Deck 4: Elasticity: Demand and Supply

Question 1

The less responsive consumers are to a change in the price of a product:

A)the more price-elastic is the supply curve.
B)the more income-elastic is the demand curve.
C)the more price-inelastic is the demand curve.
D)the more income-elastic is the supply curve.
E)the more price-elastic is the demand curve.

Answer 1

the more price-inelastic is the demand curve.

Question 2

What would be the consequences of a 10 percent decrease in the price of a good for which price elasticity of demand is 5?

A)A 50 percent decrease in quantity demanded
B)A 5 percent increase in quantity demanded
C)A 50 percent increase in quantity demanded
D)A decrease in quantity demanded by 0.2
E)An increase in quantity demanded by 0.2

Answer 2

A 50 percent increase in quantity demanded

Question 3

If demand is perfectly inelastic, then:

A)the elasticity of demand is 1.
B)the elasticity of demand is -1.
C)the demand curve will be nonexistent.
D)the demand curve will be a horizontal line.
E)quantity demanded does not change when price changes.

Answer 3

quantity demanded does not change when price changes.

Question 4

If the percentage change in quantity demanded of a good is greater than the percentage change in price that caused it, then demand for the good is _____.

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

Question 5

Suppose 50 loaves of bread are demanded at a particular price.If that price rises by 2 percent, the quantity demanded decreases to 49.5 loaves of bread.This implies:

A)demand is elastic.
B)demand is unit-elastic.
C)the price elasticity of demand is equal to 2.
D)demand is inelastic.
E)consumers are very responsive to a price change.

Question 6

If a price increase from $20 to $40 causes quantity demanded to decrease from 100 units to 50 units, one can conclude that demand for the product is _____.

A)inelastic
B)elastic
C)perfectly inelastic
D)infinitely elastic
E)unit-elastic

Question 7

Which of the following is an example of inelastic demand?

A)A 10 percent increase in the price of milk leads to a 20 percent decrease in the quantity demanded of milk.
B)A 10 percent increase in the price of milk leads to a 10 percent decrease in the quantity demanded of milk.
C)A 10 percent increase in the price of milk leads to a 5 percent decrease in the quantity demanded of milk.
D)A 10 percent increase in the price of milk leads to no change in the quantity demanded of milk.
E)A 10 percent increase in the price of milk leads to a 5 percent increase in the quantity demanded of milk.

Question 8

Assume that the demand curve for a certain good is a vertical line.This vertical demand curve illustrates the idea that:

A)consumers are unwilling to pay more than a certain price for the good.
B)the good is a complement to another good.
C)consumers are unwilling to pay less than a certain price for the good.
D)there are many substitutes for this good.
E)people will not change the quantity of the good when the price of the good is changed.

Question 9

Which of the following is explained by the price elasticity of demand?

A)The effect of price changes on supply.
B)The effect of quantity changes on supply.
C)The effect of quantity changes on price.
D)The effect of price changes on quantity demanded.
E)The effect of price changes on quantity supplied.

Question 10

If a product has an elastic demand, this means that:

A)consumers are relatively sensitive to a change in the price of the product.
B)consumers are relatively insensitive to a change in the quantity demanded.
C)consumers are relatively insensitive to a change in the price of the product.
D)producers are relatively insensitive to a change in the price of the product.
E)producers are relatively sensitive to a change in the quantity demanded.

Question 11

If the price elasticity of demand is equal to 4, a 1 percent increase in price will cause the quantity demanded to _____ by _____ percent.

A)increase;0.25
B)decrease;0.25
C)increase;4
D)decrease;25
E)decrease;4

Question 12

If a 50 percent increase in the price of pizza results in a 25 percent decrease in the quantity demanded of pizza, then the elasticity of demand for pizza:

A)is equal to 0.5 and demand is inelastic.
B)is equal to 0.5 and demand is elastic.
C)is equal to 2 and is elastic.
D)is equal to 2 and is inelastic.
E)cannot be determined from the information provided.

