Deck 5: Elasticity and Its Application

Question 1

When consumers face rising gasoline prices, they typically

A) reduce their quantity demanded more in the long run than in the short run.
B) reduce their quantity demanded more in the short run than in the long run.
C) do not reduce their quantity demanded in the short run or the long run.
D) increase their quantity demanded in the short run but reduce their quantity demanded in the long run.

Answer 1

A

Question 2

Which of the following statements about the price elasticity of demand is correct?

A) The price elasticity of demand for a good measures the willingness of buyers of the good to buy less of the good as its price increases.
B) Price elasticity of demand reflects the many economic, psychological, and social forces that shape consumer tastes.
C) Other things equal, if good x has close substitutes and good y does not have close substitutes, then the demand for good x will be more elastic than the demand for good y.
D) All of the above are correct.

Answer 2

D

Question 3

Demand is said to be price elastic if

A) the price of the good responds substantially to changes in demand.
B) demand shifts substantially when income or the expected future price of the good changes.
C) buyers do not respond much to changes in the price of the good.
D) buyers respond substantially to changes in the price of the good.

Answer 3

D

Question 4

In general, elasticity is a measure of

A) the extent to which advances in technology are adopted by producers.
B) the extent to which a market is competitive.
C) how firms' profits respond to changes in market prices.
D) how much buyers and sellers respond to changes in market conditions.

Question 5

The price elasticity of demand for a good measures the willingness of

A) consumers to buy less of the good as price rises.
B) consumers to avoid monopolistic markets in favor of competitive markets.
C) firms to produce more of a good as price rises.
D) firms to respond to the tastes of consumers.

Question 6

Which of the following statements about the consumers' responses to rising gasoline prices is correct?

A) About 10 percent of the long-run reduction in quantity demanded arises because people drive less and about 90 percent arises because they switch to more fuel-efficient cars.
B) About 90 percent of the long-run reduction in quantity demanded arises because people drive less and about 10 percent arises because they switch to more fuel-efficient cars.
C) About half of the long-run reduction in quantity demanded arises because people drive less and about half arises because they switch to more fuel-efficient cars.
D) Because gasoline is a necessity, consumers do not decrease their quantity demanded in either the short run or the long run.

Question 7

The price elasticity of demand measures how much

A) quantity demanded responds to a change in price.
B) quantity demanded responds to a change in income.
C) price responds to a change in demand.
D) demand responds to a change in supply.

Question 8

The price elasticity of demand measures

A) buyers' responsiveness to a change in the price of a good.
B) the extent to which demand increases as additional buyers enter the market.
C) how much more of a good consumers will demand when incomes rise.
D) the movement along a supply curve when there is a change in demand.

Question 9

Demand is said to be inelastic if

A) buyers respond substantially to changes in the price of the good.
B) demand shifts only slightly when the price of the good changes.
C) the quantity demanded changes only slightly when the price of the good changes.
D) the price of the good responds only slightly to changes in demand.

Question 10

When studying how some event or policy affects a market, elasticity provides information on the

A) change in the costs of production.
B) tradeoff between equality and efficiency.
C) effect on the budget deficit or surplus.
D) direction and magnitude of the effect.

Question 11

Demand is inelastic if the price elasticity of demand is

A) less than 1.
B) equal to 1.
C) greater than 1.
D) equal to 0.

Question 12

If the quantity demanded of a certain good responds only slightly to a change in the price of the good, then the

A) demand for the good is said to be elastic.
B) demand for the good is said to be inelastic.
C) law of demand does not apply to the good.
D) demand curve for the good shifts only slightly in response to a change in price.

Question 13

Elasticity is

A) a measure of how much buyers and sellers respond to changes in market conditions.
B) the study of how the allocation of resources affects economic well-being.
C) the maximum amount that a buyer will pay for a good.
D) the value of everything a seller must give up to produce a good.

Question 14

Demand is said to be inelastic if the

A) quantity demanded changes proportionately more than price.
B) price changes proportionately more than income.
C) quantity demanded changes proportionately less than price.
D) quantity demanded changes proportionately the same as price.

Question 15

How does the concept of elasticity allow us to improve upon our understanding of supply and demand?

