Deck 4: Elasticity

Question 1

If the total expenditure on clothing decreases when the price of clothing falls, the price elasticity ofdemand is

A) greater than one (demand is elastic).
B) not determinable from the information given.
C) less than one (demand is inelastic).
D) unity (demand is unit elastic).
E) exactly zero.

Answer 1

C

Question 2

Suppose national income is rising steadily at 2 percent per year over a 5-year period. Over the same time period, suppose quantity demanded for iPods and iPhones increases at 5 percent per year, but no other relevant variables are changing. We can conclude that the income elasticity for these products is and that these products are goods.

A) 0.4; inferior
B) 2.5; luxury
C) 10.0; necessities
D) 4.0; necessities
E) 4.0; normal

Answer 2

B

Question 3

Suppose you are shown two intersecting demand curves that are drawn on the same scale. At the point of intersection, one of the demand curves is steeper than the other. Which of the following could explain the difference in slopes?

A) It is not possible to compare the slopes of different demand curves.
B) The flatter one is for a good with no close substitutes.
C) The steeper one has a higher income elasticity of demand.
D) The steeper one applies for the short run whereas the flatter one applies for the long run.
E) The steeper one is probably the demand curve for a luxury good.

Answer 3

D

Question 4

Producers will bear a larger burden of a sales tax if

A) demand is relatively elastic and supply is relatively inelastic.
B) demand is relatively inelastic and supply is relatively elastic.
C) both demand and supply are relatively elastic.
D) both demand and supply are relatively inelastic.
E) the tax is collected by firms rather than remitted directly to the government by consumers.

Question 5

If pizza and beer are complementary goods, we can conclude that

A) the income elasticity of demand is negative.
B) their cross-elasticity of demand is negative.
C) the income elasticity of demand is positive.
D) both goods are inferior goods.
E) their cross-elasticity of demand is positive.

Question 6

Suppose you are advising the government on changes in the gasoline market. The current price is$1.00 per litre and the quantity demanded is 2.5 million litres per day. Long-run price elasticity ofdemand is constant at 0.8. If the supply of gasoline is reduced so that the price rises to $1.50 per litre, then quantity demanded is predicted to fall in the long run by

A) 32 percent, and total expenditure will rise.
B) 50 percent, and total expenditure will rise.
C) 15 percent, and total expenditure will fall.
D) 15 percent, and total expenditure will rise.
E) 12 percent, and total expenditure will fall.

Question 7

Suppose the cross-elasticity of demand between two goods, X and Y, is negative. If the price of Xdecreases, the quantity demanded will

A) not change.
B) fall for both goods.
C) fall for X and rise for Y.
D) rise for both goods.
E) rise for X and fall for Y.

Question 8

If two goods, X and Y, have a negative cross-elasticity of demand, then we know that they

A) each have a price elasticity greater than one.
B) are both normal goods.
C) are substitutes.
D) are complements.
E) are both inferior goods.

Question 9

If the price elasticity of demand for some good is 2.7, a 10 percent increase in the price results in

A) a 27 percent increase in the quantity demanded.
B) There is not enough information to answer this question.
C) a 2.7 percent increase in the quantity demanded.
D) a 2.7 percent decrease in the quantity demanded.
E) a 27 percent decrease in the quantity demanded.

Question 10

If two goods, X and Y, have a positive cross-elasticity of demand, then we know that they

A) each have a price elasticity greater than one.
B) are complements.
C) are substitutes.
D) are both inferior goods.
E) are both normal goods.

Question 11

A perfectly horizontal demand curve shows that the own-price elasticity of demand is

A) unity.
B) less than one.
C) zero.
D) not defined.
E) infinite.

Question 12

We can expect that the income elasticity of demand for gourmet catered meals would bethe income elasticity of demand for meals from a fast-food restaurant.

A) less than
B) equivalent to
C) higher than
D) not comparable to
E) lower than

Question 13

The "economic incidence" of an excise tax illustrates

A) who is legally responsible for paying it to the government.
B) who bears the burden of the tax.
C) the legislative process it must pass through.
D) the political process for implementing a tax.
E) the economic costs of avoiding it.

Question 14

If the price elasticity of demand is 1.4, a 10 percent increase in the price of the good results in

A) a 14 percent increase in the quantity demanded.
B) a 1.4 percent increase in the quantity demanded.
C) a 1.4 percent decrease in the quantity demanded.
D) a 14 percent decrease in the quantity demanded.
E) There is not enough information to answer this question.