Question 13

When the elasticity of demand for a particular good is less than 1:

A)demand is elastic.
B)demand is inelastic.
C)the elasticity of demand is unit-elastic.
D)the good is a substitute.
E)the good is a normal good.

Question 14

Assume that the price elasticity of demand for a commodity is 0.20.A 10 percent increase in price will be followed by a:

A)20 percent increase in the quantity demanded.
B)2 percent decrease in the quantity demanded.
C)20 percent decrease in the quantity demanded.
D)0.2 percent decrease in the quantity demanded.
E)2 percent increase in the quantity demanded.

Question 15

Price elasticity of demand is a measure of the:

A)extent of competition in the market.
B)change in the purchase of a product relative to a change in income.
C)change in the quantity demanded due to factors other than price.
D)degree of consumer responsiveness to changes in price.
E)percentage change in the prices of two related products.

Question 16

If demand is unit-elastic, a 25 percent increase in price will result in:

A)a 25 percent change in total revenue.
B)no change in quantity demanded.
C)a 1 percent decrease in quantity demanded.
D)a 25 percent decrease in quantity demanded.
E)a 100 percent change in quantity demanded.

Question 17

When the manager of a local movie theater raises the price of movie tickets from $7.50 to $8.50 total revenue falls.This means that:

A)the demand for movie tickets is highly elastic.
B)the supply of movie ticket is perfectly elastic.
C)the supply of movie tickets is elastic.
D)the demand for movie tickets is inelastic.
E)the supply of movie tickets is inelastic.

Question 18

If a 10 percent increase in the price of gasoline results in a 2 percent decrease in the quantity demanded of gasoline, then the elasticity of demand for gasoline is:

A)equal to 0.2 and demand is inelastic.
B)equal to 0.2 and demand is elastic.
C)equal to 0.02 and demand is elastic.
D)equal to 0.5 and demand is inelastic.
E)equal to 0.5 and the demand is elastic.

Question 19

Which of the following is true of price elasticity of demand?

A)It measures the responsiveness of quantity demanded or quantity supplied to a change in one of the determinants of demand and/or supply.
B)It is calculated as the percentage change in the quantity demanded of a product divided by the percentage change in the price of that product.
C)It is calculated as the percentage change in the demand for a good divided by the percentage change in income, everything else held constant.
D)It measures the responsiveness of demand to a change in the quantity supplied.
E)It is calculated as the percentage change in the quantity demanded for one good divided by the percentage change in the price of a related good, everything else held constant.

Question 20

If a 1 percent change in the price of a good causes a 1 percent change in the quantity demanded of that good, then demand is said t be:

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

Question 21

_____ measures the percentage change in quantity demanded caused by a given percentage change in the price of a related good.

A)Income elasticity of demand
B)Cross-price elasticity of demand
C)Advertising elasticity of demand
D)Price elasticity of demand
E)Point elasticity

Question 22

When the cross-price elasticity of demand is a large positive number, one can correctly conclude that:

A)the goods are normal goods.
B)the goods are inferior goods.
C)the goods are substitutes.
D)the goods are complements.
E)total revenue will increase when the price increases.

Question 23

Which of the following would most likely be highly price-elastic?

A)The demand for milk by a household
B)The demand for insulin by a diabetes patient
C)The demand for water
D)The demand for new houses
E)The demand for coal over a period of one month

Question 24

If = 1.50, and price decreases by 20 percent, then:

A)quantity demanded will decrease by 30 percent.
B)quantity demanded will increase by 30 percent.
C)total revenue will remain unchanged.
D)total revenue will decrease.
E)quantity demanded will increase by 3 percent.

Question 25

Which of the following is true with respect to the price elasticity of demand?

