Ch 6 Elasticity

The supply of product X is perfectly inelastic if the price of X rises by:

10 percent and the quantity supplied stays the same.

Refer to the above diagrams. In which case would the coefficient of income elasticity be positive?

A (quantity demanded and Income; increase)

Refer to the above data. The price elasticity of demand is relatively elastic:

A. in the $6-$4 range

Refer to the above table. Over the $8-$6 price range, supply is:

A. inelastic

Which of the following is correct?

C. If demand is elastic, a decrease in price will increase total revenue

An anti drug policy which reduces the supply of heroin might:

increase street crime because the addicts demand for heroin is highly inelastic.

If the income elasticity of demand for lard is -3.00, this means that:

C. lard is an inferior good.

Suppose that the price of product X rises by 20 percent and the quantity supplied of X increases by 15 percent. The coefficient of price elasticity of supply for good X is:

C. less than 1 and therefore supply is inelastic.

(price lower by one, quantity demanded increase by one) Refer to the above data. If this demand schedule were graphed, we would find that

C. Its slope is constant throughout

The supply of product X is elastic if the price of X rises by:

A. 5 percent and quantity supplied rises by 7 percent.

Refer to the above data. Which of the following is correct?

A. Although the slope of the demand curve is constant, price elasticity declines as we move from high to low price ranges.

Refer to the above diagram. If price falls from P1 to P2, total revenue will become area(s):

A. B+D.

Refer to the above diagram. Between prices of $5.70 and $6.30:

A. D1 is more elastic than D2

If the price of hand calculators falls from $10 to $9 and, as a result, the quantity demanded increases from 100 to 125, then:

A. Demand is elastic

The above diagram shows two product demand curves. On the basis of this diagram we can say that:

A. Over range P1P2 price elasticity of demand is greater for D1 than for D2.

Suppose the price elasticity coefficients of demand are 1.43, 0.67, 1.11, and 0.29 for products W, X, Y, and Z respectively. A 1 percent decrease in price will increase total revenue in the cases of

A. W and Y.

Suppose the income elasticity of demand for toys is +2.00. This means that:

A. a 10 percent increase in income will increase the purchase of toys by 20 percent.

For an increase in demand, the price effect is smallest and the quantity effect is largest:

B. in the long-run.

Suppose that as the price of Y falls from $2.00 to $1.90 the quantity of Y demanded increases from 110 to 118. The price elasticity of demand is

C. 1.37

A supply curve that is vertical straight line indicates that:

C. a change in price will have no effect on quantity supplied.

Refer to the above information. Over the $11-$9 price range, demand is:

C. elastic

Suppose the price of a product rises and the total revenue of sellers increases.

D. No conclusion can be reached with respect to the elasticity of supply.

Which of the following goods (with their respective income elasticity coefficients in parentheses) will most likely suffer a decline in demand during a recession?

D. Plasma screen and LCD TVs (+4.2)

(Vertical line; price of X, quantity demanded of Y) The above diagram suggests that:

D. X and Y are independent goods.

A supply curve that is parallel to the horizontal axis suggests that:

D. a change in demand will change the equilibrium quantity but not price.

We would expect the cross elasticity of demand between dress shirts and ties to be:

D. negative, indicating complementary goods.

Assume that a 4 percent increase in income across the economy produces an 8 percent increase in the quantity demanded of good X. The coefficient of income elasticity of demand is:

D. positive and therefore X is a normal good.

The formula for cross elasticity of demand is percentage change in

quantity demanded of X/percentage change in price of Y.

Studies of the minimum wage suggest that the price elasticity of demand for teenage workers is relatively inelastic. This means that:

A. an increase in the minimum wage would increase the total incomes of teenage workers as a group

Assume that a 3 percent increase in income across the economy produces a 1 percent decline in the quantity demanded of good X. The coefficient of income elasticity of demand for good X is:

A. negative and therefore X is an inferior good.

The supply curve of antique reproduction is

A. relatively elastic

Cross elasticity of demand measures how sensitive purchases of a specific product are to changes in:

A. the price of some other product.

Refer to the above information. If the Mudhens' management wanted to maximize total revenue from the game, it would set the ticket price at:

B. $7

Which type of goods is most adversely affected by recessions?

