Deck 4: Elasticity

Question 1

Economists typically use the mid-point method of calculating elasticity because:

A)it is easier to calculate.
B)it is universally understood by all economists.
C)the negative sign can then be ignored.
D)the elasticity between two points is the same, regardless of the direction of the movement.

Answer 1

the elasticity between two points is the same, regardless of the direction of the movement.

Question 2

The concept of price elasticity can be applied to:

A)demand, but not supply.
B)supply, but not demand.
C)both supply and demand.
D)neither supply nor demand.

Answer 2

both supply and demand.

Question 3

The mid-point method of calculating price elasticity of demand measures the _____ changes in quantity demanded and price relative to a point midway between _____.

A)percentage; two points on a demand curve
B)absolute; two points on a demand curve
C)percentage; the demand and supply curves
D)absolute; the demand and supply curves

Answer 3

percentage; two points on a demand curve

Question 4

The most commonly used measures of elasticity are:

A)income elasticity of demand and price elasticity of supply.
B)price elasticity of demand and price elasticity of supply.
C)cross-price elasticity of demand and cross-price elasticity of supply.
D)price elasticity of demand and cross-price elasticity of supply.

Question 5

Why do producers calculate the price elasticity of demand for their goods and services?

A)They want to know the goods and services for which consumers are most sensitive to price changes.
B)They want to be able to predict the future preferences of their customers.
C)They want to know that consumers will have the same response to a price change regardless of the good or service.
D)They want to understand what goods their customers dislike the most.

Question 6

If a good has an elastic demand, then:

A)a small percentage change in price will cause a larger percentage change in quantity demanded.
B)a small percentage change in price will cause virtually no change in quantity demanded.
C)a large percentage change in price will cause a smaller change in quantity demanded.
D)any percentage change in price will cause an almost immediate response in quantity demanded.

Question 7

If consumers' buying decisions are not very sensitive to changes in price, then their demand is:

A)more elastic.
B)less elastic.
C)perfectly inelastic.
D)unit elastic.

Question 8

If a small percentage change in price causes a larger percentage change in the quantity demanded, the good has:

A)an inelastic demand.
B)a low magnitude of response.
C)an elastic demand.
D)a high magnitude of response.

Question 9

Mathematically, price elasticity of demand is the percentage change in the _____ of a good divided by the percentage change in the _____ of that good.

A)quantity demanded; price
B)price; quantity
C)quantity; price
D)price; quantity.

Question 10

Elasticities are used to measure responses to a change in:

A)the price of a good.
B)the price of a related good.
C)income.
D)All of these are correct.

Question 11

Suppose the price elasticity of demand for eggs is −0.27. Thus, −0.27 is:

A)the percentage change in the quantity demanded of eggs when the price of eggs increases by one percent.
B)the size of the shift in the demand for eggs when the price of eggs changes by one percent.
C)the size of the percentage change in the quantity supplied of eggs when the demand for eggs changes due to a price fluctuation.
D)the percentage change in the price of eggs when the quantity demanded of eggs increases by one percent.

Question 12

If a large percentage change in price leads to a smaller percentage change in quantity demanded, the good has a

A)very elastic demand.
B)less elastic demand.
C)low magnitude of response.
D)high magnitude of response.

Question 13

How does price elasticity of demand appear when calculated?

A)It is always a negative number, although it is sometimes reported as an absolute value.
B)It is sometimes a negative number and sometimes a positive number, depending on the magnitude of response.
C)It is always a positive number because price and quantity are directly related in terms of demand.
D)It can be a positive number or a negative number, but is always reported as an absolute value.

Question 14

Measurements of elasticity include:

A)income elasticity of demand and income elasticity of supply.
B)price elasticity of demand and price elasticity of supply.
C)cross-price elasticity of demand and income elasticity of supply.
D)preference elasticity of demand and cross-price elasticity of supply.

Question 15

Economists use the percentage change in quantity rather than the absolute change in quantity for elasticity calculations because:

A)percentage changes are easier to calculate than absolute changes.
B)elasticity measurements come out the same when using percentage changes regardless of the unit of measurement used for quantity.
C)absolute changes in quantity are difficult to convert to changes in price.
D)absolute changes often result in negative numbers.