A)The coefficient of price elasticity of demand will change with changes in the units of measurement (for instance, going from pounds to ounces).
B)Elasticity of demand will be equal to the slope of the demand curve.
C)Elasticity measures the sensitivity of total expenditure to a change in price.
D)Elasticity will tend to be greater for a relatively expensive product than for a cheaper one.
E)A coefficient of 1 means that the percentage change in total expenditure is equivalent to the percentage change in price.

Question 26

Consider a medical breakthrough that led to the discovery of a simple microchip which when inserted inside the human ear could prevent certain chronic diseases.The price elasticity of demand for that microchip would most likely be _____.

A)very elastic
B)very inelastic
C)infinite
D)negative only for high prices
E)positive only for high prices

Question 27

Price elasticity of demand is more likely to be greater than one if:

A)consumers have a long time to adjust to a price change.
B)the product is a necessity.
C)demand is inelastic.
D)there are few close substitutes for the product.
E)total revenue declines in response to a price reduction.

Question 28

Assume that due to unfavorable conditions in a prime honey-producing area, the price of honey increases by 50 percent.The quantity consumed of herbal tea declines immediately by 25 percent.Everything else held constant, the:

A)cross-price elasticity of demand for herbal tea and honey is negative, and therefore the two goods are substitutes.
B)cross-price elasticity of demand for herbal tea and honey is negative, and therefore the two goods are complements.
C)cross-price elasticity of demand for herbal tea and honey is positive, and therefore the two goods are substitutes.
D)cross-price elasticity of demand for herbal tea and honey is positive, and therefore the two goods are complements.
E)cross-price elasticity of demand cannot be determined from the information provided.

Question 29

If the demand for cream cheese produced by a dairy is perfectly elastic, then what will be the shape of the demand curve faced by the dairy?

A)The demand curve will be vertical
B)The demand curve will be horizontal
C)The demand curve will be upward sloping
D)The demand curve will be downward sloping
E)The demand curve will be concave

Question 30

Since an expensive sports car constitutes a greater portion of the consumer's budget than does laundry soap, the elasticity of demand for an expensive sports car is _____.

A)relatively less elastic
B)a vertical line
C)a downward sloping straight line
D)relatively more elastic
E)not subject to elasticity because of the income level of the consumers who purchase expensive sports cars

Question 31

Which of the following is a determinant of price elasticity of demand?

A)Availability of substitute goods
B)Excess capacity
C)Scale of production
D)Inventories
E)Cost of production

Question 32

If the demand for corn is elastic, then:

A)there are not many substitutes in the consumption of corn.
B)the price elasticity of demand for corn is greater than 1.
C)a decrease in price will reduce total revenue for corn producers.
D)a decrease in price will increase total revenue for corn producers.
E)consumers will continue buying the same quantity even if price increases.

Question 33

Demand becomes more elastic as:

A)the number of substitutes available declines.
B)the time period becomes shorter.
C)a good makes up a larger percentage of a consumer's budget.
D)a product is defined more broadly.
E)the producer has more time to respond to price changes.

Question 34

If a product has an inelastic demand, then:

A)there is probably a long time period under consideration.
B)as price increases, total revenue to producers decreases.
C)an increase in the price will decrease total consumer expenditures.
D)there are probably many complements for the good.
E)there are probably few substitutes for the good.

Question 35

In the opinion of many consumers, there are few, if any, substitutes for the popular search engine Google.If Google were to charge consumers for its services, it would face:

A)a relatively inelastic demand curve.
B)a relatively elastic demand curve.
C)a negative income elasticity of demand.
D)a positive cross elasticity of demand.
E)a perfectly elastic demand curve.

Question 36

An economic survey observed that, a 20 percent cut in the price of a certain line of women's clothing, almost doubled the quantity demanded of the clothing.This led economists to conclude that the demand for this line of clothing is _____.

A)very elastic
B)very inelastic
C)vertical
D)horizontal
E)inferior

Question 37

A horizontal demand curve shows that demand for the good is _____.

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

Question 38

If a 15 percent reduction in the price of electricity per kilowatt hour has no impact on the total electricity consumption, we can infer that in the short run, the demand for electricity is _____.

