Deck 20: Elasticity

Question 1

Assume the price elasticity of demand for JT Chip Co.chips is 4.0.If the company decreases the price of each bag of chips from $1.89 to $1.49,the number of bags sold will

A)Decrease by 78 percent.
B)Increase by 95 percent.
C)Increase by 48 percent.

Answer 1

Increase by 95 percent.

Question 2

If demand is very inelastic,

A)The demand curve will be very flat.
B)The demand curve will be horizontal.
C)The demand curve will be very steep.

Answer 2

The demand curve will be very steep.

Question 3

A demand curve that is perfectly inelastic is

A)Horizontal.
B)Vertical.
C)Upward-sloping.

Answer 3

Vertical.

Question 4

If demand is perfectly elastic,

A)The demand curve is vertical.
B)The demand curve is very steep.
C)The demand curve is horizontal.

Question 5

If the demand for a product is elastic,then

A)The percentage change in quantity demanded is greater than the percentage in price.
B)The percentage change in price is greater than the percentage change in quantity demanded.
C)The change in the quantity demanded is greater than the change in income.

Question 6

To find the average percentage change in price,

A)The change in price is divided by the average price.
B)The change in quantity is divided by the average quantity.
C)The change in quantity is divided by the change in price.

Question 7

If the price of the iPod falls by 3 percent and the price elasticity of demand for iPods is 2.0,then quantity demanded will fall by what percentage?

A)5 percent.
B)6 percent.
C)0.6 perent.

Question 8

Assume the price elasticity of demand for U.S.Frisbee Co.Frisbees is 0.5.If the company increases the price of each Frisbee from $12 to $16,the number of Frisbees demanded will

A)Decrease by 14.3 percent.
B)Decrease by 33.3 percent.
C)Increase by 20.0 percent.

Question 9

Price elasticity of demand refers to

A)How responsive producers are to a change in the cost of production.
B)How sensitive buyers are to a change in price.
C)How buyers respond to a change in income.

Question 10

When demand is inelastic

A)The percentage change in price is greater than the percentage change in quantity demanded.
B)Buyers are very sensitive to changes in price.
C)The product in demand has many substitute goods.

Question 11

Technically the elasticity number is negative because

A)When price falls quantity demanded will rise,but for simplicity economists take the absolute value of the elasticity number.
B)When price falls quantity demanded will fall,but for simplicity economists take the absolute value of the elasticity number.
C)When price rises quantity demanded will rise,but for simplicity economists take the absolute value of the elasticity number.

Question 12

If the elasticity of demand is 3,and the price rises by 15 percent,then

A)The quantity demanded will increase by 5 percent.
B)The quantity demanded will fall by 45 percent.
C)The quantity demanded will rise by 4.5 percent.

Question 13

To find the average percentage change in quantity demanded,

A)The change in price is divided by the percentage change in quantity demanded.
B)The change in quantity demanded is divided by the change in price.
C)The change in quantity demanded is divided by the average quantity.

Question 14

When the percentage change in quantity demanded is less than the percentage change in price,ceteris paribus,

A)Demand is elastic.
B)Demand is inelastic.
C)Demand is unitary elastic.

Question 15

Price elasticity looks at

A)The law of demand.
B)How much quantity demanded changes after a change in price.
C)The degree to which price changes with a change in quantity demanded.

Question 16

When demand is elastic,the absolute number for price elasticity will be

A)Greater than 0.
B)Less than 1.
C)Greater than 1.

Question 17

The price elasticity of demand is equal to

A)The percentage change in quantity demanded times the percentage change in price.
B)The unit change in price divided by the unit change in quantity demanded.
C)The percentage change in quantity demanded divided by the percentage change in price.

Question 18

Price elasticity of demand shows how

A)To compute the slope of the demand curve.
B)Responsive the quantity demanded is to a change in price.
C)Responsive the quantity demanded is to a change in the price of related goods.

