Deck 6: Elasticity

Question 1

If the price of a good increases by 20% and the quantity demanded changes by 15%,then the price elasticity of demand is equal to:

A) 0.75.
B) approximately 0.33.
C) approximately 1.33.
D) 1.

Answer 1

0.75.

Question 2

The ratio of the percentage change in quantity demanded to the percentage change in price is the _____ elasticity of demand.

A) price
B) quantity
C) income
D) cross-price

Answer 2

price

Question 3

The price elasticity of demand measures the:

A) responsiveness of the change in quantity demanded to a change in price.
B) change in price versus a change in quantity demanded.
C) responsiveness of the change in the slope of the demand curve to a change in price.
D) change in the slope of the demand curve versus a change in the quantity demanded.

Answer 3

responsiveness of the change in quantity demanded to a change in price.

Question 4

Use the following to answer questions :
Figure: The Demand for eBooks
(Figure: The Demand for e-Books)Use Figure: The Demand for e-Books.The demand schedule _____ when the price increases from $4 to $6 _____ when it increases from $6 to $8.

A) is less elastic;than
B) is more elastic;than
C) has the same elasticity;as
D) is unit-elastic;and

Question 5

The price elasticity of demand can be found by:

A) examining only the slope of the demand curve.
B) measuring absolute changes in price and quantity demanded.
C) comparing the percentage change in quantity demanded to the percentage change in price.
D) knowing that when price changes,quantity demanded goes in the opposite direction.

Question 6

The price elasticity of demand is measured by _____ the percentage change in _____ the percentage change in _____.

A) dividing;price by;quantity demanded
B) dividing;quantity demanded by;price
C) subtracting;price from;quantity demanded
D) adding;price to;quantity demanded

Question 7

If the price of a good increases by 15% and quantity demanded changes by 20%,then the price elasticity of demand is equal to:

A) 0.75.
B) approximately 0.33.
C) approximately 1.33.
D) 1.

Question 8

The price elasticity of demand is computed as the percentage change in the _____ divided by the percentage change in _____.

A) quantity demanded;the quantity supplied
B) price;the quantity demanded
C) quantity demanded;income
D) quantity demanded;the price

Question 9

Use the following to answer questions :
Figure: The Demand for eBooks
(Figure: The Demand for e-Books)If the price of e-Books increases from $6 to $8,total revenue _____,which means that demand is _____.

A) increases;elastic
B) decreases;inelastic
C) remains constant;elastic
D) decreases;elastic

Question 10

The price elasticity of demand measures the responsiveness of the change in the:

A) quantity demanded to a change in the price.
B) price to a change in the quantity demanded.
C) slope of the demand curve to a change in the price.
D) slope of the demand curve to a change in the quantity demanded.

Question 11

Suppose that the price of gasoline increases 10% and the quantity of gasoline demanded in Calgary drops 5% per day.Demand for gasoline in Calgary is:

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

Question 12

The price of gasoline rises 5%,and the quantity of gasoline purchased falls 1%.The price elasticity of demand is equal to _____,and demand is described as _____.

A) 0.2;inelastic
B) 5;inelastic
C) 0.2;elastic
D) 5;elastic

Question 13

If the estimated price elasticity of demand for foreign travel is 4:

A) a 20% decrease in the price of foreign travel will increase quantity demanded by 80%.
B) the demand for foreign travel is inelastic.
C) a 10% increase in the price of foreign travel will increase quantity demanded by 40%.
D) a 20% increase in the price of foreign travel will increase quantity demanded by 80%.

Question 14

Use the following to answer questions :
Figure: The Demand for eBooks
(Figure: The Demand for e-Books)If the price of e-Books decreases from $6 to $4,total revenue _____,which means that demand is _____.

A) changes from $60 to $90;elastic
B) remains constant;unit-elastic
C) changes from $240 to $360;elastic
D) changes from $40 to $50;inelastic

Question 15

When the price goes down,the quantity demanded goes up.The price elasticity of demand measures:

A) how much the price goes down.
B) how much the equilibrium price goes up.
C) the responsiveness of the price change to an income change.
D) the responsiveness of the quantity change to the price change.

