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4
ELASTICITY
Q1: The price elasticity of demand equals magnitude of
the _________.
A change in the price divided by the change in quantity
demanded
B change in the quantity demanded divided by the
change in price
C percentage change in the price divided by the
percentage change in the quantity demanded
D percentage change in the quantity demanded divided
by the percentage change in the price
© 2012 Pearson Addison-Wesley
Q2: “Last October, due to an early frost, the price of a
pumpkin increased by 10 percent compared to the
previous year’s price. As a result, the quantity
demanded decreased from 2 million to 1.5 million.”
Based on this statement, the _______.
A demand for pumpkins is elastic
B demand for pumpkins is inelastic
C demand for pumpkins is unit elastic
D demand for pumpkins increased
© 2012 Pearson Addison-Wesley
Q3: In 2008, the price of cocoa beans increased more
than 44 percent. In response to the increase in the price
of cocoa beans, Rogue Chocolatier increased the price of
its gourmet chocolate bars by 20 percent. Rogue says the
quantity of its bars sold decreased by 15 percent, which
means that the price elasticity of demand for gourmet
chocolate bars is ________.
A elastic
B inelastic
C undefined
D unit elastic
© 2012 Pearson Addison-Wesley
Q4: Netflix is the largest online DVD rental service
offering flat rate rental-by-mail and online streaming to
households. Currently, there are approximately 8 million
subscribers. Suppose Netflix increases its average flat
rate by 10 percent and its total revenue increases.
Based on this information, the demand for Netflix
subscriptions ___________.
A is price inelastic
B is price elastic
C is unit elastic
D income elastic
© 2012 Pearson Addison-Wesley
Q5: To increase its total revenue, ________.
A
a firm facing an inelastic demand will always raise
its price
B
a firm facing an elastic demand will always raise its
price
C
a firm will always charge the highest price possible
regardless of the elasticity of demand
D
None of the above options is correct.
© 2012 Pearson Addison-Wesley
Q6: The air route from New York to Chicago is served by
more than one airline. The demand for tickets from
United Airline for that route is probably _________.
A inelastic, but more elastic than the demand for all
tickets for that route
B elastic and more elastic than the demand for all
tickets for that route
C inelastic and less elastic than the demand for all
tickets for that route
D elastic, but less elastic than the demand for all tickets
for that route
© 2012 Pearson Addison-Wesley
Q7: The cross elasticity of demand is calculated as the
percentage change in the ________.
A quantity demanded of one good divided by the
percentage change in the price of another good
B price of one good divided by the percentage change
in the quantity demanded of another good.
C quantity demanded of one good divided by the
percentage change in the quantity demanded of
another good
D price of one good divided by the percentage change
in the price of another good.
© 2012 Pearson Addison-Wesley
Q8: The income elasticity of demand is defined as the
percentage change in ________.
A the quantity demanded resulting from a given
percentage change in price
B income divided by the percentage change in quantity
demanded
C the movement along the demand curve resulting from
a change in income
D the quantity demanded divided by the percentage
change in income
© 2012 Pearson Addison-Wesley
Q9: Suppose that when the price of oil is $60 per barrel,
the quantity supplied is 70 million barrels a day, but when
the price is $40 per barrel, the quantity of oil supplied is 69
million barrels a day.
A The supply of oil is elastic.
B The supply of oil is inelastic.
C The demand for oil is inelastic.
D The demand for oil is elastic.
© 2012 Pearson Addison-Wesley
Q10: California is the major producer of almonds in the
United States. Suppose the price of almonds
increased during the past year and it is predicted that
almond prices will remain high for some time. We
predict that the elasticity of supply will ________.
A increase over time
B decrease over time
C remain constant
D increase and then decrease
© 2012 Pearson Addison-Wesley