Deck 5: Market Demand and Price Elasticity

Question 1

Price elasticity of demand is the

A) change in quantity divided by the change in price.
B) ratio of quantity to price.
C) change in quantity divided by the change in price times the original price-quantity ratio.
D) change in price times the change in quantity divided by the original price-quantity ratio.
E) reciprocal of the original price-quantity ratio times the change in price.

Answer 1

C

Question 2

The following questions are based on the following demand schedule for wheat:

What is the arc price elasticity of demand for wheat when the price of a bushel is between $3.30 and $3.60?

A) 0.33
B) 0.45
C) 0.79
D) 2.22
E) 3.00

Answer 2

B

Question 3

A leftward shift in the demand curve for a commodity may

A) mean consumers are willing to buy more of the good at each price than previously.
B) decrease the equilibrium price of the commodity.
C) mean that supply decreased.
D) mean that the price of a complement has fallen.
E) follow from a rise in the price of the product.

Answer 3

B

Question 4

When Pester University,with an annual enrollment of 3,600 students,raised its tuition from $18,000 to $19,500,its enrollment fell by 200 students.What is the school's arc elasticity of demand?

A) 0.13
B) 0.67
C) 0.71
D) 1.4
E) 1.5

Question 5

A price reduction from $3.60 to $3.30 for a bushel of wheat will cause the total amount spent on wheat to

A) fall.
B) rise.
C) not change.
D) rise initially and then fall.
E) be indeterminate.

Question 6

If a 1 percent increase in price causes a firm's sales to decline by one-half of 1 percent,the price elasticity of demand is

A) 0.005.
B) 0.05.
C) 0.5.
D) 2.0.
E) 5.

Question 7

The following questions are based on the following information.
On June 1, 2014, the Pennsylvania Turnpike Commission voted to raise tolls by 30 percent.
They anticipated that traffic might initially fall by 5 percent.
The Turnpike Commission estimates that the price elasticity of demand for travel on the highway is

A) 0.17.
B) 0.30.
C) 0.50.
D) 1.
E) 6.

Question 8

If the Turnpike Commission is correct in its estimate of the price elasticity of demand,turnpike revenue will

A) rise initially, then fall.
B) fall initially, then rise.
C) not change.
D) rise.
E) fall.

Question 9

A recent sale at a department store advertised 50 percent price reductions on clothing.The store's clothing sales increased by 200 percent.The price elasticity of demand was

A) 0.25.
B) 0.5.
C) 1.0.
D) 2.5.
E) 4.0.

Question 10

The important determinants of the price elasticity of demand are the

A) number and closeness of available substitutes, importance in consumers' budgets, and length of the time period.
B) number of markets, size of buyers' incomes, and empirical validity.
C) number of firms, number of variables that must be held constant, and degree to which markets are separable.
D) scope and method of measurement and calculation and transitivity of preferences.
E) state of technology, size of the firm's plants, and size of the absolute change in input prices and quantity.

Question 11

The idea behind the direct market experiment to measure demand is to

A) see the effects on the quantity demanded of actual variations in the price of a product.
B) use statistical methods to estimate demand curves from historical data.
C) measure demand by interviewing consumers about their buying habits and intentions.
D) measure the effect of changes in variables, such as income or taste, on price.
E) measure the effect of changes in price on quantities supplied.

Question 12

One problem with using historical data to estimate demand is the

A) fact that people do not always buy what they need.
B) large number of interviews that must be conducted to gather information on buyers' intentions.
C) many variations in price necessary to measure changes in demand.
D) likelihood that the demand curve has shifted over the time period covered by the data.
E) need to have both price and quantity data to estimate demand.

Question 13

A rightward shift in the demand curve for a commodity necessarily means that

A) consumers' incomes have fallen.
B) supply conditions are more favorable.
C) equilibrium price decreases.
D) consumers are willing to buy more of the good at each price than previously.
E) the price of complementary goods increased.

Question 14

If a $1 price increase causes the quantity demanded to fall by 7 units,the demand is

A) price elastic.
B) price inelastic.
C) unit price elastic.
D) arc price elastic.
E) undetermined; not enough information is given.