B. Goods for which the income elasticity coefficient is relatively high and positive.

If the supply of product X is perfectly elastic, an increase in the demand for it will increase:

B. equilibrium quantity but equilibrium price will be unchanged.

The larger the positive cross elasticity coefficient of demand between products X and Y, the

B. greater their substitutability.

Refer to the above data. Suppose quantity supplied declined by 23 units at each price, changing the equilibrium price in a direction and amount for you to determine. Over that price range, demand is:

B. inelastic

Supply curves tend to be:

B. more elastic in the long-run because there is time for firms to enter or leave the industry.

Suppose that a 20 percent increase in the price of normal good Y causes a 10 percent decline in the quantity demanded of normal good X. The coefficient of cross elasticity of demand is:

B. negative and therefore these goods are compliments

The supply of know Monet paintings is:

B. perfectly inelastic.

Studies show that demand for gasoline is:

B. price inelastic in both the short and long run.

Compared to coffee, we would expect the cross elasticity of demand for

B. tea to be positive, but negative for cream.

Refer to the above diagrams. In which case would the coefficient of cross elasticity of demand be negative?

C (price of A and quantity of B demanded; decrease)

Refer to the above information and assume the stadium capacity is 5,000. If the Mudhens' management wanted a full house for the game, it would:

C. set ticket prices at $5.

The above diagram concerns supply adjustments to an increase in demand (D1 to D2) in the immediate market period, the short run, and the long run. On the basis of this illustration we can conclude that:

C. supply is more elastic the greater the amount of time producers have to adjust to a change in demand.

An increase in demand will increase equilibrium price to a greater extent

C. the less elastic the supply curve.

The narrower the definition of a product:

A. the larger the number of substitutes and the greater the price elasticity of demand.

The price of old baseball cards rises rapidly and increases in demand because

A. the supply of old baseball cards is price inelastic.

Refer to the above diagrams. In which case would the coefficient of income elasticity be negative?

B (quantity demanded and income; decrease)

Refer to the above diagrams. The case of an inferior good is represented by figure:

B (quantity demanded and income; decrease)

Which of the following generalizations is not correct?

B. The price elasticity of demand is greater for necessities than it is for luxuries. (false)

The main determinant of elasticity of supply is the

B. amount of time the producer has to adjust inputs in response to a price change.

A perfectly inelastic demand schedule

B. can be represented by a line parallel to the vertical axis

The price elasticity of demand for beef is about 0.60. Other things equal, this means that a 20 percent increase in the price of beef will cause the quantity of beef demanded to

B. decrease by approx 12 percent

If the demand for farm products is price inelastic, a good harvest will cause farm revenues to:

B. decrease.

If a demand for a product is elastic, the value of the price elasticity coefficient is

B. greater than one

The basic formulate for the price elasticity of demand coefficient is

B. percentage change in quantity demanded/ percentage change in price

A demand curve which is parallel to the horizontal axis is

B. perfectly elastic

A firm can sell as much as it wants at a constant price. Demand is thus

B. perfectly elastic

Other things the same, if a price change causes total revenue to change in the opposite direction, demand is

B. relatively elastic.

The price elasticity of supply measures how

B. responsive the quantity supplied of X is to the changes in the price of X.

We would expect:

B. the demand for Coca-Cola to be more price elastic than the demand for soft drinks in general.

Suppose that the price of peanuts falls from $3 to $2 per bushel and that, as a result, the total revenue received by peanut farmers changes from $16 to $14 billion. Thus:

B. the demand for peanuts is inelastic.

The elasticity of demand for a product is likely to be greater:

B. the greater the amount of time over which buyers adjust to price changes.

The more time consumers have to adjust to a change in price:

