Deck 6: Elasticity: the Responsiveness of Demand and Supply

Question 1

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.

Answer 1

A

Question 2

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.

Answer 2

B

Question 3

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.

Answer 3

B

Question 4

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.

Question 5

Figure 6-4

Refer to Figure 6-4.Which of the following statements about price elasticity of demand is true?

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 6

Figure 6-3

Refer to Figure 6-3.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

Question 7

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 8

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 9

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 10

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 11

Perfectly inelastic demand is represented by a demand curve which is ________, and relatively inelastic demand is represented by a demand curve which is ________.

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

Question 12

In December 2014, the average price of gasoline in the United States was $2.50 per gallon and consumers bought 7 percent more gasoline than they had during April 2014, when the average price was $3.60 per gallon.Based on these numbers, what was the price elasticity of demand for gasoline from April 2014 to December 2014?

A)-0.02
B)-0.19
C)-1.01
D)-2.26

Question 13

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 14

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 15

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

Question 16

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 17

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 18

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 19

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 20

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 1.

Question 21

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 22

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 23

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 24

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

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 25

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 26

If the slope of a demand curve is equal to -0.1 then

A)demand is inelastic.
B)we don't know whether the demand is elastic or inelastic.
C)the demand is elastic at low prices and inelastic at high prices.
D)as price increases by 10 percent quantity demanded decreases by 1 percent.

Question 27

In December 2014, the average price of gasoline in the United States was $2.50 per gallon and consumers bought 7 percent more gasoline than they had during April 2014, when the average price was $3.60 per gallon.Based on these figures, from April 2014 to December 2014, the demand for gasoline was

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

Question 28

Economists use the concept of ________ to measure how one economic variable, such as quantity, responds to a change in another economic variable, such as price.

A)slope
B)efficiency
C)relativity
D)elasticity

Question 29

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 30

The price elasticity of demand is equal to

A)the value of the slope of the demand curve.
B)the change in quantity demanded divided by the change in price.
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.

Question 31

At a price of $20, Daphne sells 35 hand-painted dog collars per week.When she raised her price to $25, she sold 28 per week.Based on this information, the demand for her dog collars is

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

Question 32

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 33

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 34

The slope of a demand curve is not used to measure the price elasticity of demand because

A)the slope of a linear demand curve is not constant.
B)the slope of a line cannot have a negative value.
C)the measurement of slope is sensitive to the units chosen for price and quantity.
D)the slope of the demand curve does not tell us how much quantity changes as price changes.

Question 35

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 elastic.
D)More information is needed to answer the question.

Question 36

Figure 6-4

Refer to Figure 6-4.The absolute value of the price elasticity of demand at the midpoint of the demand curve is

A)at a maximum.
B)at a minimum.
C)zero.
D)one.

Question 37

At a price of $8 per dozen, Chuy sells 40 dozen homemade tamales per week.When he raised his 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 38

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 39

To calculate the price elasticity of demand we divide

A)the percentage change in quantity demanded by the percentage change in price.
B)the percentage change in price by the percentage change in quantity demanded.
C)rise by the run.
D)the average price by the average quantity demanded.

Question 40

The price elasticity of demand for beef is estimated to be 0.60 (in absolute value).This means that a 20 percent increase in the price of beef, holding every thing else constant, will cause the quantity of beef demanded to

A)decrease by 12 percent.
B)decrease by 26 percent.
C)decrease by 32 percent.
D)decrease by 60 percent.

Question 41

If demand is perfectly elastic, the absolute value of the price elasticity coefficient is

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

Question 42

The midpoint formula is used to measure the elasticity of demand between two points on a demand curve

A)when demand is elastic.
B)in special cases when the percentage change in the quantity demanded is equal to the percentage change in price.
C)to ensure that the elasticity has a negative value.
D)to ensure that we have only one value of the price elasticity of demand between two points on a demand curve.

Question 43

Of the following, which is the best example of good with a perfectly inelastic demand?

