Quiz 05: Elasticity of Demand and Supply
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 the price elasticity of demand is:
-1/3
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 the value of the price elasticity of demand for Pepsi-Cola is:
-3
If price increases from $45 to $55, the market quantity supplied increases from 20 units per week to 30 units per week. The price elasticity of supply is:
2
If the income elasticity of demand for a service is 0.6, then a 5 percent increase in income will generate a _____ in quantity demanded.
3 percent increase
A government-imposed price floor above the market price of milk would increase consumers' expenditures on milk only if _____.
demand is inelastic
A university administration's decision to raise tuition in order to increase revenue will be successful if:
demand is inelastic
If demand is price elastic, total revenue is:
directly related to quantity demanded
If a 5 percent increase in price leads to an 8 percent decrease in quantity demanded, demand is:
elastic
If a price reduction leads to an increase in total revenue, demand is:
elastic
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:
elastic
A normal good is defined as a product for which quantity demanded increases as price decreases.
false
As consumers have a longer time period to respond, the demand for a product typically becomes more inelastic.
false
Cross-price elasticity measures the responsiveness of the price of good A to a change in the price of good B.
false
Elasticity rises as price falls along a linear downward-sloping demand curve.
false
If demand is elastic, a decrease in price leads to a decrease in total revenue.
false
If income rises and the demand for a product remains unchanged, the income elasticity of demand for that product is unit elastic.
false
If the demand curve shifts, but the supply curve does not, and the price remains the same, supply must be perfectly inelastic.
false
The ability of increasing quantity supplied in response to a higher price is identical across industries.
false
Total revenue is maximized where demand is inelastic.
false
A good that is defined broadly has:
fewer substitutes and a less elastic demand
The total revenue curve that corresponds to a downward-sloping linear demand curve:
first rises, then falls
The value of the price elasticity of demand for a good with no close substitutes tends to be:
greater than -1
Demand is inelastic only if the price elasticity of demand has an absolute value:
greater than 0 but less than 1
If demand is unit elastic, a price reduction will:
have no effect on revenues
Luxury goods are:
income elastic
In order to prove that macaroni is an inferior good, we could test the _____ of macaroni and get a _____.
income elasticity, negative number
If people have more time to adjust to a price change, the price elasticity of demand for that good is likely to:
increase
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 demand is:
inelastic
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:
inelastic
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 _____.
inelastic
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:
inelastic
For which of the following is demand most likely to be perfectly inelastic?
insulin
For which of the following products is the consumer's demand curve most likely to be vertical?
insulin, for a diabetic
Inferior goods have an income elasticity of demand that is:
negative
The value of the cross-price elasticity of demand between golf balls and golf clubs is:
negative
A 5 percent increase in income leads to a 10 percent increase in the quantity demanded for a service. This service is a(n) _____ good, and the demand is _____.
normal; elastic
The supply of paintings by Van Gogh is most likely to be:
perfectly inelastic because supply is limited
The cross-price elasticity of demand between milk and soft drinks is likely to be:
positive, because the goods are substitutes.
If Joe says that nothing comes close to a Pepsi, his demand for Pepsi is likely to be:
relatively price inelastic
Another word for elasticity is _____.
responsiveness
A 10 percent increase in the price of root beer causes a 5 percent increase in the quantity demanded of orange soda. This means that:
root beer and orange soda are substitutes
If an increase in price from $1.20 to $2 per unit leads to an increase in quantity supplied from 20 to 100 units, then:
supply is elastic
If an increase in the price of peanut butter causes a decline in the demand for jelly, then:
the goods are complements
If the cross-price elasticity of demand is −3, then:
the goods are complements
Which of the following is assumed to be constant while calculating the price elasticity of demand?
the price of all other products.
The price elasticity of demand for milk when quantity is measured in gallons will be _____ the price elasticity when quantity is measured in quarts.
the same as
Which of the following does not determine a good's price elasticity of demand?
the slope of the demand curve
The price elasticity of demand helps determine the effect of price changes on a firm's:
total output
Suppose the price elasticity of demand for your economics textbook is −1. If the publisher raises the price by 5 percent:
total revenue will not change
If demand is inelastic, the percentage change in price is greater than the resulting percentage change in quantity demanded
true
As price decreases along a linear demand curve, the price elasticity of demand decreases.
true
Both the income elasticity of demand and the cross-price elasticity of demand coefficients can take on negative, zero, or positive values.
true
Price elasticity is 1 at the midpoint of a linear downward-sloping demand curve.
true
Substitutes are pairs of goods that have a positive cross-price elasticity of demand.
