Deck 6: Elasticity

Question 1

The price elasticity of demand can be found by:

A) examining only the slope of the demand curve.
B) measuring absolute changes in price and quantity demanded.
C) comparing the percentage change in quantity demanded to the percentage change in price.
D) knowing that when price changes, quantity demanded goes in the opposite direction.

Answer 1

C

Question 2

Use of the midpoint method to calculate the price elasticity of demand eliminates the problem of computing:

A) different elasticities, depending on whether price decreases or increases.
B) different elasticities, because price and quantity are inversely related on the demand curve.
C) total revenue when price falls and demand is inelastic.
D) total revenue when price falls and demand is elastic.

Answer 2

A

Question 3

The ratio of the percentage change in quantity demanded to the percentage change in price is the _____ elasticity of demand.

A) price
B) quantity
C) income
D) cross-price

Answer 3

A

Question 4

A men's tie store sold an average of 30 ties per day at $5 per tie but sold 50 of the same ties per day at $3 per tie. The price elasticity of demand, by the midpoint method, is:

A) greater than zero but less than 1.
B) equal to 1.
C) greater than 1 but less than 3.
D) greater than 3.

Question 5

Egg producers know that the elasticity of demand for eggs is 0.1. If they want to increase sales by 5%, they will have to lower price by:

A) 0.1%.
B) 1%.
C) 5%.
D) 50%.

Question 6

If the estimated price elasticity of demand for foreign travel is 4:

A) a 20% decrease in the price of foreign travel will increase quantity demanded by 80%.
B) the demand for foreign travel is inelastic.
C) a 10% increase in the price of foreign travel will increase quantity demanded by 40%.
D) a 20% increase in the price of foreign travel will increase quantity demanded by 80%.

Question 7

Suppose the price of gasoline increases 10% and quantity of gasoline demanded in Orlando drops 5% per day. Demand for gasoline in Orlando is:

A) price elastic.
B) price inelastic.
C) price unit-elastic.
D) perfectly price inelastic.

Question 8

The price elasticity of demand measures the:

A) responsiveness of quantity demanded to a change in price.
B) responsiveness of price to a change in quantity demanded.
C) extent to which prices are flexible and respond to market forces.
D) responsiveness of demand when price is held constant and demand increases or decreases.

Question 9

If the price of a good increases by 15% and quantity demanded changes by 20%, then the price elasticity of demand is equal to:

A) 0.75.
B) approximately 0.33.
C) approximately 1.33.
D) 1.

Question 10

The price elasticity of demand is computed as the percentage change in the _____ divided by the percentage change in _____.

A) quantity demanded; the quantity supplied.
B) price; the quantity demanded.
C) quantity demanded; income.
D) quantity demanded; the price.

Question 11

The price elasticity of demand measures the responsiveness of the change in the:

A) quantity demanded to a change in the price.
B) price to a change in the quantity demanded.
C) slope of the demand curve to a change in the price.
D) slope of the demand curve to a change in the quantity demanded.

Question 12

The price elasticity of demand measures the:

A) responsiveness of the change in quantity demanded to a change in price.
B) change in price versus a change in quantity demanded.
C) responsiveness of the change in the slope of the demand curve to a change in price.
D) change in the slope of the demand curve versus a change in the quantity demanded.

Question 13

The price of gasoline rises 5% and the quantity of gasoline purchased falls 1%. The price elasticity of demand is equal to _____, and demand is described as _____.

A) 0.2; inelastic
B) 5; inelastic
C) 0.2; elastic
D) 5; elastic

Question 14

The only producer of chocolate bunnies in the world, Choco's Bunny Company, recently expanded its production capacity from 1,000 to 2,000 bunnies per day. If the price elasticity of demand for bunnies is 3.33, by how much will the company have to reduce its price to sell the additional 1,000 bunnies (by the midpoint method)?

A) 2.5%
B) 25%
C) 125%
D) 20%

Question 15

When the price goes down, the quantity demanded goes up. The price elasticity of demand measures:

A) how much the price goes down.
B) how much the equilibrium price goes up.
C) the responsiveness of the price change to an income change.
D) the responsiveness of the quantity change to the price change.

Question 16

For a normal demand curve, the price elasticity of demand will be:

A) always positive.
B) always greater than 1.
C) usually equal to 1.
D) always negative.

