Question 1

If the price of a good rises, then moving along a demand curve the percentage change in the quantity demanded will be
A) undefined.
B) zero.
C) positive.
D) negative.
E) either positive, negative or zero depending on how the demand curve shifted.

Accepted Answer

According to the Law of Demand, as the price of a good rises, the quantity demanded decreases. Therefore, moving along a demand curve, the percentage change in the quantity demanded will be negative.

Question 2

If the percentage change in the quantity demanded is not zero, but is less than the percentage change in the price, demand is
A) elastic.
B) unit elastic.
C) perfectly elastic.
D) inelastic.
E) perfectly inelastic.

Accepted Answer

When the percentage change in quantity demanded is less than the percentage change in price, demand is considered inelastic. This means consumers are relatively unresponsive to price changes.

Question 3

If a good has many close substitutes, then its demand is most likely
A) elastic.
B) unit elastic.
C) inelastic.
D) perfectly inelastic.
E) elastic or inelastic depending on whether the price of the good is increasing or decreasing.

Accepted Answer

When a good has many close substitutes, consumers have more options and can easily switch to a substitute if the price of that good increases. This means that a small change in price will cause a significant change in the quantity demanded, leading to a more elastic demand curve.

Question 4

If a product is narrowly defined, it is likely to
A) have few substitutes, and therefore its demand is less elastic.
B) be unique and have many substitutes.
C) be unique, and therefore its demand is inelastic.
D) have a larger proportion of income spent on it.
E) have many substitutes and therefore its demand is elastic.

Accepted Answer

When a product is narrowly defined, it typically means it has a very specific use or characteristic that differentiates it from others. This specificity often means there are many other products that can serve a similar purpose or function, albeit not perfectly. Hence, consumers can easily switch to these alternatives if the price of the narrowly defined product increases, making its demand elastic. Elastic demand indicates that the quantity demanded of the product changes significantly with a change in price, which is characteristic of products with many substitutes.

Question 5

Suppose the Adelaide Crows football team raises ticket prices by 13 per cent and as a result the quantity of tickets demanded decreases by 21 per cent. This response means that the demand for Crows tickets is
A) inelastic.
B) elastic.
C) perfectly inelastic.
D) unit elastic.
E) perfectly elastic.

Accepted Answer

The fact that quantity demanded decreased by a larger percentage than the price increase indicates that the demand for Crows tickets is responsive to price changes, which means it is elastic.

Question 6

Perfectly inelastic demand means that consumers
A) will buy a certain quantity, regardless of price.
B) decrease their consumption as price rises.
C) will buy a huge, almost infinite amount more, if the price falls just a little.
D) increase their consumption as price rises.
E) are willing to buy any quantity of the good at a given price, but none at higher prices.

Accepted Answer

Perfectly inelastic demand means that consumers will buy a certain quantity regardless of the price. This means that the quantity demanded does not change in response to changes in price. In other words, if the price of the good increases, consumers will still buy the same quantity of the good as before. Conversely, if the price of the good decreases, consumers will still buy the same quantity of the good as before. Therefore, the answer is A.

Question 7

Of the following, which good has the most elastic demand?
A) Breakfast food
B) Breakfast cereal
C) Sultana Bran purchased at a Woolworths supermarket
D) Food
E) Sultana Bran

Accepted Answer

Sultana Bran purchased at a Woolworths supermarket is the most specific and narrow option given. This means that consumers have many substitutes available to them that are similar to Sultana Bran, making the demand more elastic. Additionally, being purchased at a specific supermarket means consumers have the option to purchase the same product at a different location, also increasing elasticity. Therefore, option C has the most elastic demand.

Question 8

Suppose the price of a box of breakfast cereal rises from $4 to $6. Using the midpoint method, what is the percentage change in price?
A) 67 per cent
B) 40 per cent
C) 50 per cent
D) 33 per cent
E) None of the above answers is correct.

