Deck 6: Elasticity: the Responsiveness of Demand and Supply

Question 1

If 50 units are sold at a price of $20 and 80 units are sold at a price of $15, what is the absolute value of the price elasticity of demand? Use the midpoint formula.

A)0)17
B)0)62
C)1)62
D)5

Answer 1

C

Question 2

Figure 6.2

Refer to Figure 6.2.Using the midpoint formula, calculate the absolute value of the price elasticity of demand between e and f.

A)0)32
B)0)4
C)2)5
D)3)125

Answer 2

D

Question 3

If demand is perfectly inelastic, the absolute value of the price elasticity of demand is

A)zero.
B)less than one.
C)more than one.
D)equal to the absolute value of the slope of the demand curve.

Answer 3

A

Question 4

Jaycee Jeans sold 40 pairs of jeans at a price of $40.When it lowered its price to $20, the quantity sold increased to 60 pairs.Calculate the absolute value of the price elasticity of demand.Use the midpoint formula.

A)1)67
B)1)0
C)0)6
D)0)53

Question 5

A demand curve which is ________ represents perfectly inelastic demand, and a demand curve which is ________ can represent inelastic demand.

A)downward sloping; vertical
B)horizontal; downward sloping
C)vertical; downward sloping
D)upward sloping; horizontal

Question 6

Figure 6.1

Refer to Figure 6.1.A perfectly elastic demand curve is shown in

A)Panel A.
B)Panel B.
C)Panel C.
D)Panel D.

Question 7

If the percentage increase in price is 15 percent and the value of the price elasticity of demand is -3, then quantity demanded

A)will increase by 45 percent.
B)will increase by 5 percent.
C)will decrease by 45 percent.
D)will decrease by 5 percent.

Question 8

Price elasticity of demand measures

A)how responsive suppliers are to price changes.
B)how responsive sales are to changes in the price of a related good.
C)how responsive quantity demanded is to a change in price.
D)how responsive sales are to a change in buyers' incomes.

Question 9

Figure 6.4

Refer to Figure 6.4.Which of the following statements is true about the price elasticity of demand?

A)The elasticity coefficient is constant along the demand curve.
B)The elastic portion of a straight-line downward sloping demand curve corresponds to the segment above the midpoint.
C)The inelastic portion of the demand curve corresponds to the segment above the midpoint.
D)At the midpoint of the demand curve, the elasticity coefficient is zero.

Question 10

Suppose a hurricane decreased the supply of oranges so that the price of oranges rose from $120 a ton to $180 a ton and quantity sold decreased from 800 tons to 240 tons.What is the absolute value of the price elasticity of demand?

A)0)11
B)0)37
C)2)69
D)9)33

Question 11

Suppose the value of the price elasticity of demand is -3.What does this mean?

A)A 1 percent increase in the price of the good causes quantity demanded to increase by 3 percent.
B)A 1 percent increase in the price of the good causes quantity demanded to decrease by 3 percent.
C)A 3 percent increase in the price of the good causes quantity demanded to decrease by 1 percent.
D)A $1 increase in price causes quantity demanded to fall by 3 units.

Question 12

In October 2012, the average price of gasoline in Canada was $1.31 per litre and consumers bought 2 percent less gasoline than they had during October 2010, when the average price was $1.25 per litre.Based on these numbers, what was the price elasticity of demand for gasoline from October 2010 to October 2012?

A)-0.43
B)-0.76
C)-2.34
D)-3.84

Question 13

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

A)The value of the price elasticity of demand is the reciprocal of the value of the demand curve's slope.
B)If quantity demanded changes by a larger percentage than the percentage change in price, demand is elastic.
C)The value of the price elasticity of demand along a downward-sloping demand curve is always negative.
D)A linear downward-sloping demand curve has a varying price elasticity coefficient.

Question 14

Figure 6.1

Refer to Figure 6.1.The demand curve on which elasticity changes at every point is given in

A)Panel A.
B)Panel B.
C)Panel C.
D)none of the above graphs.

Question 15

Figure 6.1

Refer to Figure 6.1.A perfectly inelastic demand curve is shown in

A)Panel A.
B)Panel B.
C)Panel C.
D)Panel D.

Question 16

Jenna runs a small boutique in Capitola.She tells one of her suppliers that she is willing to pay $6 for a pair of wool hand warmers and not a dime more.On the basis of this information, what can you conclude about her price elasticity of demand for wool hand warmers?

