Ch4 Complete Test Bank Subtleties Of The Supply And Demand - Principles of Macroeconomics -Complete Test Bank by Taylor. DOCX document preview.
Chapter 4
Subtleties of the Supply and Demand Model
Multiple Choice
- A price ceiling is
a. | the minimum allowable price set by government, and it causes a surplus if effective. |
b. | the maximum allowable price set by government, and it causes a shortage if effective. |
c. | the equilibrium price. |
d. | the maximum allowable price set by government, and it causes a surplus if effective. |
e. | the minimum allowable price set by government, and it causes a shortage if effective. |
OBJ: factual
SEC: 1. Interference with Market Prices
TOP: Price Ceiling
MSC: Bloom's: Knowledge
- A price floor is
a. | a minimum allowable price set by government, and it causes a surplus if effective. |
b. | the equilibrium price. |
c. | a minimum allowable price set by government, and it causes a shortage if seffective. |
d. | a maximum allowable price set by government, and it causes a shortage if effective. |
e. | a maximum allowable price set by government, and it causes a surplus if effective. |
OBJ: factual
SEC: 1. Interference with Market Prices
TOP: Price Floor
MSC: Bloom's: Knowledge
- The minimum wage is an example of
a. | price floor. |
b. | price ceiling. |
c. | market equilibrium. |
d. | restriction on quantity. |
e. | price elasticity. |
OBJ: factual
SEC: 1. Interference with Market Prices
TOP: Price Floor
MSC: Bloom's: Knowledge
- Rent control for apartments in New York City is an example of
a. | price floor. |
b. | price ceiling. |
c. | market equilibrium. |
d. | restriction on quantity. |
e. | freely determined price. |
OBJ: factual
SEC: 1. Interference with Market Prices
TOP: Price Ceiling
MSC: Bloom's: Knowledge
- All of the following are forms or examples of price control except
a. | a price ceiling. |
b. | free market interactions. |
c. | the minimum wage. |
d. | rent control. |
e. | a price floor. |
OBJ: factual
SEC: 1. Interference with Market Prices
TOP: Price Control
MSC: Bloom's: Analysis | AACSB: Analytic
- If price gouging is prohibited by the government so that sellers cannot suddenly raise prices, then a sudden drop in gasoline supply due to bad weather will most likely result in
a. | an equilibrium in the gasoline market. |
b. | a surplus in the gasoline market. |
c. | a shortage in the gasoline market. |
d. | a sudden increase in the quantity demanded of gaslone. |
e. | a sudden decrease in gasoline prices. |
OBJ: conceptual
SEC: 1. Interference with Market Prices
TOP: Price Ceiling
MSC: Bloom's: Analysis | AACSB: Analytic
- Which of the following often occurs as a result of a price ceiling?
a. | More of a product is produced than people are willing to buy. |
b. | The product becomes unavailable. |
c. | Consumers wanting to buy the product form long lines. |
d. | Low-income people find it harder to obtain the product. |
e. | Black markets for the product disappear. |
OBJ: conceptual
SEC: 1. Interference with Market Prices
TOP: Price Ceiling
MSC: Bloom's: Analysis | AACSB: Analytic
- A price ceiling would result in a(n)
a. | surplus. |
b. | shortage. |
c. | increase in equilibrium price. |
d. | decrease in equilibrium price. |
e. | increase in quantity supplied. |
OBJ: conceptual
SEC: 1. Interference with Market Prices
TOP: Price Ceiling
MSC: Bloom's: Knowledge
- A price floor would result in a(n)
a. | surplus. |
b. | shortage. |
c. | increase in equilibrium price. |
d. | decrease in equilibrium price. |
e. | shift of the demand curve to the right. |
OBJ: conceptual
SEC: 1. Interference with Market Prices
TOP: Price Floor
MSC: Bloom's: Knowledge
- Which of the following statements about price ceilings is ?
a. | Quality often suffers when a price ceiling is imposed. |
b. | Rent control is an example of a price ceiling. |
c. | Poor people will always be able to buy more of the product than if the price ceiling did not exist. |
d. | Price ceilings result in shortages. |
e. | Just as a producer is not allowed to sell a good for more than the price ceiling, it is illegal for a consumer to pay more than the price ceiling. |
OBJ: conceptual
SEC: 1. Interference with Market Prices
TOP: Price Ceiling
MSC: Bloom's: Analysis | AACSB: Analytic
/
- A price ceiling is typically set below the equilibrium price.s
Basic
OBJ: conceptual
SEC: 1. Interference with Market Prices
TOP: Price Ceiling
MSC: Bloom's: Knowledge | AACSB: Analytic
- If a price ceiling is imposed on a good, then a shortage for that good will occur.
Moderate
OBJ: conceptual
SEC: 1. Interference with Market Prices
TOP: Price Ceiling
MSC: Bloom's: Knowledge | AACSB: Analytic
- One of the results of a price ceiling is a decline in the quality of the good sold.
Moderate
OBJ: factual
SEC: 1. Interference with Market Prices
TOP: Price Ceiling
MSC: Bloom's: Analysis | AACSB: Analytic
Multiple Choice
- Which of the following statements about the minimum wage is ?
a. | The minimum wage causes a shortage of unskilled labor. |
b. | The minimum wage is an example of a price floor. |
c. | The minimum wage increases unemployment among unskilled workers. |
d. | More unskilled individuals are willing to offer their services in the labor market with a minimum wage than they would without it. |
e. | The minimum wage is set above the equilibrium wage. |
OBJ: conceptual
SEC: 1. Interference with Market Prices
TOP: Price Floor
MSC: Bloom's: Analysis | AACSB: Analytic
- In the case of a price floor,
a. | there will be a shortage. |
b. | there is no need for government to buy any excess. |
c. | government must require producers to increase production to meet demand. |
d. | there is a redistribution of income from consumers to producers. |
e. | supply decreases. |
OBJ: conceptual
SEC: 1. Interference with Market Prices
TOP: Price Floor
MSC: Bloom's: Analysis | AACSB: Analytic
- Which of the following is not a likely result of a price floor?
a. | Excess supply of a good |
b. | A persistent shortage |
c. | A market price higher than equilibrium |
d. | The quantity supplied exceeds the quantity demanded. |
e. | Resources are diverted away from other activities to deal with the extra output. |
OBJ: conceptual
SEC: 1. Interference with Market Prices
TOP: Price Floor
MSC: Bloom's: Analysis | AACSB: Analytic
/
- A price floor that is effective results in a surplus.
Basic
OBJ: conceptual
SEC: 1. Interference with Market Prices
TOP: Price Floor
MSC: Bloom's: Knowledge | AACSB: Analytic
- In the case of a price floor, price is not allowed to increase above a certain level.
Moderate
OBJ: factual
SEC: 1. Interference with Market Prices
TOP: Price Floor
MSC: Bloom's: Knowledge
- The government can issue ration coupons to deal with problems resulting from a price floor.
Moderate
OBJ: factual
SEC: 1. Interference with Market Prices
TOP: Price Floor
MSC: Bloom's: Analysis | AACSB: Analytic
Short Answer
- Does a price ceiling result in a shortage or a surplus? Why?
OBJ: conceptual
SEC: 1. Interference with Market Prices
TOP: Price Ceiling
MSC: Bloom's: Analysis | AACSB: Analytic
- Does a price floor result in a shortage or a surplus? Why?
OBJ: conceptual
SEC: 1. Interference with Market Prices
TOP: Price Floor
MSC: Bloom's: Knowledge
Multiple Choice
- Suppose that the government imposes a sales tax on the consumption of soda drinks, which of the following would have the least impact on the producers of soda drinks?
a. | Perfectly elastic demand |
b. | Perfectly inelastic demand |
c. | Unitary elastic demand |
d. | Zero demand |
e. | Plastic is an inferior good. |
OBJ: conceptual
SEC: 2. Elasticity of Demand
TOP: Price Elasticity of Demand
MSC: Bloom's: Application | AACSB: Analytic
- The price elasticity of demand measures
a. | a buyer's responsiveness to a change in income. |
b. | a buyer's responsiveness to a change in price. |
c. | a seller's responsiveness to a change in demand. |
d. | how much price increases for a change in demand. |
e. | how much demand changes for a change in supply. |
OBJ: conceptual
SEC: 2. Elasticity of Demand
TOP: Importance of Demand Elasticity
MSC: Bloom's: Knowledge
- The concept of price elasticity of demand makes it possible to
a. | predict how much demand will shift with a change in price. |
b. | predict how much price will change with a change in demand. |
c. | predict how much price will change with a change in supply. |
d. | predict how much supply will shift with a change in price. |
e. | anticipate shifts in demand. |
SEC: 2. Elasticity of Demand
TOP: Importance of Demand Elasticity
MSC: Bloom's: Knowledge | AACSB: Analytic
- By knowing how much quantity demanded changes for a given change in price, we can also know
a. | exactly which individuals will or will not continue to buy a good whose price has increased. |
b. | how much quantity supplied changes for a given change in price. |
c. | how much price changes when the amount of a good available for sale changes. |
d. | how much supply changes for a given change in price. |
e. | how much demand changes for a given change in price. |
OBJ: conceptual
SEC: 2. Elasticity of Demand
TOP: Importance of Demand Elasticity
MSC: Bloom's: Knowledge | AACSB: Analytic
/
- By knowing the price elasticity of demand, economists can anticipate the size of shifts in the supply of a commodity, such as oil.