Question 16

Consider the demand curve in the graph shown. What is the price elasticity of demand between a price of $4 and $6?

A)−0.45
B)−2.20
C)−0.18
D)−0.40

Question 17

Suppose a one percent change in the price of oil causes a −0.02 percent change in the quantity demanded of oil. Thus, −0.02 is the:

A)price elasticity of demand.
B)price elasticity of supply.
C)cross-price elasticity of demand.
D)income elasticity of demand.

Question 18

Suppose a decrease in price increases quantity demanded from 8 to 12 units. Using the mid-point formula, what is the percentage change in quantity demanded?

A)0.1 = 10 percent
B)40 = 400 percent
C)0.40 = 40 percent
D)−0.40 = −40 percent

Question 19

What does price elasticity measure?

A)How much a market responds to a change in market conditions
B)How much consumers or producers respond to a change in market price
C)How quickly consumers or producers respond to a change in market price
D)How quickly a market will respond to a change in market conditions

Question 20

If supply and demand analysis is a measure of how, then elasticity is a measure of:

A)how much.
B)when.
C)why.
D)how quickly.

Question 21

The demand for spring break vacations is _____ price elastic than the demand for textbooks because vacations _____.

A)less; have more available substitutes
B)more; have less available substitutes
C)less; are more of a luxury
D)more; are more of a luxury

Question 22

The demand for a specific brand of corn flakes cereal is likely to be:

A)very price elastic, because there are many close substitutes available.
B)less price elastic, because there are many close substitutes available.
C)very price elastic, because the cost of cornflakes relative to income is low.
D)less price elastic, because cornflakes are an inferior good for many consumers.

Question 23

When a good has many close substitutes available, it is likely to be:

A)less price elastic than a good without close substitutes available.
B)more price elastic than a good with many complement goods available.
C)less price elastic than a good with many complement goods available.
D)more price elastic than a good without close substitutes available.

Question 24

Suppose an increase in price decreases quantity demanded from 210 to 190 units. Using the mid-point formula, what is the percentage change in quantity demanded?

A)2 = 200 percent
B)−0.2 = −20 percent
C)0.2 = 20 percent
D)−0.1 = −10 percent

Question 25

Suppose the price of a good increases from $9 to $11. Using the mid-point formula, what is the percentage change in price?

A)−20 percent
B)25 percent
C)20 percent
D)2 percent

Question 26

Suppose price decreases from $27.00 to $13.00. Using the mid-point formula, what is the percentage change in price?

A)−0.35 = −35 percent
B)−0.7 = −70 percent
C)0.7 = 70 percent
D)0.14 = 14 percent.

Question 27

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

A)Scope of the market
B)Availability of complements
C)Cost relative to income
D)Adjustment time

Question 28

If the price of hairbrushes decreases by 20 percent and the quantity of hairbrushes demanded increases by 2 percent, the price elasticity of demand is _____ and is _____.

A)−0.1; elastic
B)10; elastic
C)−0.1; inelastic
D)10; inelastic

Question 29

Suppose the price of science textbooks increases by 50 percent. Suppose that the price of mystery novels also increases by 50 percent. The price of other books remains unchanged. The demand for science textbooks is _____ price elastic than the demand for mystery novels because science textbooks have _____ available substitutes.

A)less; more
B)more; less
C)less; less
D)more; more

Question 30

The demand for a particular brand of apple juice is likely to be:

A)very price elastic, because there are many close substitutes available.
B)less price elastic, because there are many close substitutes available.
C)very price elastic, because the adjustment time is so fast.
D)less price elastic, because the adjustment time is so slow.

Question 31

Suppose the price of a can of tuna is $1.30 and the quantity demanded is 9. When the price increases to $1.50, the quantity demanded drops to 7. Using the mid-point method, what is the price elasticity of demand?

A)−1.75
B)−0.57
C)0.57
D)1.75

Question 32

If the price of a good increases by 10 percent and its quantity demanded drops by 50 percent, the price elasticity of demand is:

A)1.0.
B)0.2.
C)−5.0.
D)2.0.

