Question 1

What term accurately describes demand when the quantity demanded is NOT very responsive to changes in price?
A) unit elastic
B) inelastic
C) independent
D) elastic

Accepted Answer

Inelastic demand occurs when a change in price leads to a proportionally smaller change in quantity demanded. This means that the quantity demanded is not very responsive to changes in price.

Question 2

If the price elasticity of demand coefficient for gourmet coffee is estimated to be 1.6, what would a 5 percent increase in price likely lead to?
A) an 8 percent increase in the quantity of gourmet coffee demanded
B) a 16 percent increase in the quantity of gourmet coffee demanded
C) a 16 percent decrease in the quantity of gourmet coffee demanded
D) an 8 percent decrease in the quantity of gourmet coffee demanded

Accepted Answer

The price elasticity of demand coefficient of 1.6 means that for every 1% increase in price, the quantity demanded decreases by 1.6%. Therefore, a 5% increase in price would lead to an 8% decrease in the quantity demanded (5% * 1.6 = 8%).

Question 3

If the demand curve is perfectly elastic, what will an increase in supply result in?
A) an increase in the price, but no change in the quantity exchanged
B) an increase in the quantity exchanged, but no change in the price
C) a decrease in the price, but no change in the quantity exchanged
D) an increase in both the price and the quantity exchanged

Accepted Answer

If the demand curve is perfectly elastic, it means that buyers are extremely sensitive to any changes in price. Therefore, an increase in supply will lead to a decrease in price. However, since demand is perfectly elastic, the quantity exchanged will increase to the point where the market clears. Therefore, there will be a greater quantity exchanged, but no change in price.

Question 4

What is the definition of price elasticity of demand?
A) the slope of the demand curve divided by the price
B) the slope of the demand curve
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

Accepted Answer

Price elasticity of demand measures the responsiveness of the quantity demanded of a good to a change in its price. It is calculated as the percentage change in quantity demanded divided by the percentage change in price.

Question 5

If the price elasticity of demand coefficient for herbal tea is estimated to be 0.5, what would a 10 percent decrease in price likely lead to?
A) a 10 percent decrease in the quantity of herbal tea demanded
B) a 5 percent decrease in the quantity of herbal tea demanded
C) a 10 percent increase in the quantity of herbal tea demanded
D) a 5 percent increase in the quantity of herbal tea demanded

Accepted Answer

A price elasticity of demand coefficient of 0.5 indicates that the demand for herbal tea is relatively inelastic. Therefore, a 10 percent decrease in price would likely lead to a greater than proportionate increase in the quantity demanded. The formula for calculating the percentage change in quantity demanded is (elasticity coefficient) x (percentage change in price). Therefore, a 10 percent decrease in price multiplied by an elasticity coefficient of 0.5 results in a 5 percent increase in the quantity demanded.

Question 6

Which of the following statements best describes inelastic demand?
A) The demand curves appear to be fairly flat.
B) The percentage change in quantity demanded results from a price change greater than the percentage change in price.
C) Price elasticity of demand is greater than one.
D) Consumers are not very responsive to changes in price.

Accepted Answer

Inelastic demand means that consumers are not very responsive to changes in price. This means that even if the price of a product increases, the quantity demanded does not decrease significantly. Therefore, the correct option is D. Option A describes a relatively elastic demand curve, option B describes an elastic demand, and option C describes a unit elastic demand.

Question 7

If the demand curve for a product is horizontal, then what is the elasticity of demand?
A) equal to zero
B) equal to one
C) greater than one, but less than infinity
D) equal to infinity

Accepted Answer

A horizontal demand curve indicates that the quantity demanded changes by a large amount in response to a very small change in price, which is characteristic of perfect elasticity, or an elasticity of demand equal to infinity.

Question 8

Iron Mike's steel mill finds that a 10 percent increase in its price leads to a 14 percent decrease in the quantity it is able to sell. What term accurately describes the demand curve for the mill's output?
A) inelastic
B) elastic
C) unit elastic
D) perfectly elastic

Accepted Answer

The fact that a 10 percent increase in price leads to a 14 percent decrease in quantity sold implies a responsiveness of demand to price changes greater than 1 (14/10 > 1). This means that the demand curve is elastic.

Question 9

Bailey's Barber Shop knows that a 5 percent increase in the price of their haircuts results in a 15 percent 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) 0.15
D) 3.0

Accepted Answer

The formula for price elasticity of demand is (%change in quantity demanded)/(%change in price). 
Here, the price increases by 5%, leading to a decrease in quantity demanded by 15%. 
Therefore, the price elasticity of demand for Bailey's Barber Shop is: 
(15%/-5%) = -3. 
Since elasticity values are always positive, we take the absolute value of -3, which is 3. So, the elasticity of demand facing Bailey's Barber Shop is 3.

Question 10

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

Accepted Answer

The fact that there was virtually no change in the number of customers despite a price increase from $9.95 to $12 indicates that the demand for premium movie channels in this price range is very inelastic. If the demand were elastic, customers would have responded more strongly to the price increase by reducing their purchases.

Question 11

FIGURE 5-1
 
-Refer to Figure 5-1. What graph best illustrates a perfectly inelastic demand curve?
A) Graph A
B) Graph B
C) Graph C
D) Graph D

Accepted Answer

The answer of FIGURE 5-1
 
-Refer to Figure 5-1. What...

Question 12

What term accurately describes demand when the quantity demanded is very responsive to changes in price?
A) independent
B) elastic
C) unit elastic
D) inelastic

Accepted Answer

When demand is elastic, it means that even small changes in price result in significant changes in the quantity demanded. This is because consumers are very responsive to the price changes and may choose to buy a different substitute product or go without the product altogether if the price increases.