Basic
OBJ: conceptual
SEC: 2. Elasticity of Demand
TOP: Importance of Demand Elasticity
MSC: Bloom's: Analysis | AACSB: Analytic
- The size of the price elasticity of demand is important to determine how much market price will change in response to a shift in the supply.
Basic
OBJ: conceptual
SEC: 2. Elasticity of Demand
TOP: Importance of Demand Elasticity
MSC: Bloom's: Knowledge
Short Answer
- Suppose there is a sudden decrease in the supply of oranges. Compare the effect of the change in orange supply on the price of oranges in a market with high demand elasticity and a market with low demand elasticity.
OBJ: conceptual
SEC: 2. Elasticity of Demand
TOP: Impact of Supply Change
MSC: Bloom's: Application | AACSB: Analytic
- Explain why economists care about the price elasticity of supply. What does it tell us?
OBJ: conceptual
SEC: 4. Elasticity of Supply
TOP: Importance of Price Elasticity of Supply
MSC: Bloom's: Analysis | AACSB: Analytic
Multiple Choice
- If the demand for bananas has a high price elasticity, then a 5 percent decrease in the price of bananas will result in
a. | a more than 5 percent increase in the quantity demanded. |
b. | a less than 5 percent increase in the quantity demanded. |
c. | no change in the quantity demanded. |
d. | a more than 5 percent decrease in the quantity demanded. |
e. | a less than 5 percent decrease in the quantity demanded. |
OBJ: conceptual
SEC: 2. Elasticity of Demand
TOP: Size of Elasticity
MSC: Bloom's: Application | AACSB: Analytic
- To say that gasoline has a low price elasticity of demand is to say the quantity demanded of gasoline
a. | has a relatively flat demand curve. |
b. | has a horizontal demand curve. |
c. | is not sensitive to changes in gasoline prices. |
d. | is very sensitive to changes in gasoline prices. |
e. | is very sensitive to changes in consumer income. |
OBJ: conceptual
SEC: 2. Elasticity of Demand
TOP: Size of Demand Elasticity
MSC: Bloom's: Application | AACSB: Analytic
/
- If the price elasticity of demand for apples is higher than the price elasticity of demand for oranges, then a given percentage increase in the price of apples and oranges will result in more percentage decrease in the quantity demanded for apples than for oranges.
Moderate
OBJ: conceptual
SEC: 2. Elasticity of Demand
TOP: Size of Demand Elasticity
MSC: Bloom's: Application | AACSB: Analytic
- The size of the price elasticity of demand is important to determine how much market price will change in response to a shift in the supply.
Basic
OBJ: conceptual
SEC: 2. Elasticity of Demand
TOP: Size of Demand Elasticity
MSC: Bloom's: Knowledge | AACSB: Analytic
Short Answer
- Explain, in words, the difference between a low price elasticity of demand and a high price elasticity of demand for a 15 percent increase in price.
OBJ: conceptual
SEC: 2. Elasticity of Demand
TOP: Size of Demand Elasticity
MSC: Bloom's: Application | AACSB: Analytic
Multiple Choice
- A given change in oil supply will result in a smaller change in the equilibrium price of oil if the
a. | price elasticity of demand for oil is higher. |
b. | price elasticity of demand for oil is lower. |
c. | income elasticity for oil is higher. |
d. | income elasticity for oil is lower. |
e. | demand for oil is not sensitive to the price of oil. |
OBJ: conceptual
SEC: 2. Elasticity of Demand
TOP: Price Elasticity of Demand and Change in Supply
MSC: Bloom's: Application | AACSB: Analytic
- For a given reduction in the supply of oil, the equilibrium price of oil will
a. | decrease by a larger amount for a higher price elasticity of demand. |
b. | decrease by a smaller amount for a higher price elasticity of demand. |
c. | increase by a larger amount for a higher price elasticity of demand. |
d. | increase by a smaller amount for a higher price elasticity of demand. |
e. | not change, regardless of the price elasticity of demand. |
OBJ: conceptual
SEC: 2. Elasticity of Demand
TOP: Price Elasticity of Demand and Change in Supply
MSC: Bloom's: Application | AACSB: Analytic
- Which of the following formulas is a correct expression of the price elasticity of demand?
a. |
|
b. |
|
c. |
|
d. |
|
e. |
|
OBJ: conceptual
SEC: 2. Elasticity of Demand
TOP: Price Elasticity of Demand
MSC: Bloom's: Knowledge
- The price elasticity of demand is expressed as the
a. | percentage change in the quantity demanded divided by the percentage change in income. |
b. | percentage change in the price divided by the percentage change in the quantity demanded. |
c. | percentage change in the quantity demanded divided by the percentage change in the price. |
d. | percentage change in supply divided by the percentage change in demand. |
e. | absolute change in the quantity demanded divided by the absolute change in the price. |
OBJ: conceptual
SEC: 2. Elasticity of Demand
TOP: Price Elasticity of Demand
MSC: Bloom's: Knowledge
- If the price elasticity of demand is equal to 2, a 1 percent increase in price will cause the quantity demanded to ____ by ____ percent.
a. | decrease; 5 |
b. | increase; 2 |
c. | decrease; 0.5 |
d. | decrease; 2 |
e. | increase; 0.5 |
OBJ: conceptual
SEC: 2. Elasticity of Demand
TOP: Price Elasticity of Demand
MSC: Bloom's: Application | AACSB: Analytic
- If a 1 percent increase in price causes a 5 percent decrease in the quantity demanded, then the price elasticity of demand is
a. | .2. |
b. | .5. |
c. | 5. |
d. | 20. |
e. | 50. |
OBJ: conceptual
SEC: 2. Elasticity of Demand
TOP: Price Elasticity of Demand
MSC: Bloom's: Application | AACSB: Analytic
- Assume that the price elasticity of demand equals 0.4 (ed = 0.4). Given a 10 percent increase in price, there will be
a. | 40 percent increase in the quantity demanded. |
b. | 4 percent decrease in the quantity demanded. |
c. | 40 percent decrease in the quantity demanded. |
d. | 4 percent increase in the quantity demanded. |
e. | 2.5 percent decrease in the quantity demanded. |
OBJ: conceptual
SEC: 2. Elasticity of Demand
TOP: Price Elasticity of Demand
MSC: Bloom's: Application | AACSB: Analytic
/
- The price elasticity of demand is measured by the percentage change in quantity demanded divided by the percentage change in price.
Basic
OBJ: factual
SEC: 2. Elasticity of Demand
TOP: Price Elasticity of Demand
MSC: Bloom's: Knowledge
- The price elasticity of demand measures how much price changes given a change in demand.
Basic
OBJ: factual
SEC: 2. Elasticity of Demand
TOP: Price Elasticity of Demand
MSC: Bloom's: Knowledge
- The price elasticity of demand is a more precise measure of the slope of a demand curve.
Basic
OBJ: factual
SEC: 2. Elasticity of Demand
TOP: Price Elasticity of Demand
MSC: Bloom's: Knowledge
- If the price elasticity of demand is equal to 4, a 1 percent increase in the price will cause quantity demanded to increase from 100 to 104 units.
Moderate
OBJ: conceptual
SEC: 2. Elasticity of Demand
TOP: Price Elasticity of Demand
MSC: Bloom's: Application | AACSB: Analytic
Multiple Choice
- The measurement for the price elasticity of demand is
a. | unit free. |
b. | in percentage terms. |
c. | in dollar terms. |
d. | in terms of the quantity measurement of the good involved. |
e. | in terms of the currency used to purchase the good. |
OBJ: conceptual
SEC: 2. Elasticity of Demand
TOP: Unit-Free Measure
MSC: Bloom's: Knowledge
- If a 1 percent decrease in the price of breakfast cereals results in a 2 percent increase in the quantity demanded for breakfast cereals, then the price elasticity of the demand for breakfast cereals is
a. | 2 cents. |
b. | 2 pounds of breakfast cereals. |
c. | 2 percent. |
d. | $2. |
e. | 2. |
OBJ: conceptual
SEC: 2. Elasticity of Demand
TOP: Unit-Free Measure
MSC: Bloom's: Application | AACSB: Analytic
/
- The measurement of the price elasticity of demand is unit free.
