Topic 3 (Elasticity)

The price elasticity of demand indicates:

A. the extent to which consumers respond to a change in price

B. the extent to which a demand curve shifts as income changes

C. the slope of the demand curve

D. how far business executives can stretch their fixed costs

E. the extent to which changes in a product's price affect consumers' incomes

1. Suppose the price elasticity of demand is inelastic, then:

A. a 1 percent fall in the price will lead to a higher than 1 percent increase in quantity demanded.

B. a 1 percent increase in the price will lead to a lower than 1 percent decrease in quantity demanded.

C. a 1 percent fall in the price will lead to a lower than 1 percent decrease in quantity demanded.

D. a 1 percent increase in the price will lead to a higher than 1 percent decrease in quantity demanded.

E. a 1 percent fall in the price will lead to a 1 percent increase in quantity demanded.

1. Suppose a 40 percent increase in the quantity of quinoa demanded is observed as a result of a 10 percent decline in its price. Then the price elasticity of demand for quinoa is:

A. inelastic and equal to 0.25.

B. inelastic and equal to 4.

C. elastic and equal to 0.25.

D. elastic and equal to 4.

E. unitary elastic and equal to 1.

1. A perfectly inelastic demand curve:

A. rises upward and to the right, but has a constant slope

B. can be represented by a line parallel to the vertical axis

C. cannot be shown on a two-dimensional graph

D. can be represented by a line parallel to the horizontal axis

E. is downward sloping and has a constant slope

1. If a business can sell 3000 units of a product at $10 per unit and 5000 units at $8 per unit, its demand is:

A. elastic

B. perfectly elastic

C. inelastic

D. unit-elastic

E. perfectly inelastic

1. A manufacturer of frozen pizzas found that total revenue decreased when price was lowered from $5 to $4. It was also found that total revenue decreased when price was raised from $5 to $6. It can be concluded that:

A. the demand for pizza is elastic above $5 and inelastic below $5

B. the demand for pizza is elastic both above and below $5

C. the demand for pizza is inelastic above $5 and elastic below $5

D. the demand for pizza is inelastic both above and below $5

E. $5 is not the equilibrium price of pizza

1. The elasticity of demand for a product is likely to be greater:

A. if the product is a "necessity" rather than a "luxury" good

B. the greater the amount of time over which producers adjust to a price change

C. the smaller the proportion of one's income spent on the product

D. the smaller the number of substitute products

E. the greater the amount of time over which buyers adjust to a price change

1. The demand for such products as salt, bread, and electricity tends to be:

A. perfectly inelastic

B. perfectly elastic

C. unit-elastic

D. relatively inelastic

E. relatively elastic

1. A product's price rises from $4 to $6, causing consumption to fall from 2 million to 1 million units. The numerical value of price elasticity of demand is therefore:

A. 1.50

B. 1.67

C. 2.00

D. 3.00

E. 1.00

1. The quantity demanded of a product rises from 200 000 to 300 000 units when its price falls from $4 to $1. The numerical value of the price of elasticity of demand for this product is therefore:

A. 3.00

B. 0.67

C. 0.17

D. 0.44

E. 0.33

1. Average annual consumer incomes rise from $50 000 to $60 000, pushing up the quantity demanded for cars in a given region from 750 000 to 1.25 million. The numerical value of the income elasticity of cars is therefore:

A. 0.33

B. 3.33

C. 2.75

D. 0.36

E. -0.36

1. A drop in the price of gasoline from $1.75 to $1.25 per litre causes purchases of cars to rise from 20 000 to 40 000. The numerical value of the cross-price elasticity between these two goods is therefore:

A. -1.0

B. -2.0

C. 2.0

D. 0.5

E. -0.5

1. The price elasticity of supply measures how:

A. easily labour, and capital can be substituted for one another in the production process

B. responsive the quantity supplied of X is to changes in the price of X

C. responsive the quantity supplied of Y is to changes in the price of X

D. responsive quantity supplied is to a change in incomes

E. responsive the quantity supplied of X is to changes in resource prices

1. If for a particular market a drop in price from $100 to $50 causes quantity supplied to decrease from 3 million to 2 million units, we can say that supply:

A. is elastic

B. is inelastic

C. is perfectly inelastic

D. is perfectly elastic

E. has a price elasticity whose numerical value is exactly equal to one

1. A rise in the price of apples from $3 to $4 per kilogram raises quantity supplied from 3 million to 5 million kilograms. Therefore, the numerical value of the price elasticity of supply is:

A. 1.20

B. 2.00

C. 1.75

D. 0.57

E. 2.67