Question 1

If the price elasticity of demand is 5.3, demand is said to be
A)inelastic.
B)elastic.
C)unit elastic.
D)perfectly inelastic.
E)perfectly elastic.

Accepted Answer

A price elasticity of demand greater than 1 means that demand is elastic, meaning that a change in price will result in a greater change in quantity demanded. A price elasticity of 5.3 is a relatively high degree of elasticity.

Question 2

If the price of a product increases by 10 percent and the quantity demanded decreases by 15 percent, then the
A)product has an elastic demand.
B)product has an inelastic demand.
C)product has an elastic supply.
D)product has a unit-elastic demand.
E)producer should raise the price further to increase total revenue.

Accepted Answer

When the price of a product increases by 10 percent and the quantity demanded decreases by 15 percent, it indicates that the product has an elastic demand. This means that the change in price has a relatively larger effect on the quantity demanded. If the product had an inelastic demand, the quantity demanded would have decreased by a smaller percentage. Therefore, option A is the correct choice. Option B, C, and D are ruled out. Option E is also incorrect because raising the price further will lead to a further decrease in the quantity demanded and, therefore, lower total revenue.

Question 3

A perfectly inelastic demand curve has a price elasticity
A)equal to zero.
B)that varies.
C)equal to 1.
D)less than 1.
E)of infinity.

Accepted Answer

A perfectly inelastic demand curve means that the quantity demanded does not change in response to any changes in price, which indicates that the price elasticity of demand is equal to zero.

Question 4

A product with an inelastic demand means that
A)consumers are relatively insensitive to a change in the price of the product.
B)producers are relatively sensitive to a change in the quantity demanded.
C)consumers are relatively sensitive to a change in the price of the product.
D)producers are relatively insensitive to a change in the quantity demanded.
E)consumers are relatively insensitive to a change in the quantity demanded.

Accepted Answer

An inelastic demand means that consumers are relatively insensitive to a change in the price of the product. This means that even if the price of the product increases, consumers will still continue to purchase it due to the lack of substitutes or essential need for the product. In such situations, producers can increase the price without experiencing a significant decrease in quantity demanded.

Question 5

A horizontal demand curve is
A)unit elastic.
B)relatively inelastic.
C)relatively elastic.
D)perfectly inelastic.
E)perfectly elastic.

Accepted Answer

A horizontal demand curve indicates perfectly elastic demand, meaning that consumers are extremely sensitive to price changes and will not purchase the product if the price is even slightly higher than their willingness to pay. As a result, any increase in price would cause quantity demanded to drop to zero, making it perfectly elastic.

Question 6

A perfectly elastic demand curve has a price elasticity
A)equal to zero.
B)that varies.
C)equal to 1.
D)less than 1.
E)of infinity.

Accepted Answer

A perfectly elastic demand curve means that any increase in price will cause an infinite decrease in quantity demanded. Therefore, the price elasticity of demand in this case would be infinite.

Question 7

If a 3 percent change in price results in a 1.5 percent change in quantity demanded, then the price elasticity of demand is ____ and demand is ____.
A)1/2; inelastic
B)1/2; elastic
C)2; inelastic
D)1; unit elastic
E)2; elastic

Accepted Answer

The price elasticity of demand is calculated as the percentage change in quantity demanded divided by the percentage change in price, which is 1.5/3 = 0.5 or 1/2. Since the value is less than 1, demand is considered inelastic.

Question 8

Exhibit 4-1 
-Carla buys one soft drink a day, regardless of the price. Which of the following statements is correct with respect to Carla?
A)Price elasticity of demand for soft drinks is infinite.
B)Price elasticity of demand for soft drinks is zero.
C)Price elasticity of demand for soft drinks is 1.
D)Cross-price elasticity of demand for soft drinks is 1.
E)Price elasticity of demand cannot be calculated with the information given.

Accepted Answer

Since Carla buys one soft drink a day regardless of the price, it means that her demand is not affected by the price. This indicates that the price elasticity of demand for soft drinks is zero.