Basic
OBJ: factual
SEC: 2. Elasticity of Demand
TOP: Unit-Free Measure
MSC: Bloom's: Knowledge
- The price elasticity of demand measures the change in quantity demanded given a dollar change in price.
Basic
OBJ: conceptual
SEC: 2. Elasticity of Demand
TOP: Unit-Free Measure
MSC: Bloom's: Knowledge
- The price elasticity of demand is expressed in dollar changes in price and quantity demanded.
Moderate
OBJ: conceptual
SEC: 2. Elasticity of Demand
TOP: Unit-Free Measure
MSC: Bloom's: Analysis | AACSB: Analytic
Multiple Choice
- Which of the following statements about the price elasticity of demand is ?
a. | Slope and elasticity measure the same things. |
b. | Price elasticity of demand varies depending on how price and quantity are measured. |
c. | It is important to know whether the price elasticity of demand is a positive or negative number. |
d. | The slope of a demand curve does not tell us the price elasticity of demand. |
e. | Price elasticity is the same everywhere along a demand curve of any shape. |
OBJ: conceptual
SEC: 3. Working with Demand Elasticities
TOP: Elasticity versus Slope
MSC: Bloom's: Analysis | AACSB: Analytic
- If a $1 increase in price changes quantity demanded by 4 units, the price elasticity of demand
a. | must equal 0.25 percent. |
b. | must equal 4 percent. |
c. | must equal 1/4. |
d. | cannot be calculated with this information. |
e. | must equal 4. |
OBJ: conceptual
SEC: 3. Working with Demand Elasticities
TOP: Elasticity versus Slope
MSC: Bloom's: Application | AACSB: Analytic
- If a 1 percent change in price results in a 4 percent change in quantity demanded, then
a. | the price elasticity of demand is 4. |
b. | the slope of the demand curve is 1/4. |
c. | the slope of the demand curve is 4. |
d. | the price elasticity of demand is 1/4. |
e. | there is not enough information to calculate slope or elasticity. |
OBJ: factual
SEC: 3. Working with Demand Elasticities
TOP: Elasticity versus Slope
MSC: Bloom's: Application | AACSB: Analytic
- Suppose a 1 percent in the price of a good results in the quantity demanded changing by 0.2 percent. Then you know
a. | the price elasticity of demand is 0.2. |
b. | nothing about slope or price elasticity of demand based on this information. |
c. | the price elasticity of demand is 5. |
d. | the slope of the demand curve is 5. |
e. | the slope of the demand curve is 0.2. |
OBJ: conceptual
SEC: 3. Working with Demand Elasticities
TOP: Elasticity versus Slope
MSC: Bloom's: Application | AACSB: Analytic
/
- Consider two demand curves with different slopes. It is possible to predict ranges on each demand curve where the price elasticities of demand will be different.
Moderate
OBJ: factual
SEC: 3. Working with Demand Elasticities
TOP: Elasticity versus Slope
MSC: Bloom's: Analysis | AACSB: Analytic
- The price elasticity of demand is the same as the slope of the demand curve.
Basic
OBJ: factual
SEC: 3. Working with Demand Elasticities
TOP: Elasticity versus Slope
MSC: Bloom's: Knowledge
- The price elasticity of demand is negative because the demand curve slopes downward.
Moderate
OBJ: factual
SEC: 3. Working with Demand Elasticities
TOP: Elasticity versus Slope
MSC: Bloom's: Analysis | AACSB: Analytic
Multiple Choice
- Suppose that, as the price of product A falls from $5 to $4, the quantity of A demanded increases from 2,000 to 6,000 units. In this case, what is the elasticity of demand, using the midpoint formula?
a. | 0.9 |
b. | 0.4 |
c. | 4.5 |
d. | 1.6 |
e. | 3.0 |
OBJ: conceptual
SEC: 3. Working with Demand Elasticities
TOP: Midpoint Formula
MSC: Bloom's: Application | AACSB: Analytic
- Suppose that the price of product B increases from $10 to $15 and, in response, quantity demanded declines from 100 to 80. Using the midpoint formula, what is the elasticity of demand?
a. | 2.5 |
b. | 1.33 |
c. | 0.4 |
d. | 0.56 |
e. | 0.75 |
OBJ: conceptual
SEC: 3. Working with Demand Elasticities
TOP: Midpoint Formula
MSC: Bloom's: Application | AACSB: Analytic
- If 12 candy bars are demanded at $.30 each and 4 candy bars are demanded at $.50 each, what is the price elasticity of demand using the midpoint formula?
a. | 2 |
b. | 0.5 |
c. | 7.5 |
d. | 0.4 |
e. | 1.67 |
OBJ: conceptual
SEC: 3. Working with Demand Elasticities
TOP: Midpoint Formula
MSC: Bloom's: Application | AACSB: Analytic
- Which of the following correctly represents the midpoint formula?
a. |
|
b. |
|
c. |
|
d. |
|
e. |
|
OBJ: factual
SEC: 3. Working with Demand Elasticities
TOP: Midpoint Formula
MSC: Bloom's: Knowledge
- If price changes from $8 to $12 and quantity demanded changes from 80 units to 40 units, then the price elasticity of demand is
a. | 0.1. |
b. | 0.6. |
c. | 1. |
d. | 1.67. |
e. | 10. |
OBJ: conceptual
SEC: 3. Working with Demand Elasticities
TOP: Midpoint Formula
MSC: Bloom's: Application | AACSB: Analytic
/
- The midpoint formula for calculating price elasticity of demand gives the same answer, regardless of the direction of the price change.
Moderate
OBJ: conceptual
SEC: 3. Working with Demand Elasticities
TOP: Midpoint Formula
MSC: Bloom's: Analysis | AACSB: Analytic
- Suppose that, as the price of wheat falls from $10 to $8, the quantity demanded of wheat increases from 100 bushels to 150 bushels. Using the midpoint formula, the price elasticity of demand for wheat is 1.8.
Moderate
OBJ: conceptual
SEC: 3. Working with Demand Elasticities
TOP: Midpoint Formula
MSC: Bloom's: Application | AACSB: Analytic
Multiple Choice
- A product with an inelastic demand means that
a. | consumers are relatively insensitive to a change in the price of the product. |
b. | producers are relatively sensitive to a change in the quantity demanded. |
c. | consumers are relatively sensitive to a change in the price of the product. |
d. | producers are relatively insensitive to a change in the quantity demanded. |
e. | consumers are relatively insensitive to a change in the quantity demanded. |
OBJ: factual
SEC: 3. Working with Demand Elasticities
TOP: Elasticity
MSC: Bloom's: Knowledge
- A product with an elastic demand means that
a. | consumers are relatively insensitive to a change in the quantity demanded. |
b. | consumers are relatively insensitive to a change in the price of the product. |
c. | consumers are relatively sensitive to a change in the price of the product. |
d. | producers are relatively insensitive to a change in the price of the product. |
e. | producers are relatively sensitive to a change in the quantity demanded. |
OBJ: factual
SEC: 3. Working with Demand Elasticities
TOP: Elasticity
MSC: Bloom's: Knowledge
- If the price of a product increases by 10 percent and the quantity demanded decreases by 15 percent, then the
a. | product has an elastic demand. |
b. | product has an inelastic demand. |
c. | product has an elastic supply. |
d. | product has a unit-elastic demand. |
e. | producer should raise the price further to increase total revenue. |
OBJ: conceptual
SEC: 3. Working with Demand Elasticities
TOP: Elasticity
MSC: Bloom's: Application | AACSB: Analytic
- For demand to be inelastic,
a. | the percentage change in quantity demanded must be equal to the associated percentage change in price. |
b. | demand must change with a change in price. |
c. | the percentage change in quantity demanded must be less than the associated percentage change in price. |
d. | quantity demanded must change with a change in price. |
e. | the percentage change in quantity demanded must be greater than the associated percentage change in price. |
OBJ: factual
SEC: 3. Working with Demand Elasticities
TOP: Inelastic Demand
MSC: Bloom's: Analysis | AACSB: Analytic
- For demand to be elastic,
a. | the percentage change in quantity demanded must be greater than the associated percentage change in price. |
b. | demand must change with a change in price. |
c. | the percentage change in quantity demanded must be less than the associated percentage change in price. |
d. | the percentage change in quantity demanded must be equal to the associated percentage change in price. |
e. | quantity demanded must change with a change in price. |
OBJ: factual
SEC: 3. Working with Demand Elasticities
TOP: Elastic Demand
MSC: Bloom's: Knowledge
- For demand to be unit elastic,
a. | the percentage change in quantity demanded must be equal to the associated percentage change in price. |
b. | the percentage change in quantity demanded must be less than the associated percentage change in price. |
c. | quantity demanded must change with a change in price. |
d. | demand must change with a change in price. |
e. | the percentage change in quantity demanded must be greater than the associated percentage change in price. |
OBJ: factual
SEC: 3. Working with Demand Elasticities
TOP: Unit Elastic Demand
MSC: Bloom's: Knowledge
- If a 3 percent change in price results in a 1.5 percent change in quantity demanded, then the price elasticity of demand is ____ and demand is ____.
