Deck 5: Elasticity and Its Application

Question 1

If a good is a necessity,what would demand for the good tend to be

A)elastic
B)horizontal
C)unit elastic
D)inelastic

Answer 1

inelastic

Question 2

What does the elasticity of demand for luxuries tend to be

A)greater than 1
B)less than 1
C)equal to 1
D)equal to 0

Answer 2

greater than 1

Question 3

When is demand said to be inelastic

A)if the quantity demanded changes only slightly when the price of the good changes
B)if demand shifts only slightly when the price of the good changes
C)if buyers respond substantially to changes in the price of the good
D)if the price of the good responds only slightly to changes in demand

Answer 3

if the quantity demanded changes only slightly when the price of the good changes

Question 4

When quantity demanded responds substantially to changes in price,what is demand said to be

A)elastic
B)inelastic
C)unit elastic
D)perfectly elastic

Question 5

When studying how some event or policy affects a market,on what does elasticity provide information

A)the direction and the efficiency of the effect on the market
B)the direction and the magnitude of the effect on the market
C)the magnitude and the efficiency of the effect on the market
D)the efficiency and the equity of the effect on the market

Question 6

When would demand for a good tend to be more elastic

A)when there are fewer options in the market
B)when the time period considered is shorter
C)when the good is considered more of a necessity
D)when the good has more substitutes

Question 7

If a good is a luxury,what would demand for the good tend to be

A)inelastic
B)elastic
C)unit elastic
D)perfectly elastic

Question 8

When is demand said to be elastic

A)if the price of the good responds substantially to changes in demand
B)if demand shifts substantially when the price of the good changes
C)if buyers do not respond to changes in the price of the good
D)if the quantity demanded responds substantially to changes in the price of the good

Question 9

What does inelastic demand mean

A)consumers hardly respond to a change in price.
B)consumers respond substantially to a change in price.
C)consumers respond directly to a change in income.
D)change in quantity demanded is equal to the change in price.

Question 10

What happens when the price elasticity of demand increases

A)The responsiveness of quantity demanded to price decreases
B)The responsiveness of quantity demanded to price decreases.
C)The percentage change in price over the percentage change in quantity demanded increases.
D)The responsiveness of quantity demanded to price increases.

Question 11

In general terms,what does elasticity measure

A)how price is determined between buyers and sellers in a market
B)how much government intervention is prevalent in a market
C)how competitive a market is
D)how much buyers and sellers respond to changes in market conditions

Question 12

When quantity demanded responds only slightly to changes in price,what is demand said to be

A)unit elastic
B)elastic
C)inelastic
D)vertical

Question 13

When would demand for a good tend to be more inelastic

A)when there are fewer available substitutes
B)when the time period considered is longer
C)when the good is considered more of a luxury good
D)when the market is more narrowly defined

Question 14

Why would vanilla cupcakes tend to have very elastic demand

A)because it has many complements
B)because the market is broadly defined
C)because there are few substitutes
D)because other flavours of cupcakes are almost perfect substitutes

Question 15

Why does Werther's Original candy tend to have an elastic demand

A)because the candy market is too broadly defined
B)because there are many close substitutes for Werther's
C)because Werther's Original candy is considered by some to be a necessity
D)because it is usually eaten quickly and therefore the time horizon is short

Question 16

What does the price elasticity of demand measure

A)how responsive buyers are to a change in income
B)how responsive sellers are to a change in price
C)how responsive buyers are to a change in price
D)how responsive sellers are to a change in buyers' incomes

Question 17

Which of the following categories of goods would have the most elastic demand

A)beverages
B)soda pop
C)colas
D)Pepsi

Question 18

What does the price elasticity of demand measure

A)a buyer's responsiveness to a change in the price of a good
B)the increase in demand as additional buyers enter the market
C)how much more of a good consumers will demand when incomes rise
D)the increase in demand for a good when there is an increase in its price

Question 19

What is the concept of elasticity used for

A)to analyze how much the economy can produce
B)to determine the level of government intervention in the economy
C)to analyze supply and demand with changes in market condition
D)to calculate consumer credit purchases

Question 20

What type of demand does a person who has high cholesterol,and must exercise for an hour every day,have for exercise equipment

A)elastic
B)unit elastic
C)inelastic
D)perfectly elastic

Question 21

Figure 5-1

Refer to Figure 5-1.What is the elasticity of demand from point A to point B,using the midpoint method

