Deck 4: Elasticity

Question 1

According to the text, the income elasticity of demand for food in industrialized nations is lower than that of poorer nations.

Answer 1

False

Question 2

Short-run elasticity of supply is greater than long-run elasticity of supply.

Answer 2

False

Question 3

The more essential the good, the more price inelastic will be the demand for a good.

Answer 3

True

Question 4

Cross elasticity measures the consumer's change in demand brought about by a change in income.

Question 5

Goods with many substitutes tend to have more price elastic demand curves.

Question 6

Price elasticity of demand is measured by the percentage change in quantity demanded divided by the percentage change in income.

Question 7

If two goods are complementary, the cross elasticity will be negative.

Question 8

Tax revenue is greater the more price elastic the demand curve.

Question 9

The more price elastic the demand curve, the less quantity demanded will fall when a per-unit tax is imposed.

Question 10

The demand for gasoline is expected to be more elastic in the long run than in the short run.

Question 11

If the demand for videotapes tends to be elastic, then a decrease in videotape prices means that people spend more on video tapes than before.

Question 12

If the income elasticity of demand for dental services is -0.6, this means that people purchase more dental services when the price is lowered.

Question 13

The calculated value of a normal good's price elasticity is less than zero.

Question 14

The price elasticity of supply of tomatoes on the market day is zero.

Question 15

If economists estimate the price elasticity of demand to be 0.75 for good X and 1.25 for good Y, then the government can raise the most revenue by taxing good Y.

Question 16

If the price elasticity of demand for shelled, roasted, unsalted peanuts is 0.86 at current prices, a small increase in price will raise producers' total revenue.

Question 17

When demand curves shift to the left, buyers become less sensitive to price increases because they consume fewer of these goods.

Question 18

If a good has a price elasticity of demand equal to 0.4, and the price elasticity of supply is equal to 6.5, the good is a strong candidate for a unit tax.

Question 19

All cross elasticities are positive.

Question 20

An elasticity is a measure of sensitivity.

Question 21

The price elasticity of supply increases as firms have more time to adjust.

Question 22

Market-day supply elasticities can vary between 0 and 1.

Question 23

The income elasticity for most foods is positive but less than 1.

Question 24

Goods that are income elastic are often referred to as luxury goods.

Question 25

The U.S. Department of Agriculture and Ernst Engel have confirmed, separately, that there is an inverse relationship between income changes and food consumption.

Question 26

If a $1 increase in price leads to a $1 decrease in total revenue, then demand must be elastic.

Question 27

In order to raise the most revenue, the government is better off taxing the producers of a good for which demand is elastic.

Question 28

All elasticities are measures of responsiveness.

Question 29

You would expect the demand for food to be more inelastic than the demand for cookies.

Question 30

The more substitutes for a good, the more elastic its demand.

Question 31

If new substitutes for a good appear on the market, we would expect the price elasticity of demand for that product to increase.

Question 32

If the demand for bus transportation in a city is inelastic, then the city should lower the price to increase revenue.

Question 33

If the cross elasticity of demand for two goods is positive, then the two goods are substitutes.

Question 34

The absolute value of the price elasticity of demand for hamburger is higher than that of meat in general.

Question 35

Rubin's Classic Book Shop has been advised that raising prices would lead to higher revenues because his product demand is elastic. The consultant giving this advice should be fired for bad information

Question 36

The cross-price elasticity of demand for generic brand pasta, an inferior good, would be expected to be less than zero.

Question 37

For a price change from P₁ to P₂ the change in quantity demanded is from Q₁ to Q₂ andprice elasticity of demand would be

A) [(P₁-P₂)/(P₁+P₂)] / [(Q₁-Q₂)/(Q₁+Q₂)]
B) [(P₁+P₂)/(P₁-P₂)] / [(Q₁+Q₂)/(Q₁-Q₂)]
C) [(Q₁-Q₂)/(Q₁+Q₂)]/2 / [(P₁-P₂)/(P₁+P₂)]/2
D) [(Q₁+Q₂)/(Q₁-Q₂)] / [(P₁+P₂)/(P₁-P₂)]
E) [(Q₁+Q₂)/(Q₁-Q₂)/2] / [(P₁+P₂)/(P₁-P₂)/2]

Question 38

Sue's Bagel Shop wants to estimate how responsive the demand for bagels is to a change in her cream cheese prices. To accomplish this task, the following data would not be needed:

A) percentage change in bagel prices
B) original price of cream cheese
C) new quantity of bagels sold
D) original quantity of bagels sold
E) new price of cream cheese

Question 39

Dr. Franke, a perpetual critic of economics, notes that a recent consultant to his medical practice had advised him to raise the prices he charged in order to raise his business revenues. At a university fund raising event he commented to the Chancellor regarding "how ludicrous"some of his faculty members were in giving advice that would drive customers away. He advised the Chancellor that more "practical, experienced faculty" such as hired by the local Technical College were needed. If demand for Dr. Franke's services is inelastic

A) customers would increase and revenues drop
B) customers would increase and revenues expand
C) customers would decrease and revenues drop
D) customers would decrease and revenues expand
E) only cross-price elasticity is related to revenues

Question 40

Engel's Law, relating to the demand for food,

A) states that food demand is inelastic
B) holds more strongly in developed countries
C) indicates why the food sector experiences more than proportionate increases in quantities demanded as incomes rise
D) shows why food demand expands as citizen education improves
E) was only relevant when established in the 1800s

Question 41

The air we breathe is essential, yet a tax on air is not feasible for all the following reasons except

A) a lack of public support for the tax
B) the demand for air is elastic
C) non-taxpayers could breathe
D) citizens could move away from taxed regions
E) it would require a tyrannical leader/government

Question 42

If the price elasticity of demand within the price range $1 and $1.25 for carrots is 0.79 and for radishes is 1.6, then, within that price range

A) carrots are more price elastic than radishes
B) radishes are more price elastic than carrots
C) carrots and radishes must be substitute goods
D) carrots and radishes must be complementary goods
E) both carrots and radishes are price elastic

Question 43

Price elasticity of demand measures the

A) change in quantity demanded generated by a change in price
B) change in price generated by a change in quantity demanded
C) percentage change in the price of a good demanded generated by a percentage change in people's income
D) percentage change in quantity demanded generated by a percentage change in price
E) percentage change in price generated by a percentage change in quantity demanded

Question 44

-In Exhibit D-1, price elasticity of demand within the price range $10 and $8 is

A) 0.67
B) 1.5
C) 2.0
D) 1.56
E) 1.0

Question 45

-In Exhibit D-1, price elasticity of demand within the price range $8 and $6 is

A) 4.27
B) 1.5
C) 1.56
D) 0.636
E) 0.425

Question 46

If price elasticity of demand is 2.0, this implies that consumers would

A) buy twice as much of the good if price falls by 10 percent
B) require a 2 percent cut in price to raise quantity demanded of the good by 1 percent
C) buy 2 percent more of the good in response to a 1 percent cut in price
D) require at least a $2 increase in price before showing any response to the price increase
E) buy twice as much of the good if the price drops 1 percent

Question 47

If a specific segment of a demand curve is price elastic, then we know that anywhere along that segment, the

A) percentage change in the quantity demanded exceeds one
B) percentage change in quantity demanded exceeds the percentage change in price
C) percentage change in price exceeds the percentage change in quantity demanded
D) the change in quantity demanded exceeds the change in price
E) the good has no close substitutes

Question 48

If the demand curve for a good is unit elastic within a specific price range, this implies that within that price range the

A) consumers do not react to a change in price
B) quantity demanded remains unchanged
C) good has no substitutes
D) good has no complements
E) percentage change in the quantity demanded equals the percentage change in price

Question 49

If a 10 percent cut in the price of video rentals at "That's Rentertainment" causes a 15 percent increase in the quantity of rentals demanded, then

A) total revenue will decrease
B) demand is price inelastic within that price range
C) demand is price elastic within that range
D) demand is unit elastic within that range
E) total revenue will remain the same

Question 50

If Matthew raises the price of his muffins from $2 to $3 and his total revenue increases from $35,000 to $38,000, then

A) the demand for Matthew's muffins in this price range is price elastic
B) the demand for Matthew's muffins in this price range is price inelastic
C) the demand for Matthew's muffins in this price range is unit elastic
D) the percentage change in quantity demanded must exceed the percentage change in price
E) we know this is impossible because it violates the law of demand

Question 51

When comparing price elasticities of demand in the long run to the short run, what can we can say about the long-run elasticities?

