price elasticity of demand can be:

A)only greater than 1.
B)equal to 1, greater than 1, less than 1.
C)only less than 1.
D)only equal to 1.

Question 6

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

A)buy twice as much of the product if the price drops 10 per cent.
B)require a 2 per cent drop in price to increase their purchases by 1 per cent.
C)buy 2 per cent more of the product in response to a 1 per cent 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 per cent.

Question 7

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

Question 8

If the price elasticity of demand is computed for two products and product A measures 0.79 and product B measures 1.6,then:

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

Question 9

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 10

If Pete raises the price of his 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 11

Price elasticity of demand measures:

A)the responsiveness of the quantity demanded of a good to a change in income.
B)the responsiveness of the quantity demanded of a good to a change in consumers' preferences.
C)the responsiveness of the quantity demanded of a good to a change in price.
D)the reduction in the quantity demanded of a good when the price is reduced.

Question 12

If the price elasticity of demand for a product measures 0.45,then:

A)this good has many available substitutes.
B)this good must be a non-essential 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 13

Suppose the price of a bus ticket rises from $2.75 to $3 and the number of tickets sold falls from 10 000 to 8500,the total revenue test:

A)shows a decrease in total revenue.
B)cannot be calculated.
C)shows no change in total revenue.
D)shows an increase in total revenue.

Question 14

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)3.5.
B)0.5.
C)1.
D)2.2.
E)0.8.

Question 15

Using the midpoint formula,what would be the price elasticity of demand for a gallbladder operation if the number of operations fell from 7000 to 4000 per week after its price increased from $6000 to $15 000?

A)0.254.
B)0.636.
C)0.801.
D)1.25.

Question 16

Tara buys four music CDs when the price is $10 and two CDs when the price is $14.Her price elasticity of demand is (using the average values method):

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

Question 17

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 18

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

A)4.5 per cent decrease in quantity demanded.
B)4.5 per cent increase in quantity demanded.
C)45 per cent decrease in quantity demanded.
D)45 per cent increase in quantity demanded.

Question 19

Suppose the price of a bus ticket rises from $2.75 to $3 and the number of tickets sold falls from 10 000 to 8500,the price elasticity of demand is:

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

Question 20

A health club sells 100 memberships when the monthly price is $70 and 120 memberships when the monthly price is $60.The price elasticity of demand for memberships at this health club is (using the midpoint formula):

A)0.25.
B)0.65.
C)1.18.
D)1.
E)0.83

Question 21

The price elasticity of demand formula includes:

A)percentage change in quantity demanded.
B)percentage change in quantity supplied.
C)difference in quantity demanded.
D)difference in price.

Question 22

Exhibit 5-1 Demand curves

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

A)0.67.
B)1.5.
C)2.
D)1.56.
E)1.

Question 23

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

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

Question 24

Consumers will reduce their demand if they believe that the price increase is:

A)negligible.
B)affordable.
C)avoidable.
D)temporary.

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.
E)there is a market failure.

Question 26

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 according to the averaging equation,the value of price elasticity of demand in absolute terms is:

A)0.33.
B)2.33.
C)0.25.
D)3.
E)0.66.

Question 27

Petrol has inelastic price elasticity of demand in both short and long run but chinaware has elastic price elasticity of demand in both short and long run because:

A)petrol is more important than chinaware.
B)petrol is a necessity and chinaware is a luxury.
C)petrol cannot be compared to chinaware.
D)petrol is a luxury and chinaware is a necessity.

Question 28

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)decreases quantity demanded.
D)raises the price elasticity of demand.
E)will reduce total revenue.

Question 29

The less important the good in everyday consumption and the less percentage of budget is spent on the good:

A)the greater will be the price elasticity of the good.
B)the greater will be the effect of the price increase on the decrease in the demand.
C)the smaller will be the price elasticity of the good.
D)the smaller will be the effect of the price increase on the increase in the demand.

Question 30

Price elasticity of demand can be:

A)greater than 100 per cent.
B)equal to 100 per cent.
C)less than 1.
D)less than 100 per cent.

Question 31

Exhibit 5-1 Demand curves

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 32

If the price of Pepsi-Cola increases from 40 cents to 50 cents per bottle and the quantity demanded decreases from 100 bottles to 50 bottles,then according to the averaging equation,the value of price elasticity of demand for Pepsi-Cola is:

A)0.5.
B)0.25.
C)1.
D)3.
E)2.

Question 33

Price elasticity of demand measures:

A)the responsiveness of the quantity demanded of a good to a change in income.
B)the responsiveness of the quantity demanded of a good to a change in consumers' preferences.
C)the responsiveness of the quantity demanded of a good to a change in the price of that good.
D)the reduction in the quantity demanded of a good when the price of that good is reduced.