Question 16

Egg producers know that the price elasticity of demand for eggs is 0.1.If they want to increase sales by 5%,they will have to lower price by:

A) 0.1%.
B) 1%.
C) 5%.
D) 50%.

Question 17

The price elasticity of demand measures the:

A) responsiveness of quantity demanded to a change in price.
B) responsiveness of price to a change in quantity demanded.
C) extent to which prices are flexible and respond to market forces.
D) responsiveness of demand when price is held constant and demand increases or decreases.

Question 18

For a normal demand curve,the price elasticity of demand will:

A) always be positive.
B) always be greater than 1.
C) usually be equal to 1.
D) always be negative.

Question 19

Use the following to answer questions :
Figure: The Demand for eBooks
(Figure: The Demand for e-Books)Use Figure: The Demand for e-Books.What is the price elasticity of demand (by the midpoint method)when the price increases from $6 to $8?

A) 0.55
B) 0.5
C) 2.33
D) 0.67

Question 20

Use the following to answer questions :
Figure: The Demand for eBooks
(Figure: The Demand for e-Books)Use Figure: The Demand for e-Books.What is the price elasticity of demand (by the midpoint method)when the price decreases from $6 to $4?

A) 0.55
B) 0.5
C) 1
D) 0.67

Question 21

The price elasticity of demand for cabbage in Southern Ontario has been estimated to be 0.25.If an insect infestation destroys 20% of the region's cabbage crop (and thus reduces supply),how will that affect total expenditures on cabbage,all other things equal?

A) Total expenditures will rise.
B) Total expenditures will fall.
C) Total expenditures will remain unchanged.
D) The information is insufficient to answer the question.

Question 22

If an increase in the price of a good leads to an increase in total revenue,the _____ curve is price _____.

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

Question 23

Use the following to answer questions :
Figure: The Market for Lattes
(Figure: The Market for Lattes)Use Figure: The Market for Lattes.What is the price elasticity of demand between $2 and $2.50 per cup,using the midpoint formula?

A) 0.33
B) 1.00
C) 2.51
D) 3.00

Question 24

Use the following to answer questions :
Figure: The Demand Curve
(Figure: The Demand Curve)Use Figure: The Demand Curve.If the price is $8,total revenue is _____.If the price is $7,total revenue is _____.

A) $24;$16
B) $14;$21
C) $16;$21
D) $10;$10

Question 25

Use the following to answer questions :
Figure: The Demand Curve
(Figure: The Demand Curve)Use Figure: The Demand Curve.Between prices $4 and $5,demand is _____,and total revenue will _____ if price increases.

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

Question 26

Suppose that the price of Vanilla Coke increases by 9% and quantity demanded falls by 13% overall but only by 4% for loyal Coca-Cola customers.This means that for the general public there are _____ for Vanilla Coke,but for loyal Coca-Cola customers,Vanilla Coke is more of a _____.This means that Coca-Cola will enjoy an increase in total revenue only from _____.

A) several substitutes;necessity;loyal Coca-Cola customers
B) few substitutes;luxury item;the general public
C) no substitutes;necessity;the general public
D) several substitutes;necessity;the general public

Question 27

Suppose that the price elasticity of demand for blueberries in the Saguenay is 1.5.If climate change destroys one-fourth of the blueberry crop in this area,how will that affect total revenue for blueberry producers,all other things unchanged?

A) Total revenue will rise.
B) Total revenue will fall.
C) Total revenue will remain unchanged.
D) The information is insufficient to answer the question.

Question 28

The price elasticity of demand for soft drinks has been estimated to be 0.55.If the government enacts a major increase in the tax on imported sugar (a major ingredient in soft drink manufacturing),how will that affect total expenditures on soft drinks,all other things equal?

A) Total expenditures will remain unchanged.
B) Total expenditures will fall.
C) Total expenditures will rise.
D) People will buy Pepsi instead of Coke.

Question 29

Use the following to answer questions :
Figure: The Demand Curve
(Figure: The Demand Curve)Use Figure: The Demand Curve.By the midpoint method,the price elasticity of demand between $6 and $7 is approximately:

A) 0.19.
B) 1.00.
C) 1.86.
D) 5.40.

