Question 1

The price elasticity of demand measures
A) buyers' responsiveness to a change in the price of a good.
B) the extent to which demand increases as additional buyers enter the market.
C) how much more of a good consumers will demand when incomes rise.
D) the movement along a supply curve when there is a change in demand.

Accepted Answer

The price elasticity of demand measures the degree of responsiveness of quantity demanded to a change in the price of a good. It indicates the percentage change in quantity demanded due to a percentage change in the price of the good. Therefore, option A is the correct choice. Option B refers to the concept of market demand, while option C relates to income elasticity of demand. Option D describes a movement along a supply curve due to a change in demand, which is not related to elasticity of demand.

Question 2

When quantity demanded responds strongly to changes in price, demand is said to be
A) fluid.
B) elastic.
C) dynamic.
D) highly variable.

Accepted Answer

When demand is said to be elastic, it means that a small change in price has a relatively large effect on the quantity demanded. In other words, consumers are very responsive to changes in price.

Question 3

When consumers face rising gasoline prices, they typically
A) reduce their quantity demanded more in the long run than in the short run.
B) reduce their quantity demanded more in the short run than in the long run.
C) do not reduce their quantity demanded in the short run or the long run.
D) increase their quantity demanded in the short run but reduce their quantity demanded in the long run.

Accepted Answer

A

Question 4

Which of the following statements about the consumers' responses to rising gasoline prices is correct?
A) About 10 percent of the long-run reduction in quantity demanded arises because people drive less and about 90 percent arises because they switch to more fuel-efficient cars.
B) About 90 percent of the long-run reduction in quantity demanded arises because people drive less and about 10 percent arises because they switch to more fuel-efficient cars.
C) About half of the long-run reduction in quantity demanded arises because people drive less and about half arises because they switch to more fuel-efficient cars.
D) Because gasoline is a necessity, consumers do not decrease their quantity demanded in either the short run or the long run.

Accepted Answer

The answer of Which of the following statements about the...

Question 5

When studying how some event or policy affects a market, elasticity provides information on the
A) change in the costs of production.
B) tradeoff between equality and efficiency.
C) effect on the budget deficit or surplus.
D) direction and magnitude of the effect.

Accepted Answer

Elasticity measures the responsiveness of demand or supply to changes in price or other factors. By examining the elasticity of a market, we can determine the direction and magnitude of the effect that an event or policy will have on the market.

Question 6

When studying how some event or policy affects a market, elasticity provides information on the
A) equity effects on the market by identifying the winners and losers.
B) magnitude of the effect on the market.
C) speed of adjustment of the market in response to the event or policy.
D) number of market participants who are directly affected by the event or policy.

Accepted Answer

Elasticity measures the responsiveness of quantity demanded or supplied to changes in price or income, providing information on the magnitude of the effect of an event or policy on the market. It does not provide information on equity effects, speed of adjustment or number of market participants affected.

Question 7

The price elasticity of demand for a good measures the willingness of
A) consumers to buy less of the good as price rises.
B) consumers to avoid monopolistic markets in favor of competitive markets.
C) firms to produce more of a good as price rises.
D) firms to respond to the tastes of consumers.

Accepted Answer

The price elasticity of demand measures how much the quantity demanded of a good changes when its price changes. A higher price elasticity of demand suggests that consumers are more sensitive to changes in price and are therefore more likely to reduce their consumption of the good when the price increases.

Question 8

How does the concept of elasticity allow us to improve upon our understanding of supply and demand?
A) Elasticity allows us to analyze supply and demand with greater precision than would be the case in the absence of the elasticity concept.
B) Elasticity provides us with a better rationale for statements such as "an increase in x will lead to a decrease in y" than we would have in the absence of the elasticity concept.
C) Without elasticity, we would not be able to address the direction in which price is likely to move in response to a surplus or a shortage.
D) Without elasticity, it is very difficult to assess the degree of competition within a market.

Accepted Answer

Elasticity, whether it is price elasticity of demand or supply, or income elasticity of demand, allows us to quantify the degree of responsiveness of quantity demanded or supplied to changes in price or income. This enhances our ability to analyze supply and demand with greater precision than would be possible in the absence of the elasticity concept.

Question 9

A 10 percent increase in gasoline prices reduces gasoline consumption by about
A) 6 percent after one year and 2.5 percent after five years.
B) 2.5 percent after one year and 6 percent after five years.
C) 10 percent after one year and 20 percent after five years.
D) 0 percent after one year and 1 percent after five years.

Accepted Answer

According to studies, a 10 percent increase in gasoline prices will cause an initial reduction in consumption of about 2.5 percent after one year, but this reduction becomes larger over time, and after five years, it could reach 6 percent. Therefore, option B is the most accurate answer.

Question 10

Demand is said to be inelastic if
A) buyers respond substantially to changes in the price of the good.
B) demand shifts only slightly when the price of the good changes.
C) the quantity demanded changes only slightly when the price of the good changes.
D) the price of the good responds only slightly to changes in demand.

Accepted Answer

Inelastic demand means that the quantity demanded changes only slightly when the price of the good changes. This indicates that buyers are not very responsive to changes in price and will continue to purchase similar quantities even if the price increases.

Question 11

The price elasticity of demand measures how much
A) quantity demanded responds to a change in price.
B) quantity demanded responds to a change in income.
C) price responds to a change in demand.
D) demand responds to a change in supply.

Accepted Answer

The price elasticity of demand specifically measures the responsiveness of quantity demanded to a change in price. It does not measure the response of demand to a change in supply or of quantity demanded to a change in income.

