Deck 6: Elasticities

Question 1

Price elasticity of demand is a measure of the relative responsiveness of the change in price to a change in quantity demanded.

Answer 1

False

Question 2

When a 9% increase in price leads to a 6% increase in quantity supplied,supply is relatively inelastic.

Answer 2

True

Question 3

A perfectly inelastic supply curve is vertical.

Answer 3

True

Question 4

Given an upward sloping supply curve,the more inelastic is demand,the greater the fraction of the burden of taxation that is borne by the consumer.

Question 5

Price elasticity of demand is a measure of the relative responsiveness of the change in quantity demanded to a change in price.

Question 6

Moving along an elastic portion of a demand curve,the change in price will always be proportionately less than the change in the quantity demanded.

Question 7

When a 5% increase in price leads to an 8% increase in quantity supplied,supply is relatively inelastic.

Question 8

A decrease in price will cause a firm's total revenue to decrease if demand is price inelastic.

Question 9

If Pizza Hut decreases its price for a large pizza by 25% and this leads to a 75% increase in sales,we can conclude that demand is relatively elastic with regard to price.

Question 10

To determine whether or not a pair of goods are complements,economists are interested in the cross price elasticity of demand between the two goods.

Question 11

An increase in price will cause a firm's total revenue to increase if demand is price elastic.

Question 12

The widespread availability of e-mail has likely increased the price elasticity of demand for the services of the U.S.Postal Service.

Question 13

If a consumer's total expenditure on a good does not vary with price,then that consumer's demand curve is unit elastic over that range of prices.

Question 14

A perfectly elastic demand curve is vertical.

Question 15

Price elasticity of demand is defined as:

A) the slope of the demand curve.
B) the slope of the demand curve divided by the price.
C) the percentage change in price divided by the percentage change in quantity demanded.
D) the percentage change in quantity demanded divided by the percentage change in price.

Question 16

Moving along an inelastic portion of a demand curve,the change in quantity demanded will always be proportionally less than the change in price.

Question 17

Demand is relatively elastic when the price elasticity coefficient exceeds 1.0.

Question 18

As we move down along a straight-line demand curve,demand becomes increasingly price elastic.

Question 19

If the price elasticity coefficient equals 4.2,then demand is relatively inelastic with regard to price.

Question 20

To assess whether or not a good is inferior,economists are interested in the cross price elasticity of demand.

Question 21

A movie theatre raises its admission prices by 10%,which results in a 10% reduction in the quantity of tickets demanded.The demand curve facing this firm is:

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

Question 22

When the Blue Ocean Surfboard Company lowered the price of surfboards by 20%,it sold 10% more surfboards.The price elasticity coefficient for surfboards is:

A) 2.
B) 1/2.
C) 1.
D) 20.

Question 23

The nation's largest cable TV company tested the effect of a price reduction for premium movie channels.It lowered prices from $12 to $9.95 and found that the number of customers rose by almost 50%.This means:

A) the demand curve for the premium movie channels shifted to the right.
B) the supply curve for premium movie channels shifted to the left.
C) the demand for premium movie channels is elastic in this price range.
D) the demand for premium movie channels is inelastic in this price range.

Question 24

If the demand is perfectly elastic,what would happen to the quantity demanded if there is a tiny increase in price?

A) quantity demanded will increase proportionately
B) quantity demanded will fall to zero
C) quantity demanded will register a disproportionately high increase
D) quantity demanded will decrease proportionately

Question 25

Bailey's Barber Shop knows that a 5% increase in the price of their haircuts results in a 15% decrease in the number of haircuts purchased.What is the elasticity of demand facing Bailey's Barber Shop?

A) 0.05
B) 0.10
C) 0.33
D) 3.0

Question 26

If makers of snake anti-venom implement significant price increases,it is unlikely to significantly affect the use of anti-venom for treating poisonous snakebites.The demand for anti-venom among users is:

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

Question 27

If the demand is perfectly inelastic,what would happen to the quantity demanded if there is a tiny increase in price?