a. | 1/2; inelastic |
b. | 1/2; elastic |
c. | 2; inelastic |
d. | 1; unit elastic |
e. | 2; elastic |
OBJ: factual
SEC: 3. Working with Demand Elasticities
TOP: Elasticity
MSC: Bloom's: Application | AACSB: Analytic
- If the price elasticity of demand is 5.3, demand is said to be
a. | inelastic. |
b. | elastic. |
c. | unit elastic. |
d. | perfectly inelastic. |
e. | perfectly elastic. |
OBJ: factual
SEC: 3. Working with Demand Elasticities
TOP: Elasticity
MSC: Bloom's: Application | AACSB: Analytic
Exhibit 4-1
- Refer to Exhibit 4-1. The price elasticity of demand is most likely to be elastic
a. | at point A. |
b. | at point B. |
c. | at point C. |
d. | anywhere along the demand curve. |
e. | nowhere along the demand curve. |
OBJ: conceptual
SEC: 3. Working with Demand Elasticities
TOP: Elasticity
MSC: Bloom's: Application | AACSB: Analytic
- Refer to Exhibit 4-1. The price elasticity of demand is most likely to be inelastic
a. | at point A. |
b. | at point B. |
c. | at point C. |
d. | anywhere along the demand curve. |
e. | nowhere along the demand curve. |
OBJ: conceptual
SEC: 3. Working with Demand Elasticities
TOP: Elasticity
MSC: Bloom's: Application | AACSB: Analytic
- Carla buys one soft drink a day, regardless of the price. Which of the following statements is correct with respect to Carla?
a. | Price elasticity of demand for soft drinks is infinite. |
b. | Price elasticity of demand for soft drinks is zero. |
c. | Price elasticity of demand for soft drinks is 1. |
d. | Cross-price elasticity of demand for soft drinks is 1. |
e. | Price elasticity of demand cannot be calculated with the information given. |
OBJ: conceptual
SEC: 3. Working with Demand Elasticities
TOP: Perfectly Inelastic
MSC: Bloom's: Application | AACSB: Analytic
- If demand is perfectly inelastic, then the
a. | quantity demanded does not change when price changes. |
b. | demand curve is nonexistent. |
c. | elasticity of demand is 1. |
d. | elasticity of demand is 1. |
e. | demand curve is a horizontal line. |
OBJ: factual
SEC: 3. Working with Demand Elasticities
TOP: Perfectly Inelastic
MSC: Bloom's: Knowledge | AACSB: Analytic
- A perfectly inelastic demand curve has a price elasticity
a. | equal to zero. |
b. | that varies. |
c. | equal to 1. |
d. | less than 1. |
e. | of infinity. |
OBJ: factual
SEC: 3. Working with Demand Elasticities
TOP: Perfectly Inelastic
MSC: Bloom's: Knowledge
- A perfectly elastic demand curve has a price elasticity
a. | equal to zero. |
b. | that varies. |
c. | equal to 1. |
d. | less than 1. |
e. | of infinity. |
OBJ: factual
SEC: 3. Working with Demand Elasticities
TOP: Perfectly Elastic
MSC: Bloom's: Knowledge
- Suppose one market demand (D1) has a price elasticity of .65 and a second market demand (D2) has a price elasticity of .80. In comparing price elasticities of demand, it is proper to say that
a. | D2 is elastic compared to D1. |
b. | D2 is inelastic compared to D1. |
c. | D2 is more inelastic than D1. |
d. | D2 is more elastic than D1. |
e. | the elasticity of D1 and D2 is the same. |
OBJ: factual
SEC: 3. Working with Demand Elasticities
TOP: Relative Elasticity
MSC: Bloom's: Application | AACSB: Analytic
- . Suppose the price elasticity of demand for apples is 2.1 and the price elasticity of demand for housing is 0.62. In comparing price elasticities of demand, it is proper to say that the demand for apples is
a. | inelastic; for housing it is elastic. |
b. | more elastic than the demand for housing. |
c. | more inelastic than the demand for housing. |
d. | more than three times as inelastic as the demand for housing. |
e. | less elastic than the demand for housing. |
OBJ: factual
SEC: 3. Working with Demand Elasticities
TOP: Relative Elasticity
MSC: Bloom's: Application | AACSB: Analytic
- When the demand curve is a vertical line, demand is
a. | relatively elastic. |
b. | perfectly inelastic. |
c. | unit elastic. |
d. | infinitely elastic. |
e. | cross-elastic. |
OBJ: factual
SEC: 3. Working with Demand Elasticities
TOP: Perfectly Inelastic
MSC: Bloom's: Knowledge
- A horizontal demand curve is
a. | unit elastic. |
b. | relatively inelastic. |
c. | relatively elastic. |
d. | perfectly inelastic. |
e. | perfectly elastic. |
OBJ: factual
SEC: 3. Working with Demand Elasticities
TOP: Perfectly Elastic
MSC: Bloom's: Knowledge
- The elasticity of demand changes
a. | along a vertical demand curve. |
b. | along a horizontal demand curve. |
c. | along a linear, downward-sloping demand curve. |
d. | along a supply curve. |
e. | only when the demand curve shifts. |
OBJ: conceptual
SEC: 3. Working with Demand Elasticities
TOP: Elasticity
MSC: Bloom's: Knowledge
- Good X has a high price elasticity of demand; it is most likely that
a. | consumers have high incomes. |
b. | good X has a lot of substitutes. |
c. | good X has a lot of complements. |
d. | good X is in short supply. |
e. | good X is not related to any other goods. |
OBJ: conceptual
SEC: 3. Working with Demand Elasticities
TOP: Relative Elasticity
MSC: Bloom's: Application | AACSB: Analytic
Exhibit 4-2
Price
Quantity Demanded
D1
D2
D3
D4
- In Exhibit 3-4, which of the following demand curve has the highest price elasticity of demand?
a. | D1 |
b. | D2 |
c. | D3 |
d. | D4 |
e. | None of the above; price elasticity cannot be determined by the diagram. |
OBJ: conceptual
SEC: 3. Working with Demand Elasticities
TOP: Elasticity
MSC: Bloom's: Knowledge
/
- If the percentage change in quantity demanded is greater than the percentage change in the price for a good, then the demand for the good is elastic.
Basic
OBJ: conceptual
SEC: 3. Working with Demand Elasticities
TOP: Elastic Demand
MSC: Bloom's: Application
- If demand is elastic, the price elasticity of demand is between 0 and 1.
Basic
OBJ: factual
SEC: 3. Working with Demand Elasticities
TOP: Elasticity
MSC: Bloom's: Application | AACSB: Analytic
- For one to accurately say that the demand for good X is more elastic than the demand for good Y, the price elasticity of demand for good X must be greater than the price elasticity of demand for good Y.
Basic
OBJ: factual
SEC: 3. Working with Demand Elasticities
TOP: Elasticity
MSC: Bloom's: Application | AACSB: Analytic
- When price elasticity of demand for a good equals 0, it is said to be perfectly inelastic.
Basic
OBJ: factual
SEC: 3. Working with Demand Elasticities
TOP: Elasticity
MSC: Bloom's: Knowledge
- A vertical demand curve is perfectly elastic.
Basic
OBJ: factual
SEC: 3. Working with Demand Elasticities
TOP: Elasticity
MSC: Bloom's: Knowledge
- Demand is inelastic if the price elasticity of demand is greater than 1.