A) Elasticity allows us to analyze supply and demand with greater precision than would be the case in the absence of the elasticity concept.
B) Elasticity provides us with a better rationale for statements such as "an increase in x will lead to a decrease in y" than we would have in the absence of the elasticity concept.
C) Without elasticity, we would not be able to address the direction in which price is likely to move in response to a surplus or a shortage.
D) Without elasticity, it is very difficult to assess the degree of competition within a market.

Question 16

When quantity demanded responds strongly to changes in price, demand is said to be

A) fluid.
B) elastic.
C) dynamic.
D) highly variable.

Question 17

When studying how some event or policy affects a market, elasticity provides information on the

A) equity effects on the market by identifying the winners and losers.
B) magnitude of the effect on the market.
C) speed of adjustment of the market in response to the event or policy.
D) number of market participants who are directly affected by the event or policy.

Question 18

Demand is elastic if the price elasticity of demand is

A) less than 1.
B) equal to 1.
C) equal to 0.
D) greater than 1.

Question 19

If demand is price inelastic, then

A) buyers do not respond much to a change in price.
B) buyers respond substantially to a change in price, but the response is very slow.
C) buyers do not alter their quantities demanded much in response to advertising, fads, or general changes in tastes.
D) the demand curve is very flat.

Question 20

A 10 percent increase in gasoline prices reduces gasoline consumption by about

A) 6 percent after one year and 2.5 percent after five years.
B) 2.5 percent after one year and 6 percent after five years.
C) 10 percent after one year and 20 percent after five years.
D) 0 percent after one year and 1 percent after five years.

Question 21

Suppose that Jane enjoys Diet Coke so much that she consumes one can every day. Although she enjoys gourmet cheese, she consumes it sporadically. If the price of Diet Coke rises, Jane decreases her consumption by only a very small amount. But if the price of gourmet cheese rises, Jane decreases her consumption by a lot. These examples illustrate the importance of

A) the availability of close substitutes in determining the price elasticity of demand.
B) a necessity versus a luxury in determining the price elasticity of demand.
C) the definition of a market in determining the price elasticity of demand.
D) the time horizon in determining the price elasticity of demand.

Question 22

The value of the price elasticity of demand for a good will be relatively large when

A) there are no good substitutes available for the good.
B) the time period in question is relatively short.
C) the good is a luxury rather than a necessity.
D) All of the above are correct.

Question 23

The price elasticity of demand for mobile phones

A) will be higher if there is an improvement in the production technology.
B) will be lower if consumers perceive mobile phones to be a necessity.
C) is computed as the percentage change in the price of mobile phones divided by the percentage change in quantity of mobile phones.
D) All of the above are correct.

Question 24

If the price of natural gas rises, when is the price elasticity of demand likely to be the highest?

A) immediately after the price increase
B) one month after the price increase
C) three months after the price increase
D) one year after the price increase

Question 25

A good will have a more inelastic demand, the

A) greater the availability of close substitutes.
B) broader the definition of the market.
C) longer the period of time.
D) more it is regarded as a luxury.

Question 26

For a good that is a necessity, demand

A) tends to be inelastic.
B) tends to be elastic.
C) has unit elasticity.
D) cannot be represented by a demand curve in the usual way.

Question 27

For a good that is a luxury, demand

A) tends to be inelastic.
B) tends to be elastic.
C) has unit elasticity.
D) cannot be represented by a demand curve in the usual way.

Question 28

Goods with many close substitutes tend to have

A) more elastic demands.
B) less elastic demands.
C) price elasticities of demand that are unit elastic.
D) income elasticities of demand that are negative.

Question 29

Whether a good is a luxury or necessity depends on the

A) price of the good.
B) preferences of the buyer.
C) intrinsic properties of the good.
D) scarcity of the good.

Question 30

The price elasticity of demand measures the

A) magnitude of the response in quantity demanded to a change in price.
B) direction of the shift in the demand curve in response to a market event.
C) size of the shortage created by the increase in demand.
D) responsiveness of quantity demanded to a change in income.

Question 31

A good will have a more elastic demand, the

A) greater the availability of close substitutes.
B) more broad the definition of the market.
C) shorter the period of time.
D) more it is regarded as a necessity.

Question 32

If the price of milk rises, when is the price elasticity of demand likely to be the lowest?

