Deck 5: Elasticity

Question 1

When the price of fresh fish increases 10%, quantity demanded decreases 5%. The price elasticity of demand for fresh fish is ________ and total revenue from fresh fish sales will ________.

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

Answer 1

A

Question 2

Demand determines price entirely when

A) demand is downward sloping.
B) demand is perfectly inelastic.
C) supply is perfectly inelastic.
D) supply is perfectly elastic.

Answer 2

C

Question 3

When the price of fresh fish increases 10%, quantity demanded is unchanged. The price elasticity of demand for fresh fish is

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

Answer 3

A

Question 4

Refer to the information provided in Figure 5.2 below to answer the questions that follow. Figure 5.2
Refer to Figure 5.2. At Point C the price elasticity of demand is -1. Along line segment EC of the demand curve, the demand is

A) elastic.
B) unit elastic.
C) inelastic.
D) either elastic or inelastic, depending on whether price increases or decreases.

Question 5

The price elasticity of demand for bottled water in Texas is -2, and the price elasticity of demand for bottled water in California is -0.5. In other words, demand in Texas is ________, and demand in California is ________.

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

Question 6

Refer to the information provided in Figure 5.2 below to answer the questions that follow. Figure 5.2
Refer to Figure 5.2. If the price of a hamburger is increased from $6 to $8, the price elasticity of demand equals ________. Use the midpoint formula.

A) -0.24
B) -1.0
C) -1.4
D) -2.0

Question 7

Perfectly elastic demand is represented as a horizontal line.

Question 8

The price elasticity of demand is generally negative to reflect the indirect relationship between the quantity demanded of a good and its price.

Question 9

When the price of radios decreases 5%, quantity demanded increases 5%. The price elasticity of demand for radios is ________ and total revenue from radio sales will ________.

A) elastic; decrease
B) elastic; increase
C) inelastic; decrease
D) unit elastic; not change

Question 10

Refer to the information provided in Figure 5.2 below to answer the questions that follow. Figure 5.2
Refer to Figure 5.2. If the price of a hamburger is increased from $2 to $4, the price elasticity of demand equals ________. Use the midpoint formula.

A) -0.33
B) -2.0
C) -3.0
D) -5.0

Question 11

The ABC Computer Company wants to increase the quantity of computers it sells by 5%. If the price elasticity of demand is -2.5, the company must

A) increase price by 2.0%.
B) decrease price by 2.0%.
C) increase price by 0.5%.
D) decrease price by 0.5%.

Question 12

A government wants to reduce electricity consumption by 10%. The price elasticity of demand for electricity is -5. The government must ________ the price of electricity by ________.

A) raise; 2.0%
B) raise; 0.5%
C) raise; 1.25%
D) lower; 0.5%

Question 13

Refer to the information provided in Figure 5.1 below to answer the questions that follow. Figure 5.1
Refer to Figure 5.1. The demand for tickets is

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

Question 14

Refer to the information provided in Figure 5.2 below to answer the questions that follow. Figure 5.2
Refer to Figure 5.2. If the price of a hamburger is increased from $8 to $10, the price elasticity of demand equals ________. Use the midpoint formula.

A) -0.33
B) -3.0
C) -30.
D) -300

Question 15

When the price of coffee increases 5%, quantity demanded decreases 10%. The price elasticity of demand for coffee is ________ and total revenue from coffee sales will ________.

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

Question 16

Perfectly inelastic demand is represented as a vertical line.

Question 17

Price elasticity of demand is calculated as the ratio of the change in quantity demanded to the change in price.

Question 18

A government wants to reduce electricity consumption by 5%. The price elasticity of demand for electricity is -0.5. The government must ________ the price of electricity by ________.

A) raise; 10.0%
B) raise; 1.0%
C) raise; 0.1%
D) lower; 0.5%

Question 19

The price elasticity of demand for heart transplants is perfectly inelastic. Thus, the price elasticity demand for heart transplants is

A) 1.0.
B) 0.0.
C) -1.0.
D) -100.0.

Question 20

A perfectly price elastic demand curve will be a ________ line.

A) horizontal
B) vertical
C) positively sloped
D) negatively sloped

Question 21

Refer to the information provided in Figure 5.4 below to answer the questions that follow. Figure 5.4
Refer to Figure 5.4. The demand for milkshakes is unit elastic at Point C. If a store reduces the price of a milkshake from P3 to P4, its total revenue will

A) increase.
B) decrease.
C) remain constant.
D) either increase or decrease.

Question 22

Refer to the information provided in Figure 5.4 below to answer the questions that follow. Figure 5.4
Refer to Figure 5.4. Along the given demand curve, which of the following is true?