Basic
OBJ: factual
SEC: 3. Working with Demand Elasticities
TOP: Elasticity
MSC: Bloom's: Knowledge
Exhibit 4-2
Multiple Choice
- Refer to Exhibit 4-2. If the supply curve shifts to the right, then which of the following is ?
a. | D1 results in the most decrease in the equilibrium price. |
b. | D1 results in the most increase in the equilibrium price. |
c. | D2 results in the most decrease in the equilibrium price. |
d. | D2 results in the most increase in the equilibrium price. |
e. | The change in the equilibrium price is the same for D1 and D2. |
OBJ: conceptual
SEC: 3. Working with Demand Elasticities
TOP: Elasticity of Demand and Total Revenue
MSC: Bloom's: Application | AACSB: Analytic
- If some product has an elastic demand, then we can expect
a. | a price increase to increase total revenue. |
b. | total revenue to rise if price falls. |
c. | that there are few substitutes for this product. |
d. | the absolute value of the elasticity of demand coefficient to be less than 1. |
e. | a smaller percentage change in the quantity demanded, given some percentage change in the price. |
OBJ: factual
SEC: 3. Working with Demand Elasticities
TOP: Elasticity of Demand and Total Revenue
MSC: Bloom's: Application | AACSB: Analytic
- If the price elasticity of demand for computers is greater than 1, then an increase in computer prices will
a. | lower total revenue. |
b. | raise total revenue. |
c. | not change total revenue. |
d. | either raise or lower total revenue, depending on the starting price. |
e. | lead to a higher percentage change in total revenue than the percentage change in price. |
OBJ: conceptual
SEC: 3. Working with Demand Elasticities
TOP: Elasticity of Demand and Total Revenue
MSC: Bloom's: Application | AACSB: Analytic
- The local public transportation system recently raised rates and was surprised to be faced with declining revenue. What can be accurately concluded?
a. | The cross-price elasticity of demand for public transportation is less than 1. |
b. | The demand for public transportation is inelastic. |
c. | The income elasticity of demand for public transportation is greater than 1. |
d. | The demand for public transportation is elastic. |
e. | The demand curve for public transportation has a positive slope. |
OBJ: conceptual
SEC: 3. Working with Demand Elasticities
TOP: Elasticity of Demand and Total Revenue
MSC: Bloom's: Application | AACSB: Analytic
- Suppose that the revenue of a product increases when its price decreases. Then demand for the product must
a. | be inelastic. |
b. | be elastic. |
c. | be unit elastic. |
d. | be perfectly inelastic |
e. | have an elasticity equal to 0. |
OBJ: factual
SEC: 3. Working with Demand Elasticities
TOP: Elasticity of Demand and Total Revenue
MSC: Bloom's: Analysis | AACSB: Analytic
- Total revenue will decrease if price
a. | rises and demand is inelastic. |
b. | falls and demand is unit elastic. |
c. | rises and demand is unit elastic. |
d. | rises and demand is elastic. |
e. | falls and demand is elastic. |
OBJ: factual
SEC: 3. Working with Demand Elasticities
TOP: Elasticity of Demand and Total Revenue
MSC: Bloom's: Knowledge | AACSB: Analytic
- If the price of a good decreases by 5 percent and total revenue does not change, then the price elasticity of demand is
a. | perfectly elastic. |
b. | unit elastic. |
c. | equal to 0.5. |
d. | equal to 1.05. |
e. | perfectly inelastic. |
OBJ: factual
SEC: 3. Working with Demand Elasticities
TOP: Elasticity of Demand and Total Revenue
MSC: Bloom's: Application | AACSB: Analytic
- Along a downward-sloping, straight-line demand curve, total revenue is greatest where demand is
a. | inelastic. |
b. | perfectly inelastic. |
c. | perfectly elastic. |
d. | elastic. |
e. | unit elastic. |
OBJ: factual
SEC: 3. Working with Demand Elasticities
TOP: Elasticity of Demand and Total Revenue
MSC: Bloom's: Analysis | AACSB: Analytic
- When price rises, total revenue
a. | always rises because the quantity purchased does not change. |
b. | may rise or fall, depending on whether the quantity purchased rises or falls. |
c. | always falls because the quantity purchased always falls. |
d. | may rise or fall, depending on how much the quantity purchased falls. |
e. | may rise or fall, depending on whether the quantity purchased changes. |
OBJ: factual
SEC: 3. Working with Demand Elasticities
TOP: Elasticity of Demand and Total Revenue
MSC: Bloom's: Analysis | AACSB: Analytic
- If price falls by 10 percent, total revenue
a. | rises if quantity demanded changes by 10 percent. |
b. | rises if quantity demanded does not change. |
c. | rises if quantity demanded changes by less than 10 percent. |
d. | falls if quantity demanded changes by 10 percent. |
e. | falls if quantity demanded changes by less than 10 percent. |
OBJ: conceptual
SEC: 3. Working with Demand Elasticities
TOP: Elasticity of Demand and Total Revenue
MSC: Bloom's: Application | AACSB: Analytic
- When price rises by 3 percent and quantity demanded changes by 6 percent,
a. | total revenue falls 3 percent. |
b. | total revenue falls by half. |
c. | total revenue doubles. |
d. | total revenue does not change. |
e. | total revenue increases 18 percent. |
OBJ: conceptual
SEC: 3. Working with Demand Elasticities
TOP: Elasticity of Demand and Total Revenue
MSC: Bloom's: Application | AACSB: Analytic
- If a firm lowers the price of a product when demand is elastic, then the firm should expect total revenue to
a. | fall. |
b. | rise. |
c. | remain the same. |
d. | become zero. |
e. | rise and then fall. |
SEC: 3. Working with Demand Elasticities
TOP: Elasticity of Demand and Total Revenue
MSC: Bloom's: Application | AACSB: Analytic
- If a consultant to a football team owner suggests that ticket prices be raised in order to increase revenue, the consultant must believe that the price elasticity of demand for football tickets is
a. | equal to infinity. |
b. | less than 1. |
c. | greater than 1. |
d. | equal to 1. |
e. | There is not enough information provided to answer this question. |
OBJ: conceptual
SEC: 3. Working with Demand Elasticities
TOP: Elasticity of Demand and Total Revenue
MSC: Bloom's: Application | AACSB: Analytic
- If supply decreases and total revenue in an industry increases,
a. | demand elasticity must be equal to 1. |
b. | demand must be horizontal. |
c. | demand elasticity must be greater than 1. |
d. | we have a perfectly implausible situation. |
e. | demand elasticity must be less than 1. |
OBJ: conceptual
SEC: 3. Working with Demand Elasticities
TOP: Elasticity of Demand and Total Revenue
MSC: Bloom's: Analysis | AACSB: Analytic
/
- A product has elastic demand if, when price rises, total revenue falls.
Moderate
OBJ: factual
SEC: 3. Working with Demand Elasticities
TOP: Elasticity of Demand and Total Revenue
MSC: Bloom's: Analysis | AACSB: Analytic
- Total revenue decreases if price increases and demand is inelastic.
Moderate
OBJ: factual
SEC: 3. Working with Demand Elasticities
TOP: Elasticity of Demand and Total Revenue
MSC: Bloom's: Analysis | AACSB: Analytic
- If a firm wishes to raise the revenue of a product with elastic demand, then it should reduce price.
Moderate
OBJ: factual
SEC: 3. Working with Demand Elasticities
TOP: Elasticity of Demand and Total Revenue
MSC: Bloom's: Analysis | AACSB: Analytic
- If demand for a product is unit elastic, then increasing the price of the product leaves total revenue unchanged.
Moderate
OBJ: factual
SEC: 3. Working with Demand Elasticities
TOP: Elasticity of Demand and Total Revenue
MSC: Bloom's: Analysis | AACSB: Analytic
Multiple Choice
- Which of the following is a characteristic of an item with elastic demand?
a. | A price that accounts for a small percentage of consumers' incomes |
b. | A short time period under consideration |
c. | A small number of competitors selling the product |
d. | Many substitutes |
e. | A high cost of production |
OBJ: factual
SEC: 3. Working with Demand Elasticities
TOP: Substitutability
MSC: Bloom's: Knowledge
- If there are very few substitutes for a product, then an increase in its price causes
a. | a relatively large increase in quantity demanded. |
b. | a relatively large decrease in quantity demanded. |
c. | no change in quantity demanded. |
d. | a relatively small increase in quantity demanded. |
e. | a relatively small decrease in quantity demanded. |
OBJ: conceptual
SEC: 3. Working with Demand Elasticities
TOP: Substitutability
MSC: Bloom's: Analysis | AACSB: Analytic
- Because the habit of smoking develops over time, the price elasticity of demand for cigarettes for younger smokers is likely to be
a. | higher than for older smokers. |
b. | the same as for older smokers. |
c. | lower than for older smokers. |
d. | 1. |
e. | infinity. |
OBJ: conceptual
SEC: 3. Working with Demand Elasticities
TOP: Preferences
MSC: Bloom's: Application | AACSB: Analytic
- The demand for gasoline should be
a. | less elastic in the long run than in the short run. |
b. | more elastic in the long run than in the short run. |
c. | equally elastic in the long run as in the short run. |
d. | perfectly inelastic in the long run and perfectly elastic in the short run. |
e. | unit elastic in both the long run and the short run. |
OBJ: conceptual
SEC: 3. Working with Demand Elasticities
TOP: Long versus Short Run
MSC: Bloom's: Application | AACSB: Analytic
- When price changes, the effect on quantity demanded is larger as time passes at least partly because
a. | people are better able to search out alternatives in the long run. |
b. | government regulations affect the short run but not the long run. |
c. | consumers are irrational in the short run. |
d. | fewer people consume in the long run than in the short run. |
e. | most consumers do not realize price has changed in the short run. |
OBJ: conceptual
SEC: 3. Working with Demand Elasticities
TOP: Long versus Short Run
MSC: Bloom's: Knowledge
- Other things being equal, the demand for a product is less elastic if
a. | the product has a very small ticket price. |
b. | the product has more substitutes. |
c. | the product has more complements. |
d. | consumers have more time to adjust for any price change. |
e. | the product's cost of production is higher. |
OBJ: conceptual
SEC: 3. Working with Demand Elasticities
TOP: Big versus Small Tickets
MSC: Bloom's: Knowledge
- One reason the demand for electricity is probably more price elastic than the demand for table salt is that
a. | people react to a change in the price of electricity in the long run but react to a change in the price of salt in the short run. |
b. | there are more substitutes for electricity than for table salt. |
c. | people react to a change in the price of electricity in the short run but react to a change in the price of salt in the long run. |
d. | a change in the price of electricity is likely to be temporary compared to a change in the price of table salt. |
e. | electricity takes up a larger proportion of one's income than does table salt. |
OBJ: conceptual
SEC: 3. Working with Demand Elasticities
TOP: Big versus Small Tickets
MSC: Bloom's: Application | AACSB: Analytic
/
- Because there are few substitutes for a new drug, we expect the price elasticity of demand for that drug to be fairly elastic.