Question 9

If demand is perfectly inelastic, then the
A)quantity demanded does not change when price changes.
B)demand curve is nonexistent.
C)elasticity of demand is -1.
D)elasticity of demand is 1.
E)demand curve is a horizontal line.

Accepted Answer

Perfectly inelastic demand means that consumers are completely insensitive to changes in price and their quantity demanded remains the same no matter what the price is. Therefore, the answer is A - quantity demanded does not change when price changes.

Question 10

Good X has a high price elasticity of demand; it is most likely that
A)consumers have high incomes.
B)good X has a lot of substitutes.
C)good X has a lot of complements.
D)good X is in short supply.
E)good X is not related to any other goods.

Accepted Answer

When a good has a high price elasticity of demand, it means that consumers are highly responsive to changes in its price. This is often the case when the good has a lot of substitutes available, as consumers can easily switch to a cheaper alternative if the price of good X increases. Therefore, option B is the most likely explanation for why good X has a high price elasticity of demand.

Question 11

The elasticity of demand changes
A)along a vertical demand curve.
B)along a horizontal demand curve.
C)along a linear, downward-sloping demand curve.
D)along a supply curve.
E)only when the demand curve shifts.

Accepted Answer

The elasticity of demand changes along a linear, downward-sloping demand curve because the proportion of quantity demanded to price changes at different points along the curve. Elasticity is higher at higher prices and lower quantities, and lower at lower prices and higher quantities.

Question 12

For demand to be inelastic,
A)the percentage change in quantity demanded must be equal to the associated percentage change in price.
B)demand must change with a change in price.
C)the percentage change in quantity demanded must be less than the associated percentage change in price.
D)quantity demanded must change with a change in price.
E)the percentage change in quantity demanded must be greater than the associated percentage change in price.

Accepted Answer

For demand to be inelastic, the percentage change in quantity demanded must be less than the associated percentage change in price. This means that a change in price will have a relatively small effect on the quantity demanded. In contrast, if the percentage change in quantity demanded is greater than the associated percentage change in price, then demand is elastic, and a change in price will have a relatively large effect on the quantity demanded.

Question 13

Exhibit 4-1 
-Refer to Exhibit 4-1. The price elasticity of demand is most likely to be elastic
A)at point A.
B)at point B.
C)at point C.
D)anywhere along the demand curve.
E)nowhere along the demand curve.

Accepted Answer

At point A, the demand curve is relatively flat, indicating that a small change in price leads to a large change in quantity demanded, which is characteristic of elastic demand.

Question 14

Suppose one market demand (D₁) has a price elasticity of .65 and a second market demand (D₂) has a price elasticity of .80. In comparing price elasticities of demand, it is proper to say that A)D₂ is elastic compared to D₁. B)D₂ is inelastic compared to D₁. C)D₂ is more inelastic than D₁. D)D₂ is more elastic than D₁. E)the elasticity of D₁ and D₂ is the same.

Accepted Answer

Comparing the given price elasticities, it is proper to say that D₂ is more elastic than D₁ as it has a higher price elasticity of demand (.80 > .65).

Question 15

For demand to be elastic,
A)the percentage change in quantity demanded must be greater than the associated percentage change in price.
B)demand must change with a change in price.
C)the percentage change in quantity demanded must be less than the associated percentage change in price.
D)the percentage change in quantity demanded must be equal to the associated percentage change in price.
E)quantity demanded must change with a change in price.

Accepted Answer

Elastic demand is characterized by a high responsiveness of quantity demanded to changes in price. This means that the percentage change in quantity demanded is greater than the percentage change in price, which is reflected in a demand curve with a relatively flat slope. In other words, consumers are highly sensitive to price changes and will adjust their consumption accordingly.

Question 16

When the demand curve is a vertical line, demand is
A)relatively elastic.
B)perfectly inelastic.
C)unit elastic.
D)infinitely elastic.
E)cross-elastic.

