Deck 4: Elasticity

Question 1

Suppose you are advising the government on changes in the gasoline market.The current price is $1.00 per litre and the quantity demanded is 2.5 million litres per day.Short- run price elasticity of demand is constant at 0.3.If the supply of gasoline is reduced so that the price rises to $1.50 per litre,then quantity demanded is predicted to fall in the short run by

A)50%,and total expenditure will fall.
B)15%,and total expenditure will fall.
C)15%,and total expenditure will rise.
D)12%,and total expenditure will rise.
E)13.3%,and total expenditure will rise.

Answer 1

D

Question 2

The formula for the price elasticity of demand for a commodity can be written as which of the following?

A)percentage change in price percentage change in quantity demanded
B)percentage change in one price percentage change in the other price
C)change in price change in quantity demanded
D)percentage change in quantity demanded percentage change in price
E)change in quantity demanded change in price

Answer 2

D

Question 3

If household expenditures on electricity remain constant when the price of electricity increases,the price elasticity for electricity is

A)one (demand is unit elastic).
B)exactly zero.
C)greater than one (demand is elastic).
D)less than one (demand is inelastic).
E)not determinable from the information given.

Answer 3

A

Question 4

Normal goods

A)have negative elasticity of supply.
B)are sometimes also inferior goods.
C)have negative income elasticity of demand.
D)have positive income elasticity of demand.
E)do not have elasticity of demand.

Question 5

The "economic incidence" of an excise tax illustrates

A)the political process for implementing a tax.
B)the economic costs associated with avoiding the tax.
C)who bears the burden of the tax.
D)the legislative process through which it must be passed.
E)who is legally responsible for paying it to the government.

Question 6

If the demand for a product has an income elasticity of - 3.4,we can conclude that

A)a decrease in income will lead to an increase in demand for the product.
B)the product has a rising income- consumption curve.
C)the product is a normal good.
D)an increase in income will lead to an increase in demand for the product.
E)the product is certainly a necessity.

Question 7

Suppose a market is in equilibrium at price P0,and then an excise tax of t dollars per unit of the good is imposed.At a price of (P0 + t)there will be excess for the good unless the demand curve is .

A)supply; vertical
B)supply; horizontal
C)demand; vertical
D)tax; unit elastic
E)demand; horizontal

Question 8

An upward- sloping straight- line supply curve through the origin has an elasticity of

A)zero.
B)greater than one.
C)less than one.
D)one.
E)infinity.

Question 9

If two goods,X and Y,have a positive cross elasticity of demand,then we know that they

A)are both inferior goods.
B)are both normal goods.
C)are complements.
D)each have a price elasticity greater than one.
E)are substitutes.

Question 10

Which of the following statements would you expect to be true about the demand elasticities for cornflakes and food?

A)Food has a higher price elasticity of demand because it is a necessity.
B)Because cornflakes is food,cornflakes would have the same price elasticity of demand as food.
C)Compared with food,cornflakes have a lower price elasticity of demand because it is specifically defined.
D)Food has a lower price elasticity of demand than cornflakes because it is more broadly defined.
E)Because cornflakes is food,but not all food is cornflakes,cornflakes would have a lower price elasticity of demand.

Question 11

Suppose the cross elasticity of demand for two goods,X and Y,is positive.If the price of Y falls,then quantity demanded will

A)rise for both goods.
B)fall for X and rise for Y.
C)fall for both goods.
D)rise for X and fall for Y.
E)remain the same for both goods.

Question 12

Rania is selling boxes of cookies door to door in her neighbourhood.At a price of $10 per box she sold 40 boxes per day.When the price was reduced to $4 per box she sold 100 boxes per day.Assuming that the demand conditions were unchanged,what is the price elasticity of demand for Rania's cookies?

A)- 1.7
B)0.85
C)0
D)1
E)1.17

Question 13

As the price for some product increases from $4.00 to $5.00 per unit,quantity demanded decreases from 400 to 300 units per month.For this segment of the demand curve,the price elasticity of demand is

A)7.
B)9.
C)7/9.
D)1.
E)9/7.

Question 14

Suppose that the quantity demanded of a good rises from 40 units to 60 units per month when the price falls from $1.05 to 95 cents per unit.The price elasticity of demand for this product is

A)0.5
B)1.5
C)1.0
D)2.0
E)4.0

Question 15

If the income elasticity of demand for some good is 2.4,a 10% increase in income results in

A)a 24% increase in the quantity demanded.
B)a 240% increase in the quantity demanded.
C)a 24% decrease in quantity demanded.
D)a 2.4% increase in the quantity demanded.
E)a 240% decrease in quantity demanded.