Question 13

If the demand curve for a life-saving medicine is perfectly inelastic, what result will a reduction in supply have on the equilibrium price and equilibrium quantity?
A) The price will rise and the quantity will rise.
B) The price will rise and the quantity will stay the same.
C) The price will stay the same and the quantity will fall.
D) The price will rise and the quantity will fall.

Accepted Answer

If the demand curve for a life-saving medicine is perfectly inelastic, it means that no matter the price, consumers will demand the same quantity of the medicine. Therefore, a reduction in supply will not affect the quantity demanded. However, since there is less supply available, the price will rise to a new equilibrium where the quantity supplied equals the quantity demanded. Thus, the equilibrium price will rise and the equilibrium quantity will stay the same.

Question 14

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 percent. What does this illustrate?
A) The supply curve for premium movie channels has shifted to the left.
B) The demand curve for the premium movie channels has shifted to the right.
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.

Accepted Answer

The significant increase in the number of customers in response to a price reduction indicates that the demand for premium movie channels is elastic in this price range, meaning consumers are highly responsive to price changes.

Question 15

What does the price elasticity of demand measure?
A) the responsiveness of price to a change in quantity demanded
B) the responsiveness of quantity demanded to a change in price
C) the responsiveness of quantity demanded to a change in income
D) the responsiveness of quantity demanded to a change in quantity supplied

Accepted Answer

The price elasticity of demand measures how much the quantity demanded of a good or service changes in response to a change in its price. Specifically, it measures the percentage change in quantity demanded relative to a percentage change in price. A high price elasticity of demand means that a small change in price leads to a large change in quantity demanded, while a low price elasticity of demand means that a change in price has little effect on quantity demanded.

Question 16

When the Blue Ocean Surfboard Company lowered the price of surfboards by 20 percent, it sold 10 percent more surfboards. What is the price elasticity coefficient for surfboards?
A) 0.5
B) 1
C) 2
D) 20

Accepted Answer

The price elasticity of demand is calculated as the percentage change in quantity demanded divided by the percentage change in price. Here, it is 10% / 20% = 0.5.

Question 17

If the demand curve for a product is vertical, then what is the elasticity of demand?
A) equal to zero
B) equal to one
C) greater than one, but less than infinity
D) equal to infinity

Accepted Answer

If the demand curve for a product is vertical, it means that the quantity demanded does not change with a change in price. This indicates that the demand is perfectly inelastic, and the elasticity of demand is equal to zero.

Question 18

FIGURE 5-1
 
-Refer to Figure 5-1. What graph best illustrates a relatively inelastic (but NOT perfectly inelastic) demand curve?
A) Graph A
B) Graph B
C) Graph C
D) Graph D

Accepted Answer

The answer of FIGURE 5-1
 
-Refer to Figure 5-1. What...

Question 19

As you move down (southeast) along a demand curve, what happens to the elasticity?
A) It becomes larger.
B) It stays constant at zero.
C) It stays constant at one.
D) It becomes smaller.

Accepted Answer

As you move down (southeast) along a demand curve, the price decreases, and quantity demanded increases. This means that the relative price change is becoming smaller, resulting in a smaller change in quantity demanded, making demand relatively inelastic. Therefore, the elasticity becomes smaller.

Question 20

The Shoe Emporium reduces the price of its shoes by 50 percent and finds that the quantity demanded for its shoes more than doubles. What term accurately describes the demand for shoes from The Shoe Emporium?
A) inelastic
B) unit elastic
C) unit inelastic
D) elastic

Accepted Answer

The fact that the quantity demanded more than doubles in response to a 50 percent price decrease indicates that the demand is elastic. If the demand were inelastic, then a price decrease would result in a relatively small increase in quantity demanded.

Quiz 5: Elasticity

What term accurately describes demand when the quantity demanded is NOT very responsive to changes in price?

If the price elasticity of demand coefficient for gourmet coffee is estimated to be 1.6, what would a 5 percent increase in price likely lead to?

If the demand curve is perfectly elastic, what will an increase in supply result in?

What is the definition of price elasticity of demand?

If the price elasticity of demand coefficient for herbal tea is estimated to be 0.5, what would a 10 percent decrease in price likely lead to?

Which of the following statements best describes inelastic demand?

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

Iron Mike's steel mill finds that a 10 percent increase in its price leads to a 14 percent decrease in the quantity it is able to sell. What term accurately describes the demand curve for the mill's output?

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

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. What does this illustrate?

FIGURE 5-1 -Refer to Figure 5-1. What graph best illustrates a perfectly inelastic demand curve?

What term accurately describes demand when the quantity demanded is very responsive to changes in price?

If the demand curve for a life-saving medicine is perfectly inelastic, what result will a reduction in supply have on the equilibrium price and equilibrium quantity?

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 percent. What does this illustrate?

What does the price elasticity of demand measure?

When the Blue Ocean Surfboard Company lowered the price of surfboards by 20 percent, it sold 10 percent more surfboards. What is the price elasticity coefficient for surfboards?

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

FIGURE 5-1 -Refer to Figure 5-1. What graph best illustrates a relatively inelastic (but NOT perfectly inelastic) demand curve?

As you move down (southeast) along a demand curve, what happens to the elasticity?

The Shoe Emporium reduces the price of its shoes by 50 percent and finds that the quantity demanded for its shoes more than doubles. What term accurately describes the demand for shoes from The Shoe Emporium?