Question 19

If demand is price-elastic,then

A)The elasticity number E is greater than 1.
B)The elasticity number E is less than 1.
C)The elasticity number E is equal to 1.

Question 20

If the price elasticity of demand is 0.6,then a 10 percent increase in the price of the good will lead to a ________ in the quantity demanded.

A)6 percent increase
B)6 percent decrease
C)0.6 percent increase.

Question 21

If demand is elastic,then

A)An increase in price will reduce total revenue.
B)An increase in price will increase total revenue.
C)A decrease in price will reduce total revenue.

Question 22

Total revenue is equal to

A)The income from sales.
B)Profit.
C)Cost of production.

Question 23

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

A)Automobiles.
B)Pickup trucks.
C)Hondas.

Question 24

If the elasticity of demand for cigarettes is 0.4,a seller should

A)Increase price to increase total revenue.
B)Decrease price to increase total revenue.
C)Reduce price to maximize profits.

Question 25

If the price elasticity of demand is equal to 2,the good has _____ demand.

A)elastic
B)inelastic
C)unitary elastic

Question 26

Higher prices will increase total revenue if

A)Demand is elastic.
B)Demand is unitary elastic.
C)Demand is inelastic.

Question 27

Total revenue is

A)Price times income.
B)Quantity sold times price.
C)Equal to total profit.

Question 28

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

A)The number of substitute goods available.
B)The share of a consumer's budget.
C)The amount of income the consumer has.

Question 29

If the price elasticity of demand for cigarettes is 0.4,

A)The demand is very elastic.
B)A 10 percent increase in price will cause quantity demanded to fall by 40 percent.
C)The demand is very inelastic.

Question 30

Which of the following would most likely have a price elasticity coefficient less than 1?

A)Coffee.
B)Televisions.
C)Fresh fish.

Question 31

The demand is more price-elastic

A)In the long run.
B)If the product is a necessity.
C)If the product is a small part of the consumer's budget.

Question 32

Sam owns a taco restaurant,and he conducted a consumer survey that indicates that the price elasticity of demand for his restaurant is 3.5.You would advise Sam to

A)Raise his price to increase revenues.
B)Keep his price the same to maximize revenues.
C)Lower his price to increase revenue.

Question 33

The total revenue effect of a movement along a demand curve can best be predicted using the

A)Law of diminishing marginal utility.
B)Price elasticity of demand.
C)Utility-maximizing rule.

Question 34

The demand will be _______________ if the consumer has _________ substitute goods to choose from

A)elastic;less
B)inelastic;more
C)elastic;more

Question 35

If the price elasticity of demand is 1.0,and a firm raises its price by 10 percent,the total revenue will

A)Rise by 10 percent.
B)Fall by 10 percent.
C)Not change.

Question 36

A demand curve that is completely elastic is

A)Horizontal.
B)Vertical.
C)Upward-sloping.

Question 37

Ceteris paribus,as the number of substitutes for a good increases,the

A)Price elasticity of demand should become smaller.
B)Price elasticity of demand should become larger.
C)Cross-price elasticity of demand should become negative.

Question 38

A price change will have no effect on total revenue if demand is

A)Elastic.
B)Unitary.
C)Inelastic.

Question 39

Which of the following products will have elastic demand?

A)Gasoline.
B)Cigarettes.
C)European travel.

Question 40

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

A)The availability of substitutes.
B)The price of the item relative to the consumer's budget.
C)Costs of production.

Question 41

Over the price range from $180 to $120 in Figure 20.1,ceteris paribus,

A)Demand is elastic.
B)Total revenue is maximized.
C)Demand is increasing.

Question 42

If Carmen's Coffee Company wants to increase total revenue and the price elasticity of demand is 0.43,the company should

A)Increase the price of its coffee.
B)Decrease the price of its coffee.
C)Keep the price constant since a price increase or decrease will cause total revenue to fall.

Question 43

In the $80 to $40 price range in Figure 20.1,demand is

A)Perfectly price-elastic.
B)Price-inelastic.
C)Unitary elastic.

