Parkin&Bade, Microeconomics, 2nd edition

Chapter 5: Elasticities of Demand and Supply

Multiple choice: Choose the one alternative that best completes the statement or answers the question.

1) The price elasticity of demand measures which of the following?

A) How responsive the quantity demanded is to changes in price.

B) The rate at which demand changes when price changes.

C) The slope of the demand curve.

D) The percentage-slope of the demand curve.

E) None of these correctly defines what price elasticity of demand measures.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 5.1 The Price Elasticity of Demand

2) The price elasticity of demand measures the extent to which the quantity demanded changes when

A) the price of the good changes.

B) consumer preferences change.

C) the price of a related good changes.

D) both the demand and supply of the good change.

E) the expected future price of a good changes.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 5.1 The Price Elasticity of Demand

3) To determine the price elasticity of demand, we

A) compare the change in the quantity to the change in price.

B) compare the percentage change in the quantity demanded to the percentage change in price.

C) need information on consumers' incomes.

D) divide the quantity by the price.

E) need to know how much is available.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 5.1 The Price Elasticity of Demand

4) If the price of a good rises, then moving along a demand curve the percentage change in the quantity demanded will be

A) undefined.

B) zero.

C) positive.

D) negative.

E) either positive, negative or zero depending on how the demand curve shifted.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 5.1 The Price Elasticity of Demand

5) Suppose the price of a box of breakfast cereal rises from $4 to $6. Using the midpoint method, what is the percentage change in price?

A) 67 per cent

B) 40 per cent

C) 50 per cent

D) 33 per cent

E) None of the above answers is correct.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 5.1 The Price Elasticity of Demand

6) Suppose you are working as a tutor charging $85 per hour. If your fee increases from $85 to $93 per hour, using the midpoint method, what is the percentage change in price?

A) 8.99 per cent

B) 9.12 per cent

C) 9.41 per cent

D) 8.00 per cent

E) 8.62 per cent

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 5.1 The Price Elasticity of Demand

7) If the demand for a good is elastic, then

A) the quantity demanded divided by the price exceeds 1.00.

B) a change in the quantity demanded is smaller than the change in price.

C) a change in price leads to a smaller percentage change in the quantity demanded.

D) people substantially decrease the quantity of the good they buy if its price increases by a small percentage.

E) people do not change the quantity they demand when the price of the good changes.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 5.1 The Price Elasticity of Demand

8) If the percentage change in price is 10 per cent and demand is elastic, then the percentage change in the quantity demanded

A) is larger than 10 per cent.

B) equals 10 per cent.

C) equals 0 per cent.

D) is greater than 0 per cent but less than 10 per cent.

E) More information is needed to determine the magnitude of the change in the quantity demanded.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 5.1 The Price Elasticity of Demand

9) Suppose the Adelaide Crows football team raises ticket prices by 13 per cent and as a result the quantity of tickets demanded decreases by 21 per cent. This response means that the demand for Crows tickets is

A) inelastic.

B) elastic.

C) perfectly inelastic.

D) unit elastic.

E) perfectly elastic.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 5.1 The Price Elasticity of Demand

10) Suppose the demand for oranges sold from one roadside stand in South Australia is perfectly elastic. As a result, a 7 per cent increase in the price charged by the owner of this stand leads to

A) a virtually infinite increase in the quantity demanded at this stand.

B) no change in the quantity demanded at this stand.

C) zero peaches sold by this stand.

D) a 7 per cent decrease in the quantity demanded at this stand.

E) a 7 per cent decrease in demand at this stand.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 5.1 The Price Elasticity of Demand

11) If the percentage change in the quantity demanded is not zero, but is less than the percentage change in the price, demand is

A) elastic.

B) unit elastic.

C) perfectly elastic.

D) inelastic.

E) perfectly inelastic.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 5.1 The Price Elasticity of Demand

12) Perfectly inelastic demand means that consumers

A) will buy a certain quantity, regardless of price.

B) decrease their consumption as price rises.

C) will buy a huge, almost infinite amount more, if the price falls just a little.

D) increase their consumption as price rises.

E) are willing to buy any quantity of the good at a given price, but none at higher prices.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 5.1 The Price Elasticity of Demand

13) When the percentage change in the quantity demanded equals the percentage change in price, then demand is

A) elastic.

B) inelastic.

C) unit elastic.

D) undefined.

E) irrelevant.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 5.1 The Price Elasticity of Demand

14) If the price elasticity of demand for opera tickets in Sydney is 1.00, then the demand for opera tickets in Sydney is

A) unit elastic.

B) perfectly elastic.

C) inelastic.

D) perfectly inelastic.

E) elastic.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 5.1 The Price Elasticity of Demand

15) Which of the following does NOT influence the price elasticity of demand?

A) Whether the good is a necessity or a luxury.