A)0.4
B)1.0
C)1.5
D)2.5

Question 22

When will a good have a more inelastic demand

A)when the availability of close substitutes is greater
B)when the definition of the market is narrower
C)when the period of time is longer
D)when the good is considered a necessity

Question 23

What does the price elasticity of demand for a good measure

A)how willing consumers are to move away from the good as price rises
B)how willing firms are to produce more of a good as price rises
C)how willing consumers are to buy more of a substitute good as price falls
D)how willing firms are to produce more of a good as price falls

Question 24

There are very few,if any,good substitutes for motor oil.What does this imply

A)The supply of motor oil would tend to be price elastic.
B)The demand for motor oil would tend to be price elastic.
C)The demand for motor oil would tend to be price inelastic.
D)The demand for motor oil would tend to be income elastic.

Question 25

Holding all other forces constant,when the price of gasoline rises,why would the number of litres of gasoline demanded fall substantially over a 10-year period

A)Buyers tend to be much less sensitive to a change in price when given more time to react.
B)Buyers will have substantially more income over a ten-year period.
C)Buyers tend to be much more sensitive to a change in price when given more time to react.
D)Gasoline has no substitutes.

Question 26

Figure 5-1

Refer to Figure 5-1.If the price decreased from $18 to $6,what would happen to total revenue and what would this imply about demand elasticity

A)Total revenue would increase by $1200 and demand would be elastic.
B)Total revenue would increase by $800 and demand would be elastic.
C)Total revenue would decrease by $1200 and demand would be inelastic.
D)Total revenue would decrease by $800 and demand would be inelastic.

Question 27

Serenity Spa increased its total monthly revenue from $11,250 to $12,350 when it raised the price of a massage from $75 to $95.What is the price elasticity of demand for Harry's Haircuts

A)0.318
B)0.416
C)0.608
D)0.816

Question 28

If the price elasticity of demand for a good is 3.0,what would result from a 10 percent increase in price

A)a 3 percent decrease in the quantity demanded
B)a 10 percent decrease in the quantity demanded
C)a 30 percent decrease in the quantity demanded
D)a 300 percent decrease in the quantity demanded

Question 29

Babar's Bakery made $200 last month selling 100 loaves of bread.This month it made $350 selling 70 loaves of bread.What is the price elasticity of demand for Babar's bread

A)0.266
B)0.583
C)0.776
D)1.110

Question 30

How do most economists report the elasticity of demand

A)as the absolute value of the actual number
B)as a negative number, since price and quantity demanded move in opposite directions
C)as a percentage, since both the numerator and denominator are percentages
D)as a dollar amount, since we are measuring the change in price

Question 31

Suppose the price of Twinkle snack cakes is reduced from $1.50 to $1.00 and,as a result,the quantity of Twinkle snack cakes demanded increases from 2000 to 2200.Using the midpoint method,what is the price elasticity of demand for Twinkle snack cakes in the given price range

A)0.24
B)0.40
C)1.50
D)4.21

Question 32

What is the main reason for using the midpoint method

A)It gives the same answer regardless of the direction of change.
B)It uses fewer numbers.
C)It rounds prices to the nearest dollar.
D)It rounds quantities to the nearest whole unit.

Question 33

Suppose there is a 3 percent increase in the price of good X and a resulting 6 percent decrease in the quantity of X demanded.What is the price elasticity of demand for X

A)0
B)2
C)6
D)infinite

Question 34

How do economists compute the price elasticity of demand

A)the percentage change in the price divided by the percentage change in quantity demanded
B)the percentage change in income divided by the percentage change in the quantity demanded
C)the percentage change in the quantity demanded divided by the percentage change in price
D)the percentage change in the quantity demanded divided by the percentage change in income

Question 35

Figure 5-1

Refer to Figure 5-1.What is the elasticity of demand from point B to point C,using the midpoint method

A)0.50
B)0.75
C)1.00
D)1.30

Question 36

When the local used bookstore prices economics books at $100 each,they generally sell 70 per month.If they lower the price to $70 each,they sell 90.Given this,what is the elasticity of demand for economics books,and what action should the store take

A)2.91; the store should lower prices to raise total revenue.
B)2.91; the store should raise prices to raise total revenue.
C)0.714; the store should lower prices to raise total revenue.
D)0.714; the store should raise prices to raise total revenue.

Question 37

When the price of kittens was $20 each,the pet shop sold 20 per month.When they raised the price to $30 each,they sold 14 per month.What is the elasticity of demand for kittens

A)0.66
B)0.94
C)1.36
D)1.66

Question 38

When the price of bubble gum is $0.55,the quantity demanded is 400 packs per day.When the price falls to $0.45,the quantity demanded increases to 600.Given this information,and using the midpoint method,what do you know about the demand for bubble gum

A)It is inelastic.
B)It is elastic.
C)It is unit elastic.
D)It is perfectly inelastic.

Question 39

Why is the midpoint method used to compute elasticity

A)It automatically computes a positive number instead of a negative number.
B)It uses the same equation that is used to compute slope.
C)It gives the same answer regardless of the direction of change.
D)It automatically rounds quantities to the nearest whole unit.

Question 40

If a 5 percent increase in price causes a 15 percent decrease in quantity demanded,what might be said about this product

A)It has no close substitute.
B)It might be a luxury.
C)It might be part of a broadly defined market.
D)It might be in a short time horizon.

Question 41

If a change in the price of a product results in no change in total revenue,what must be the case

A)The demand for the product must be elastic.
B)The demand for the product must be inelastic.
C)The demand for the product must be unit elastic.
D)The demand for the product must be revenue inelastic.

Question 42

Moving down a linear demand curve,what happens to elasticity

A)It gets smaller, then larger.
B)It gets larger.
C)It gets smaller.
D)It gets larger, then smaller.

Question 43

Moving down a linear demand curve,what happens to the slope and the elasticity

A)The slope and elasticity are both constant.
B)The slope changes but elasticity is constant.
C)The slope and elasticity both get smaller.
D)The slope is constant but elasticity gets smaller.

Question 44

When demand is inelastic,what will a decrease in price cause

A)an increase in total revenue
B)a decrease in total revenue
C)no change in total revenue
D)an uncertain change in total revenue

Question 45

What would be the absolute value of the elasticity if demand is inelastic

A)less than 1
B)equal to 1
C)greater than 1
D)equal to 0

Question 46

Suppose that 100 candy bars are demanded at a particular price.If the price of candy bars rises by 4 percent,the number of candy bars demanded falls to 92 candy bars.According to the midpoint method,what does this mean

A)The demand for candy bars in this price range is elastic.
B)The demand for candy bars in this price range is inelastic.
C)The price elasticity of demand for candy bars is 0.
D)The demand for candy bars is unit elastic.

Question 47

What would be the absolute value of the elasticity if demand is elastic

A)less than 1
B)equal to 1
C)equal to 0
D)greater than 1

Question 48

Figure 5-2

Refer to Figure 5-2.As price falls from PA to PB,which demand curve is least elastic

A)D₁
B)D₂
C)D₃
D)D₄

Question 49

Moving up a linear demand curve,what happens to total revenue

A)It increases, then decreases.
B)It decreases, then increases.
C)It increases.
D)It decreases.

Question 50

Elasticity of demand is closely related to the slope of the demand curve.What is the slope when demand elasticity is greater

A)steeper
B)further to the right
C)flatter
D)closer to the vertical axis

Question 51

When is demand said to be unit elastic

A)when the quantity demanded changes by the same percentage as the price
B)when the quantity demanded changes by a larger percentage than the price
C)when the quantity demanded changes by a smaller percentage than the price
D)when the quantity demanded does not respond to a change in price

Question 52

Suppose the government increases the tax on gasoline in order to raise revenue.Since raising the gasoline tax would increase the price of gasoline,what must the government be assuming

A)The demand for gasoline is price elastic.
B)The demand for gasoline is price inelastic.
C)The demand for gasoline is price unit elastic.
D)The demand for gasoline is price perfect elastic.

Question 53

When the price to stream movies is $4,Denise rents five per month.When the price is $3,she rents nine per month.What is Denise's demand for movie streaming,and how steep would her demand curve be

A)Her demand is elastic and the curve would be relatively flat.
B)Her demand is elastic and the curve would be relatively steep.
C)Her demand is inelastic and the curve would be relatively flat.
D)Her demand is inelastic and the curve would be relatively steep.

Question 54

If a demand curve is vertical,what are its slope and elasticity

A)undefined and elasticity equals 0
B)0 and elasticity is undefined
C)undefined, as is elasticity
D)0, as is elasticity

Question 55

Figure 5-2

Refer to Figure 5-2.As price falls from PA to PB,which demand curve is most elastic

A)D₁
B)D₂
C)D₃
D)D₄

Question 56

When is demand said to be inelastic

A)when the quantity demanded changes proportionately more than price
B)when the quantity demanded changes proportionately more than income
C)when the quantity demanded changes proportionately less than price
D)when the quantity demanded changes proportionately less than income

Question 57

When demand is unit elastic,what is the price elasticity and what is the effect on total revenue of a price change

A)The price elasticity exactly equals 1 and total revenue does not change when price changes.
B)The price elasticity exactly equals 1 and total revenue and price move in opposite directions.
C)The price elasticity exactly equals 1 and total revenue and price move in the same direction.
D)The price elasticity approaches infinity and total revenue does not change when price changes.

Question 58

What does a flatter demand curve represent

A)greater price elasticity of demand
B)smaller price elasticity of demand
C)price elasticity of demand that is close to the slope of the curve
D)price elasticity of demand that is equal to the slope of the curve

Question 59

If a demand curve is horizontal,what are its slope and elasticity

A)undefined and elasticity equals 0
B)0 and elasticity is undefined
C)undefined, as is elasticity
D)0, as is elasticity

Question 60

What would be the absolute value of the elasticity if demand is unit elastic

A)less than 1
B)greater than 1
C)equal to 1
D)equal to 0

Question 61

What happens in the case of perfectly inelastic demand

A)Quantity demanded stays the same regardless of price changes.
B)Huge changes in quantity demanded result from very small changes in the price.
C)The change in quantity demanded exactly equals the change in price.
D)The change in quantity demanded will be twice the change in price.

Question 62

What is the slope of a perfectly inelastic demand curve,and why

A)negatively sloped, because buyers decrease their purchases when the price rises
B)vertical, because buyers purchase the same amount whether the price rises or falls
C)positively sloped, because buyers respond by increasing their purchases when price rises
D)horizontal, because buyers increase their purchases by huge amounts with slight changes in price

Question 63

If a demand curve has a zero elasticity,which statement best describes the curve

A)It is perfectly inelastic and vertical.
B)It is perfectly inelastic and horizontal.
C)It is perfectly elastic and vertical.
D)It is perfectly elastic and horizontal.

Question 64

As elasticity of demand increases,what happens to the demand curve

A)It gets flatter and the price elasticity of demand will eventually be less than 1.
B)It gets steeper and the price elasticity of demand will eventually be greater than 1.
C)It gets flatter and the price elasticity of demand will eventually be greater than 1.
D)It gets steeper and the price elasticity of demand will eventually be less than 1.

Question 65

Suppose the price elasticity of demand for basketballs is 1.2.What will result from a 20 percent increase in price

A)a 24 percent decrease in the quantity of basketballs demanded
B)a 20 percent decrease in the quantity of basketballs demanded
C)an 8 percent reduction in the number of basketballs demanded
D)a 12.5 percent reduction in the number of basketballs demanded

Question 66

What happens in the case of perfectly inelastic demand

A)The change in quantity demanded will be twice the change in price.
B)Huge changes in quantity demanded result from very small changes in the price.
C)The change in quantity demanded exactly equals the change in price.
D)Quantity demanded does not change for any change in price.

Question 67

You are in charge of the local city-owned golf course.You need to increase the revenue generated by the golf course in order to meet expenses.The mayor advises you to increase the price of a round of golf.The city golf course manager recommends reducing the price of a round of golf.What is the reason for their disagreement

A)The mayor thinks demand is elastic and the city golf course manager thinks demand is inelastic.
B)Both the mayor and the city golf course manager think that demand is elastic.
C)Both the mayor and the city golf course manager think that demand is inelastic.
D)The mayor thinks demand is inelastic and the city golf course manager thinks demand is elastic.

Question 68

What does a perfectly inelastic demand imply

A)Buyers decrease their purchases when the price rises.
B)Buyers purchase the same amount when the price rises or falls.
C)Buyers increase their purchases only slightly when the price falls.
D)Buyers respond substantially to an increase in price.

Question 69

As the price elasticity of demand decreases,what happens to the slope of the linear demand curve

A)The price elasticity of demand will be closer to the slope of the curve.
B)The demand curve will be flatter through a given point.
C)The demand curve will be steeper through a given point.
D)The price elasticity of demand will be further from the slope of the curve.

Question 70

The federal government is proposing legalization of marijuana.If it becomes legal,it is likely that there would be an increase in the supply of marijuana.Advocates of marijuana legalization argue that this would significantly reduce the amount of revenue going to the criminal organizations that currently supply marijuana.What do these advocates believe about marijuana

A)The supply for marijuana is price elastic.
B)The demand for marijuana is price elastic.
C)The supply for marijuana is price inelastic.
D)The demand for marijuana is price inelastic.

Question 71

When quantity moves proportionally the same amount as price,what can be said of demand and its price elasticity

A)Demand is unit elastic and the price elasticity of demand is 0.
B)Demand is perfectly inelastic and the price elasticity of demand is 1.
C)Demand is perfectly inelastic and the price elasticity of demand is 0.
D)Demand is unit elastic and the price elasticity of demand is 1.

Question 72

Get Smart University is contemplating increasing tuition to increase revenue.What must the school believe

A)The supply of university education is inelastic.
B)The demand for university education is elastic.
C)The demand for university education is inelastic.
D)The supply of university education is elastic.

Question 73

What best describes the direction of a perfectly elastic demand curve

A)vertical
B)horizontal
C)downward sloping to the right
D)upward sloping to the right

Question 74

What does a perfectly elastic demand imply

A)Buyers will not respond to any change in price.
B)Any rise in price above that represented by the demand curve will result in no output demanded.
C)Price and quantity demanded respond proportionally.
D)Price will rise by an infinite amount when there is a change in quantity demanded.

Question 75

When small changes in price lead to infinite changes in quantity demanded,can be said of demand

A)Demand is perfectly elastic and will be horizontal.
B)Demand is perfectly inelastic and will be horizontal.
C)Demand is perfectly elastic and will be vertical.
D)Demand is perfectly inelastic and will be vertical.

Question 76

Suppose a producer is able to separate customers into two groups,one having a price inelastic demand and the other having a price elastic demand.If the producer's objective is to increase total revenue,what should she do

A)Increase the price charged to customers with the price elastic demand and decrease the price charged to customers with the price inelastic demand.
B)Decrease the price charged to customers with the price elastic demand and increase the price charged to customers with the price inelastic demand.
C)Decrease the price to both groups of customers.
D)Increase the price for both groups of customers.

Question 77

Suppose that you are in charge of pricing at a local sandwich shop.The business needs to increase revenue and your job is on the line.What should you do

A)If the demand for sandwiches is elastic, increase the price of sandwiches.
B)If the demand for sandwiches is elastic, decrease the price of sandwiches
C)If the demand for sandwiches is inelastic, do not change the price of sandwiches
D)If the demand for sandwiches is inelastic, decrease the price of sandwiches.

Question 78

Suppose that when the price of corn is $2 per bushel,farmers can sell 12 million bushels.When the price of corn is $3 per bushel,farmers can sell 10 million bushels.Which of the following statements describes what will happen and why

A)The demand for corn is income inelastic, and so an increase in the price of corn will increase the income of corn farmers.
B)The demand for corn is income elastic, and so an increase in the price of corn will increase the income of corn farmers.
C)The demand for corn is price inelastic, and so an increase in the price of corn will increase the income of corn farmers.
D)The demand for corn is price elastic, and so an increase in the price of corn will increase the income of corn farmers.

Question 79

You have just been hired as a business consultant to determine what pricing policy would be appropriate in order to increase the total revenue of an online clothing store.What would your first step be

A)Increase the price of everything in the store.
B)Look for ways to cut costs and increase profit for the store.
C)Determine the elasticity of demand for the store's products.
D)Suggest that the store purchase an entirely new line of clothing that they could sell more cheaply.

Question 80

As the price elasticity of demand increases,what happens to the slope of the linear demand curve

A)The price elasticity of demand will be closer to the slope of the curve.
B)The demand curve will be flatter through a given point.
C)The price elasticity of demand will be further from the slope of the curve.
D)The demand curve will be steeper through a given point.