Chapter 4- Elasticity

Practice Questions

MULTIPLE CHOICE.  Choose the one alternative that best completes the statement or answers the question.

1) The price elasticity of demand is a measure of: 1)

A) the change in quantity demanded of a good that results from a change in its price.
B) how consumers respond to excess demand.
C) the change in price of a good that results from a change in its quantity demanded.
D) the demand for a good.

2) When calculating price elasticity of demand, if the percentage change in price is 2)

negative, then the percentage change in quantity demanded is typically:
A) greater than one. B) negative.
C) less than one. D) positive.

3) The price elasticity of demand is typically expressed as a positive number because: 3)

A) it's convenient to use absolute values.
B) both the numerator and the denominator are negative, so the formula yields a
positive number.
C) price and quantity move in the same direction.
D) the demand curve has a positive slope.

4) If the price of textbooks increases by one percent and the quantity demanded falls by 4)
one-half percent, then demand for textbooks is:
A) elastic. B) negative. C) inelastic. D) unit elastic.

5) If the absolute value of the price elasticity of demand for tickets to a football game is 5)
2, then if the price increases by 1%, quantity demanded decreases by:
A) 1%. B) 2%. C) ½%. D) 4%.

6) If 20% increase in the price of a good leads to a 60% decrease in the quantity 6)
demanded, then what is the price elasticity of demand?
A) 1/6. B) 1/3. C) 30. D) 3.

7) If the price elasticity of demand for pineapples is 0.75, then a 4% increase in the 7)
price of pineapples will lead to a:
A) 0.75% increase in the quantity of pineapples demanded.
B) 0.75% decrease in the quantity of pineapples demanded.
C) 3% decrease in the quantity of pineapples demanded.
D) 3% increase in the quantity of pineapples demanded.

8) The demand for a good is elastic if the price elasticity of demand is: 8)
A) greater than one. B) less than one.
C) equal to one. D) equal to zero.

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 9) The demand for a good is inelastic with respect to price if the price elasticity of 9)
demand is:
A) less than one. B) equal to one.
C) equal to negative one. D) greater than one.

10) If the percentage change in the price of a good is less than the resulting percentage 10)
change in the quantity demanded of that good, then the demand for that good is:
A) unit elastic. B) perfectly inelastic.
C) inelastic. D) elastic.

11) If consumers respond to a 10% price reduction by buying twice as much of a 11)
particular good, we would conclude that:
A) the price elasticity of demand at the original price was greater than one.
B) the price elasticity of demand at the original price was less than one.
C) there was excess demand at the original price.
D) there was excess supply at the original price.

12) If consumers cannot readily switch to a close substitute when the price of a good 12)
increases, the demand for that good is likely to be:
A) elastic. B) perfectly elastic.
C) unit elastic. D) inelastic.

13) Suppose the price of a Snickers candy bar is $2.00 at both the airport and the grocery 13)
store. The price elasticity of demand for a Snickers candy bar at an airport is likely to
be ________ the price elasticity of demand for a Snickers candy bar at the grocery
store.
A) equal to B) greater than
C) less than D) the reciprocal of

14) Demand tends to be ________ in the short run than in the long run. 14)
A) more variable B) less important C) less elastic D) more elastic

15) Assume the price of gasoline doubles tonight and remains at that price for the next 15)
two years. Compared with the long-run price elasticity of demand for gasoline, the
short-run price elasticity of demand for gasoline will be ________.
A) more variable B) the same C) lower D) higher

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16) Economists have found that the price elasticity of demand for water is higher in the 16)
summer than in the winter. Why is this likely to be so?
A) Winter is longer than summer, and price elasticity is lower over longer time
horizons.
B) People take more vacations in the summer and so use less water at home.
C) Winter water use tends to be for necessities such as cleaning and cooking, and
summer water use tends to be for both necessities and non-necessities such as
gardening and recreation.
D) Summer is longer than winter, and price elasticity is higher over longer time
horizons.

17) If
demand is ________ with respect to price, a price increase will ________ total 17)
revenue.
A) elastic; increase B) inelastic; increase
C) inelastic; decrease D) unit elastic; decrease

18) To increase total revenue, firms with ________ demand should lower price, and 18)
firms with ________ demand should increase price.
A) unit; inelastic B) elastic; inelastic
C) inelastic; elastic D) elastic; unit

19) Suppose that a new drug has been approved to treat a life-threatening disease. The 19)
demand for that drug is shown on the graph below. Prior to approval of this drug, the
only treatment for this condition was any one of several non-prescription, or
over-the-counter, pain relievers. The demand for one brand of the several
non-prescription pain relievers is also shown on the graph.

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 Demand for the new drug is ________ while demand for one brand of the
over-the-counter pain relievers is ________.
A) the horizontal line at $60; the line labeled B
B) the line labeled B; the line labeled A
C) the line labeled A; the line labeled B
D) the vertical line at 100; the line labeled A

20) Suppose that a new drug has been approved to treat a life-threatening disease. The 20)
demand for that drug is shown on the graph below. Prior to approval of this drug, the
only treatment for this condition was any one of several non-prescription, or
over-the-counter, pain relievers. The demand for one brand of the several
non-prescription pain relievers is also shown on the graph.

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 The manufacturer of the new drug would ________ total revenue by increasing the
price from $15 to $16.
A) experience an uncertain change in B) experience no change in
C) increase D) decrease

21) If
the demand for electricity is inelastic, then if the local utility wants to increase its 21)
total revenue, it should ________ its price.
A) not change B) lower
C) frequently change D) raise

22) The responsiveness of the quantity demanded of one good to a change in the price of 22)
a different good is measured by the:
A) income elasticity of demand. B) price elasticity of supply.
C) price elasticity of demand. D) cross-price elasticity of demand.

23) If cross-price elasticity of demand between two goods is positive, the two goods are: 23)
A) substitutes. B) normal. C) complements. D) inferior.

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24) If the income elasticity for a particular good is negative, then: 24)
A) the good is a normal good.
B) the good is a luxury good.
C) as income increases, consumers will tend to purchase less of the good.
D) as income increases, consumers will tend to purchase more of the good.

25) The percentage change in quantity supplied that results from a 1 percent change in 25)
price is known as the:
A) slope of the supply curve. B) cross-price elasticity of demand.
C) cross-price elasticity of supply. D) price elasticity of supply.

26) If
a one percent increase in the price of oranges leads to a five percent increase in the 26)
quantity supplied, the price elasticity of supply for oranges is ________.
A) 5 B) 1/2 C) 2 D) 1/5