Deck 4: Elasticity of Demand and Supply

Question 1

Block's sells 500 bottles of perfume a month when the price is $7.A huge increase in resource costs causes price to rise to $9 and Block's only manages to sell 460 bottles of perfume.The price elasticity of demand is:

A) 0.33 and elastic.
B) 3.0 and elastic.
C) 0.33 and inelastic.
D) 3.0 and inelastic.
The change in quantity is (500 - 460)/(500 + 460)= 0.0417 and the change in price is (7 - 9)/(7 + 9)= 0.125.Elasticity,then is 0.0417/0.125 = 0.33.

Answer 1

C

Question 2

If price declines from $450 to $350 and,as a result,quantity demanded rises from 1200 to 1500,price elasticity of demand is:

A) 1.78.
B) 0.89.
C) 1.12.
D) 3.42.
The change in quantity is (1500 - 1200)/(1500 + 1200)= 0.011 and the change in price is (350 - 450)/(350 + 450)= 0.125.Thus,elasticity is 0.89,which is inelastic.

Answer 2

B

Question 3

Refer to the above graphs.Which shows a perfectly elastic demand curve?

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

Answer 3

A

Question 4

The price elasticity of demand is a measure of the:

A) steepness or slope of a demand curve.
B) absolute changes in quantity demanded and price.
C) responsiveness of quantity demanded to a change in price.
D) sensitivity of the quantity demanded for one good to a change in the price of another good.

Question 5

If the price elasticity of demand for a product is equal to 0.5,then a 10 percent decrease in price will:

A) increase quantity demanded by 5 percent.
B) increase quantity demanded by 0.5 percent.
C) decrease quantity demanded by 5 percent.
D) decrease quantity demanded by 0.5 percent.
The numerator in the elasticity equation is increased by 5 percent and the denominator has decreased 10 percent,so the elasticity coefficient is (5/10)= 0.5.

Question 6

Refer to the figure above.Which demand curve above is perfectly inelastic?

A) D₂
B) D₃
C) D₄
D) D₅

Question 7

If an increase in the supply of a product results in a decrease in the price,but no change in the actual quantity of the product exchanged,then the:

A) price elasticity of supply is zero.
B) price elasticity of supply is infinite.
C) price elasticity of demand is unitary.
D) price elasticity of demand is zero.

Question 8

Refer to the above data.Over which price range is the price elasticity of demand inelastic?

A) $20-$18
B) $18-$16
C) $12-$10
D) $10-$8

Question 9

If a 5 percent fall in the price of a product causes the quantity demanded of the product to increase by 10 percent,the demand is:

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

Question 10

A straight-line downward-sloping demand curve has a price elasticity of demand that:

A) decreases as price decreases.
B) increases as price decreases.
C) is zero at all prices.
D) is unitary at all prices.

Question 11

If the price elasticity of demand for a good is .75,the demand for the good can be described as:

A) normal.
B) elastic.
C) inferior.
D) inelastic.

Question 12

Refer to the above data.Over which price range is the price elasticity of demand elastic?

A) $4-$6
B) $6-$8
C) $10-$12
D) $12-$14
Price elasticity is always highest the farther up the demand curve one goes under a straight-line,downsloping demand curve.

Question 13

Consider the above parallel demand curves.Which curve is relatively more elastic at P₁?

A) AA.
B) BB.
C) Cannot be determined.
D) Both have the same slope;therefore,both have the same elasticity.

Question 14

Suppose you are given the following data on demand for a product.The price elasticity of demand when price decreases from $9 to $7 is:

A) 0.63.
B) 1.16.
C) 1.60.
D) 2.27.
The change in quantity is (60 - 40)/(60 + 40)= 0.20,and the change in price is (7 - 9)/(7 + 9)= 0.125.Thus,elasticity is 1.60 and the product is elastic.

Question 15

Refer to the above data.Over which price range is the price elasticity of demand unitary?

A) $16-$14
B) $14-$12
C) $12-$10
D) $10-$8
Over the price range $12-$10,the change in quantity is (36 - 30)/(36 + 30)= 0.091 and the change in price is (12 - 10)/(12 + 10)= 0.091.Thus,price elasticity is 0.091/0.091 = 1.0.

Question 16

Refer to the above data.What is the price elasticity of demand over the range of $8 to $10?

A) 0.11
B) 0.47
C) 1.93
D) 1.43
Over this range the change in quantity is (40 - 36)/(40 + 36)= 0.053,and the change in price is (10 - 8)/(10 + 8)= 0.111.Thus,elasticity is 0.47.

