Download The price elasticity of demand measures the

1
Created by Boundless
The price elasticity of demand measures the responsiveness of _____________.
A
the price of a good to a change in the quantity demanded
B
the quantity demanded of a good to a change in a
consumer's income
C
the price of a good to a change in a consumer's income
D
the quantity demanded of a good to a change in its price
2
Created by Boundless
If the price elasticity of demand for a good is relatively elastic, then ___________.
A
a change in the price causes a small change in quantity
demanded
B
a change in the price causes no change in quantity
demanded
C
a change in quantity demanded causes a large change in
the price
D
a change in the price causes a large change in quantity
demanded
3
Created by Boundless
If the price elasticity of demand for a product is 2.5 and its price has increased by
3%, we can conclude that the quantity demanded:
A
Decreased by 3%
B
Increased by 2.5%
C
Decreased by 7.5%
D
Increased by 7.5%
4
Created by Boundless
Assume a pizza costs $10. When the price increases to $12, demand falls 10%.
What is the own-price elasticity of demand? Note: in economics, elasticity is
generally reported as a positive number even when it is negative.
A
0.2
B
0.5
C
5
D
2
5
Created by Boundless
When does the own-price method of calculating elasticity give accurate results?
6
A
When changes in price and quantity are small.
B
When the formula for the demand function is known and
when elasticity is relatively high
C
When the formula for the demand function is known and
when elasticity is relatively low
D
When changes in price and quantity are large.
Created by Boundless
Imagine a straight demand curve. At very low prices (and high quantity
demanded), the PED is likely ______.
A
Relatively elastic
B
Unit elastic
C
Perfectly elastic
D
Relatively inelastic
7
Created by Boundless
Electricity is a good with few or no close substitutes. What would you expect
about the price elasticity of demand for electricity?
A
Relatively elastic
B
Perfectly elastic
C
Perfectly inelastic
D
Relatively inelastic
8
Created by Boundless
In the short term, would you expect a non-durable good's price elasticity of
demand to be higher or lower than it is in the long term?
A
Higher, because there may be psychological impediments
to reacting to a change in the short term
B
Lower, because consumers are more likely to switch to
other substitutes over the long term
C
Lower, because non-durable goods are more necessary in
the long-term than they are in the short-term
D
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Higher, because non-durable goods are more necessary in
the short-term than in the long-term
Created by Boundless
We can expect the cross price elasticity of demand between tea and coffee to be
________.
A
Positive, indicating inferior goods
B
Positive, indicating normal goods
C
Negative, indicating substitute goods
D
Positive, indicating substitute goods
10
Created by Boundless
Negative Cross Price Elasticity (Cross Elasticity) of Demand between two goods
indicates that the two goods are ________.
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A
Inferior goods
B
Normal goods
C
Substitutes
D
Compliments
Created by Boundless
The cross elasticity of demand differs from the price elasticity of demand in that
the cross elasticity of demand ______________.
A
can be used to determine whether a good is normal or
inferior
B
is accurate when comparing large changes in price and
quantity demanded
C
considers what happens to demand for a good when the
price of another good changes
D
considers what happens to demand for a good when the
price of the same good changes
12
Created by Boundless
Imagine the cross elasticity of demand for two goods is large and positive. The
two goods are __________.
A
distant complements
B
close substitutes
C
distant substitutes
D
close complements
13
Created by Boundless
What concept is defined by the following formula?(percentage change in quantity
demanded)/(percentage change in income)
A
Price elasticity of supply
B
Income elasticity of supply
C
Income elasticity of demand
D
Price elasticity of demand
14
Created by Boundless
Imagine a good with a small, positive income elasticity of demand. What type of
good is it?
A
Inferior, luxury good
B
Normal, luxury good
C
Normal, necessary good
D
Inferior, necessary good
15
Created by Boundless
Positive Income Elasticity of a good indicates that the good is __________.
A
An inferior good
B
A normal good
C
A substitute
D
A compliment
16
Created by Boundless
Suppose as personal income increases by 16%, ice cream sales increase by 28%.
What is the point elasticity of sales with respect to income? Hint: Let X = personal
income and Y = ice cream sales
A
0.75
B
0.57
C
12
D
1.75
17
Created by Boundless
Assume a cell phone costs $50. When the price increases to $75, demand falls
from 5000 to 3000. Use the midpoint method to find the price elasticity of demand.
Note: in economics, elasticity is generally reported as a positive number.
A
0.8
B
1
C
2
D
1.25
18
Created by Boundless
Which of the following lists the terms that describe a good's price elasticity from
most responsive to a change in price to least responsive to a change in price?
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A
Unit elastic, perfectly elastic, relatively elastic, relatively
inelastic, perfectly inelastic
B
Unit elastic, perfectly inelastic, relatively inelastic, relatively
elastic, perfectly elastic
C
Perfectly inelastic, relatively inelastic, unit elastic, relatively
elastic, perfectly elastic
D
Perfectly elastic, relatively elastic, unit elastic, relatively
inelastic, perfectly inelastic
Created by Boundless
A good with a price elasticity of demand of 0.8 is ____________.
A
Perfectly inelastic
B
Perfectly elastic
C
Relatively elastic
D
Relatively inelastic
20
Created by Boundless
For which type of good would you expect the price elasticity of demand to be
highest?
A
Luxury goods
B
Normal goods
C
Inferior goods
D
Giffen goods
21
Created by Boundless
A good for which demand increases more quickly than income is a
_______________.
A
inferior good
B
luxury good
C
normal good
Giffen good
D
22
Created by Boundless
A good that is perfectly elastic will have a ___________.
A
vertical supply curve
B
steep demand curve
C
horizontal supply curve
D
shallow supply curve
23
Created by Boundless
Imagine the percentage change in supply of a good is equal to 50% and
percentage change in price is equal to 25%. The price elasticity is equal to
________, which means it is _____________.
A
1/2; relatively elastic
B
2; relatively inelastic
C
2; relatively elastic
D
1/2; relatively inelastic
24
Created by Boundless
Assume a widget firm decides to raise prices by 10% and then sees its revenue
rise by 5%. The demand for widgets must be ______________.
A
Relatively elastic
B
Perfectly inelastic
C
Relatively inelastic
D
Unit elastic
25
Created by Boundless
Assume the demand for water is perfectly inelastic. If a firm raises the price of
water by 8%, what could be the subsequent change in its revenue?
A
0%
B
8%
C
4%
D
-8%
26
Created by Boundless
Perfectly inelastic is equal to _________ (1), while perfectly elastic is equal to
__________(2).
A
Infinity (1); one (2)
B
One (1); zero (2)
C
Zero (1); one (2)
D
Zero (1); infinity (2)