Deck 4: Elasticity

Question 1

Demand is inelastic if

A)a small change in price results in a large change in quantity demanded.
B)the quantity demanded is very responsive to a change in price.
C)the price elasticity of demand is 0.2.
D)the price does not change when supply increases.
E)a 10 percent change in price results in a 1 percent change in the quantity supplied.

Answer 1

C

Question 2

If a 12 percent fall in price results in an 8 percent increase in quantity demanded, the price elasticity of demand equals

A)0.96.
B)0.12.
C)0.67.
D)1.5.
E)0.8.

Answer 2

C

Question 3

The concept used by economists to indicate the responsiveness of the quantity demanded of a good to a change in its price is the

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

Answer 3

D

Question 4

The price of good A falls by 10 percent and quantity of good A demanded does not change.We conclude that the demand for good A is

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

Question 5

The demand for good A is unit elastic if

A)a 5 percent fall in the price of A results in an infinite increase in the quantity of A demanded.
B)a 5 percent rise in the price of A results in a 10 percent decrease in the quantity of A demanded.
C)any increase in the price of A results in a 1 percent decrease in the quantity of A demanded.
D)a 5 percent rise in the price of A results in no change in the quantity of A demanded.
E)a 5 percent rise in the price of A results in a 5 percent decrease in the quantity of A demanded.

Question 6

A price elasticity of demand of 2 means that a 10 percent increase in price will result in a

A)2 percent decrease in quantity demanded.
B)20 percent decrease in quantity demanded.
C)5 percent decrease in quantity demanded.
D)2 percent increase in quantity demanded.
E)20 percent increase in quantity demanded.

Question 7

The price of plums falls by 7 percent and quantity of plums demanded increases by 6.75 percent.We conclude that the demand for plums is

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

Question 8

Suppose a rise in the price of a good from $6.50 to $7.50 leads to a decrease in the quantity demanded from 10,500 to 9,500 units.In this range of demand, the price elasticity of demand is

A)14.
B)7.
C)1,000.
D)1.
E)0.7.

Question 9

Which one of the following illustrates an inelastic demand?

A)A 10 percent rise in price leads to a 5 percent decrease in quantity demanded.
B)A 10 percent rise in price leads to a 20 percent decrease in quantity demanded.
C)A price elasticity of demand equal to infinity
D)A price elasticity of demand equal to 1.0.
E)A price elasticity of demand equal to 2.0

Question 10

The price elasticity of demand is a units-free measure of the responsiveness of the ________ when all other influences on buying plans remain the same.

A)quantity demanded to a change in the price of a substitute or complement
B)quantity demanded to a change in income
C)quantity demanded of a good to a change in its price
D)price to a change in quantity demanded
E)quantity demanded of a good to a change in supply

Question 11

If a 10 percent rise in price leads to an 8 percent decrease in quantity demanded, the price elasticity of demand is

A)0.8.
B)1.25.
C)8.
D)0.125.
E)80.

Question 12

A unit elastic demand

A)means that the ratio of a change in quantity demanded to a change in price is equal to 1.
B)means that the ratio of a percentage change in quantity demanded to a percentage change in price is equal to 1.
C)means that the ratio of a change in price to a change in quantity demanded is equal to 1.
D)is illustrated by a horizontal demand curve.
E)is illustrated by a vertical demand curve.

Question 13

Which one of the following illustrates an elastic demand?

A)A 10 percent rise in price leads to a 5 percent decrease in quantity demanded.
B)A 10 percent rise in price leads to a 20 percent decrease in quantity demanded.
C)A price elasticity of demand equal to 0.2
D)A price elasticity of demand equal to 1.0
E)A price elasticity of demand equal to zero

Question 14

If a 10 percent rise in the price of goods leads to a 10 percent decrease in quantity demanded, the demand curve for this good

A)is vertical.
B)is horizontal.
C)has slope equal to 1.
D)is a straight line with slope equal to 10.
E)none of the above

Question 15

A fall in the price of a good from $10.50 to $9.50 results in an increase in the quantity demanded from 18,800 to 21,200 units.The price elasticity of demand is

A)0.8.
B)1.25.
C)1.2.
D)8.0.
E)2.4.