B) The amount by which the demand curve shifts when the price of another good changes.

C) The number of substitutes available to consumers.

D) The time period buyers have to respond to a price change.

E) The price of the good relative to total income.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 5.1 The Price Elasticity of Demand

16) If a good has many close substitutes, then its demand is most likely

A) elastic.

B) unit elastic.

C) inelastic.

D) perfectly inelastic.

E) elastic or inelastic depending on whether the price of the good is increasing or decreasing.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 5.1 The Price Elasticity of Demand

17) If a product is narrowly defined, it is likely to

A) have few substitutes, and therefore its demand is less elastic.

B) be unique and have many substitutes.

C) be unique, and therefore its demand is inelastic.

D) have a larger proportion of income spent on it.

E) have many substitutes and therefore its demand is elastic.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 5.1 The Price Elasticity of Demand

18) Of the following, which good has the most elastic demand?

A) Breakfast food

B) Breakfast cereal

C) Sultana Bran purchased at a Woolworths supermarket

D) Food

E) Sultana Bran

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 5.1 The Price Elasticity of Demand

19) Which of the following statements is correct?

A) The larger the proportion of income spent on a good, the smaller the elasticity of demand.

B) The demand for New Balance shoes is more elastic than the demand for shoes in general.

C) The demand for a narrowly defined good is less elastic than the demand for a more broadly defined good.

D) The demand for luxuries is less elastic than the demand for necessities.

E) The demand for salt is very elastic.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 5.1 The Price Elasticity of Demand

20) The longer the time that has elapsed since the price of a good changed, the

A) steeper the demand curve.

B) more elastic the demand for that good.

C) fewer substitutes available for the good.

D) smaller the amount of that good bought.

E) less elastic the demand for that good.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 5.1 The Price Elasticity of Demand

21) Demand for a product tends to be more elastic the longer the time period considered because

A) sellers have more time to expand production.

B) buyers get used to the new price.

C) buyers have more time to search for substitutes.

D) the inverse relationship between the price and the quantity demanded weakens over time.

E) price increases over time make the price larger relative to buyers' incomes.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 5.1 The Price Elasticity of Demand

22) A product's price elasticity of demand is likely to be greater

A) the less time consumers have to adjust to price changes.

B) if consumers spend a small proportion of income on the product.

C) if it only has a few substitutes.

D) if the product is a luxury good rather than a necessity.

E) Both answers C and D are correct.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 5.1 The Price Elasticity of Demand

23) The demand for a necessity generally is

A) unit elastic.

B) infinitely elastic.

C) very elastic.

D) inelastic.

E) unaffected by income.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 5.1 The Price Elasticity of Demand

24) If a good is a necessity, it has ________ substitutes and its demand is ________.

A) poor; elastic

B) many; elastic

C) many; inelastic

D) poor; inelastic

E) many; precisely unit elastic

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 5.1 The Price Elasticity of Demand

25) We calculate the price elasticity of demand as the

A) ratio of the percentage change in price to the percentage change in quantity.

B) change in quantity divided by the change in price.

C) ratio of the percentage change in the quantity demanded to the percentage change in price.

D) equilibrium quantity divided by the equilibrium price.

E) percentage change in the quantity demanded divided by the percentage change in income.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 5.1 The Price Elasticity of Demand

26) If a 10 per cent price increase generates a 10 per cent decrease in quantity demanded, then demand is

A) elastic.

B) inelastic.

C) perfectly inelastic.

D) perfectly elastic.

E) unit elastic.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 5.1 The Price Elasticity of Demand

27) If a 30 per cent price increase generates a 20 per cent decrease in quantity demanded, then demand is

A) elastic.

B) inelastic.

C) perfectly inelastic.

D) unit elastic.

E) perfectly elastic.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 5.1 The Price Elasticity of Demand

28) If a 2 per cent change in price leads to a ________ per cent change in the quantity demanded, then demand is ________.

A) 3; inelastic

B) 2; elastic

C) 0; perfectly elastic

D) 1; inelastic

E) 1; unit elastic

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 5.1 The Price Elasticity of Demand

29) If the price elasticity of demand for a good is 2, then a 10 per cent increase in the price of that good ________ the quantity demanded by ________ per cent.

A) increases; 20

B) decreases; 20

C) increases; 8

D) decreases; 10

E) decreases; 2

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 5.1 The Price Elasticity of Demand

30) When the price of pizzas rises by 4 per cent, the quantity demanded decreases 10 per cent. What is the price elasticity of demand for pizza?

A) 0.4

B) 40.0

C) 25.0

D) 2.5

E) 10.0

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 5.1 The Price Elasticity of Demand

31) Suppose the price of a ticket to a Rolling Stones concert is $41 and, at that price, the quantity of tickets demanded is 17,000 per concert. Using the midpoint method of calculating percentage changes, if the Rolling Stones raises the price to $48 and the quantity demanded decreases to 16,000, the price elasticity of demand for their concert tickets is

A) 6.06.