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

Question 39

A 0.5% increase in the price of a particular product causes the quantity demanded of the product to drop to zero.This means that the price elasticity of demand for the product is:

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

Question 40

When product A is a good substitute for product B, the cross-price elasticity of demand for products A and B will be _____.

A)unity
B)negative
C)positive
D)decreasing
E)increasing

Question 41

For a given product, income elasticity of demand relates the percentage change in:

A)quantity demanded to the percentage change in income.
B)quantity demanded to the absolute change in income.
C)income to the percentage change in price.
D)price to the absolute change in quantity demanded.
E)income to the percentage change in quantity available for sale.

Question 42

Goods whose income elasticity of demand is greater than zero are _____.

A)inferior goods
B)normal goods
C)luxury goods
D)superior goods
E)public goods

Question 43

An inferior good or service is any good or service for which:

A)an increase in price causes an increase in the quantity demanded.
B)a decrease in price causes an increase in demand.
C)an increase in price causes a decrease in the quantity demanded.
D)an increase in the amount consumed causes a decrease in marginal utility.
E)an increase in income causes a decrease in demand.

Question 44

As the price of movie tickets increases, which of the following is most likely to take place?

A)The quantity demanded for DVDs will increase
B)The quantity of books demanded will decrease
C)The number of Broadway tickets purchased will decrease
D)The prices of popcorn and soda will increase
E)The number of movies being produced will increase

Question 45

Since they are often used together, peanut butter and jelly are:

A)substitutes and have a positive cross-price elasticity.
B)complements and have a positive cross-price elasticity.
C)substitutes and have a negative cross-price elasticity.
D)complements and have a negative cross-price elasticity.
E)inferior goods when the demand or goods is positive.

Question 46

Ceteris paribus, a 10 percent increase in income results in a 50 percent decline in the quantity of potatoes purchased.This implies potatoes can be categorized as _____.

A)complements
B)substitutes
C)inferior goods
D)normal goods
E)luxurious goods

Question 47

Income elasticity of demand is expected to be _____.

A)relatively high for necessities
B)positive for most products
C)relatively low for luxuries
D)negative for most products
E)zero for most products

Question 48

When the price of hot dogs at the supermarket increases, the quantity demanded of hot dog buns declines.This situation describes:

A)the income elasticity of demand for hot dogs.
B)the income elasticity of demand for hot dog buns.
C)the price elasticity of supply for hot dogs.
D)the cross-price elasticity of demand for hot dogs and hot dog buns.
E)the cross-price elasticity of supply for hot dogs and hot dog buns.

Question 49

Last year, Alice bought 40 CDs when her income was $20, 000.This year, her income increased to $25, 000, and she purchased 48 CDs.We can conclude that:

A)Alice's price elasticity of demand for CDs is equal to 1.
B)Alice's demand for CDs is price-inelastic.
C)Alice's demand for CDs is price-elastic.
D)the income elasticity of demand for CDs is negative.
E)CDs are a normal good.

Question 50

The income elasticity of demand _____.

A)must be negative because of the law of diminishing marginal utility
B)could be positive or negative or zero, depending on the nature of the good
C)must be positive because consumers tend to buy more at higher incomes
D)is usually zero because "you can only have so much"
E)can never be zero

Question 51

As income levels rose moderately last year in the San Jose area, it was observed by local realtors that housing sales increased substantially.It is clear from this information that, everything else held constant, the income elasticity of demand for houses is _____.

A)negative and relatively low
B)negative and relatively high
C)positive and relatively low
D)positive and relatively high
E)neither positive nor negative

Question 52

Which of the following items is likely to have the highest positive income elasticity of demand?

A)Bread
B)Jewelry
C)Soap
D)A plumber's service
E)Table salt

Question 53

Suppose the manager of a store wants to know whether the product of the store across the street is a substitute for her product.In other words, she would need to know if the cross-price elasticity of demand for the products _____.