Moderate
OBJ: conceptual
SEC: 3. Working with Demand Elasticities
TOP: Substitutability
MSC: Bloom's: Application | AACSB: Analytic
- If a consumer is spending a large portion of his or her income on a good, then the demand for the good is inelastic.
Moderate
OBJ: factual
SEC: 3. Working with Demand Elasticities
TOP: Big versus Small Tickets
MSC: Bloom's: Analysis
- Because people can adapt to paying higher prices over time, the price elasticity of demand is lower in the long run than in the short run.
Moderate
OBJ: conceptual
SEC: 3. Working with Demand Elasticities
TOP: Long versus Short Run
MSC: Bloom's: Analysis | AACSB: Analytic
Multiple Choice
- Income elasticity of demand is the percentage change in
a. | demand divided by the percentage change in the price of the product. |
b. | demand divided by the percentage change in the price of different products. |
c. | quantity demanded divided by the absolute price of the product. |
d. | quantity demanded of a product divided by the percentage change in income. |
e. | income divided by the percentage change in quantity demanded. |
OBJ: factual
SEC: 3. Working with Demand Elasticities
TOP: Income Elasticity
MSC: Bloom's: Knowledge
- If a household purchases 10 percent more apples when its income rises by 2 percent, then the income elasticity of demand for apples equals
a. | 0.5. |
b. | 2. |
c. | 5. |
d. | 2. |
e. | 5. |
OBJ: conceptual
SEC: 3. Working with Demand Elasticities
TOP: Income Elasticity
MSC: Bloom's: Application | AACSB: Analytic
- If a household's demand for bread decreases as its income increases, then its income elasticity of demand for bread is
a. | elastic. |
b. | unit elastic. |
c. | inelastic. |
d. | equal to 0. |
e. | negative. |
OBJ: factual
SEC: 3. Working with Demand Elasticities
TOP: Income Elasticity
MSC: Bloom's: Application | AACSB: Analytic
- If a good is considered to be an inferior good, its income elasticity of demand is
a. | greater than 1. |
b. | less than 0. |
c. | equal to 0. |
d. | between 0 and 1. |
e. | equal to 1. |
OBJ: factual
SEC: 3. Working with Demand Elasticities
TOP: Income Elasticity
MSC: Bloom's: Analysis | AACSB: Analytic
- The income elasticity of demand
a. | is usually zero because "you can only have so much." |
b. | could be positive or negative or zero, depending on the nature of the good. |
c. | can never be zero. |
d. | must be positive because consumers tend to buy more at higher incomes. |
e. | must be negative because of the law of increasing cost. |
OBJ: factual
SEC: 3. Working with Demand Elasticities
TOP: Income Elasticity
MSC: Bloom's: Knowledge
- Last year, Keith purchased 20 pounds of chicken when his income was $40,000. This year his income is $50,000 and he purchased 30 pounds of chicken. Which of the following statements is ?
a. | Chicken must be an inferior good for Keith. |
b. | Chicken and income are substitutes. |
c. | Keith's demand for chicken is price elastic. |
d. | Chicken is a normal good. |
e. | None of the other answers is true. |
OBJ: conceptual
SEC: 3. Working with Demand Elasticities
TOP: Income Elasticity
MSC: Bloom's: Application | AACSB: Analytic
- If a household increases its consumption of a good by 10 percent when its income increases by 1 percent, then the good is
a. | an inferior good. |
b. | a luxury. |
c. | a necessity. |
d. | both an inferior good and a necessity. |
e. | an unclassified good. |
OBJ: conceptual
SEC: 3. Working with Demand Elasticities
TOP: Income Elasticity
MSC: Bloom's: Analysis | AACSB: Analytic
- If the cross-price elasticity between two goods is positive, then it is most likely that the two goods are
a. | both inferior goods. |
b. | both luxury goods. |
c. | complements. |
d. | substitutes. |
e. | necessities. |
OBJ: conceptual
SEC: 3. Working with Demand Elasticities
TOP: Cross-Price Elasticity
MSC: Bloom's: Analysis | AACSB: Analytic
- Because tea and coffee are substitutes, their cross-price elasticity must be
a. | less than 1. |
b. | less than 0. |
c. | equal to 0. |
d. | positive. |
e. | infinity. |
OBJ: conceptual
SEC: 3. Working with Demand Elasticities
TOP: Cross-Price Elasticity
MSC: Bloom's: Application | AACSB: Analytic
/
- If a good has negative income elasticity, then it is an inferior good.
Basic
OBJ: factual
SEC: 3. Working with Demand Elasticities
TOP: Income Elasticity
MSC: Bloom's: Knowledge
- Normal goods have positive income elasticities of demand, and inferior goods have negative income elasticities of demand.
Moderate
OBJ: conceptual
SEC: 3. Working with Demand Elasticities
TOP: Income Elasticity
MSC: Bloom's: Analysis | AACSB: Analytic
- If the consumption of alcoholic beverages is higher for lower-income people than for higher-income people, then the income elasticity of demand for alcoholic beverages is positive.
Moderate
OBJ: conceptual
SEC: 3. Working with Demand Elasticities
TOP: Income Elasticity
MSC: Bloom's: Application | AACSB: Analytic
- The cross-price elasticity of demand between two goods measures the percentage change in the demand for one good for a given percentage change in the price of another good.
Basic
OBJ: factual
SEC: 3. Working with Demand Elasticities
TOP: Cross-Price Elasticity
MSC: Bloom's: Knowledge
Short Answer
- Calculate the price elasticity of demand if a 2.6 percent change in the price of a product results in a 10.5 percent change in quantity demanded, and indicate whether demand is elastic, inelastic, or unit elastic.
OBJ: conceptual SEC: 3. Working with Demand Elasticities
TOP: Price Elasticity of Demand MSC: Bloom's: Application | AACSB: Analytic
- Calculate the price elasticity of demand if a 8 percent change in the price of a product results in a 2.5 percent change in quantity demanded, and indicate whether demand is elastic, inelastic, or unit elastic.
OBJ: conceptual
SEC: 3. Working with Demand Elasticities
TOP: Price Elasticity of Demand
MSC: Bloom's: Application | AACSB: Analytic
- Why isn't the slope of a demand curve used to measure the sensitivity of demand to a price change?
OBJ: conceptual
SEC: 3. Working with Demand Elasticities
TOP: Elasticity versus Slope
MSC: Bloom's: Analysis | AACSB: Analytic
- Suppose the price of a good rises from $2.25 to $3.15, and the quantity demanded changes from 2,360 units to 1,250 units. Calculate the price elasticity of demand using the midpoint formula, and indicate whether demand is elastic, inelastic, or unit elastic.
OBJ: conceptual
SEC: 3. Working with Demand Elasticities
TOP: Midpoint Formula
MSC: Bloom's: Application | AACSB: Analytic
- Suppose the price of a good falls from $200 to $150, and the quantity demanded changes from 45,000 units to 50,500 units. Calculate the price elasticity of demand using the midpoint formula, and indicate whether demand is elastic, inelastic, or unit elastic.
OBJ: conceptual
SEC: 3. Working with Demand Elasticities
TOP: Midpoint Formula
MSC: Bloom's: Application | AACSB: Analytic
- Suppose the price of a good falls from $4.95 to $3.85, and the quantity demanded changes from 77 units to 99 units. Calculate the price elasticity of demand using the midpoint formula, and indicate whether demand is elastic, inelastic, or unit-elastic.
OBJ: conceptual
SEC: 3. Working with Demand Elasticities
TOP: Midpoint Formula
MSC: Bloom's: Application | AACSB: Analytic
- Indicate whether the percentage change in quantity demanded or percentage change in price is greater and whether demand is considered sensitive or insensitive for each of the following categories: elastic, inelastic, unit elastic.