B. the greater will be the price elasticity of demand.

It takes a considerable amount of time to increase the production of pork. this implies that:

B. the short-run supply curve for pork is less elastic than the long-run supply curve for pork.

When the percentage change in price is greater than the resulting percentage change in quantity demanded

C. an increase in price will increase total revenue

If a firm's demand for labor is elastic, a union-negotiated wage increase will:

C. cause the firm's total payroll to decline.

Refer to the above information. Over the $9-$7 price range, demand is:

C. elastic

The supply curve of a one-of-a-kind original painting is

C. perfectly inelastic.

Suppose that a 10 percent increase in the price of normal good Y causes a 20 percent increase in the quantity demanded of normal good X. The coefficient of cross elasticity of demand is:

C. positive and therefore these goods are substitutes.

in which of the following cases will total revenue increase?

C. price rises and demand is inelastic.

(Straight-line demand curve) Refer to the above diagram. In the P1P2 price range demand is:

C. relatively elastic

The demand for a necessity whose cost is a small portion of one's total income is:

C. relatively price inelastic.

If a firm can sell 3,000 units of a product A at $10 per unity and 5,000 at $8, then

C. the price elasticity of demand is 2.25

We would expect the cross elasticity of demand for Pepsi to be greater in relation to other soft drinks than that for soft drinks in general because:

C. there are fewer good substitutes for soft drinks as a whole than for Pepsi specifically.

Refer to the above information and assume the stadium capacity is 5,000. If the Mudhens' management charges $7 per ticket:

C. there will be 1,000 empty seats.

152. Which of the following goods will least likely suffer a decline in demand during a recession?

C. toothpaste

Most demand curves are relatively elastic in the upper left portion because the original price

D. from which the percentage price change is calculated is large and the original quantity from which the percentage change in quantity is calculated is small.

The above diagram concerns supply adjustments to an increase in demand (D1 to D2) in the immediate market period, the short run, and the long run. In the long run the increase in demand will:

D. increase both equilibrium price and quantity

If the price elasticity of demand for a product is unity, a decrease in price will

D. increase the quantity demanded, but total revenue will be unchanged.

Refer to the above diagram which is a rectangular hyperbola, that is, a curve such that each rectangle drawn from any point on the curve will be of identical area. If this rectangular hyperbola was a demand curve, we could say that it would be:

D. of unit elasticity throughout.

Assume that a 6 percent increase in income in the economy produces a 3 percent increase in the quantity demanded of good X. The coefficient of income elasticity of demand is:

D. positive and therefore X is a normal good.

In which of the following instances will total revenue decline?

D. price rises and demand is elastic.

If price and total revenue vary in opposite directions, demand is

D. relatively elastic.

Gigantic State University raises tuition for the purpose of increasing its revenue so that more faculty can be hired. GSU is assuming that the demand for education at GSU is:

D. relatively inelastic.

The concept of price elasticity of demand measures

D. the sensitivity of consumer purchases to price changes

Suppost the supply of product X is perfectly inelastic. If there is an increase in the demand for this product, equilibrium price:

D. will increase, but equilibrium quantity will be unchanged.

We would expect the cross elasticity of demand between pepsi and Coke to be

positive, indicating substitute goods.

The Illinois Central Railroad once asked the Illinois Commerce Commission for permission to increase its commuter rates by 20 percent. The railroad argued that declining revenues made this rate increase essential. Opponents of the rate increase contended that the railroad's revenues would fall because of the rate hike. It can be concluded that:

the railroad felt that the demand for passenger service was inelastic and opponents of the rate increase felt it was elastic.

Refer to the above diagrams. The case of complementary goods is represented by figure:

C (price of A and quantity of B demanded; decrease)

Refer to the above information. Over the $7-$5 price range, demand is

D. inelastic

Refer to the above diagrams. The case of a normal good is represented by figure:

A (quantity demanded and Income; increase)

n which price range of the accompanying demand schedule is demand elastic?