Question 30

The price elasticity of demand for gasoline in the short run has been estimated to be 0.1.If a war in the Middle East causes the price of oil (from which gasoline is made)to increase,how will that affect total expenditures on gasoline in the short run,all other things equal?

A) Quantity demanded will stay the same,but total expenditures will fall.
B) Quantity demanded will decrease a massive amount,but total expenditures will rise.
C) Total expenditures will remain unchanged.
D) Quantity demanded will not change much,but total expenditures will rise.

Question 31

A dairy co-op in Ontario is trying to raise milk prices by 10%.If the price elasticity of demand for milk is 0.75 and the price elasticity of supply for milk is 0,by how much should the co-op reduce their milk production to obtain the 10% increase?

A) 10%
B) 7.5%
C) 15%
D) 13%

Question 32

Consider the market for strawberries.Which statement MOST likely applies to the strawberry market?

A) The income elasticity of demand for strawberries is negative.
B) The price elasticity of supply of strawberries is greater in the short run than in the long run.
C) The price elasticity of demand for strawberries is lower in the long run than in the short run.
D) The cross-price elasticity of demand for strawberries with respect to the price of raspberries is positive.

Question 33

Use the following to answer questions :
Figure: The Demand Curve
(Figure: The Demand Curve)Use Figure: The Demand Curve.If the price is $3,total revenue is _____.If the price is $4,total revenue is _____.

A) $21;$24
B) $21;$18
C) $12;$28
D) $7;$13

Question 34

Use the following to answer questions :
Figure: The Demand Curve
(Figure: The Demand Curve)Use Figure: The Demand Curve.By the midpoint method,the price elasticity of demand between $1 and $2 is approximately:

A) 0.18.
B) 0.56.
C) 1.80.
D) 5.67.

Question 35

Use the following to answer questions :
Figure: The Market for Lattes
(Figure: The Market for Lattes)Use Figure: The Market for Lattes.What is the price elasticity of supply between the prices of $2 and $2.50 per cup,using the midpoint formula?

A) 0.33
B) 1.00
C) 1.51
D) 3.00

Question 36

Use the following to answer questions :
Figure: The Demand Curve
(Figure: The Demand Curve)Use Figure: The Demand Curve.If the price is $5,total revenue is:

A) $5.
B) $10.
C) $20.
D) $25.

Question 37

Use the following to answer questions :
Figure: The Demand Curve
(Figure: The Demand Curve)Use Figure: The Demand Curve.By the midpoint method,the price elasticity of demand between $6 and $8 is approximately:

A) 0.23.
B) 0.45.
C) 2.33.
D) 4.50.

Question 38

Use the following to answer questions :
Figure: The Demand Curve
(Figure: The Demand Curve)Use Figure: The Demand Curve.By the midpoint method,the price elasticity of demand between $3 and $4 is approximately:

A) 0.19.
B) 0.54.
C) 1.00.
D) 1.86.

Question 39

Use the following to answer questions :
Figure: The Demand Curve
(Figure: The Demand Curve)Use Figure: The Demand Curve.By the midpoint method,the price elasticity of demand between $8 and $9 is approximately:

A) 0.18.
B) 0.56.
C) 1.80.
D) 5.67.

Question 40

The price elasticity of demand for ground beef has been estimated to be 1.0.If mad cow disease strikes Alberta beef producers and a large percentage of the cattle are removed from the market,how will that affect total expenditures on ground beef,all other things equal?

A) Total expenditures will remain unchanged.
B) Total expenditures will fall by more than 1%.
C) Demand will fall by 1%,but total expenditures will fall by less than 1%.
D) Total expenditures will rise.

Question 41

The price elasticity of demand for gasoline is likely to be higher in the long run than in the short run.

Question 42

The price elasticity of demand is the ratio of the percent change in quantity demanded to the percent change in price as one moves along the demand curve.

Question 43

The price elasticity of demand for gasoline in the long run has been estimated to be 1.5.If an extended war in the Middle East caused the price of oil (from which gasoline is made)to increase and remain high for a decade,how would that affect total expenditures on gasoline in the long run,all other things equal?