Question 17

If the price of a good increases by 20% and the quantity demanded changes by 15%, then the price elasticity of demand is equal to:

A) 0.75.
B) approximately 0.33.
C) approximately 1.33.
D) 1.

Question 18

The price elasticity of demand is measured by _____ the percentage change in _____ the percentage change in _____.

A) dividing; price by; quantity demanded
B) dividing; quantity demanded by; price
C) subtracting; price from; quantity demanded
D) adding; price to; quantity demanded

Question 19

Suppose at $10 the quantity demanded is 100. When the price falls to $8, the quantity demanded increases to 130. The price elasticity of demand between $10 and $8, by the midpoint method, is approximately:

A) 1.17.
B) 1.50.
C) 0.85.
D) 1.00.

Question 20

The Cozy Chair Company believes it can sell 200 chairs at $200 per chair or 300 chairs at $150 per chair. Using the midpoint formula, what do they think is the price elasticity of demand?

A) 2.5.
B) 1.4.
C) 0.7.
D) 0.5.

Question 21

A shirt manufacturer sold 10 dozen shirts per day at $4 per shirt but sold 15 dozen shirts per day at $3 per shirt. The price elasticity of demand (by the midpoint method) is:

A) greater than zero but less than 1.
B) equal to 1.
C) greater than 1 but less than 3.
D) greater than 3.

Question 22

A men's tie store sold an average of 30 ties per day at $5 per tie. The same store sold 60 of the same ties per day at $3 per tie. In this case, the price elasticity of demand (by the midpoint method) is:

A) greater than zero but less than 1.
B) equal to 1.
C) greater than 1 but less than 3.
D) greater than 3.

Question 23

A restaurant manager has estimated that the price elasticity of demand for meals is 2. If the restaurant increases menu prices by 5%, she can expect the number of meals sold to decrease by _____ and total revenue to _____.

A) 10%; increase
B) 5%; stay constant
C) 10%; fall
D) 2.5%; fall

Question 24

If the price of chocolate-covered peanuts decreases from $1.10 to $0.95 and the quantity demanded increases from 190 bags to 215 bags, then the price elasticity of demand (by the midpoint method) is:

A) 1.25.
B) 0.5.
C) 0.8.
D) 2.

Question 25

Use the following to answer questions:
Table: Price Elasticity
(Table: Price Elasticity) Look at the table Price Elasticity. What is the price elasticity of demand between $2.00 and $1.75?

A) 2.33
B) 3.00
C) 4.00
D) 0.125

Question 26

When the price of pencils decreases from $3 to $1, the quantity demanded increases from 100 to 200 pencils. By the midpoint method, the price elasticity of demand equals:

A) 0.17.
B) 0.5.
C) 0.67.
D) 1.5.

Question 27

Use the following to answer questions:
Table: Price Elasticity
(Table: Price Elasticity) Look at the table Price Elasticity. What is the price elasticity of demand between $2.25 and $2.00?

A) 4.00
B) 5.67
C) 9.00
D) 17.60

Question 28

Use the following to answer questions:
Table: Price Elasticity
(Table: Price Elasticity) Look at the table Price Elasticity. What is the price elasticity of demand between $0.75 and $0.50?

A) 0.25
B) 0.33
C) 0.43
D) 0.52

Question 29

If the price of tacos increases from $1 to $2 and customers decrease their consumption from 10 tacos to 8 tacos, what is the price elasticity of demand (by the midpoint method)?

A) 1.5
B) 1
C) 0.33
D) 0.5

Question 30

Use the following to answer questions:
Table: Price Elasticity
(Table: Price Elasticity) Look at the table Price Elasticity. What is the price elasticity of demand (using the midpoint formula) between $2.50 and $2.25?

A) 9
B) 19
C) 119
D) 0.5

Question 31

Use the following to answer questions:
Table: Price Elasticity
(Table: Price Elasticity) Look at the table Price Elasticity. What is the price elasticity of demand between $1.75 and $1.50?

A) 0.42
B) 1.50
C) 1.86
D) 0.08

Question 32

The price elasticity of demand for skiing lessons in New Hampshire is over 1. This means that the demand is _____ in New Hampshire.

A) price elastic
B) price inelastic
C) price unit-elastic.
D) perfectly price elastic

Question 33

Suppose the price elasticity of demand for cheeseburgers equals 0.37. This means the overall demand for cheeseburgers is:

A) price elastic.
B) price inelastic.
C) price unit-elastic.
D) perfectly price inelastic.

