Deck 5: Elasticity

Question 1

Which statement is TRUE?

A) Elasticity of demand attempts to measure how fast quantity demanded increases when price increases.
B) If the elasticity of demand is -4, then economists know that the price is increasing at a faster rate than quantity demanded.
C) The price elasticity of demand is always a negative number, but economists generally ignore the negative sign.
D) The elasticity of demand is always the same as the elasticity of supply.

Answer 1

C

Question 2

Knowing a product's price elasticity of demand allows economists to predict

A) the amount by which quantity demanded will change in response to a change in price.
B) how changes in consumers' income will affect sales.
C) the amount by which quantity supplied will change in response to a change in price.
D) how quickly consumers will respond to tariff changes.

Answer 2

A

Question 3

Price elasticity of demand is a measure of how responsive a change in quantity demanded is to a change in

A) price.
B) consumer preferences.
C) supply.
D) interest rates.

Answer 3

A

Question 4

One practical reason that economists use percentages to measure elasticity is to

A) predict consumer preferences.
B) compare characteristics of unrelated products.
C) convert units to the metric system.
D) convert elasticities into dollars.

Question 5

Measuring elasticities in percentage terms allows us to

A) compare the sensitivity of demand curves.
B) compare characteristics of unrelated products.
C) not worry about the magnitudes of changes.
D) compare the sensitivity of demand curves, compare characteristics of unrelated products, and not worry about the magnitudes of changes.

Question 6

The more responsive buyers are to a change in price, the

A) greater the price elasticity of supply.
B) closer the price elasticity of demand is to one.
C) greater the price elasticity of demand.
D) smaller the price elasticity of demand.

Question 7

A demand curve that is elastic

A) implies that buyers are very sensitive to price changes.
B) has an elasticity value of zero.
C) has a positive slope.
D) has an elasticity value less than one.

Question 8

If E_d = 4, then

A) a price increase of 1% will reduce quantity demanded by 4%.
B) a price increase of 1% will increase quantity demanded by 4%.
C) a price decrease of 1% will decrease quantity demand by 4%.
D) the slope of the demand curve is equal to 4.

Question 9

If a product's price rises by 6% and its quantity demanded falls by 8%, then we can say that demand for this product is

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

Question 10

If a product's price rises by 6% and its quantity demanded falls by 8%, then its elasticity is equal to

A) 0.75.
B) 1.33.
C) 2.00.
D) 6.00.

Question 11

Walmart is thinking about offering a 25% discount on a brand of shoes. If the elasticity of demand is 2, then the discount would increase sales by

A) 12.5%.
B) 200%.
C) 50%.
D) 25%.

Question 12

If a 1% increase in the price of gummy bears causes gummy bear sales to decline by 0.4%, then the price elasticity of demand is

A) 2.5.
B) 0.04.
C) 0.4.
D) 4.

Question 13

A grocery store announced a 50% decrease in the price of local honey. Sales increased by 200%. Based on the information, the price elasticity of honey is

A) 0.25.
B) 0.04.
C) 0.4.
D) 4.

Question 14

If price increases by 100% and quantity demanded decreases by 50%, then the price elasticity of demand is equal to

A) 0.4.
B) 2.0.
C) 0.5.
D) 20.0.

Question 15

If the price elasticity of demand is 0.1, then for every 10% increase in price, there is a _____ in quantity demanded.

A) 100% increase
B) 100% decrease
C) 1% increase
D) 1% decrease

Question 16

If the price elasticity of demand is 10, then for every 1% increase in price, there is a _____ in quantity demanded.

A) 10% decrease
B) 10% increase
C) 0.1% increase
D) 0.1% decrease

Question 17

If the price increases by 100% and the quantity demanded decreases by 50%, then the elasticity of demand is

A) 0.5.
B) 2.
C) 1.
D) 5.

Question 18

The price of gold increases by 200%. If the price elasticity of demand for gold is 0.4, what will happen in the market?

A) Gold sales will increase by 1,000%.
B) Gold sales will decrease by 40%.
C) Gold sales will decrease by 5%.
D) Gold sales will decrease by 80%.

Question 19

If quantity demanded rises by 60% and price falls by 20%, the price elasticity of demand is

A) 3.
B) 20.
C) 60.
D) 0.33.