Question 15

A demand-estimating procedure in which a firm changes the price of its product to see the effect on sales is the

A) interview approach.
B) price extrapolation procedure.
C) direct market experiment.
D) derived demand method.
E) open market method.

Question 16

In the 1970s,gasoline shortages provoked a considerable number of serious proposals to ration gasoline.Shortages of certain agricultural commodities have NOT provoked such proposals because

A) gasoline is a luxury; food is a necessity.
B) there are more substitutes available for most individual agricultural commodities.
C) there is no substitute for gasoline.
D) gasoline is more price elastic than individual agricultural commodities.
E) agricultural commodities have highly price-elastic demand curves, while the demand for gasoline is perfectly inelastic.

Question 17

In this range,the demand for wheat is

A) perfectly elastic.
B) of unit elasticity.
C) price inelastic.
D) arc elastic.
E) invariant.

Question 18

Price elasticity of demand is defined as the

A) percentage increase in price induced by a decrease in demand.
B) absolute change in quantity demanded divided by the absolute change in price.
C) maximum amount consumers will pay for increased quantity.
D) percentage amount by which price can change without affecting the quantity demanded.
E) percentage change in quantity demanded induced by a 1 percent change in price.

Question 19

Which of the following is an important determinant of the price elasticity of demand for a commodity?

A) the method of calculating the coefficient of elasticity
B) the importance of the commodity in consumers' budgets
C) the number of buyers of the commodity
D) the number of sellers of the commodity
E) the cost of producing the commodity

Question 20

A market demand curve shows

A) what price will prevail in the marketplace.
B) how much of a commodity will be purchased in a given period of time at various prices.
C) the rate at which consumption of a commodity will increase as income goes up.
D) the minimum price consumers will have to pay to get a certain quantity.
E) that as price goes up, consumers will spend more money on a commodity.

Question 21

The demand curve for the output of an individual firm is highly price elastic when it

A) shifts to the left.
B) is horizontal.
C)slopes upward to the right.
D) has a value of 0.15.
E) decreases as price falls.

Question 22

The following questions are based on the following information regarding the gross monthly receipts of a miniature golf course in a resort community at the shore.

When the price per game is decreased from $4.50 to $4.00

A) the number of games played remains the same.
B) demand becomes price elastic.
C) the number of games played must have fallen, but there is not enough information to tell by how much.
D) the percentage increase in the number of games is equal to the percentage decrease in price.
E) the profits of the golf course rise significantly.

Question 23

When a price decrease produces a decline in the total amount spent on a commodity,demand is said to be

A) of absolute elasticity.
B) income inelastic.
C) of unitary elasticity.
D) price inelastic.
E) price elastic.

Question 24

When the total amount spent on a commodity remains unchanged as price is raised or lowered,demand is said to be

A) of absolute elasticity.
B) income inelastic.
C) of unitary elasticity.
D) price inelastic.
E) price elastic.

Question 25

If price elasticity of demand is 1.7,the demand for the commodity is

A) of unitary elasticity.
B) price postelastic.
C) price elastic.
D) price inelastic.
E) price preelastic.

Question 26

The executive director of New Jersey Transit was quoted as saying,"We have a rule of thumb-for each 1 percent fare hike,we lose 0.2 percent of our ridership." From his statement we could assume that

A) fare increases will increase New Jersey Transit's operating revenue.
B) demand for transit service will go up as fares increase.
C) demand is price elastic.
D) a 10 percent fare hike will produce a 20 percent reduction in ridership.
E) the price elasticity coefficient is 5.

Question 27

The price elasticity of demand will increase with the length of the period to which the demand curve pertains because

A) consumers will be better able to find substitutes.
B) consumers' incomes will increase.
C) advertising will have more time to take effect.
D) the demand curve will shift outward.
E) the arc elasticity of demand will decline.

Question 28

If price elasticity of demand is 0.3,the demand for the commodity is

A) of unitary elasticity.
B) price postelastic.
C) price elastic.
D) price inelastic.
E) price preelastic.

Question 29

When significant changes in the output of a single firm have no perceptible effect on the industry price or output,the demand curve facing the firm is

A) of unitary elasticity.
B) horizontal.
C) perfectly price inelastic.
D) downward sloping.
E) subelastic.