A) quantity demanded will increase proportionately
B) quantity demanded will fall to zero
C) quantity demanded will decrease proportionately
D) quantity demanded will remain the same

Question 28

The Shoe Emporium reduces the price of its shoes by 50% and finds that the quantity demanded for its shoes more than doubles.The demand for shoes from The Shoe Emporium appears to be:

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

Question 29

Demand is said to be ____ when the quantity demanded is very responsive to changes in price.

A) independent
B) inelastic
C) unit elastic
D) elastic

Question 30

The nation's largest cable TV company tested the effect of a price increase for premium sports channels.It increased prices from $7.95 to $9.95 and found that the number of customers decreased by more than 40%.This means:

A) the demand curve for the premium sports channels shifted to the right.
B) the supply curve for premium sports channels shifted to the left.
C) the demand for premium sports channels is elastic in this price range.
D) the demand for premium sports channels is inelastic in this price range.

Question 31

Shanequa and Mya have a business that provides personal fitness training services.They know that after raising their prices from $50 to $75 per hour,the quantity of hours they spent delivering training services only fell from 45 to 40 hours per week.The demand for their services is:

A) elastic, with a price elasticity coefficient greater than one.
B) elastic, with a price elasticity coefficient less than one.
C) inelastic, with a price elasticity coefficient greater than one.
D) inelastic, with a price elasticity coefficient less than one.

Question 32

A steel mill raises the price of steel by 7%,which results in a 20% reduction in the quantity of steel demanded.The demand curve facing this firm is:

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

Question 33

Total revenue represents the amount that:

A) sellers receive for a good or service which is computed as P / Q.
B) sellers receive for a good or service which is computed as P ´ Q.
C) one buyer spends on a good or service which is computed as P ´ Q.
D) one buyer spends on a good or service which is computed as P / Q.

Question 34

A steel mill raises the price of steel by 20%,which results in a 7% reduction in the quantity of steel demanded.The demand curve facing this firm is:

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

Question 35

When demand is elastic:

A) price elasticity of demand is greater than one.
B) consumers are relatively responsive to changes in price.
C) the percentage change in quantity demanded resulting from a price change is greater than the percentage change in price.
D) all of the above are correct.

Question 36

Exhibit 6-1 The elasticity in the vicinity of five different points along a demand curve varies as follows:
Refer to Exhibit 6-1.At which of these points would a price increase be accompanied by an increase in total revenue?

A) B and D
B) A and E
C) A, C, and E
D) A and D

Question 37

Fantastic Cuts Hair Salon knows that a 15% increase in the price of their haircuts will result in a 5% decrease in the number of haircuts sold.What is the elasticity of demand facing Fantastic Cuts?

A) 0.05
B) 0.10
C) 0.33
D) 3.0

Question 38

Demand is said to be ____ when the quantity demanded changes the same proportion as the price.

A) independent
B) inelastic
C) unit elastic
D) elastic

Question 39

If the demand curve is perfectly elastic,the elasticity coefficient is ____ and the curve is ____.

A) zero, vertical
B) infinity, horizontal
C) zero, horizontal
D) infinity, vertical

Question 40

Exhibit 6-1 The elasticity in the vicinity of five different points along a demand curve varies as follows:
Refer to Exhibit 6-1.In the vicinity of which of these points would a price decrease be accompanied by an increase in total revenue?

A) B and D
B) A and E
C) A and D
D) B, C, and D

Question 41

When demand and income move in the same direction,a good is said to be:

A) a normal good.
B) an inferior good.
C) a complementary good.
D) a substitute good.

Question 42

The price of stadium seats at a baseball game increases from $20 to $30 and ticket sales fall from 45,000 per game to 35,000 per game.If other things remained constant,then it appears that the price elasticity of demand is:

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

Question 43

If a small change in price will lead to an infinite change in the quantity demanded,then the demand curve is:

A) horizontal.
B) vertical.
C) inclined.
D) non-linear

Question 44

The price of a new electronic toy increases from $16 to $24 and the quantity demanded decreases from 1,050 to 950 per month as a result.Based on this information,the price elasticity of demand (in absolute terms)is estimated to be equal to:

A) 5.00
B) 4.00
C) 0.75
D) 0.25

Question 45

What type of demand curve is depicted by the graph below?