Question 17

Refer to the figure above.Which demand curve above is relatively more elastic between P₁ and P₂?

A) D₁
B) D₂
C) D₃
D) D₄

Question 18

When the price of a product is increased 10 percent,the quantity demanded decreases 15 percent.In this range of prices,demand for this product is:

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

Question 19

Refer to the above graphs.A price increase from $20 to $40 causes quantity demanded to decrease from 100 units to 50 units.Which graph best illustrates the price elasticity of demand for this good?

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

Question 20

Assume the price of a product rises from $2 to $3 and the quantity demanded of the product decreases from 600 to 400.The price elasticity of demand coefficient,using the midpoint formula,is:

A) 0.40.
B) 1.00.
C) 1.60.
D) 2.10.
The change in quantity is (400 - 600)/(400 + 600)= 0.20 and the change in price is (3 - 2)/(3 + 2)= 0.20.Thus,price elasticity is 0.20/0.20 = 1.0.

Question 21

Assuming pizza and hamburgers are substitutes,when the price of pizza increases,what must always happen?

A) Total revenue received by pizza sellers increases.
B) Total revenue received by pizza sellers decreases.
C) Total revenue received by hamburger sellers increases.
D) Total revenue received by hamburger sellers decreases.

Question 22

A product priced at $5 has annual sales of 1,000 units.When price is reduced to $4,quantity increases to 1,250 units.Other things unchanged,the price elasticity of demand for the product is:

A) unitary.
B) elastic.
C) inelastic.
D) zero.
The change in quantity is (1250 - 1000)/(1250 + 1000)= 0.111 and the change in price is (4 - 5)/(4 + 5)= 0.111.Thus,elasticity is 0.111/0.111 = 1.0,which is unit elastic.

Question 23

In which instances will total revenues decline?

A) Price rises and E_d equals 0.41.
B) Price rises and demand is of unit elasticity.
C) Price falls and demand is elastic.
D) Price rises and E_d equals 2.47.

Question 24

When the demand for a good is price-elastic at a given output level:

A) total revenue is negative.
B) total revenue for the good will increase if its price decreases.
C) an increase in price will lead to an increase in total revenue for firms selling the good.
D) a large change in price will result in a relatively small change in the quantity demanded.

Question 25

Demand can be said to be inelastic when:

A) an increase in price results in a reduction in total revenue.
B) a reduction in price results in an increase in total revenue.
C) a reduction in price results in a decrease in total revenue.
D) the elasticity coefficient exceeds one.

Question 26

A 4 percent reduction in the price of a product causes consumer expenditure to remain the same.The price elasticity of demand is:

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

Question 27

Refer to the figure above.Over the $5-$6 range,demand is:

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

Question 28

Consider the demand curve above.If area 0ABC is smaller than area 0DEF,we may conclude that demand in this range is:

A) price-inelastic.
B) income-inelastic.
C) price-elastic.
D) income-elastic.

Question 29

Refer to the above data.What is the elasticity of demand between the prices of $3 and $2?

A) 0.22
B) 0.40
C) 0.56
D) 1.22
The change in quantity is (400 - 500)/(400 + 500)= 0.111 and the change in price is (2 - 3)/(2 + 3)= 0.20.Thus,elasticity is 0.56.

Question 30

Refer to the figure above.Over the $5-$6 range,the elasticity of demand using the midpoint formula is:

A) 0.22.
B) 0.88.
C) 1.00.
D) 1.16.
The change in quantity is (60 - 50)/(60 + 50)= 0.091 and the change in price is (5 - 6)/(5 + 6)= 0.091.Thus,elasticity is 0.091/0.091 = 1.0.

Question 31

The elasticity coefficients of demand are 2.6,0.5,1.4,and 0.18 for demand schedules D₁,D₂,D₃,and D₄.A 2 percent price increase will result in an increase in total revenues in the cases of:

A) D₁ and D₃.
B) D₁ and D₄.
C) D₂ and D₄.
D) D₁,D₂,and D₃.

Question 32

Elastic demand displays considerable:

A) price stretch.
B) income stretch.
C) quantity stretch.
D) cross-price stretch.

Question 33

An increase in the price of a good will cause total revenue to fall if price elasticity of demand is:

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

Question 34

Refer to the above graph.At total revenue of $8,000,the price elasticity of demand is:

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

Question 35

Which would be the best item to use for an analogy to describe elastic demand?

