Econ Chapter 4 - Elascitity
1) The price elasticity of demand is a units-free measure of the responsiveness of the ________ when all other influences
on buying plans remain the same.
A) quantity demanded to a change in the price of a substitute or complement
B) quantity demanded to a change in income
C) price to a change in quantity demanded
D) quantity demanded of a good to a change in its price
E) quantity demanded of a good to a change in supply
D
The price of oranges rises by 3 percent and quantity of oranges demanded decreases by 3 percent. We conclude that the
demand for oranges is
A) unit elastic.
B) inelastic.
C) elastic.
D) perfect elastic.
E) perfectly inelastic.
A
Which one of the following illustrates an elastic demand?
A) A 10 percent rise in price leads to a 5 percent decrease in quantity demanded.
B) A 10 percent rise in price leads to a 20 percent decrease in quantity demanded.
C) A price elasticity of demand equal to zero
D) A price elasticity of demand equal to 1.0
E) A price elasticity of demand equal to 0.2
B
If a 10 percent rise in the price of goods leads to a 10 percent decrease in quantity demanded, the demand curve for this
good
A) is vertical.
B) is horizontal.
C) is a straight line with slope equal to 10.
D) has slope equal to 1.
E) none of the above
E
Suppose a rise in the price of a good from $6.50 to $7.50 leads to a decrease in the quantity demanded from 10,500 to
9,500 units. In this range of demand, the price elasticity of demand is
A)1,000
B)0.7
C)7
D)1
E)14
B
Suppose the quantity of root beer demanded decreases from 105,000 litres per week to 95,000 litres per week when the
price rises by 5 percent. The price elasticity of demand
A) is inelastic.
B) is 0.5.
C) is 10.
D) is 2.0.
E) cannot be computed unless we know the original price and the new price
D
Suppose the government of Nova Scotia wants to reduce the consumption of electricity by 5 percent. The price
elasticity of demand for electricity is 0.40. You advise the Nova Scotia government to
A) lower the price of electricity by 2 percent.
B) lower the price of electricity by 12.5 percent.
C) raise the price of electricity by 12.5 percent.
D) stay away from the market for electricity and let the market mechanism fix the problem.
E) raise the price of electricity by 2 percent.
C
Refer to the table, Demand is unit elastic when the price falls from
Price Quanity Demanded
9.00 0
8.00 2000
7.00 4000
6.00 6000
5.00 8000
4.00 10000
3.00 12000
2.00 14000
1.00 16000
0 20000
A) $4 to $3
B) $6 to $5
C) $5 to $4
D) $8 to $7
E) $7 to $6.
C
Demand will be more elastic the
A) lower the income level.
B) higher the income level.
C) smaller the fraction of income spent on the good.
D) longer the passage of time after a price increase.
E) fewer substitutes are available.
D
If the price elasticity of demand is 2, then a 1 percent fall in price
A) increases the quantity demanded by 2 percent.
B) increases the quantity demanded by 0.5 percent.
C) doubles the quantity demanded.
D) decreases the quantity demanded by 2 percent.
E) decreases the quantity demanded by half.
A
Business people speak about price elasticity of demand without using the actual term. Which one of the following
statements reflects elastic demand for a good?
A) "With the recent economic recovery, people have more income to spend and sales are booming, even at the previous
prices."
B) "I don't think a price cut will make any difference to my bottom line. What I may gain from selling more I would lose
on the lower price."
C) "My customers are real bargain hunters. Since I set my prices just a few cents below my competitors, customers have
flocked to the store, and sales are booming."
D) "A price cut won't help me. It won't increase sales, and I'll just get less money for each unit."
E) "A very cold winter has increased my sales of skates and hockey sticks."
C
Suppose that Simon Fraser University decides to raise tuition fees to increase the total revenue it receives from
students. This policy works only if the demand for a Simon Fraser University education is
A) perfectly elastic.
B) unit elastic.
C) inelastic.
D) greater than the demand for a University of Western Ontario education.
E) elastic.
C
When the price elasticity of demand is ________, demand for the good is elastic
A) equal to infinity
B) greater than 1
C) equal to 1
D) between 1 and zero
E) equal to zero
B
Suppose Swiss Chalet in Moncton knows that the demand for their half-chicken meals is elastic. If the manager wants
to increase total revenue from half-chicken meal sales, he should
A) hire fewer employees.
B) not change the price of a half-chicken meal.
C) lower the price of a half-chicken meal.
D) raise the price of a half-chicken meal.
C
Tina and Brian work for the same recording company. Tina claims they would be better off by raising the price of
their CDs, while Brian claims they would be better off by lowering the price. Choose the correct statement.
A) Tina thinks the demand for CDs is price elastic, and Brian thinks it is price inelastic.
B) Tina thinks the demand for CDs has price elasticity of demand equal to zero, and Brian thinks price elasticity of
demand equals 1.
C) Tina thinks the demand for CDs has price elasticity of demand equal to 1, and Brian thinks price elasticity of demand
equals zero.
D) Tina thinks the demand for CDs is price inelastic, and Brian thinks it is price elastic.
E) Tina and Brian should stick to singing and forget about economics.
D
Refer to Table 4.1.4. The table shows the demand schedule for computer chips. As the price rises from $200 a chip to
$300 a chip, total revenue ________. So at a price of $250 a chip, demand is ________. 1
Price Quanitity Demanded
($) (millions of chips)
200. 50
250 45
300 40
350 35
400 30
A) rises; unit elastic
B) falls; inelastic
C) rises; elastic
D) rises; inelastic
E) falls; rises
D
Suppose the quantity of gasoline is measured in litres and the price of gasoline is measured in dollars. The price
elasticity of demand is 0.67. If the price of gasoline is then measured in cents rather than in dollars, the price elasticity of
demand would be
A) 67.0
B) 0.0067
C) negative
D) 0.67
E) 6.7
D
19) The cross elasticity of demand between any two goods is defined as the
A) percentage change in the quantity of a good demanded divided by the percentage change in its price.
B) change in the price elasticity of demand for one good divided by the change in the price elasticity of demand for the
other good.
C) percentage change in the quantity of a good demanded divided by the percentage change in income.
D) percentage change in the quantity demanded of one good divided by the percentage change in the price of the other
good.
E) percentage change in the price of one good divided by the percentage change in the price of the other good.
D
A negative value for
A) income elasticity of demand implies an error in your calculation.
B) price elasticity of demand implies an inferior good.
C) income elasticity of demand implies a normal good.
D) price elasticity of supply implies an upward-sloping supply curve.
E) cross elasticity of demand implies that the goods are complements.
E
How is price elasticity calculated?
Percentage Change in Quantity/Percentage change in price