B) 0.93.

C) 1.00.

D) 0.39.

E) 15.73.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 5.1 The Price Elasticity of Demand

32) When the price of Cosmopolitan magazine decreases from $5 to $3, the quantity demanded increases from 600,000 to 1,000,000 copies each month. Using the midpoint method, the price elasticity of demand equals

A) 1.

B) 1/2.

C) 1/3.

D) 2.

E) 3.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 5.1 The Price Elasticity of Demand

33) A 10 per cent increase in price leads to a 20 per cent decrease in the quantity demanded. The price elasticity of demand is equal to

A) 10.0.

B) 20.0.

C) 2.0.

D) 1.0.

E) 0.5.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 5.1 The Price Elasticity of Demand

34) When the price of a cup of coffee falls from $3.00 to $2.50, the quantity demanded increases from 1,000 per month to 1,150 per month. Using the midpoint method, the price elasticity of demand is

A) 0.77.

B) 1.30.

C) 0.07.

D) 2.50.

E) 3.00.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 5.1 The Price Elasticity of Demand

35) If the price elasticity of demand for a product is 2.5, then a price increase of 1.5 per cent decreases the quantity demanded by

A) 5.00 per cent.

B) 3.75 per cent.

C) 3.50 per cent.

D) 1.00 per cent.

E) 1.55 per cent.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 5.1 The Price Elasticity of Demand

36) Using the data in the table above, when the price of a skirt rises from $20 to $35, what is the price elasticity of demand? (Use the midpoint method.)

A) 0.33

B) 1.00

C) 1.33

D) 3.00

E) 0.25

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 5.1 The Price Elasticity of Demand

37) The data in the table above give two points on the demand curve for pizza. Using the midpoint method, when the price of a pizza falls from $10 to $9, what is the percentage change in price?

A) 1.0 per cent

B) 8.2 per cent

C) 5.0 per cent

D) 15.5 per cent

E) 10.5 per cent

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 5.1 The Price Elasticity of Demand

38) The data in the table above give two points on the demand curve for pizza. Using the midpoint method, when the price of a pizza falls from $10 to $9, what is the price elasticity of demand?

A) 0.9

B) 0.6

C) 0.5

D) 2.1

E) 8.6

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 5.1 The Price Elasticity of Demand

39) Using the table above, what is the elasticity of demand between the prices of $9 and $7?

A) 4

B) 6

C) 1

D) 2

E) 1/4

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 5.1 The Price Elasticity of Demand

40) Using the table above, the elasticity of demand is equal to 1 at a price of

A) $6.

B) $3.

C) $5.

D) $8.

E) $1.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 5.1 The Price Elasticity of Demand

41) In the figure above, using the midpoint method, the price elasticity of demand when the price falls from $7 to $6 is equal to

A) 0.40.

B) 2.50.

C) 0.62.

D) 1.00.

E) 1.63.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 5.1 The Price Elasticity of Demand

42) In the figure above, using the midpoint method, the price elasticity of demand when the price falls from $6 to $5 is equal to

A) 1.63.

B) 1.10.

C) 2.50.

D) 0.91.

E) 1.00.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 5.1 The Price Elasticity of Demand

43) When minced beef is $3 per kilo, Ms. Rush buys 6 kilos. When minced beef is $2 per kilo, Ms. Rush buys 10 kilo. Describe Ms. Rush's demand between these two prices.

A) Unit elastic

B) Elastic

C) Inelastic

D) Perfectly elastic

E) Perfectly inelastic

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 5.1 The Price Elasticity of Demand

44) Which of the following is correct?

i. All linear demand curves have a constant slope and a constant price elasticity of demand.

ii. The price elasticity of demand changes while moving along a downward-sloping linear demand curve.

iii. The magnitude of the slope of all linear demand curves is equal to the price elasticity of demand.

A) i only

B) i, ii and iii

C) iii only

D) i and ii

E) ii only

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 5.1 The Price Elasticity of Demand

45) Moving downward along a linear (straight-line) downward-sloping demand curve, the

A) demand becomes less elastic.

B) quantity demanded decreases.

C) price elasticity of demand does not change.

D) total revenue never changes.

E) demand becomes more elastic.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 5.1 The Price Elasticity of Demand

46) At the midpoint of a linear, downward-sloping demand curve, the price elasticity of demand is

A) less than one but greater than zero.

B) zero.

C) infinite.

D) greater than one.

E) equal to one.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 5.1 The Price Elasticity of Demand

47) The price of the good multiplied by the quantity sold is its

A) total spending.

B) total quantity.

C) total cost.

D) total income.