A) A roller coaster
B) An Ace bandage for a knee injury
C) Rubber tie-downs to hold items in the back of a truck
D) The production of aluminum in an aluminum plant

Question 36

Refer to the above data.What is the elasticity of demand between the prices of $4 and $3?

A) 0.2
B) 0.5
C) 1
D) 2
The change in quantity is (400 - 300)/(400 + 300)= 0.143 and the change in price is (3 - 4)/(3 + 4)= 0.143.Thus,elasticity is 0.143/0.143 = 1.0.

Question 37

Indy has a price elasticity of demand for beer of 1.00.Suppose the price of each beer is increased by 10 percent.What will happen to the total amount Indy spends on beer?

A) It will not change.
B) It will decrease 10 percent.
C) It will increase 10 percent.
D) It is impossible to tell.

Question 38

Inelastic demand displays:

A) little price stretch.
B) little quantity stretch.
C) considerable price stretch.
D) considerable quantity stretch.

Question 39

Along a linear downward-sloping demand curve,the price elasticity of demand will be:

A) greater than one across each price range.
B) less than one across each price range.
C) equal to zero across each price range.
D) different across each price range.

Question 40

Refer to the above graph.When the quantity of product X increases from 14,000 to 16,000,the price elasticity of demand for product X is:

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

Question 41

The price elasticity of demand increases with the length of the period to which the demand curve pertains because:

A) consumers' incomes will increase.
B) the demand curve will shift outward.
C) all prices will increase over time.
D) consumers will be better able to find substitutes.

Question 42

What is the most likely effect of the development of television,videocassette players,and rental movies on the movie theater industry?

A) Decreased costs of producing movies
B) Increased demand for movie theater tickets
C) Movie theater tickets become an inferior good
D) Increased price elasticity of demand for movie theater tickets

Question 43

If a business decreased the price of its product from $10 to $9 when demand was price inelastic,then total revenues would:

A) decrease.
B) increase.
C) remain unchanged.
D) be perfectly inelastic.

Question 44

Refer to the graph above and assume that the areas of the boxes are the same.Consider a situation where price increases from P₃ to P₄.In this price range,demand is relatively:

A) inelastic because the loss in total revenue (areas E + F + G)is greater than the gain in total revenue (area A).
B) elastic because the loss in total revenue (areas E + F + G)is greater than the gain in total revenue (area A).
C) elastic because the loss in total revenue (area A)is greater than the gain in total revenue (areas E + F + G).
D) inelastic because the loss in total revenue (area A)is greater than the gain in total revenue (areas E + F + G).

Question 45

If in the short run the demand for mass transit is inelastic and in the long run the demand is elastic,then a price:

A) increase will decrease total revenue in the short run but increase total revenue in the long run.
B) increase will increase total revenue in the short run but decrease total revenue in the long run.
C) decrease will increase total revenue in the short run but decrease total revenue in the long run.
D) decrease will decrease total revenue in the short run and decrease total revenue in the long run.

Question 46

If the price of shoes falls from $10 to $8 and the amount sold increases by 12 percent,it can be concluded that:

A) the demand for shoes is perfectly inelastic.
B) the demand for shoes is inelastic.
C) the demand for shoes is elastic.
D) shoes are complementary goods.

Question 47

Refer to the graph above.If the price of the product decreases from $6 to $5 because of a decrease in demand (not shown),total revenue would:

A) increase by $300.
B) increase by $100.
C) decrease.
D) stay the same.

Question 48

You are the sales manager for a software company and have been informed that the price elasticity of demand for your most popular software is less than 1.To increase total revenues,you should:

A) increase the price of the software.
B) decrease the price of the software.
C) hold the price of the software constant.
D) increase the supply of the software.

Question 49

Refer to the table above.Starting at a $1 price,at what price range does demand become elastic?

A) $1-2
B) $2-3
C) $3-4
D) $4-5
At $3-4,the change in quantity is (20 - 30)/(20 + 30)= 0.20 and the change in price is (3 - 4)/(3 + 4)= 0.143.Thus,elasticity is 1.40,which is elastic.

Question 50

As price increases along a downsloping linear demand curve:

A) price elasticity of demand increases.
B) price elasticity of demand decreases.
C) price elasticity of demand does not change.
D) the behavior of price elasticity of demand cannot be determined.

Question 51

Refer to the graph above.If the price of the product increases from $5 to $6 because of a decrease in supply that is shown by curve S,total revenue would:

A) increase by $300.
B) increase by $100.
C) decrease.
D) stay the same.