A) immediately after the price increase
B) one month after the price increase
C) three months after the price increase
D) one year after the price increase

Question 33

The smaller the price elasticity of demand, the

A) more likely the product is a luxury.
B) smaller the responsiveness of quantity demanded to a change in price.
C) more substitutes the product has.
D) greater the responsiveness of quantity demanded to a change in price.

Question 34

Other things equal, the demand for a good tends to be more inelastic, the

A) fewer the available substitutes.
B) longer the time period considered.
C) more the good is considered a luxury good.
D) more narrowly defined is the market for the good.

Question 35

The price elasticity of demand for bread

A) is computed as the percentage change in quantity demanded of bread divided by the percentage change in price of bread.
B) depends, in part, on the availability of close substitutes for bread.
C) reflects the many economic, social, and psychological forces that influence consumers' tastes for bread.
D) All of the above are correct.

Question 36

For a good that is a necessity,

A) quantity demanded tends to respond substantially to a change in price.
B) demand tends to be inelastic.
C) the law of demand does not apply.
D) All of the above are correct.

Question 37

Holding all other forces constant, when the price of gasoline rises, the number of gallons of gasoline demanded would fall substantially over a ten-year period because

A) buyers tend to be much less sensitive to a change in price when given more time to react.
B) buyers tend to be much more sensitive to a change in price when given more time to react.
C) buyers will have substantially more real income over a ten-year period.
D) the quantity supplied of gasoline increases very little in response to an increase in the price of gasoline.

Question 38

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

A) the time horizon
B) the steepness or flatness of the supply curve for the good
C) the definition of the market for the good
D) the availability of substitutes for the good

Question 39

If the price of walnuts rises, many people would switch from consuming walnuts to consuming pecans. But if the price of salt rises, people would have difficulty purchasing something to use in its place. These examples illustrate the importance of

A) the availability of close substitutes in determining the price elasticity of demand.
B) a necessity versus a luxury in determining the price elasticity of demand.
C) the definition of a market in determining the price elasticity of demand.
D) the time horizon in determining the price elasticity of demand.

Question 40

If the price of gasoline rises, when is the price elasticity of demand likely to be the highest?

A) immediately after the price increases
B) one month after the price increase
C) three months after the price increase
D) one year after the price increase

Question 41

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

A) scissors
B) fruit
C) music downloads
D) toothpaste

Question 42

Which of the following is likely to have the most price inelastic demand?

A) athletic shoes
B) running shoes
C) Nike running shoes
D) Nike Shox running shoes

Question 43

Which of the following statements is correct?

A) The demand for natural gas is more elastic over a short period of time than over a long period of time.
B) The demand for smoke alarms is more elastic than the demand for Persian rugs.
C) The demand for bourbon whiskey is more elastic than the demand for alcoholic beverages in general.
D) All of the above are correct.

Question 44

Which of the following is likely to have the most price inelastic demand?

A) white chocolate chip with macadamia nut cookies
B) Mrs. Field's chocolate chip cookies
C) milk chocolate chip cookies
D) cookies

Question 45

Suppose that Juan Carlos is filling out a survey that he received in the mail. The survey asks him what he would do if the price of his favorite toothpaste increased. Juan Carlos reports that he would switch to a different brand. The survey asks what he would do if the price of all toothpastes increased. Juan Carlos reports that he must use toothpaste, so he would have to adjust his spending elsewhere. These examples illustrate the importance of

A) changes in total revenue in determining the price elasticity of demand.
B) a necessity versus a luxury in determining the price elasticity of demand.
C) the definition of a market in determining the price elasticity of demand.
D) the time horizon in determining the price elasticity of demand.

Question 46

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

A) clothing
B) blue jeans
C) Tommy Hilfiger jeans
D) All three would have the same elasticity of demand because they are all related.

Question 47

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

A) lattés
B) doctor's visits
C) eggs
D) natural gas

Question 48

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

A) dental floss
B) milk
C) salt
D) diamond earrings

Question 49

The demand for grape-flavored Hubba Bubba bubble gum is likely

A) inelastic because there are many close substitutes for grape-flavored Hubba Bubba .
B) elastic because there are many close substitutes for grape-flavored Hubba Bubba.
C) inelastic because the market is broadly defined.
D) elastic because the market is broadly defined.

