Elasticity and Its Applications

131. In general, elasticity is

a. the friction that develops between buyer and seller in a market.

b. a measure of how much government intervention is prevalent in a market.

c. a measure of how much buyers and sellers respond to changes in market conditions.

d. a measure of the competitive nature of a market.

ANSWER: c. a measure of how much buyers and sellers respond to changes in market conditions.

TYPE: M KEY1: D OBJECTIVE: 1 RANDOM: Y

132. The price elasticity of demand measures

a. how responsive buyers are to a change in income.

b. how responsive sellers are to a change in price.

c. how responsive buyers are to a change in price.

d. how responsive sellers are to a change in buyers' income.

ANSWER: c. how responsive buyers are to a change in price.

TYPE: M KEY1: D SECTION: 1 OBJECTIVE: 1 RANDOM: Y

133. Demand is said to be inelastic

a. if the price of the good responds only slightly to changes in demand.

b. if demand shifts only slightly when the price of the good changes.

c. if buyers respond substantially to changes in the price of the good.

d. if the quantity demanded changes only slightly when the price of the good changes.

ANSWER: d. if the quantity demanded changes only slightly when the price of the good changes.

134. If a good is a necessity, demand for the good would tend to be

a. elastic.

b. inelastic.

c. unit elastic.

d. horizontal.

ANSWER: b. inelastic.

135. If a good is a luxury, demand for the good would tend to be

a. elastic.

b. inelastic.

c. unit elastic.

d. horizontal.

ANSWER: a. elastic.

136. Demand for a good would tend to be more elastic,

a. the greater the availability of complements.

b. the longer the period of time considered.

c. the broader the definition of the market.

d. the fewer substitutes there are.

ANSWER: b. the longer the period of time considered.

137. The demand for a good tends to be more elastic

a. the greater the availability of close substitutes.

b. the narrower the definition of the market.

c. the longer the period of time.

d. All of the above are correct.

ANSWER: d. All of the above are correct.

138. Suppose the price of product X is reduced from $1.45 to $1.25 and, as a result, the quantity of X demanded increases from 2,000 to 2,200. Using the midpoint method, the price elasticity of demand for X in the given price range is

a. 2.00.

b. 1.55.

c. 1.00.

d..64.

ANSWER: d..64.

139. Demand is elastic if

a. elasticity is less than 1.

b. elasticity is equal to 1.

c. elasticity is greater than 1.

d. elasticity is equal to 0.

ANSWER: c. elasticity is greater than 1.

TYPE: M KEY1: D SECTION: 1 OBJECTIVE: 2 RANDOM: Y

140. Demand is inelastic if

a. elasticity is less than 1.

b. elasticity is equal to 1.

c. elasticity is greater than 1.

d. elasticity is equal to 0.

ANSWER: a. elasticity is less than 1.

TYPE: M KEY1: D SECTION: 1 OBJECTIVE: 2 RANDOM: Y

141. Demand is unit elastic if

a. elasticity is less than 1.

b. elasticity is equal to 1.

c. elasticity is greater than 1.

d. elasticity is equal to 0.

ANSWER: b. elasticity is equal to 1.

142. A perfectly elastic demand curve will be

a. vertical.

b. horizontal.

c. downward sloping to the right.

d. upward sloping to the right.

ANSWER: b. horizontal.

143. In any market, total revenue is

a. the price divided by the price elasticity of demand.

b. the price multiplied by the quantity.

c. the price plus the quantity.

d. the price multiplied by the quantity minus the costs of production.

ANSWER: b. the price multiplied by the quantity.

144. When demand is inelastic, a decrease in price will cause

a. an increase in total revenue.

b. a decrease in total revenue.

c. no change in total revenue.

d. There is insufficient information to answer this question.

ANSWER: b. a decrease in total revenue.

145. Last year, Sheila bought 10 DVD movies when her income was $40,000. This year, her income is $50,000 and she purchased 20 DVD movies. All else constant, it is obvious that

a. Sheila prefers DVD movies to VHS videos.

b. Sheila considers DVD movies to be a normal good.

c. Sheila considers DVD movies to be an inferior good.

d. Sheila has a price elastic demand for DVD movies.

ANSWER: b. Sheila considers DVD movies to be a normal good.

146. Income elasticity of demand measures

a. how the quantity demanded changes as consumer income changes.

b. how consumer purchasing power is affected by a change in the price of a good.

c. how the price of a good is affected when there is a change in consumer income.

d. how many units of a good a consumer can buy given a certain income level.

ANSWER: a. how the quantity demanded changes as consumer income changes.

147. If an increase in income results in a decrease in the quantity demanded of a good, then the good is

a. a normal good.

b. a necessity.

c. an inferior good.

d. a luxury.

ANSWER: c. an inferior good.

148. Cross-price elasticity of demand measures

a. how the quantity demanded of a good changes as price changes.

b. how the quantity demanded of one good changes as the price of another good changes.

c. how the quantity demanded of a good changes as income changes.

d. how the price of a good is affected when income changes.

ANSWER: b. how the quantity demanded of one good changes as the price of another good changes.

149. Suppose that an increase in the price of carrots from $1.20 to $1.40 per pound raises the amount of carrots that carrot farmers produce from 1.2 million pounds to 1.6 million pounds. Using the midpoint method, what would be the elasticity of supply?

a. 0.54

b. 0.50

c. 2.00

d. 1.86

ANSWER: d. 1.86

150. Supply tends to be

a. less price elastic in the long run.

b. more price elastic in the long run.

c. perfectly price inelastic in the long run.

d. perfectly price inelastic in the short run.

ANSWER: b. more price elastic in the long run.

Suppose there is a baseball park with 10,000 seats and a demand for seats in the park as follow:.

Price per Ticket Quantity Demanded

$20 2,000

16 4,000

12 6,000

8 8,000

6 10,000

4 12,000

2 14,000

151. Referring to the given information, if the management of the baseball park charges $8 per ticket

a. there will be a shortage of tickets.

b. there will be 2,000 empty seats.

c. there will be 4,000 empty seats.

d. revenue will be maximized.

ANSWER: b. there will be 2,000 empty seats.

152. Referring to the given information, the supply of seats

a. is perfectly inelastic.

b. is perfectly elastic.

c. increases as price increases.

d. decreases as price increases.

ANSWER: a. is perfectly inelastic.

153. Refer to the given information. Notice that lowering the price from $8 to $6 per ticket decreases revenue by $4,000. In the $6 to $8 price range, demand for baseball tickets must be

a. price elastic

b. price inelastic

c. price unit elastic

d. income elastic

ANSWER: b. price inelastic