Deck 5: Elasticity

Question 1

The demand curve for oil is inelastic, meaning that the quantityof oil demanded:

A)rises by a lot even when the price of oil increases by only a little.
B)rises by only a little even when the price of oil increases by a lot.
C)falls by a lot even when the price of oil increases by only a little.
D)falls by only a little even when the price of oil increases by a lot.

Answer 1

D

Question 2

(Figure: Price Elasticity of Demand) Refer to the figure. Whichof the four demand curves has the greatest responsiveness toprice changes?
Figure: Price Elasticity of Demand

A)A
B)B
C)C
D)D

Answer 2

A

Question 3

Which of the following factors causes a demand curve tobecome more elastic over time?

A)New substitutes for the product are discovered.(True Answer )Correct
B)New and important uses for the product are discovered.
C)More producers begin to produce the product.
D)More consumers acquire a desire for the product.

Answer 3

A

Question 4

The demand curve for physician office visits is quite inelastic;therefore, a:

A)large increase in price causes quantity demanded to decrease by very little.
B)large decrease in price causes quantity demanded to decrease by a lot.
C)small increase in price causes quantity demanded to decrease by a lot.
D)small decrease in price causes quantity demanded to decrease by very little.

Question 5

The demand curve for Froot Loops breakfast cereal is veryelastic because:

A)most breakfast cereals are considered a luxury good.
B)there are many good substitutes for Froot Loops.(True Answer )Correct
C)the demand curve is negatively sloped.
D)it is one of the most advertised cereals in the world.

Question 6

Which good below might be expected to have the most inelasticdemand curve?

A)salt
B)women's blouses from Walmart
C)potato chips
D)Tylenol

Question 7

The price elasticity of demand is:

A)the responsiveness of price to changes in the quantity demanded of the product.
B)the responsiveness of quantity demanded to changes in the price of the product.
C)the change in the firm's total revenue when prices change.
D)exactly the same as the slope of the demand curve.

Question 8

The elasticity of demand measures how sensitive the:

A)price is to a change in quantity demanded.
B)quantity demanded is to a change in price.(True Answer )Correct
C)price is to a change in the quantity supplied.
D)demand is to a change in the number of suppliers.

Question 9

All of the following conditions would cause the demand curvefor a good to be more elastic EXCEPT:

A)a longer time horizon.
B)the good is considered a luxury good.
C)the price of the good falls.
D)the good has many substitutes.

Question 10

The price of wheat increases, but few people cut back on theirconsumption of bread because:

A)the price of bread is a small portion of the budget, and thus the demand for bread is inelastic.
B)the price of bread is a large portion of the budget, and thus the demand for bread is elastic.
C)change in the price of wheat does not affect the price of bread.
D)None of the answers is correct.

Question 11

If the price of gasoline in this country were expected to rise dueto a permanent increase in the tax on gasoline, which of thefollowing would you expect to happen?

A)The demand for gasoline would become more elastic.(True Answer )Correct
B)The demand for gasoline would decrease as a result of the higher price.
C)Producers will have less of an incentive to supply gasoline as a result of the higher taxes.
D)The elasticity of demand will not change since gasoline is a necessity good.

Question 12

The elasticity of demand measures:

A)the height of the demand curve.
B)how sensitive the quantity demanded is to a change in price.
C)how sensitive the price is to a change in demand.
D)the extent to which demand shifts in response to supply changes.

Question 13

A 4 percent increase in the price of beer will cause a 1 percentdecline in the quantity of beer demanded. The demand for beeris:

A)elastic.
B)unitary elastic.
C)inelastic.
D)elastic at 4 (in absolute value).

Question 14

Which of the following would NOT make elasticity of demandfor a good more elastic?

A)more substitutes
B)luxuries
C)large part of budget
D)less time

Question 15

Why is the demand curve for oil rather inelastic?

A)There are few widely available good substitutes for oil.(True Answer )Correct
B)To increase the production of oil requires a significant outlay of exploration and drilling costs.
C)The world supply of oil is low relative to demand.
D)The demand curve for oil is always perfectly inelastic.