E) total revenue.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 5.1 The Price Elasticity of Demand

48) If demand is price inelastic and the price is lowered, which of the following occurs?

A) The total revenue of the firms selling the product is unchanged.

B) The total expenditure increases and the total revenue decreases.

C) The total expenditure decreases and the total revenue increases.

D) The total revenue of the firms selling the product decreases.

E) The quantity sold decreases.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 5.1 The Price Elasticity of Demand

49) If demand is inelastic and the price falls, the total revenue

A) might rise, fall or remain constant.

B) rises.

C) remains constant.

D) falls.

E) becomes negative.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 5.1 The Price Elasticity of Demand

50) If the supply of a good decreases and it causes total revenue to increase, this shows that the good has a(n)

A) elastic demand.

B) inelastic supply.

C) elastic supply.

D) unit elastic demand.

E) inelastic demand.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 5.1 The Price Elasticity of Demand

51) You own a small store. Your cashier thinks you should raise prices to increase your total revenue and your customer thinks you should lower prices to increase your total revenue. The cashier thinks the price elasticity of demand is ________ and the customer believes the price elasticity of demand is ________.

A) elastic; inelastic

B) unit elastic; elastic

C) inelastic; inelastic

D) elastic; elastic

E) inelastic; elastic

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 5.1 The Price Elasticity of Demand

52) If a 2 per cent rise in price leads to a 4 per cent decrease in quantity demanded, then demand is

A) elastic and total revenue increases.

B) elastic, but we cannot tell what happens to total revenue without more information.

C) elastic and total revenue decreases.

D) inelastic and total revenue decreases.

E) Total revenue decreases but we cannot tell if the demand is elastic or inelastic without more information.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 5.1 The Price Elasticity of Demand

53) If the price elasticity of demand for petrol equals 0.3, then an increase in the price of a litre of petrol from $3.70 to $3.90

A) leads to no change in total revenue.

B) makes the demand for petrol elastic.

C) increases total revenue.

D) decreases total revenue.

E) Both answers B and D are correct.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 5.1 The Price Elasticity of Demand

54) If a bakery raises the price of its bread by 11 per cent and the quantity demanded decreases by 11 per cent, then the demand for its bread is ________ and the bakery's total revenue ________.

A) unit elastic; increases

B) elastic; does not change

C) unit elastic; decreases

D) unit elastic; does not change

E) inelastic; does not change

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 5.1 The Price Elasticity of Demand

55) Krispy Kreme raises the price of its donuts. The price elasticity of demand for Krispy Kreme donuts equals 5.0. What happens to Krispy Kremes' total revenue?

A) It becomes negative.

B) It increases.

C) Nothing.

D) It decreases.

E) It might change, but more information is needed to determine if it increases, decreases or does not change.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 5.1 The Price Elasticity of Demand

56) KFC raises the price of its chicken nuggets. The price elasticity of demand for KFC chicken nuggets is 0.8. What happens to KFC's total revenue?

A) It decreases.

B) Nothing.

C) It increases.

D) It becomes negative.

E) It might change, but more information is needed to determine if it increases, decreases or does not change.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 5.1 The Price Elasticity of Demand

57) In the figure above, what is the total revenue at point A?

A) $150

B) $170

C) $20

D) $3,000

E) 150 quantity units

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 5.1 The Price Elasticity of Demand

58) In the figure above, what happens to total revenue as we move from point A to point B?

A) It remains constant.

B) It decreases.

C) It becomes negative.

D) It increases.

E) More information about the elasticity of demand is needed to determine if it increases, decreases or does not change.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 5.1 The Price Elasticity of Demand

59) In the figure above, using the midpoint method, what is the price elasticity of demand when the price falls from $8 to $7?

A) 0.4

B) 5.0

C) 4.0

D) 0.5

E) 0.25

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 5.1 The Price Elasticity of Demand

60) In the figure above, if the price falls from $8 to $7, demand is

A) income elastic.

B) inelastic.

C) elastic.

D) perfectly elastic.

E) unit elastic.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 5.1 The Price Elasticity of Demand

61) In the figure above, when the price falls from $8 to $7, total revenue

A) increases from $120 to $210 so demand is inelastic.

B) decreases from $210 to $120 so demand is inelastic.

C) increases from $120 to $210 so demand is elastic.

D) decreases from $210 to $120 so demand is elastic.

E) increases from $120 to $210, but more information is needed to determine whether demand is elastic, inelastic or unit elastic.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 5.1 The Price Elasticity of Demand

62) A firm raises the price it charges. The firm's total revenue does not change. What can we conclude about the price elasticity of demand?

A) Demand is elastic.

B) Demand is perfectly elastic.

C) Demand is unit elastic.

D) Demand is inelastic.