Question 44

If the price is reduced from $100 to $80 in Figure 20.1,ceteris paribus,

A)Total revenue will decrease.
B)Demand will increase.
C)Quantity demanded will decrease.

Question 45

If the price of a good rises by 10 percent and quantity demanded falls by 20 percent,we can predict that

A)The company's total revenue will increase.
B)The company's total profit will rise.
C)The company's total revenue will decrease.

Question 46

If the price of Good X falls and total revenue rises,then

A)Demand for Good X is inelastic.
B)Demand for Good X is unitary elastic.
C)Demand for Good X is elastic.

Question 47

A price decrease will cause total revenue to fall if

A)Demand is elastic.
B)Demand is inelastic.
C)Demand is unitary elastic.

Question 48

Refer to Figure 20.2.If the area 0P₁AB is less than the area 0P₂CD,we can conclude that the price elasticity of demand between point A and point C is

A)Elastic.
B)Inelastic.
C)Unitary elastic.

Question 49

Assume the price elasticity of demand for MC Pretzel Co.pretzels is 0.8.If the company increases the price of each bag of pretzels,total revenue will

A)Decrease because fewer bags will be sold.
B)Increase because demand is elastic and revenue will rise.
C)Increase because the percentage increase in price is greater than the percentage change in quantity demanded.

Question 50

Assume apples and oranges are substitutes.Suppose apple growers launch a successful advertising campaign that convinces consumers apples are a better product.As a result the cross-price elasticity of apples and oranges will become

A)Less negative (move closer to zero).
B)More negative.
C)Less positive (move closer to zero).

Question 51

On a demand curve,demand is more elastic

A)At higher prices.
B)At lower prices.
C)When demand is unitary.

Question 52

MP3 players and MP3 files are complementary goods.The cross-price elasticity of demand between MP3 players and MP3 files is expected to be

A)Positive.
B)Negative.
C)Equal to zero.

Question 53

Refer to Figure 20.2.Suppose the areas 0P₁AB and 0P₂CD are equal.We can conclude that the price elasticity of demand between point A and point C is

A)Elastic.
B)Inelastic.
C)Unitary elastic.

Question 54

A grocery store put salt on sale but found that total revenues fell.This can be explained by which of the following?

A)The demand for salt is very elastic.
B)The demand curve for salt is vertical.
C)The demand for salt is inelastic.

Question 55

If the demand for cigarettes is inelastic,

A)Total revenue will rise if the price of cigarettes rises.
B)No matter how high the price goes,the quantity demanded will not fall.
C)Total revenue will fall if the price of cigarettes rises.

Question 56

Cross-price elasticity refers to

A)How responsive consumers are to a change in price.
B)How responsive consumers are to a change in income.
C)How responsive consumers of one good are to a change in the price of another good.

Question 57

In Figure 20.1,at what price is the elasticity of demand unitary?

A)$40.
B)$100.
C)$160.

Question 58

Maximum total revenue occurs when

A)Total revenue is -1.0.
B)The absolute value of the price elasticity of demand is 1.0.
C)Price multiplied by quantity is 1.0.

Question 59

Carter has budgeted $40 per month for candy bars.No matter how the price of candy bars changes,he spends exactly $40 per month.Carter's price elasticity of demand for candy bars must

A)Equal zero.
B)Be unitary.
C)Be very inelastic since the amount he spends is not responsive to a price change.

Question 60

Refer to Figure 20.2.Comparing the price elasticity of demand at points A and C,we can say that

A)The elasticities are the same because the points are on the same demand curve.
B)Point A has a greater price elasticity of demand.
C)Point C has a greater price elasticity of demand.

Question 61

If incomes fall by 5 percent and the quantity demanded for new cars falls by 10 percent,

A)New cars are a normal good,and the income elasticity is +.5.
B)New cars are an inferior good,and the income elasticity is +2.0.
C)New cars are a normal good,and the income elasticity is +2.0.

