Deck 6: Elasticity

Question 1

The price elasticity of demand can be found by:

A) examining only the slope of the demand curve.
B) measuring absolute changes in price and quantity demanded.
C) comparing the percentage change in quantity demanded to the percentage change in price.
D) knowing that when price changes, quantity demanded goes in the opposite direction.

Answer 1

comparing the percentage change in quantity demanded to the percentage change in price.

Question 2

The price elasticity of demand is computed as the percentage change in the _____ divided by the percentage change in _____.

A) quantity demanded; the quantity supplied.
B) price; the quantity demanded.
C) quantity demanded; income.
D) quantity demanded; the price.

Answer 2

quantity demanded; the price.

Question 3

If the estimated price elasticity of demand for foreign travel is 4:

A) a 20% decrease in the price of foreign travel will increase quantity demanded by 80%.
B) the demand for foreign travel is inelastic.
C) a 10% increase in the price of foreign travel will increase quantity demanded by 40%.
D) a 20% increase in the price of foreign travel will increase quantity demanded by 80%.

Answer 3

a 20% decrease in the price of foreign travel will increase quantity demanded by 80%.

Question 4

If the price of a good increases by 15% and quantity demanded changes by 20%, then the price elasticity of demand is equal to:

A) 0.75.
B) approximately 0.33.
C) approximately 1.33.
D) 1.

Question 5

Use the following to answer questions
Figure: The Demand for e-Books
(Figure: The Demand for e-Books) Look at the figure The Demand for e-Books. What is the price elasticity of demand (by the midpoint method) when the price decreases from $6 to $4?

A) 0.55
B) 0.5
C) 1
D) 0.67

Question 6

For a normal demand curve, the price elasticity of demand will be:

A) always positive.
B) always greater than 1.
C) usually equal to 1.
D) always negative.

Question 7

The price elasticity of demand measures the:

A) responsiveness of the change in quantity demanded to a change in price.
B) change in price versus a change in quantity demanded.
C) responsiveness of the change in the slope of the demand curve to a change in price.
D) change in the slope of the demand curve versus a change in the quantity demanded.

Question 8

When the price goes down, the quantity demanded goes up. The price elasticity of demand measures:

A) how much the price goes down.
B) how much the equilibrium price goes up.
C) the responsiveness of the price change to an income change.
D) the responsiveness of the quantity change to the price change.

Question 9

The ratio of the percentage change in quantity demanded to the percentage change in price is the _____ elasticity of demand.

A) price
B) quantity
C) income
D) cross-price

Question 10

Suppose the price of gasoline increases 10% and quantity of gasoline demanded in Orlando drops 5% per day. Demand for gasoline in Orlando is:

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

Question 11

The price of gasoline rises 5% and the quantity of gasoline purchased falls 1%. The price elasticity of demand is equal to _____, and demand is described as _____.

A) 0.2; inelastic
B) 5; inelastic
C) 0.2; elastic
D) 5; elastic

Question 12

The price elasticity of demand measures the responsiveness of the change in the:

A) quantity demanded to a change in the price.
B) price to a change in the quantity demanded.
C) slope of the demand curve to a change in the price.
D) slope of the demand curve to a change in the quantity demanded.

Question 13

The price elasticity of demand measures the:

A) responsiveness of quantity demanded to a change in price.
B) responsiveness of price to a change in quantity demanded.
C) extent to which prices are flexible and respond to market forces.
D) responsiveness of demand when price is held constant and demand increases or decreases.

Question 14

Use the following to answer questions
Figure: The Demand for e-Books
(Figure: The Demand for e-Books) If the price of e-Books increases from $6 to $8, total revenue _____, which means that demand is _____.

A) increases; elastic
B) decreases; inelastic
C) remains constant; elastic
D) decreases; elastic

Question 15

If the price of a good increases by 20% and the quantity demanded changes by 15%, then the price elasticity of demand is equal to:

A) 0.75.
B) approximately 0.33.
C) approximately 1.33.
D) 1.