Question 34

You manage a nightclub, and lately revenues have been disappointing. Your bouncer suggests that raising drink prices will increase revenues, but your bartender suggests that decreasing drink prices will increase revenues. You aren't sure who is right, but you do know that your bouncer thinks the demand for drinks is _____ and your bartender thinks the demand for drinks is _____.

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

Question 35

Use the following to answer questions:
Table: Price Elasticity
(Table: Price Elasticity) Look at the table Price Elasticity. What is the price elasticity of demand between $1.50 and $1.25?

A) 1.00
B) 1.22
C) 1.50
D) 1.75

Question 36

Use the following to answer questions:
Table: Price Elasticity
(Table: Price Elasticity) Look at the table Price Elasticity. What is the price elasticity of demand between $1.25 and $1.00?

A) 0.60
B) 0.82
C) 1.00
D) 1.60

Question 37

If the price of burritos increases from $4 to $6 and customers decrease their consumption from 20 to 10 burritos, what is the price elasticity of demand (by the midpoint method)?

A) 1.67
B) 0.67
C) 3
D) 2

Question 38

Use the following to answer questions:
Table: Price Elasticity
(Table: Price Elasticity) Look at the table Price Elasticity. What is the price elasticity of demand between $1.00 and $0.75?

A) 0.54
B) 0.66
C) 0.75
D) 1.00

Question 39

Suppose at $10 the quantity demanded is 100. When the price falls to $8, the quantity demanded increases to 130. The price elasticity of demand (using the midpoint formula) between $10 and $8 is approximately:

A) 1.17.
B) 1.50.
C) 0.85.
D) 1.00.

Question 40

The price of notebooks is $5, and at that price consumers demand 12 notebooks. If the price rises to $7, consumers will decrease consumption to 4 notebooks. Using the midpoint formula, what is the price elasticity of demand for notebooks?

A) 0.33
B) 3
C) 0.17
D) 6

Question 41

If demand is elastic, the _____ effect dominates the _____ effect, and a(n) _____ in price will cause total revenue to rise.

A) price; quantity; decrease
B) price; quantity; increase
C) quantity; price; increase.
D) quantity; price; decrease

Question 42

Suppose the price elasticity of demand for oranges is 1.8. If a fall frost destroys one-third of the nation's orange crop, how will that affect total revenue from oranges, all other things unchanged?

A) Total revenue will rise.
B) Total revenue will fall.
C) Total revenue will remain unchanged.
D) The information is insufficient to answer the question.

Question 43

Suppose the price elasticity of demand for fishing lures equals 1.5 in South Carolina and 0.63 in Alabama. To increase revenue, fishing lure manufacturers should:

A) lower prices in each state.
B) raise prices in each state.
C) lower prices in South Carolina and raise prices in Alabama.
D) leave prices unchanged in South Carolina and raise prices in Alabama.

Question 44

The university president believes that increasing student tuition by 5% will increase revenues. If the president is correct that revenues will increase, then the tuition increase will _____ the number of students enrolling by _____.

A) reduce; less than 5%
B) reduce; more than 5%
C) reduce; exactly 5%
D) increase; 5%

Question 45

Sometimes airlines raise ticket prices as the flight departure date approaches in the hope of increasing revenue on the assumption that consumer demand is:

A) more price-elastic as departure time approaches.
B) less price-elastic as departure time approaches.
C) always unit elastic.
D) very sensitive to price changes as the time of departure approaches.

Question 46

Total revenue is:

A) total sales less total cost.
B) the price of a good times the quantity of the good that is sold.
C) the price effect times the quantity effect.
D) the price of a good divided by the amount of the good sold.

Question 47

When the price of chocolate-covered peanuts increases from $1.55 to $2.00, the quantity demanded decreases from 220 to 180. If the price is $1.55, total revenue is _____, and if the price is $2.00, total revenue is _____.

A) $360; $440
B) $341; $279
C) $440; $279
D) $341; $360

Question 48

A rancher in Oklahoma decides to raise the price of her beef by 19% over the prevailing market price. If the demand for beef is perfectly elastic, this rancher's quantity demanded will:

A) fall to 0.
B) not change.
C) fall slightly.
D) increase slightly.