E) Not enough information is given to conclude anything about price elasticity of demand.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 5.1 The Price Elasticity of Demand

63) The price elasticity of demand for an agricultural product is 0.4. This value means that, when the quantity decreases 1 per cent, the price

A) rises 4 per cent.

B) falls 2.5 per cent.

C) rises 2.5 per cent.

D) rises 0.25 per cent.

E) falls 4 per cent.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 5.1 The Price Elasticity of Demand

64) Suppose the price of a silk tie rises from $45 to $55. Using the midpoint method, what is the percentage change in price?

A) 20 per cent

B) 100 per cent

C) 10 per cent

D) -10 per cent

E) -20 per cent

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 5.1 The Price Elasticity of Demand

65) During the winter of 2017-2018, the price of heating oil in Canberra increased enormously but the quantity demanded decreased only a little. This response indicates that the demand for heating oil was

A) perfectly inelastic.

B) unit elastic.

C) inelastic.

D) perfectly elastic.

E) elastic.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 5.1 The Price Elasticity of Demand

66) When a firm raises the price of its product, what happens to its total revenue?

A) If demand is elastic, total revenue decreases.

B) If demand is elastic, total revenue increases.

C) If demand is unit elastic, total revenue increases.

D) If demand is inelastic, total revenue decreases.

E) If demand is unit elastic, total revenue decreases.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 5.1 The Price Elasticity of Demand

67) The price elasticity of supply measures

A) the percentage change in supply from a percentage change in demand.

B) how the equilibrium price changes in response to a change in the equilibrium quantity supplied.

C) the slope of the supply curve.

D) the extent to which the quantity supplied of a good changes when the price of a good changes, other things remaining the same.

E) Both answers B and C are correct.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 5.2 The Price Elasticity of Supply

68) If the percentage change in the price of a good exceeds the percentage change in the quantity supplied, then the supply is

A) inelastic.

B) perfectly elastic.

C) elastic.

D) unit elastic.

E) perfectly inelastic.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 5.2 The Price Elasticity of Supply

69) When the percentage change in the quantity supplied is less than the percentage change in price, the supply is

A) perfectly unit elastic.

B) perfectly elastic.

C) elastic.

D) inelastic.

E) unit elastic.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 5.2 The Price Elasticity of Supply

70) The figure above shows the supply curve for a good with

A) an inelastic supply.

B) an elastic supply.

C) a perfectly elastic supply.

D) a unit elastic supply.

E) a perfectly inelastic supply.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 5.2 The Price Elasticity of Supply

71) The figure above shows the supply curve for a good with

A) a perfectly inelastic supply.

B) an inelastic supply.

C) a unit elastic supply.

D) a perfectly elastic supply.

E) an elastic supply.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 5.2 The Price Elasticity of Supply

72) The fact that there is a very limited amount of land in Hong Kong means the supply of new apartments in Hong Kong is

A) limited by the demand.

B) perfectly elastic.

C) elastic.

D) unit elastic.

E) inelastic.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 5.2 The Price Elasticity of Supply

73) For which of the following would the supply likely be most inelastic?

A) Canned soup

B) A t-shirt

C) An aircraft carrier

D) A toy aeroplane

E) Bottled water

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 5.2 The Price Elasticity of Supply

74) If wheat can be produced at a constant opportunity cost, then the supply of wheat is

A) unit elastic.

B) inelastic.

C) perfectly inelastic.

D) perfectly elastic.

E) elastic.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 5.2 The Price Elasticity of Supply

75) Which of the following explains why supply is more elastic as more time passes?

A) Sellers try to take advantage of a high price in the short term.

B) It is difficult or impossible to increase the quantity produced in a short period of time.

C) The supply curve becomes generally steeper as more time passes.

D) Consumers have more time to search for substitutes.

E) There is no explanation for this phenomenon.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 5.2 The Price Elasticity of Supply

76) If the price elasticity of supply for a good is 0.75, then

A) the supply is elastic.

B) the supply is inelastic so the demand must also be inelastic.

C) an increase in the price boosts the quantity supplied by a larger percentage.

D) the percentage change in the quantity supplied is less than the percentage change in price.

E) None of the above answers is correct.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 5.2 The Price Elasticity of Supply

77) If the price of timber increased by 10 per cent and the quantity supplied increased by 20 per cent. Then the supply of timber is

A) perfectly elastic.

B) elastic.

C) inelastic.

D) unit elastic.

E) perfectly inelastic.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 5.2 The Price Elasticity of Supply

78) If the price of beef increased by 20 per cent and the quantity supplied increased by 10 per cent, then the supply of beef is

A) perfectly inelastic.

B) elastic.

C) perfectly elastic.

D) unit elastic.