A)is positive
B)is negative
C)is unity
D)is zero
E)is infinite

Question 54

If the demand for product R increases as the price of product S increases, then _____.

A)consumer preferences for S have increased
B)R and S are not related goods
C)R and S are substitutes
D)R and S are complements
E)R is an inferior good

Question 55

The table below shows the quantities of automobiles, margarine, and coffee purchased by Ted at different levels of income. Table 5.2
Refer to Table 5.2.What is the income elasticity of demand for automobiles?

A)0.5
B)0.35
C)2
D)0.2
E)Zero

Question 56

The table given below reports the price and quantity demanded of a commodity. Table 5.1
According to Table 5.1, when the price increases from $5 to $6, the price elasticity of demand is _____.

A)0.25
B)1.0
C)1.3
D)1.8
E)1.67

Question 57

When income elasticity of demand is a negative number, one can correctly conclude that:

A)the good is a normal good.
B)the good is an inferior good.
C)the good is a substitute.
D)the good is a complement.
E)total revenue will decrease when the price increases.

Question 58

If the demand for beans tends to decline as incomes rise, everything else held constant, beans are _____.

A)a luxury good
B)a normal good
C)price sensitive
D)not price sensitive
E)an inferior good

Question 59

Price elasticity of demand measured over a range of prices and quantities along the demand curve is _____.

A)point elasticity
B)arc elasticity
C)income elasticity
D)cross elasticity
E)price elasticity

Question 60

Which of the following goods is likely to have an income elasticity of demand that is less than zero?

A)A luxury yacht
B)A beach house
C)A state-of-the-art cellular phone
D)A box of generic macaroni and cheese dinner
E)A dinner at a French restaurant

Question 61

There are some special types of goods for which supply cannot change irrespective of the length of time allowed for change, such as Beethoven symphonies.The price elasticity of supply for these goods is _____.

A)infinite
B)nonexistent
C)negative
D)zero
E)unity

Question 62

If the price elasticity of supply is 0.75, it would imply that a _____.

A)a 100 percent increase in price would increase the quantity supplied by 75 percent
B)doubling of the price would increase the quantity supplied by 175 percent
C)50 percent increase in price would increase the quantity supplied by 25 percent
D)75 percent increase in price would increase the quantity supplied by 100 percent
E)120 percent increase in price would increase the quantity supplied by 90 percent

Question 63

Ceteris paribus, if a 20 percent increase in the price of shoes leads to a 10 percent increase in the quantity supplied of shoes, then the price elasticity of supply is equal to _____.

A)2
B)20
C)10
D)0.5
E)0.2

Question 64

Scenario 5.1 The demand for noodles is given by the following equation: Q = 20 - 4P + 0.2I - 2P_x.Assume that P = $8, I = 200, and P_x = $10.
Given the above equation, the income elasticity of demand for noodles is _____.

A)5
B)0.5
C)2
D)2.5
E)1.6

Question 65

Acme Tools manufactures anvils, a forging tool.When the price of anvils was increased from $7 to $13, Acme Tools was willing and able to increase production from 1 to 4 units per day.Using the midpoint formula, what is Acme's price elasticity of supply for anvils?

A)2
B)1
C)0.5
D)4
E)3.5

Question 66

A measure of the responsiveness of quantity supplied to changes in price is known as _____.

A)cross-price elasticity
B)price elasticity of demand
C)price elasticity of supply
D)income elasticity
E)point elasticity

Question 67

Which of the following statements correctly describe the elasticities of demand for gasoline and automobiles?

A)The income elasticity of demand for gasoline and automobiles is negative.
B)The price elasticity of demand for gasoline is elastic and the cross-price elasticity between gasoline and SUVs is positive.
C)The price elasticity of demand for gasoline is inelastic and the cross-price elasticity between gasoline and SUVs is negative.
D)The price elasticity of demand for gasoline is inelastic and the income elasticity between gasoline and SUVs is positive.
E)The price elasticity of demand for gasoline is elastic and the income elasticity between gasoline and SUVs is negative.

