Deck 5: Elasticity

Question 1

Price elasticity of demand is defined as:

A) the slope of the demand curve.
B) the slope of the demand curve divided by the 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.

Answer 1

the percentage change in quantity demanded divided by the percentage change in price.

Question 2

If the demand curve is perfectly elastic, then an increase in supply will:

A) decrease the price but result in no change in the quantity exchanged.
B) increase the quantity exchanged but result in no change in the price.
C) increase the price but result in no change in the quantity exchanged.
D) increase both the price and the quantity exchanged.

Answer 2

increase the quantity exchanged but result in no change in the price.

Question 3

A 10 percent decrease in the price of potato chips leads to a 30 percent increase in the quantity of soda demanded. It appears that:

A) elasticity of demand for potato chips is 3.
B) cross-price elasticity of demand for soda is -3.
C) elasticity of demand for potato chips is -3.
D) elasticity of demand for soda 3.

Answer 3

cross-price elasticity of demand for soda is -3.

Question 4

A 25 percent decrease in the price of breakfast cereal leads to a 20 percent increase in the quantity of cereal demanded. As a result:

A) total revenue will decrease.
B) total revenue will increase.
C) total revenue will remain constant.
D) the elasticity of demand will increase.

Question 5

Demand is said to be _______ when the quantity demanded changes at the same proportion as the price.

A) elastic
B) unit elastic
C) inelastic
D) independent

Question 6

If the demand curve for a life-saving medicine is perfectly inelastic, then a reduction in supply will cause the equilibrium price to:

A) rise and the equilibrium quantity to fall.
B) rise and the equilibrium quantity to stay the same.
C) rise and the equilibrium quantity to rise.
D) stay the same and the equilibrium quantity to fall.

Question 7

When demand is inelastic:

A) price elasticity of demand is greater than 1.
B) consumers are not very responsive to changes in price.
C) the percentage change in quantity demanded resulting from a price change is greater than the percentage change in price.
D) demand curves appear to be fairly flat.

Question 8

The price elasticity of demand measures the:

A) responsiveness of quantity demanded to a change in quantity supplied.
B) responsiveness of price to a change in quantity demanded.
C) responsiveness of quantity demanded to a change in price.
D) responsiveness of quantity demanded to a change in income.

Question 9

Suppose that Mimi plays golf 5 times per month when the price is $40 and 4 times per month when the price is $50. What is the price elasticity of Mimi's demand curve?

A) 0.1
B) 0.8
C) 1.0
D) 10.0

Question 10

A 10 percent increase in income leads to a 15% decrease in the quantity of macaroni and cheese demanded but no change in the price of macaroni and cheese. From this information, we can assume:

A) macaroni is a normal good and price elasticity of demand is greater than 1.
B) macaroni is an inferior good and price elasticity of supply is equal to zero.
C) macaroni is an inferior good and price elasticity of supply is infinite.
D) macaroni is an inferior good and price elasticity of demand is less than 1.

Question 11

Suppose that Bobo purchases 1 pizza per month when the price is $19 and 3 pizzas per month when the price is $15. What is the price elasticity of Bobo's demand curve?

A) 0.235
B) 2.00
C) 4.25
D) 6.33

Question 12

The price elasticity of demand for tickets to local baseball games is estimated to be equal to 0.89. In order to boost ticket revenues, an economist would advise:

A) increasing the price of game tickets because demand is inelastic.
B) not changing the price of game tickets because demand is unit elastic.
C) increasing the price of game tickets because demand is elastic.
D) decreasing the price of game tickets because demand is elastic.

Question 13

A 10 percent increase in the price of soda leads to a 20 percent increase in the quantity of iced tea demanded. It appears that:

A) elasticity of demand for soda 0.5 and is inelastic.
B) elasticity of demand for iced tea is 2 and is elastic.
C) cross-price elasticity of demand for soda is -0.5.
D) cross-price elasticity of demand for iced tea is -2.

Question 14

Demand is said to be _______ when the quantity demanded is very responsive to changes in price.

A) elastic
B) unit elastic
C) inelastic
D) independent

Question 15

The elasticity of demand is defined as the percentage change in quantity demanded divided by the percentage change in _______.

A) quantity supplied
B) the slope of the demand curve
C) price
D) the slope in the supply curve

Question 16

Billy Bob'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 Billy Bob's Barber Shop?

A) 0.15
B) 3.0
C) 0.10
D) 0.05

Question 17

The demand for a product is unit elastic. At a price of $20, 10 units of a product are sold. If the price is increased to $40, then one would expect sales to equal:

A) 20 units.
B) 10 units.
C) 5 units.
D) 0 units.

Question 18

Demand is said to be _______ when the quantity demanded is not very responsive to changes in price.

