Economics, 5e: Elasticity

Elasticity

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1. Which of the following offers the best description of price elasticity of demand?: a. A measure of the responsiveness of quantity demanded to a change in the price of a substitute.
b. A measure of the responsiveness of quantity demanded to a change in consumer income.
c. The percentage change in quantity demanded divided by the percentage change in price.
d. A measure of the responsiveness of quantity demanded to changes in price.
e. Both (c) and (d) are correct.

2. Fill in the blank: A coefficient of 3 for the price elasticity of demand means that ________________.: a. a 30 percent increase in price will lead to a 10 percent decrease in quantity demanded.
b. a 10 percent reduction in price will lead to a 30 percent decrease in quantity demanded.
c. a 10 percent reduction in price will lead to a 30 percent increase in quantity demanded.
d. a 30 percent decrease in price will lead to a 10 percent increase in quantity demanded.

3. Suppose that Jeron buys 35 quarts of sparkling water each month when the price per quart is $1, while when sparkling water goes on sale for $0.60 he buys 45 quarts each month. Using the midpoint formula, what is Jeron's price elasticity of demand for sparkling water?: a. 0.25.
b. 0.50.
c. 0.75.
d. 1.00.

4. Fill in the blank: If instead of using the midpoint formula we use the initial value as the base value when computing percentage changes, then ___________.: a. we will get a more accurate measure of elasticity that will not vary based on whether price is rising or falling.
b. we will always end up with an elasticity coefficient that is larger than when the midpoint formula is used.
c. we will always end up with an elasticity coefficient that is smaller than when the midpoint formula is used.
d. we will get a less accurate measure of elasticity because we will get a different numerical value for a price increase than for a price decrease.

5. If the quantity demanded of broccoli sprouts rises 20 percent when the price of broccoli sprouts declines 10 percent, then the price elasticity of demand is:: a. 0.2.
b. 1.
c. 2
d. -10

6. Fill in the blanks: When the price elasticity of demand falls in the range between 0 and 1.0, that portion of the demand curve is said to be ___________. When the price elasticity of demand equals 1.0, that portion of the demand curve is said to be _________. When the price elasticity of demand is more than 1.0, that portion of the demand curve is said to be ___________.: a. elastic, unitary elastic, inelastic.
b. inelastic, unitary elastic, elastic.
c. cross elastic, price elastic, income elastic.
d. None of the above.

7. Which of the following is the term used to describe that portion of a demand curve in which the percentage change in quantity demanded is less than the corresponding percentage change in price?: a. Inelastic.
b. Elastic.
c. Unit elastic.
d. Perfectly elastic.

8. Fill in the blank: A(n) _________ demand curve is perfectly elastic.: a. downward-sloping.
b. vertical.
c. horizontal.
d. upward-sloping.

9. Fill in the blank: Suppose that when Janie lowers the price of her lemonade from $1 to $0.75 per cup, her total revenue from selling lemonade rises. Based on this information, we can conclude that the price elasticity of demand for Janie's lemonade is _________.: a. inelastic.
b. elastic.
c. unit elastic.
d. perfectly inelastic.

10. Which portion of a straight-line demand curve has the lowest price elasticity of demand?: a. The top part.
b. The middle part.
c. The bottom part.
d. None of the above. Elasticity is constant along a straight-line demand curve.

11. Which of the following factors tends to be associated with goods having a highly (price) elastic demand curve?: a. A very short time period for consumers to respond to price changes.
b. Many close substitutes.
c. A per-unit price that is a very small percentage of most people's budget.
d. Few close substitutes.

12. Which of the following goods is most likely to have an elastic demand in the short run?: a. Residential electricity service.
b. Gasoline.
c. Milk.
d. Wheat grown by farmer Brown.

13. Suppose that the price of each of the goods listed below rises by 25 percent. Which of them is most likely to experience less than a 25 percent decrease in quantity demanded?: a. Imported sport utility vehicles.
b. Meals at fancy French restaurants.
c. Italian designer clothing.
d. Table salt.

14. Which set of goods is most likely to have the larger cross elasticity of demand: Coke and Pepsi, computer hardware and computer software, lawn mowers and gasoline, or cough drops and house paint?: a. Coke and Pepsi.
b. Computer hardware and computer software.
c. Lawn mowers and gasoline.
d. Cough drops and house paint.

15. Suppose that jamma lamma and bora butter are related products on the planet Ork. It is observed that when the price of jamma lamma falls (due to the cyclical nature of the jamma lamma harvest), the quantity of bora butter demanded quickly rises. Which of the following can we conclude is true based on this information?: a. Jamma lamma and bora butter are substitutes.
b. Jamma lamma and bora butter are complements.
c. Jamma lamma and bora butter are both luxury goods.
d. Jamma lamma and bora butter are both inferior goods.

16. Which of the following is most likely to have a negative income elasticity of demand?: a. Day-old bakery goods at a discount bakery.
b. Luxurious overseas vacations.
c. Fancy restaurant meals.
d. New cars.

17. Which is most likely to have an income elasticity greater than 0 and less than 1?: a. Food.
b. Fine wine.
c. Used underwear sold at the Salvation Army.
d. Resort ski vacations.

18. Fill in the blank: The _________ measures the responsiveness of quantity supplied to changes in price.: a. price elasticity of demand.
b. cross elasticity of demand.
c. income elasticity of demand.
d. price elasticity of supply.

19. Suppose that the price of a good increases by 50 percent. In which of the following time periods is the resulting increase in quantity supplied most likely to be smallest?: a. Immediately after the price increase.
b. Six months after the price increase.
c. One year after the price increase.
d. Two years after the price increase.

20. Suppose California imposes a 50 cents per pack tax on cigarettes. The demand curve for cigarettes is almost perfectly inelastic, while the supply curve for cigarettes is elastic. Who will most likely pay the tax?: a. The state of California.
b. The tobacco companies and cigarette smokers will equally share the payment of the tax.
c. Cigarette smokers will pay most of the tax in the form of higher cigarette prices.
d. Tobacco companies will pay most of the tax in the form of reduced profits.