Question 49

The price elasticity of demand for fresh tomatoes has been estimated to be 2.22. If a new insecticide and fertilizer treatment yields a 20% increase in the nation's fresh tomato crop, how will that affect total revenue from fresh tomatoes, all other things unchanged?

A) Total revenue will remain unchanged.
B) Total revenue will fall.
C) Total revenue will rise.
D) The information is insufficient to answer the question.

Question 50

Which of the following is NOT true regarding a price-elastic demand curve?

A) Total revenue increases when the price falls.
B) The absolute value of the price elasticity is a fraction less than 1.
C) The absolute value of the price elasticity is greater than 1.
D) The percent changes in the quantity demanded exceed the percent changes in the price for any small change in price.

Question 51

When the price of chocolate-covered peanuts decreases from $1.10 to $0.95, the quantity demanded increases from 190 bags to 215 bags. If the price is $1.10, total revenue is _____, and if the price is $0.95, total revenue is _____.

A) $209; $204.25
B) $209; $236.50
C) $236.50; $209
D) $180.50; $209

Question 52

The price elasticity of demand for lettuce has been estimated to be 2.58. If an insect infestation destroys 10% of the nation's lettuce crop, how will that affect total revenue from lettuce, all other things unchanged?

A) Total revenue will remain unchanged.
B) Total revenue will fall.
C) Total revenue will rise.
D) The information is insufficient to answer the question.

Question 53

The price elasticity of demand for gasoline in the short run has been estimated to be 0.4. If a war in the Middle East causes the price of oil (from which gasoline is made) to increase, how will that affect total revenue from gasoline in the short run, all other things unchanged?

A) Quantity demanded will stay the same; total revenue will fall.
B) Quantity demanded will decrease; total revenue will rise.
C) Total revenue will remain unchanged.
D) Quantity demanded will not change; total revenue will rise.

Question 54

A perfectly price-inelastic demand curve is:

A) horizontal.
B) downward-sloping.
C) upward-sloping.
D) vertical.

Question 55

When the price of chocolate-covered peanuts increases from $1.55 to $2.00, the quantity demanded decreases from 220 to 160. In this price range, the demand for chocolate-covered peanuts is _____, and total revenue will _____ when the price increases.

A) elastic; increase
B) elastic; decrease
C) inelastic; increase
D) inelastic; decrease

Question 56

Suppose the price of barley increases by 16.53%. If breweries buy 3.28% less barley after the price increase, the total revenue for barley producers will _____ because the _____ effect is greater than the _____ effect.

A) decrease; quantity; price
B) increase; price; quantity
C) not change; quantity; price
D) increase; quantity; price

Question 57

The demand for agricultural output is price inelastic. This means that if farmers, taken collectively, have a bumper crop, they will have _____ prices, _____ quantities sold, and _____ incomes.

A) lower; greater; lower
B) lower; greater; higher
C) lower; lower; lower
D) higher; higher; higher

Question 58

When the price of chocolate-covered peanuts decreases from $1.10 to $0.95, the quantity demanded increases from 190 bags to 215 bags. In this price range, the demand for chocolate covered peanuts is _____, and total revenue will _____ when price decreases.

A) elastic; increase
B) elastic; decrease
C) inelastic; increase
D) inelastic; decrease

Question 59

Sonik, a wireless phone company, tested the effect of a price reduction for text messaging. It lowered prices from $0.08 to $0.04 per message and found that the number of messages sent tripled. This means:

A) the demand for text messaging is inelastic in this price range.
B) the demand curve for text messaging shifted to the right.
C) the supply curve for text messaging shifted to the left.
D) the demand for text messaging is elastic in this price range.

Question 60

The university hopes to raise more revenue by increasing parking fees. This plan will work only if:

A) the price effect is larger than the quantity effect.
B) the price effect is smaller than the quantity effect.
C) the price effect and quantity effect are the same.
D) there is no price or quantity effect.

Question 61

If a 20% price increase generates a 20% decrease in quantity demanded, then this is _____ response.

A) an inelastic
B) an elastic
C) a unit-elastic
D) a perfectly elastic

Question 62

Use the following to answer questions:
Figure: Demand Curves
(Figure: Demand Curves) Look at the figure Demand Curves. Which graph shows a perfectly elastic demand curve?

A) A
B) B
C) C
D) D

Question 63

If a university decreases the price of tickets to football games to collect more revenue, it is assuming that the demand for tickets is:

A) unstable.
B) price-inelastic.
C) price-elastic.
D) price unit-elastic.