Question 16

Which one of the following products would tend to haveinelastic demand?

A)luxury sedans
B)candy
C)crude oil
D)Black Angus T-bone steak

Question 17

If Major League Baseball ticket prices rise by 15 percent, thenumber of tickets sold falls by 5 percent. The elasticity ofdemand is:

A)-3.
B)-1/3.
C)-7.5.
D)-0.75.

Question 18

The demand for oil is inelastic because there are:

A)many complements for oil in its major use.
B)few complements for oil in its major use.
C)many substitutes for oil in its major use.
D)few substitutes for oil in its major use.(True Answer )Correct

Question 19

The elasticity of demand:

A)equals the inverse of price to quantity demanded.
B)measures how far the demand curve shifts from a change in price.
C)tells us how responsive consumer purchases are to price changes.
D)estimates the relationship between quantity demand and production costs.

Question 20

Which of the following is a reason why the demand curve for anitem would be more elastic?

A)The item is a necessity.
B)People's incomes are very high relative to the cost of the item.
C)The item has many very good substitutes.
D)The cost of the item forms a very small part of the consumer's budgets.

Question 21

If the price of ice cream changes by 30 percent and the quantitydemanded changes by 75 percent, what is the absolute value ofdemand elasticity?

A)2.5, so demand is inelastic
B)0.4, so demand is inelastic
C)0.4, so demand is elastic
D)2.5, so demand is elastic

Question 22

If an increase in the price of oil by 10 percent would cause thequantity demanded for oil to fall by 5 percent, the elasticity ofdemand for oil in absolute terms is:

A)10.
B)5.
C)2.
D)0.5.

Question 23

The elasticity of demand for a good is -0.75. A 4 percentincrease in price will cause a:

A)3 percent decrease in quantity demanded.(True Answer )Correct
B)5.33 percent increase in quantity demanded.
C)5.33 percent decrease in quantity demanded.
D)0.19 percent decrease in quantity demanded.

Question 24

At a price $4 for Good X, a firm is willing to supply 1,400 unitsof X. For a price of $5 for Good X, the firm is willing to supply 1,500 units X. The change in revenue for the firm when theprice of the good rises from $4 to $5 is a:

A)$100 increase in total revenue.
B)$1,500 increase in total revenue.
C)$7,500 increase in total revenue.
D)There is not enough information to answer the question.

Question 25

If the price of Good X rises from $4 to $5, and the quantitydemanded of Good X falls from 200 units to 180 units, the priceelasticity of demand is:

A)2.1.
B)0.47.
C)1.4.
D)0.4.

Question 26

Total revenue is:

A)price X quantity.
B)quantity/price.
C)the elasticity of demand X price.
D)price + quantity.

Question 27

Marge tutors English students-if she raises rates, her revenuesincrease. Brad tutors biology students-if he lowers rates, hisrevenues increase. Which of the following is TRUE?

A)Marge's demand is elastic, and Brad's demand is inelastic.
B)Marge's demand is inelastic, and Brad's demand is elastic.
C)Marge's demand is elastic, and Brad's demand is elastic.
D)Marge's demand is inelastic, and Brad's demand is inelastic.

Question 28

What happens to revenues when the demand curve is unitelastic and the price changes?

A)Revenues increase when the price increases.
B)Revenues remain unchanged.
C)Revenues decrease when the price increases.
D)The change in revenues cannot be estimated.

Question 29

If the demand curve is inelastic a price ________ causes a(n)________ in revenues.

A)decrease; decrease
B)decrease; increase
C)increase; decrease
D)There is not enough information to answer.

Question 30

If the demand for a good is elastic, then firms producing thegood should ________ price in order to increase revenue.

A)increase
B)decrease
C)hold constant
D)either increase or decrease

Question 31

The price of cigars is $10, with a quantity demanded of 1,000per day. If the price increases to $12, the quantity demandeddeclines to 800 per day. What is the absolute value of elasticityof demand?