Question 16

The price of oranges rises by 3 percent and quantity of oranges demanded decreases by 3 percent.We conclude that the demand for oranges is

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

Question 17

A fall in the price of a good from $11.50 to $8.50 results in an increase in the quantity demanded from 19,200 to 20,800 units.The price elasticity of demand is

A)0.27.
B)3.75.
C)0.08.
D)8.0.
E)30.

Question 18

The price of apples falls by 5 percent and quantity of apples demanded increases by 6 percent.We conclude that the demand for apples is

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

Question 19

If a large percentage drop in the price level results in a small percentage increase in the quantity demanded,

A)demand is inelastic.
B)demand is elastic.
C)demand is unit elastic.
D)the price elasticity of demand is close to infinity.
E)the price elasticity of demand is zero.

Question 20

If the demand curve for a good is a horizontal line, then the good has

A)zero income elasticity.
B)price elasticity of demand equal to zero.
C)infinite price elasticity of demand.
D)a price elasticity of demand that is likely to rise in the short run.
E)a price elasticity of demand that is likely to fall in the short run.

Question 21

Use the figure below to answer the following question.

Figure 4.1.1
Figure 4.1.1 illustrates a linear demand curve.Comparing the price elasticity in the $2 to $3 price range with the elasticity in the $8 to $9 range, we can conclude

A)that demand is more elastic in the $8 to $9 price range.
B)that demand is more elastic in the $2 to $3 price range.
C)that the price elasticity of demand is the same in both price ranges.
D)nothing without numerical information about quantities.
E)that the price elasticity of demand is zero in both price ranges because the demand curve is a straight-line demand curve.

Question 22

Suppose the quantity of root beer demanded decreases from 105,000 litres per week to 95,000 litres per week when the price rises by 5 percent.The price elasticity of demand

A)is 2.0.
B)is 0.5.
C)is 10.
D)is inelastic.
E)cannot be computed unless we know the original price and the new price.

Question 23

For which one of the following is demand likely to be most inelastic?

A)diamonds
B)insulin for a diabetic
C)potatoes
D)gasoline
E)books

Question 24

Use the table below to answer the following questions.
Table 4.1.1
Demand schedule for good A.

Refer to Table 4.1.1.Demand is unit elastic when the price falls from

A)$8 to $7.
B)$7 to $6.
C)$6 to $5.
D)$5 to $4.
E)$4 to $3.

Question 25

The quantity of apples demanded decreases by 8 percent when the price rises by 8 percent.The demand for apples is

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

Question 26

Suppose that the price elasticity of demand for bottled water in Sackville, New Brunswick is 1.5, while the price elasticity of demand for bottled water in Prince Albert, Saskatchewan is 0.93.This implies that the demand in Sackville is ________ and demand in Prince Albert is ________.

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

Question 27

Use the figure below to answer the following questions.

Figure 4.1.2
Figure 4.1.2 illustrates a linear demand curve.If the price falls from $13 to $11,

A)total revenue increases.
B)total revenue decreases.
C)total revenue remains unchanged.
D)total revenue initially increases then decreases.
E)total revenue initially decreases then increases.

Question 28

A perfectly vertical demand curve indicates that the price elasticity of demand for the good is

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

Question 29

At a price of $15, Jack's quantity demanded of good A is the same as when the price rises to $16.Jack's demand for good A is

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

Question 30

For which one of the following will demand be the most price inelastic?

A)milk
B)Happy Cow brand milk
C)Happy Cow brand milk in Regina
D)Happy Cow brand milk at Ralph's Grocery Store in Regina
E)All of the above will exhibit the same price elasticity of demand.

Question 31

Use the table below to answer the following questions.
Table 4.1.1
Demand schedule for good A.

Refer to Table 4.1.1.The price elasticity of demand when the price rises from $6 a unit to $7 a unit is

A)1.0.
B)2.0.
C)2.6.
D)0.5.
E)1.3.

Question 32

If the demand for salmon in Cape Breton, Nova Scotia, is unit elastic, the price elasticity of demand for salmon equals

A)1.0.
B)100.0.
C)0.10.
D)zero.
E)10.0.

Question 33

Use the figure below to answer the following questions.

Figure 4.1.2
Figure 4.1.2 illustrates a linear demand curve.If the price falls from $4 to $2,

A)total revenue increases.
B)total revenue decreases.
C)total revenue remains unchanged.
D)the quantity demanded increases by more than 10 percent.
E)the percentage change in quantity demanded is more than the percentage change in price.