Accepted Answer

The midpoint method calculates the percentage change in price by taking the change in price, dividing it by the average of the initial and final prices, and then multiplying by 100. Here, the change in price is $2 ($6 - $4), and the average price is $5 (($4 + $6) / 2). So, the percentage change = ($2 / $5) * 100 = 40%.

Question 9

To determine the price elasticity of demand, we
A) compare the change in the quantity to the change in price.
B) compare the percentage change in the quantity demanded to the percentage change in price.
C) need information on consumers' incomes.
D) divide the quantity by the price.
E) need to know how much is available.

Accepted Answer

Price elasticity of demand is determined by comparing the percentage change in quantity demanded to the percentage change in price. This helps us understand how responsive consumers are to price changes for a particular product or service. It is not related to consumers' incomes, the quantity or availability of the product, or simply comparing the change in quantity to the change in price.

Question 10

If the price elasticity of demand for opera tickets in Sydney is 1.00, then the demand for opera tickets in Sydney is
A) unit elastic.
B) perfectly elastic.
C) inelastic.
D) perfectly inelastic.
E) elastic.

Accepted Answer

A price elasticity of demand of 1.00 means that the percentage change in quantity demanded is equal to the percentage change in price, resulting in a unit elastic demand. This means that a change in price will result in an equal change in quantity demanded, indicating that the demand for opera tickets in Sydney is neither highly responsive nor unresponsive to changes in price.

Question 11

Suppose you are working as a tutor charging $85 per hour. If your fee increases from $85 to $93 per hour, using the midpoint method, what is the percentage change in price?
A) 8.99 per cent
B) 9.12 per cent
C) 9.41 per cent
D) 8.00 per cent
E) 8.62 per cent

Accepted Answer

The answer of Suppose you are working as a tutor...

Question 12

The price elasticity of demand measures which of the following?
A) How responsive the quantity demanded is to changes in price.
B) The rate at which demand changes when price changes.
C) The slope of the demand curve.
D) The percentage-slope of the demand curve.
E) None of these correctly defines what price elasticity of demand measures.

Accepted Answer

Price elasticity of demand measures how responsive the quantity demanded is to changes in price. It shows the extent to which a change in price affects the quantity demanded, and can be measured as the percentage change in quantity demanded divided by the percentage change in price. It is an important concept in economics for understanding consumer behavior and market dynamics.

Question 13

If the percentage change in price is 10 per cent and demand is elastic, then the percentage change in the quantity demanded
A) is larger than 10 per cent.
B) equals 10 per cent.
C) equals 0 per cent.
D) is greater than 0 per cent but less than 10 per cent.
E) More information is needed to determine the magnitude of the change in the quantity demanded.

Accepted Answer

If demand is elastic, then the percentage change in quantity demanded is higher than the percentage change in price. Therefore, the percentage change in the quantity demanded is larger than 10 per cent.

Question 14

Which of the following statements is correct?
A) The larger the proportion of income spent on a good, the smaller the elasticity of demand.
B) The demand for New Balance shoes is more elastic than the demand for shoes in general.
C) The demand for a narrowly defined good is less elastic than the demand for a more broadly defined good.
D) The demand for luxuries is less elastic than the demand for necessities.
E) The demand for salt is very elastic.

Accepted Answer

The demand for a specific brand (like New Balance shoes) is more elastic than the demand for a broader category (like shoes in general) because consumers can more easily find substitutes within the broader category.

Question 15

Suppose the demand for oranges sold from one roadside stand in South Australia is perfectly elastic. As a result, a 7 per cent increase in the price charged by the owner of this stand leads to
A) a virtually infinite increase in the quantity demanded at this stand.
B) no change in the quantity demanded at this stand.
C) zero peaches sold by this stand.
D) a 7 per cent decrease in the quantity demanded at this stand.
E) a 7 per cent decrease in demand at this stand.