Question 16

Egg producers know that the elasticity of demand for eggs is 0.1. If they want to increase sales by 5%, they will have to lower price by:

A) 0.1%.
B) 1%.
C) 5%.
D) 50%.

Question 17

Use the following to answer questions
Figure: The Demand for e-Books
(Figure: The Demand for e-Books) Look at the figure The Demand for e-Books. The demand schedule _____ when the price increases from $4 to $6 _____ when it increases from $6 to $8.

A) is less elastic; than
B) is more elastic; than
C) has the same elasticity;; as
D) is unit-elastic; and

Question 18

Use the following to answer questions
Figure: The Demand for e-Books
(Figure: The Demand for e-Books) If the price of e-Books decreases from $6 to $4, total revenue _____, which means that demand is _____.

A) changes from $60 to $90; elastic
B) remains constant; unit-elastic
C) changes from $240 to $360; elastic
D) changes from $40 to $50; inelastic

Question 19

The price elasticity of demand is measured by _____ the percentage change in _____ the percentage change in _____.

A) dividing; price by; quantity demanded
B) dividing; quantity demanded by; price
C) subtracting; price from; quantity demanded
D) adding; price to; quantity demanded

Question 20

Use the following to answer questions
Figure: The Demand for e-Books
(Figure: The Demand for e-Books) Look at the figure The Demand for e-Books. What is the price elasticity of demand (by the midpoint method) when the price increases from $6 to $8?

A) 0.55
B) 0.5
C) 2.33
D) 0.67

Question 21

Use the following to answer questions
Figure: The Market for Lattes
(Figure: The Market for Lattes) Look at the figure The Market for Lattes. What is the price elasticity of demand between $2 and $2.50 per cup, using the midpoint formula?

A) 1.00
B) 1.29
C) 2.51
D) 3.00

Question 22

The price elasticity of demand for soft drinks has been estimated to be 0.55. If the government enacts a major increase in the tax on imported sugar (a major ingredient in soft drink manufacturing), how will that affect total expenditures on soft drinks, all other things equal?

A) Total expenditures will remain unchanged.
B) Total expenditures will fall.
C) Total expenditures will rise.
D) People will buy Pepsi instead of Coke.

Question 23

Use the following to answer questions
Figure: The Demand Curve
(Figure: The Demand Curve) Look at the figure The Demand Curve. Between prices $4 and $5, demand is _____, and total revenue will _____ if price increases.

A) elastic; increase
B) elastic; decrease
C) inelastic; increase
D) inelastic; decrease

Question 24

Use the following to answer questions
Figure: The Demand Curve
(Figure: The Demand Curve) Look at the figure The Demand Curve. By the midpoint method, the price elasticity of demand between $6 and $7 is approximately:

A) 0.19.
B) 1.00.
C) 1.86.
D) 5.40.

Question 25

Use the following to answer questions
Figure: The Demand Curve
(Figure: The Demand Curve) Look at the figure The Demand Curve. If the price is $5, total revenue is:

A) $5.
B) $10.
C) $20.
D) $25.

Question 26

Use the following to answer questions
Figure: The Demand Curve
(Figure: The Demand Curve) Look at the figure The Demand Curve. By the midpoint method, the price elasticity of demand between $6 and $8 is approximately:

A) 0.23.
B) 0.45.
C) 2.33.
D) 4.50.

Question 27

The price elasticity of demand for ground beef has been estimated to be 1.0. If mad cow disease strikes the United States and a large percentage of the cattle are removed from the market, how will that affect total expenditures on ground beef, all other things equal?

A) Total expenditures will remain unchanged.
B) Total expenditures will fall by more than 1%.
C) Demand will fall by 1%, but total expenditures will fall by less than 1%.
D) Total expenditures will rise.

Question 28

The price elasticity of demand for cabbage has been estimated to be 0.25. If an insect infestation destroys 20% of the nation's cabbage crop (and thus reduces supply), how will that affect total expenditures on cabbage, all other things equal?