A)1.00
B)0.82
C)1.22
D)12.2

Question 32

If the price of Good Y falls from $10 to $8, and the quantitydemand of Good Y rises from 1,000 units to 1,200 units, theprice elasticity of demand is:

A)1.00.
B)0.20.
C)0.81.
D)1.22.

Question 33

If the price elasticity of demand for Good X is 1 in absolutevalue, which of the following is TRUE?
I) When the price of the good changes, the total revenue for theproduct does not change
II)A percentage drop in price will lead to an equal percentageincrease in quantity demanded
III) When the price of the product rises, total revenue alsoincreases.

A)I only
B)I and II only
C)II and III only
D)II only

Question 34

If the demand curve is inelastic then an increase in price wouldcause:

A)an increase in total revenue.
B)a decrease in total revenue.
C)an increase or decrease in total revenue.
D)no change in total revenue.

Question 35

If the price elasticity of demand is 2 in absolute value, thenwhen the price of Good X rises by 25 percent:

A)the quantity demanded of Good X rises by 50 percent.
B)the quantity demanded of Good X falls by 50 percent.(True Answer )Correct
C)the quantity demanded of Good X rises by 12.5 percent.
D)the quantity demanded of Good X falls by 12.5 percent.

Question 36

If the demand curve is elastic a price ________ causes a(n)________ in revenues.

A)decrease; decrease
B)increase; increase
C)decrease; increase
D)There is not enough information to answer.

Question 37

In general, the flatter the demand curve the:

A)less the demand elasticity.
B)greater the demand elasticity.
C)greater the change in price needed to induce a change in quantity demanded.
D)less the change in total revenue given a price change.

Question 38

A)$120; inelastic
B)$480; elastic
C)$360; inelastic
D)$120; elastic

Question 39

The demand curve is inelastic if the absolute value of theelasticity is:

A)greater than 1.
B)greater than 0.
C)less than 1.
D)equal to 1.

Question 40

When the demand curve for a good is unit elastic, raising theprice of the good by 25 percent will raise the revenue of thefirm by:

A)125 percent.
B)100 percent.
C)25 percent.
D)There is not enough information to answer the question.

Question 41

A perfectly elastic supply curve is:

A)never feasible in reality.
B)vertical.
C)upward sloped.
D)horizontal.

Question 42

The manager of a company notices that the company's totalrevenue would increase if the manager raises the price of thecompany's product. Accordingly, the manager can assert thatthe demand for the company's product is:

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

Question 43

A)Supply Curve A
B)Supply Curve B
C)Supply Curve C
D)Supply Curve D

Question 44

If the supply of a product is inelastic, a large price increase will:

A)not have an effect on the quantity supplied.
B)only bring about a small increase in quantity supplied.(True Answer )Correct
C)cause the supply curve to increase by a nontrivial amount.
D)cause a modest decrease in supply.

Question 45

The supply curve for oil is ________ because ________.

A)elastic; per unit costs do not increase when the quantity supplied increases
B)elastic; oil exploration and drilling is not expensive relative to revenues earned
C)inelastic; per-unit costs rise quickly when the quantity supplied increases
D)inelastic; oil exploration and drilling is not expensive relative to revenues earned

Question 46

Nobel prize-winning economist Gary Becker suggests that a taxcould be set so that it raised drug seller costs withoutprohibition, and in turn would:

A)increase seller revenues.
B)decrease seller revenues.
C)increase government revenues.
D)decrease government revenues.

Question 47

Increases in farm productivity have lowered the prices of manyagricultural products. Farm revenues decreased, which impliesthe:

A)demand for many agricultural products is inelastic.(True Answer )Correct
B)costs of production increased.
C)demand for many agricultural products is elastic.
D)costs of production stayed the same.

Question 48

Why do supply curves tend to be more elastic over time?

A)Sellers have time to adjust and increase production.(True Answer )Correct
B)Consumers have time to look for substitutes for the good.
C)Consumers have time to reduce their consumption of the good.
D)All of the answers are correct.