Question 15

When the percentage change in quantity demanded resulting from a price change is less than the percentage change in price, demand is said to be

A) perfectly elastic
B) zero elastic.
C) unit elastic.
D) inelastic
E) elastic.

Question 16

Income elasticity measures the change in quantity demanded of some product with respect to changes in

A) its price.
B) the demand of the product.
C) the price of another related product.
D) households' income.
E) the supply of the product.

Question 17

If firms' costs rise rapidly as output increases, the

A) supply curve will tend to be flat.
B) demand curve will tend to be steep.
C) price elasticity of supply will tend to be low.
D) price elasticity of supply will tend to be high.
E) elasticity of demand will tend to be low.

Question 18

An upward-sloping straight-line supply curve through the origin has an elasticity of

A) zero.
B) infinity.
C) greater than one.
D) less than one.
E) one.

Question 19

Income elasticity of demand measures the extent to which

A) one household's income changes when there is a change in the income of another household.
B) the quantity demanded of a good changes when income changes.
C) the price of a good changes when there is a change in income.
D) quantity demanded changes when there is a change in price.
E) real household income changes when there is a change in the price of a good.

Question 20

If household expenditures on electricity remain constant when the price of electricity increases, the price elasticity for electricity is

A) one (demand is unit elastic).
B) exactly zero.
C) not determinable from the information given.
D) less than one (demand is inelastic).
E) greater than one (demand is elastic).

Question 21

Which of the following illustrates elastic demand?

A) A 10 percent increase in price causes a 5 percent decrease in quantity demanded.
B) A 10 percent increase in price causes a 10 percent reduction in quantity demanded.
C) A 10 percent increase in price causes a 20 percent decrease in quantity demanded.
D) a price elasticity of 0.8
E) a price elasticity of 1.0

Question 22

A vertical demand curve shows that the own-price elasticity of demand is

A) less than one.
B) unity.
C) zero.
D) not defined.
E) infinity.

Question 23

The elasticity of supply for a given commodity is calculated as

Question 24

If Vicky's income increases by 8% and she increases her consumption of music downloads by 4%,then her income elasticity of demand for music downloads is

A) 2.0.
B) -0.5.
C) -2.0.
D) 4.0.
E) 0.5.

Question 25

If per capita income increases by 10 percent and household expenditure on fur coats increases by 15 percent, one can conclude that the price elasticity of demand for fur coats is

A) elastic.
B) not determinable from the information given.
C) unity.
D) inelastic.
E) positive.

Question 26

Which of the following tends to be true of the income elasticity of demand for food?

A) At low levels of income, it tends to be fairly high; but as the level of income rises, it tends to fall.
B) It tends to be well above unity only at high levels of income.
C) It is usually zero, since we can only eat so much.
D) It tends to be well below unity only at low levels of income.
E) It tends to remain fairly constant at all levels of income.

Question 27

If a product's income elasticity is -3.4, then we can conclude that

A) an increase in income will lead to an increase in demand for the product.
B) the product is a normal good.
C) the product is certainly a necessity.
D) the product has a rising income-consumption curve.
E) a decrease in income will lead to an increase in demand for the product.

Question 28

The elasticity of supply for some product will tend to be larger

A) the less time firms have to adjust to price changes.
B) the easier it is for firms to shift from the production of this product to another.
C) the lower is the elasticity of demand for the product.
D) the higher is the elasticity of demand for the product.
E) the harder it is for firms to shift from the production of this product to another.

Question 29

An inferior good has

A) a positive income elasticity of demand.
B) a positive income elasticity of demand and a price elasticity of demand greater than 1.
C) an income elasticity of demand greater than zero but less than 1.
D) a negative income elasticity of demand.
E) a negative price elasticity of demand.

Question 30

When a product's price has an inverse relationship with total expenditure, then demand has a price elasticity of

A) greater than one.
B) inverse proportions.
C) one.
D) zero.
E) less than one.

Question 31

Suppose you are advising the government on changes in the gasoline market. The current price is$1.00 per litre and the quantity demanded is 2.5 million litres per day. Short-run price elasticity ofdemand is constant at 0.3. If the supply of gasoline is reduced so that the price rises to $1.50 per litre, then quantity demanded is predicted to fall in the short run by

A) 13.3 percent, and total expenditure will rise.
B) 50 percent , and total expenditure will fall.
C) 15 percent, and total expenditure will fall.
D) 12 percent, and total expenditure will rise.
E) 15 percent, and total expenditure will rise.

Question 32

Cross-price elasticity of demand may be defined as

Question 33

For an inferior good, the quantity demanded

A) responds directly to changes in income.
B) rises when income rises.
C) falls when income falls.
D) rises when income falls.
E) does not change when income rises or falls.