E) inelastic.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 5.2 The Price Elasticity of Supply

79) Suppose the current price of barley is $70 per tonne and at that price 100,000 tonnes are grown by a Victorian farmer. If the price of barley rises to $80 and quantity supplied increases to 130,000 tonnes then, using the midpoint method, the price elasticity of supply for barley equals

A) 1.96.

B) 13.33.

C) 26.78.

D) zero.

E) 0.51.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 5.2 The Price Elasticity of Supply

80) The price of one-bedroom apartments in Mildura increased from $55,000 to $65,000 and the quantity of apartments for sale increased from 25 to 30. Using the midpoint method, the price elasticity of supply for apartments in Mildura is equal to

A) 0.916.

B) 0.08.

C) 2.18.

D) 1.09.

E) 0.75.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 5.2 The Price Elasticity of Supply

81) If the price of DVDs falls from $20 to $12 and the quantity of DVDs supplied decreases from 118,000 to 100,000, using the midpoint formula the elasticity of supply equals

A) 0.33.

B) 2.94.

C) -3.08.

D) 3.08.

E) 0.23.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 5.2 The Price Elasticity of Supply

82) If the price doubles and the quantity supplied also doubles, the price elasticity of supply for the good is

A) 2.

B) 1.

C) -2.

D) -1.

E) 100 per cent.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 5.2 The Price Elasticity of Supply

83) If the quantity supplied and the price change by the same percentage, then supply is

A) elastic.

B) perfectly inelastic.

C) unit elastic.

D) perfectly elastic.

E) inelastic.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 5.2 The Price Elasticity of Supply

84) If a 20 per cent increase in the price of a good does not change the quantity supplied, the

A) supply is unit elastic.

B) supply is perfectly inelastic.

C) supply is perfectly elastic.

D) supply is elastic.

E) None of the above answers is correct.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 5.2 The Price Elasticity of Supply

85) When the percentage change in the quantity supplied is twice the percentage change in price, then supply is

A) perfectly elastic.

B) unit elastic.

C) elastic.

D) perfectly inelastic.

E) inelastic.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 5.2 The Price Elasticity of Supply

86) Goods that can be produced at a constant or very gently rising opportunity cost have

A) an elastic supply.

B) an elastic demand.

C) an inelastic demand.

D) an inelastic supply.

E) a unit elastic demand.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 5.2 The Price Elasticity of Supply

87) Many manufactured goods have an ________ supply if production plans have only a short period to change and, as time passes and all production adjustments are made, the supply of the good ________ from the initial response.

A) inelastic; decreases

B) elastic; increases

C) inelastic; does not change

D) elastic; decreases

E) inelastic; increases

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 5.2 The Price Elasticity of Supply

88) Supply is unit elastic when the

A) percentage change in the quantity supplied equals the percentage change in price.

B) supply curve is upward sloping.

C) supply curve is horizontal.

D) supply curve is vertical.

E) price elasticity of supply is positive.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 5.2 The Price Elasticity of Supply

89) If a firm supplies 200 units at a price of $50 and 100 units at a price of $40, using the midpoint method, what is the price elasticity of supply?

A) 5.00

B) 8.50

C) 0.33

D) 1.00

E) 3.00

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 5.2 The Price Elasticity of Supply

90) If the price of a good increases by 10 per cent and the quantity supplied increases by 5 per cent, then the elasticity of supply is

A) negative and supply is inelastic.

B) less than one and supply is inelastic.

C) greater than one and supply is elastic.

D) less than one and supply is elastic.

E) greater than one and supply is inelastic.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 5.2 The Price Elasticity of Supply

91) The cross elasticity of demand is a measure of how

A) total revenue changes when the price of a product changes.

B) demand for a product changes when the price of a substitute or complement changes.

C) responsive consumers are to changes in the price of a product.

D) responsive suppliers are to changes in the price of a product.

E) demand for a product changes when income changes.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 5.3 Cross Price and Income Elasticity

92) If Microsoft wanted to prove to the federal court that its Windows software has many substitutes that personal computer owners can use, Microsoft hopes to find

A) a positive income elasticity for Windows.

B) that the demand for Windows is inelastic.

C) that the demand for Windows is elastic.

D) a large positive value for the cross elasticity of demand for Windows and other software.

E) a negative income elasticity for Windows.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 5.3 Cross Price and Income Elasticity

93) If a 1 per cent increase in the price of X increases the quantity demanded of Y by 2 per cent, then X and Y are

A) normal goods and the income elasticity of demand of each equals 2.

B) substitutes and the cross elasticity of demand equals 2.

C) substitutes and the cross elasticity of demand equals 1/2.

D) complements and the cross elasticity of demand equals 2.

E) complements and the income elasticity of demand equals 2.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 5.3 Cross Price and Income Elasticity

94) If the price of a cinema ticket rises 3 per cent and, as a result, the quantity demanded of DVD rentals increases 6 per cent, then the cross elasticity of demand is

A) 2.