Question 16

The elasticity of supply for some product will tend to be larger

A)the higher is the elasticity of demand for the product.
B)the less time firms have to adjust to price changes.
C)the easier it is for firms to shift from the production of this product to another.
D)the lower is the elasticity of demand for the product.
E)the harder it is for firms to shift from the production of this product to another.

Question 17

The imposition of an excise tax will cause the least burden on consumers when demand is

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

Question 18

Suppose the supply curve for breakfast cereals is upward sloping.Suppose also that as average household income increases we observe a fall in the price of breakfast cereal.We can conclude that breakfast cereal is a(n)

A)necessity good.
B)inferior good.
C)normal good.
D)substitute good.
E)luxury good.

Question 19

Consumers will bear a larger burden of an excise tax if

A)both demand and supply are relatively inelastic.
B)the tax is collected by firms rather than remitted directly to the government by consumers.
C)both demand and supply are relatively elastic.
D)demand is relatively elastic and supply is relatively inelastic.
E)demand is relatively inelastic and supply is relatively elastic.

Question 20

If the total expenditure on cars increases when the price of cars rises,the price elasticity of demand for cars is

A)exactly zero.
B)not determinable from the information given.
C)greater than one (demand is elastic).
D)equal to one (demand is unit elastic).
E)less than one (demand is inelastic).

Question 21

When a product's price has an inverse relationship with total expenditure,then demand has a price elasticity of

A)one.
B)inverse proportions.
C)zero.
D)less than one.
E)greater than one.

Question 22

With a downward- sloping straight- line demand curve,price elasticity of demand is

A)rising continuously with price increases.
B)decreasing continuously with price increases.
C)constant everywhere on it.
D)increasing to the midpoint of the curve and then decreasing.
E)indeterminate.

Question 23

Suppose an analysis of the possible effects of increases in university tuition fees predicts that a 10% increase in tuition fees will result in a 3% decline in enrolment.What is the implied price elasticity of demand for university attendance?

A)10
B)7
C)0
D)0.3
E)3

Question 24

A perfectly horizontal demand curve shows that the price elasticity of demand is

A)zero.
B)infinite.
C)less than one.
D)unity.
E)not defined.

Question 25

If the value of the price elasticity of demand is 0.6,demand is said to be

A)partially inelastic.
B)partially elastic.
C)inelastic.
D)somewhat inelastic.
E)elastic.

Question 26

Suppose that the quantity of a good demanded rises from 90 units to 110 units when the price falls from $1.20 to 80 cents per unit.The price elasticity of demand for this product is

A)2.0
B)1.0
C)0.5
D)4.0
E)1.5

Question 27

The imposition of an excise tax usually causes the price paid by consumers to ,while the price received by sellers .

A)fall; remains unchanged
B)rise; falls
C)fall; falls
D)rise; remains unchanged
E)rise; rises

Question 28

Suppose that the quantity of lemonade demanded falls from 103 000 litres per week to 97 000 litres per week as a result of a 10% increase in its price.The price elasticity of demand for lemonade is therefore

A)1.03.
B)6.0.
C)1.97.
D)0.6.
E)impossible to compute unless we know the before and after prices.

Question 29

A value of infinity for the elasticity of supply of some product implies that

A)the supply curve is vertical.
B)supply is very unresponsive to price.
C)the supply curve is horizontal.
D)the product will be supplied at any price.
E)no product will be supplied at any price.

Question 30

The elasticity of supply for a given commodity is calculated as

A)percentage change in quantity supplied percentage change in average household income
B)percent change in product price percentage change in quantity supplied
C)percentage change in quantity supplied of one good percentage change in average price of a different good
D)percentage change in quantity supplied percentage change in product price
E)percentage change in quantity supplied percentage change in input prices

Question 31

Consider an excise tax imposed on daily parking charges in the downtown of a small city.Before the imposition of the tax,equilibrium price and quantity are $15 and 100 cars parked.(P = $15,Q = 100).The city government imposes a tax of $3 per car parked per day.Market equilbirium adjusts to P = $16 and Q = 95.After imposition of the tax,what is the daily after- tax price received by the seller per car parked?

