True/False
Indicate whether the
sentence or statement is true or false.
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1.
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If the quantity demanded of a good is sensitive to
a change in the price of that
good, demand is said to be price inelastic.
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2.
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Using the midpoint method to calculate elasticity,
if an increase in the price of pencils from €0.10 to €0.20 reduces the quantity demanded
from 1000 pencils to 500 pencils, then the demand for pencils is unit price elastic.
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3.
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The demand for tyres should be more inelastic than
the demand for Michelin brand tyres.
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4.
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The demand for aspirin over one month should be
more elastic than the demand for aspirin over one year.
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5.
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The price elasticity of demand is defined as the
percentage change in the price of that good divided by the percentage change in quantity demanded of
that good.
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6.
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If the cross-price elasticity of demand between two
goods is positive, the goods are likely to be complements.
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7.
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If the demand for a good is price inelastic, an
increase in its price will increase total revenue in that market.
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8.
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The demand for a necessity such as petrol tends to
be elastic.
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9.
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If a demand curve is linear, the price elasticity
of demand is constant along it.
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10.
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If the income elasticity of demand for a bus ride
is negative, then a bus ride is an inferior good.
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11.
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The supply of cars for this week is likely to be
more price inelastic than the supply of cars for this year.
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12.
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If the price elasticity of supply for blue jeans is
1.3, an increase in the price of blue jeans of 10 percent would increase the quantity supplied of
blue jeans by 13 percent.
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13.
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The price elasticity of supply tends to be more
inelastic as the firm's production facility reaches maximum capacity.
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14.
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An advance in technology that shifts the market
supply curve to the right always increases total revenue received by producers.
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15.
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The income elasticity of demand for luxury items,
such as diamonds, tends to be large (greater than 1).
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Multiple Choice
Identify the
letter of the choice that best completes the statement or answers the question.
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16.
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If a small percentage increase in the price of a
good greatly reduces the quantity demanded for that good, the demand for that good is
a. | income inelastic. | b. | price inelastic. | c. | price
elastic. | d. | unit price elastic. | e. | income elastic. |
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17.
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The price elasticity of demand is defined
as
a. | the percentage change in the quantity demanded divided
by the percentage change in income. | b. | the percentage
change in income divided by the percentage change in the quantity
demanded. | c. | the percentage change in the quantity demanded of a good
divided by the percentage change in the price of that good. | d. | none of these answers. | e. | the percentage
change in price of a good divided by the percentage change in the quantity demanded of that
good. |
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18.
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In general, a flatter demand curve is more likely
to be
a. | price elastic. | b. | unit price elastic. | c. | none of these
answers. | d. | price inelastic. |
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19.
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In general, a steeper supply curve is more likely
to be
a. | price elastic. | b. | none of these answers. | c. | unit price
elastic. | d. | price inelastic. |
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20.
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Which of the following would cause a demand curve
for a good to be price inelastic?
a. | The good is a luxury. | b. | There are a great number of substitutes for the
good. | c. | The good is a necessity. | d. | The good is an inferior good. |
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21.
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The demand for which of the following is likely to
be the most price inelastic?
a. | transportation | b. | taxi rides | c. | bus
tickets | d. | airline tickets |
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22.
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If the cross-price elasticity between two goods is
negative, the two goods are likely to be
a. | substitutes. | b. | complements. | c. | necessities. | d. | luxuries. |
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23.
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If a supply curve for a good is price elastic,
then
a. | the quantity supplied is sensitive to changes in the
price of that good. | b. | the quantity
demanded is insensitive to changes in the price of that good. | c. | the quantity demanded is sensitive to changes in the price of that
good. | d. | the quantity supplied is insensitive to changes in the
price of that good. | e. | none of these
answers. |
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24.
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If a fisherman must sell all of his daily catch
before it spoils for whatever price he is offered, once the fish are caught the fisherman's
price elasticity of supply for fresh fish is
a. | zero. | b. | infinite. | c. | one. | d. | unable to be
determined from this information. |
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25.
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A decrease in supply (shift to the left) will
increase total revenue in that market if
a. | demand is price inelastic. | b. | supply is price elastic. | c. | supply is price
inelastic. | d. | demand is price
elastic. |
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26.
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If an increase in the price of a good has no impact
on the total revenue in that market, demand must be
a. | all of these answers. | b. | price inelastic. | c. | unit price
elastic. | d. | price elastic. |
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27.
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If consumers always spend 15 percent of their
income on food, then the income elasticity of demand for food is
a. | 1.50. | b. | 1.15. | c. | none of these
answers. | d. | 0.15. | e. | 1.00. |
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28.
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Technological improvements in agriculture that
shift the supply of agricultural commodities to the right tend to
a. | increase total revenue to farmers as a whole because the
demand for food is elastic. | b. | increase total
revenue to farmers as a whole because the demand for food is inelastic. | c. | reduce total revenue to farmers as a whole because the demand for food is
elastic. | d. | reduce total revenue to farmers as a whole because the
demand for food is inelastic. |
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29.
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If supply is price inelastic, the value of the
price elasticity of supply must be
a. | infinite. | b. | zero. | c. | less than
1. | d. | none of these answers. | e. | greater than 1. |
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30.
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If there is excess capacity in a production
facility, it is likely that the firm's supply curve is
a. | price inelastic. | b. | none of these answers. | c. | unit price
elastic. | d. | price elastic. |
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31.
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Suppose that at a price of €30 per month,
there are 30,000 subscribers to cable television in Small Town. If Small Town Cablevision raises its
price to €40 per month, the number of subscribers will fall to 20,000. Using the midpoint
method for calculating the elasticity, what is the price elasticity of demand for cable TV in Small
Town?
a. | 1.4 | b. | 0.66 | c. | 0.75 | d. | 2.0 | e. | 1.0 |
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32.
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Suppose that at a price of €30 per month,
there are 30,000 subscribers to cable television in Small Town. If Small Town Cablevision raises its
price to €40 per month, the number of subscribers will fall to 20,000. At which of the
following prices does Small Town Cablevision earn the greatest total revenue?
a. | €0 per month | b. | €30 per month | c. | €40 per
month | d. | Either €30 or €40 per month because the
price elasticity of demand is 1.0. |
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33.
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If demand is linear (a straight line), then price
elasticity of demand is
a. | elastic in the upper portion and inelastic in the lower
portion. | b. | inelastic in the upper portion and elastic in the lower
portion. | c. | inelastic throughout. | d. | constant along the demand curve. | e. | elastic throughout. |
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34.
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If the income elasticity of demand for a good is
negative, it must be
a. | an elastic good. | b. | an inferior good. | c. | a normal
good. | d. | a luxury good. |
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35.
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If consumers think that there are very few
substitutes for a good, then
a. | supply would tend to be price
elastic. | b. | none of these answers. | c. | demand would tend to be price inelastic. | d. | demand would tend to be price elastic. | e. | supply would tend to be price
inelastic. |
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