B) 9.

C) 1/2.

D) -2.

E) -1/2.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 5.3 Cross Price and Income Elasticity

95) Based on data in the table above, use the midpoint method to determine the cross elasticity of demand for ice cream and cake.

A) The cross elasticity is -0.83.

B) The cross elasticity is -1.75.

C) The cross elasticity is -0.75.

D) The cross elasticity is -1.33.

E) The cross elasticity is -4.0.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 5.3 Cross Price and Income Elasticity

96) Based on the data in the table above, ice cream and cake are ________ goods.

A) inferior

B) substitute

C) complementary

D) normal

E) Both answers B and D are correct.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 5.3 Cross Price and Income Elasticity

97) The cross elasticity of demand for butter and margarine is likely to be

A) negative because they are complements.

B) positive because they are normal goods.

C) negative because they are substitutes.

D) positive because they are substitutes.

E) positive because they are complements.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 5.3 Cross Price and Income Elasticity

98) Which of the following is correct?

A) The income elasticity of demand for a normal good is negative.

B) The cross elasticity of demand for normal goods is positive.

C) The cross elasticity of demand equals the percentage change in demand divided by the percentage change in income.

D) The cross elasticity of demand for substitute goods is positive.

E) The cross elasticity of demand for substitute goods is negative.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 5.3 Cross Price and Income Elasticity

99) Patrick lives near two petrol stations, Caltex and Shell. If Caltex decreases the price of petrol, we predict that the quantity of petrol demanded at Shell will

A) decrease because Caltex and Shell petrol are substitutes.

B) decrease because Caltex and Shell petrol are complements.

C) increase because Caltex and Shell petrol are substitutes.

D) increase because Caltex and Shell petrol are complements.

E) not change because Caltex and Shell are different brands of petrol.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 5.3 Cross Price and Income Elasticity

100) If the cross elasticity of demand between Coke and Pepsi is 2.02, then Coke and Pepsi are

A) inferior goods.

B) complements.

C) normal goods.

D) substitutes.

E) Both answers B and C are correct.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 5.3 Cross Price and Income Elasticity

101) If Pepsi goes on sale and decreases its price by 10 per cent and, as a result, the quantity demanded of Coca Cola decreases by 5 per cent, then Pepsi and Coke are ________ goods.

A) normal

B) substitute

C) inferior

D) unrelated

E) complementary

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 5.3 Cross Price and Income Elasticity

102) The cross elasticity between computers and software is

A) negative because they are complements.

B) negative because they are substitutes.

C) positive because they are substitutes.

D) positive because they are complements.

E) positive because they are normal goods.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 5.3 Cross Price and Income Elasticity

103) If the price of one good increases and the quantity demanded of a different good decreases, then these two goods are

A) complements.

B) inelastic goods.

C) normal goods.

D) inferior goods.

E) substitutes.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 5.3 Cross Price and Income Elasticity

104) When two goods are related such that an increase in the price of one good decreases the quantity demanded of the other good, these goods are definitely

A) inferior goods.

B) normal goods.

C) luxury goods.

D) complements.

E) substitutes.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 5.3 Cross Price and Income Elasticity

105) If a lower price for good X increases the demand for good Y, the cross elasticity value for the two goods is

A) positive and greater than one.

B) positive and less than one.

C) negative.

D) equal to zero.

E) possibly negative, positive or zero, but there is not enough information to decide.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 5.3 Cross Price and Income Elasticity

106) The cross elasticity of demand for blank DVDs and DVD burners is likely to be

A) negative because they are complements.

B) positive because they are substitutes.

C) negative because they are substitutes.

D) positive because they are complements.

E) negative because, with the advent of digital cameras, film and film cameras are inferior goods.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 5.3 Cross Price and Income Elasticity

107) If the cross elasticity of demand for DVD players and DVDs equals -2, then the products are

A) complements.

B) normal goods.

C) unrelated.

D) substitutes.

E) inferior goods.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 5.3 Cross Price and Income Elasticity

108) The income elasticity of demand is a measure of

A) the extent to which the supply of a good changes when the demand changes as a result of a change in income.

B) the extent to which the demand for a good changes when income changes.

C) how responsive suppliers are to changes in the price of a product.

D) how responsive consumers are to changes in the price of a product.

E) how demand for a product changes when the price of a substitute or complement product changes.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 5.3 Cross Price and Income Elasticity

109) The income elasticity of demand is ________ if the good is ________ good.

A) positive; a substitute

B) positive; an inferior

C) less than one; an inferior

D) negative; a normal

E) positive; a normal

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 5.3 Cross Price and Income Elasticity

110) The income elasticity of demand for skiing trips to Falls Creek is greater than one. Thus a trip to Falls Creek for skiing is ________ good.