Question 33

Suppose the price of a calculator is $18 and the quantity demanded is 90. When the price increases to $22, the quantity demanded drops to 70. Using the mid-point method, what is the price elasticity of demand for calculators?

A)−1.25
B)−25 percent
C)−20 percent
D)−25

Question 34

Suppose the price of a cookie is $2.50 and the quantity demanded is 50. When the price drops to $1, the quantity demanded increases to 200. Using the midpoint method, what is the price elasticity of demand?

A)−1.40
B)−0.72
C)−140
D)−7.2

Question 35

If the price of a DVD decreases by 50 percent and the quantity of DVDs demanded increases by 75 percent, the price elasticity of demand is _____ and is _____.

A)−1.5; inelastic
B)−1.5; elastic
C)−0.67; elastic
D)−0.67; inelastic

Question 36

Suppose the price of a movie ticket is $7.50 and the quantity demanded is 550. When the increases to $8.50, the quantity demanded drops to 450. Using the mid-point method, what is the price elasticity of demand for movie tickets?

A)0.625
B)−0.625
C)−1.6
D)1.6

Question 37

Suppose the price of mascara is $12 and the quantity demanded is 450. When the price drops to $8, the quantity demanded increases to 550. Using the mid-point method, what is the price elasticity of demand?

A)−0.5
B)−2.0
C)−55
D)−180

Question 38

If the price of a cup of coffee increases by 50 percent and the quantity of cups demanded decreases by 50 percent, the price elasticity of demand is:

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

Question 39

Suppose quantity supplied increases from 16 to 24 units. Using the mid-point formula, what is the percentage change in quantity supplied?

A)−40 percent
B)0.4 percent
C)4 percent
D)40 percent

Question 40

Suppose price increases from $7.00 to $13.00. Using the mid-point formula, what is the percentage change in price?

A)−0.6 = −60 percent
B)0.6 = 60 percent
C)0.7 = 70 percent
D)1.30 = 130 percent

Question 41

If the price elasticity of demand for leisure air travel is −1.60 a _____ percent decrease in its price will cause a _____ in the amount of leisure air travel demanded.

A)10; 16 percent decrease
B)10; 16 percent increase
C)16; 10 percent increase
D)16; 10 percent decrease

Question 42

The demand for dolls is _____ price elastic than the demand for Barbie dolls because _____.

A)less; the scope of the market for dolls is more broadly defined
B)more; the scope of the market for dolls is more broadly defined
C)less; Barbie dolls have more available substitutes
D)more; Barbie dolls have more available substitutes

Question 43

The demand for a cup of coffee is _____ price elastic than the demand for a dinner at a fancy restaurant because a cup of coffee _____.

A)more; requires a smaller portion of one's income
B)less; requires a smaller portion of one's income
C)less; is more of a luxury
D)more; is more of a luxury

Question 44

Suppose the price elasticity of demand for business air travel is −0.80 and the price elasticity of demand for leisure air travel is −1.60. Therefore, the demand for leisure air travel is:

A)less elastic than the demand for business travel.
B)inelastic.
C)more elastic than the demand for business travel.
D)unrelated to consumers' incomes.

Question 45

If the price of subway rides increases, quantity demanded will be:

A)more elastic in six weeks than in six months.
B)more elastic in six months than in six weeks.
C)the same over any time period.
D)unpredictable without more information.

Question 46

The demand for Ben & Jerry's ice cream is _____ price elastic than the demand for all ice cream because _____.

A)less; the scope of the market for Ben & Jerry's is less broadly defined
B)more; the scope of the market for Ben & Jerry's is less broadly defined
C)less; Ben & Jerry's has fewer available substitutes
D)more; Ben & Jerry's has fewer available substitutes

Question 47

The demand for steak is _____ price elastic than the demand for meat because the scope of the market for steak is _____ broadly defined.

A)less; more
B)more; more
C)less; less
D)more; less

Question 48

The demand for a pack of gum is _____ price elastic than the demand for a steak because a pack of gum _____.