A)It is elastic.
B)It is perfectly elastic.
C)It is perfectly inelastic.
D)The price elasticity coefficient is 0.

Question 17

If demand is inelastic, the absolute value of the price elasticity of demand is

A)one.
B)less than one.
C)greater than one.
D)greater than the absolute value of the slope of the demand curve.

Question 18

Seth is a competitive body builder.He says he has to have his 12-oz package of protein powder to "feed his muscles" every day.On the basis of this information, what can you conclude about his price elasticity of demand for protein powder?

A)It is elastic.
B)It is perfectly elastic.
C)It is perfectly inelastic.
D)The price elasticity coefficient is 0.

Question 19

The price elasticity of demand for Stork ice cream is -4.Suppose you're told that following a price increase, quantity demanded fell by 10 percent.What was the percentage change in price that brought about this change in quantity demanded?

A)40 percent
B)25 percent
C)2)5 percent
D)0)4 percent

Question 20

Figure 6.2

Refer to Figure 6.2.The absolute value of the price elasticity of demand at points a and b is 1.What is the value of Pb?

A)$50
B)$40
C)$30
D)$20

Question 21

When is demand perfectly elastic? When is demand perfectly inelastic? What are the values of the price elasticity of demand when demand is perfectly elastic or perfectly inelastic? What do perfectly elastic and perfectly inelastic demand curves look like?

Question 22

What does price elasticity of demand measure? When is demand elastic? Inelastic? Unit elastic?

Question 23

Facing stiff competition, Hendrix College, a small liberal arts institution in Conway, Ark., decided two years ago to bolster its academic offerings, promising students at least three hands-on experiences outside the classroom, including research, internships and service projects.Although it raised tuition and fees by 29 percent, enrollment in the freshman class rose by 37 percent.
Source: Jonathan D.Glater and Alan Finder, "In New Twist on Tuition Game, Popularity Rises With the Price," New York Times, December 12, 2006
Based on the information above, the demand for Hendrix College education is

A)unit-elastic.
B)perfectly elastic.
C)relatively inelastic.
D)More information is needed to answer the question.

Question 24

The demand for gasoline is perfectly inelastic because most people need gasoline to drive their cars.

Question 25

Which of the following statements is true about the price elasticity of demand along a downward sloping linear demand curve?

A)It is inelastic at high prices and elastic at low prices.
B)It is unit-elastic throughout the demand curve.
C)It is elastic at high prices and inelastic at low prices.
D)It is perfectly elastic at very high prices and perfectly inelastic at very low prices.

Question 26

If at a price of $50, Ghani sells 20 hand-made leather cell-phone covers but at a price of $60, zero units are sold.Based on this information, the demand for his cell-phone covers is

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

Question 27

Consider the following types of demand curves:
A)a vertical demand curve
B)a horizontal demand curve
C)a linear downward-sloping demand curve
Which of the demand curves listed exhibits a price elasticity of demand coefficient that remains constant along the demand curve?

A)a only
B)b only
C)a and b only
D)a, b, and c

Question 28

If, when price changes by 35 percent, the quantity demanded changes by 7 percent, then the absolute value of the price elasticity of demand is 5.

Question 29

At a price of $100, Beachside Canoe Rentals rented 11 canoes.When it increased its rental price to $125, 9 canoes were rented.Calculate the absolute value of the price elasticity of demand for canoe rentals, using the midpoint formula.

A)2
B)1)25
C)0)9
D)0)75

Question 30

If the demand for a life-saving drug was perfectly inelastic and the price doubled, the quantity demanded would

A)also double.
B)decrease by 50%.
C)be cut in half.
D)remain constant.

Question 31

Figure 6.4

Refer to Figure 6.4.At the midpoint of the demand curve, in absolute value,

A)the price elasticity coefficient is at a maximum.
B)the price elasticity coefficient is at a minimum.
C)the price elasticity coefficient is zero.
D)the price elasticity coefficient is one.

Question 32

If at a price of $24, Octavia sells 36 home-grown orchids and at $30 she sells 24 home-grown orchids, the demand for her orchids is

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

Question 33

If the demand for a product is elastic, the quantity demanded changes by a larger percentage than the percentage change in price.

Question 34

Figure 6.4

Refer to Figure 6.4.The inelastic segment of the demand curve

A)is coincident with the horizontal axis.
B)is coincident with the vertical axis.
C)lies below the midpoint of the curve.
D)lies above the midpoint of the curve.