Question 52

Refer to the table above.What is the price with the maximum total revenue?

A) $2
B) $3
C) $4
D) $5
Total Revenue = P*Q and this is maximized at $3 when TR = $3*30 = $90.

Question 53

Refer to the graph above and assume that the areas of the boxes are the same.Consider a situation where price decreases from P₂ to P₁.In this price range,demand is relatively:

A) inelastic because the loss in total revenue (areas D + G + I + J)is greater than the gain in total revenue (areas C + F + H).
B) elastic because the loss in total revenue (areas C + F + H)is greater than the gain in total revenue (area J).
C) elastic because the loss in total revenue (area J)is less than the gain in total revenue (areas C + F + H).
D) inelastic because the gain in total revenue (area J)is less than the loss in total revenue (areas C + F + H).

Question 54

Refer to the table above.Starting at a $5 price,at what price range does demand become inelastic?

A) $1-2
B) $2-3
C) $3-4
D) $4-5
At $2-3,the change is (30 - 40)/(30 + 40)= 0.143 and the percent in price is (3 - 2)/(3 + 2)= 0.20.Thus,elasticity is 0.143/0.20 = 0.714,which is inelastic.

Question 55

Which is not characteristic of a product with relatively inelastic demand?

A) The good is regarded by consumers as a necessity.
B) There are a large number of good substitutes for the good.
C) Buyers spend a small percentage of their total income on the product.
D) Consumers have had only a short time period to adjust to changes in price.

Question 56

Which will cause a demand curve to be relatively elastic?

A) Few substitutes exist.
B) The time interval considered is long.
C) The good is considered a necessity.
D) Purchases of the good require a small portion of consumers' budgets.

Question 57

A firm produces and sells two goods,A and B.Good A is known to have many close substitutes;good B makes up a significant portion of most families' budgets.A price increase for each good would most likely cause total revenues for good A to:

A) increase,and total revenues for good B to decrease.
B) increase,and total revenues for good B to increase.
C) decrease,and total revenues for good B to increase.
D) decrease,and total revenues for good B to decrease.

Question 58

Refer to the graph above.If the price increases from P₁ to P₂,then the gain in total revenue is areas:

A) B + E and the loss in total revenue is areas H + I + J.
B) C + F + H and the loss in total revenue is area J.
C) E + F + G and the loss in total revenue is area J.
D) A + B + C and the loss in total revenue is areas G + I + J.

Question 59

A study of mass transit systems in American cities revealed that long-run revenues generally decline after substantial fare increases.This suggests that:

A) the demand for mass transit is price-elastic in the long run.
B) the demand for mass transit is price-inelastic in the long run.
C) mass transit service deteriorates in the long run as price rises.
D) there are few good substitutes for such systems in urban areas.

Question 60

In some markets consumers may buy many different brands of a product.Which of the statements below best represents a situation where demand for a particular brand would be very elastic?

A) "The different brands are almost identical so I always buy the cheapest."
B) "I use so little of that product that when I do buy it,I don't pay much attention to the price."
C) "The brand I buy is so superior to other available brands that I hardly consider the others."
D) "I pinch pennies in buying other products,but like most people I feel I owe it to myself to get the best brand of this product."

Question 61

Suppose the price elasticity of supply for crude oil is 2.5.How much would price have to rise to increase production by 20 percent?

A) 8 percent
B) 12.5 percent
C) 20 percent
D) 45 percent

Question 62

Which is not a determinant of the price elasticity of demand for most products?

A) The slope of the demand curve for a product
B) The number of good substitutes available for the product
C) The proportion of most consumers' budget spent on the product
D) The amount of time consumers have to adjust their purchases of a product to a change in its price

Question 63

The following data relate to the supply schedule of a product. Over which price range is the elasticity of supply greater than 1?

A) $10 to $15
B) $15 to $20
C) $20 to $25
D) $25 to $30
Over the price range $25 to $30,the change in quantity is (350 - 500)/(300 + 500)= 0.188 and the change in price is (25 - 30)/(25 + 30)= 0.091.Thus,elasticity is 0.188/0.091 = 2.07,which is greater than1.

Question 64

Economists distinguish between the short run and the long run by noting that:

A) no inputs can be varied in the long run.
B) some inputs cannot be varied in the short run.
C) input prices are subject to fluctuations in the short run.
D) output prices are subject to fluctuations in the long run.

Question 65

Which products are most likely to be most price elastic?