Accepted Answer

When the demand curve is a vertical line, it means that the quantity demanded does not change regardless of changes in price. This is known as perfectly inelastic demand. Thus, the best choice is B.

Question 17

For demand to be unit elastic,
A)the percentage change in quantity demanded must be equal to the associated percentage change in price.
B)the percentage change in quantity demanded must be less than the associated percentage change in price.
C)quantity demanded must change with a change in price.
D)demand must change with a change in price.
E)the percentage change in quantity demanded must be greater than the associated percentage change in price.

Accepted Answer

Unit elasticity of demand means that for every percentage change in price, there is an equal percentage change in quantity demanded. This is only possible when the percentage change in quantity demanded is equal to the associated percentage change in price.

Question 18

A product with an elastic demand means that
A)consumers are relatively insensitive to a change in the quantity demanded.
B)consumers are relatively insensitive to a change in the price of the product.
C)consumers are relatively sensitive to a change in the price of the product.
D)producers are relatively insensitive to a change in the price of the product.
E)producers are relatively sensitive to a change in the quantity demanded.

Accepted Answer

A product with an elastic demand means that consumers are relatively sensitive to a change in the price of the product, meaning a small change in price will result in a larger change in the quantity demanded. This is in contrast to a product with an inelastic demand, where consumers are relatively insensitive to a change in price and the quantity demanded remains more constant.

Question 19

Suppose the price elasticity of demand for apples is 2.1 and the price elasticity of demand for housing is 0.62. In comparing price elasticities of demand, it is proper to say that the demand for apples is
A)inelastic; for housing it is elastic.
B)more elastic than the demand for housing.
C)more inelastic than the demand for housing.
D)more than three times as inelastic as the demand for housing.
E)less elastic than the demand for housing.

Accepted Answer

The price elasticity of demand for apples is 2.1, which is greater than 1. This means that demand for apples is elastic. The price elasticity of demand for housing is 0.62, which is less than 1. This means that demand for housing is inelastic. As the price elasticity of demand for apples is greater than that of housing, the demand for apples is more elastic than the demand for housing, making option B the correct choice.

Question 20

Exhibit 4-1 
-Refer to Exhibit 4-1. The price elasticity of demand is most likely to be inelastic
A)at point A.
B)at point B.
C)at point C.
D)anywhere along the demand curve.
E)nowhere along the demand curve.

Accepted Answer

The answer of Exhibit 4-1 
-Refer to Exhibit 4-1. The...

Quiz 4: Subtleties of the Supply and Demand Model

If the price elasticity of demand is 5.3, demand is said to be

If the price of a product increases by 10 percent and the quantity demanded decreases by 15 percent, then the

A perfectly inelastic demand curve has a price elasticity

A product with an inelastic demand means that

A horizontal demand curve is

A perfectly elastic demand curve has a price elasticity

If a 3 percent change in price results in a 1.5 percent change in quantity demanded, then the price elasticity of demand is and demand is .

Exhibit 4-1 -Carla buys one soft drink a day, regardless of the price. Which of the following statements is correct with respect to Carla?

If demand is perfectly inelastic, then the

Good X has a high price elasticity of demand; it is most likely that

The elasticity of demand changes

For demand to be inelastic,

Exhibit 4-1 -Refer to Exhibit 4-1. The price elasticity of demand is most likely to be elastic

Suppose one market demand (D₁) has a price elasticity of .65 and a second market demand (D₂) has a price elasticity of .80. In comparing price elasticities of demand, it is proper to say that

For demand to be elastic,

When the demand curve is a vertical line, demand is

For demand to be unit elastic,

A product with an elastic demand means that

Suppose the price elasticity of demand for apples is 2.1 and the price elasticity of demand for housing is 0.62. In comparing price elasticities of demand, it is proper to say that the demand for apples is

Exhibit 4-1 -Refer to Exhibit 4-1. The price elasticity of demand is most likely to be inelastic