Question 34

Suppose the Lethbridge Computer Company decides to increase the quantity of computers it sells by 6 percent.If the price elasticity of demand is 3.5, the company must

A)raise the price of a computer by 1.714 percent.
B)raise the price of a computer by 0.21 percent.
C)lower the price of a computer by 0.21 percent.
D)lower the price of a computer by 1.714 percent.
E)lower the price of a computer by 0.58 percent.

Question 35

Use the table below to answer the following questions.
Table 4.1.1
Demand schedule for good A.

Refer to Table 4.1.1.If the price of good A falls from $4 to $3,

A)total revenue will increase.
B)total revenue will remain constant.
C)demand is elastic in this range.
D)demand is unit elastic in this range.
E)demand is inelastic in this range.

Question 36

Suppose the government of Nova Scotia wants to reduce the consumption of electricity by 5 percent.The price elasticity of demand for electricity is 0.40.You advise the Nova Scotia government to

A)raise the price of electricity by 12.5 percent.
B)raise the price of electricity by 2 percent.
C)lower the price of electricity by 12.5 percent.
D)stay away from the market for electricity and let the market mechanism fix the problem.
E)lower the price of electricity by 2 percent.

Question 37

Which one of the following will yield a measured price elasticity of demand of 5.0? A 10 percent rise in price results in a

A)10 percent decrease in quantity demanded.
B)5 percent decrease in quantity demanded.
C)2 percent decrease in quantity demanded.
D)50 percent decrease in quantity demanded.
E)0.5 percent decrease in quantity demanded.

Question 38

Factors that influence the price elasticity of demand include

A)the closeness of substitutes.
B)the price of complements but not the price of substitutes.
C)income.
D)preferences.
E)the price of substitutes and complements.

Question 39

Demand will be more elastic the

A)higher the income level.
B)lower the income level.
C)longer the passage of time after a price increase.
D)fewer substitutes are available.
E)smaller the fraction of income spent on the good.

Question 40

Demand will be more inelastic the

A)higher the income level.
B)lower the income level.
C)longer the passage of time after a price increase.
D)fewer good substitutes that are available.
E)larger the fraction of income spent on the good.

Question 41

The demand for a good will be more price inelastic,

A)the higher is its price.
B)the larger is the percentage of income spent on it.
C)the longer is the passage of time since a price change.
D)the smaller the supply of the good.
E)the fewer substitutes are available for the good.

Question 42

Use the table below to answer the following question.
Table 4.1.2

Refer to Table 4.1.2.The table shows two points on the demand curve for volleyballs.What is the price elasticity of demand between these two points?

A)2.5
B)2.0
C)0.5
D)0.4
E)5.0

Question 43

For which one of the following will demand be the most price elastic?

A)daily newspapers
B)Ontario newspapers
C)Toronto newspapers
D)the Toronto Star
E)Each of the above will exhibit the same price elasticity of demand.

Question 44

The price elasticity of demand for airplane travel one year in advance of the departure date is most likely to be

A)equal to infinity.
B)equal to zero.
C)between zero and 1.
D)equal to 1.
E)greater than 1.

Question 45

When the price elasticity of demand is ________, demand for the good is perfectly inelastic.

A)equal to infinity
B)greater than 1
C)equal to 1
D)between 1 and zero
E)equal to zero

Question 46

Suppose this coming winter France will have unusually bad weather, and that next year's wine crop will be substantially reduced.Select the best statement.

A)The French wine supply will increase as price rises.
B)If the demand for French wine is elastic, wine producers will experience an increase in total revenue.
C)The initial change in the market will create a surplus of French wine.
D)In the final equilibrium, price and quantity will be higher.
E)None of the above

Question 47

A given percentage rise in the price of a good is likely to result in a larger percentage decrease in the quantity of the good demanded

A)the shorter the passage of time.
B)the larger the proportion of income spent on it.
C)the harder it is to obtain good substitutes.
D)all of the above
E)none of the above

Question 48

The price elasticity of demand for airplane travel one week in advance of the departure date is most likely to be

A)equal to infinity.
B)equal to zero.
C)between zero and 1.
D)equal to 1.
E)greater than 1.

Question 49

Suppose that Simon Fraser University decides to raise tuition fees to increase the total revenue it receives from students.This policy works only if the demand for a Simon Fraser University education is

A)unit elastic.
B)inelastic.
C)elastic.
D)greater than the demand for a University of Western Ontario education.
E)perfectly elastic.