A)less; requires a smaller portion of one's income
B)more; requires a smaller portion of one's income
C)less; is more of a luxury
D)more; is more of a luxury

Question 49

If consumers spend more money on coffee than on sugar, then the demand for a pound of coffee is likely _____ price elastic than the demand for a pound sugar of because _____.

A)less; coffee requires a larger portion of consumers' incomes
B)more; coffee requires a larger portion of consumers' incomes
C)less; consumers will take a longer time to adjust to a change in the price
D)more; consumers will take a longer time to adjust to a change in the price

Question 50

The price elasticity of demand for eggs is −0.27 and the price elasticity of demand for soft drinks is −0.70. Therefore, the demand for eggs:

A)is more elastic than the demand for soft drinks.
B)is less elastic than the demand for soft drinks.
C)cannot be compared to the demand for soft drinks because both have negative price elasticities.
D)cannot be compared to the demand for soft drinks because eggs cannot be substituted for soft drinks.

Question 51

The demand for classical music overall is _____ price elastic than the demand for Beethoven's music because _____.

A)less; classical music has more substitutes than Beethoven's music
B)more; classical music has more substitutes than Beethoven's music
C)less; the scope of the market for classical music is more broadly defined
D)more; the scope of the market for classical music is more broadly defined

Question 52

The demand for a movie ticket is likely _____ price elastic than the demand for a Broadway show ticket because a movie ticket _____.

A)less; requires a smaller portion of one's income
B)more; requires a smaller portion of one's income
C)less; has fewer available substitutes
D)more; has fewer available substitutes

Question 53

The demand for ice cream is _____ price elastic than the demand for frozen treats overall because _____.

A)less; ice cream has fewer substitutes than frozen treats.
B)more; ice cream has fewer substitutes than frozen treats.
C)less; the scope of the market for ice cream is less broadly defined
D)more; the scope of the market for ice cream is less broadly defined

Question 54

The demand for shoes is _____ price elastic than the demand for sneakers because the scope of the market for shoes is _____ broadly defined.

A)less; less
B)more; less
C)less; more
D)more; more

Question 55

Suppose gas prices have steadily increased over the last decade. We would expect the price elasticity of demand for gas, when measured over the last decade, to:

A)be more elastic than it has been in the last six months.
B)be less elastic than it has been in the last six months.
C)be relatively the same as the last six months.
D)no longer be an issue because consumers are used to higher gas prices.

Question 56

When demand is perfectly elastic:

A)the demand curve is perfectly vertical.
B)the demand curve is perfectly horizontal.
C)price elasticity is exactly −1.
D)the response to a change in price is immediate.

Question 57

The demand for a subway ride is likely _____ price elastic than the demand for a car because _____.

A)less; a subway ride requires a smaller portion of one's income
B)more; a subway ride requires a smaller portion of one's income
C)less; consumers will take a longer time to adjust to a change in the price of a subway ride
D)more; consumers will take a longer time to adjust to a change in the price of a subway ride

Question 58

Perfectly elastic demand occurs when:

A)consumers are extremely sensitive to a change in price.
B)the quantity demanded is unchanged when price changes by any amount.
C)consumers are slow to alter their demand when the price changes.
D)only large changes in price affect the quantity demanded.

Question 59

How does the amount of time consumers have to adjust to a price change affect elasticity?

A)The more time consumers have to adjust, the less elastic their demand will be.
B)The time consumers have to adjust does not affect the elasticity of their response unless it is a luxury good.
C)The more time consumers have to adjust, the more elastic their demand will be.
D)The time consumers have to adjust will not affect the elasticity of their response unless the good is a necessity.

Question 60

The demand for markers is _____ price elastic than the demand for Sharpies because _____.

A)less; markers require a smaller portion of one's income
B)more; markers require a smaller portion of one's income
C)less; the scope of the market for markers is more broadly defined
D)more; the scope of the market is for markers is more broadly defined

Question 61

Assuming price elasticity of demand is reported as an absolute value, the measured elasticity for an inelastic demand would be:

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

Question 62

Multiplying the quantity sold by the price paid for each unit will give us:

A)total profit.
B)total revenue.
C)total cost.
D)total benefit.