Question 62

Supply is very elastic when

A)The quantity supplied does not change much when price rises.
B)The quantity supplied has a large increase in response to an increase in price.
C)The quantity supply does not respond to an increase in price.

Question 63

Ceteris paribus,if income increases and as a result,the demand for good X increases and the demand for good Y falls,

A)Good X is an inferior good and good Y is a normal good.
B)Good X is a normal good and good Y is an inferior good.
C)Goods X and Y are substitute goods.

Question 64

Assume that store brand cereal is an inferior good.If income rises,then the price of store brand cereal will ________ and the quantity sold of store brand cereal will _______.

A)rise;rise
B)rise;fall
C)fall;fall

Question 65

Elasticity of supply tells us

A)How much sellers will increase production in response to a change in price.
B)How much sellers will change their price as their quantity supplied changes.
C)How much producers will increase production with changes in consumers' income.

Question 66

The demand for normal goods

A)Rises when incomes fall.
B)Rises when incomes rise.
C)Falls when incomes rise.

Question 67

Suppose income falls 5 percent in a year,and as a result,housing construction falls from 10 million to 5 million units annually.Based on this information,housing starts are

A)An inferior good.
B)A normal good.
C)Price-elastic.

Question 68

A good is normal if the sign on the income elasticity formula is

A)Positive.
B)Greater than 1.
C)Less than 1.

Question 69

The formula for the elasticity of supply is

A)The percentage change in quantity supplied divided by the percentage change in price.
B)The percentage change in price divided by the percentage change in quantity supplied.
C)The percentage change in quantity supplied divided by the percentage change in income.

Question 70

Suppose the price of soccer shoes decreases by 7 percent and as a result,there is a 12 percent rise in the quantity of shin guards demanded.The value of the cross-price elasticity of demand is

A)-1.71.
B)-0.58.
C)1.71

Question 71

If a good is normal,its

A)Price elasticity of demand is positive.
B)Income elasticity of demand is negative.
C)Income elasticity of demand is positive.

Question 72

If two goods are complementary goods,then

A)The cross-price elasticity sign will be negative.
B)The cross-price elasticity sign is not important.
C)The cross-price elasticity sign will be positive.

Question 73

If the cross-price elasticity of demand for SUVs with respect to the price of gasoline is -0.10,and gasoline prices rise by 18 percent,then SUV sales should,ceteris paribus,

A)Fall by 1.8 percent.
B)Fall by 18 percent.
C)Rise by 1.8 percent.

Question 74

Income elasticity measures the

A)Responsiveness of quantity demanded for one good to a percentage change in price of another good.
B)Responsiveness of quantity demanded to a percentage change in income.
C)Way in which consumers switch from one product to another when price rises.

Question 75

If DVD players and DVDs are complementary goods,an increase in the price of DVDs will,ceteris paribus,

A)Increase the quantity demanded of DVDs.
B)Increase the quantity demanded of DVD players.
C)Reduce the demand for DVD players.

Question 76

When income falls,the quantity demanded for inferior goods

A)Increases.
B)Decreases.
C)Has a smaller change than the income change.

Question 77

If income rises by 10 percent and the quantity sold of a particular vehicle falls by 7 percent,then this particular type of vehicle is

A)A normal good.
B)An inferior good.
C)An irregular good.

Question 78

Which of the following is most likely an inferior good?

A)Rolex watches.
B)Nike running shoes.
C)Generic canned food.

Question 79

Which of the following is the best measure of the effects of a recession?

A)Income elasticity of demand.
B)Price elasticity of demand.
C)Cross-price elasticity of demand.

Question 80

If two goods are substitute goods,

A)The percentage change in quantity demanded for good X will fall if there is a reduction in price of good Y.
B)The percentage change in quantity demanded for good X will stay the same if there is an increase in the price of good Y.
C)If the price of good X increases,the demand for good Y falls.