A)$15
B)$1
C)$16
D)$3
E)$13

Question 32

Suppose you are advising the government on changes in the gasoline market.The current price is $1.00 per litre and the quantity demanded is 2.5 million litres per day.Long- run price elasticity of demand is constant at 0.8.If the supply of gasoline is reduced so that the price rises to $1.50 per litre,then quantity demanded is predicted to fall in the long run by

A)15%,and total expenditure will fall.
B)12%,and total expenditure will fall.
C)32%,and total expenditure will rise.
D)50%,and total expenditure will rise.
E)15%,and total expenditure will rise.

Question 33

The price of apples at a local market rises from $2.95 to $3.05 per kilogram,and as a result the quantity of oranges that households purchase increases from 3950 to 4050 kilograms per week.The cross- price elasticity is

A)- 1.33.
B)- 0.75.
C)1.5.
D)0.75.
E)1.33.

Question 34

When the percentage change in quantity demanded is less than the percentage change in price that brought it about,demand is said to be

A)zero elastic.
B)elastic.
C)unelastic.
D)inelastic.
E)unit elastic.

Question 35

Consider an excise tax imposed on daily parking charges in the downtown of a small city.Before the imposition of the tax,equilibrium price and quantity are $15 and 100 cars parked.(P = $15,Q = 100).The city government imposes a tax of $3 per car parked per day.Market equilibrium adjusts to P = $16 and Q = 95.Which of the following statements about the burden of the tax is correct?

A)Supply is more elastic relative to demand and therefore more of the burden falls on the consumer.
B)Supply is more elastic relative to demand and therefore more of the burden falls on the seller.
C)Supply is less elastic relative to demand and therefore more of the burden falls on the consumer.
D)Supply is less elastic relative to demand and therefore more of the burden falls on the seller.

Question 36

If the total expenditure on perfume increases when the price of perfume falls,the price elasticity of demand is

A)unity (demand is unit elastic).
B)not determinable from the information given.
C)exactly zero.
D)less than one (demand is inelastic).
E)greater than one (demand is elastic).

Question 37

If the total expenditure on clothing decreases when the price of clothing falls,the price elasticity of demand is

A)unity (demand is unit elastic).
B)exactly zero.
C)not determinable from the information given.
D)greater than one (demand is elastic).
E)less than one (demand is inelastic).

Question 38

A demand curve that is the shape of a rectangular hyperbola

A)has the same elasticity as a straight- line demand curve.
B)is elastic over the whole curve.
C)is unit elastic over the whole curve.
D)is inelastic over the whole curve.
E)has an elasticity of 100% over the whole curve.

Question 39

If price elasticity of demand for good X is equal to 0.4,then an increase in price will cause total expenditure on good X to

A)fall to zero.
B)decrease.
C)remain constant.
D)increase.
E)be negative.

Question 40

Consider two demand curves and the same price change for both.If the resulting percentage change in quantity demanded is greater for one (D1)than the other (D2),we can conclude

A)that D1 is elastic and D2 is inelastic.
B)that D1 is inelastic and D2 is elastic.
C)that D2 is more elastic than D1.
D)that D1 is more elastic than D2.
E)nothing about their relative elasticities.

Question 41

If per capita income increases by 10% and household expenditure on fur coats increases by 15%,one can conclude that the price elasticity of demand for fur coats is

A)unity.
B)elastic.
C)positive.
D)inelastic.
E)not determinable from the information given.

Question 42

If Vicky's income increases by 8% and she increases her consumption of music downloads by 4%,then her income elasticity of demand for music downloads is

A)0.5.
B)2.0.
C)- 2.0.
D)- 0.5.
E)4.0.

Question 43

Every month Olivier buys exactly 6 take- out pizzas even though the price may fluctuate significantly.Apparently,Olivier's price elasticity of demand for take- out pizza is

A)0.
B)1.
C)- 1.
D)infinity.
E)6.

Question 44

Consider the income elasticity of demand for turnips.An increase in income will

A)always increase the demand for turnips.
B)decrease the demand for turnips if turnips have a very low price.
C)increase the demand for turnips if turnips are normal goods.
D)increase the demand for turnips if turnips are inferior goods.
E)increase the supply of turnips.

Question 45

If the demand for some good fluctuates,but supply is constant,then which of the following combinations would generally yield the greatest quantity fluctuations?

A)large demand fluctuations and inelastic supply
B)small demand fluctuations and unit elastic supply
C)small demand fluctuations and elastic supply
D)large demand fluctuations and elastic supply
E)small demand fluctuations and inelastic supply