Deck 6: Elasticity: the Responsiveness of Demand and Supply

Question 1

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.

Answer 1

decrease as price decreases.

Question 2

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).

Answer 2

the percentage change in quantity demanded is less than the percentage change in price (in absolute value).

Question 3

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.

Answer 3

to ensure that we have only one value of the price elasticity of demand between two points on a demand curve.

Question 4

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 5

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 6

In May 2011,the average price of gasoline in the United States was $3.76 per gallon,and consumers purchased nearly 5 percent less gasoline than they had during May 2010,when the average price of gasoline was $2.79 per gallon.Based on these figures,from May 2010 to May 2011,the demand for gasoline was

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

Question 7

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 8

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 9

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 10

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 11

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 12

Figure 6-1
Refer to Figure 6-1.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 13

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 14

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 15

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 16

When the price of pistachio nuts is $7.50 per lb.the quantity demanded is 48 lbs.When the price of peaches 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 17

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

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

Question 18

Figure 6-2
Refer to Figure 6-2.As price falls from P_A to P_B,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 P_A but inelastic at P_B.

Question 19

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 20

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 21

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 22

Briefly explain the economic concept of elasticity.

Question 23

The most important determinant of the price elasticity of demand for a good is

A)the definition of the market for a good.
B)the availability of substitutes for the good.
C)the share of the good in the consumer's budget.
D)whether the good is a necessity or a luxury.

Question 24

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 25

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 26

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 27

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

A)the slope of the demand curve
B)the share of the good in the consumer's total budget
C)whether the good is a luxury or a necessity
D)the passage of time

Question 28

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 29

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 30

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 31

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 32

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 33

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 high prices.

Question 34

Which of the following statements is true?

A)In general,if a product has few substitutes it will have an elastic demand.
B)The more time that passes the more inelastic the demand for a product becomes.
C)The demand curve for a necessity is more elastic than the demand curve for a luxury.
D)The more narrowly we define a market,the more elastic the demand for a product will be.

Question 35

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

Question 36

The larger the share of a good in a consumer's budget,holding everything else constant,the

A)more price elastic is a consumer's demand.
B)more vertical is a consumer's demand curve.
C)more price inelastic is a consumer's demand.
D)more unit-elastic is a consumer's demand.

Question 37

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

Question 38

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 39

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 mid-point 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 40

A perfectly elastic demand curve is

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

Question 41

Table 6-2

Refer to Table 6-2.Assume that an economist has estimated the price elasticity of demand values in the table above.Use the data in the table to select the correct statement.

A)The demand for Coca-Cola is inelastic.
B)The elasticity for "All soft drinks" is less than the elasticity for Coca-Cola because Coca-Cola is more of a luxury than a necessity; "All soft drinks" represent goods that are more necessity than luxury.
C)The difference in elasticity values is explained by the fact that the more narrowly we define a market the more elastic the demand will be.
D)There are fewer substitutes for "All carbonated soft drinks" than there are for "All soft drinks."

Question 42

Most people buy salt infrequently and in small quantities.Even a doubling of the price of salt is likely to result in a small decline in the quantity of salt demanded.Therefore,

A)the demand for salt will be perfectly inelastic.
B)salt is a normal good.
C)the demand for salt is relatively inelastic.
D)the price elasticity of demand for salt is greater than 1 (in absolute value).

Question 43

For each pair of items below determine which product would have the higher price elasticity of demand (in absolute value).
a.Blood pressure medicine for someone who has high blood pressure and the purchase of Clairol hair coloring product.
b.A new Ford Fusion or a tank of gas for your current car.
c.A Seiko watch or watches in general.

Question 44

The demand for The Federalist Papers is likely to be more elastic than the demand for a best-selling mystery novel.

Question 45

Which of the following statements is true?

A)Whenever a firm raises its price its total revenue will increase.
B)When a firm lowers its price its total revenue may either increase or decrease.
C)Whenever a firm increases its quantity sold its revenue will increase.
D)Total revenue will equal zero when the demand for a product is unit-elastic.

Question 46

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

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

Question 47

Holding everything else constant,the demand for a good tends to be more elastic

A)the more substitutes there are for the good.
B)the shorter the time period involved.
C)the more consumers perceive the good to be a necessity.
D)the less important the product is in consumers' budgets.

Question 48

Economist Jerry Hausman estimated the price elasticity of demand for breakfast cereal.He found that

A)the price elasticity for a particular brand of raisin bran was the same as the elasticity of demand for all family cereals.
B)the price elasticity of demand for Post Raisin Bran is less than the price elasticity of demand for Kellogg's Raisin Bran.
C)the price elasticity of all family breakfast cereals is greater than the price elasticity of demand for Post Raisin Bran or Kellogg's Raisin Bran.
D)the price elasticity of demand for a particular brand of raisin bran was larger in absolute value than the elasticity for all family cereals.

Question 49

Total revenue is equal to

A)the amount of funds earned by a firm minus its costs of production.
B)the total quantity sold of a product over a given period of time.
C)the price of a product multiplied by the number of units of the product sold.
D)the monetary value of the capital (for example,plant and equipment)a firm owns.