Question 34

Which of the following illustrates elastic demand?

A) a price elasticity of 1.0.
B) A 5 percent increase in price causes a 10 percent decrease in quantity demanded.
C) A 5 percent increase in price causes a 2.5 percent decrease in quantity demanded.
D) A 10 percent increase in price causes a 10 percent reduction in quantity demanded.
E) a price elasticity of 0.8.

Question 35

During the 1970s, OPEC's output restrictions caused gasoline prices to increase sharply.Coincidentally, demand for gas-guzzling cars fell. A likely explanation for these observations is that gasoline and cars had a elasticity of demand that was .

A) cross; negative
B) income; positive
C) price; negative
D) cross; positive
E) income; negative

Question 36

If the total expenditure on photocopiers increases when the price of photocopiers rises, the priceelasticity of demand is

A) not determinable from the information given.
B) less than one (demand is inelastic).
C) greater than one (demand is elastic).
D) exactly zero.
E) equal to one (demand is unit elastic).

Question 37

A demand curve that is the shape of a rectangular hyperbola

A) is inelastic over the whole curve.
B) has the same elasticity as a straight-line demand curve.
C) is elastic over the whole curve.
D) has an elasticity of 100 percent over the whole curve.
E) is unit elastic over the whole curve.

Question 38

Which of the following statements would you expect to be true about price elasticities of demand for T-shirts and clothing?

A) Clothing has a higher price elasticity of demand because it is a necessity.
B) Clothing has a lower price elasticity of demand because it is more broadly defined.
C) Compared with clothing, T-shirts have a lower price elasticity of demand because they are specifically defined.
D) T-shirts would have the same price elasticity of demand as clothing.
E) Because T-shirts are clothing, but not all clothing is T-shirts, T-shirts would have a lower price elasticity of demand than clothing.

Question 39

If the price elasticity of demand is 0.5, then a 10 percent increase in price results in a

A) 5 percent decrease in quantity demanded.
B) 50 percent reduction in quantity demanded.
C) 5 percent increase in quantity demanded.
D) 0.5 percent decrease in quantity demanded.
E) 5 percent decrease in total revenues.

Question 40

When the percentage change in quantity demanded is less than the percentage change in price thatbrought it about, demand is said to be

A) unit elastic.
B) zero elastic.
C) unelastic.
D) inelastic.
E) elastic.

Question 41

With a downward-sloping straight-line demand curve, price elasticity of demand is

A) indeterminate.
B) decreasing continuously with price increases.
C) rising continuously with price increases.
D) constant everywhere on it.
E) increasing to the midpoint of the curve and then decreasing.

Question 42

Which of the following statements would you expect to be true about the demand elasticities for cornflakes and food?

A) Compared with food, cornflakes has a lower price elasticity of demand because it is specifically defined.
B) Food has a lower price elasticity of demand than cornflakes because it is more broadly defined.
C) Food has a higher price elasticity of demand because it is a necessity.
D) Because cornflakes is food, cornflakes would have the same price elasticity of demand as food.
E) Because cornflakes is food, but not all food is cornflakes, cornflakes would have a lower price elasticity of demand.

Question 43

A demand curve for which any price-quantity combination yields the same total expenditure reveals a price elasticity of demand equal to

A) not enough information to know.
B) infinity.
C) zero.
D) some value greater than one but less than infinity.
E) one.

Question 44

Normal goods

A) have positive income elasticity of demand.
B) have negative income elasticity of demand.
C) have negative elasticity of supply.
D) are sometimes also inferior goods.
E) do not have elasticity of demand.

Question 45

For which of the following pairs of products would we expect the cross-elasticity of demand to be negative?

A) aceteminophen and ibuprofen
B) butter and margarine
C) iPhones and Blackberries
D) printers and toner cartridges
E) HD TVs and plasma TVs

Question 46

If the income elasticity of demand for a good is 1.25, a 10 percent increase in income results in

A) a 12.5 percent decrease in the quantity demanded.
B) a 125 percent increase in the quantity demanded.
C) a 12.5 percent increase in the quantity demanded.
D) a decrease in quantity demanded.
E) not enough information to answer this question.

Question 47

If household income increases by 50 percent and desired household expenditure on vacation travel increases by 15 percent, the price elasticity of demand for vacation travel is

A) elastic.
B) inelastic.
C) positive.
D) unity.
E) not determinable from the information given.