A) Total expenditures would rise.
B) Total expenditures would fall.
C) Total expenditures would remain unchanged.
D) The information is insufficient to answer the question.

Question 44

A price floor above equilibrium will cause a larger surplus when demand is _____ and supply is _____.

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

Question 45

Sarah has been told that she has only 1 week to finish some pottery for a show.Sarah has exhausted her supply of clay,and new clay is absolutely necessary for finishing her products.For Sarah,the price elasticity of demand for new clay right now is elastic.

Question 46

If funeral homes discover that the price elasticity of demand for caskets equals 0.55 at the current price,funeral homes could increase revenue by increasing the price.

Question 47

If demand is perfectly inelastic,changes in price leave total revenue unchanged.

Question 48

Assume that the price elasticity of demand for corn has been estimated to be 2.33.Flash floods destroy 10% of Canada's crop of corn.Which statement BEST describes how this will affect total expenditures on corn,all other things equal?

A) Total expenditures will remain unchanged.
B) Total expenditures will fall.
C) Total expenditures will rise.
D) The information is insufficient to answer the question.

Question 49

The price elasticity of demand for fresh zucchini has been estimated to be 2.25.A new irrigation system yields a 25% increase in the nation's crop of fresh zucchini.Which statement BEST describes how this will affect total expenditures on zucchini,all other things equal?

A) Total expenditures will remain unchanged.
B) Total expenditures will fall.
C) Total expenditures will rise.
D) The information is insufficient to answer the question.

Question 50

The mayor advocates raising the entrance fee at the city's pools to increase revenue for the city.The mayor is right only if the price effect dominates the quantity effect.

Question 51

There is NO total revenue test for price elasticity of supply because:

A) price and quantity supplied are usually inversely related.
B) price and quantity supplied are usually positively related.
C) total revenue will not usually change in the direction of a supply price change.
D) price and quantity supplied are always negatively related.

Question 52

If the price elasticity of demand for tobacco is 0.5 and the income elasticity of demand for tobacco is 0.4:

A) an increase in the price of tobacco will decrease total revenue from sales of tobacco.
B) a 20% increase in the price of tobacco will decrease the quantity demanded of tobacco by 8%.
C) tobacco is an inferior good.
D) a 50% increase in income will increase the quantity demanded of tobacco by 20%.

Question 53

A major determinant of the price elasticity of demand is the availability of substitutes.

Question 54

The director of OC Transpo,in Ottawa (their public transit authority)recently stated,"The last seven times we increased bus fares,revenues dropped." This remark suggests that the demand for bus service is elastic.

Question 55

Local cable companies recently increased the price of basic services.A news expert reporting on the increase stated,"While prices have increased 40%,the cable company reports only a 20% increase in revenue." This remark suggests that the demand for basic cable service is elastic.

Question 56

A perfectly inelastic demand curve for insulin would mean that the quantity demanded does NOT respond at all to changes in the price of insulin.

Question 57

A price ceiling below equilibrium will cause a larger shortage when demand is _____ and supply is _____.

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

Question 58

Given a price increase for any good,the price effect on revenue is always larger than the quantity effect on revenue.

Question 59

The price elasticity of demand for milk has been estimated to be somewhere between 0.49 and 0.63.If a new system of feeding and milking cows yields a 15% increase in the production of milk throughout the country,how will that affect total expenditures on milk,all other things equal?

A) Total expenditures will remain unchanged.
B) Total expenditures will fall.
C) Total expenditures will rise.
D) The information is insufficient to answer the question.

Question 60

Assume that the supply curve shifts to the right by a given amount at each price.The price in the market will decline the most if demand is more price-_____ and supply is more price-_____.

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

Question 61

When the absolute value of the percentage change in quantity demanded is less than the absolute value of the percentage change in price,demand is:

A) inelastic.
B) elastic.
C) unit-elastic.
D) unknown.

Question 62

A demand curve that is perfectly inelastic is:

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

Question 63

If the cross-price elasticity of demand between rice and beans is -0.25,rice and beans are complements.

Question 64

Use the following to answer questions :
Figure: The Linear Demand Curve
(Figure: The Linear Demand Curve)Use Figure: The Linear Demand Curve.As a producer,you are interested in maximizing your total revenues in this market.At what price should you sell your good? What is the corresponding total revenue?

