Question 1

An increase in demand caused no change in the equilibrium price. Thus, supply must be
A) perfectly inelastic.
B) inelastic.
C) elastic.
D) perfectly elastic.

Accepted Answer

When supply is perfectly elastic, it means that suppliers are willing to supply any quantity at a particular price. Therefore, if demand increases and the equilibrium price does not change, it indicates that the supply curve is perfectly elastic, allowing the quantity supplied to increase to meet the higher demand without changing the price.

Question 2

Demand is more inelastic for an item which is a luxury as compared to an item which is a necessity.

Accepted Answer

Demand for luxury items tends to be more elastic because consumers can more easily do without them when prices rise, unlike necessities, which consumers must buy regardless of price.

Question 3

The income elasticity of demand
A) measures the change in income necessary for a given change in quantity demanded.
B) measures the responsiveness of income to changes in quantity demanded.
C) measures the responsiveness of quantity demanded to changes in income.
D) is the ratio of the percentage change in income to the percentage change in quantity demanded.

Accepted Answer

Income elasticity of demand measures how the quantity demanded of a good responds to a change in consumers' income, indicating whether the good is a necessity or a luxury.

Question 4

If the supply of oranges is unit elastic, the price elasticity of supply of oranges is
A) 1.0.
B) 0.0.
C) -1.0.
D) -100.0.

Accepted Answer

When the supply of a good is unit elastic, the price elasticity of supply is exactly 1.0, indicating that a 1% change in price leads to a 1% change in quantity supplied.

Question 5

If the quantity of bagels demanded decreases by 8% when the price of croissants decreases by 16%, the cross-price elasticity of demand between bagels and croissants is
A) 2.
B) 0.5.
C) -2.
D) -5.

Accepted Answer

The answer of If the quantity of bagels demanded decreases...

Question 6

For perfectly price inelastic supply,
A) price is solely determined by supply.
B) price is solely determined by demand.
C) only a government can set the price.
D) either supply or demand may set the price.

Accepted Answer

When supply is perfectly price inelastic, it means the quantity supplied does not change regardless of the price. Therefore, the price is determined solely by the level of demand.

Question 7

Suppose a 10% increase in the price of steak reduces the consumption of steak by 30%. Such a price rise will induce households to spend
A) less of their income on steak.
B) more of their income on steak.
C) the same amount on steak as before.
D) more on products that are complementary with steak.

Accepted Answer

When the price of steak increases by 10% and consumption decreases by 30%, households are likely to spend less of their income on steak because the decrease in quantity consumed more than offsets the price increase, leading to a reduction in total expenditure on steak.

Question 8

Related to the Economics in Practice on page 102: Which of the following best explains why demand is often less elastic in the short run than it is in the long run?
A) When demand is elastic, price increases reduce revenue because a small price increase will lead to a large decrease in quantity demanded.
B) In the short run, consumers have less access to substitutes.
C) Consumers tend to postpone making purchasing decisions as long as possible.
D) In the short run, prices can change rapidly, but in the long run they are more stable.

Accepted Answer

In the short run, consumers have fewer opportunities to find and switch to substitute goods or services when prices change, making their demand less elastic. Over time, as consumers become aware of and have access to more alternatives, their demand becomes more elastic since they can more easily switch to substitutes if prices rise.

Question 9

Luxury items tend to have ________ demand, and necessities tend to have ________ demand.
A) relatively elastic; inelastic
B) relatively inelastic; elastic
C) perfectly elastic; perfectly inelastic
D) unit elastic; perfectly inelastic

Accepted Answer

Luxury items have relatively elastic demand because consumers are more sensitive to price changes, meaning they will buy significantly less if the price increases. Necessities have inelastic demand because consumers will continue to buy them even if the price increases, as these items are essential for daily life.

Question 10

Cross-price elasticity of demand measures the response in the
A) price of a good to a change in the quantity of another good demanded.
B) income of consumers to the change in the price of goods.
C) quantity of one good demanded when the quantity demanded of another good changes.
D) quantity of one good demanded to a change in the price of another good.

Accepted Answer

Cross-price elasticity of demand measures how the quantity demanded of one good responds to a change in the price of another good, indicating whether the goods are substitutes or complements.

Question 11

If the quantity of tea demanded increases by 2% when the price of coffee increases by 6%, the cross-price elasticity of demand between tea and coffee is
A) -3.
B) 0.33.
C) 3.
D) 12.

Accepted Answer

The cross-price elasticity of demand is calculated as the percentage change in the quantity demanded of one good divided by the percentage change in the price of another good. In this case, it is (2% / 6%) = 0.33, indicating that tea and coffee are substitutes.

Question 12

The ABC Computer Company spends a lot of money for advertising designed to convince you that their personal computers are superior to all other personal computers. If the ABC Company is successful, the demand for ABC personal computers
A) and the demand for other firmsʹ personal computers will become less price elastic.
B) and the demand for other firmsʹ personal computers will become more price elastic.
C) will become more price elastic, but the demand for other firmsʹ personal computers will become less price elastic.
D) will become less price elastic, but the demand for other firmsʹ personal computers will become more price elastic.

