Question 1

The value of the price elasticity of demand for a good will be relatively large when
A) there are no good substitutes available for the good.
B) the time period in question is relatively short.
C) the good is a luxury rather than a necessity.
D) All of the above are correct.

Accepted Answer

The answer of The value of the price elasticity of...

Question 2

Holding all other forces constant, when the price of gasoline rises, the number of gallons of gasoline demanded would fall substantially over a ten-year period because
A) buyers tend to be much less sensitive to a change in price when given more time to react.
B) buyers tend to be much more sensitive to a change in price when given more time to react.
C) buyers will have substantially more real income over a ten-year period.
D) the quantity supplied of gasoline increases very little in response to an increase in the price of gasoline.

Accepted Answer

When given more time, buyers tend to adjust their behavior and find substitutes for the good that has become more expensive. This leads to a more substantial decrease in demand for gasoline over a longer period of time.

Question 3

Whether a good is a luxury or necessity depends on the
A) price of the good.
B) preferences of the buyer.
C) intrinsic properties of the good.
D) scarcity of the good.

Accepted Answer

Whether a good is a luxury or necessity is subjective and varies from person to person based on their preferences and needs. A good that is considered a necessity for one person may be a luxury for another. Therefore, the preferences of the buyer are the main factor in determining whether a good is a luxury or necessity.

Question 4

For a good that is a luxury, demand
A) tends to be inelastic.
B) tends to be elastic.
C) has unit elasticity.
D) cannot be represented by a demand curve in the usual way.

Accepted Answer

When a good is a luxury, it is not a necessity and consumers have more flexibility in choosing whether or not to purchase it. Therefore, the demand tends to be more elastic, meaning a change in price will have a greater effect on the quantity demanded.

Question 5

If the price of natural gas rises, when is the price elasticity of demand likely to be the highest?
A) immediately after the price increase
B) one month after the price increase
C) three months after the price increase
D) one year after the price increase

Accepted Answer

The answer of If the price of natural gas rises,...

Question 6

If the price of walnuts rises, many people would switch from consuming walnuts to consuming pecans. But if the price of salt rises, people would have difficulty purchasing something to use in its place. These examples illustrate the importance of
A) the availability of close substitutes in determining the price elasticity of demand.
B) a necessity versus a luxury in determining the price elasticity of demand.
C) the definition of a market in determining the price elasticity of demand.
D) the time horizon in determining the price elasticity of demand.

Accepted Answer

The examples given highlight the importance of the availability of close substitutes in determining the price elasticity of demand. When close substitutes are available, consumers have the option to switch to a substitute if the price of a good or service they usually purchase rises. However, when there are no close substitutes, consumers are forced to continue purchasing the good or service at the higher price or forego its use altogether.

Question 7

Suppose that Jane enjoys Diet Coke so much that she consumes one can every day. Although she enjoys gourmet cheese, she consumes it sporadically. If the price of Diet Coke rises, Jane decreases her consumption by only a very small amount. But if the price of gourmet cheese rises, Jane decreases her consumption by a lot. These examples illustrate the importance of
A) the availability of close substitutes in determining the price elasticity of demand.
B) a necessity versus a luxury in determining the price elasticity of demand.
C) the definition of a market in determining the price elasticity of demand.
D) the time horizon in determining the price elasticity of demand.

Accepted Answer

The answer of Suppose that Jane enjoys Diet Coke so...

Question 8

The smaller the price elasticity of demand, the
A) more likely the product is a luxury.
B) smaller the responsiveness of quantity demanded to a change in price.
C) more substitutes the product has.
D) greater the responsiveness of quantity demanded to a change in price.

Accepted Answer

A smaller price elasticity of demand means that quantity demanded is less responsive to changes in price. This suggests that the product is less sensitive to price changes and is likely a necessity rather than a luxury. In other words, when the price of the product goes up, consumers are still willing to buy roughly the same amount.

Question 9

The price elasticity of demand for bread
A) is computed as the percentage change in quantity demanded of bread divided by the percentage change in price of bread.
B) depends, in part, on the availability of close substitutes for bread.
C) reflects the many economic, social, and psychological forces that influence consumers' tastes for bread.
D) All of the above are correct.

Accepted Answer

The price elasticity of demand for bread is computed as the percentage change in quantity demanded of bread divided by the percentage change in price of bread, which is option A. The availability of close substitutes for bread is one of the factors that affects the price elasticity of demand for bread, which is option B. The price elasticity of demand reflects many economic, social, and psychological forces that influence consumer's tastes for bread, which is option C. Therefore, all of the options are correct, which is option D.

Question 10

Goods with many close substitutes tend to have
A) more elastic demands.
B) less elastic demands.
C) price elasticities of demand that are unit elastic.
D) income elasticities of demand that are negative.

Accepted Answer

Goods with many close substitutes are easily replaceable by substitutes, so consumers have more options to choose from if the price of the good increases. This makes the demand for the good more elastic, as consumers can easily switch to a substitute if the price of the good becomes too high.

Question 11

A good will have a more elastic demand, the
A) greater the availability of close substitutes.
B) more broad the definition of the market.
C) shorter the period of time.
D) more it is regarded as a necessity.