Question 50

Which of the following is likely to have the most price inelastic demand?

A) chocolate
B) Godiva chocolate
C) Hershey's chocolate
D) All three would have the same elasticity of demand because they are all related.

Question 51

Suppose that gasoline prices increase dramatically this month. Lola commutes 100 miles to work each weekday. Over the next few months, Lola drives less on the weekends to try to save money. Within the year, she sells her home and purchases one only 10 miles from her place of employment. These examples illustrate the importance of

A) the availability of substitutes in determining the price elasticity of demand.
B) a necessity versus a luxury in determining the price elasticity of demand.
C) the definition of a market in determining the price elasticity of demand.
D) the time horizon in determining the price elasticity of demand.

Question 52

Which of the following statements is correct?

A) The demand for flat-screen computer monitors is more elastic than the demand for monitors in general.
B) The demand for grandfather clocks is more elastic than the demand for clocks in general.
C) The demand for cardboard is more elastic over a long period of time than over a short period of time.
D) All of the above are correct.

Question 53

Which of the following is likely to have the most price inelastic demand?

A) yoga mats
B) prescription medicine
C) protein powder
D) gym memberships

Question 54

Which of the following is likely to have the most price inelastic demand?

A) lattés
B) filet mignon
C) Grey Goose® vodka
D) milk

Question 55

Which of the following is likely to have the most price inelastic demand?

A) white chocolate chip with macadamia nut cookies
B) hardback novels
C) salt
D) box seats at a major league baseball game

Question 56

The demand for Godiva mint chocolates is likely quite elastic because

A) there are many close substitutes.
B) this particular type of chocolate is viewed as a luxury by many chocolate lovers.
C) the market is narrowly defined.
D) All of the above are correct.

Question 57

Which of the following is likely to have the most price inelastic demand?

A) strawberry-banana milk shakes
B) gasoline in the short run
C) diamond earrings
D) box seats at a major league baseball game

Question 58

Which of the following is likely to have the most price inelastic demand?

A) tablet computers
B) leather boots
C) lightbulbs
D) optional textbooks

Question 59

Which of the following is likely to have the most price inelastic demand?

A) mint-flavored toothpaste
B) toothpaste
C) Colgate mint-flavored toothpaste
D) a generic mint-flavored toothpaste

Question 60

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

A) ice cream
B) frozen yogurt
C) vanilla ice cream
D) Häagen­Dazs® vanilla bean ice cream

Question 61

The midpoint method for calculating elasticities is convenient in that it allows us to

A) ignore the percentage change in quantity demanded and instead focus entirely on the percentage change in price.
B) calculate the same value for the elasticity, regardless of whether the price increases or decreases.
C) assume that sellers' total revenue stays constant when the price changes.
D) restrict all elasticity values to between 0 and 1.

Question 62

For which of the following goods is the price elasticity of demand most inelastic?

A) pizza
B) large pizza
C) large pepperoni pizza
D) Domino's large pepperoni pizza

Question 63

There are very few, if any, good substitutes for automotive tires. Therefore, the demand for automotive tires would tend to be

A) elastic.
B) unit elastic.
C) inelastic.
D) highly responsive to changes in income as well as changes in prices.

Question 64

There are very few, if any, good substitutes for motor oil. Therefore, the

A) demand for motor oil would tend to be inelastic.
B) demand for motor oil would tend to be elastic.
C) demand for motor oil would tend to respond strongly to changes in prices of other goods.
D) supply of motor oil would tend to respond strongly to changes in people's tastes for large cars relative to their tastes for small cars.

Question 65

Using the midpoint method, the price elasticity of demand for a good is computed to be approximately 2. Which of the following events is consistent with a 0.1 percent increase in the price of the good?

A) The quantity of the good demanded decreases from 250 to 150.
B) The quantity of the good demanded decreases from 200 to 100.
C) The quantity of the good demanded decreases by 0.05 percent.
D) The quantity of the good demanded decreases by 0.2 percent.