Question 50

The demand for a good is perfectly elastic when the price elasticity of demand is

A)equal to infinity.
B)between infinity and 1.
C)equal to 1.
D)between 1 and zero.
E)equal to zero.

Question 51

When the price elasticity of demand is ________, demand for the good is inelastic.

A)equal to infinity
B)greater than 1
C)equal to 1
D)between 1 and zero
E)equal to zero

Question 52

If a price decrease results in an increase in total revenue, then demand is

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

Question 53

Business people speak about price elasticity of demand without using the actual term.Which one of the following statements reflects elastic demand for a good?

A)"A price cut won't help me. It won't increase sales, and I'll just get less money for each unit."
B)"I don't think a price cut will make any difference to my bottom line. What I may gain from selling more I would lose on the lower price."
C)"My customers are real bargain hunters. Since I set my prices just a few cents below my competitors, customers have flocked to the store, and sales are booming."
D)"With the recent economic recovery, people have more income to spend and sales are booming, even at the previous prices."
E)"A very cold winter has increased my sales of skates and hockey sticks."

Question 54

If the price elasticity of demand is 2, then a 1 percent fall in price

A)doubles the quantity demanded.
B)decreases the quantity demanded by half.
C)increases the quantity demanded by 2 percent.
D)decreases the quantity demanded by 2 percent.
E)increases the quantity demanded by 0.5 percent.

Question 55

When the price elasticity of demand is ________, demand for the good is elastic.

A)equal to infinity
B)greater than 1
C)equal to 1
D)between 1 and zero
E)equal to zero

Question 56

Suppose a fall in the price of a good from $10 to $8 leads to an increase in quantity demanded from 20 to 24 units.The price elasticity of demand is

A)1.
B)9/11.
C)11/9.
D)2.0.
E)4.5/11.

Question 57

A union leader who claims that "higher wages increase living standards without causing unemployment" believes that the demand for labour is

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

Question 58

Suppose Swiss Chalet in Moncton knows that the demand for their half-chicken meals is elastic.If the manager wants to increase total revenue from half-chicken meal sales, he should

A)lower the price of a half-chicken meal.
B)not change the price of a half-chicken meal.
C)raise the price of a half-chicken meal.
D)decrease the supply of half-chicken meals.
E)hire fewer employees.

Question 59

If a rise in price results in a decrease in total revenue, then the price elasticity of demand is

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

Question 60

When the price elasticity of demand is ________, demand for the good is unit elastic.

A)equal to infinity
B)greater than 1
C)equal to 1
D)between 1 and zero
E)equal to zero.

Question 61

The demand for orange juice is price elastic.A severe frost, which destroys large quantities of oranges will

A)lower the equilibrium price but increase total consumer spending on juice.
B)decrease the equilibrium quantity and decrease total consumer spending on juice.
C)decrease both the equilibrium quantity and the price of juice.
D)raise the equilibrium price as well as total consumer spending for juice.
E)raise the equilibrium price but leave total consumer spending for juice constant.

Question 62

If Saudi Arabia argues that an increase in the supply of oil will decrease total revenue, then Saudi Arabia believes the demand for oil is

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

Question 63

The price of gasoline rises by 25 percent and remains fixed at the new higher level.Choose the correct statement.

A)The demand for gasoline will increase after consumers adjust their consumption behaviour to the new higher price.
B)The demand for gasoline will decrease after consumers adjust their consumption behaviour to the new higher price.
C)Initially after the price change, the price elasticity of demand will be less elastic than it will be a few years after the price change.
D)The price elasticity of demand for gasoline will decrease in the future.
E)Initially after the price change, the price elasticity of demand will be more elastic than it will be a few years after the price change.

Question 64

The longer the time that has elapsed since a price change the more time consumers will have to respond to price changes.As a result, demand becomes

A)zero.
B)more inelastic.
C)more elastic.
D)perfectly inelastic.
E)unit elastic.

Question 65

Suppose your annual income is $65 000 and your favourite magazine costs you $28 a year.Your demand for the magazine is likely to be

A)perfectly elastic.
B)inelastic.
C)unit elastic.
D)elastic.
E)elastic - the same as your demand for all other goods.