A)the demand for tickets in New York City when the Mets or Yankees are in the World Series
B)the demand for gasoline
C)a diabetic's demand for insulin
D)the demand for a college education by a student who has a full scholarship to an Ivy League school

Question 44

Assume that when the price of cantaloupes is $2.50 the demand for cantaloupes is unit-elastic, and that the demand curve for cantaloupes is linear and downward sloping.If firms lower the price of cantaloupes to $2.00 which of the following statements can be made regarding the price elasticity of demand for cantaloupes?

A)The demand for cantaloupes at $2.00 must be inelastic.
B)We cannot determine whether the demand for cantaloupes is elastic or inelastic without knowing what the quantity demanded is at each price.
C)The demand for cantaloupes at $2.00 must be elastic.
D)The demand for cantaloupes at $2.00 must be unit elastic.

Question 45

If the demand for a steak is unit elastic, then

A)the percentage change in quantity demanded is 1 percent greater than the percentage change in price.
B)the percentage change in quantity demanded is equal to the percentage change in price.
C)the percentage change in quantity demanded is 100 percent greater than the percentage change in price (in absolute value).
D)quantity demanded does not respond to changes in price.

Question 46

If the absolute value of the price elasticity of demand for aspirin equals 0.8 then

A)aspirin is a normal good.
B)the demand for aspirin is inelastic.
C)aspirin has few substitutes.
D)the demand for aspirin is elastic.

Question 47

When the price of pistachio nuts is $7.50 per lb.the quantity demanded is 48 lbs.When the price of pistachio nuts is $9.00 per lb.the quantity demanded is 40 lbs.When the midpoint formula is used to measure the price elasticity of demand we can say that the demand for pistachio nuts is

A)relatively, but not perfectly, elastic.
B)unit elastic.
C)completely inelastic.
D)relatively, but not perfectly, inelastic.

Question 48

We should never assume that an inelastic demand curve is a perfectly inelastic demand curve because

A)there has never been evidence of a perfectly inelastic demand curve.
B)an inelastic demand curve may be perfectly inelastic at some times but not others.
C)perfectly inelastic demand curves are rare.
D)an inelastic demand curve may be elastic at low prices.

Question 49

If the price elasticity of demand for insulin is equal to zero then the demand curve for insulin is

A)horizontal.
B)downward sloping.
C)curvilinear.
D)vertical.

Question 50

A perfectly elastic demand curve is

A)vertical.
B)horizontal.
C)curvilinear.
D)upward sloping.

Question 51

When the price of tortilla chips rose by 10 percent, the quantity of tortilla chips sold fell 4 percent.This indicates that the demand for tortilla chips is

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

Question 52

If the demand for iPods is price elastic, then

A)the percentage change in quantity demanded is greater than the percentage change in price (in absolute value).
B)the percentage change in quantity demanded is less than the percentage change in price (in absolute value).
C)the percentage change in quantity demanded is equal to the percentage change in price.
D)quantity demanded is not responsive to changes in price.

Question 53

Figure 6-6

Refer to Figure 6-6.As price falls from PA to PB, the quantity demanded increases most along D₁; therefore,

A)D₁ is unit elastic.
B)D₁ is more inelastic than D₂ or D₃.
C)D₁ is more elastic than D₂ or D₃.
D)D₁ is elastic at PA but inelastic at PB.

Question 54

A linear downward-sloping demand curve has price elasticities (in absolute values)that

A)increase as price decreases.
B)remain constant along the demand curve.
C)decrease as price decreases.
D)are greater than or equal to 1.

Question 55

Carrie Bradshaw claims that when it comes to buying shoes, "price is no object." If this is true, then her demand for shoes is

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

Question 56

Table 6-1

Refer to Table 6-1.Suppose you own a bookstore.You believe that you can sell 40 copies per day of the latest John Grisham novel when the price is $35.You consider lowering the price to $25 and believe this will increase the quantity sold to 50 books per day.Compute the price elasticity of demand using the midpoint formula and these data.Select the correct implication from your work.

A)The demand for the John Grisham book is inelastic. Revenue will fall if the price is lowered.
B)The demand for the John Grisham book is elastic. Revenue will rise if the price is lowered.
C)The demand for the John Grisham book is inelastic. Revenue will rise if the price is lowered.
D)The demand for the John Grisham book is elastic. Revenue will fall if the price is lowered.

