Elasticity Chapter.5 Test Bank Docx

c05; Chapter 5: Elasticity

Learning Objectives:

LO-1 Define elasticity

LO-2 Classify elasticity values into inelastic and elastic categories

LO-3 Use the elasticity coefficient to assess the price elasticity of demand

LO-4 Assess the relationship between elasticity and total revenue

LO-5 Describe the factors that determine the price elasticity of demand

1. The measurement of responsiveness between two variables is known as
   1. Marginality
   2. Elasticity
   3. Demand
   4. Total Revenue

LO-1

Level: Easy

1. Price elasticity of demand measures
   1. The responsiveness of sellers to a change in income
   2. The responsiveness of consumers to a change in income
   3. The responsiveness of sellers to a change in price
   4. The responsiveness of consumers to a change in price

LO-1

Level: Easy

1. Which of the following measures the price elasticity of demand?
   1. A change in quantity divided by the change in income
   2. A percentage change in quantity divided by the percentage change in income
   3. A change in quantity divided by the change in price
   4. A percentage change in quantity divided by the percentage change in price

LO-1

Level: Easy

1. The ratio of the percentage change in quantity demanded to the percentage change in price is called
   1. Price elasticity of demand
   2. Price elasticity of supply
   3. Income elasticity of demand
   4. Income elasticity of supply

LO-1

Level: Easy

1. When a given percent change in the price of a good causes a larger percent change in the quantity demanded of the good the good is considered
   1. Elastic
   2. Inelastic
   3. Unit elastic
   4. Nonresponsive

LO-1

Level: Easy

1. When a given percent change in the price of a good causes a smaller percent change in the quantity demanded of the good, the good is considered
   1. Elastic
   2. Inelastic
   3. Unit elastic
   4. Responsive

LO-1

Level: Easy

Reference: Use Figure 1 to answer questions 7 – 12.

Figure 1: Elasticities of Demand

1. Which of the graphs illustrate a perfectly inelastic demand curve?
   1. Graph A
   2. Graph B
   3. Graph C
   4. Graph D

LO-2

Level: Moderate

1. Which of the graphs illustrate a perfectly elastic demand curve?
   1. Graph A
   2. Graph B
   3. Graph C
   4. Graph D

LO-2

Level: Moderate

1. Which of the graphs illustrate a relatively inelastic demand curve?
   1. Graph A
   2. Graph B
   3. Graph C
   4. Graph D

LO-2

Level: Moderate

1. Which of the graphs illustrate a relatively elastic demand curve?
   1. Graph A
   2. Graph B
   3. Graph C
   4. Graph D

LO-2

Level: Moderate

1. Which of the graphs illustrate a good whose percentage change in quantity demanded is greater than the percentage change in price?
   1. Graph A
   2. Graph B
   3. Graph C
   4. Graph D

LO-2

Level: Moderate

1. Which of the graphs illustrate a good whose percentage change in quantity demanded is less than the percentage change in price?
   1. Graph A
   2. Graph B
   3. Graph C
   4. Graph D

LO-2

Level: Moderate

1. If the elasticity of demand is greater than one, the price elasticity of demand is
   1. Elastic
   2. Inelastic
   3. Unit elastic
   4. Unitary elastic

LO-3

Level: Easy

1. If the elasticity of demand is less than one, the price elasticity of demand is
   1. Elastic
   2. Inelastic
   3. Unit elastic
   4. Unitary elastic

LO-3

Level: Easy

1. The amount of money earned when a supplier sells a given quantity of a good is
   1. Total revenue
   2. Marginal revenue
   3. Total product
   4. Marginal product

LO-4

Level: Easy

1. The price of a good increases by 4%. The total revenue would probably increase on all of the following except
   1. Salt
   2. Gasoline
   3. Insulin for a diabetic
   4. A European vacation

LO-4

Level: Difficult

Reference: Use the following information to answer questions 17 – 19.