Question 20

In comparing the change in prices of different items, it is preferable to

A) compare the percentage changes in the prices.
B) compare the prices of the items directly.
C) analyze the main causes of the price changes.
D) include historical trends of the prices.

Question 21

If oranges cost $4 a bag last year, but they cost $5 a bag this year, the percent change in the price of oranges, using the base method, is

A) 125%.
B) 80%.
C) 25%.
D) 20%.

Question 22

If sales of apples decrease by 5% because of an increase in the price of apples by 10%, the elasticity of demand for apples is

A) 0.
B) 0.5.
C) 1.
D) 2.

Question 23

If the price of Citgo gasoline increases by 10% and the quantity demanded decreases by 20%, then the demand for gasoline is

A) inelastic.
B) elastic.
C) unitary elastic.
D) a perfect substitute.

Question 24

A demand curve that is inelastic

A) means that buyers are very sensitive to price changes.
B) has an elasticity value of 1.
C) has a positive slope.
D) has an elasticity value between 0 and 1.

Question 25

(Table) Refer to the demand schedule for honey in the table. In this price range, the demand for honey is
$\begin{array}{|l|l|}\hline \begin{array}{l}\text { Price of a Jar } \\\text { of Honey }\end{array} & \begin{array}{l}\text { Quantity of Honey } \\\text { (millions of jars) }\end{array} \\\hline \$ 2 & 10 \\\hline 4 & 8 \\\hline 6 & 6 \\\hline\end{array}$

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

Question 26

For which good would consumers be the most responsive to a change in price if good A has an elasticity of 0.05, good B has an elasticity of 0.8, good C has an elasticity of 1.8, and good D has an elasticity of 47?

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

Question 27

If the price elasticity of demand is 0.5, then the demand is

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

Question 28

A unitary elastic demand means that if the percentage change in price is _____, then the percentage change in quantity demanded is _____.

A) 2%; 1%
B) 5%; 5%
C) 2%; 4%
D) 5%; 0%

Question 29

If the demand for bread is inelastic, which scenario might occur?

A) A 10% increase in the price of bread causes a 10% decline in its quantity demanded.
B) A 5% increase in the price of bread causes a 10% decline in its quantity demanded.
C) A 10% increase in the price of bread causes a 5% decline in its quantity demanded.
D) A 5% decrease in the price of bread causes a 10% increase in its quantity demanded.

Question 30

If the demand for Quilted Northern bath tissue is elastic, then the

A) percentage change in quantity demanded is less than the percentage change in price.
B) elasticity coefficient is between 0 and 1.
C) percentage change in quantity demanded equals the percentage change in price.
D) percentage change in quantity demanded is greater than the percentage change in price.

Question 31

If demand is unitary elastic, then the

A) percentage change in quantity demanded is less than the percentage change in price.
B) price elasticity equals one.
C) percentage change in quantity demanded is greater than the percentage change in price.
D) demand curve is a vertical line.

Question 32

Holding all else constant, if the percentage change in quantity demanded is less than the percentage change in price, then

A) E_d is elastic.
B) E_d is unitary elastic.
C) E_d is inelastic.
D) E_d is undefined.

Question 33

If prices increase by the same percentage that quantity demanded decreases, then the demand curve is

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

Question 34

A good that has inelastic demand has an elasticity coefficient

A) greater than 1.
B) greater than or equal to 1.
C) equal to 1.
D) between 0 and 1.

Question 35

A vertical demand curve represents demand that is

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

Question 36

The price elasticity of demand for a good with a vertical demand curve

A) depends on where a point is on the demand curve.
B) is infinite.
C) is 0.
D) is 1.

Question 37

The price elasticity of demand for a good with a horizontal demand curve

A) depends on where a point is on the demand curve.
B) is infinite.
C) is 0.
D) is 1.

Question 38

If price elasticity of demand is between 0 and 1, demand for that product is

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

Question 39

If the price elasticity of demand is greater than 1, then economists say that

A) demand is inelastic.
B) demand is unitary elastic.
C) demand is elastic.
D) price and quantity demanded are unrelated.

Question 40

If the quantity of a good sold varies greatly from small changes in the price, the good is

A) highly inelastic.
B) unitary elastic.
C) not elastic.
D) highly elastic.

Question 41

A good is said to be highly inelastic if

A) the absolute value of the elasticity is 1.
B) the absolute value of the elasticity is greater than 1.
C) there is a small change in quantity with a change in price.
D) there is a large change in quantity with a change in price.