Question 49

A)increase by $800 so the demand curve must be inelastic.
B)increase by $100 so the demand curve must be inelastic.
C)decrease by $800 so the demand curve must be elastic.
D)decrease by $100 so the demand curve must be elastic.

Question 50

Why is the war on drugs hard to win?

A)It is not a conventional war.
B)The government has not used adequate resources in the war.
C)Drug dealers get stronger following successful government prohibition efforts.
D)The demand for illegal drugs is too elastic.

Question 51

Why is the supply curve for oil rather inelastic?

A)There are not many widely available good substitutes for oil.
B)To increase the production of oil would require a very significant outlay in terms of costs of exploration and drilling.
C)The world supply of oil is decreasing.
D)The supply curve for oil is always perfectly inelastic.

Question 52

(Figure: Elasticity of Supply) Refer to the figure. Which supplycurve is the most inelastic?

A)S₁
B)S₂
C)S₃
D)S4

Question 53

(Figure: Price Decrease and Elasticity) Refer to the figure. Ifprice decreases from $20 to $10, total revenue will:Figure: Price Decrease and Elasticity

A)decrease by $1,500, so the demand curve is inelastic.
B)decrease by $2,500, so the demand curve is inelastic.
C)increase by $1,500, so the demand curve is elastic.(True Answer )Correct
D)increase by $2,500, so the demand curve is elastic.

Question 54

Since the demand for illegal drugs is quite inelastic, an increasein the price of illegal drugs:

A)increases seller revenues.
B)decreases seller revenues.
C)does not affect seller revenues.
D)The change in revenue depends on supply elasticity.

Question 55

Gary Becker suggested:

A)raising the capital gains tax to help provide more government resources for the War on Drugs.
B)that the government should make drugs legal and then place a tax on drugs to control their usage.
C)subsidizing the consumption of illegal drugs in an effort to avoid deadweight losses.
D)All of the answers are correct.

Question 56

Compared to the 1980s, the price of computer chips is muchlower today but revenues from computer chips are ________because demand is elastic.

A)higher
B)lower
C)approximately unchanged
D)about $14 trillion higher

Question 57

Since roughly 1950 total revenues in the farming sector have________, and since 1980 total revenues in computer chips have________.

A)increased; decreased
B)decreased; decreased
C)increased; increased
D)decreased; increased

Question 58

The per-unit cost of producing Tic Tac candy does not changewith increases in production, which means the:

A)demand for Tic Tac candy is elastic.
B)demand for Tic Tac candy is inelastic.
C)supply of Tic Tac candy is elastic.
D)supply of Tic Tac candy is inelastic.

Question 59

Farmers can produce more milk at lower cost, but Americanswant to drink only so much milk. This suggests that the demandcurve for milk is:

A)elastic.
B)inelastic.
C)unit elastic.
D)unaffected by elasticity.

Question 60

If the supply of raw materials is ________, increasing theirproduction leads to ________ per-unit costs.

A)inelastic; higher
B)perfectly elastic; higher
C)perfectly elastic; lower
D)inelastic; lower

Question 61

Gun buyback programs will be less effective if the:

A)supply of guns is more elastic.
B)supply of guns is more inelastic.
C)demand for guns is more elastic.
D)demand for guns is more inelastic.

Question 62

If the price elasticity of supply is 4, an increase in the price ofGood X by 5 percent:

A)causes the quantity supplied of Good X to rise 20 percent.
B)causes the quantity supplied of Good X to fall 20 percent.
C)causes the quantity supplied of Good X to rise 1.25 percent.
D)causes the quantity supplied of Good X to fall 1.25 percent.

Question 63

When the supply curve of slaves is perfectly ________, everyslave bought by the redeemers results in/is ________ held incaptivity.

A)inelastic; more slaves
B)inelastic; one less slave
C)inelastic; redeemed at a lower price than expected
D)elastic; redeemed at a higher price than expected

Question 64

Evidence from the Sudan indicates that the supply of slaves islikely:

A)perfectly elastic.
B)perfectly inelastic.
C)more elastic than inelastic.
D)more inelastic than elastic.