Question 68

Ceteris paribus, if a 20 percent increase in the price of shoes leads to a 10 percent increase in the quantity supplied of shoes, then the price elasticity of supply is equal to _____.

A)2
B)20
C)10
D)0.5
E)0.2

Question 69

When the supply elasticity of a product is 2.5, a 10 percent decrease in price will _____ the quantity supplied of the product by _____ percent.

A)increase;25
B)decrease;25
C)increase;2.5
D)decrease;2.5
E)decrease;4

Question 70

Which of the following situations is represented by a nearly horizontal supply curve?

A)Small price changes lead to small changes in quantity demanded of the good.
B)Small price changes lead to small changes in quantity supplied of the good.
C)Producers of the good are not operating efficiently.
D)Producers of the good are not maximizing profit.
E)Small changes in the price of the good lead to large changes in the quantity supplied of the good.

Question 71

Supply curves applicable to shorter periods of time tend to:

A)be represented by horizontal lines parallel to the quantity axis.
B)be perfectly elastic.
C)be more inelastic than supply curves that apply to longer periods of time.
D)be more elastic than supply curves that apply to longer periods of time.
E)have a price elasticity of supply that is approximately equal to 1.

Question 72

When economists speak of the short run, they are referring to _____.

A)a specific period of time, usually less than one year
B)a specific period of time, more than one year, but less than two years
C)a specific period of time just long enough that the quantities of all resources can be varied
D)a period of time short enough that the quantities of at least one of the resources cannot be varied
E)a period of time short enough that none of the quantities of the resources can be varied

Question 73

Suppose the price of a product is reduced from $10 to $6 and the quantity demanded increases from 40 to 60 units.From this we can conclude that the price elasticity of demand over this price range is equal to _____.

A)1.2
B)1.25
C)0.80
D)0.20
E)0.5

Question 74

If 12 candy bars are demanded at $0.30 each and 4 candy bars are demanded at $0.50 each, what is the elasticity of demand over the price range from $0.30 to $0.50?

A)2
B)1.67
C)0.5
D)7.5
E)0.4

Question 75

The table below shows the quantities of automobiles, margarine, and coffee purchased by Ted at different levels of income. Table 5.2
Based on the information given in Table 5.2, coffee would be considered:

A)an inferior good.
B)a necessity.
C)a normal good.
D)a negative good.
E)a luxury good.

Question 76

Arc elasticity is calculated as _____.

A)
B)
C)
D)
E)

Question 77

Scenario 5.1 The demand for noodles is given by the following equation: Q = 20 - 4P + 0.2I - 2P_x.Assume that P = $8, I = 200, and P_x = $10.
Given the above equation, the quantity of noodles demanded at a price of $8 is _____.

A)8
B)10
C)12
D)4
E)20

Question 78

The table below shows the quantities of automobiles, margarine, and coffee purchased by Ted at different levels of income. Table 5.2
Based on the information given in Table 5.2, margarine is:

A)an inferior good.
B)a necessity.
C)a normal good.
D)a complementary good.
E)a luxury good.

Question 79

Economists have said that deregulation of the electric utility industry might lead to increased prices in the short run but prices will fall in the long run.In this context:

A)the short run means the middle of next year.
B)the short run means after all adjustments have been made and the quantities of all resources have been varied as necessary.
C)the long run means after all adjustments have been made, the quantities of all resources have been varied as necessary, and new market entrants begin producing electricity.
D)the short run means after new firms begin producing electricity.
E)the long run means approximately ten years.

Question 80

Scenario 5.1 The demand for noodles is given by the following equation: Q = 20 - 4P + 0.2I - 2P_x.Assume that P = $8, I = 200, and P_x = $10.
Given the above equation, the price elasticity of demand for noodles is _____.

A)4
B)0.5
C)2
D)2.5
E)1.6