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

Question 46

A price cut will decrease the total revenue a firm receives if the demand for its product is:

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

Question 47

Exhibit 6-2 Refer to Exhibit 6-2.Elasticity varies along a linear demand curve.Graph A represents the section of the curve where:

A) the curve is inelastic.
B) E_d is < 1.
C) starting at P₂, a decrease in price will lead to a decrease in total revenue.
D) all of the above are correct.

Question 48

When a product's price increases from $800 to $1,200,the quantity demanded decreases from 11,000 to 9,000.Based on this information,the price elasticity of demand (in absolute terms)is estimated to be equal to:

A) 0.5.
B) 2.0.
C) 0.25.
D) 4.0.

Question 49

A recent study at a liberal arts college concluded that demand elasticity is 0.91 for college courses.The administration is considering a tuition increase to help balance the budget.An economist might advise the school to:

A) decrease tuition in order to increase revenue by boosting enrollment.
B) increase tuition in order to increase revenue.
C) leave tuition unchanged as a change in tuition is unlikely to enhance the school's budget by increasing revenue.
D) decrease tuition because demand for courses is elastic.

Question 50

The price elasticity of demand coefficient for gourmet coffee is estimated to be equal to 1.6.It is expected,therefore,that a 5% increase in price would lead to:

A) a 16% decrease in the quantity of gourmet coffee demanded.
B) a 16% increase in the quantity of gourmet coffee demanded.
C) an 8% decrease in the quantity of gourmet coffee demanded.
D) an 8% increase in the quantity of gourmet coffee demanded.

Question 51

Exhibit 6-2 Refer to Exhibit 6-2.Along a linear demand curve,price elasticity of demand is:

A) constant.
B) more elastic to the northwest than to the southeast.
C) less elastic to the northwest than to the southeast.
D) always equal to one.
E) always equal to zero.

Question 52

Exhibit 6-3 Refer to Exhibit 6-3.The graph that best illustrates a relatively inelastic (but not perfectly inelastic)demand curve is:

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

Question 53

A price cut will increase the total revenue a firm receives if the demand for its product is:

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

Question 54

The price of a new toy increases from $5 to $7 and the quantity demanded decreases from 12,000 to 6,000 per month as a result.Based on this information,the price elasticity of demand (in absolute terms)is estimated to be equal to:

A) 0.5, indicating relatively elastic demand.
B) 0.5, indicating relatively inelastic demand.
C) 2.0, indicating relatively elastic demand.
D) 2.0, indicating relatively inelastic demand.

Question 55

Which of the following is not a major determinant of the price elasticity of demand?

A) availability of close substitutes
B) proportion of income spent on the good
C) quantity of goods available
D) amount of time that has elapsed since the price change

Question 56

When a product's price increases from $9 to $11,the quantity demanded decreases from 1200 to 800.Based on this information,the price elasticity of demand (in absolute terms)is estimated to be equal to:

A) 0.5.
B) 2.0.
C) 0.25.
D) 4.0.

Question 57

Exhibit 6-2 Refer to Exhibit 6-2.Elasticity varies along a linear demand curve.Graph B represents the section of the curve where:

A) the curve is elastic.
B) E_d is > 1.
C) starting at P₁, an increase in price will lead to a decrease in total revenue.
D) all of the above are correct.

Question 58

The nation's largest cable TV company tested the effect of a price reduction for premium movie channels.It increased prices from $9.95 to $12 and found virtually no change in the number of customers.This means:

A) the demand curve for the premium movie channels shifted to the right.
B) the supply curve for premium movie channels shifted to the left.
C) the demand for premium movie channels is very elastic in this price range.
D) the demand for premium movie channels is very inelastic in this price range.

Question 59

Exhibit 6-3 Refer to Exhibit 6-3.The graph that best illustrates a perfectly elastic demand curve is

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

Question 60

Exhibit 6-3 Refer to Exhibit 6-3.The graph that best illustrates a perfectly inelastic demand curve is:

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

Question 61

Exhibit 6-4 Refer to Exhibit 6-4.With reference to Graph A,at a price of $10,total revenue equals:

A) $200.
B) $400.
C) $500.
D) $1,000.