Question 30

When an increase in price produces a decline in the total amount spent on a commodity,demand is said to be

A) of absolute elasticity.
B) income inelastic.
C) of unitary elasticity.
D) price inelastic.
E) price elastic.

Question 31

The following questions are based on the following information regarding the gross monthly receipts of a miniature golf course in a resort community at the shore.

Demand is clearly price elastic between

A) $4.50 and $5.00.
B) $4.00 and $4.50.
C) $3.50 and $4.00.
D) $3.00 and $3.50.
E) There is not enough information to tell.

Question 32

If price elasticity of demand is 1.0,demand for the commodity is

A) of unitary elasticity.
B) price postelastic.
C) price elastic.
D) price inelastic.
E) price preelastic.

Question 33

If the demand for digital cameras is price elastic

A) they will have a high price.
B) they are probably in demand.
C) an increase in price will not measurably reduce sales.
D) a decrease in price increases the total amount spent on them.
E) the elasticity coefficient equals 1.

Question 34

If the demand for cigarettes is price inelastic

A) people will pay any price to smoke.
B) an increase in the price of cigarettes would have no effect on the quantity demanded of cigarettes.
C) a fall in cigarette prices would reduce people's expenditures for cigarettes.
D) a decrease in the price of cigarettes would decrease the demand for cigarettes.
E) as the price is reduced, the percentage increase in quantity demanded must be greater than the percentage decrease in price.

Question 35

If I spend $50 per week on gasoline,regardless of the price per gallon,my price elasticity of demand for gasoline is

A) 0.
B) 1.
C) 2.
D) infinite.
E) indeterminable.

Question 36

When the oil-exporting countries of the Middle East raised the price of crude oil very sharply,tens of billions of dollars were transferred from the oil-consuming to the oil-exporting nations.From this one can conclude that

A) there is no substitute for Middle East oil.
B) the demand for crude oil is highly price elastic.
C) the demand for crude oil is highly price inelastic.
D) the demand curve for crude oil is horizontal.
E) the demand for crude oil is unit-price elastic.

Question 37

The following questions are based on the following information regarding the gross monthly receipts of a miniature golf course in a resort community at the shore.

Between $2.50 and $3.00,demand is

A) perfectly price inelastic.
B) relatively price inelastic.
C) relatively price elastic.
D) of unitary elasticity.
E) absolutely elastic.

Question 38

If a firm faces a horizontal demand curve

A) when it increases its price, its revenues will rise.
B) increases in revenues are possible if it increases its price.
C) increases in revenues are possible without reductions in its price.
D) it is the only seller of the product in a given market.
E) industry and product demand curves are identical.

Question 39

Under which of the following price elasticities will a decrease in price lead to the greatest increase in expenditures by consumers?

A) 0
B) 0.3
C) 1.0
D) 1.8
E) 2.3

Question 40

When a demand curve is price inelastic

A) a reduction in price increases the amount spent on the good.
B) the quantity demanded will increase even if price remains constant.
C) a 1 percent increase in price will result in a less than 1 percent decrease in the quantity demanded.
D) the change in quantity will always be greater than the change in price.
E) demand must be falling.

Question 41

The nation's farm problem follows from

A) a price inelastic demand curve for farm goods coupled with changes in the supply curve, leading to great variations in price.
B) market demand curves derived by summing across individual demand curves.
C) the lack of good substitutes creating price elastic demand curves.
D) shifts in the demand curve that are greater than shifts in the supply curve over time.
E) too few farmers to permit the efficient operation of free markets.

Question 42

Cross elasticity of demand measures the

A) percentage change in the price of one good when the price of a complement increases by 1 percent.
B) dependence of the quantity demanded of one commodity on the quantity demanded of another.
C) dependence of the quantity demanded of one commodity on changes in the prices of that commodity.
D) sensitivity of the quantity demanded of one commodity to changes in the price of another.
E) relative importance of the price elasticity of demand to the income elasticity of demand.

Question 43

The sensitivity of the quantity demanded to the total money income of consumers in a market is measured by the ________ elasticity of demand.