A) Total expenditures will rise.
B) Total expenditures will fall.
C) Total expenditures will remain unchanged.
D) The information is insufficient to answer the question.

Question 29

Suppose the price of Vanilla Coke increases by 9% and quantity demanded falls by 13% overall but only by 4% for loyal Coca-Cola customers. This means that for the general public there are _____ for Vanilla Coke, but for loyal Coca-Cola customers, Vanilla Coke is more of a _____ item. This means that Coca-Cola will enjoy an increase in total revenue only from _____.

A) several substitutes; necessity; loyal Coca-Cola customers
B) few substitutes; luxury; the general public
C) no substitutes; necessity; the general public
D) several substitutes; necessity; the general public

Question 30

Use the following to answer questions
Figure: The Demand Curve
(Figure: The Demand Curve) Look at the figure The Demand Curve. By the midpoint method the price elasticity of demand between $3 and $4 is approximately:

A) 0.19.
B) 0.54.
C) 1.00
D) 1.86.

Question 31

Use the following to answer questions
Figure: The Demand Curve
(Figure: The Demand Curve) Look at the figure The Demand Curve. By the midpoint method, the price elasticity of demand between $1 and $2 is approximately:

A) 0.16.
B) 0.56.
C) 1.80.
D) 5.67.

Question 32

Use the following to answer questions
Figure: The Demand Curve
(Figure: The Demand Curve) Look at the figure The Demand Curve. If the price is $3, total revenue is _____. If the price is $4, total revenue is _____.

A) $21; $24
B) $21; $18
C) $12; 28
D) $7; $13

Question 33

Use the following to answer questions
Figure: The Market for Lattes
(Figure: The Market for Lattes) Look at the figure The Market for Lattes. What is the price elasticity of supply between the prices of $2 and $2.50 per cup, using the midpoint formula?

A) 1.00
B) 1.29
C) 1.51
D) 3.00

Question 34

If an increase in the price of a good leads to an increase in total revenue, the _____ curve is price _____.

A) supply; inelastic
B) demand; inelastic
C) supply; elastic
D) demand; elastic

Question 35

Consider the market for strawberries. Which of the following statements most likely applies to the strawberry market?

A) The income elasticity of demand for strawberries is negative.
B) The price elasticity of supply of strawberries is greater in the short run than in the long run.
C) The price elasticity of demand for strawberries is lower in the long run than in the short run.
D) The cross-price elasticity of demand for strawberries with respect to the price of raspberries is positive.

Question 36

A group of dairy farmers is trying to raise milk prices by 10%. If the price elasticity of demand for milk is 0.75 and the price elasticity of supply for milk is 0, by how much should farmers reduce their milk production to obtain the 10% increase?

A) 10%
B) 7.5%
C) 15%
D) 13%

Question 37

The price elasticity of demand for gasoline in the short run has been estimated to be 0.1. If a war in the Middle East causes the price of oil (from which gasoline is made) to increase, how will that affect total expenditures on gasoline in the short run, all other things equal?

A) Quantity demanded will stay the same, but total expenditures will fall.
B) Quantity demanded will decrease, but total expenditures will rise.
C) Total expenditures will remain unchanged.
D) Quantity demanded will not change much, but total expenditures will rise.

Question 38

Use the following to answer questions
Figure: The Demand Curve
(Figure: The Demand Curve) Look at the figure The Demand Curve. By the midpoint method, the price elasticity of demand between $8 and $9 is approximately:

A) 0.18.
B) 0.56.
C) 1.80.
D) 5.67.

Question 39

Use the following to answer questions
Figure: The Demand Curve
(Figure: The Demand Curve) Look at the figure The Demand Curve. If the price is $8, total revenue is _____. If the price is $7, total revenue is _____.

A) $24; $16
B) $14; $21
C) $16; $21
D) $10; $10

Question 40

Suppose the price elasticity of demand for blueberries is 1.5. If climate change destroys one-fourth of the nation's blueberry crop, how will that affect total revenue, all other things unchanged?