A) Within every price range, the price elasticity of demand is more elastic.
B) Consumers are less sensitive to price changes.
C) Consumers are inclined to make fewer adjustments to quantity demanded when price changes.
D) Within every price range, the price elasticity of demand is less elastic.
E) Because consumers had more time to adjust to a price decrease or increase, their reaction to either is much smaller.

Question 52

When the price elasticity of demand is calculated, if price increases, quantity demanded decreases and if price decreases, quantity demanded increases so the result will be

A) positive when price increases and negative when it decreases
B) negative when price increases and positive when it decreases
C) greater than one when price increases and less than one when it decreases
D) less than one when price increases and greater than one when it decreases
E) negative whether we look at a price increase or decrease

Question 53

Which of the following pairs best represents complementary goods?

A) leather shoes and leather boots
B) leather shoes and shoe laces
C) leather shoes and leather sandals
D) leather shoes and cow hides
E) leather shoes and fabric shoes

Question 54

If two goods are complementary,

A) a decrease in the price of one good will lead to a decrease in the demand for the other
B) the cross elasticity of demand is zero
C) an increase in the price of one good will lead to an increase in the demand for the other
D) the cross elasticity of demand is positive
E) a decrease in the price of one good will lead to an increase in the demand for the other

Question 55

If a 1 percent decrease in the price of one good generates a 3 percent increase in the quantity demanded for another good, then the

A) two goods are complementary
B) cross elasticity between the two goods is positive
C) two goods are substitutes
D) price elasticity of demand for the good whose quantity demanded increased must be inelastic
E) price elasticity of demand for the good whose quantity demanded increased must be elastic

Question 56

If a 10 percent decrease in the price of one good generates a 3 percent increase in the quantity demanded for another good, then the

A) two goods are complementary
B) cross elasticity between the two goods is positive
C) two goods are substitutes
D) price elasticity of demand for the good whose quantity demanded increased must be inelastic
E) price elasticity of demand for the good whose quantity demanded increased must be elastic

Question 57

Which of the following pairs best represents substitute goods?

A) French fries and uncooked potatoes
B) French fries and hot dogs
C) French fries and French toast
D) French fries and fried onion rings
E) French fries and the French chef

Question 58

A good is regarded as being an "inferior good" when

A) its price elasticity of demand is greater than one everywhere along its price range
B) its price elasticity of demand is less than one everywhere along its price range
C) the income elasticity of demand for the good is negative
D) it is a low-quality good even at low prices
E) the demand for the good is zero at any price

Question 59

If Joshua buys 10 percent more compact discs when his income increases by 5 percent, then, for Joshua

A) price elasticity of demand for compact discs is greater than one
B) compact discs are inferior goods
C) compact discs are price inelastic
D) compact discs are income inelastic
E) compact discs are income elastic

Question 60

Engel's Law claims that

A) the percentage increase in quantity demanded for food is less than the percentage increase in income
B) food is an inferior good (as economists define inferior good, of course)
C) the demand for food is income elastic
D) the income elasticity for food is negative
E) consumers' demand for food does not increase when the price of food falls

Question 61

The table in the textbook shows that income elasticity of food in industrialized nations is

A) higher than in less industrialized nations
B) negative
C) income elastic
D) lower than in less industrialized nations
E) the same as in less industrialized nations because food is an essential good

Question 62

The text shows that income elasticity for books is 1.44. This means that

A) books are income inelastic
B) books are price inelastic
C) there's a 144 percent increase in book sales when income rises 10 percent
D) there's a 44 percent increase in book sales when income rises 10 percent
E) there's a 1.44 percent increase in book sales when income rises 1 percent

Question 63

According to economists, the income elasticity of an inferior good

A) is less than one
B) exceeds one
C) is zero
D) is inelastic
E) is negative

Question 64

Price elasticity of supply refers to the

A) change in supply that results from a change in demand
B) percentage change in supply generated by a percentage change in demand
C) change in price that results from a change in supply
D) percentage change in price generated by a percentage change in supply
E) percentage change in supply generated by a percentage change in price

Question 65

Elasticity of supply becomes ________ elastic over time because ________.

A) less; of the growing scarcity of resources
B) less; suppliers have more time to acquire additional resources to achieve desired capacity
C) more; demand becomes more inelastic
D) more; demand will always continue to increase
E) more; suppliers have more time to acquire additional resources to achieve desired capacity

Question 66

-Short-run and long-run supply curves are depicted in Exhibit D-3. Which of the following statements is true?

