Question 1

Consider a medical breakthrough that led to the discovery of a simple microchip which when inserted inside the human ear could prevent certain chronic diseases.The price elasticity of demand for that microchip would most likely be _____.
A)very elastic
B)very inelastic
C)infinite
D)negative only for high prices
E)positive only for high prices

Accepted Answer

The demand for a life-saving or health-improving medical device is typically very inelastic because consumers will prioritize purchasing it regardless of price.

Question 2

In the opinion of many consumers,there are few,if any,substitutes for the popular search engine Google.If Google were to charge consumers for its services,it would face:
A)a relatively inelastic demand curve.
B)a relatively elastic demand curve.
C)a negative income elasticity of demand.
D)a positive cross elasticity of demand.
E)a perfectly elastic demand curve.

Accepted Answer

Google has become a necessity for many consumers, and there are few substitutes for its services. Therefore, consumers would likely continue to use Google even if it charged for its services. This indicates a relatively inelastic demand curve for Google.

Question 3

Which of the following is a determinant of price elasticity of demand?
A)Availability of substitute goods
B)Excess capacity
C)Scale of production
D)Inventories
E)Cost of production

Accepted Answer

Availability of substitute goods is a determinant of price elasticity of demand because if there are close substitutes for a good, consumers have more options and may switch to a substitute if the price of the good they originally intended to buy increases. This means the demand for the original good is more elastic (responsive to changes in price).

Question 4

An economic survey observed that,a 20 percent cut in the price of a certain line of women's clothing,almost doubled the quantity demanded of the clothing.This led economists to conclude that the demand for this line of clothing is _____.
A)very elastic
B)very inelastic
C)vertical
D)horizontal
E)inferior

Accepted Answer

The fact that a small change in price resulted in a large change in quantity demanded indicates a high degree of price sensitivity, or elasticity, in the demand for this line of clothing. Therefore, the best choice is A, that the demand for this line of clothing is very elastic.

Question 5

If a price increase from $20 to $40 causes quantity demanded to decrease from 100 units to 50 units,one can conclude that demand for the product is _____.
A)inelastic
B)elastic
C)perfectly inelastic
D)infinitely elastic
E)unit-elastic

Accepted Answer

The answer of If a price increase from $20 to...

Question 6

If the demand for corn is elastic,then:
A)there are not many substitutes in the consumption of corn.
B)the price elasticity of demand for corn is greater than 1.
C)a decrease in price will reduce total revenue for corn producers.
D)a decrease in price will increase total revenue for corn producers.
E)consumers will continue buying the same quantity even if price increases.

Accepted Answer

If the demand for corn is elastic, it means that a decrease in price will lead to a proportionately greater increase in the quantity demanded. This is only possible if the price elasticity of demand for corn is greater than 1. Option A is incorrect because elastic demand implies that there are many substitutes, not the other way around. Option C is incorrect because a decrease in price will increase total revenue for producers when demand is elastic, not reduce it. Option D is correct for the same reason. Option E is incorrect because elastic demand means that consumers will reduce their quantity demanded when price increases, not continue buying the same quantity.

Question 7

Suppose that the absolute value of the price elasticity of demand for firms A,B,C,and D is 0,0.8,1,and 1.5 respectively.An increase in the price would reduce quantity demanded for:
A)firms A,B,C,and D.
B)firms B,C,and D only.
C)only firm A.
D)firms C and D only.
E)only firm D.

Accepted Answer

An increase in price would reduce quantity demanded only for firms with an absolute value of price elasticity of demand greater than 1. In this case, only firm D has an absolute value of price elasticity of demand greater than 1, so only firm D would experience a decrease in quantity demanded with an increase in price.

Question 8

A 0.5% increase in the price of a particular product causes the quantity demanded of the product to drop to zero.This means that the price elasticity of demand for the product is:
A)moderately inelastic.
B)highly inelastic.
C)unitary elastic.
D)perfectly inelastic.
E)perfectly elastic.

Accepted Answer

The price elasticity of demand is perfectly elastic when a small change in price leads to an infinite change in quantity demanded, such as dropping to zero.

Question 9

Which of the following is true with respect to the price elasticity of demand?
A)The coefficient of price elasticity of demand will change with changes in the units of measurement (for instance,going from pounds to ounces).
B)Elasticity of demand will be equal to the slope of the demand curve.
C)Elasticity measures the sensitivity of total expenditure to a change in price.
D)Elasticity will tend to be greater for a relatively expensive product than for a cheaper one.
E)A coefficient of 1 means that the percentage change in total expenditure is equivalent to the percentage change in price.

Accepted Answer

The answer of Which of the following is true with...

Question 10

Assume that the demand curve for a certain good is a vertical line.This vertical demand curve illustrates the idea that:
A)consumers are unwilling to pay more than a certain price for the good.
B)the good is a complement to another good.
C)consumers are unwilling to pay less than a certain price for the good.
D)there are many substitutes for this good.
E)people will not change the quantity of the good when the price of the good is changed.

Accepted Answer

A vertical demand curve indicates perfectly inelastic demand, meaning the quantity demanded does not change regardless of price changes.

Question 11

If a 15 percent reduction in the price of electricity per kilowatt hour has no impact on the total electricity consumption,we can infer that in the short run,the demand for electricity is _____.
A)perfectly inelastic
B)perfectly elastic
C)unitary elastic
D)relatively inelastic
E)relatively elastic

Accepted Answer

If a 15 percent reduction in price has no impact on the total electricity consumption, it means that consumers are not altering their consumption even though the price has changed. This implies that the demand is perfectly inelastic, where a change in price has no effect on the quantity demanded.