Question 35

Suppose at a price of $50, Yoshi's Jazz Bar sells 20 tickets to its nightly jazz performance and
at a price of $40, it sells 25 tickets.Based on this information, the demand for Yoshi's jazz performance is elastic.

Question 36

Suppose the price of gasoline in July 2004 averaged $0.91 per litre and 15 million gallons a day were sold.In October 2005, the price averaged $1.06 per litre and 14 million gallons were sold.If the demand for gasoline did not shift between these two months, use the midpoint formula to calculate the price elasticity of demand.Indicate whether demand was elastic or inelastic.

Question 37

If, for a given percentage increase in price, quantity demanded falls by a proportionately smaller percentage, then demand is

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

Question 38

For consumers who opt to pay a $10 monthly fee to have unlimited texting on their cell phones, but choose not to pay a $5 monthly fee to have unlimited call minutes, the unlimited texting option has a ________ than the unlimited minutes option.

A)higher price elasticity of demand
B)higher cross-price elasticity of demand
C)lower price elasticity of demand
D)lower cross-price elasticity of demand

Question 39

If a 35 percent increase in price of golf balls led to an 42 percent decrease in quantity demanded, then the demand for golf balls is

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

Question 40

At a price of $8 per dozen, Chuy sells 40 dozen homemade tamales per week.When he raised her price to $12 per dozen, he still sold 40 dozen per week.Based on this information, the demand for his tamales is

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

Question 41

If the price of steel increases drastically, the quantity of steel demanded by the building industry will fall significantly over the long run because

A)buyers of steel are more sensitive to a price change if they have more time to adjust to the price change.
B)buyers of steel are less sensitive to a price change if they have more time to adjust to the price change.
C)sales revenue in the building industry will fall sharply.
D)profits will fall by a greater amount in the long run than in the short run.

Question 42

A demand curve that is horizontal indicates that the commodity

A)has few substitutes.
B)must be very cheap.
C)is a necessity.
D)has a large number of substitutes.

Question 43

If the market for a product is broadly defined, then

A)the good has many complements.
B)there are few substitutes for the product and the demand for the product is relatively inelastic.
C)there are many substitutes for the product and the demand for the product is relatively elastic.
D)the expenditure on the good is likely to make up a large share of one's budget.

Question 44

When there few close substitutes available for a good, demand tends to be

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

Question 45

As high gasoline prices persisted into the first part of 2011, consumers began driving less and using public transportation more.Over time, this caused the demand curve for gasoline to become ________ and the quantity of gasoline demanded to ________.

A)more elastic, rise
B)more elastic; fall
C)less elastic; rise
D)less elastic; fall

Question 46

Which of the following would result in a higher absolute value of the price elasticity of demand for a product?

A)A wide variety of substitutes are available for the good.
B)The time period under consideration is short.
C)The good is a necessity.
D)The expenditure on the good is small relative to one's budget.

Question 47

Which of the following goods would have the most inelastic demand?

A)ski vacations
B)bread
C)luxury cars
D)big screen TVs

Question 48

With the increased usage of cell phone services, what has happened to the price elasticity of demand for land-line telephone services?

A)It has become more price inelastic.
B)It has become more price elastic.
C)It has become more income elastic.
D)The absolute value of the price elasticity coefficient has probably gone down.

Question 49

The demand for all carbonated beverages is likely to be ________ the demand for Dr.Pepper.

A)more elastic than
B)perfectly elastic compared to
C)less elastic than
D)perfectly inelastic compared to

Question 50

Jonah lives in a small town where there is only one Mexican restaurant.Which of the following is likely to be true about the price elasticity of demand for meals at the Mexican restaurant?

A)Demand is likely to be perfectly inelastic.
B)Demand is likely to be perfectly elastic.
C)Demand is likely to be relatively elastic.
D)Demand is likely to be relatively inelastic.

Question 51

Which of the following products comes closest to having a perfectly inelastic demand?

A)gasoline
B)cholesterol medication in general
C) iPhones
D)bus rides

Question 52

According to a study of the price elasticities of products sold in supermarkets, the price elasticity of demand for toothpaste is estimated at -0.45.Which of the following could explain why the price elasticity of demand for toothpaste is so low?

A)The toothpaste industry is highly competitive.
B)Toothpaste is relatively inexpensive.
C)Toothpaste is heavily endorsed by dentists.
D)There are few close substitutes for toothpaste.

Question 53

If the market for a product is narrowly defined, then there are likely to be many substitutes for the product and the demand for the product is relatively elastic.