Question 63

A good with a unit elastic demand has a:

A)perfectly horizontal demand curve.
B)perfectly vertical demand curve.
C)price elasticity greater than 1.
D)price elasticity equal to −1.

Question 64

The amount that a firm receives from the sale of goods and services is:

A)total profit.
B)total revenue.
C)total surplus.
D)total benefit.

Question 65

Knowing the price elasticity of demand is important in business because it allows a manager to determine whether:

A)a price increase will cause total revenue to rise or fall.
B)an increase in supply will cause total profit to rise or fall.
C)a price increase will cause the quantity demanded to rise or fall.
D)a price increase will cause the demand to rise or fall.

Question 66

If a good has unitary price elasticity of demand, then the absolute value of the percentage change in _____ equals _____.

A)quantity demanded; one
B)price; one
C)quantity demanded; the absolute value of the corresponding percentage change in price
D)price; the absolute value of the percentage change in quantity demanded, plus one

Question 67

A vertical demand curve indicates that:

A)the quantity demanded will drop to zero if the price increases by any amount.
B)the quantity demanded will remain unchanged no matter what happens to the price.
C)the quantity demanded will rise if the price increases by any amount.
D)the quantity demanded will only react to large changes in price.

Question 68

A horizontal demand curve indicates that:

A)quantity demanded will rise if the price increases by any amount.
B)quantity demanded will drop to zero if the price increases by any amount.
C)quantity demanded will remain unchanged no matter what happens to the price.
D)price is not important in this market.

Question 69

Assuming price elasticity of demand is reported as an absolute value, a price elasticity of demand of 1.2 indicates an _____ demand, meaning the percentage change in quantity demanded will be _____ than the percentage change in price.

A)elastic; greater
B)inelastic; greater
C)elastic; less
D)inelastic; less

Question 70

When demand is perfectly inelastic:

A)the demand curve is perfectly vertical.
B)the demand curve is perfectly horizontal.
C)the measured elasticity is exactly −1.
D)the response to a change in price is immediate.

Question 71

Assuming price elasticity of demand is reported as an absolute value, a price elasticity of demand less than one indicates that demand for the good is:

A)elastic.
B)inelastic.
C)unitary elastic.
D)unrelated to price.

Question 72

The price elasticity of demand for insulin (a hormone necessary to treat Type I diabetes)is:

A)likely to be perfectly inelastic over some range of prices.
B)perfectly elastic.
C)always perfectly inelastic.
D)low relative to the price elasticity of supply.

Question 73

Assuming price elasticity of demand is reported as an absolute value, the measured elasticity for an elastic demand would be:

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

Question 74

Assuming price elasticity of demand is reported as an absolute value, a good with unit elastic demand has an elasticity:

A)between zero and one.
B)greater than one.
C)less than one, but greater than zero.
D)equal to one.

Question 75

In general, the more elastic a demand curve is, the:

A)flatter it will be.
B)steeper it will be.
C)more bowed-in it will be.
D)faster it will shift when price changes.

Question 76

Assuming price elasticity of demand is reported as an absolute value, a price elasticity of demand greater than one indicates that demand for the good is:

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

Question 77

Total revenue is the amount a firm:

A)receives from the sale of goods and services.
B)keeps after all expenses are paid.
C)reinvests in itself from sales.
D)receives from dividends.

Question 78

Assuming price elasticity of demand is reported as an absolute value, a price elasticity of demand of 0.4 indicates an _____ demand, meaning the percentage change in quantity demanded will be _____ than the percentage change in price.

A)elastic; greater
B)inelastic; greater
C)elastic; less
D)inelastic; less

Question 79

Perfectly inelastic demand occurs when:

A)consumers are extremely sensitive to a change in price.
B)consumers are quick to alter their demand when the price changes.
C)the quantity demanded is unchanged when the price changes by any amount.
D)only large changes in price affect the quantity demanded.

Question 80

Assuming price elasticity of demand is reported as an absolute value, a price elasticity of one indicates that:

A)the percentage change in quantity demanded will equal the percentage change in price.
B)the percentage change in quantity demanded will equal one.
C)both the percentage change in price and quantity demanded must equal one.
D)the percentage change in quantity demanded and the percentage change in price must sum to one.