Accepted Answer

If ABC Computer Company successfully convinces consumers that their personal computers are superior, consumers will be less sensitive to price changes for ABC's computers, making the demand less price elastic. Conversely, other firms' computers will be seen as substitutes and consumers will be more sensitive to their price changes, making the demand for these more price elastic.

Question 13

Related to the Economics in Practice on page 102: Harriet runs a corner delicatessen and one day decides to raise her prices by 20 percent. Total revenue is likely to ________ when she first raises prices since demand is relatively ________ in the short term.
A) rise; inelastic
B) fall; inelastic
C) rise; elastic
D) fall; elastic

Accepted Answer

Total revenue is likely to rise when prices are increased if the demand is inelastic in the short term, meaning consumers' purchasing behavior does not change significantly with a price increase.

Question 14

The demand for gasoline is likely to be more inelastic than the demand for sushi.

Accepted Answer

Gasoline is a necessity for many people, especially those who rely on cars for transportation, making its demand less sensitive to price changes. In contrast, sushi is a luxury good for many, making its demand more sensitive to price changes, hence more elastic.

Question 15

The income elasticity of demand for education is 3.5. Thus, a 4% increase in income will
A) decrease the quantity of education demanded by 3.5%.
B) decrease the quantity of education demanded by 14%.
C) increase the quantity of education demanded by 4%.
D) increase the quantity of education demanded by 14%.

Accepted Answer

The income elasticity of demand measures how the quantity demanded of a good responds to a change in income, with a positive elasticity indicating that the good is a normal good (demand increases as income increases). Here, with an elasticity of 3.5, a 4% increase in income leads to a 3.5 * 4% = 14% increase in the quantity of education demanded.

Question 16

Demand is more elastic for an item which represents a relatively large part of a person's total budget.

Accepted Answer

When an item represents a relatively large part of a person's total budget, consumers are more sensitive to price changes, making the demand for that item more elastic.

Question 17

Demand is more elastic for an item for which few substitutes are available.

Accepted Answer

Demand is less elastic for an item for which few substitutes are available, because consumers have fewer alternatives and are less sensitive to price changes.

Question 18

A perfectly price elastic supply curve will be a(n) ________ line.
A) horizontal
B) vertical
C) upward-sloping
D) downward-sloping

Accepted Answer

A perfectly price elastic supply curve is horizontal, indicating that suppliers are willing to supply any quantity at a specific price.

Question 19

The income elasticity of demand for low-quality beef is -2. Thus, an 8% decrease in the quantity of low-quality beef demanded
A) is the result of a decrease in income of 4%.
B) is the result of an increase in income of 0.25%.
C) is the result of an increase in income of 4%.
D) is unrelated to any change in income.

Accepted Answer

The income elasticity of demand formula is percentage change in quantity demanded divided by the percentage change in income. Given an elasticity of -2 and an 8% decrease in quantity demanded, the income must have increased by 4% (8% / -2 = -4%, but an increase in income is positive).

Question 20

If income increases by 10% and, in response, the quantity of housing demanded increases by 7%, then the income elasticity of demand for housing is
A) -1.
B) -0.7.
C) 0.7.
D) 1.43.

Accepted Answer

The income elasticity of demand is calculated as the percentage change in quantity demanded divided by the percentage change in income. Here, it is (7% / 10%) = 0.7.

Quiz 5: Elasticity

An increase in demand caused no change in the equilibrium price. Thus, supply must be

Demand is more inelastic for an item which is a luxury as compared to an item which is a necessity.

The income elasticity of demand

If the supply of oranges is unit elastic, the price elasticity of supply of oranges is

If the quantity of bagels demanded decreases by 8% when the price of croissants decreases by 16%, the cross-price elasticity of demand between bagels and croissants is

For perfectly price inelastic supply,

Suppose a 10% increase in the price of steak reduces the consumption of steak by 30%. Such a price rise will induce households to spend

Related to the Economics in Practice on page 102: Which of the following best explains why demand is often less elastic in the short run than it is in the long run?

Luxury items tend to have demand, and necessities tend to have demand.

Cross-price elasticity of demand measures the response in the

If the quantity of tea demanded increases by 2% when the price of coffee increases by 6%, the cross-price elasticity of demand between tea and coffee is

The ABC Computer Company spends a lot of money for advertising designed to convince you that their personal computers are superior to all other personal computers. If the ABC Company is successful, the demand for ABC personal computers

Related to the Economics in Practice on page 102: Harriet runs a corner delicatessen and one day decides to raise her prices by 20 percent. Total revenue is likely to when she first raises prices since demand is relatively in the short term.

The demand for gasoline is likely to be more inelastic than the demand for sushi.

The income elasticity of demand for education is 3.5. Thus, a 4% increase in income will

Demand is more elastic for an item which represents a relatively large part of a person's total budget.

Demand is more elastic for an item for which few substitutes are available.

A perfectly price elastic supply curve will be a(n) ________ line.

The income elasticity of demand for low-quality beef is -2. Thus, an 8% decrease in the quantity of low-quality beef demanded

If income increases by 10% and, in response, the quantity of housing demanded increases by 7%, then the income elasticity of demand for housing is