Question 54

According to an article in the Wall Street Journal, unlike airlines, even elite hotels don't have sophisticated systems that can react quickly to changes in demand.Even if they could, many hoteliers say people don't respond that much to lower rates."We've tested this, cutting our rates by $50 [per night], and we didn't see an appreciable response in occupancy," says Jim Schultenover, a vice president for Ritz-Carlton.
Source: Jesse Drucker, "In Times of Belt-Tightening, We Seek Reasonable Rates," Wall Street Journal, April 6, 2001.
Based on the information above, the demand for hotel rooms is

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

Question 55

The demand for gasoline in the short run is

A)elastic because people can easily switch to public transportation.
B)perfectly inelastic because people have no choice but to buy gasoline.
C)unit-elastic because people tend to consume a stable amount of gasoline per period.
D)inelastic because there are no good substitutes for gasoline.

Question 56

When there are few substitutes available for a good, demand tends to be relatively inelastic.

Question 57

Rank these three items in terms of the elasticity of the demand for them at any given price, from most elastic to least elastic: alcoholic beverages, beer and Molson Canadian.

A)alcoholic beverages, beer, Molson Canadian
B)Molson Canadian, beer, alcoholic beverages
C)beer, Molson Canadian, alcoholic beverages
D)beer, alcoholic beverages, Molson Canadian

Question 58

List the five key determinants of price elasticity of demand and explain how each determinant indicates if demand tends to be elastic or inelastic.

Question 59

Necessities tend to have more inelastic demands than luxuries.

Question 60

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

A)The elasticity of demand for a good in general is equal to the elasticity of demand for a specific brand of the good.
B)The absolute value of the elasticity of demand ranges from zero to one.
C)Demand is more elastic in the long run than it is in the short run.
D)Demand is more elastic the smaller the percentage of the consumer's budget the item takes up.

Question 61

Suppose a decrease in the supply of bottled water results in a decrease in revenue.This indicates that

A)the demand for bottled water is inelastic in the price range considered.
B)the demand for bottled water is elastic in the price range considered.
C)the supply of bottled water is inelastic in the price range considered.
D)the supply of bottled water is elastic in the price range considered.

Question 62

When demand is elastic, a fall in price causes total revenue to rise because

A)when price falls, quantity sold increases so total revenue automatically rises.
B)the increase in quantity sold is large enough to offset the lower price.
C)the percentage increase in quantity demanded is less than the percentage fall in price.
D)the demand curve shifts.

Question 63

Table 6.1
$\begin{array}{|c|c|}\hline \begin{array}{c}\text { Price per Pound } \\\text { (dollars) }\end{array} & \begin{array}{c}\text { Quantity of Cheese } \\\text { Demanded (pounds) }\end{array} \\\hline \$ 16 & 3 \\\hline 14 & 4 \\\hline 12 & 5 \\\hline 10 & 6 \\\hline 8 & 7 \\\hline 6 & 8 \\\hline 4 & 9 \\\hline 2 & 10 \\\hline\end{array}$

-Refer to Table 6.1.Over what range of prices is the demand elastic?

A)over the entire range of prices
B)between $14 and $16
C)between $8 and $16
D)between $2 and $8

Question 64

If a firm wanted to know whether the demand for its product was elastic, unit-elastic, or inelastic, then the firm could

A)survey competitors and ask them what they think demand elasticity is for the product.
B)talk to its customers.
C)change price a little bit and observe what happens to total revenue.
D)not do anything as there is no way to find an elasticity value.

Question 65

A service station owner in Prince George, British Columbia, was worried that raising the price of gasoline would cause the quantity demanded to fall by so much that he would be in a worse situation than if he did not raise the price.If raising the price of gasoline would cause the owner to receive less total revenue from the sale of gasoline, the demand for gasoline is

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

Question 66

Table 6.1
The publisher of a magazine gives his staff the following information:
$\begin{array}{|l|l|}\hline \text { Current price } & \$ 2,00 \text { per issue } \\\hline \text { Current sales } & 150,000 \text { copies per month } \\\hline \text { Current revenue } & \$ 300,000 \text { per month } \\\hline \text { Current total costs } & \$ 450,000 \text { per month } \\\hline\end{array}$
He tells the staff, "Our costs are currently $150,000 more than our revenues each month. I propose to eliminate this problem by raising the price of the magazine to $3.00 per issue. This will result in our revenue being exactly equal to our cost."

-Refer to Table 6.1.Which of the following statements is correct?

A)The publisher's analysis is correct only if the demand is perfectly elastic.
B)The publisher's analysis is correct only if the demand is elastic.
C)The publisher's analysis is correct only if the demand is perfectly inelastic.
D)The publisher's analysis is correct only if the demand is unit-elastic.

Question 67

Suppose a decrease in the supply of wheat results in an increase in revenue.This indicates that

A)the decrease in quantity sold is proportionately larger than the resulting change in price.
B)the resulting increase in price is proportionately greater than decrease in quantity sold.
C)the demand curve for wheat must be vertical.
D)the supply curve for wheat must be vertical.

Question 68

If a firm's goal is to maximize revenue, it will price its product to correspond to the unit-elastic segment of its demand curve.

Question 69

Suppose the absolute value of the price elasticity of demand for meals at Fortune Buffet House is ∞.What happens to sales revenue if the restaurant increases its price by 5 percent?

A)Sales revenue falls by less than 5 percent.
B)Sales revenue remains unchanged.
C)Sales revenue falls by 100 percent.
D)It cannot be determined without information on prices.

Question 70

Total revenue equals

A)price per unit times quantity sold.
B)price per unit times quantity supplied.
C)price per unit times change in quantity sold.
D)change in price per unit times quantity sold.

Question 71

For each pair of items below determine which product would have the higher price elasticity of demand (in absolute value).
a.Insulin for a diabetic or aspirin for someone suffering a headache.
b.A new Whirlpool 27 cu.ft.side-by-side refrigerator or electricity to power your all-electric home.
c.A can of Schweppes Ginger Ale or soft drinks in general.

Question 72

Table 6.1
$\begin{array}{|c|c|}\hline \begin{array}{c}\text { Price per Pound } \\\text { (dollars) }\end{array} & \begin{array}{c}\text { Quantity of Cheese } \\\text { Demanded (pounds) }\end{array} \\\hline \$ 16 & 3 \\\hline 14 & 4 \\\hline 12 & 5 \\\hline 10 & 6 \\\hline 8 & 7 \\\hline 6 & 8 \\\hline 4 & 9 \\\hline 2 & 10 \\\hline\end{array}$

-Refer to Table 6.1.Over what range of prices is the demand inelastic?

A)over the entire range of prices
B)between $12 and $16
C)between $8 and $16
D)between $2 and $8

Question 73

When Audrina raised the price of her home made cookies, her total revenue increased.This suggests that the demand for Audrina's cookies is elastic.

Question 74

When demand is unit-elastic, a change in price causes total revenue to stay the same because

A)the percentage change in quantity demanded exactly offsets the percentage change in price.
B)buyers are buying the same quantity.
C)total revenue never changes with price changes.
D)the change in profit is offset by the change in production cost.

Question 75

If a firm lowered the price of the product it sells and found that total revenue did not change, then the demand for its product is

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

Question 76

Consider a demand curve that has a constant elasticity value of 0.What happens to quantity demanded and total revenue when price increases?

A)The quantity demanded and total revenue remain the same.
B)The quantity demanded does not change but total revenue increases.
C)The quantity demanded and total revenue fall to zero.
D)The quantity demanded does not change but total revenue decreases.

Question 77

If the price elasticity of demand for canned soup is estimated at -1.62.What happens to sales revenue if the price of canned soup rises?

A)It falls by 162 percent.
B)It rises by 1.62 percent.
C)It falls.
D)It rises.

Question 78

Suppose the demand for milk is relatively inelastic.What happens to sales revenue if the government imposes a price floor above the free market equilibrium price in the market for milk?

A)Sales revenue falls.
B)Sales revenue rises.
C)Sales revenue remains unchanged.
D)It cannot be determined without information on prices.

Question 79

Apple introduced the iPhone to the market in June 2007.Within two months, it had become clear that the price elasticity of demand for iPhones was

A)significantly higher than had been expected.
B)very close to original estimates.
C)significantly lower than had been expected.
D)essentially unit elastic.

Question 80

An article in the Wall Street Journal noted the following: Instead of relying on a full-coach, round-trip unrestricted fare of about $2,000 between Cleveland and Los Angeles ...Continental [Airlines] since June has offered a $716 unrestricted fare in that market ....Through October, the test resulted in about the same revenue that Continental thinks it would have collected with its higher fare.
Source: Scott McCartney, "Airlines Try Cutting Business Fares, Find They Don't Lose Revenue," Wall Street Journal, November 22, 2002.
What is the absolute value of the price elasticity of demand on this airline route?

A)0
B)less than 1
C)greater than 1
D)approximately 1