A) Total revenue will rise.
B) Total revenue will fall.
C) Total revenue will remain unchanged.
D) The information is insufficient to answer the question.

Question 41

A perfectly inelastic demand curve for insulin would mean that the quantity demanded does NOT respond at all to changes in the price of insulin.

Question 42

If the price elasticity of demand for tobacco is 0.5 and the income elasticity of demand for tobacco is 0.4:

A) an increase in the price of tobacco will decrease total revenue from sales of tobacco.
B) a 20% increase in the price of tobacco will decrease the quantity demanded of tobacco by 8%.
C) tobacco is an inferior good.
D) a 50% increase in income will increase the quantity demanded of tobacco by 20%.

Question 43

The price elasticity of demand for fresh zucchini has been estimated to be 2.25. A new irrigation system yields a 25% increase in the nation's crop of fresh zucchini. Which of the following best describes how this will affect total expenditures on zucchini, all other things equal?

A) Total expenditures will remain unchanged.
B) Total expenditures will fall.
C) Total expenditures will rise.
D) The information is insufficient to answer the question.

Question 44

Sarah has been told she has only one week to finish some pottery for a show. Sarah has exhausted her supply of clay, and new clay is absolutely necessary for finishing her products. For Sarah, the price elasticity of demand for new clay is elastic.

Question 45

Assume the supply curve shifts to the right by a given amount at each price. The price in the market will decline the most if demand is more _____ and supply is more _____.

A) price-elastic; price-elastic
B) price-inelastic; price-elastic
C) price-elastic; price-inelastic
D) price-inelastic; price-inelastic

Question 46

If funeral homes discover that the price elasticity of demand for caskets equals 0.55 at the current price, funeral homes should increase prices to increase revenue.

Question 47

A price floor above equilibrium will cause a larger surplus when demand is _____ and supply is _____.

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

Question 48

A major determinant of the price elasticity of demand is the availability of substitutes.

Question 49

The director of River City Public Transport recently stated, "The last seven times we increased bus fares, revenues dropped." This remark suggests the demand for bus service is elastic.

Question 50

A price ceiling below equilibrium will cause a larger shortage when demand is _____ and supply is _____.

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

Question 51

Local cable companies recently increased the price of basic services. A news expert reporting on the increase stated, "While prices have increased 40%, the cable company reports only a 20% increase in revenue." This remark suggests the demand for basic cable service is elastic.

Question 52

If demand is perfectly inelastic, changes in price leave total revenue unchanged.

Question 53

Assume the price elasticity of demand for corn has been estimated to be 2.33. Flash floods destroy 10% of the nation's crop of corn. Which of the following best describes how this will affect total expenditures on corn, all other things equal?

A) Total expenditures will remain unchanged.
B) Total expenditures will fall.
C) Total expenditures will rise.
D) The information is insufficient to answer the question.

Question 54

The price elasticity of demand is the ratio of the percent change in quantity demanded to the percent change in price as one moves along the demand curve.

Question 55

There is NO total revenue test for price elasticity of supply because:

A) price and quantity supplied are usually inversely related.
B) price and quantity supplied are usually positively related.
C) total revenue will not usually change in the direction of a supply price change.
D) price and quantity supplied are always negatively related.

Question 56

The price elasticity of demand for gasoline in the long run has been estimated to be 1.5. If an extended war in the Middle East caused the price of oil (from which gasoline is made) to increase and remain high for a decade, how would that affect total expenditures on gasoline in the long run, all other things equal?

A) Total expenditures would rise.
B) Total expenditures would fall.
C) Total expenditures would remain unchanged.
D) The information is insufficient to answer the question.

Question 57

The mayor advocates raising the entrance fee at the city's pools to increase revenue for the city. The mayor is right only if the price effect dominates the quantity effect.

Question 58

The price elasticity of demand for gasoline is likely to be higher in the long run than in the short run.

Question 59

Given a price increase for any good, the price effect on revenue is always larger than the quantity effect on revenue.