OBJ: conceptual
SEC: 3. Working with Demand Elasticities
TOP: Elasticity
MSC: Bloom's: Knowledge | AACSB: Analytic
- Explain how price elasticity of demand indicates how total revenue changes when there is a change in price.
OBJ: conceptual
SEC: 3. Working with Demand Elasticities
TOP: Price Elasticity of Demand and Total Revenue
MSC: Bloom's: Knowledge | AACSB: Analytic
- Give four instances that cause price elasticity to vary. Explain.
OBJ: factual
SEC: 3. Working with Demand Elasticities
TOP: Determinants of Price Elasticity of Demand
MSC: Bloom's: Application | AACSB: Analytic
- Define, in words, income elasticity of demand and tell why we care if it is positive or negative.
OBJ: factual
SEC: 3. Working with Demand Elasticities
TOP: Income Elasticity
MSC: Bloom's: Knowledge | AACSB: Analytic
Multiple Choice
- The price elasticity of supply is a measure of how
a. | long it takes for producers to change technology. |
b. | sensitive producers are to a change in technology. |
c. | long it takes for producers to change their prices. |
d. | sensitive producers are to a change in input prices. |
e. | sensitive producers are to a change in output price. |
OBJ: factual
SEC: 4. Elasticity of Supply
TOP: Elasticity of Supply
MSC: Bloom's: Knowledge
- A price elasticity of supply of 1.5 implies that
a. | a 20 percent increase in the quantity supplied increases the price by 30 percent. |
b. | total revenue is 1.5 times total cost. |
c. | a 20 percent increase in the price increases the quantity supplied by 30 percent. |
d. | a 20-unit increase in supply reduces the price by $30. |
e. | a $20 increase in the price increases the quantity supplied by 30 units. |
OBJ: conceptual
SEC: 4. Elasticity of Supply
TOP: Elasticity of Supply
MSC: Bloom's: Application | AACSB: Analytic
- If the quantity supplied increases by 2 percent when price increases by 2 percent, then the price elasticity of supply is
a. | 2 percent. |
b. | 1 percent. |
c. | 0. |
d. | 1. |
e. | 2. |
OBJ: conceptual
SEC: 4. Elasticity of Supply
TOP: Elasticity of Supply
MSC: Bloom's: Application | AACSB: Analytic
- Elasticity of supply is
a. | the responsiveness of supply to changes in costs. |
b. | the percentage change in quantity supplied due to a percentage change in price. |
c. | the responsiveness of the price to changes in supply. |
d. | 1 minus the elasticity of demand. |
e. | the change in quantity supplied due to a change in quantity demanded. |
OBJ: factual
SEC: 4. Elasticity of Supply
TOP: Elasticity of Supply
MSC: Bloom's: Knowledge
/
- The price elasticity of supply is a unit-free measure and uses percentage changes in quantity supplied and price to measure how sensitive supply is to a change in price.
Moderate
OBJ: factual
SEC: 4. Elasticity of Supply
TOP: Elasticity of Supply
MSC: Bloom's: Knowledge
- The price elasticity of supply is the percentage change in quantity supplied divided by the percentage change in price.
Basic
OBJ: factual
SEC: 4. Elasticity of Supply
TOP: Elasticity of Supply
MSC: Bloom's: Knowledge
- The price elasticity of supply is always negative.
Basic
OBJ: conceptual
SEC: 4. Elasticity of Supply
TOP: Elasticity of Supply
MSC: Bloom's: Analysis | AACSB: Analytic
Multiple Choice
- Which of the following is the equation for price elasticity of supply?
a. |
|
b. |
|
c. |
|
d. |
|
e. |
|
OBJ: factual
SEC: 4. Elasticity of Supply
TOP: Elasticity of Supply
MSC: Bloom's: Knowledge
- Which of the following formulas is a correct expression of the price elasticity of supply?
a. |
|
b. |
|
c. |
|
d. |
|
e. |
|
OBJ: conceptual
SEC: 4. Elasticity of Supply
TOP: Elasticity of Supply
MSC: Bloom's: Knowledge
- Assume that a firm makes available 50 more units of a good at a price of $2 than it made available when the price was $1. What is the price elasticity of supply?
a. | It cannot be determined from the information given. |
b. | 0.25 |
c. | 25 |
d. | 50 |
e. | 0.04 |
OBJ: conceptual
SEC: 4. Elasticity of Supply
TOP: Elasticity of Supply
MSC: Bloom's: Application | AACSB: Analytic
/
- Supply is elastic if the quantity supplied responds substantially to a change in price, and supply is inelastic if the quantity supplied responds only slightly to a change in price.
Basic
0OBJ: factual
SEC: 4. Elasticity of Supply
TOP: Elasticity of Supply
MSC: Bloom's: Knowledge
- Price elasticity of supply is 1 minus the price elasticity of demand.
Basic
OBJ: factual
SEC: 4. Elasticity of Supply
TOP: Elasticity of Supply
MSC: Bloom's: Knowledge
- If a 2 percent increase in price results in a 1 percent increase in the quantity supplied, the price elasticity of supply is 2.
Moderate
OBJ: conceptual
SEC: 4. Elasticity of Supply
TOP: Elasticity of Supply
MSC: Bloom's: Application | AACSB: Analytic
Multiple Choice
- When a given percentage change in the price leads to a larger percentage change in the quantity supplied, supply is said to be
a. | elastic. |
b. | unit elastic. |
c. | inelastic. |
d. | infinitely elastic. |
e. | perfectly inelastic. |
OBJ: conceptual
SEC: 4. Elasticity of Supply
TOP: Elasticity of Supply
MSC: Bloom's: Knowledge
- When a higher price cannot bring about any increase in the quantity supplied, the supply is
a. | perfectly elastic. |
b. | unit elastic. |
c. | zero. |
d. | perfectly inelastic. |
e. | infinity. |
OBJ: factual
SEC: 4. Elasticity of Supply
TOP: Perfectly Inelastic Supply
MSC: Bloom's: Application | AACSB: Analytic
- If the quantity supplied of a product stays the same no matter what its price, then the elasticity of supply of the product is
a. | perfectly elastic. |
b. | unit elastic. |
c. | zero. |
d. | perfectly inelastic. |
e. | infinity. |
OBJ: factual
SEC: 4. Elasticity of Supply
TOP: Perfectly Inelastic Supply
MSC: Bloom's: Knowledge
- If supply is perfectly elastic, then the supply curve must
a. | be vertical. |
b. | be horizontal. |
c. | be upward sloping. |
d. | be downward sloping. |
e. | have a slope of zero. |
OBJ: factual
SEC: 4. Elasticity of Supply
TOP: Perfectly Elastic Supply
MSC: Bloom's: Analysis | AACSB: Analytic
- If the quantity supplied of a good is fixed at 100 units at all price levels, then its price elasticity of supply is
a. | perfectly elastic. |
b. | unit elastic. |
c. | perfectly inelastic. |
d. | zero. |
e. | undefined. |
OBJ: conceptual
SEC: 4. Elasticity of Supply
TOP: Perfectly Inelastic Supply
MSC: Bloom's: Analysis | AACSB: Analytic
/
- Supply may be elastic, unit elastic, or inelastic.
Basic
OBJ: factual
SEC: 4. Elasticity of Supply
TOP: Elasticity of Supply
MSC: Bloom's: Knowledge
- If supply is perfectly inelastic, then the price elasticity of supply is infinity.
Basic
OBJ: factual
SEC: 4. Elasticity of Supply
TOP: Perfectly Inelastic Supply
MSC: Bloom's: Analysis
- A perfectly elastic supply curve is vertical, and a perfectly elastic demand curve is horizontal.
Moderate
OBJ: factual
SEC: 4. Elasticity of Supply
TOP: Perfectly Elastic Supply
MSC: Bloom's: Analysis
- A unit elastic supply curve is vertical.