Question 50

The estimated price elasticities of demand for the products listed in the table as "Product A" are from Table 6-2 in the text.Indicate whether the products listed as "Product B" will have a more elastic or less elastic demand than the corresponding Product A.

Question 51

In general,a "big ticket item" such as a house or new car will

A)tend to have a more elastic demand than a lower priced good.
B)tend to have an inelastic demand because spending on the item takes up a large share of the average consumer's budget.
C)tend to have an inelastic demand because it has many substitutes.
D)tend to have a more inelastic demand the more time that passes.

Question 52

Holding everything else constant,the absolute value of the price elasticity of demand for Saucony tennis shoes is ________ the price elasticity of demand for tennis shoes.

A)less than
B)equal to
C)twice as great as
D)greater than

Question 53

The demand for heating oil in the short run is more elastic than the long run demand for heating oil.

Question 54

Economist Jerry Hausman estimated the price elasticity of demand for "Post Raisin Bran" and "All types of breakfast cereals." He found that the price elasticity of demand for Post Raisin Bran was -2.5 and the price elasticity of demand for "All types of breakfast cereals" was -0.9.Which of the following can be implied from Hausman's estimates?

A)The demand for "All types of breakfast cereals" is elastic.
B)A 1 percent increase in the price of Post Raisin Bran will lead to a 25 percent decrease in the quantity demanded of Post Raisin Bran.
C)The demand for Post Raisin Bran is more elastic than the demand for "All types of breakfast cereals."
D)A 1 percent decrease in the price of breakfast cereals will lead to a 2.5 percent increase in the quantity demanded of Post Raisin Bran.

Question 55

As gasoline prices increased throughout 2010 and into 2011,consumers began to explore alternatives to driving their cars and more people eventually ended up using public transportation.This exemplifies that for a specific product,the longer the time period involved,

A)the larger (in absolute value)the price elasticity of demand.
B)the smaller (in absolute value)the price elasticity of demand.
C)the closer the price elasticity of demand is to reaching a value of zero.
D)the more people come to rely on that product.

Question 56

Which of the following could explain why the demand for table salt is inelastic?

A)Salt is a luxury good.
B)Salt is a rare commodity.
C)Households devote a very small portion of their income to salt purchases.
D)Salt is a luxury for high income consumers but a necessity for low income consumers.

Question 57

The price elasticity of demand for Kellogg's Raisin Bran is larger in absolute value than the price elasticity for all breakfast cereals.

Question 58

Jill Borts believes that the price elasticity of demand for her economics textbook is relatively inelastic.She argues "I was told I had to purchase a book written by Hubbard and O'Brien that is required by my instructor.If I wanted to buy a mystery novel I would have many authors to choose from.Therefore,the demand for mystery novels is more elastic than the demand for my textbook." Is Jill correct?

A)The demand for the textbook is more inelastic,but Jill's reasoning is incorrect.The reason the textbook has an inelastic demand is that it is more expensive than any novel.
B)She is correct.
C)She is confused.She should have concluded that the textbook has a more elastic demand than a novel.
D)She is correct that the textbook has a more inelastic demand,but that is because most students pay for their textbooks with credit or debit cards.Most people pay for novels and other books with cash or by check.

Question 59

If the absolute value of the price elasticity of demand for DVD movies is 0.8 then the elasticity of demand for the DVD for the movie The Hangover should be

A)less then 0.8 in absolute value.
B)greater than 0.8 in absolute value.
C)equal to 1 in absolute value.
D)equal to zero because the DVD of this movie has been out for several years.

Question 60

If a firm raised its price and discovered that its total revenue fell,then the demand for its product is

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

Question 61

Assume that you own a small boutique hotel.In an attempt to raise revenue you reduce your rates by 20 percent.However,your revenue falls.What does this indicate about the demand for your boutique hotel rooms?

A)Boutique hotel rooms are inferior goods.
B)Demand is inelastic.
C)The demand curve for your hotel rooms is vertical.
D)Demand is elastic.

Question 62

In May 2011,the average price of gasoline in the United States was $3.76 per gallon,and consumers purchased nearly 5 percent less gasoline than they had during May 2010,when the average price of gasoline was $2.79 per gallon.Based on these figures,when the price of gasoline rose from $2.79 per gallon to $3.76 per gallon,total revenue

A)increased.
B)decreased.
C)did not change.
D)There is not enough information to determine what happened to total revenue.

Question 63

Which of the following explains why a firm would be interested in the knowing the price elasticity of demand for a good it sells?

A)The price elasticity of demand can be used to determine the impact of changes in income on quantity sold.
B)Knowing the price elasticity of demand allows the firm to determine how the cost of producing additional units of the good will change.
C)Knowing the price elasticity of demand allows the firm to calculate how changes in the price of the good will affect the firm's total profit.
D)The price elasticity of demand allows the firm to calculate how changes in the price of the good will affect the firm's total revenue.