Question 60

The price elasticity of demand for milk has been estimated to be somewhere between 0.49 and 0.63. If a new system of feeding and milking cows yields a 15% increase in the production of milk throughout the country, how will that affect total expenditures on milk, all other things equal?

A) Total expenditures will remain unchanged.
B) Total expenditures will fall.
C) Total expenditures will rise.
D) The information is insufficient to answer the question.

Question 61

Suppose the price elasticity of demand for electricity is equal to 0.15 in the short run but is equal to 0.5 in the long run. What explains this difference, and what does this imply about the demand curve for electricity in the short run versus the long run?

Question 62

If the cross-price elasticity of demand between hamburgers and cheese is positive, these two goods must be complements.

Question 63

All else equal, when the demand for oil increases, the price will increase. Some economists say that this is only a short-run worry because in the long run a more elastic supply curve will benefit consumers. Do you agree? Explain.

Question 64

The price elasticity of the supply of paintings by Rembrandt is greater than 1.

Question 65

If the price elasticity of demand between two points on a demand curve is 0.75, then the demand between those two points is:

A) price unit-elastic.
B) price-inelastic.
C) price-elastic.
D) unknown.

Question 66

When the absolute value of the percentage change in quantity demanded is less than the absolute value of the percentage change in price, demand is:

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

Question 67

You are the manager of a supermarket, and you know that the cross-price elasticity of peanut butter to jelly is exactly -2.0.Because of a bad grape harvest, grape jelly prices are expected to rise by 10% next year. To account for the change in demand, you should stock 10% more peanut butter.

Question 68

Suppose the cross-price elasticity of demand for pork with respect to the price of chicken is equal to +0.4. What does this tell you about the relation between pork and chicken? What will happen to consumption of pork if the price of chicken falls by 20%?

Question 69

Since for most people, eating in restaurants is a luxury and eating at home is a necessity, the price elasticity of demand for food eaten at home is less than the price elasticity of demand for eating in restaurants.

Question 70

If the cross-price elasticity of demand between rice and beans is -0.25, rice and beans are complements.

Question 71

Demand for Wendy's hamburgers is more inelastic than the demand for all fast food.

Question 72

Suppose the price of e-books is initially $20 but decreases to $15. The absolute value of the percentage change in price (by the midpoint method) is approximately:

A) 28%.
B) 10%.
C) 5%.
D) 15%.

Question 73

Suppose the income elasticity for cross-country bus trips is -2 and the income elasticity for cross-country plane trips is +2. Does this make sense? Explain your answer.

Question 74

If the absolute value of the price elasticity of demand is greater than 1:

A) small percentage changes in the price will lead to much larger percentage changes in the quantity demanded.
B) small percentage changes in the price will lead to even smaller changes in the percentage change in the quantity demanded.
C) percentage changes in the price will lead to equal percentage changes in the quantity demanded.
D) changes in the price will have no impact on changes in the quantity demanded.

Question 75

The income elasticity of demand for an inferior good, such as a macaroni and cheese dinner, is negative.

Question 76

If the quantity demanded is 5,000 gallons at $3.00 per gallon, the price elasticity of demand for gasoline is 0.5, and the price rises to $3.15 per gallon, how many gallons of gas will be sold at this higher price? (Use the conventional method, not the midpoint method, of calculating price elasticity of demand.)

Question 77

A university bookstore decreased the price of a sweatshirt from $20 to $18 and discovered that sweatshirt sales increased from 100 per week to 120 per week. Use the midpoint formula to compute the price elasticity of demand for sweatshirts.

Question 78

Suppose you are told that the short-run price elasticity of supply for a movie theater is zero. Does this make sense?

Question 79

The city government is losing millions of dollars on its buses and subways. The government proposes to increase the fare by 20% to raise revenue and has asked your advice. You know that the price elasticity of demand for mass transit in the city is approximately equal to 0.75. What do you think of the proposal to increase the fare to raise revenue for the city? Be as specific as possible.

Question 80

Suppose the cross-price elasticity between two goods is zero. What does this tell you about these two goods?