A) Demand is less elastic along the segment AB than the segment EF.
B) Demand is less elastic along the segment EF than the segment AB.
C) Since the demand curve is linear, the price elasticity of demand between each of the points is the same.
D) All of the above are true.

Question 23

A firm is currently producing in the elastic portion of its demand curve. What course of action do you recommend for it assuming it wants to raise revenue?

A) Continue producing at the current output level, because it maximizes its total revenue by producing in the elastic portion of its demand curve.
B) Reduce price, because if it reduces price and demand is elastic, total revenue will increase.
C) Increase price, because if it increases price and demand is elastic, total revenue will increase.
D) Continue selling at the same price, but increase the amount it produces.

Question 24

Refer to the information provided in Figure 5.3 below to answer the questions that follow. Figure 5.3
Refer to Figure 5.3. Use the midpoint formula. If the price of a gardenburger is increased from $8 to $10, the price elasticity of demand equals ________ and demand is ________.

A) 4.5; elastic
B) -0.5; inelastic
C) -4.5; elastic
D) -9.0; inelastic

Question 25

At a price of $11, quantity demanded is 90; and at a price of $9, quantity demanded is 110. Since total revenue ________ by the price decrease, demand must be ________.

A) is increased; elastic
B) is decreased; inelastic
C) is unchanged; unit elastic
D) is unchanged; elastic

Question 26

A demand curve with constant slope over all quantity values can have a continuously changing price elasticity of demand.

Question 27

Refer to the information provided in Figure 5.3 below to answer the questions that follow. Figure 5.3
Refer to Figure 5.3. Using the midpoint formula, if the price of a gardenburger is decreased from $7 to $6, the price elasticity of demand equals ________, and the decrease results in a(n) ________ in total revenue.

A) -.13; decrease
B) -.69; increase
C) -1.44; increase
D) -13; increase

Question 28

Total revenue decreases if price ________ and demand is ________.

A) falls; elastic
B) falls; inelastic
C) rises; inelastic
D) rises; unit elastic

Question 29

At a price of $20, a store can sell 24 picture frames a day. At a price of $18 the store can sell 33 picture frames a day. Since total revenue ________ by the price decrease, demand must be ________.

A) is increased; elastic
B) is increased; inelastic
C) is increased; unit elastic
D) is decreased; elastic

Question 30

A demand curve with continuously changing slope over all quantity values will always have a constant price elasticity of demand.

Question 31

A firm is currently producing in the inelastic portion of its demand curve. What course of action do you recommend for it, assuming it wants to raise revenue?

A) Continue producing at the current output level, because it maximizes its total revenue by producing in the inelastic portion of its demand curve.
B) Reduce price, because if it reduces price and demand is inelastic, total revenue will increase.
C) Increase price, because if it increases price and demand is inelastic, total revenue will increase.
D) Continue selling at the same price, but increase the amount it produces.

Question 32

Price and total revenue move in inverse directions when demand is

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

Question 33

Refer to the information provided in Figure 5.3 below to answer the questions that follow. Figure 5.3
Refer to Figure 5.3. Use the midpoint formula. If the price of a gardenburger is increased from $6 to $8, the price elasticity of demand equals ________ and demand is ________.

A) -0.57; inelastic
B) -1.75; elastic
C) -1.9; inelastic
D) -2.0; elastic

Question 34

Refer to the information provided in Figure 5.4 below to answer the questions that follow. Figure 5.4
Refer to Figure 5.4. The demand for milkshakes is unit elastic at Point C. If the milkshake price falls from P1 to P2, total revenue will

A) increase.
B) decrease.
C) remain constant.
D) either increase or decrease.

Question 35

A tax on a good whose demand is price elastic will be effective in discouraging consumption of that good.

Question 36

Refer to the information provided in Figure 5.2 below to answer the questions that follow. Figure 5.2
Refer to Figure 5.2. At Point C the price elasticity of demand is -1. Along line segment AB of the demand curve, the demand is

A) elastic.
B) unit elastic.
C) inelastic.
D) either elastic or inelastic, depending on whether price increases or decreases.

Question 37

Total revenue increases if price ________ and demand is ________.

A) falls; inelastic
B) falls; elastic
C) rises; elastic
D) rises; unit elastic

Question 38

When the slope of a demand curve is constant, price elasticity of demand is constant as well.

Question 39

The owner of a local hot dog stand has estimated that if he lowers the price of hot dogs from $2.00 to $1.50, he will increase sales from 400 to 500 hot dogs per day. Using the midpoint formula, the demand for hot dogs is

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

Question 40

Price and total revenue are directly related when demand is

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

Question 41

When demand is unit elastic, an increase in price will result in an increase in total revenue.