Question 62

Which of the following is associated with elastic demand?

A) availability of many close substitutes
B) a greater amount of time for consumers to respond to a price change
C) a large percentage of income spent on the good in question
D) all of the above

Question 63

If an increase in price causes total expenditure on a product to decrease,then the price elasticity of demand is:

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

Question 64

A "war on drugs" is waged,and,as a result,a larger quantity of drugs flowing into the United States is seized and more drug traffickers are arrested.If demand for drugs is inelastic,one would expect the total expenditure on drugs to:

A) decrease.
B) increase.
C) stay constant.
D) There is not enough information available to make a determination.

Question 65

Evaluate the following statements:
I.The slope of the demand curve is always equal to the elasticity of demand.
II.Moving down along a downward-sloping,straight-line demand curve,the elasticity of demand falls.

A) (I) and (II) are both true.
B) (I) is true and (II) is false.
C) (I) is false and (II) is true.
D) (I) and (II) are both false.

Question 66

If the demand curve for a product is vertical,then the elasticity of demand is:

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

Question 67

Exhibit 6-4 Refer to Exhibit 6-4.Graph B represents a demand curve that is relatively ____.Total revenue ____ as the price decreases from $10 to $5.

A) inelastic; decreases
B) elastic; decreases
C) elastic; increases
D) inelastic; increases

Question 68

Exhibit 6-4 Refer to Exhibit 6-4.Graph A represents a demand curve that is relatively ____.Total revenue ____ as the price decreases from $10 to $5.

A) inelastic; decreases
B) elastic; decreases
C) elastic; increases
D) inelastic; increases

Question 69

If demand is unit elastic:

A) revenue and prices rise and fall together.
B) revenue rises as price falls.
C) revenue falls as price rises.
D) revenue remains constant as price rises or falls.

Question 70

A subsidy to wheat farmers reduces the price of a bushel of wheat from $2.50 to $2 per bushel.The equilibrium quantity of wheat sold prior to the subsidy was equal to 200,000 bushels.Predict the new equilibrium quantity of wheat after the imposition of the subsidy given that the demand for wheat is known to be unit elastic.

A) 100,000 bushels
B) 200,000 bushels
C) 250,000 bushels
D) 400,000 bushels

Question 71

The following schedule represents a portion of Kate's demand for sub sandwiches. Along this portion of Kate's demand curve for sub sandwiches,price elasticity of demand is:

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

Question 72

If most passenger trains operate far below full capacity and demand is ____,reducing travel fares would be likely to increase total revenue.

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

Question 73

Exhibit 6-4 Refer to Exhibit 6-4.With reference to Graph A,at a price of $5,total revenue equals:

A) $200.
B) $400.
C) $500.
D) $1,000.

Question 74

A jeweler cut prices in his store by 20% and the dollar value of his sales fell by 20%.This is indicative of:

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

Question 75

If the demand curve for a product is horizontal,then the elasticity of demand is:

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

Question 76

Which of the following is associated with relatively elastic demand?

A) Few substitutes; large portion of income; short time span
B) Many substitutes; large portion of income; long time span
C) Few substitutes; small portion of income; short time span
D) Many substitutes; small portion of income; long time span

Question 77

Exhibit 6-4 Refer to Exhibit 6-4.With reference to Graph B,at a price of $5,total revenue equals:

A) $200.
B) $300.
C) $250.
D) $150.

Question 78

The following schedule represents a portion of Tim's demand for video rentals each month. Along this portion of Tim's demand curve for video rentals,price elasticity of demand is:

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

Question 79

When the price of ulcer medication increased by $20 per 100 tablets,a drug company's revenue increased by $10 million.Its elasticity of demand coefficient (in absolute terms)must be:

A) zero.
B) greater than one.
C) less than one.
D) infinitely large.

Question 80

The Book Nook reduces prices by 20%.If the dollar value of The Book Nook's sales remain constant,it indicates that:

A) the quantity of books sold remains constant.
B) the demand curve is horizontal.
C) the demand curve is vertical.
D) the quantity of books sold increases by 20%.