A. $4-$3

Refer to the above diagram and assume that price increases from $2 to $10. The coefficient of price elasticity of demand (midpoint formula) relating to this change in price is about:

A. .25 and demand is inelastic.

The price elasticity of demand coefficient measures

A. buyer responsiveness to price changes

The demand for a product is inelastic with respect to price if

A. consumers are largely unresponsive to a per unit price change

The price elasticity of demand of a straight line demand curve is

A. elastic in high-price ranges and inelastic in low-price ranges

Price elasticity of demand is generally

A. greater in the long run than in the short run

Suppose that the above total revenue curve is derived from a particular linear demand curve. That demand curve must be:

A. inelastic for price declines that increase quantity demanded from 6 units to 7 units

The demand for autos is likely to be

A. less price elastic than the demand for Honda Accords.

The price elasticity of demand is generally

A. negative, but the minus sign is ignored.

The above diagram shows two product supply curves. It indicates that:

A. over range Q1Q2 price elasticity of supply is greater for S1 than for S2.

If quantity demanded is completely unresponsive to price changes, demand is

A. perfectly inelastic

A manufacturer of frozen pizzas found that total revenue decreased when price was lowered from $5 to $4. It was also found that total revenue decreased when price was raised from $5 to $6. Thus,

A. the demand for pizza is elastic above $5 and inelastic below $5.

If a firm finds that it can sell $13,000 worth of a product when its price is $5 per unit and $11,000 worth of it when its price is $6, then:

A. the demand for the product is elastic in the $6-$5 price range

Suppose the price of local cable TV service increased from $16.20 to $19.80 and as a result the number of cable subscribers decreased from 224,000 to 176,000. Along this portion of the demand curve, price elasticity of demand is:

B. 1.2

Suppose the price elasticity of demand from bread is 0.20. If the price of bread falls by 10 percent, the quantity demanded will increase by

B. 2 percent and total expenditures on bread will fall.

The elasticity of supply of product X is unitary if the price of X rises by

B. 8 percent and quantity supplied rises by 8 percent.

Refer to the above diagram. Total revenue at price P1 is indicated by area(s):

B. A+B.

If the demand for product X is inelastic, a 4 percent increase in the price of X will

B. Decrease the quantity of X Demanded by less than 4 percent.

Which of the following is correct?

B. If the demand for a product is inelastic, a change in price will cause total revenue to change in the same direction.

Which of the following statements is not correct?

B. In the range of prices in which demand is elastic, total revenue will diminish as price decreases.

Refer to the above diagram and assume a single good. If the price of the good decreases from $6.30 to $5.70, consumer expenditure would:

B. decrease if demand were D2 only.

Suppose we find that the price elasticity of demand for a product is 3.5 when its price is increased by 2 percent. we can conclude that quantity demanded

B. decreased by 7 percent.

The state legislature has cut Gigantic State University's appropriations. GSU's Board of Regents decides to increase tuition fees to compensate for the loss of revenue. The board is assuming that the:

B. demand for education at GSU is inelastic.

Refer to the above data. The price elasticity of demand is unity:

B. in the $4-$3 price range only.

The above diagram concerns supply adjustments to an increase in demand (D1 to D2) in the immediate market period, the short run, and the long run. In the immediate market period the increase in demand will:

B. increase equilibrium price, but not equilibrium quantity.

If the demand for bacon is relatively elastic, a 10 percent decline in the price of bacon will

B. increase the amount demanded by more than 10 percent

Refer to the above diagram. In the P3P4 price range demand is:

B. relatively inelastic

Refer to the above diagram and assume that price increases from $2 to $10. The coefficient of the price elasticity of supply (midpoint formula) relating to this price change is about:

C. .25 and supply is inelastic.

Refer to the above diagram and assume a single good. If the price of the good increased from $5.70 to $6.30 along D1, the price elasticity of demand along this portion of the demand curve would be:

C. 1.2

Suppose Aiyanna's Pizzeria currently faces a linear demand curve and is charging a very high price per pizza and doing very little business. She now decides to lower pizza prices by 5 percent per week for an indefinite period of time. We can expect that each successive week