Question 12

Demand is said to be price elastic if
A) the price of the good responds substantially to changes in demand.
B) demand shifts substantially when income or the expected future price of the good changes.
C) buyers do not respond much to changes in the price of the good.
D) buyers respond substantially to changes in the price of the good.

Accepted Answer

Price elasticity of demand measures the responsiveness of the quantity demanded to a change in the price of a good. If buyers respond substantially to changes in the price of the good, then the demand is said to be price elastic.

Question 13

In general, elasticity is a measure of
A) the extent to which advances in technology are adopted by producers.
B) the extent to which a market is competitive.
C) how firms' profits respond to changes in market prices.
D) how much buyers and sellers respond to changes in market conditions.

Accepted Answer

Elasticity refers to the responsiveness of buyers and sellers to changes in market conditions, such as changes in price, income, or tastes. It measures how much quantity demanded or supplied changes when there is a change in one of these factors. It is used to determine the degree of sensitivity of consumers or producers to changes in price or income.

Question 14

Which of the following statements about the price elasticity of demand is correct?
A) The price elasticity of demand for a good measures the willingness of buyers of the good to buy less of the good as its price increases.
B) Price elasticity of demand reflects the many economic, psychological, and social forces that shape consumer tastes.
C) Other things equal, if good x has close substitutes and good y does not have close substitutes, then the demand for good x will be more elastic than the demand for good y.
D) All of the above are correct.

Accepted Answer

The answer of Which of the following statements about the...

Question 15

If demand is price inelastic, then
A) buyers do not respond much to a change in price.
B) buyers respond substantially to a change in price, but the response is very slow.
C) buyers do not alter their quantities demanded much in response to advertising, fads, or general changes in tastes.
D) the demand curve is very flat.

Accepted Answer

If demand is price inelastic, it means that the quantity demanded of a good or service does not change much in response to a change in price. In other words, buyers do not respond much to a change in price. This is because the good or service is considered to be a necessity or there are no close substitutes available.

Question 16

If the quantity demanded of a certain good responds only slightly to a change in the price of the good, then the
A) demand for the good is said to be elastic.
B) demand for the good is said to be inelastic.
C) law of demand does not apply to the good.
D) demand curve for the good shifts only slightly in response to a change in price.

Accepted Answer

When the quantity demanded of a good responds only slightly to a change in its price, the demand for the good is said to be inelastic. Inelastic demand means that consumers will continue to buy roughly the same amount of the good even if the price goes up or down. This is usually the case for goods that are considered necessities or for which there are no close substitutes.

Question 17

Demand is elastic if the price elasticity of demand is
A) less than 1.
B) equal to 1.
C) equal to 0.
D) greater than 1.

Accepted Answer

Demand is elastic if the price elasticity of demand is greater than 1. This means that a small change in price leads to a greater change in quantity demanded. In other words, consumers are very sensitive to changes in price and are likely to switch to alternatives if the price increases by even a small amount.

Question 18

Elasticity is
A) a measure of how much buyers and sellers respond to changes in market conditions.
B) the study of how the allocation of resources affects economic well-being.
C) the maximum amount that a buyer will pay for a good.
D) the value of everything a seller must give up to produce a good.

Accepted Answer

Elasticity measures the responsiveness of buyers and sellers to changes in market conditions, such as changes in price or income. B is incorrect as it refers to welfare economics, C is incorrect as it is the definition of willingness to pay, and D is incorrect as it is the definition of opportunity cost.

Question 19

Demand is said to be inelastic if the
A) quantity demanded changes proportionately more than price.
B) price changes proportionately more than income.
C) quantity demanded changes proportionately less than price.
D) quantity demanded changes proportionately the same as price.

Accepted Answer

Inelastic demand means that changes in price have a relatively small effect on the quantity of a good or service demanded. This is because consumers are less sensitive to changes in price and are willing to pay more for the good or service regardless of its price. Therefore, the quantity demanded changes proportionately less than the price change.

Question 20

Demand is inelastic if the price elasticity of demand is
A) less than 1.
B) equal to 1.
C) greater than 1.
D) equal to 0.

Accepted Answer

Demand is inelastic when the price elasticity of demand is less than 1. This means that a change in price will result in a proportionally smaller change in quantity demanded. In other words, when the price increases, the decrease in quantity demanded is relatively small, and when the price decreases, the increase in quantity demanded is also relatively small. This usually happens for products that are necessities, like food or medicine, where people will continue to buy them even if the price increases.

Quiz 5: Elasticity and Its Application

The price elasticity of demand measures

When quantity demanded responds strongly to changes in price, demand is said to be

When consumers face rising gasoline prices, they typically

Which of the following statements about the consumers' responses to rising gasoline prices is correct?

When studying how some event or policy affects a market, elasticity provides information on the

When studying how some event or policy affects a market, elasticity provides information on the

The price elasticity of demand for a good measures the willingness of

How does the concept of elasticity allow us to improve upon our understanding of supply and demand?

A 10 percent increase in gasoline prices reduces gasoline consumption by about

Demand is said to be inelastic if

The price elasticity of demand measures how much

Demand is said to be price elastic if

In general, elasticity is a measure of

Which of the following statements about the price elasticity of demand is correct?

If demand is price inelastic, then

If the quantity demanded of a certain good responds only slightly to a change in the price of the good, then the

Demand is elastic if the price elasticity of demand is

Elasticity is

Demand is said to be inelastic if the

Demand is inelastic if the price elasticity of demand is