Question 48

Suppose that the quantity demanded of skipping ropes rises from 1250 to 1750 units when the price falls from $1.25 to $0.75 per unit. The price elasticity of demand for this product is

A) 2.
B) 2/3.
C) 1/3.
D) 3/2.
E) 1.

Question 49

Suppose a market is in equilibrium at price P0, and then an excise tax of t dollars per unit of the good is imposed. At a price of (P0 + t) there will be excess for the good unless the demand curve is .

A) supply; vertical
B) demand; horizontal
C) demand; vertical
D) tax; unit elastic
E) supply; horizontal

Question 50

If the total expenditure on automobiles increases when the price of automobiles rises, the priceelasticity of demand for automobiles is

A) less than one (demand is inelastic).
B) not determinable from the information given.
C) greater than one (demand is elastic).
D) exactly zero.
E) equal to one (demand is unit elastic).

Question 51

Consumers will bear a larger burden of an excise tax if

A) demand is relatively elastic and supply is relatively inelastic.
B) the tax is collected by firms rather than remitted directly to the government by consumers.
C) both demand and supply are relatively elastic.
D) both demand and supply are relatively inelastic.
E) demand is relatively inelastic and supply is relatively elastic.

Question 52

Suppose the market supply curve for some good is upward sloping. If the imposition of an excise tax causes no change in the equilibrium quantity sold in the market, the good's demand curve must be , meaning that the burden of the tax has fallen completely on the .

A) unit elastic; government
B) vertical; firms
C) horizontal; consumers
D) horizontal; firms
E) vertical; consumers

Question 53

Suppose that the quantity of a good demanded rises from 90 units to 110 units when the price falls from $1.20 to 80 cents per unit. The price elasticity of demand for this product is

A) 1.0
B) 4.0
C) 0.5
D) 2.0
E) 1.5

Question 54

If the total expenditure on perfume increases when the price of perfume falls, the price elasticity of demand is

A) unity (demand is unit elastic).
B) exactly zero.
C) not determinable from the information given.
D) greater than one (demand is elastic).
E) less than one (demand is inelastic).

Question 55

A value of infinity for the elasticity of supply of some product implies that

A) no product will be supplied at any price.
B) the supply curve is vertical.
C) supply is very unresponsive to price.
D) the supply curve is horizontal.
E) the product will be supplied at any price.

Question 56

The president of a major nickel-producing company says that an increase in the price of nickel would have no effect on the total amount spent on nickel. If this is true, the price elasticity of demand for nickel is

A) not calculable from the information given.
B) infinitely elastic.
C) more than one.
D) less than zero.
E) exactly one.

Question 57

When national income falls, sales of vacation packages also fall, even at constant prices. This fact suggests that the _ _ elasticity of demand for vacation packages is .

A) cross; positive
B) income; positive
C) income; negative
D) price; negative
E) price; positive

Question 58

Consider the following data for a hypothetical economy. TABLE 4-5
Refer to Table 4-5. The cross-price elasticity of demand for transit passes in terms of the price of gasoline is _. We can therefore conclude that these two goods are .

A) 0.5; substitutes
B) 0.33; substitutes
C) 0.2; substitutes
D) 5.0; complements
E) 0.2; complements

Question 59

Nancy's income has just risen from $950 per week to $1,050 per week. As a result, she decides todouble the number of movies she attends each week. Nancy's demand for movies is

A) income elastic.
B) positively cross inelastic.
C) price elastic.
D) income inelastic.
E) price inelastic.

Question 60

The formula for the own-price elasticity of demand for a commodity can be written as which of the following?

Question 61

The table below shows the demand schedule for museum admissions in a small city. TABLE 4-1
Refer to Figure 4-2. In part 1 of the figure, the elasticity of demand over the price range $12 to $14 is

A) 0.
B) less than 1.
C) 1.
D) greater than 1.
E) infinity.

Question 62

Consider the following data for a hypothetical economy. TABLE 4-4
Refer to Table 4-4. The income elasticity of demand for transit passes in this economy is

A) 2.5.
B) 3.0 percent.
C) 0.5.
D) 2.5 percent.
E) 0.4.

Question 63

Consider two demand curves and the same price change for both. If the resulting percentagechange in quantity demanded is greater for one (D1) than the other (D2), we can conclude

A) that D1 is elastic and D2 is inelastic.
B) that D2 is more elastic than D1.
C) that D1 is inelastic and D2 is elastic.
D) that D1 is more elastic than D2.
E) nothing about their relative elasticities.

Question 64

The price elasticity of demand for a product tends to be greater the

A) more close substitutes for it there are.
B) fewer close substitutes for it there are.
C) lower its price.
D) more broadly the product is defined.
E) shorter the time span being considered.