C. demand will become less price elastic.

The total-revenue test for elasticity

C. does not apply to supply because price and quantity are directly related.

A perfectly inelastic demand curve

C. graphs as a line parallel to the vertical axis

Refer to the above data. The price elasticity of demand is relatively inelastic:

C. in the $3-$1 price range

If the price elasticity of demand for a product is 2.5, then a price cut from $2.00 to $1.80 will

C. increase the quantity demanded by about 25 percent

If the University Chamber Music Society decides to raise ticket prices to provide more funds to finance concerts, the Society is assuming that the demand for tickets is:

C. inelastic

Refer to the above information and assume the stadium capacity is 5,000. The supply of seats for the game:

C. is perfectly inelastic.

Refer to the above table. Over the $10-$8 price range, the elasticity coefficient of supply is:

C. less than 1.

The above diagram concerns supply adjustments to an increase in demand (D1 to D2) in the immediate market period, the short run, and the long run. Supply curves S1, S2, and S3 apply to the:

C. long run, short run, and immediate market period respectively.

The demand schedules for such products as eggs, bread, and electricity tend to be

C. relatively price inelastic.

Farmers often find that large bumper crops are associated with declines in their gross incomes. This suggests that:

C. the price elasticity of demand for farm products is less than 1.

Suppose the above total revenue curve is derived from a particular linear demand curve. That demand curve must be:

C. unit elastic for price increases that reduce quantity demanded from 5 units to 4 units.

Refer to the above diagrams. In which case would the coefficient of cross elasticity of demand be positive?

D (Price of C and Quantity of E Demanded; increase)

Refer to the above diagrams. The case of substitute goods is represented by figure:

D (Price of C and Quantity of E Demanded; increase)

Refer to the above diagram and assume that price decreases from $10 to $2. The coefficient of the price elasticity of supply (midpoint formula) relating to this price change is about:

D. .25 and supply is inelastic.

The price elasticity of demand for widgets is 0.80. Assuming no change in demand curve for widgets a 16 percent increase in sales implies a

D. 20 percent reduction in price.

The supply of product X is inelastic (but not perfectly inelastic) if the price of X rises:

D. 7 percent and quantity supplied rises by 5 percent.

Which of the following is not a characteristic of the demand for a commodity that is elastic?

D. The elasticity coefficient is less than one.

For a linear demand curve

D. demand is elastic at high prices

Suppose the above total revenue curve is derived from a particular linear demand curve. That demand curve must be:

D. elastic for price increases that reduce quantity demanded from 4 units to 3 units.

Refer to the above diagram. If price falls from $10 to $2, total revenue:

D. falls from A+B to B+C and demand is inelastic.

Refer to the above diagram. The decline in price from P1 to P2 will:

D. increase total revenue by D-A.

Refer to the above data. Suppose quantity demanded increased by 12 units at each price, changing the equilibrium price in a direction and an amount for you to determine. Over that price range, supply is:

D. inelastic.

Refer to the above table. Over the $6-$4 price range, supply is

D. inelastic.

the price of product X is reduced from $100 to $90 and, as a result, the quantity demanded increases from 50 to 60 units. Therefore demand for X in this price range

D. is elastic

A leftward shift in the supply curve of a product X will increase equilibrium price to a greater extent the

D. more inelastic the demand for the product.

The demand for a luxury good whose purchase would exhaust a big portion of one's income is:

D. relatively price elastic.

Refer to the above diagram which is a rectangular hyperbola, that is, a curve such that each rectangle drawn from any point on the curve will be of identical area. In comparing the price elasticity and the slope of this demand curve we can conclude that the:

D. slope of the curve varies, but its elasticity is constant.

The larger the coefficient of price elasticity of demand for a product, the

D. smaller the resulting price change for an increase in supply.

Refer to the above diagram. In the P1 to P2 price range, we can say:

D. that demand is elastic with respect to price.