Question 42

When demand is elastic, a decrease in price will result in an increase in total revenue.

Question 43

Related to the Economics in Practice on page 109: Frank runs a corner delicatessen and one day decides to raise his prices by 10 percent. Total revenue is likely to ________ at the end of the first month of the higher prices since demand is relatively elastic in the ________ term.

A) rise; short
B) fall; short
C) rise; long
D) fall; long

Question 44

How total revenue changes when a price changes can be predicted using price elasticity of demand.

Question 45

Demand is more elastic for an item for which few substitutes are available.

Question 46

When there are more substitutes for a product, the ________ for the product is ________.

A) demand; less price elastic
B) demand; more price elastic
C) income elasticity; greater
D) income elasticity; smaller

Question 47

If government officials are mainly interested in generating tax revenue, then they should tax goods for which demand is price elastic.

Question 48

When demand is unit elastic, a decrease in price will result in no change in total revenue.

Question 49

The determinants of elasticity include

A) availability of substitutes.
B) price relative to income.
C) time.
D) all of the above

Question 50

When demand is elastic, an increase in price will result in an increase in total revenue.

Question 51

When demand is inelastic, a decrease in price will result in an increase in total revenue.

Question 52

Related to the Economics in Practice on page 108: Which of the following, if true, would most effectively undermine the argument that raising cigarette taxes reduces the number of people who smoke cigarettes?

A) The demand for cigarettes is relatively inelastic.
B) The demand for cigarettes is relatively elastic.
C) The supply for cigarettes is relatively inelastic.
D) The supply for cigarettes is relatively elastic.

Question 53

The more time that elapses, the

A) less price elastic is the demand for the product.
B) more price elastic is the demand for the product.
C) greater the income elasticity of demand for a product.
D) smaller the income elasticity of demand for the product.

Question 54

For perfectly price inelastic supply,

A) price is solely determined by supply.
B) price is solely determined by demand.
C) only a government can set the price.
D) either supply or demand may set the price.

Question 55

An increase in demand caused no change in the equilibrium price. Thus, supply must be

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

Question 56

Demand is more elastic for an item which represents a relatively large part of a person's total budget.

Question 57

Related to the Economics in Practice on page 109: Which of the following best explains why demand is often more elastic in the long run than it is in the short run?

A) When demand is elastic, price increases reduce revenue because a small price increase will lead to a large decrease in quantity demanded.
B) In the long run, consumers have greater access to substitutes.
C) Consumers tend to postpone making purchasing decisions as long as possible.
D) In the short run, prices can change rapidly, but in the long run they are more stable.

Question 58

When demand is inelastic, an increase in price will result in an increase in total revenue.

Question 59

Related to the Economics in Practice on page 108: Which of the following, if true, would support the argument for raising cigarette taxes even if the price of cigarettes has relatively little impact on adults' cigarette consumption?

A) The health risks of cigarette smoking are affected by the amount of nicotine in cigarettes as well as the number of cigarettes smoked.
B) When cigarette taxes vary between neighboring states, people have an incentive to buy cigarettes in the state with lower taxes.
C) Illness due to smoking is a significant cause of lost economic productivity.
D) The demand for cigarettes is more elastic for underage smokers as compared to that of adult smokers.

Question 60

A perfectly price elastic supply curve will be a(n) ________ line.

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

Question 61

If income increases by 10% and, in response, the quantity of housing demanded increases by 7%, then the income elasticity of demand for housing is

A) -1.
B) -0.7.
C) 0.7.
D) 1.43.

Question 62

In output markets, the elasticity of supply tends to be

A) negative.
B) zero.
C) positive.
D) decreasing at an increasing rate.

Question 63

If the quantity of peanut butter demanded increases by 4% when the price of jelly decreases by 2%, the cross-price elasticity of demand between peanut butter and jelly is

A) -4.
B) -2.
C) -0.5.
D) 2.

Question 64

The cross-price elasticity of demand between good X and good Y is -3. Given this information, which of the following statements is true?

A) The demand for goods X and Y is elastic.
B) Goods X and Y are substitutes.
C) Goods X and Y are complements.
D) The demand for goods X and Y is income elastic.

Question 65

If the quantity of tea demanded increases by 2% when the price of coffee increases by 6%, the cross-price elasticity of demand between tea and coffee is

A) -3.
B) 0.33.
C) 3.
D) 12.

Question 66

The income elasticity of demand for low-quality beef is -2. Thus, an 8% decrease in the quantity of low-quality beef demanded

A) is the result of a decrease in income of 4%.
B) is the result of an increase in income of 0.25%.
C) is the result of an increase in income of 4%.
D) is unrelated to any change in income.