Question 64

If the demand for golf is price-inelastic and your local public golf course increases the greens fees for using the course, you expect:

A) a decrease in total revenue received by the course.
B) an increase in total revenue received by the course.
C) an increase in the amount of golf played on the course.
D) no change in the amount of golf played on the course.

Question 65

Use the following to answer questions:
Figure: The Demand for Notebook Computers
(Figure: Demand for Notebook Computers) Look at the figure The Demand for Notebook Computers. The change in total revenue resulting from a change in price from P to T suggests that demand is:

A) inelastic.
B) price-elastic.
C) price-inelastic.
D) price unit-elastic.

Question 66

If an increase in the price of cotton increases total revenue, then the price effect is _____ the quantity effect.

A) equal to
B) stronger than
C) weaker than
D) not comparable to

Question 67

If the demand for golf is unit-price elastic and your local public golf course increases the greens fees for using the course, you expect:

A) a decrease in total revenue received by the course.
B) an increase in total revenue received by the course.
C) a decrease in the amount of golf played on the course.
D) no change in the amount of golf played on the course.

Question 68

When demand is _____, a rise in price leads to a(n) _____ in total revenue.

A) perfectly inelastic; decrease
B) perfectly elastic; increase
C) inelastic; increase
D) elastic; decrease

Question 69

Use the following to answer questions:
Figure: Demand Curves
(Figure: Demand Curves) Look at the figure Demand Curves. Which graph shows a perfectly inelastic demand curve?

A) A
B) B
C) C
D) D

Question 70

Use the following to answer questions:
Figure: Demand Curves
(Figure: Demand Curves) Look at the figure Demand Curves. Gala apples have many close but not perfect substitutes and are not very expensive. Which graph best represents the demand schedule for Gala apples?

A) A
B) B
C) C
D) D

Question 71

Demand for vegetables at a small farmers' market is steady, but the supply of vegetables has decreased because of a drought. This is good news for farmers if demand is _____ and the _____ effect outweighs the _____ effect.

A) inelastic; price; quantity
B) elastic; price; quantity
C) inelastic; output; price
D) elastic; output; price

Question 72

Use the following to answer questions:
Figure: The Demand for Notebook Computers
(Figure: Demand for Notebook Computers) Look at the figure The Demand for Notebook Computers. Total revenue at point V equals the:

A) area 0TVN.
B) area 0PSVN.
C) distance 0T.
D) distance NV.

Question 73

After a price decrease, the quantity effect tends to:

A) decrease total revenue.
B) increase total revenue.
C) make the price effect stronger.
D) make the price effect weaker.

Question 74

If a change in price causes total revenue to change in the same direction, we can conclude that the demand is:

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

Question 75

Use the following to answer questions:
Figure: The Demand for Notebook Computers
(Figure: Demand for Notebook Computers) Look at the figure The Demand for Notebook Computers. Total revenue at point S equals the:

A) distance 0P.
B) distance MS.
C) area 0TUM.
D) area 0PSM.

Question 76

Suppose that an increase in the price of a good leads to an increase in total revenue. Ignoring other factors (like supply), at its current price the good must be:

A) price-inelastic.
B) price-elastic.
C) perfectly price-elastic.
D) inferior.

Question 77

In the market for computers, if the demand curve is elastic and the price of a computer decreases, we expect total revenue to _____. If the demand curve is inelastic and the price of a computer decreases, we expect total revenue to _____.

A) increase; decrease
B) increase; increase
C) decrease; increase
D) decrease; decrease

Question 78

There is one gas station in a small rural town. The owner of the station claims that he will sell the same quantity of gas no matter how high or low the price. If he is correct in this assertion, the demand curve for gas at his station must be _____, with a price elasticity of _____.

A) vertical; zero
B) vertical; infinity
C) horizontal; zero
D) horizontal; infinity

Question 79

Yovanka has diabetes, and she will pay any amount of money for insulin. What is likely the best characterization of Yovanka's demand for insulin?

A) price-inelastic
B) price-elastic
C) perfectly price-inelastic
D) perfectly price-elastic

Question 80

When a public transit system (such as a subway or bus line) raises its fares, its total revenue may increase. This suggests that demand is:

A) unstable.
B) price-inelastic.
C) price-elastic.
D) price unit-elastic.