Accepted Answer

When demand is perfectly elastic, any increase in price results in the quantity demanded dropping to zero.

Question 16

The price elasticity of demand measures the extent to which the quantity demanded changes when
A) the price of the good changes.
B) consumer preferences change.
C) the price of a related good changes.
D) both the demand and supply of the good change.
E) the expected future price of a good changes.

Accepted Answer

The price elasticity of demand specifically measures the responsiveness of quantity demanded to changes in price, holding all other factors constant.

Question 17

If the demand for a good is elastic, then
A) the quantity demanded divided by the price exceeds 1.00.
B) a change in the quantity demanded is smaller than the change in price.
C) a change in price leads to a smaller percentage change in the quantity demanded.
D) people substantially decrease the quantity of the good they buy if its price increases by a small percentage.
E) people do not change the quantity they demand when the price of the good changes.

Accepted Answer

When demand for a good is elastic, a small percentage increase in price leads to a larger percentage decrease in the quantity demanded, meaning consumers are more sensitive to price changes.

Question 18

Which of the following does NOT influence the price elasticity of demand?
A) Whether the good is a necessity or a luxury.
B) The amount by which the demand curve shifts when the price of another good changes.
C) The number of substitutes available to consumers.
D) The time period buyers have to respond to a price change.
E) The price of the good relative to total income.

Accepted Answer

The amount by which the demand curve shifts when the price of another good changes is a factor that affects cross-price elasticity of demand, not price elasticity of demand. The other options all influence the price elasticity of demand.

Question 19

The longer the time that has elapsed since the price of a good changed, the
A) steeper the demand curve.
B) more elastic the demand for that good.
C) fewer substitutes available for the good.
D) smaller the amount of that good bought.
E) less elastic the demand for that good.

Accepted Answer

Over time, consumers have more opportunity to find substitutes and adjust their behavior in response to a price change, making the demand for a good more elastic.

Question 20

When the percentage change in the quantity demanded equals the percentage change in price, then demand is
A) elastic.
B) inelastic.
C) unit elastic.
D) undefined.
E) irrelevant.

Accepted Answer

When the percentage change in the quantity demanded is equal to the percentage change in price, this is known as unit elasticity. It means that the change in price has a proportional effect on the quantity demanded. Therefore, the demand is unit elastic.

Quiz 5: Elasticities of Demand and Supply

If the price of a good rises, then moving along a demand curve the percentage change in the quantity demanded will be

If the percentage change in the quantity demanded is not zero, but is less than the percentage change in the price, demand is

If a good has many close substitutes, then its demand is most likely

If a product is narrowly defined, it is likely to

Suppose the Adelaide Crows football team raises ticket prices by 13 per cent and as a result the quantity of tickets demanded decreases by 21 per cent. This response means that the demand for Crows tickets is

Perfectly inelastic demand means that consumers

Of the following, which good has the most elastic demand?

Suppose the price of a box of breakfast cereal rises from $4 to $6. Using the midpoint method, what is the percentage change in price?

To determine the price elasticity of demand, we

If the price elasticity of demand for opera tickets in Sydney is 1.00, then the demand for opera tickets in Sydney is

Suppose you are working as a tutor charging $85 per hour. If your fee increases from $85 to $93 per hour, using the midpoint method, what is the percentage change in price?

The price elasticity of demand measures which of the following?

If the percentage change in price is 10 per cent and demand is elastic, then the percentage change in the quantity demanded

Which of the following statements is correct?

Suppose the demand for oranges sold from one roadside stand in South Australia is perfectly elastic. As a result, a 7 per cent increase in the price charged by the owner of this stand leads to

The price elasticity of demand measures the extent to which the quantity demanded changes when

If the demand for a good is elastic, then

Which of the following does NOT influence the price elasticity of demand?

The longer the time that has elapsed since the price of a good changed, the

When the percentage change in the quantity demanded equals the percentage change in price, then demand is