Question 34

Karin is a popular hairdresser in a small town.She charges her clients $30 for a haircut and earned $60 000 last year only doing haircuts.This year,Karin decided to increase the price for the haircut by $5.What is the elasticity of demand for Karin's haircut,if the number of her clients has dropped to 1800 per year?

A)It is approximately equal to 2.3.
B)It is approximately equal to 1.68.
C)It is approximately equal to 1.
D)It is approximately equal to 0.68.

Question 35

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 36

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

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

Question 37

Cars have higher price elasticity of demand than tyres and tubes because:

A)tyres and tubes and cars are substitutes.
B)tyres and tubes and cars are complements.
C)cars are a luxury and tyres and tubes are a necessity.
D)tyres and tubes are a luxury and cars are a necessity.

Question 38

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 39

If a farmer,lowers the price of his product from $15 to $5 and finds that sales increase from 500 to 1000 units per week,then the demand for the farmer's product in this range is:

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

Question 40

Exhibit 5-1 Demand curves

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 41

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)The elasticity of demand is less elastic at lower price.
E)When an individual buys 4 units of a good his/her elasticity of demand for each unit increases.

Question 42

If the demand is elastic,the total revenue test of price elasticity will show:

A)decrease in revenue and price decrease.
B)increase in revenue and price decrease.
C)increase in revenue and price increase.
D)decrease in revenue and price increase.

Question 43

The price-elastic portion of the linear demand curve lies:

A)in the high price range.
B)anywhere to the left of current market prices.
C)below the point where total revenue is maximised.
D)at the intersection with the supply curve.

Question 44

If the short-run price elasticity of demand for hospital care is 0.27,then the long-run price elasticity is expected to be:

A)greater than 0.27.
B)greater than 1.
C)less than 0.27.
D)equal to 0.27.
E)less than zero.

Question 45

Exhibit 5-2 Demand curves for silver


Refer to Exhibit 5-2,Graph

A)0.1.
B)0.3.
C)6.
D)2.5.

Question 46

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 47

The straight line demand curve represents the price elasticity of demand that:

A)increases as the price decreases.
B)decreases as the price decreases.
C)increases as the price increases.
D)decreases as the price increases.

Question 48

The longer the time period under study:

A)the more elastic is the price elasticity of demand.
B)the less sensitive consumers will be to price changes.
C)the less adjustment consumers will make to price changes.
D)the more inelastic is the price elasticity of demand.
E)the more likely any given price cut will result in a smaller reaction by the consumer.

Question 49

Along a straight-line demand curve,the elasticity of demand:

A)is approximated by the slope of the curve.
B)is constant at every point on the curve.
C)is less elastic than along a non-linear demand curve.
D)is equal to one.
E)becomes more inelastic as price falls.

Question 50

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 51

Exhibit 5-1 Demand curves

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 52

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 53

Exhibit 5-1 Demand curves

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

A)4.1.
B)1.8.
C)1.5.
D)0.3.
E)0.8.

Question 54

The most important determinant of price elasticity of demand is:

A)the availability of substitutes.
B)the higher the price of the good.
C)the more of the budget is spent on the good.
D)the longer the time the consumer has to adjust to price changes.

Question 55

Along a straight-line demand curve,the elasticity of demand:

A)is unitary elastic.
B)is more elastic as the price falls.
C)different at every point along the curve.
D)is perfectly elastic.
E)is perfectly inelastic.

Question 56

Exhibit 5-2 Demand curves for silver


Refer to Exhibit 5-2,Graph

A)2.03.
B)0.67.
C)0.33.
D)2.54.

Question 57

Demand sensitivity depends on all of the following except:

A)how low the price of the good is.
B)the sensitivity of a firm's output to changes in its price.
C)the consumer's income.
D)the availability and closeness of substitutes.
E)the amount of time a consumer has to adjust to price changes.

Question 58

If a straight-line demand curve slopes down,price elasticity will not:

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 59

Any downward-sloping straight line demand curve displays:

A)elastic and inelastic demand.
B)positive and strong demand.
C)elastic, inelastic and negligible demand.
D)elastic, inelastic and unitary elastic demand.

Question 60

Exhibit 5-2 Demand curves for silver


Refer to Exhibit 5-2.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 5-2,which graph illustrates the shape of the demand curve for silver?

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

Question 61

The major determinants of price elasticity of demand are:

A)availability of complements.
B)availability of substitutes.
C)availability of normal goods.
D)availability of supply.