Question 66

If the demand for a good is unit elastic, then a 5 percent increase in price results in

A)a 5 percent increase in total revenue.
B)a 5 percent decrease in total revenue.
C)no change in total revenue.
D)an increase in total revenue greater than 5 percent.
E)an increase in total revenue less than 5 percent.

Question 67

Suppose the Nunavut government decides to repair Iqaluit roads.One way to generate sufficient funds for this plan is to increase taxes on gasoline.The government will be able to raise total revenue from gasoline sales only if the demand for gasoline is

A)perfectly elastic.
B)equal to the supply of gasoline.
C)unit elastic.
D)inelastic.
E)elastic.

Question 68

A decrease in tuition fees will decrease the university's total revenue if the price elasticity of demand for university education is

A)negative.
B)greater than zero but less than 1.
C)equal to 1.
D)greater than 1.
E)less than the elasticity of supply.

Question 69

When the price of peanut butter rises by 4 percent, total revenue decreases by 8 percent.The demand for peanut butter

A)is elastic.
B)is inelastic.
C)is unit elastic.
D)has a price elasticity equal to 1/2.
E)has a price elasticity equal to 2.

Question 70

A technological breakthrough lowers the cost of photocopiers.If the demand for photocopiers is price inelastic, we predict that photocopier sales

A)fall and total revenue increases.
B)fall and total revenue decreases.
C)rise and total revenue increases.
D)rise and total revenue decreases.
E)rise, but changes in total revenue will depend on elasticity of supply.

Question 71

Tina and Brian work for the same recording company. Tina claims they would be better off by raising the price of their CDs, while Brian claims they would be better off by lowering the price. Choose the correct statement.

A)Tina thinks the demand for CDs has price elasticity of demand equal to zero, and Brian thinks price elasticity of demand equals 1.
B)Tina thinks the demand for CDs has price elasticity of demand equal to 1, and Brian thinks price elasticity of demand equals zero.
C)Tina thinks the demand for CDs is price elastic, and Brian thinks it is price inelastic.
D)Tina thinks the demand for CDs is price inelastic, and Brian thinks it is price elastic.
E)Tina and Brian should stick to singing and forget about economics.

Question 72

As a result of a poor growing season, the supply curve of apples shifted leftward, the equilibrium price of apples rose, and total revenue fell.This suggests that the price elasticity of demand for apples is

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

Question 73

If the Canucks lower ticket prices and find that total revenue does not change, then the price elasticity of demand for tickets is

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

Question 74

Suppose there is an increase in the cost of resources used in the production of good A.Then

A)if the price of A rises, we know the demand for A is elastic.
B)if the total revenue from sales of A rises, we know the demand for A is elastic.
C)if the total revenue from sales of A falls, we know the demand for A is elastic.
D)total revenue will increase because the price of A must rise.
E)total revenue must fall because the quantity bought and sold of A must fall.

Question 75

Which of the following will have the most elastic demand?

A)frozen desserts
B)ice cream
C)strawberry ice cream
D)a banana split made with strawberry and chocolate ice cream
E)a banana split with Nestle strawberry and chocolate ice cream

Question 76

If price elasticity of demand is zero, then as the price falls,

A)total revenue does not change.
B)quantity demanded does not change.
C)quantity demanded falls to zero.
D)total revenue increases.
E)quantity demanded increases.

Question 77

Total revenue from the sale of a good will decrease if

A)income increases and the good is a normal good.
B)its price rises and demand is elastic.
C)its price rises and demand is inelastic.
D)income falls and the good is an inferior good.
E)its price falls and demand is elastic.

Question 78

The demand for a good is price inelastic if

A)a rise in price results in an increase in total revenue.
B)a rise in price results in a decrease in total revenue.
C)an increase in income results in a decrease in total revenue.
D)an increase in income results in an increase in total revenue.
E)the good is a luxury.

Question 79

The demand for a good is price elastic if

A)a rise in price results in an increase in total revenue.
B)a fall in price results in a decrease in total revenue.
C)a rise in price results in a decrease in total revenue.
D)the good is a necessity.
E)the demand for the good is very insensitive to changes in price.

Question 80

Use the figure below to answer the following question.

Figure 4.1.3
Given the relationship shown in Figure 4.1.3 between total revenue from the sale of a good and the quantity of the good sold, then

A)this is an inferior good.
B)this is a normal good.
C)the price elasticity of demand is zero.
D)demand for this good is perfectly elastic.
E)the price elasticity of demand is 1.