Question 65

Economic theory suggests that gun buyback programs:

A)are effective in reducing the number of guns on city streets.
B)do not reduce the number of guns on city streets.(True Answer )Correct
C)are most effective if the supply curve of guns is perfectly elastic.
D)reduce the demand for new and better functioning guns.

Question 66

If the elasticity of supply is 2.0, what happens to quantitysupplied following a 7 percent increase in price?
Quantitysupplied increases:

A)3.5 percent.
B)2.9 percent.
C)14 percent.
D)9 percent.

Question 67

The supply curve for manufactured goods is usually moreelastic because production can often be:

A)increased at higher cost per unit by building more factories.
B)increased at lower cost per unit by building more factories.
C)decreased at the same cost per unit by building more factories.
D)increased at the same cost per unit by building more factories.

Question 68

All of the following would cause the supply curve to be moreelastic EXCEPT:

A)production of the good requires only a small share of the market for inputs.
B)the good is primarily for local supply.
C)the good is a manufactured good.
D)there is potential difficulty to increasing the production of the good at constant unit cost.

Question 69

Which of the following explains why local supply tends to bemore elastic than global supply?

A)As price increases in a certain locale, it is often costly to transport more goods to that particular area, and hence supply
Is more elastic.
B)Local suppliers are small in relation to the global market.
C)The statement is false, local supply tends to be less elastic than global supply.
D)As price increases in a certain locale, goods can be brought in from other areas, which is not possible on a global scale.(True
Answer )Correct

Question 70

If the price of cocoa rises by 10 percent and the elasticity ofsupply is 0.5, then the quantity supplied:

A)increases by 5 percent.
B)increases by 20 percent.
C)decreases by 5 percent.
D)decreases by 20 percent.

Question 71

If the price of cocoa rises by 20 percent, the quantity suppliedof cocoa rises by 4 percent. What is the elasticity of supply?

A)5
B)2
C)0.2
D)0.008

Question 72

Economic theory suggests that permanent gun buybackprograms:

A)succeed in reducing the number of guns in circulation.
B)make guns less valuable.
C)increase the quantity of low quality guns in circulation but decrease the quantity of high quality guns in
Circulation.
D)increase the number of guns in circulation.(True Answer )Correct

Question 73

Supply tends to be ________ in local markets, and ________ inglobal markets.

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

Question 74

Because producing more oil requires a significant increase inexploration and drilling costs, the supply curve for oil is:

A)relatively elastic.
B)relatively inelastic.
C)either elastic or inelastic.
D)unit elastic.

Question 75

(Figure: Elasticity of Supply) Refer to the figure. Which supplycurve is the most elastic?

A)S₁
B)S₂
C)S₃
D)S4

Question 76

If the price of coffee falls by 10 percent and the quantitysupplied of coffee falls by 1.5 percent then the elasticity ofsupply of coffee is:

A)10.
B)1.5.
C)0.15.
D)6.67.

Question 77

Which factor would tend NOT to increase elasticity of supply?

A)the long run
B)global supply
C)constant production costs
D)local supply

Question 78

If the price of Good Y falls from $10 to $8, and the quantitysupplied of Good Y falls from 1,000 units to 600 units, the priceelasticity of supply is:

A)2.67.
B)-2.67.
C)2.25.
D)-2.25.

Question 79

When production of a good can be expanded withoutsignificantly increasing the overall demand for its inputs:

A)supply for this good will tend to be more inelastic.
B)supply for this good will tend to be more elastic.(True Answer )Correct
C)price for the good will be constant.
D)the elasticity of supply of the product will equal the elasticity of supply of the inputs.

Question 80

)

A)elastic since quantity supplied increases more with an increase in price.
B)elastic since quantity supplied increases less with an increase in price.
C)inelastic since quantity supplied increases more with an increase in price.
D)inelastic since quantity supplied increases less with an increase in price.