A) $10;$100
B) $20;$200
C) $0;$100
D) $5;$100

Question 65

If the cross-price elasticity of demand between hamburgers and cheese is positive,these two goods must be complements.

Question 66

If the price elasticity of demand between two points on a demand curve is 0.75,then the demand between those two points is:

A) price unit-elastic.
B) price-inelastic.
C) price-elastic.
D) unknown.

Question 67

Which characteristic is NOT true of a good with elastic demand?

A) There is only a short time to adjust to price changes.
B) There are a large number of substitutes.
C) It is a luxury good.
D) It is a specific brand.

Question 68

Use the following to answer questions :
Figure: The Linear Demand Curve
(Figure: The Linear Demand Curve II)Use Figure: Linear Demand Curve II.If price was initially set at $8 and then increased to $10,total revenue would:

A) decrease,as the price effect is dominated by the quantity effect.
B) decrease,as the price effect dominates the quantity effect.
C) stay the same,as both the price and quantity effects remain unchanged.
D) increase,as the price effect is dominated by the quantity effect.

Question 69

Suppose that the price of e-books is initially $20 but decreases to $15.The absolute value of the percentage change in price (by the midpoint method)is approximately _____%.

A) 28
B) 10
C) 5
D) 15

Question 70

Use the following to answer questions :
Figure: The Linear Demand Curve
(Figure: The Linear Demand Curve II)Use Figure: Linear Demand Curve II.At prices greater than $7,demand is _____;at prices below $7,demand is _____;and at $7,demand is _____.

A) elastic;inelastic;unit-elastic
B) inelastic;elastic;unit-elastic
C) unit-elastic;inelastic;elastic
D) equal to 0;elastic;inelastic

Question 71

Use the following to answer questions :
Figure: The Linear Demand Curve
(Figure: The Linear Demand Curve)Use Figure: The Linear Demand Curve.Suppose that this is the demand curve for scarves in your scarf shop.If you increase the price of your scarves from $7 to $8,your total revenue will _____,and you notice that your price elasticity of demand is _____.

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

Question 72

Use the following to answer questions :
Figure: The Linear Demand Curve
(Figure: The Linear Demand Curve)Use Figure: The Linear Demand Curve.If the price is initially $10,then falls to $9,this will result in a(n)_____ in quantity demanded and a(n)_____ in total revenue.

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

Question 73

You are the manager of a supermarket,and you know that the cross-price elasticity of peanut butter to jelly is exactly -2.0.Because of a bad grape harvest,grape jelly prices are expected to rise by 10% next year.To account for the change in demand,you should stock 10% more peanut butter.

Question 74

If the absolute value of the price elasticity of demand is greater than 1:

A) small percentage changes in the price will lead to much larger percentage changes in the quantity demanded.
B) small percentage changes in the price will lead to even smaller changes in the percentage change in the quantity demanded.
C) percentage changes in the price will lead to equal percentage changes in the quantity demanded.
D) changes in the price will have no impact on changes in the quantity demanded.

Question 75

If you wanted to make sure that your calculation of elasticity between two points was the same,regardless of your initial point,you would use:

A) the absolute value of elasticity.
B) supply elasticity.
C) the midpoint formula calculation of elasticity.
D) the point formula calculation of elasticity.

Question 76

If the price elasticity of demand equals 0,the demand curve is:

A) horizontal.
B) vertical.
C) upward sloping.
D) unit-elastic.

Question 77

The income elasticity of demand for an inferior good,such as a macaroni and cheese dinner,is negative.

Question 78

Since for most people,eating in restaurants is a luxury and eating at home is a necessity,the price elasticity of demand for food eaten at home is lower than the price elasticity of demand for eating in restaurants.

Question 79

Demand for Wendy's hamburgers is more inelastic than the demand for all fast food.

Question 80

The price of a litre of gasoline increases 10% this year.As a result,which event is MOST likely to occur?

A) More people will drive their cars.
B) Public transportation usage will decrease.
C) Gasoline expenditures will increase if gasoline is an inelastic good.
D) Fewer people will ride bicycles,a substitute for car travel.