A) income
B) price
C) cross
D) equilibrium
E) arc

Question 44

The following questions are based on the following graph. The curves D and S represent the market demand and supply curves for farm products in 1960. The curves D₁ and S₁ represent the market demand and supply curves for farm products in 2000. It is supposed that there were no support programs in either year.

The steepness of the two demand curves can best be explained by the fact that

A) the quantity of food demanded does not vary much with the price of food because food is a necessity.
B) the consumption of food per capita faces natural limits and hence responds by only a small amount to changes in per capita income.
C) farmers have only limited control over their outputs.
D) there has been rapid technological change in agriculture.
E) poor farmers have been slow to leave the farming industry.

Question 45

One way to define luxuries (as opposed to necessities)is to say that luxuries are those goods

A) purchased by consumers with high incomes.
B) with high prices.
C) with high income elasticities of demand.
D) that are perfectly price inelastic.
E) for which substitutes are not readily available.

Question 46

The following questions are based on the following graph. The curves D and S represent the market demand and supply curves for farm products in 1960. The curves D₁ and S₁ represent the market demand and supply curves for farm products in 2000. It is supposed that there were no support programs in either year.

The relatively small shift of the demand curve over the 40 years can be attributed to the fact that

A) the quantity of food demanded does not vary much with the price of food because food is a necessity.
B) consumption of food per capita faces natural limits and hence responds by only a small amount to changes in per capita income.
C) farmers have only limited control over their outputs.
D) there has been rapid technological change in agriculture.
E) poor climatological conditions led to decreasing harvests.

Question 47

Which of the following demand curves would probably be least price elastic?

A) automobiles
B) DaimlerChrysler automobiles
C) Jeep Cherokees
D) Dodge Neons
E) Chrysler Concordes

Question 48

If the income elasticity of demand for a good is negative

A) changes in income have no effect on consumption of the good.
B) a decrease in income causes consumption of the good to fall.
C) an increase in income causes consumption of the good to fall.
D) consumption of the good may increase or decrease without any change in income.
E) and if the good's price falls, income also falls.

Question 49

Luxuries are distinguished from necessities by the

A) high cross elasticity of demand of the former and the low cross elasticity of the latter.
B) high income elasticity of the former and the low income elasticity of the latter.
C) fact that luxuries have high prices and necessities have low ones.
D) sign of the cross elasticity of demand.
E) number of substitutes available for each.

Question 50

The market demand and supply curves for basic agricultural products

A) are both very sensitive to changes in the price of food.
B) are both very insensitive to changes in the price of food.
C) differ, with the demand curve very sensitive to, and the supply curve very insensitive to, changes in the price of food.
D) are both vertical and shift constantly in response to price changes for food.
E) are both perfectly elastic, resulting in stable food prices over time.

Question 51

The percentage change in the quantity demanded of one commodity resulting from a 1 percent change in the price of a complementary commodity is called the ________ elasticity of demand.

A) income
B) price
C) cross
D) equilibrium
E) arc

Question 52

If the demand curve for agricultural products is price inelastic,bumper crops would cause farm prices

A) and incomes to rise.
B) and incomes to fall.
C) to fall and incomes to rise.
D) to rise and incomes to fall.
E) and incomes to remain unchanged.

Question 53

The distinction between substitutes and complements can be made on the basis of computing the ________ elasticity of demand.

A) price
B) relative
C) income
D) absolute
E) cross

Question 54

The following questions are based on the following graph. The curves D and S represent the market demand and supply curves for farm products in 1960. The curves D₁ and S₁ represent the market demand and supply curves for farm products in 2000. It is supposed that there were no support programs in either year.

The relatively large shift in the supply curve over the 40 years illustrates that

A) the quantity of food demanded does not vary much with the price of food because food is a necessity.
B) consumption of food per capita faces natural limits and hence responds by only a small amount to changes in per capita income.
C) farmers have only limited control over their outputs.
D) there has been rapid technological change in agriculture.
E) poor climatological conditions led to decreasing harvests.

Question 55

Which of the following values would most likely represent the cross elasticity of demand between butter and margarine?

A) -5.0
B) -1.0
C) -0.1
D) 0.0
E) 0.8

Question 56

The average income of farm families in the United States is ________ the average family income in the nation as a whole.