Question 66

Suppose the price of a bag of frozen chicken nuggets decreases from $6.50 to $5.75 and, as a result, the quantity of bags demanded increases from 600 to 800. Using the midpoint method, the price elasticity of demand for frozen chicken nuggets in the given price range is

A) 0.35.
B) 0.43.
C) 2.33.
D) 2.89.

Question 67

Which of the following expressions can be used to compute the price elasticity of demand?

A) Price elasticity of demand = • .
B) Price elasticity of demand = • .
C) Price elasticity of demand = • .
D) Price elasticity of demand = • .

Question 68

Suppose that 50 ice cream cones are demanded at a particular price. If the price of ice cream cones rises from that price by 4 percent, the number of ice cream cones demanded falls to 46. Using the midpoint approach to calculate the price elasticity of demand, it follows that the

A) demand for ice cream cones in this price range is elastic.
B) demand for ice cream cones in this price range is inelastic.
C) demand for ice cream cones in this price range is unit elastic.
D) price elasticity of demand for ice cream cones in this price range is 0.

Question 69

Economists compute the price elasticity of demand as the

A) percentage change in price divided by the percentage change in quantity demanded.
B) change in quantity demanded divided by the change in the price.
C) percentage change in quantity demanded divided by the percentage change in price.
D) percentage change in quantity demanded divided by the percentage change in income.

Question 70

Using the midpoint method, the price elasticity of demand for a good is computed to be approximately 0.75. Which of the following events is consistent with a 10 percent decrease in the quantity of the good demanded?

A) a 7.5 increase in the price of the good
B) a 13.33 percent increase in the price of the good
C) an increase in the price of the good from $7.50 to $10
D) an increase in the price of the good from $10 to $17.50

Question 71

Suppose the price of a bag of tortilla chips decreases from $3.00 to $2.50 and, as a result, the quantity of tortilla chips demanded increases from 200 bags to 300 bags. Using the midpoint method, the price elasticity of demand for tortilla chips in the given price range is

A) 0.33.
B) 0.45.
C) 2.20.
D) 3.00.

Question 72

When the price of a good is $5, the quantity demanded is 120 units per month; when the price is $7, the quantity demanded is 100 units per month. Using the midpoint method, the price elasticity of demand is about

A) 0.55.
B) 1.83.
C) 2.
D) 10.

Question 73

A person who takes a prescription drug to control high cholesterol most likely has a demand for that drug that is

A) inelastic.
B) unit elastic.
C) elastic.
D) highly responsive to changes in income.

Question 74

When the price of an eBook is $15.00, the quantity demanded is 400 eBooks per day. When the price falls to $10.00, the quantity demanded increases to 700. Given this information and using the midpoint method, we know that the demand for eBooks is

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

Question 75

When the price of chai tea lattés is $5, Maxine buys 20 per month. When the price is $4, she buys 30 per month. Maxine's demand for chai tea lattés is

A) elastic, and her demand curve would be relatively flat.
B) elastic, and her demand curve would be relatively steep.
C) inelastic, and her demand curve would be relatively flat.
D) inelastic, and her demand curve would be relatively steep.

Question 76

The midpoint method is used to compute elasticity because it

A) automatically computes a positive number instead of a negative number.
B) results in an elasticity that is the same as the slope of the demand curve.
C) gives the same answer regardless of the direction of change.
D) automatically rounds quantities to the nearest whole unit.

Question 77

When the price of candy bars is $1.00, the quantity demanded is 500 per day. When the price falls to $0.80, the quantity demanded increases to 600. Given this information and using the midpoint method, we know that the demand for candy bars is

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

Question 78

When the price of a good is $5, the quantity demanded is 100 units per month; when the price is $7, the quantity demanded is 80 units per month. Using the midpoint method, the price elasticity of demand is about

A) 0.22.
B) 0.67.
C) 1.33.
D) 1.50.

Question 79

Which of the following expressions is valid for the price elasticity of demand?

A) Price elasticity of demand = .
B) Price elasticity of demand = .
C) Price elasticity of demand = .
D) Price elasticity of demand = .

Question 80

When the price of a bracelet was $28 each, the jewelry shop sold 128 per month. When it raised the price to $32 each, it sold 112 per month. Using the midpoint method, the price elasticity of demand for bracelets is

A) 1.14.
B) 1.
C) 0.25.
D) 0.13.