Question 67

The income elasticity of demand

A) measures the change in income necessary for a given change in quantity demanded.
B) measures the responsiveness of income to changes in quantity demanded.
C) measures the responsiveness of quantity demanded to changes in income.
D) is the ratio of the percentage change in income to the percentage change in quantity demanded.

Question 68

Refer to the information provided in Figure 5.6 below to answer the question that follows. Figure 5.6
Refer to Figure 5.6. The market is initially in equilibrium at Point A and supply shifts from S1 to S2. Which of the following statements is true?

A) Price will still serve as a rationing device causing quantity supplied to exceed 12 thousand pizzas.
B) There is no need for price to serve as a rationing device in this case because the new equilibrium quantity exceeds the original equilibrium quantity.
C) Price will still serve as a rationing device causing quantity demanded to fall from 12 to 10 thousand pizzas.
D) The market cannot move to a new equilibrium until there is also a change in demand.

Question 69

The cross-price elasticity of demand between good X and good Y is 0.5. Given this information, which of the following statements is true?

A) The demand for goods X and Y is inelastic.
B) Goods X and Y are substitutes.
C) Goods X and Y are complements.
D) The demand for goods X and Y is income inelastic.

Question 70

The income elasticity of demand for education is 3.5. Thus, a 4% increase in income will

A) decrease the quantity of education demanded by 3.5%.
B) decrease the quantity of education demanded by 14%.
C) increase the quantity of education demanded by 4%.
D) increase the quantity of education demanded by 14%.

Question 71

A government is considering levying an alcohol tax to raise revenue to finance health care benefits. People for the tax argue that alcohol demand is price inelastic. Which of the following statements is true?

A) The alcohol tax may not raise as much revenue as anticipated in the years to come because alcohol demand is more elastic the longer the period of time consumers have to adjust.
B) This is a very good way to raise revenue both in the short term and in the long term because there are no close substitutes for alcohol.
C) This tax will not raise much revenue either in the short term or the long term because demand is price inelastic.
D) No tax revenue can be raised in this way because alcohol sellers will just lower their price by the amount of the tax, and therefore the consumer price of alcohol will not change.

Question 72

Refer to the information provided in Figure 5.5 below to answer the question that follows. Figure 5.5
Refer to Figure 5.5. As the price of good W increased, the demand for good Y shifted from D1 to D2. The cross-price elasticity of demand between W and Y is

A) positive.
B) negative.
C) zero.
D) indeterminate from this information.

Question 73

If the supply of oranges is unit elastic, the price elasticity of supply of oranges is

A) 1.0.
B) 0.0.
C) -1.0.
D) -100.0.

Question 74

In order to discourage consumers from eating unhealthy fast food, the government is considering placing a tax on all fast food sales. Which of the following statements is true?

A) Given the numerous alternatives, consumers' demand for fast food is relatively elastic and the tax will likely work to discourage fast food consumption.
B) The tax on fast food will likely raise considerable revenue but will be unlikely to reduce the consumption of fast food by consumers.
C) The tax on fast food will likely increase the demand for home cooked meals.
D) Both A and C are true.

Question 75

If the cross-price elasticity of demand between fish and chicken is 2, then a 2% increase in the price of fish will result in a ________ in the quantity of chicken demanded.

A) 1% increase
B) 4% increase
C) 10% increase
D) 20% decrease

Question 76

Cross-price elasticity of demand measures the response in the

A) price of a good to a change in the quantity of another good demanded.
B) income of consumers to the change in the price of goods.
C) quantity of one good demanded when the quantity demanded of another good changes.
D) quantity of one good demanded to a change in the price of another good.

Question 77

If the elasticity of labor supply is positive, the labor-supply curve would be

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

Question 78

Suppose a 10% increase in the price of steak reduces the consumption of steak by 30%. Such a price rise will induce households to spend

A) less of their income on steak.
B) more of their income on steak.
C) the same amount on steak as before.
D) more on products that are complementary with steak.

Question 79

The ABC Computer Company spends a lot of money for advertising designed to convince you that their personal computers are superior to all other personal computers. If the ABC Company is successful, the demand for ABC personal computers

A) and the demand for other firmsʹ personal computers will become less price elastic.
B) and the demand for other firmsʹ personal computers will become more price elastic.
C) will become more price elastic, but the demand for other firmsʹ personal computers will become less price elastic.
D) will become less price elastic, but the demand for other firmsʹ personal computers will become more price elastic.

Question 80

If the quantity of bagels demanded decreases by 8% when the price of croissants decreases by 16%, the cross-price elasticity of demand between bagels and croissants is

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