Question 12

Demand becomes more elastic as:
A)the number of substitutes available declines.
B)the time period becomes shorter.
C)a good makes up a larger percentage of a consumer's budget.
D)a product is defined more broadly.
E)the producer has more time to respond to price changes.

Accepted Answer

As a good makes up a larger percentage of a consumer's budget, consumers are more sensitive to price changes, making demand more elastic.

Question 13

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

Accepted Answer

When demand is perfectly inelastic, quantity demanded remains constant regardless of price changes, meaning elasticity is zero.

Question 14

Which of the following is an example of inelastic demand?
A)A 10 percent increase in the price of milk leads to a 20 percent decrease in the quantity demanded of milk.
B)A 10 percent increase in the price of milk leads to a 10 percent decrease in the quantity demanded of milk.
C)A 10 percent increase in the price of milk leads to a 5 percent decrease in the quantity demanded of milk.
D)A 10 percent increase in the price of milk leads to no change in the quantity demanded of milk.
E)A 10 percent increase in the price of milk leads to a 5 percent increase in the quantity demanded of milk.

Accepted Answer

The answer of Which of the following is an example...

Question 15

If  = 1.50,and price decreases by 20 percent,then:
A)quantity demanded will decrease by 30 percent.
B)quantity demanded will increase by 30 percent.
C)total revenue will remain unchanged.
D)total revenue will decrease.
E)quantity demanded will increase by 3 percent.

Accepted Answer

The answer of If  = 1.50,and price decreases by...

Question 16

If the demand for cream cheese produced by a dairy is perfectly elastic,then what will be the shape of the demand curve faced by the dairy?
A)The demand curve will be vertical
B)The demand curve will be horizontal
C)The demand curve will be upward sloping
D)The demand curve will be downward sloping
E)The demand curve will be concave

Accepted Answer

A perfectly elastic demand means that consumers are willing to buy any quantity of cream cheese at a fixed price. As a result, the demand curve will be horizontal, as the dairy can sell any amount of cream cheese at the same price without affecting the quantity demanded.

Question 17

Which of the following would most likely be highly price-elastic?
A)The demand for milk by a household
B)The demand for insulin by a diabetes patient
C)The demand for water
D)The demand for new houses
E)The demand for coal over a period of one month

Accepted Answer

The answer of Which of the following would most likely...

Question 18

A horizontal demand curve shows that demand for the good is _____.
A)unit-elastic
B)relatively inelastic
C)perfectly inelastic
D)relatively elastic
E)perfectly elastic

Accepted Answer

A horizontal demand curve shows that no matter how much the price of the good changes, the quantity demanded will remain the same. This indicates that the demand for the good is perfectly elastic.

Question 19

Since an expensive sports car constitutes a greater portion of the consumer's budget than does laundry soap,the elasticity of demand for an expensive sports car is _____.
A)relatively less elastic
B)a vertical line
C)a downward sloping straight line
D)relatively more elastic
E)not subject to elasticity because of the income level of the consumers who purchase expensive sports cars

Accepted Answer

The elasticity of demand is higher for goods that take up a larger portion of a consumer's budget, like expensive sports cars, because consumers are more sensitive to price changes for such significant expenditures.

Question 20

If a product has an inelastic demand,then:
A)there is probably a long time period under consideration.
B)as price increases,total revenue to producers decreases.
C)an increase in the price will decrease total consumer expenditures.
D)there are probably many complements for the good.
E)there are probably few substitutes for the good.

Accepted Answer

Inelastic demand means that even if the price of the product increases, the demand for the product remains relatively unchanged. This suggests that there are few substitutes for the product, so consumers are willing to pay the higher price rather than switch to a different product.

Quiz 5: Elasticity: Demand and Supply

Consider a medical breakthrough that led to the discovery of a simple microchip which when inserted inside the human ear could prevent certain chronic diseases.The price elasticity of demand for that microchip would most likely be _____.

In the opinion of many consumers,there are few,if any,substitutes for the popular search engine Google.If Google were to charge consumers for its services,it would face:

Which of the following is a determinant of price elasticity of demand?

An economic survey observed that,a 20 percent cut in the price of a certain line of women's clothing,almost doubled the quantity demanded of the clothing.This led economists to conclude that the demand for this line of clothing is _____.

If a price increase from $20 to $40 causes quantity demanded to decrease from 100 units to 50 units,one can conclude that demand for the product is _____.

If the demand for corn is elastic,then:

Suppose that the absolute value of the price elasticity of demand for firms A,B,C,and D is 0,0.8,1,and 1.5 respectively.An increase in the price would reduce quantity demanded for:

A 0.5% increase in the price of a particular product causes the quantity demanded of the product to drop to zero.This means that the price elasticity of demand for the product is:

Which of the following is true with respect to the price elasticity of demand?

Assume that the demand curve for a certain good is a vertical line.This vertical demand curve illustrates the idea that:

If a 15 percent reduction in the price of electricity per kilowatt hour has no impact on the total electricity consumption,we can infer that in the short run,the demand for electricity is _____.

Demand becomes more elastic as:

If demand is perfectly inelastic,then:

Which of the following is an example of inelastic demand?

If = 1.50,and price decreases by 20 percent,then:

If the demand for cream cheese produced by a dairy is perfectly elastic,then what will be the shape of the demand curve faced by the dairy?

Which of the following would most likely be highly price-elastic?

A horizontal demand curve shows that demand for the good is _____.

Since an expensive sports car constitutes a greater portion of the consumer's budget than does laundry soap,the elasticity of demand for an expensive sports car is _____.

If a product has an inelastic demand,then: