Chapter 5—Elasticity MULTIPLE CHOICE
a . b . c . d .
1. What is the definition definition of price elasticity of demand? the slope of the demand curve divided by the price the slope of the demand curve the percentage change in price divided by the percentage change in quantity demanded the percentage change in quantity demanded divided by the percentage change in price
2. What does the price elasticity of demand measure? the responsiveness of price to a change in quantity demanded
a . b the responsiveness of quantity demanded to a change in price . c the responsiveness of quantity demanded to a change in income . d the responsiveness of quantity demanded to a change in quantity supplied .
3. What term accurately accurately describes demand when when the quantity quantity demanded demanded is very responsive to changes in price? a independent . b elastic . c unit elastic . d inelastic .
4. What term accurately accurately describes demand when the quantity demanded is NOT very responsive to changes in price? a unit elastic . b inelastic . c independent . d elastic .
5. Bailey's Barber Barber Shop knows knows that that a 5 percent increase increase in the price of their haircuts results in a 15 percent decrease in the number of haircuts purchased. What is the elasticity of demand facing Bailey's Barber Shop? a 0.05 . b 0.10 . c 0.15 . d 3.0 .
6. Iron Mike’s steel mill finds that a 10 percent increase in its price leads to a 14 percent decrease in the quantity it is able to sell. What term accurately describes the demand curve for the mill’s output? a inelastic . b elastic . c unit elastic . d perfectly elastic .
7. The Shoe Emporium reduces reduces the price of its shoes by 50 percent and finds finds that the quantity demanded for its shoes more than doubles. What term accurately describes the demand for shoes from The Shoe Emporium? a inelastic . b unit el elastic
. c unit inelastic . d elastic .
8. When the Blue Ocean Surfboard Company lowered the price of surfboards surfboards by 20 percent, it sold 10 percent more surfboards. What is the price elasticity coefficient for surfboards? a 0.5 . b 1 . c 2 . d 20 . 9. The nation's nation's largest largest cable TV company tested the effect effect of a price reduction reduction for premium movie channels. It lowered prices from $12 to $9.95 and found that the number of customers rose by almost 50 percent. What does this illustrate? a The supply curve for premium movie channels has shifted to the left. . b The demand curve for the premium movie channels has shifted to the right. . c The demand for premium movie channels is elastic in this price range. . d The demand for premium movie channels is inelastic in this price range. .
10. If the price elasticity of demand coefficient for gourmet gourmet coffee is estimated to be 1.6, what would a 5 percent increase in price likely lead to? a an 8 percent increase in the quantity of gourmet coffee demanded . b a 16 percent increase in the quantity of gourmet coffee demanded . c a 16 percent decrease in the quantity of gourmet coffee demanded . d an 8 percent decrease in the quantity of gourmet coffee demanded .
11. If the price elasticity of demand coefficient for herbal tea is estimated to be 0.5, what would a 10 percent decrease in price likely lead to? a a 10 percent decrease in the quantity of herbal tea demanded . b a 5 percent decrease in the quantity of herbal tea demanded . c a 10 percent increase in the quantity of herbal tea demanded . d a 5 percent increase in the quantity of herbal tea demanded .
12. As you you move down (southeast) along a demand curve, what happens to the elasticity? a It becomes larger. . b It stays constant at zero. . c It stays constant at one. . d It becomes smaller. .
13. The nation's largest largest cable TV company tested tested the effect of a price reduction for premium movie channels. It increased prices from $9.95 to $12 and found virtually no change in the number of customers. What does this illustrate? a The demand curve for the premium movie channels has shifted to the right. . b The demand for premium movie channels is very elastic in this price range. . c The supply curve for premium movie channels has shifted to the left. . d The demand for premium movie channels is very inelastic in this price range. .
a . b . c . d .
14. Which of the following following statements best describes describes inelastic demand? The demand curves appear to be fairly flat. The percentage change in quantity demanded results from a price change greater than the percentage change in price. Price elasticity of demand is greater than one. Consumers are not very responsive to changes in price.
15. If the demand curve for a life-saving medicine is perfectly inelastic, what result will a reduction in supply have on the equilibrium price and equilibrium quantity? a The price will rise and the quantity will rise. . b The price will rise and the quantity will stay the same. . c The price will stay the same and the quantity will fall. .
d The price will rise and the quantity will fall. . 16. If the demand curve is perfectly elastic, what will an increase in supply result in? a an increase in the price, but no change in the quantity exchanged exchanged . b an increase in the quantity exchanged, but no change in the price . c a decrease in the price, but no change in the quantity exchanged . d an increase in both the price and the quantity exchanged .
FIGURE 5-1
17. Refer to Figure 5-1. What graph graph best illustrates a perfectly inelastic inelastic demand curve? a Graph A . b Graph B . c Graph C . d Graph D .
18. Refer Refer to Figure 5-1. What graph best illustrates illustrates a relatively relatively inelastic (but NOT perfectly inelastic) demand curve? a Graph A . b Graph B . c Graph C . d Graph D . 19. If the demand curve for a product is vertical, then what is the elasticity of demand? a equal to zero . b equal to one . c greater than one, but less than infinity . d equal to infinity .
20. If the demand curve for a product is horizontal, then what is the elasticity of demand? a equal to zero . b equal to one . c greater than one, but less than infinity . d equal to infinity . 21. What term accurately describes demand when the quantity demanded changes in the same proportion as the price? a inelastic . b independent . c elastic . d unit elastic .
22. Suppose that Lance purchases one pizza per month when the price is $19 and three pizzas per month when the price is $15. What is the price elasticity of Lance’s demand curve? a 0.235 . b 2.00 . c 4.25 . d 6.33 .
23. Suppose that Joan plays plays golf five times per month when when the price is $40 and four times per month when the price is $50. What is the price elasticity of Joan’s demand curve? a 0.1 . b 0.8 . c 1.0 . d 10.0 .
24. Suppose that Percy eats a 200-gram 200-gram steak eight times per month when the price is $10 and six times per month when the price is $12. What is the price elasticity of Percy’s demand curve? a 0.636 . b 1.0 . c 1.25 . d 1.57 .
The following schedule represents a portion of Kate's demand for sandwiches. TABLE 5-1
Price $6 $5 $4
Quantity Demanded per Month 3 5 8
25. Refer to Table Table 5-1. Along this portion of Kate's demand curve for sandwiches, what is the price elasticity of demand? a equal to zero . b less than one . c equal to one . d greater than one .
The following schedule represents a portion of Tim's demand for video rentals each month. TABLE 5-2
Price $4 $3 $2
Quantity Demanded per Month 8 9 10
26. Refer to Table 5-2. Along this portion of Tim's demand curve for video rentals, what is the price elasticity of demand? a equal to zero . b less than one . c equal to one . d greater than one . 27. If makers of snake anti-venom implement significant price increases, it is unlikely to significantly affect the use of anti-venom for treating poisonous
snakebites. What term accurately describes the demand for anti-venom among users? a unit elastic . b unit inelastic . c elastic . d inelastic .
28. Which of the following best describes the relationship relationship between the elasticity of demand and the availability of substitutes? a The elasticity of demand will remain constant as the availability of . substitutes decrease. b The elasticity of demand will increase as the availability of substitutes . decreases. c The elasticity of demand will decrease as the availability of substitutes . remains constant. d The elasticity of demand will increase as the availability of substitutes . increases. 29. Which of the following will have have the most elastic demand? pizza from a restaurant
a . b Pizza Hut pizza . c pizza from Pizza Hut on the corner of Main Street and 8th Avenue Avenue . d pizza .
30. Which of the following is likely likely to have have the most inelastic demand? insulin, for diabetics
a . b pizza from a restaurant . c a one-week vacation at Disney World . d a new Land Rover .
31. Which of the following following statements statements best describes the demand for for toothpaste? a It will likely be income elastic and price elastic. . b It will likely be income inelastic and price elastic. . c It will likely be income inelastic and price inelastic. . d It will likely be income elastic and price inelastic. .
32. When is price elasticity elasticity of demand said said to be greater? greater? when there are fewer available substitutes
a . b the longer the period of time consumers have to adjust to price changes . c the shorter the period of time consumers have to adjust to price changes . d when the elasticity of supply is greater . 33. The larger the proportion proportion of income spent on a product, other things equal, what is indicated? a The consumer's demand is more inelastic. . b The consumer's demand curve is more vertical. . c The consumer's demand is more elastic. . d The consumer's demand is more unit elastic. .
34. What tends to happen to the price elasticity of demand as the time period considered grows longer? a It converges to zero. . b It increases. . c It remains constant. . d It decreases. .
35. A recent study at a liberal arts college concluded that demand elasticity is 0.91 for college courses. The administration is considering a tuition increase to help balance the budget. What might an economist advise the school to do? a Leave tuition unchanged, as a change in tuition is unlikely to enhance the . school's budget by increasing revenue. revenue. b Decrease tuition because demand for courses is elastic. e lastic. . c Decrease tuition in order to increase revenue by boosting enrolment. . d Increase tuition in order to increase revenue. . 36. When will a price cut increase the total total revenue a firm firm receives? when demand for its product is inelastic
a . b when demand for its product is unit inelastic . c when demand for its product is unit elastic . d when demand for its product is elastic .
37. A jeweller cut prices in his store by 20 percent and the dollar value of his sales fell by 20 percent. What is this indicative of? a inelastic demand . b elastic demand . c a vertical demand curve . d a horizontal demand curve .
38. When the local symphony recently raised its price for tickets to their summer concerts in the park, the symphony's total revenue actually decreased. What does this indicate about the elasticity of demand for symphony tickets? a It is elastic. . b It is unit elastic. . c It is unit inelastic. .
d It is inelastic. .
39. When the price of ulcer medication increased increased by $20 per per 100 tablets, a drug company's revenue increased by $10 million. What must its elasticity of demand coefficient (in absolute terms) be? a zero . b less than one . c greater than one . d infinitely large .
The elasticity in the vicinity of five different points along a demand curve varies as follows: TABLE 5-3
Point Elasticity
A 1.25
B 0.3
C 1.0
D 0.2
E 2.1
40. Refer to Table Table 5-3. At what points would a price increase be accompanied by an increase in total revenue? a A, C, and E . b A and E . c B and D . d A and D .
The elasticity in the vicinity of five different points along a demand curve varies as follows: TABLE 5-4
Point Elasticity
A 1.25
B 0.3
C 1.0
D 0.2
E 2.1
41. Refer to Table Table 5-4. In the vicinity of what points would a price decrease be accompanied by an increase in total revenue? a A and D . b A and E . c B, C, and D . d B and D .
FIGURE 5-2
42. Refer to Figure Figure 5-2. Compared to Graph B, what type of demand curve does Graph A represent? a a unit inelastic curve . b a relatively elastic curve . c a unit elastic curve . d a relatively inelastic curve .
43. Refer to Figure 5-2. Compared to Graph A, what type of demand curve does Graph B represent? a a unit inelastic curve . b a relatively elastic curve . c a relatively inelastic curve . d a unit elastic curve . 44. Refer to Figure Figure 5-2. With reference to Graph Graph A, at a price of $10, what is total revenue equal to? a $200 . b $400 . c $500 . d $1000 .
45. Refer to Figure 5-2. With reference reference to Graph A, A, at a price of $5, what is total revenue equal to? a $200 . b $400 . c $500 . d $1000 .
46. Refer to Figure 5-2. With reference reference to Graph B, at a price of $5, what is total revenue equal to? a $150 . b $200 . c $250 . d $300 .
47. Most passenger trains operate far below full capacity. capacity. Under what circumstances would reducing travel fares be likely to increase total revenue? a if demand is unit inelastic . b if demand is inelastic . c if demand is unit elastic . d if demand is elastic . 48. The demand for a product is unit elastic. At a price of $20, 10 units of a product are sold. If the price is increased to $40, what would one expect sales to equal? a 0 units . b 5 units . c 10 units . d 20 units .
49. A "war on drugs" is waged waged and, as a result, a larger quantity of drugs flowing flowing into Canada is seized and more drug traffickers are arrested. If demand for drugs is inelastic, what effect would one expect this to have on the total expenditure on drugs? a It would be zero. . b It would increase. . c It would stay constant. . d It would decrease. .
50. A 25 percent decrease in the price of breakfast breakfast cereal leads to a 20 percent increase in the quantity of cereal demanded. What will result? a Total revenue will decrease. . b Total otal rev reven enue ue will will incr increa ease se..
. c The elasticity of demand will decrease. . d The elasticity of demand will increase. .
51. The price elasticity of demand for tickets to local hockey matches is estimated to be equal to 0.89. What would an economist advise in order to boost ticket revenues? a increasing the price of hockey match tickets, because demand is inelastic . b decreasing the price of hockey match tickets, because demand is elastic . c not changing the price of hockey match tickets, because demand is unit . elastic d increasing the price of hockey match tickets, because demand is elastic .
52. A 10 percent decrease in the price of energy bars leads to a 20 percent increase in the quantity of energy bars demanded. What can we conclude from this information? a Demand is elastic and total revenue will increase. . b Demand is inelastic and total revenue will increase. . c Demand is inelastic and total revenue will decrease. . d Demand is unit elastic and total revenue revenue will remain constant. .
FIGURE 5-3
53. Refer to Figure 5-3. Elasticity varies varies along a linear demand curve. What does Graph A represent? a the section of the curve where, starting at P 2, a decrease in price will lead to . an increase in total revenue revenue b the section of the curve where Ed is < 1 . c the section of the curve where the percentage change in quantity is larger . than the percentage change in price
d the section of the curve where the curve is elastic .
54. Refer to Figure 5-3. Elasticity varies along a linear demand curve. What does Graph B represent? a the section of the curve where the curve is inelastic . b the section of the curve where Ed is < 1 . c the section of the curve where, starting at P 1, an increase in price will lead to . an increase in total revenue revenue d the section of the curve where the percentage change in quantity is larger . than the percentage change in price
55. Refer to Figure 5-3. How would price elasticity of demand along a linear demand curve be described? a It is always equal to one. . b It is constant. . c It is more elastic to the northwest than to the southeast. . d It is less elastic to the northwest than to the southeast. . 56. If demand is unit elastic, what is the relationship between revenue and prices? a Revenue falls as price rises. . b Revenue Revenue rises as price falls. . c Revenue and prices rise and fall together. . d Rev Revenue enue remains constant as price rises or falls. .
57. A 10 percent increase in in the price of soda leads to a 20 percent increase increase in the quantity of iced tea demanded. What can we conclude from this information? a The elasticity of demand for iced tea is 2 and is elastic. . b The cross-price elasticity of demand for iced tea is -2. . c The cross-price elasticity of demand for soda is -0.5. . d The elasticity elasticity of demand demand for soda is 0.5 0.5 and and is inelastic. inelastic.
.
58. A 10 percent decrease in the price of potato chips leads to a 30 percent increase in the quantity of soda demanded. What can we conclude from this information? a The elasticity of demand for soda is 3. . b The elasticity of demand for potato chips is 3. . c The cross-price elasticity of demand for soda is -3. . d The cross-price elasticity of demand for potato chips is -3. .
59. If cola and iced tea are good substitutes for consumers, what can we conclude about their elasticity from this information? a Their cross-price elasticities are greater than zero. . b Their income elasticities are less than zero. . c Their price elasticities of supply are less than one. . d Their price elasticities of demand are less than one. .
60. A news report stated that movie attendance was up in the first quarter of 2009 due to the recession. Which of the following might might explain this? a Blockbuster reduced its prices for DVD rentals. . b The cost of making movies increased. . c The price of going to a movie increased. . d Movies are inferior goods. .
61. A 10 percent increase in income leads to a 15 percent decrease in the quantity of macaroni and cheese demanded but no change in the price of macaroni and cheese. What can we conclude from this information? a Macaroni is an inferior good and price elasticity of demand is less than one. . b Macaroni Macaroni is a normal normal good and and price price elasticity elasticity of of demand demand is greater greater than one. one.
. c Macaroni is an inferior good and price elasticity of supply is equal to zero. . d Macaroni is an inferior good and price elasticity of supply is infinite. .
62. How is the elasticity of supply defined? a the percentage change in quantity supplied divided by the percentage change . in price b the total change in quantity supplied divided by the percentage change in . price c the marginal change in quantity supplied divided by the percentage change . in price d the percentage change in quantity supplied divided by the marginal change . in price
63. The elasticity of supply coefficient for lobster lobster is estimated to be equal to 0.6. What would a 10 percent decrease in price lead to? a a 10 percent decrease in the quantity of lobsters supplied . b a 6 percent increase in the quantity of lobsters supplied . c a 6 percent decrease in the quantity of lobsters supplied . d a 10 percent increase in the quantity of lobsters supplied .
64. Ceteris paribus, if an 8 percent increase in price leads to a 6 percent increase in the quantity supplied, how would supply be described? a The supply curve is perfectly vertical. . b Supply is inelastic. . c Supply is elastic. . d Supply is unit elastic. .
65. The price of peanut butter decreases. As a result, the price of jelly (a complement to peanut butter) rises by 5 percent and the quantity of jelly sold rises by 10 percent. What can we conclude from this information? a The cross-price elasticity between peanut butter and jelly equals 0.5. . b The elasticity of demand equals 2.0. . c Th The e elas elasti tici city ty of of supp supply ly eq equa uals ls 2.0 2.0..
. d The cross-price elasticity between peanut butter and jelly equals 2.0. .
66. What term accurately accurately describes supply when the quantity supplied is very responsive responsive to changes in price? a elastic . b independent . c inelastic . d unit elastic . 67. If the measured elasticity of supply coefficient equals 0.6, then what term accurately describes supply? a inelastic . b perfectly elastic . c unit elastic . d elastic . 68. If the measured elasticity of supply coefficient equals 1.3, then what term accurately describes supply? a elastic . b perfectly elastic . c unit elastic . d inelastic .
69. If the supply curve for a product is vertical, then what is the elasticity of supply? a equal to zero . b equal to one . c greater than one, but less than infinity . d equal to infinity .
70. If the supply curve for a product is horizontal, then what is the elasticity of supply? a equal to zero . b equal to one . c greater than one, but less than infinity . d equal to infinity .
71. Ceteris paribus, if a 4 percent increase in price leads to a 6 percent increase in the quantity supplied, then which of the following best describes the supply? a The supply is elastic. . b The supply is unit elastic. . c The supply curve is perfectly vertical. . d The supply is inelastic. . 72. If the supply curve is perfectly elastic, what effect will an increase in demand have? a It will increase the quantity exchanged but result in no change in the price. . b It will increase both the price and the quantity exchanged. . c It will increase the price but result in no change in the quantity exchanged. . d It will decrease the price but result in no change in the quantity exchanged. . 73. If the supply curve for housing is perfectly inelastic, inelastic, how will a reduction in demand affect the equilibrium price and quantity? a The price will rise and the quantity will fall. . b The price will fall and the quantity will fall. . c The price will fall and the quantity will stay the same. . d The price will rise and the quantity will stay the same. .
74. If the supply curve for aspirin is perfectly elastic, what effect will a reduction in demand have on the equilibrium price and equilibrium quantity? a The price will rise and the quantity will fall. . b The price will rise and the quantity will stay the same. . c The price will fall and the quantity will fall. . d The price will stay the same and the quantity will fall. .
75. What is the direction of a perfectly perfectly elastic supply curve? curve? horizontal
a . b vertical . c downward downward sloping to the left . d upward sloping to the right .
76. What is the direction of a perfectly perfectly inelastic supply supply curve? vertical
a . b upward sloping to the right . c horizontal . d downward downward sloping to the left .
77. What tends to happen to the elasticity of supply as the time period considered grows longer? a It remains constant. . b It decreases. . c It converges to zero. . d It increases. .
78. A tax is imposed on orange juice. Under what circumstances will consumers bear the burden from this tax? a when the supply curve for orange juice is unit elastic . b when the supply curve for orange juice is perfectly inelastic . c when the demand for orange juice is perfectly inelastic . d when the demand for orange juice is perfectly elastic .
79. A tax is imposed on wine. Under what circumstances will sellers bear the burden from this tax? a when the demand for wine is perfectly inelastic . b when the demand for wine is perfectly elastic . c when the supply curve for wine is unit elastic . d when the supply curve for wine is perfectly elastic .
80. A tax is imposed on orange juice. Under what circumstance will consumers bear the full burden of this tax? a when the supply curve for orange juice is perfectly inelastic . b when the price elasticity of demand for orange juice equals 1.4 . c when the demand for orange juice is perfectly elastic . d when the demand for orange juice is unit elastic . 81. The demand for gasoline is highly inelastic inelastic and the supply is highly elastic. If a tax is imposed on gasoline, how will it be paid? a largely by the sellers of gasoline . b solely by the sellers . c equally by the sellers and buyers of gasoline . d lar largel gely y by by the the bu buye yers rs of of gaso gasolin line e
.
82. The government government proposes a tax on flowers in order to boost its revenue. revenue. Under what circumstances will consumers bear all of this tax? a when the demand for flowers is perfectly elastic . b when the demand for flowers is perfectly inelastic . c when the supply of flowers is unit elastic . d when the supply of flowers is perfectly inelastic . 83. In order to raise more tax revenue, what type of goods should the government government tax? a goods with unit elastic demand curves over goods with inelastic demand . curves b goods with inelastic demand curves over goods with elastic demand curves . c goods with elastic demand curves over goods with inelastic demand curves . d goods with elastic demand curves over goods with unit elastic demand . curves
