Question 1

According to the text, the income elasticity of demand for food in industrialized nations is lower than that of poorer nations.

Accepted Answer

False

Question 2

Short-run elasticity of supply is greater than long-run elasticity of supply.

Accepted Answer

In the long run, producers have more time to adjust their production levels, making the long-run elasticity of supply generally greater than the short-run elasticity of supply.

Question 3

The more essential the good, the more price inelastic will be the demand for a good.

Accepted Answer

Essential goods are necessities that consumers need regardless of price changes, leading to more price inelastic demand since consumers will continue to buy these goods even if prices rise.

Question 4

Cross elasticity measures the consumer's change in demand brought about by a change in income.

Accepted Answer

Cross elasticity measures the change in demand for a good in response to a change in the price of another good, not a change in income.

Question 5

Goods with many substitutes tend to have more price elastic demand curves.

Accepted Answer

Goods with many substitutes are more sensitive to price changes because consumers can easily switch to alternatives if the price of the good increases, making the demand for such goods more elastic.

Question 6

Price elasticity of demand is measured by the percentage change in quantity demanded divided by the percentage change in income.

Accepted Answer

Price elasticity of demand is measured by the percentage change in quantity demanded divided by the percentage change in price, not income. The measure you're referring to is income elasticity of demand.

Question 7

If two goods are complementary, the cross elasticity will be negative.

Accepted Answer

When two goods are complementary, an increase in the price of one leads to a decrease in the demand for the other, resulting in a negative cross elasticity of demand.

Question 8

Tax revenue is greater the more price elastic the demand curve.

Accepted Answer

Tax revenue is generally greater the less price elastic the demand curve is because consumers are less sensitive to price changes and will continue to buy the product despite the tax, leading to higher tax revenue.

Question 9

The more price elastic the demand curve, the less quantity demanded will fall when a per-unit tax is imposed.

Accepted Answer

The more price elastic the demand curve, the more quantity demanded will fall when a per-unit tax is imposed, as consumers are more sensitive to price changes and will reduce their consumption more significantly.

Question 10

The demand for gasoline is expected to be more elastic in the long run than in the short run.

Accepted Answer

In the long run, consumers have more time to adjust their behavior and make choices such as buying more fuel-efficient vehicles or using alternative modes of transportation, making the demand for gasoline more elastic compared to the short run where such adjustments are not as feasible.

Question 11

If the demand for videotapes tends to be elastic, then a decrease in videotape prices means that people spend more on video tapes than before.

Accepted Answer

When demand is elastic, a decrease in price leads to a proportionally larger increase in quantity demanded, which can result in an increase in total expenditure on the product.

Question 12

If the income elasticity of demand for dental services is -0.6, this means that people purchase more dental services when the price is lowered.

Accepted Answer

Income elasticity of demand measures how the quantity demanded of a good responds to a change in income, not to a change in its price.

Question 13

The calculated value of a normal good's price elasticity is less than zero.

Accepted Answer

The price elasticity of demand for a normal good is positive, meaning that as the price of the good increases, the quantity demanded decreases. Therefore, the calculated value of a normal good's price elasticity cannot be less than zero.

Question 14

The price elasticity of supply of tomatoes on the market day is zero.

Accepted Answer

Price elasticity of supply is zero when the quantity supplied does not change regardless of price changes, which can occur on a market day when the supply is fixed and cannot be adjusted immediately.

Question 15

If economists estimate the price elasticity of demand to be 0.75 for good X and 1.25 for good Y, then the government can raise the most revenue by taxing good Y.

Accepted Answer

A price elasticity of demand less than 1 (inelastic) means consumers are less responsive to price changes, so taxing good X (0.75) would likely raise more revenue than taxing good Y (1.25), which is elastic.

Question 16

If the price elasticity of demand for shelled, roasted, unsalted peanuts is 0.86 at current prices, a small increase in price will raise producers' total revenue.

Accepted Answer

When the price elasticity of demand is less than 1 (inelastic), an increase in price leads to an increase in total revenue because the percentage drop in quantity demanded is smaller than the percentage increase in price.

Question 17

When demand curves shift to the left, buyers become less sensitive to price increases because they consume fewer of these goods.

Accepted Answer

When demand curves shift to the left, it indicates a decrease in demand at all price levels, not a change in buyers' sensitivity to price increases. Price sensitivity is related to the price elasticity of demand, not the shift in the demand curve.

Question 18

If a good has a price elasticity of demand equal to 0.4, and the price elasticity of supply is equal to 6.5, the good is a strong candidate for a unit tax.

Accepted Answer

A good with a low price elasticity of demand (0.4) and a high price elasticity of supply (6.5) is a strong candidate for a unit tax because the burden of the tax can be more efficiently distributed between producers and consumers, minimizing distortions in the market.

Question 19

All cross elasticities are positive.

Accepted Answer

Cross elasticity of demand can be positive or negative, depending on whether the goods are substitutes or complements. Positive for substitutes and negative for complements.

Question 20

An elasticity is a measure of sensitivity.

Accepted Answer

Elasticity measures how much one variable responds to changes in another variable, indicating sensitivity. For example, price elasticity of demand measures how sensitive the quantity demanded is to a change in price.

Quiz 4: Elasticity