Question 64

Table 6-3

Refer to Table 6-3.Katie Graham owns a kayak rental service in Santa Barbara.Table 6.3 below shows her estimated demand schedule for kayak rentals per week.She would like to increase her sales revenue by changing the price she charges for rentals.At present she charges $75.Based on the information in the table,Katie

A)is not able to increase her revenue by changing her price because the demand for kayak rentals is unit-elastic.
B)should lower her price to $60 to increase her revenue because the demand for kayak rentals is price elastic.
C)should raise her price to $80 to increase her revenue because the demand for kayak rentals is price inelastic.
D)should raise her price to earn the most revenue.

Question 65

In 2001,the prices of VHS movie tapes were practically identical while DVD prices for different movie titles varied considerably.What explanation can be given for this?

A)In 2001,VHS tapes were inferior goods while DVDs were luxuries.
B)In 2001,most VHS tapes were sold by discount retailers such as Wal-Mart; most DVDs were sold online.
C)In 2001,the price elasticity demand for VHS tapes was inelastic; for DVDs the price elasticity of demand was elastic.
D)In 2001,movie studies had determined their pricing strategies for VHS tapes but were unsure of the price elasticities of DVDs.

Question 66

Suppose the absolute value of the price elasticity of demand for basketball game tickets on your campus is greater than 1.Increasing ticket prices will increase the total revenue from ticket sales.

Question 67

Along a downward sloping,linear demand curve,total revenue is the greatest

A)where demand is normal.
B)where demand is the most inelastic.
C)where demand is the most elastic.
D)where demand is unit-elastic.

Question 68

If the price elasticity of demand is unit-elastic,a 10 percent increase in price will result in a 10 percent increase in revenue.

Question 69

Suppose at the current price,the demand for copper is estimated at -3.14.What happens to sales revenue if the government imposes a price ceiling below the free market equilibrium price in the copper market?

A)Sales revenue falls.
B)Sales revenue rises.
C)Sales revenue remains unchanged because copper is a necessity for most industries.
D)It cannot be determined without information on prices.

Question 70

Assume that the market for barley is in equilibrium and the demand for barley is inelastic.Predict what happens to the revenue of barley farmers if a prolonged drought reduces the supply of barley.The drought will cause farm revenue to

A)rise because there will be a shortage of barley.
B)rise because the percentage decrease in quantity sold is less than the percentage increase in price.
C)rise because the percentage increase in quantity sold is greater than the percentage increase in price.
D)fall because of the decrease in the quantity of barley sold.

Question 71

Opera Estate Girls' School is considering increasing its tuition to raise revenue.If the school believes that raising tuition will increase revenue

A)it is assuming that the demand for attending the school is inelastic.
B)it is assuming that the demand for attending the school is elastic.
C)it is assuming that the demand for attending the school is unit-elastic.
D)it is assuming that the demand for attending the school is perfectly elastic.

Question 72

Suppose a decrease in the supply of paper results in an increase in revenue.This indicates that

A)the demand for paper is inelastic.
B)the demand for paper is elastic.
C)the supply of paper is inelastic.
D)the supply of paper is elastic.

Question 73

Figure 6-3
Refer to Figure 6-3.Between points a and b on the demand curve,demand is

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

Question 74

If demand for a product is perfectly inelastic a change in price will not change total revenue.

Question 75

Ali's Gyros operates near a college campus.Ali has been selling 120 gyros a day at $4.50 each and is considering a price cut.He estimates that he would be able to sell 200 gyros per day at $3.50 each.
a.Calculate the price elasticity of demand using the midpoint formula.
b.Calculate the change in revenue as a result of the price cut.

Question 76

Which of the following correctly comments on the following statement? "The only way to increase the revenue from selling a product is to increase the product's price."

A)It is not true.Revenue will increase as the price of the product increases only if demand is elastic.
B)This statement is not true.Revenue will increase as the price of the product increases only if demand is inelastic.
C)The statement is true.
D)This statement is not true.Revenue will decrease as the price of the product increases because quantity demanded will fall.

Question 77

If tolls on a toll road can be raised significantly before commuters will consider using a free alternative,demand for using the toll road must be

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

Question 78

If tolls on a toll road can be raised significantly before commuters will consider using a free alternative,then an increase in tolls will result in

A)a decrease in total revenue.
B)a decrease in non-toll road usage.
C)an increase in total revenue.
D)an increase in toll road usage.

Question 79

Which of the following statements is true?

A)If the price of a good is lowered and total revenue decreases,demand is elastic.
B)If the price of a good is raised and total revenue does not change,demand is perfectly elastic.
C)If the price of a good is raised and total revenue increases,demand is inelastic.
D)If the price of a good is lowered and total revenue increases,demand is inelastic.

Question 80

Suppose when Nablom's Bakery raised the price of its breads by 10 percent,the quantity demanded fell by 15 percent.What was the effect on sales revenue?

A)Sales revenue increased.
B)Sales revenue remained unchanged.
C)Sales revenue decreased.
D)It cannot be determined without information on prices.