A) independent
B) inelastic
C) unit elastic
D) elastic

Question 19

If cola and iced tea are good substitutes for consumers, then it is likely that:

A) their cross price elasticities are greater than zero.
B) their price elasticities of demand are less than one.
C) their income elasticities are less than zero.
D) their price elasticities of supply are less than one .

Question 20

A price cut will increase the total revenue a firm receives if the demand for its product is:

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

Question 21

If the supply curve for housing is perfectly inelastic, then a reduction in demand will cause the equilibrium price to:

A) rise and the equilibrium quantity to fall.
B) rise and the equilibrium quantity to stay the same.
C) fall and the equilibrium quantity to fall.
D) fall and the equilibrium quantity to stay the same.

Question 22

A perfectly elastic supply curve is:

A) upward sloping to the right.
B) downward sloping to the left.
C) horizontal.
D) vertical.

Question 23

If the supply curve for a product is vertical, then the elasticity of supply is:

A) equal to zero.
B) equal to 1.
C) greater than 1 but less than infinity.
D) equal to infinity.

Question 24

Define the elasticity of labor supply.

Question 25

If the supply curve for aspirin is perfectly elastic, then a reduction in demand will cause the equilibrium price to:

A) stay the same and the equilibrium quantity to fall.
B) fall and the equilibrium quantity to fall.
C) rise and the equilibrium quantity to stay the same.
D) rise and the equilibrium quantity to fall.

Question 26

Supply is said to be _______ when the quantity supplied is very responsive to changes in price.

A) independent
B) inelastic
C) unit elastic
D) elastic

Question 27

Youth smoking seems to be more _______ than adult smoking-that is, the quantity of youth smoking will fall by a greater percentage than the quantity of adult smoking in response to a given percentage increase in price.

A) unitary elastic
B) inelastic
C) elastic
D) cross-price elastic

Question 28

Suppose that a 20% increase in the price of gasoline causes a 5% decrease in the consumption of gasoline and a 30% drop in the sales of SUVs. What can you say about elasticities?

Question 29

The evidence on the supply curve of financial capital is controversial, but at least in the short run, the elasticity of savings with respect to the interest rate appears to be _______.

A) elastic
B) inelastic
C) perfectly elastic
D) negative

Question 30

A demand or supply curve with _______ would be horizontal in appearance.

A) unitary elasticity
B) zero elasticity
C) infinite elasticity
D) infinite cost elasticity

Question 31

Taxes on goods with _______ demand curves will tend to raise more tax revenue for the government than taxes on goods with _______ demand curves.

A) elastic; unit elastic
B) elastic; inelastic
C) inelastic; elastic
D) unit elastic; inelastic

Question 32

When economists are sketching examples of demand and supply, it is common to sketch a demand or supply curve that is close to vertical, and then to refer to that curve as _______.

A) inelastic
B) elastic
C) unitary elasticity
D) income elasticity

Question 33

What are normal goods and inferior goods? Discuss within the context of income elasticity of demand.

Question 34

If the supply curve for housing is perfectly inelastic, then a reduction in demand will cause the equilibrium price to:

A) rise and the equilibrium quantity to fall.
B) rise and the equilibrium quantity to stay the same.
C) fall and the equilibrium quantity to fall.
D) fall and the equilibrium quantity to stay the same.

Question 35

The longer the time period considered, the more the elasticity of supply tends to:

A) decrease
B) remain constant
C) increase
D) converge to zero

Question 36

Define wage elasticity of labor supply and differentiate the elasticity between teenage workers and that of middle-aged adult workers in the workforce.

Question 37

If the supply curve for a product is horizontal, then the elasticity of supply is:

A) equal to infinity.
B) greater than 1 but less than infinity.
C) equal to 1.
D) equal to zero.

Question 38

When economists are sketching examples of a demand or supply curve that is close to horizontal, they refer to that demand or supply curve as _______.

A) elastic
B) inelastic
C) having zero elasticity
D) price inelasticity

Question 39

The elasticity of supply is defined as the _______ change in quantity supplied divided by the _______
Change in price.

A) total; percentage
B) percentage; marginal
C) marginal; percentage
D) percentage; percentage

Question 40

Define cross-price elasticity of demand and discuss within the context of complementary goods and substitute goods.

Question 41

How does the slope of a supply or demand curve differ from elasticity of supply or demand?

Question 42

Define zero elasticity and describe the resultant demand curve.

Question 43

A 10% increase in the price of pizza causes a 10% drop in the quantity of both pizza and beer sold. Describe elasticities and the nature of the two products.

Question 44

If the question is whether a shift in supply will have a greater effect on equilibrium price or quantity, the answer lies not with the elasticity of supply, but with the elasticity of demand. Why is this?

Question 45

The elasticity of supply and demand determines whether a shift in supply or demand will have a larger effect on quantity or price. Discuss the four scenario outcomes and the various effects on price and quantity.