Question 57

If the demand for cell phone service is inelastic, then

A)the percentage change in quantity demanded is greater than the percentage change in price (in absolute value).
B)the percentage change in quantity demanded is equal to the percentage change in price.
C)the quantity demanded does not change in response to changes in price.
D)the percentage change in quantity demanded is less than the percentage change in price (in absolute value).

Question 58

Assume that the demand curve for sunblock is linear and downward sloping.Which of the following statements about the slope of the demand curve for sunblock and the price elasticity of demand for sunblock are true?

A)The slope and the price elasticity of demand are constant at all points along the demand curve for sunblock.
B)The slope is constant, but the price elasticity of demand is not constant at all points along the demand curve for sunblock.
C)The slope is not constant, but the price elasticity of demand is constant at all points along the demand curve for sunblock.
D)The slope of the demand curve for sunblock is constant and equal to zero; demand is perfectly inelastic.

Question 59

Figure 6-5

Refer to Figure 6-5.The section of the demand curve labeled "A" represents

A)the inelastic section of the demand curve.
B)the unit-elastic section of the demand curve.
C)the elastic section of the demand curve.
D)the perfectly elastic section of the demand curve.

Question 60

If the percentage change in the quantity of teapots demanded is greater than the percentage change in the price of teapots, then

A)the price elasticity of demand for teapots is greater than 1 in absolute value.
B)the demand for teapots is unit elastic.
C)the price elasticity of demand for teapots is equal to zero.
D)the price elasticity of demand for teapots is less than 1 in absolute value.

Question 61

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 62

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 63

Suppose the price of gasoline in July 2004 averaged $1.35 a gallon and 15 million gallons a day were sold.In October 2004, the price averaged $2.15 a gallon 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 64

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

Question 65

The current price of canvas messenger bags is $36 each and sales of the bags equal 400 per week.If the price elasticity of demand is -2.5 and the price changes to $44, how many messenger bags will be sold per week? Use the midpoint formula.

Question 66

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 67

Suppose that when the price per ream of recycled printer paper rises from $4 to $4.50, the quantity demanded falls from 800 to 600 reams per day.Using the midpoint formula, what is the price elasticity of demand (in absolute value)over this range?

A)0.003
B)0.41
C)2.43
D)4

Question 68

The U.S.government's focus on supply reduction efforts in its "war on drugs" has been relatively unsuccessful at addressing illegal drug use.Some economists believe that a successful anti-drug program must concentrate on reducing demand; for example, through drug education and voluntary treatment programs for addicts.
A.Suppose the price elasticity of demand for cocaine is -0.5.What will happen to the equilibrium price, quantity, and total revenue from cocaine sales if the government succeeds in its efforts to reduce demand? What is likely to happen to the incentive to sell cocaine?
B.Suppose the government continues to concentrate its efforts on supply reduction and is able to reduce the supply of cocaine.As a result of the reduction in supply the price of cocaine increases by 25 percent.If the price elasticity of demand is -0.5, what is likely to happen to the incentive to sell cocaine?
C.Based on your answers, explain why one approach might be preferred over the other.

Question 69

If at a price of $10, a vendor sells 5 units of a product and at a price of $8, 6 units are sold, then, using the midpoint formula, the demand for this good is inelastic.

Question 70

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 71

Briefly explain the economic concept of elasticity.

Question 72

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 73

If demand is inelastic, the absolute value of the price elasticity coefficient is greater than one.

Question 74

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

Question 75

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

Question 76

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 77

If the absolute value of the price elasticity of demand for gasoline is 0.5, then a 10 percent increase in the price of gasoline leads to a 0.5 percent decrease in the quantity demanded.

Question 78

A newspaper story on the effect of higher milk prices on the market for ice cream contained the following:
"As a result [of the increase in milk prices], retail prices for ice cream are up 4 percent from last year....And ice cream consumption is down 3 percent."
Source: John Curran, "Ice Cream, They Scream: Milk Fat Costs Drive Up Ice Cream Prices," Associated Press, July 23, 2001.
Based on the information given, what is the price elasticity of demand for ice cream?

A)0.75 (in absolute value)
B)1.33 (in absolute value)
C)12%
D)We do not have enough information to calculate the elasticity.

Question 79

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 80

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