Accepted Answer

Greater availability of close substitutes means that consumers have more options to choose from, which increases their price sensitivity and thus makes the demand for the good more elastic.

Question 12

A good will have a more inelastic demand, the
A) greater the availability of close substitutes.
B) broader the definition of the market.
C) longer the period of time.
D) more it is regarded as a luxury.

Accepted Answer

The answer of A good will have a more inelastic...

Question 13

Other things equal, the demand for a good tends to be more inelastic, the
A) fewer the available substitutes.
B) longer the time period considered.
C) more the good is considered a luxury good.
D) more narrowly defined is the market for the good.

Accepted Answer

When fewer substitutes are available for a good, consumers are less likely to switch to alternatives in response to a change in price, making the demand more inelastic.

Question 14

For a good that is a necessity, demand
A) tends to be inelastic.
B) tends to be elastic.
C) has unit elasticity.
D) cannot be represented by a demand curve in the usual way.

Accepted Answer

Necessities are goods for which consumers have limited substitutes and are willing to pay a premium to have them. Since they are essentials, consumers are less likely to change their consumption patterns even if prices increase, therefore their demand tends to be inelastic.

Question 15

The price elasticity of demand for mobile phones
A) will be higher if there is an improvement in the production technology.
B) will be lower if consumers perceive mobile phones to be a necessity.
C) is computed as the percentage change in the price of mobile phones divided by the percentage change in quantity of mobile phones.
D) All of the above are correct.

Accepted Answer

The price elasticity of demand for mobile phones will be lower if consumers perceive mobile phones to be a necessity because they will be less likely to reduce their quantity demanded in response to a price increase. Option A is incorrect because an improvement in production technology would likely lead to lower production costs, which could lead to a lower price and an increase in quantity demanded, making the demand more elastic. Option C is correct but incomplete, as it only describes the formula for calculating price elasticity of demand.

Question 16

If the price of milk rises, when is the price elasticity of demand likely to be the lowest?
A) immediately after the price increase
B) one month after the price increase
C) three months after the price increase
D) one year after the price increase

Accepted Answer

The price elasticity of demand is likely to be lowest immediately after the price increase because consumers need time to adjust their behavior and find alternatives. As a result, they may continue to buy milk at the higher price even if they are not happy about it. Over time, however, they may find substitutes or reduce their consumption, making the demand more elastic.

Question 17

If the price of gasoline rises, when is the price elasticity of demand likely to be the highest?
A) immediately after the price increases
B) one month after the price increase
C) three months after the price increase
D) one year after the price increase

Accepted Answer

The answer of If the price of gasoline rises, when...

Question 18

The price elasticity of demand measures the
A) magnitude of the response in quantity demanded to a change in price.
B) direction of the shift in the demand curve in response to a market event.
C) size of the shortage created by the increase in demand.
D) responsiveness of quantity demanded to a change in income.

Accepted Answer

The price elasticity of demand measures the sensitivity or responsiveness of quantity demanded to a change in price. It is calculated as the percentage change in quantity demanded divided by the percentage change in price. Therefore, it measures the magnitude of the response in quantity demanded to a change in price.

Question 19

For a good that is a necessity,
A) quantity demanded tends to respond substantially to a change in price.
B) demand tends to be inelastic.
C) the law of demand does not apply.
D) All of the above are correct.

Accepted Answer

Necessities are goods that people consider essential and are less responsive to changes in price, meaning that a change in price does not significantly affect the quantity demanded. Therefore, demand tends to be inelastic for necessities.

Question 20

Which of the following is not a determinant of the price elasticity of demand for a good?
A) the time horizon
B) the steepness or flatness of the supply curve for the good
C) the definition of the market for the good
D) the availability of substitutes for the good

Accepted Answer

The steepness or flatness of the supply curve for the good is not a determinant of the price elasticity of demand. Price elasticity of demand is determined by factors affecting the responsiveness of the quantity demanded to a change in price, such as the time horizon, definition of the market, availability of substitutes, and income level of consumers.

Quiz 5: Elasticity and Its Application

The value of the price elasticity of demand for a good will be relatively large when

Holding all other forces constant, when the price of gasoline rises, the number of gallons of gasoline demanded would fall substantially over a ten-year period because

Whether a good is a luxury or necessity depends on the

For a good that is a luxury, demand

If the price of natural gas rises, when is the price elasticity of demand likely to be the highest?

If the price of walnuts rises, many people would switch from consuming walnuts to consuming pecans. But if the price of salt rises, people would have difficulty purchasing something to use in its place. These examples illustrate the importance of

The smaller the price elasticity of demand, the

The price elasticity of demand for bread

Goods with many close substitutes tend to have

A good will have a more elastic demand, the

A good will have a more inelastic demand, the

Other things equal, the demand for a good tends to be more inelastic, the

For a good that is a necessity, demand

The price elasticity of demand for mobile phones

If the price of milk rises, when is the price elasticity of demand likely to be the lowest?

If the price of gasoline rises, when is the price elasticity of demand likely to be the highest?

The price elasticity of demand measures the

For a good that is a necessity,

Which of the following is not a determinant of the price elasticity of demand for a good?