true
The demand for firewood is likely to be more elastic in the summer than in the winter.
true
The greater the availability of close substitutes for a product, the greater the price elasticity of demand for that product.
true
The larger the proportion of a consumer's budget that is spent on a product, the more the consumer will demand a substitute.
true
When the cross-price elasticity of demand between two products is positive, the two goods are said to be substitutes.
true
The cross-price elasticity of demand is used to determine whether:
two products are substitutes or complements
If the price elasticity of supply in the kiwi fruit industry equals 1, supply is:
unit elastic
The supply curve for dorm rooms on a university campus is likely to be:
vertical
If the price elasticity of demand is −0.5, then a:
1 percent decrease in price leads to a 0.5 percent increase in quantity demanded.
Which of the following statements is not true?
A linear demand curve with a slope of −4 is a constant-elasticity demand curve.
Identify a statement that is true about a linear demand curve.
Along a linear demand curve, the slope is constant, but the price elasticity varies.
The cross-price elasticity of demand between pancakes and waffles is positive. This indicates all of the following except one. Which is the exception?
The demand for pancakes and the demand for waffles are price elastic.
Which of the following determines a firm's revenue when it changes the price of its product?
The price elasticity of demand for the firm's product
Which of the following is a possible reason for the price elasticity of demand for cigarettes being large for young smokers?
The proportion of income a young smoker spends on cigarettes is usually quite large.
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?
The rush-hour group because its demand for subway service is less elastic than that of the midday group.
Which of the following describes a situation in which demand must be inelastic?
Total revenue increases by more than 10 percent when the price of spats rises by 10 percent.
The price elasticity of demand is typically negative because:
as price decreases, quantity demanded increases.
Luis wonders why commercials appear more frequently at the end of a TV movie than at the beginning. Carol says that this pattern can be explained by the:
availability of substitutes for the TV movie.
In order to prove that Coca Cola and 7-Up are substitutes, one should test the _____ and get a _____.
cross-price elasticity; positive number
When agricultural production increases, the total amount paid for agricultural products tends to:
decrease because demand is price inelastic.
As the economy recovers from a recession, we should expect that the:
demand for inferior goods will fall and the demand for normal goods will rise.
One determinant of the price elasticity of supply is:
how rapidly costs increase when a firm increases its output.
If a firm raises the price of its product, its total revenue will:
increase only if demand is price inelastic.
Elasticity is always _____.
independent of the units of measurement for price and quantity
The demand for flour is:
inelastic because there are few substitutes for flour and it represents a small percentage of a consumer's budget.
An inferior good is:
one that consumers buy less of as their income rises.
Demand is unit elastic whenever
price elasticity has an absolute value of 1.
A successful advertising campaign is most likely to:
reduce the price elasticity of demand by stressing upon the uniqueness of the product.
The cross-price elasticity of demand measures the:
relationship between the demand for one good and the price of another.
The percentage change in the demand for film divided by the percentage change in the price of cameras indicates:
the cross-price elasticity of demand between film and cameras.
Suppose consumers spent $42 million on Christmas trees last year, when the average tree cost was $30. This year they spend $42 million, when the average tree costs $25. Assume that everything else remains constant. This data suggests that:
the demand for trees is unit elastic.
A common determinant of both the price elasticity of demand and the price elasticity of supply for a product is:
the length of the adjustment period considered.
Demand is inelastic if:
the percentage change in price is greater than the percentage change in quantity demanded.
The price elasticity of demand is calculated as:
the percentage change in quantity demanded divided by the percentage change in price.
The price elasticity of demand is defined as:
the percentage change in quantity demanded divided by the percentage change in price.
Unit-elastic demand occurs when:
the price elasticity of demand is exactly 1.
Elasticity measures:
the responsiveness of decision makers to changes in price, income, or other variables.
The supply of a product will be more elastic if:
the time the producer has to adjust to a price change is long.
Along a linear demand curve, as the price increases from zero:
total revenue first increases but eventually decreases.
The demand for Olin skis is likely to be:
unit elastic relative to the demand for skis in general. See 5-2: Determinants of the Price Elasticity of Demand
Which of the following goods will have a higher price elasticity of demand?
a good with many substitutes
A perfectly inelastic demand curve is:
a vertical straight line
A good that takes up a very large percentage of a consumer's budget will tend to have:
an elastic demand
The demand for a good is elastic if:
an increase in price leads to a decrease in total revenue
Income elasticity of demand is greater than zero for all of the following except:
beer
Demand for a necessity, such as food, is:
both income and price inelastic
The price elasticity of demand is useful because it measures the responsiveness of _____ to changes in _____.
consumers; price