Question 65

Consider the following data for a hypothetical economy. TABLE 4-4
If demand is inelastic, an increase in price will cause total expenditure to

A) fall to zero.
B) remain constant.
C) decrease.
D) increase.
E) be negative.

Question 66

The price of apples at a local market rises from $2.95 to $3.05 per kilo, and as a result the quantity of oranges that households purchase increases from 3950 to 4050 kilos per week. The cross-price elasticity is

A) -1.33.
B) -0.75.
C) 0.75.
D) 1.33.
E) 1.5.

Question 67

The table below shows the demand schedule for museum admissions in a small city. TABLE 4-1
Refer to Table 4-1. The elasticity of demand for museum admissions is

A) inelastic at all points on the demand curve.
B) greater at lower prices than at higher prices.
C) elastic at all points on the demand curve.
D) constant at all points on the demand curve.
E) greater at higher prices than at lower prices.

Question 68

As the price for some product increases from $4.00 to $5.00 per unit, quantity demanded decreases from 400 to 300 units per month. For this segment of the demand curve, the price elasticity of demand is

A) 7.
B) 9.
C) 1.
D) 9/7.
E) 7/9.

Question 69

Suppose the current level of output of some good is 100 units. If market demand is inelastic at that quantity, total expenditure on this product would be higher if output was

A) kept constant.
B) maximized.
C) less than 100 units.
D) minimized.
E) greater than 100 units.

Question 70

Suppose the supply curve for breakfast cereals is upward sloping. Suppose also that as averagehousehold income increases we observe a fall in the price of breakfast cereal. We can conclude thatbreakfast cereal is a(n)

A) normal good.
B) luxury good.
C) inferior good.
D) substitute good.
E) necessity good.

Question 71

If the demand for some good fluctuates, but supply is constant, then which of the following combinations would generally yield the greatest quantity fluctuations?

A) large demand fluctuations and inelastic supply
B) small demand fluctuations and elastic supply
C) small demand fluctuations and unit elastic supply
D) small demand fluctuations and inelastic supply
E) large demand fluctuations and elastic supply

Question 72

Suppose Statistics canada reports that total income earned by Canadian barley farmers has declined as a result of a partial crop failure that has driven up the Canadian price of barley. We can conclude that the price elasticity of demand for barley in Canada is

A) less than zero.
B) exactly zero.
C) less than one.
D) exactly one.
E) greater than one.

Question 73

Suppose egg producers succeed in permanently raising the price of their product by 15 percent, and as a result the quantity demanded falls by 15 percent in the short run. In the long run we can expect the quantity demanded to fall by

A) 15 percent.
B) 0 percent.
C) between 0 and 15 percent.
D) more than 15 percent.
E) 100 percent.

Question 74

The price elasticity of demand measures the responsiveness of

A) equilibrium changes
B) demand to supply changes.
C) the price to changes in quantity demanded.
D) supply to demand changes.
E) quantity demanded to changes in the price.

Question 75

The table below shows the demand schedule for museum admissions in a small city. TABLE 4-1
Refer to Table 4-1. Between the prices of $4 and $6 the price elasticity of demand is

A) 0.40.
B) 1.40.
C) 1.00.
D) 0.50.
E) 0.71.

Question 76

When the percentage change in quantity demanded is greater than the percentage change in price that brought it about, demand is said to be

A) elastic.
B) inelastic.
C) unit elastic.
D) unelastic.
E) zero elastic.

Question 77

The imposition of an excise tax usually causes the price paid by consumers to , while theprice received by sellers .

A) fall; remains unchanged
B) rise; falls
C) rise; rises
D) rise; remains unchanged
E) fall; falls

Question 78

Price elasticity of demand

A) usually increases over time.
B) is greater than one if the percentage increase in the commodity's price is greater than the percentage decline in quantity demanded.
C) is higher for an entire group of related products than it is for a particular product in that group.
D) is very small when good substitutes are readily available for the commodity.
E) is a positive number because price and quantity demanded move in the same direction.

Question 79

Suppose that the quantity demanded of a good rises from 40 units to 60 units per month when the price falls from $1.05 to 95 cents per unit. The price elasticity of demand for this product is

A) 1.5
B) 4.0
C) 1.0
D) 2.0
E) 0.5

Question 80

The imposition of an excise tax will cause the least burden on consumers when demand is

A) elastic.
B) perfectly elastic.
C) unitary elastic.
D) vertical.
E) perfectly inelastic.