A) Sugar and eggs
B) Clothing and auto repair
C) China and glassware
D) Electricity and housing

Question 66

To economists,the main differences between "the short run" and "the long run" are that:

A) the law of diminishing returns applies in the long run,but not in the short run.
B) in the short run all resources are fixed,while in the long run all resources are variable.
C) in the long run all resources are variable,while in the short run at least one resource is fixed.
D) fixed costs are less important to decision making in the long run than they are in the short run.

Question 67

If a product has a short-run elasticity of supply equal to zero,then an increase in the demand for the product will:

A) have no effect on price or quantity sold.
B) increase price and leave quantity sold unchanged.
C) increase price and reduce the quantity sold to zero.
D) leave the price unchanged and reduce the quantity sold.

Question 68

Refer to the graph above.If demand increased:

A) price and quantity would increase.
B) price and quantity would decrease.
C) price would stay the same and quantity would decrease.
D) price would stay the same and quantity would increase.

Question 69

Refer to the graph above.Which statement is correct?

A) The demand curve is perfectly elastic.
B) The demand curve is perfectly inelastic.
C) The supply curve is perfectly elastic.
D) The supply curve is perfectly inelastic.

Question 70

Refer to the figure above.The elasticity of supply for a product will be 2 when:

A) a 1 percent decrease in the price causes a 0.2 percent decrease in quantity supplied.
B) a 2 percent decrease in price causes a 1 percent decrease in quantity supplied.
C) a 1 percent decrease in price causes a 2 percent decrease in quantity supplied.
D) a 2 percent decrease in price causes a 2 percent decrease in quantity supplied.

Question 71

Refer to the graph above.Over the $5-$6 range,the elasticity of supply using the midpoints formula is:

A) 0.22.
B) 0.88.
C) 1.00.
D) 1.22.
The change in quantity is (50 - 40)/(50 + 40)= 0.111 and the change in price is (6 - 5)/(6 + 5)= 0.091.Thus elasticity is 0.111/0.091 = 1.22.

Question 72

Refer to the graphs above.For which graph is the supply perfectly inelastic?

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

Question 73

Which product is most likely to be most price elastic?

A) Milk
B) Gasoline
C) Clothing
D) Automobiles

Question 74

Refer to the figure above.What is the price elasticity of supply between points A and B above?

A) -1
B) 1/3
C) 1
D) 2
The change in quantity is (12 - 6)/(12 + 6)= 0.33 and the change in price is (4 - 2)/(4 + 2)= 0.33.Thus,the elasticity is 0.33/0.33 = 1.0.

Question 75

Elasticity of supply will increase when:

A) the number of producers selling a product decreases.
B) producers are given less time to respond to price changes.
C) the number of consumers wanting to purchase a product increases.
D) it becomes easier to substitute one factor of production for another in a manufacturing process.

Question 76

At a price of $20 per unit,140 units of goods are demanded and 100 units are supplied.When the price is raised to $30 per unit,100 units are demanded and 140 units are supplied.The price elasticity of supply in this range is:

A) 1.0.
B) 0.834.
C) 0.417.
D) 1.20.
The change in quantity is (140 - 100)/(140 + 100)= 0.167 and the change in price is (30 - 20)/(30 + 20)= 0.20.Thus,elasticity is 0.167/0.20 = 0.835.

Question 77

Refer to the graph above.Over the $5-$6 range,supply is:

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

Question 78

The supply curve for cars will be more elastic the:

A) greater the quantity demanded.
B) longer the time interval considered.
C) greater the decline in input prices.
D) less able producers are to make other goods.

Question 79

Refer to the graph above.If demand decreased:

A) quantity would stay the same and price would increase.
B) quantity would stay the same and price would decrease.
C) price would stay the same and quantity would decrease.
D) price would stay the same and quantity would increase.

Question 80

At a price of $4 per unit,Gadgets Inc.is willing to supply 20,000 gadgets,while United Gadgets is willing to supply 10,000 gadgets.If the price were to rise to $8 per unit,their respective quantities supplied would rise to 45,000 and 25,000.If these are the only two firms supplying gadgets,what is the elasticity of supply in the market for gadgets?

A) 1.2
B) 1.0
C) 0.833
D) 0.80
The change in quantity supplied is (70,000 - 30,000)/(70,000 + 30,000)= 0.40 and the change in price is (8 - 4)/(8 + 4)= 0.333.Thus,elasticity is 0.40/.0333 = 1.2.