Deck 5: Elasticity of Demand and Supply

Question 1

In calculating price elasticity of demand, which of the following is assumed to be constant?

A) the price of the product itself
B) the quantity demanded of the product
C) total revenue received from the sale of the product
D) the prices of all other products
E) none of the above

Answer 1

D

Question 2

A good synonym for elasticity would be

A) stability
B) volatility
C) stickiness
D) demand
E) responsiveness

Answer 2

E

Question 3

The price elasticity of demand is equal to the slope of the demand curve.

Answer 3

False

Question 4

Price elasticity of demand is defined as

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

Question 5

The midpoint price between $20 and $40 is

A) $10
B) $20
C) $30
D) $15
E) $200

Question 6

When quantity is measured in gallons, the price elasticity of demand for milk will be __________ the price elasticity when quantity is measured in quarts.

A) the same as
B) four times
C) one quarter
D) two times
E) less than

Question 7

Exhibit 5-1

Use the information in Exhibit 5-1 to calculate the price elasticity of demand for Good A.

A) -5/2
B) -11/3
C) -3/10
D) -10/3
E) -19/11

Question 8

"More elastic" means

A) unchanging
B) less desirable
C) more desirable
D) less responsive
E) more responsive

Question 9

The general term elasticity refers to a relationship between

A) quantity demanded and price only
B) quantity supplied and price only
C) quantity supplied or demanded and price only
D) quantity supplied or demanded and anything other than price
E) percentage changes in any two variables

Question 10

Another word for elasticity is

A) responsiveness
B) happiness
C) bonus
D) profit
E) surplus

Question 11

The midpoint quantity between 100 and 300 units is

A) 100 units
B) 200 units
C) 300 units
D) 150 units
E) 20,000 units

Question 12

If the value of the price elasticity of demand is -0.2, this means that a

A) 20 percent decrease in price causes a 1 percent increase in quantity demanded
B) 0.2 percent decrease in price causes a 1 percent increase in quantity demanded
C) 5 percent decrease in price causes a 1 percent increase in quantity demanded
D) 0.2 percent decrease in price causes a 0.2 percent increase in quantity demanded
E) 100 percent decrease in price causes a 200 percent increase in quantity demanded

Question 13

Elasticity measures

A) whether a price increase causes quantity demanded to increase or decrease
B) the strength of an economy's tendency to recover from recession
C) the responsiveness of decision makers to changes in prices, income, or other variables
D) the profitability of investment in an industry
E) the long-run flexibility of prices in the economy

Question 14

Elasticity is always

A) measured in dollars
B) measured in dollars per unit of quantity
C) measured in units of quantity
D) measured in units of quantity per dollar
E) independent of the units of measurement

Question 15

Price elasticity of demand is typically negative because

A) as price decreases, quantity demanded decreases
B) as price decreases, quantity demanded increases
C) as price decreases, demand decreases
D) as price decreases, demand increases
E) consumers rarely respond to a change in price

Question 16

If a $1 increase in price leads to a 3-unit decrease in quantity demanded, then demand must be elastic.

Question 17

The price elasticity of demand helps determine the effect of price changes on a firm's

A) property taxes
B) profits
C) quantity supplied
D) revenues
E) total costs

Question 18

Price elasticity of demand is useful because it measures __________ responsiveness to changes in __________.

A) taxpayers'; demand
B) producers'; supply
C) consumers'; price
D) consumers'; demand
E) producers'; income

Question 19

If an increase in the price of a product from $1 to $2 per unit leads to a decrease in the quantity demanded from 100 to 80 units, then the value of price elasticity of demand is

A) elastic
B) inelastic
C) unit elastic
D) suggestive of an inferior good
E) equal to -20

Question 20

If the price of Pepsi-Cola increases from 40 cents to 50 cents per can and the quantity demanded decreases from 100 cans to 50 cans, then, according to the midpoint formula, the value of price elasticity of demand for Pepsi-Cola is

A) -0.5
B) -0.25
C) -1
D) -3
E) -2

Question 21

Demand is inelastic only if

A) price elasticity has an absolute value of 1
B) price elasticity has an absolute value greater than 1
C) price elasticity has an absolute value less than 1
D) price elasticity is negative
E) consumers do not respond to a change in price

Question 22

Exhibit 5-4
Demand in Exhibit 5-4 is

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

Question 23

If demand is inelastic, the percentage change in price is greater than the resulting percentage change in quantity demanded.

Question 24

Demand is unit elastic whenever

A) price elasticity has an absolute value of 1
B) price elasticity has an absolute value greater than 1
C) price elasticity has an absolute value less than 1
D) price elasticity is negative
E) consumers always respond to a one-dollar change in price by decreasing their quantity demanded by one unit

Question 25

Demand is elastic whenever

A) price elasticity has an absolute value of 1
B) price elasticity has an absolute value greater than 1
C) price elasticity has an absolute value less than 1
D) price elasticity is negative
E) consumers respond to a change in price

Question 26

Demand is inelastic if

A) the percentage change in price is greater than the percentage change in quantity demanded
B) the percentage change in price is less than the percentage change in quantity demanded
C) the percentage change in price is equal to the percentage change in quantity demanded
D) the value of price elasticity is equal to -1
E) the value of price elasticity is less than -1

Question 27

If a 5% increase in price leads to an 8% decrease in quantity demanded, demand is

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

Question 28

Unit elastic demand occurs when

A) a one-unit increase in price leads to a one-unit decrease in quantity demanded
B) a 1% increase in price leads to a one-unit decrease in quantity demanded
C) price elasticity of demand is positive
D) price elasticity of demand is exactly zero
E) price elasticity of demand is exactly -1

Question 29

A perfectly inelastic demand curve is

A) a vertical straight line
B) a horizontal straight line
C) a downward-sloping straight line
D) an upward-sloping straight line
E) not a straight line

Question 30

If a firm facing a perfectly elastic demand curve raises its price,

A) it will still sell exactly the same amount of output as it did at the lower price
B) it will lose some, but not all, of its sales
C) its sales will decrease to zero
D) its sales will increase
E) it is impossible to predict what will happen to its sales

Question 31

If the price of Pepsi-Cola increases from 50 cents to 60 cents per can and the quantity demanded decreases from 100 cans to 50 cans, then the demand for Pepsi-Cola is

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

Question 32

If price elasticity of demand is -0.5,

A) a 1% decrease in quantity demanded leads to a 0.5% decrease in price
B) a 1% decrease in price leads to a 0.5% increase in quantity demanded
C) a 50% decrease in price leads to a 1% increase in quantity demanded
D) a 50% decrease in price leads to a 100% increase in quantity demanded
E) demand is elastic

Question 33

Exhibit 5-1

Use the information in Exhibit 5-1 to calculate the value of price elasticity of demand for Good B.

A) -2/3
B) -1/6
C) -1/2
D) -11/17
E) -17/11

Question 34

Exhibit 5-2

Based on the information in Exhibit 5-2, the demand for the good is __________ and an increase in price from $40 to $60 per unit will __________ total revenue.

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

Question 35

A perfectly elastic demand curve is

A) a vertical straight line
B) a horizontal straight line
C) a downward-sloping straight line
D) an upward-sloping straight line
E) not a straight line

Question 36

If an increase in the price of a product from $100 to $200 per unit leads to a decrease in the quantity demanded from 10 to 8 units, then demand is

A) elastic
B) inelastic
C) unit elastic
D) 0
E) inferior

Question 37

Exhibit 5-3

Use the information in Exhibit 5-3 to calculate the value of price elasticity of demand for restaurant meals.

A) -1/2
B) -5/3
C) -3/5
D) -3/7
E) -7/3

Question 38

Exhibit 5-3

If an increase in the price of a product from $1 to $2 per unit leads to a decrease in the quantity demanded from 100 to 80 units, then the value of price elasticity of demand is

A) -1/3
B) -2 1/3
C) -1/4
D) -3
E) -2/3

Question 39

Price elasticity of demand is calculated as

A) the percentage change in quantity demanded divided by the percentage change in price
B) the percentage change in price divided by the percentage change in quantity demanded
C) the absolute change in quantity demanded divided by the absolute change in price
D) the absolute change in price divided by the absolute change in quantity demanded
E) none of the above

Question 40

Exhibit 5-2

Use the information in Exhibit 5-2 to calculate the value of price elasticity of demand.

A) -2/3
B) -1/3
C) -3/5
D) -5/3
E) 0

Question 41

Exhibit 5-5
In Exhibit 5-5, what is the total revenue at point a?

A) $4
B) $5
C) $10
D) $50
E) $100

Question 42

Exhibit 5-4
What is the price elasticity of demand in Exhibit 5-4?

A) 0
B) -1
C) negative infinity
D) 1
E) -100

Question 43

If the demand for a good is elastic, then total revenue

A) increases as price increases
B) remains constant as quantity demanded increases
C) increases as price decreases
D) decreases as quantity demanded increases
E) decreases as price decreases

Question 44

John spends exactly the same dollar amount on candy bars each week, regardless of their price. John's demand curve for candy bars is

A) upward-sloping
B) backward-bending
C) perfectly inelastic
D) perfectly elastic
E) unit elastic

Question 45

Exhibit 5-5
In Exhibit 5-5, what is the total revenue to the right of point a?

A) less than $50, if demand is price inelastic
B) less than $50, if demand is price elastic
C) $50
D) more than $50, if demand is price inelastic
E) not enough information to tell

Question 46

The price elasticity of demand

A) is of no use to producers
B) tells producers what will happen to total profit if they change product price
C) tells producers what will happen to quantity supplied if they change product price
D) tells producers what will happen to total revenue if they change product price
E) tells producers what will happen to price in the following time period

Question 47

Total revenue is maximized where demand is inelastic.

Question 48

Total revenue is the same for every price-quantity combination along a unit elastic demand curve.

Question 49

Suppose that you allow yourself $50 per month to spend on compact disks. You spend exactly this much every month regardless of the price of compact disks. Therefore, your demand for CDs

A) is elastic
B) is inelastic
C) is unit elastic
D) cannot be characterized unless we know the price of a disk
E) cannot be characterized unless we know the price and quantity of compact disks purchased

Question 50

If a firm raises the price of its product, its total revenue will

A) always increase
B) increase only if demand is price inelastic
C) increase only if demand is price elastic
D) remain constant, regardless of price elasticity of demand
E) never increase

Question 51

If demand is price elastic, total revenue is

A) directly related to quantity demanded
B) inversely related to quantity demanded
C) directly related to price
D) directly related to price and inversely related to quantity demanded
E) not related to either price or to quantity demanded

Question 52

Elasticity rises as price falls along a linear, downward-sloping demand curve.

Question 53

If the administration raises tuition on our campus in order to increase revenue, it will

A) not be successful if the demand curve slopes downward
B) be successful if demand is elastic
C) be successful if demand is inelastic
D) be successful if supply is elastic
E) be successful if supply is inelastic

Question 54

If demand is elastic, a decrease in price leads to a decrease in total revenue.

Question 55

If a price reduction leads to larger total revenue, demand is

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

Question 56

The total revenue from selling trucks is equal to

A) the price of a truck times the quantity sold
B) the change in quantity sold divided by the change in price
C) average cost times quantity produced
D) the price of a truck times the quantity produced
E) the price of a truck times the price elasticity of demand

Question 57

Price elasticity is unit elastic at the midpoint of a linear, downward-sloping demand curve.

Question 58

Exhibit 5-5
In Exhibit 5-5, what is the total revenue to the right of point a?

A) equal to $50, if demand is price inelastic
B) less than $50, if demand is price elastic
C) equal to $50, if demand is unitary elastic
D) more than $50, if demand is price inelastic
E) not enough information to tell

Question 59

Exhibit 5-5
In Exhibit 5-5, what is the total revenue to the left of point a?

A) less than $50, if demand is price inelastic
B) less than $50, if demand is price elastic
C) $50
D) more than $50, if demand is price elastic
E) not enough information to tell

Question 60

As price decreases along a linear demand curve, price elasticity of demand decreases.

Question 61

If the price of Pepsi-Cola increases from 50 cents to 60 cents per can and the quantity demanded decreases from 100 cans to 50 cans, then the Pepsi-Cola Company could increase its total revenue by

A) lowering price
B) decreasing quantity supplied
C) leaving price the same
D) raising price
E) decreasing supply

Question 62

The demand for a good is elastic if

A) an increase in price leads to a decrease in total revenue
B) an increase in price leads to an increase in total revenue
C) an increase in price causes no change in total revenue
D) total revenue is maximum
E) total revenue is minimum

Question 63

If the demand for swordfish is price elastic and the price of swordfish increases, then

A) the quantity of swordfish demanded will increase
B) the total revenue from swordfish sales will decrease
C) the total revenue from swordfish sales will increase
D) the total revenue from swordfish sales will not change
E) whether total revenue rises or falls depends on how much the price of swordfish increases

Question 64

Along a downward-sloping linear demand curve, total revenue is greatest if demand is

A) inelastic
B) elastic
C) inelastic when prices are high
D) elastic when prices are high
E) unit elastic

Question 65

If the demand for a product is price inelastic,

A) producers' revenues will increase if supply increases
B) producers' revenues will increase if supply decreases
C) a small change in price will cause a large shift in the demand curve
D) a large change in price will cause a small shift in the demand curve
E) a small change in price will cause a small shift in the demand curve

Question 66

Which of the following will cause demand to be relatively elastic?

A) There are few substitutes
B) The time interval is relatively long
C) The good is considered a necessity
D) The good involves a relatively small portion of the consumers' budget
E) The time interval is relatively short

Question 67

Wheat farmers in Kansas would benefit from a devastating crop failure in North Dakota (another major wheat-producing state) if the U.S. demand for wheat is

A) inelastic
B) elastic
C) unit elastic
D) downward sloping
E) perfectly elastic

Question 68

If the demand for airline tickets to Fort Lauderdale is price elastic,

A) airline revenue will increase if supply increases
B) airline revenue will increase if supply decreases
C) a small change in price will cause a large shift in the demand curve
D) a large change in price will cause a small shift in the demand curve
E) a large change in price will cause a large shift in the demand curve

Question 69

Which of the following describes a situation in which demand must be inelastic?

A) The price of pens rises by 10 cents, and quantity of pens demanded falls by 50.
B) The price of pens rises by 10 cents, and total revenue rises.
C) A 20 percent increase in the price of pens leads to a 20 percent decrease in the quantity of pens demanded.
D) Total revenue does not change when the price of pens rises.
E) Total revenue decreases when the price of pens rises.

Question 70

If demand is unit elastic, a price reduction will

A) increase revenues
B) reduce revenues
C) reduce quantity demanded
D) have no effect on revenues
E) increase profits

Question 71

Along a linear demand curve,

A) both the slope and price elasticity are constant
B) the price elasticity is constant, but the slope varies
C) total revenues are constant
D) the slope is constant, but the price elasticity varies
E) total revenues are negative

Question 72

Along a linear demand curve, as the price increases from zero,

A) demand decreases
B) demand increases
C) quantity demanded increases
D) total revenue first increases but eventually decreases
E) total revenue first decreases but eventually increases

Question 73

One group of people uses New York City subways only during rush hour to travel to and from work. Another group uses them only in midday for leisure activity. If New York City wants to increase transit fares with the smallest possible reduction in revenue, for which group should it increase the fare?

A) The rush-hour group because its demand for subway service is more elastic than that of the midday group.
B) The rush-hour group because its demand for subway service is less elastic than that of the midday group.
C) The midday group because its demand for subway service is more elastic than that of the rush-hour group.
D) The midday group because its demand for subway service is less elastic than that of the rush-hour group.
E) It doesn't matter because both groups have the same elasticity of demand.

Question 74

If the demand for ptyalin is unit elastic, then

A) total revenue decreases as quantity demanded increases
B) total revenue increases as quantity demanded increases
C) total revenue increases as price increases
D) total revenue remains constant as price increases
E) total revenue decreases as price increases

Question 75

Which of the following describes a situation in which demand must be inelastic?

A) Total revenue decreases by 10 percent when the price of spats rises by 10 percent.
B) Total revenue decreases by less than 10 percent when the price of spats rises by 10 percent.
C) Total revenue increases by more than 10 percent when the price of spats rises by 10 percent.
D) Total revenue decreases by $10 when the price of spats rises by $10.
E) Total revenue decreases by more than $10 when the price of spats rises by $10.

Question 76

If city officials expect that an increase in bus fares will raise mass transit revenues, they must think that the demand for bus travel is

A) elastic
B) unit elastic
C) inelastic
D) perfectly inelastic
E) -10

Question 77

The absolute value of the price elasticity of demand at the midpoint of a linear demand curve is always

A) greater than one
B) less than one
C) one
D) zero
E) infinity

Question 78

Suppose the price elasticity of demand for your economics textbook is -1. If the publisher raises the price by 5 percent,

A) revenues will rise 5 percent
B) quantity demanded will rise 5 percent
C) total revenues will not change
D) revenues will fall
E) revenues will fall 5 percent

Question 79

Which of the following describes a situation in which demand must be elastic?

A) The price of pens rises by 10 cents, and quantity of pens demanded falls by 50.
B) The price of pens rises by 10 cents, and total revenue rises.
C) A 20 percent increase in the price of pens leads to a 20 percent decrease in the quantity of pens demanded.
D) Total revenue does not change when the price of pens rises.
E) Total revenue decreases when the price of pencils rises.

Question 80

Which of the following describes a situation in which demand must be elastic?

A) Total revenue increases by 15 percent when the price of corndogs rises by 15 percent.
B) Total revenue increases by less than 15 percent when the price of corndogs rises by 15 percent.
C) Total revenue decreases by more than 15 percent when the price of corndogs rises by 15 percent.
D) Total revenue increases by $15 when the price of corndogs rises by $15.
E) Total revenue increases by more than $15 when the price of corndogs rises by $15.