Question 42

If a good has an elasticity of demand equal to 1, then demand for the good is

A) highly inelastic.
B) unitary elastic.
C) not elastic.
D) highly elastic.

Question 43

Which of these is a possible value for an inelastic demand coefficient?

A) 1.0
B) 2.3
C) 0.7
D) 1.5

Question 44

Which of these products would have the highest price elasticity of demand?

A) cigarettes
B) hot dogs sold by a street vendor
C) gasoline
D) blood-thinning medication prescribed to patients who have had a stroke

Question 45

Perfectly elastic demand is BEST represented by a(n)

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

Question 46

A perfectly inelastic demand is BEST represented by a(n) _____ demand curve.

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

Question 47

A horizontal demand curve has a price elasticity of demand equal to

A) 1.
B) 0.
C) infinity.
D) 0 at low quantities and 1 at higher quantities.

Question 48

A vertical demand curve has a price elasticity of demand equal to

A) 1.
B) 0.
C) infinity.
D) 0 at low quantities and 1 at higher quantities.

Question 49

Which of these is MOST likely to have a perfectly inelastic demand curve?

A) surgical supplies
B) preventive medical services
C) cosmetic surgery
D) heart transplant surgery

Question 50

Which of these products would have the lowest elasticity of demand?

A) frozen pizza
B) public transportation
C) electricity
D) cosmetic surgery

Question 51

Products with many close substitutes tend to have _____ demand, and products considered luxury goods tend to have _____ demand.

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

Question 52

Which of these is NOT a determinant of a product's price elasticity of demand?

A) size of the product
B) availability of substitute products
C) time period being examined
D) difference between luxuries and necessities

Question 53

The greater the number of substitutes available for a good, the _____ its demand will be.

A) less elastic
B) more inelastic
C) less responsive to price changes
D) more elastic

Question 54

Which of these is NOT a determinant of the price elasticity of demand?

A) sales tax rate placed on an item
B) availability of substitute products
C) whether the item is a necessity or a luxury
D) time for adjustment

Question 55

All of these are basic determinants of a product's price elasticity of demand EXCEPT the

A) availability of complementary products.
B) availability of substitute products.
C) percentage of income spent on the product.
D) time period being examined.

Question 56

All of these determine price elasticity of demand EXCEPT

A) the availability of substitutes.
B) a change in the price of the resources used to produce the product.
C) the adjustment time for buyers.
D) the proportion of a person's budget spent on the good.

Question 57

Which of these would result in a higher price elasticity of demand?

A) a shorter period of time for adjustment
B) a good becoming a necessity
C) fewer substitutes available
D) a longer time period for adjustment

Question 58

Which of these would result in a lower price elasticity of demand?

A) a longer period of time for adjustment
B) more substitutes available
C) less total income spent on the good
D) reduced necessity of the good

Question 59

Home heating gas tends to have _____ demand because _____.

A) elastic; it has many close substitutes
B) elastic; it is a necessity
C) inelastic; people do not have time to adjust their consumption patterns
D) inelastic; people spend a large share of their incomes on heat

Question 60

Home heating gas tends to have _____ demand because _____.

A) elastic; it has few close substitutes
B) elastic; people have lots of time to adjust their consumption patters
C) inelastic; people spend a large share of their incomes on heat
D) inelastic; it is a necessity

Question 61

The greater the percentage of the budget spent on a good, the

A) higher its elasticity of demand.
B) lower is its elasticity of demand.
C) less responsive is quantity demanded to a change in price.
D) greater its inelasticity of demand.

Question 62

Which of these is likely to have the lowest price elasticity of demand?

A) hamburgers
B) Budweiser beer
C) gasoline
D) tickets to a rodeo

Question 63

Which of these is likely to have the highest price elasticity of demand?

A) toilet paper
B) Charmin toilet paper
C) toothpaste
D) gasoline

Question 64

Which of these is the MOST likely to have the highest elasticity of demand?

A) salt
B) pepper
C) dog food
D) theme park tickets

Question 65

When consumers are given more time to adjust to higher prices

A) demand becomes less elastic.
B) consumers have fewer choices from which to select.
C) consumers have more choices from which to select.
D) consumers can earn more income to spend on goods.