Basic
OBJ: factual
SEC: 4. Elasticity of Supply
TOP: Elasticity of Supply
MSC: Bloom's: Application | AACSB: Analytic
Multiple Choice
- The concept that explains to what degree price changes when there is a shift in demand, other things being equal, is
a. | income elasticity of demand. |
b. | price elasticity of demand. |
c. | price elasticity of supply. |
d. | cost elasticity of supply. |
e. | cross-price elasticity of demand. |
OBJ: conceptual
SEC: 4. Elasticity of Supply
TOP: Importance of Supply Elasticity
MSC: Bloom's: Knowledge
- For a given shift in demand, the less elastic is supply, the
a. | greater is the shift in demand. |
b. | greater is the change in equilibrium quantity. |
c. | smaller is the shift in demand. |
d. | greater is the change in price. |
e. | smaller is the change in price. |
OBJ: conceptual
SEC: 4. Elasticity of Supply
TOP: Importance of Supply Elasticity
MSC: Bloom's: Application | AACSB: Analytic
- For a given shift in demand, the more elastic is supply, the
a. | smaller is the change in price. |
b. | smaller is the shift in demand. |
c. | smaller is the change in equilibrium quantity. |
d. | greater is the change in price. |
e. | greater is the shift in demand. |
OBJ: conceptual
SEC: 4. Elasticity of Supply
TOP: Importance of Supply Elasticity
MSC: Bloom's: Application | AACSB: Analytic
- If the producers of a product do not respond to price changes at all, then an increase in demand results in
a. | no change in price but a large increase in equilibrium quantity. |
b. | an increase in price but no change in equilibrium quantity. |
c. | as much an increase in price as in equilibrium quantity. |
d. | no change in both price and equilibrium quantity. |
e. | a large increase in price and a large decrease in equilibrium quantity . |
OBJ: conceptual
SEC: 4. Elasticity of Supply
TOP: Importance of Supply Elasticity
MSC: Bloom's: Application | AACSB: Analytic
- If the supply curve is perfectly elastic, then an increase in demand results in no change in the
a. | equilibrium quantity but a large increase in the equilibrium price. |
b. | equilibrium quantity but a large decrease in the equilibrium price. |
c. | equilibrium price but a decrease in the equilibrium quantity equal to the change in demand. |
d. | equilibrium price but an increase in the equilibrium quantity equal to the change in demand. |
e. | equilibrium quantity or the equilibrium price. |
OBJ: conceptual
SEC: 4. Elasticity of Supply
TOP: Importance of Supply Elasticity
MSC: Bloom's: Application | AACSB: Analytic
/
- The price elasticity of supply can serve as an indicator of how much consumer expenditures will change with a change in price.
Basic
OBJ: conceptual
SEC: 4. Elasticity of Supply
TOP: Importance of Supply Elasticity
MSC: Bloom's: Knowledge
- When supply shifts, supply elasticity affects the changes in equilibrium price and quantity.
Moderate
OBJ: conceptual
SEC: 4. Elasticity of Supply
TOP: Importance of Supply Elasticity
MSC: Bloom's: Analysis | AACSB: Analytic
- When demand shifts, knowing supply elasticity can help us anticipate how big the changes in price and quantity might be.
Basic
OBJ: conceptual
SEC: 4. Elasticity of Supply
TOP: Importance of Supply Elasticity
MSC: Bloom's: Analysis | AACSB: Analytic
Short Answer
- Explain why economists care about the price elasticity of demand. What does it tell us?
OBJ: conceptual
SEC: 2. Elasticity of Demand
TOP: Importance of Price Elasticity of Demand
MSC: Bloom's: Knowledge | AACSB: Analytic
- Answer the following questions using the figure below.
(A) | If the demand curve shifted to the right, along which of the two curves would the equilibrium price increase the most? |
(B) | If the demand curve shifted to the left, along which of the two supply curves would the equilibrium quantity decrease the most? |
(C) | Which of the two supply curves would better represent supply in the short run? |
(D) | Of the two supply curves, which one would be considered the less elastic? |
(A) | S1. |
(B) | S2. |
(C) | S1. |
(D) | S1. |
OBJ: conceptual
SEC: 4. Elasticity of Supply
TOP: Importance of Supply Elasticity
MSC: Bloom's: Application | AACSB: Analytic
- Suppose the government decides to impose a binding price ceiling on milk below the equilibrium price.
(A) | What happens to quantity supplied and quantity demanded? |
(B) | Draw this situation in a diagram, labeling the surplus or shortage that results. |
(C) | How does the total amount spent on milk differ from the situation without the price ceiling? |
(A) | The quantity supplied decreases and the quantity demanded increases. |
(B) | The shortage resulting from a price ceiling being set at P1 equals the distance between Q1 and Q2. |
| |
(C) | The total amount spent on milk decreases compared to the situation where there is no price ceiling. |
OBJ: conceptual
SEC: 4. Elasticity of Supply
TOP: Price Ceiling
MSC: Bloom's: Application | AACSB: Analytic
- Suppose the government sets beef prices, which in effect creates a price floor. Draw a supply and demand diagram for the beef market where the price is fixed greater than the market equilibrium price. Will there be a shortage or a surplus?
OBJ: conceptual
SEC: 4. Elasticity of Supply
TOP: Price Floor
MSC: Bloom's: Application | AACSB: Analytic
- Minimum wage is a price floor because employers are prohibited from paying workers at a wage rate lower than a certain level. Some occupations, such as wait staff in restaurants, are exempt from the minimum-wage law. What is the argument against a price floor for these occupations?
OBJ: factual
SEC: 4. Elasticity of Supply
TOP: Price Floor
MSC: Bloom's: Application | AACSB: Analytic
- Use the following data for a demand curve.
(A) | Use the midpoint formula to calculate the elasticity between a price of $14 and $15. |
(B) | Use the midpoint formula to calculate the elasticity between $7 and $8. |
(C) | Because this is a linear demand curve, why does the elasticity change? |
(D) | At what point is price quantity maximized? What is the elasticity at that point? |
(A) | Elasticity between $14 and $15: 9.67 |
(B) | Elasticity between $7 and $8: .88 |
(C) | The elasticity changes along a linear demand curve because the base (what the changes in price and quantity are relative to) changes. Elasticity is not the same as slope; it is the relative change in quantity demanded divided by the relative change in price. |
(D) | Price quantity is maximized at a quantity of about 80 and a price of $8. At that point, elasticity equals 1. |
OBJ: conceptual
SEC: 4. Elasticity of Supply
TOP: Midpoint Formula
MSC: Bloom's: Application | AACSB: Analytic
- Use the following data for a supply curve to calculate the elasticity of supply.
(A) | Use the midpoint formula to calculate the elasticity of supply for the price between $6 and $7. |
(B) | Use the midpoint formula to calculate the elasticity of supply for the price between $1 and $2. Use the midpoint formula. |
(A) | Elasticity between $6 and $7: .8125 |
(B) | Elasticity between $1 and $2: .5 |
OBJ: conceptual
SEC: 4. Elasticity of Supply
TOP: Midpoint Formula
MSC: Bloom's: Application | AACSB: Analytic
- Given the following income elasticities of demand, would you classify the good as a luxury, necessity, or inferior good?
(A) | Salt: elasticity = 0.2. |
(B) | Potatoes: elasticity = .1. |
(C) | Frozen dinners: elasticity = 0.9. |
(D) | Restaurant meals: elasticity = 1.5 |
(A) | Necessity |
(B) | Inferior |
(C) | Necessity |
(D) | Luxury |
OBJ: conceptual
SEC: 4. Elasticity of Supply
TOP: Income Elasticity
MSC: Bloom's: Application | AACSB: Analytic
- Calculate the cross-price elasticity for the following goods. Are they substitutes or complements?
(A) | The price of airline tickets goes up by 10 percent, causing the quantity demanded for gasoline to go up by 5 percent. |
(B) | The price of pancake flour goes up by 10 percent, causing the quantity demanded for pancake syrup to drop by 20 percent. |
(C) | The price of coffee goes up by 5 percent, causing the quantity demanded for tea to go up by 5 percent. |
(D) | The price of laptops goes up by 5 percent, causing the quantity demanded for USB drives to drop by 2 percent. |
(A) | Substitutes |
(B) | Complements |
(C) | Substitutes |
(D) | Complements |
OBJ: conceptual
SEC: 4. Elasticity of Supply
TOP: Cross-Price Elasticity
MSC: Bloom's: Application | AACSB: Analytic
- The elasticity of demand is lower for European vehicles than for U.S. vehicles. Why do auto dealers offer substantially fewer discounts for European vehicles than for U.S. vehicles?
OBJ: conceptual
SEC: 4. Elasticity of Supply
TOP: Elasticity of Demand and Total Revenue
MSC: Bloom's: Application | AACSB: Analytic
- A manager wishes to increase revenues. One suggestion is to cut prices; another is to raise prices. What are the assumptions each suggestion is based on?
OBJ: conceptual
SEC: 4. Elasticity of Supply
TOP: Price Elasticity of Demand and Total Revenue
MSC: Bloom's: Application | AACSB: Analytic
- Compare a market where supply and demand are both very elastic to one where supply and demand are both very inelastic. Suppose the current equilibrium price and quantity are the same in both markets. Suppose further that the government imposes a price ceiling $.50 below the equilibrium price. Prepare a diagram comparing the shortages that result. Explain the difference in these two cases.
OBJ: conceptual
SEC: 4. Elasticity of Supply
TOP: Supply and Demand Elasticities
MSC: Bloom's: Application | AACSB: Analytic
- Explain why a 10 percent tax would be more destructive in an industry where the demand for the product is highly price elastic as opposed to another industry where product demand is price inelastic.
OBJ: conceptual
SEC: 4. Elasticity of Supply
TOP: Taxes and Price Elasticity of Demand
MSC: Bloom's: Application | AACSB: Analytic
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