Question 62

The income elasticity of demand is the ratio of the percentage change in:

A)the quality demanded of a good to the percentage change in income.
B)the quantity demanded of a good to the percentage change in income.
C)income to the percentage change in quantity demanded of a good.
D)the quantity demanded of a good to the percentage change in price.

Question 63

The price elasticity coefficient of demand is:

A)negatively related to the percentage of one's budget spent on a good or service.
B)not related to the availability of good substitutes for a good or service.
C)related to the availability of good complements for a good or service.
D)higher the longer a price change persists.

Question 64

The smaller the proportion of your income is spent on a good,the more likely it is to be:

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

Question 65

If a good only takes up a small proportion of your income,the elasticity of demand is likely to be:

A)relatively elastic.
B)relatively inelastic.
C)perfectly elastic.
D)unit elastic.
E)equal to one.

Question 66

Which of the following goods is likely to have the most elastic demand curve?

A)Tobacco products.
B)Petrol.
C)Medical care.
D)Honda automobiles.

Question 67

Which of the following statements is not true?

A)Price elasticity of demand for basic foods is low.
B)When price elasticity of demand is very high, we say there is brand loyalty.
C)The availability and price of substitutes affect the elasticity of demand for a good or service.
D)When goods have very low prices, the elasticity of demand is usually quite low.
E)Elasticities increase as the price of the good increases.F. Elasticity of demand cannot be computed.

Question 68

The elasticity of demand for food would most likely be:

A)perfectly elastic.
B)unit elastic.
C)relatively more elastic than the elasticity of demand for bread.
D)perfectly inelastic.
E)indeterminate.

Question 69

A study of consumers in an area found that as family income increased from $25 000 per year to $35 000 per year and other factors held constant,the number of houses purchased increased from 7000 per year to 11 000 per year.This finding indicates an income elasticity of demand coefficient for housing over this family income range of:

A)0.22.
B)0.75.
C)1.33.
D)4.50.

Question 70

For many people with diabetes,insulin would have an elasticity of demand of:

A)infinity.
B)one.
C)zero.
D)greater than one.
E)indeterminate.

Question 71

The price elasticity of demand coefficient for a good will be greater:

A)if close substitutes exist.
B)if minor complements exist.
C)in the short run.
D)if a small portion of the budget will be spent on it.

Question 72

The price elasticity of demand for a particular good is influenced by which of the following factors?

A)The availability of inputs to produce the good.
B)The income of the sellers.
C)The availability of substitutes.
D)The level of competition among sellers.

Question 73

If bus travel is an inferior good,then its income elasticity of demand will be:

A)strictly greater than one.
B)positive.
C)equal to zero.
D)negative.

Question 74

The price elasticity of demand coefficient for a good will be lower if which of the following occurs?

A)There are many substitutes for the good.
B)The longer a price change persists.
C)The less of the budget is spent on the good.
D)The higher the price of complements.

Question 75

The long-run price elasticity of demand is usually larger than the short-run price elasticity of demand because:

A)demand curves tend to become steeper over time.
B)economists take the absolute value of long-run price elasticities but not of short-run elasticities.
C)people have more time to find substitute goods.
D)incomes tend to rise over time.
E)supply curves change over time.

Question 76

A lower price elasticity of demand coefficient occurs when:

A)the good has less substitutes.
B)the fall in price is fully compensated by increase in quantity.
C)the fall in price causes the total revenue to increase.
D)there is a strong competition among producers.

Question 77

The number of music CDs purchased increased by 50 per cent when consumer income increased by 10 per cent.Assuming other factors are held constant,music CDs would be classified as:

A)inferior goods.
B)normal goods.
C)Giffen goods.
D)social goods.

Question 78

In the long run,price elasticities of demand are usually:

A)less than they are in the short run because people can adjust.
B)the same as they are in the short run because tastes don't change.
C)greater than they are in the short run because prices rise over time.
D)less than they are in the short run because real prices fall over time.
E)greater than they are in the short run because consumers have time to adjust.

Question 79

The income elasticity of demand for shoes is estimated to be 1.5.We can conclude that shoes:

A)have a relatively steep demand curve.
B)have a relatively flat demand curve.
C)are a normal good.
D)are an inferior good.

Question 80

Which of the following statements is most likely to be true?

A)The elasticity of demand for a night at a caravan park is likely to be more elastic than a night at a five-star resort.
B)The elasticity of demand for the latest model Porsche is likely to be less elastic than that for a toy model of a Porsche.
C)The elasticity of demand for a meal at an exclusive restaurant is likely to be less elastic than that for a packet of two-minute noodles.
D)The elasticity of demand for salt is likely to be less elastic than that for chinaware.