1. Which of the above goods is the most responsive to changes in price?
   1. Good A
   2. Good B
   3. Good C
   4. Good D

LO-3

Level: Easy

1. When price increases 7% quantity demanded decreases 5%. What is the price elasticity of demand?
   1. 0.07
   2. 0.71
   3. 0.14
   4. 1.4

LO-3

Level: Moderate

1. If the price elasticity of demand for a product is equal to 0.7, then a 5 percent increase in price will
   1. Increase quantity demand by .035%
   2. Increase quantity demanded by 3.5%
   3. Decrease quantity demanded by .035%
   4. Decrease quantity demanded by 3.5%

LO-3

Level: Moderate

1. All of the following are determinants of the price elasticity of demand except
   1. The availability of substitutes
   2. The availability of normal goods
   3. Time
   4. The portion of income spent on the good

LO-5

Level: Moderate

1. All of the following would result in a higher price elasticity of demand except
   1. A longer time period
   2. Many substitutes
   3. Fewer substitutes
   4. A good that is considered a luxury

LO-5

Level: Moderate

1. You are the owner of a quick stop shop across the street from a college specializing in a burger named after the school’s mascot. It is a specialty in town and on game day is considered a staple for tailgaters. Which of the following would be an accurate assumption, given the above information, if you increase the price of the burger?
   1. Total revenue will increase
   2. Total revenue will decrease
   3. There will be no change in total revenue
   4. Hot dog sales will increase

LO-5

Level: Difficult

1. Understanding elasticity is important to understand how policy changes will impact
   1. Election outcomes
   2. Political platforms
   3. Market outcomes
   4. Quantity supplied

LO-4

Level: Difficult

1. The local city council wants to increase the tax on alcohol sales. The intent of the tax is to help raise tax revenue to supplement funds needed for a new elementary school. This tax would only be effective if the price elasticity of demand for alcohol is
   1. Elastic
   2. Inelastic
   3. Unit
   4. Perfectly elastic

LO-4

Level: Moderate

1. A policy that focuses on a tax increases typically are on
   1. Products that have price elasticity of demand that is elastic
   2. Products that have price elasticity of demand that is inelastic
   3. Products that have unit price elasticity of demand
   4. Products that have many substitutes

LO-4

Level: Difficult

Reference: Use Figure 2 to answer questions 26 – 27.

Figure 2: Demand for Widgets

1. If the price of a widget increases from $40 to $50 the absolute value of the price elasticity of demand is
   1. .25
   2. .67
   3. 1.5
   4. 4

LO-3

Level: Difficult

1. If the price of a widget increases from $10 to $20 the absolute value of the price elasticity of demand is
   1. .25
   2. .67
   3. 1.5
   4. 4

LO-3

Level: Difficult

1. If the price of a widget increases from $10 to $20 which of the following would be the expected result
   1. Total revenue will increase
   2. Total revenue will decrease
   3. Total revenue will initially increase but return to previous level
   4. Total revenue will not be affected

LO-4

Level: Moderate

1. If the price of a widget increases from $40 to $50 which of the following would be the expected result
   1. Total revenue will increase
   2. Total revenue will decrease
   3. Total revenue will initially increase but return to previous level
   4. Total revenue will not be affected

LO-4

Level: Moderate

1. If the price elasticity of demand is 4 than
   1. A 1 percent change in the good’s price will cause a 4 percent decrease in the quantity demanded of the good.
   2. A 1 percent change in the good’s price will cause a 4 percent increase in the quantity demanded of the good.
   3. A 10 percent change in the good’s price will cause a 4 percent decrease in the quantity demanded of the good
   4. A 10 percent change in the good’s price will cause a 4 percent increase in the quantity demanded of the good.

LO-3

Level: Moderate

1. Consider the following goods. Which of the following options provide the correct order of increasing elasticities?
2. Salt
3. Wonder Bread
4. Bread
   1. i, ii, iii
   2. ii, iii, i
   3. iii, ii, i
   4. They are the same

LO-3

Level: Difficult

1. Which of the following would indicate an elasticity of demand for a necessity?
   1. 0.5
   2. 1.5
   3. 2.5
   4. 5

LO-3

Level: Moderate

Essay

1. You have exclusive rights for the sale of liquid beverages at the college games. Outside beverages are not allowed inside the stadium. Your friend, currently enrolled in an economics class, suggests that you decrease the price of your beverages to increase the quantity sold. Explain why, or why not, your friend is correct.

LO-5

Level: Moderate

1. Explain why, when demand is elastic, a reduction in price will result in an increase in total revenue.

LO-4

Level: Difficult