A) less than
B) approximately equal to
C) slightly more than
D) well above
E) more than triple

Question 57

Suppose the short-run price elasticity of demand for gasoline is 0.4.Acting on this information,one gasoline station at an intersection where there are three additional gasoline stations raises its price by 10 percent.If the other three stations keep their original prices,the first gasoline station will probably see its gasoline sales

A) increase by 0.4 percent.
B) remain unchanged.
C) fall by 0.4 percent.
D) fall by 4 percent.
E) fall by more than 4 percent.

Question 58

The percentage change in the quantity demanded of one commodity resulting from a 1 percent change in the price of a substitute commodity is called the ________ elasticity of demand.

A) income
B) price
C) cross
D) equilibrium
E) arc

Question 59

A negative cross elasticity of demand indicates that two commodities are

A) luxuries.
B) necessities.
C) unrelated.
D) substitutes.
E) complements.

Question 60

Low or negative income elasticities of demand indicate that the items are

A) luxuries.
B) necessities.
C) unrelated.
D) substitutes.
E) complements.

Question 61

Which of the following has been a major factor in keeping U.S.farm incomes low?

A) depletion of resources resulting from the war effort
B) rapid advances in technology pushing the supply curve to the right
C) growth in per capita income pushing the demand curve to the right
D) shift from an agricultural to a service-oriented society
E) large imports of agricultural products from abroad

Question 62

The major reason why the Iowa Dairy Farmers strike (and other similar protests)against Sioux City Milk dealers failed was that

A) the market demand for milk is highly price elastic so that consumers substitute other beverages when its price rises.
B) the strike raised costs of production because milk was destroyed, forcing dairy farmers into bankruptcy.
C) there were so many dairy farmers that milk dealers could find enough milk elsewhere to offset their losses from the striking farmers.
D) the U.S. government stepped in and forced the dairy farmers to go back to work.
E) Congress passed the Benson Brannan law, which raised farm prices and eliminated the need for the dairy farmers' protest.

Question 63

The following questions are based on the following graph. The curves D and S represent the market demand and supply curves for farm products in 1960. The curves D₁ and S₁ represent the market demand and supply curves for farm products in 2000. It is supposed that there were no support programs in either year.

The relative insensitivity of the supply curve to price can best be explained by the fact that

A) the quantity of food demanded does not vary much with the price of food because food is a necessity.
B) consumption of food per capita faces natural limits and hence responds by only a small amount to changes in per capita income.
C) farmers have only limited control over their outputs in the short run.
D) there has been rapid technological change in agriculture.
E) poor climatological conditions led to decreasing harvests.

Question 64

Government aid to agriculture in the United States

A) has not been effective in increasing the net worth of farm households.
B) has eliminated acreage allotment programs.
C) has restricted most agricultural exports to less developed countries.
D) has been costly and inefficient.
E) made the farmers responsible for storing the surpluses.

Question 65

In addition to the United States,the politics of agriculture is also important in

A) Africa.
B) Europe.
C) China.
D) New Zealand.
E) South America.

Question 66

The expression "the farmer is a price taker,not a price maker," refers to the fact that

A) the market demand curve for food is perfectly elastic.
B) demand for agricultural products has declined steadily throughout the twentieth century.
C) prices of farm goods are generally set by government.
D) in perfect competition, no one producer can control prices.
E) shifts in the demand and supply for farm products have little impact on farm prices.

Question 67

Farm programs in many countries reflect the disproportionate amount of political power that farmers possess.In part,this power drives from the fact that

A) in most countries, farmers constitute more than one-half of the population.
B) technological advances in agriculture have given farmers more time to serve as elected representatives.
C) governments raise more income from taxes on agricultural production, processing, and distribution than they do from other sectors of the economy.
D) agricultural programs are likely to be more cost-effective and efficient than free market alternatives.
E) countries do not want to be dependent on foreign sources of food, or be ill-prepared in the event of droughts.

Question 68

From the event depicted in the graph,one can conclude that,over the period in question,farm

A) prices and output fell.
B) prices and output rose.
C) prices and income rose.
D) output and income fell.
E) prices fell and output rose.