A) an inferior

B) a price inelastic

C) a normal

D) a unit elastic

E) a price elastic

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 5.3 Cross Price and Income Elasticity

111) People eat at restaurants less often when their incomes fall because of a recession. Eating at restaurants must be

A) an inferior good.

B) a substitute for other goods.

C) a complement to other goods.

D) a normal good.

E) an inelastic good.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 5.3 Cross Price and Income Elasticity

111) Alan purchases 10 per cent fewer bags of corn chips when his income decreases by 5 per cent. Based on only this information, we know that for Alan

A) corn chips are a complement to salsa.

B) corn chips are an inferior good.

C) corn chips are a substitute for pretzels.

D) corn chips are a normal good.

E) the price of chips fell.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 5.3 Cross Price and Income Elasticity

112) Assume that it is predicted that, for the years after you graduate from university, the entire economy will experience a long period of recession during which people's incomes will decrease. What type of industry would be the best for you to find employment in if this prediction is correct? An industry that produces a product that

A) is a complement.

B) is income inelastic.

C) is income elastic.

D) is inferior.

E) None of these industries.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 5.3 Cross Price and Income Elasticity

113) A product that has a negative income elasticity of demand is ________ good.

A) a normal

B) a negative

C) a complementary

D) an inferior

E) a substitute

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 5.3 Cross Price and Income Elasticity

114) If a product is an inferior good, then its income elasticity of demand is

A) indeterminate.

B) negative.

C) zero.

D) positive.

E) undefined.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 5.3 Cross Price and Income Elasticity

115) If a 5 per cent increase in income brings about a 10 per cent decrease in the demand for a good, then the

A) good is an inferior good.

B) income elasticity of demand is 0.5.

C) income elasticity of demand is 5.0.

D) income elasticity of demand is 2.0.

E) good is a normal good.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 5.3 Cross Price and Income Elasticity

116) Joe receives a 20 per cent increase in his income from his part-time job and as a consequence decreases his consumption of two-minute noodles by 10 per cent. Hence to Joe, two-minute noodles are

A) a substitute good with a cross elasticity of 0.5.

B) an inferior good with an income elasticity of -0.5.

C) an inferior good with an income elasticity of -2.0.

D) a good with a price elasticity of supply of -0.5.

E) a normal good with a price elasticity of demand of 0.5.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 5.3 Cross Price and Income Elasticity

117) If your income was to rise from $20,000 to $30,000 and the quantity of inter-city bus trips you take per year decreases from 10 to 8. Then, for you,

A) inter-city bus trips are a normal good.

B) the income elasticity of demand for inter-city bus trips is -0.56.

C) the income elasticity of demand for inter-city bus trips is -1.8.

D) Both answers A and B are correct.

E) Both answers A and C are correct.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 5.3 Cross Price and Income Elasticity

118) The lower the level of income in a country, the

A) more income elastic is the demand for food.

B) more negative the income elasticity of the demand for food.

C) less income elastic is the demand for food.

D) Both answers A and C are correct.

E) None of the above is correct.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 5.3 Cross Price and Income Elasticity

119) If beef and pork are substitutes for consumers, the cross elasticity of demand between the two products must be

A) positive.

B) greater than 1.

C) elastic.

D) negative.

E) indeterminate.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head:5.3 Cross Price and Income Elasticity

120) When the price of going to a movie rises 5 per cent, the quantity of DVDs demanded increases 10 per cent. The cross elasticity of demand equals

A) -2.0.

B) -0.50.

C) 10.0.

D) 2.0.

E) 0.50.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 5.3 Cross Price and Income Elasticity

121) If your income was to increase from $20,000 to $30,000 and the number of home -delivered pizzas you bought per year increased from 22 to 40, then your income elasticity of demand for home-delivered pizza equals

A) 1.45.

B) 0.58.

C) 2.86.

D) 0.69.

E) 0.40.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 5.3 Cross Price and Income Elasticity

122) When income increases from $30,000 a year to $40,000 a year, the quantity demanded of weekend vacations by Sara increases from 2 a year to 5 a year. For Sara, the income elasticity of demand of weekend vacations is ________ and weekend vacations are ________ good.

A) 1/3; a normal

B) -4.5; an inferior

C) 3; a normal

D) 1/3; an inferior

E) 4.5 a normal

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 5.3 Cross Price and Income Elasticity

123) If the income elasticity of demand for used cars is less than zero, then used cars are

A) a normal good.

B) a perfectly inelastic good.

C) an inelastic good.

D) an inferior good.

E) a substitute good.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 5.3 Cross Price and Income Elasticity

124) Which of the following is most likely to have an income elasticity of demand that exceeds 1?

A) Food

B) Telephone services

C) Airline travel

D) Alcoholic beverages

E) Tobacco

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 5.3 Cross Price and Income Elasticity