A) Supply curve S₁ is the long-run supply curve.
B) Supply curve S₁ is more elastic than supply curve S₂.
C) Supply curve S₂ is more elastic than supply curve S₃.
D) Supply curve S₃ is the long-run supply curve.
E) Supply curve S₃ is less elastic than supply curve S₂.

Question 67

The calculation of the responsiveness of suppliers to changing prices is represented by

A) cross elasticity
B) supply elasticity
C) the supply coefficient
D) long-run supply
E) market-day supply

Question 68

In which of these industries would you expect the least elastic response from suppliers?

A) fast food
B) soft drink
C) road building
D) aircraft
E) Picasso paintings

Question 69

If the purpose of a tax is to raise revenue, it would be best for government to place the tax on which of the following goods?

A) a non-essential good, such as holiday travel
B) a good whose demand curve is highly elastic
C) a good that has several close substitutes
D) a good whose demand curve is highly inelastic
E) a good whose demand curve is unit elastic

Question 70

You are part of a local community theater group. Its goal is to raise as much revenue as possible. Mary suggests raising ticket prices. Is she right?

A) yes if the demand for tickets is price inelastic
B) no if the demand for tickets is price inelastic
C) yes because raising prices always increases revenue
D) no because raising prices reduces sales and revenue
E) most likely because the demand curve for theater tickets is typically inelastic

Question 71

Economists use elasticity as a tool to measure

A) the relationship between people's attitudes and their income
B) the relationship between people's willingness to supply a good and their willingness to demand that good
C) people's sensitivity to changes in price or income
D) the effect of changes in supply on people's willingness to demand goods
E) the effect of changes in supply on the government's ability to tax

Question 72

If the income elasticity of a good is negative, say -1.8, we can infer that the good is a(n)

A) luxury good, such as holiday travel
B) substitute good, such as Pepsi, with Coke available
C) complementary good, such as Pepsi, with a candy bar available
D) inferior good, such as a non-color televison
E) essential good, such as food

Question 73

If the price elasticity of demand for a good is 0.45, it is most likely that the good

A) has many close substitutes
B) is a luxury good
C) is high-priced
D) is a complementary good
E) has few close substitutes

Question 74

If the price elasticity of demand for a good is 3.0, it is clear that the good

A) would be a poor choice to tax if the object is to raise tax revenue
B) would be an excellent choice to tax if the object is to raise revenue
C) is an essential good
D) has a demand curve that is price inelastic at every price level
E) is a complementary good

Question 75

Which of the five goods, A to E, whose price elasticities of demand are shown in the choices below, is the best candidate to tax if the goal is to acquire maximum tax revenue?

A) good A, with price elasticity of 0.90
B) good B, with price elasticity of 3.40
C) good C, with price elasticity of 1.25
D) good D, with price elasticity of 0.50
E) good E, with price elasticity of 1.00

Question 76

If the quantity you buy of a good increases when your income increases, the good is clearly a(n)

A) essential good
B) inferior good
C) substitute good
D) complementary good
E) normal good

Question 77

If the demand for a good is price inelastic, a tax on it will

A) raise price, raise tax revenue, shift the supply curve to the right
B) lower price, lower tax revenue, shift the supply curve to the right
C) Raise price, raise tax revenue, shift the supply curve to the right
D) raise price, raise tax revenue, shift the supply curve to the left
E) Lower price, raise tax revenue, shift the demand curve to the left

Question 78

Picture a linear downward-sloping demand curve. The price elasticity of demand

A) remains the same for all price ranges on that demand curve
B) varies among the price ranges on that demand curve
C) varies but is always greater than one whatever the price range on that demand curve
D) is always 1.0 for any price range where the price difference is $1, such as $10 and $9
E) is always zero

Question 79

Picture a linear downward-sloping demand curve. If the price continues to fall, the price elasticity will

A) change from elastic, to unit elastic, to inelastic
B) remain unchanged whatever the price range
C) change from inelastic, to elastic, to unit elastic
D) change from unit elastic, to elastic, to inelastic
E) change from elastic, to inelastic, to unit elastic

Question 80

Price elasticity of demand relates to the

A) sensitivity of people's quantity demanded to changes in price
B) sensitivity of price to changes in people's quantity demanded
C) percentage shifts in demand when price changes
D) percentage shifts in demand for every one-percent change in price
E) ratio of actual to expected price changes