Question 66

Which statement does NOT explain the inelastic demand for bread?

A) The percentage of the budget spent on bread is small.
B) Few close substitutes for bread exist.
C) Bread is a necessity for most consumers.
D) Bread sales decline significantly in the short run as bread prices rise.

Question 67

The demand for a vacation in Europe is MOST likely

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

Question 68

The demand curve for cigarettes is MOST likely

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

Question 69

Demand for McDonald's hamburgers is more elastic than demand for hamburgers made at home because

A) the percentage of the household budget spent on hamburgers is small.
B) hamburgers are a luxury.
C) there are more close substitutes for McDonald's hamburgers than there are for hamburgers made at home.
D) McDonald's hamburgers are a necessity.

Question 70

The percentage of the household budget spent on pencils is less than 1%, while that spent on housing is about 40%. If the price of both goods increases by 10%, the

A) percentage change in quantity demanded for pencils would drop by more than 10%.
B) percentage change in quantity demanded for housing would be near zero.
C) elasticity of demand for pencils would exceed that for housing.
D) elasticity of demand for housing would exceed that for pencils.

Question 71

If research finds demand elasticities of 0.05 and 0.6 for the same good or service, then

A) both are definitely short-run demand elasticities.
B) both are definitely long-run demand elasticities.
C) 0.05 is the short-run demand elasticity and 0.6 is the long-run demand elasticity.
D) 0.6 is the short-run demand elasticity and 0.05 is the long-run demand elasticity.

Question 72

Which of these would you expect to have relatively high price elasticity of demand?

A) name-brand cereals
B) gasoline
C) medications for serious illnesses
D) cooking oil

Question 73

When the price of coffee increased from $4.50 to $5.55, the quantity demanded decreased from 185 units sold to 150 units sold. Using the midpoint method, the price elasticity of demand is

A) 0.03.
B) 6.95.
C) 1.
D) 0.81.

Question 74

When the price of hamburgers increased from $1.50 to $2.75, the quantity demanded decreased from 375 units sold to 250 units sold. Using the midpoint method, hamburgers are said to be

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

Question 75

Using the midpoint method, what is the price elasticity of demand for a product whose price increased from $2 to $4 and whose quantity demanded decreased from 10 to 5 units?

A) 0.4
B) 1.0
C) 0.5
D) 2.0

Question 76

(Table) According to the table, what is the price elasticity of honey when the price of a jar of honey is between $2 and $4 (use the midpoint method to calculate your answer)?
$\begin{array}{|l|l|}\hline \begin{array}{l}\text { Price of a Jar } \\\text { of Honey }\end{array} & \begin{array}{l}\text { Quantity of Honey } \\\text { (millions of jars) }\end{array} \\\hline \$ 2 & 10 \\\hline 4 & 8 \\\hline 6 & 6 \\\hline\end{array}$

A) 0.33
B) 3.00
C) 0.50
D) 5.00

Question 77

(Table) According to the table, a reduction in the price of honey from $6 to $4 will cause the total amount of money spent on honey to
$\begin{array}{|l|l|}\hline \begin{array}{l}\text { Price of a Jar } \\\text { of Honey }\end{array} & \begin{array}{l}\text { Quantity of Honey } \\\text { (millions of jars) }\end{array} \\\hline \$ 2 & 10 \\\hline 4 & 8 \\\hline 6 & 6 \\\hline\end{array}$

A) increase.
B) decrease.
C) remain the same.
D) fall to zero.

Question 78

A poultry rancher discovered that when she increased the price of organic eggs from $0.75 to $1.00 per dozen, the sales of her eggs fell from 300 dozen per week to 200 dozen per week. Her price elasticity of demand (using the midpoint method) would be

A) 2.60.
B) 1.40.
C) 0.75.
D) 1.00.

Question 79

Ceteris paribus, if the price of a good decreases from $32 to $24 and the quantity demanded of the good increases from 80 units sold to 100 units sold, the price elasticity of demand (using the midpoint method) for that good is

A) 1.00.
B) 0.29.
C) 0.78.
D) 1.20.

Question 80

The reason economists use the midpoint method to compute elasticity is that

A) it is the only viable way to measure total revenue.
B) economists want the elasticity to be the same whether the price is increasing or decreasing.
C) it better measures consumers' responsiveness to price changes.
D) it is the only way to avoid always using negative numbers.