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Chapter 19

Demand and Supply Elasticity

19.1 Price Elasticity

1) The price elasticity of demand is a measure of

A) the responsiveness of the quantity demanded of a good to a changes in the price of the

good.

B) the quantity demanded of a good at a given price.

C) the demand for a product holding prices constant.

D) the horizontal shift in the demand curve when the price of a good changes.

2) Suppose that when the price of a soft drink rises 10%, the quantity demanded of the soft drink

falls 5%. Based on this information, what is the approximate absolute price elasticity of demand

for soft drink?

A) 0.05 B) 0.2 C) 0.5 D) 2.0

3) The price elasticity of demand measures

A) the consumers sensitivity to a price change.

B) the producers sensitivity to a price change.

C) how much the market price changes in response to a change in demand.

D) how much the demand changes in response to a change in income.

4) A good s price elasticity of demand can be calculated by using the formula of

A) percentage change in price divided by percentage change in quantity demanded.

B) percentage change in quantity demanded divided by percentage change in price.

C) percentage change in price divided by percentage change in income.

D) absolute change in quantity demanded divided by absolute change in price.

5) Which of the following statements about demand and price elasticity of demand is TRUE?

A) As the demand curve has a positive slope, the price elasticity of demand is positive.

B) As the demand curve has a negative slope, the price elasticity of demand is negative.

C) As the demand curve has a positive slope, the price elasticity of demand is negative.

D) As the demand curve has a negative slope, the price elasticity of demand is positive.

6) The price elasticity of demand shows

A) the relationship between market price and household income.

B) the proportionate amount by which the quantity demanded changes in response to a

proportionate change in price.

C) the quantity demanded at a given price.

D) the proportionate amount by which the price changes in response to a proportionate

change in quantity demanded.

7) The price elasticity of demand is

A) always positive, so there is no reason to consider the absolute value of the price elasticity

of demand.

B) always negative, but by convention, economists typically express the price elasticity of

demand as an absolute value.

C) always equal to 1, which by convention economists typically express as an absolute

value, or 1.

D) always equal to zero, so there is no reason to consider the absolute value of the price

elasticity of demand.

8) If the absolute price elasticity of demand for good Y is 0.75, when there is a 30 percent increase

in price, we can conclude that quantity demanded

A) has fallen by 35.0 percent. B) has fallen by 10.4 percent.

C) has fallen by 22.5 percent. D) has fallen by 40.0 percent.

9) When economists want to obtain a measure of the responsiveness of quantity demanded to

changes in price, they use

A) the slope of the demand curve.

B) the price elasticity of demand.

C) only the percentage change in quantity demanded.

D) the cross price elasticity of demand.

10) If the price elasticity of demand for good A is 1, then a 1% increase in

A) consumer income will result in a 1% decrease in the demand for good A.

B) consumer income will result in a 1% increase in the demand for good A.

C) the market price of good A will result in a 1% increase in the quantity demanded of good

A .

D) the market price of good A will result in a 1% decrease in the quantity demanded of good

A .

11) The formal definition of price elasticity of demand is

A) change in quantity demanded divided by change in price.

B) quantity demanded divided by price.

C) percentage change in quantity demanded divided by percentage change in price.

D) quantity demanded multiplied by price and divided by 100.

12) If price decreases by 10 percent and quantity demanded increases by 30 percent, the price

elasticity of demand will be

A) 0.333. B) 3. C) 30. D) 300.

13) If the absolute price elasticity of demand is 4.0, a 5 percent decrease in price will increase

quantity demanded by

A) 10 percent. B) 20 percent. C) 25 percent. D) 8 percent.

14) A 5 percent rise in the price of a good leads to a 5 percent decrease in quantity demanded. The

absolute price elasticity of demand is

A) 5. B) 10. C) 0.1. D) 1.0.

15) An absolute price elasticity of demand equal to 0.4 indicates that a

A) 4 percent increase in price leads to a 10 percent decrease in quantity demanded.

B) 1 percent increase in price leads to a 4 percent decrease in quantity demanded.

C) 0.4 percent decrease in price leads to a 1 percent increase in quantity demanded.

D) 10 percent decrease in price leads to a 4 percent increase in quantity demanded.

16) Even though price elasticity of demand is always ________, by convention its absolute value is

always discussed as a ________.

A) negative; prime number B) positive; negative number

C) a fraction; whole number D) negative; positive number

17) When the price of a soft drink from the campus vending machine was $0.60 per can, 100 cans

were sold each day. After the price increased to $0.75 per can, sales dropped to 85 cans per day.

Over this range, the absolute price elasticity of demand for soft drinks was approximately equal

to

A) 0.15. B) 0.60. C) 0.73. D) 1.67.

18) Six months ago, the price of gasoline was $2.20 per gallon. Now, the price is $2.40 per gallon. In

response to this price increase, the number of gallons of gasoline purchased has declined by 2

percent. Based on this information, what is the absolute price elasticity of demand for gasoline?

A) 4.35 B) 1.20 C) 0.23 D) 0.10

19) The local baseball stadium s concession stands previously sold hot dogs for 80 cents apiece. At

that price, when a baseball fan went to watch a baseball game, he bought 2 hotdogs. But now

that the stadium has a dime a dog night, he has purchased 6 hot dogs. What is the

approximate value of this individual s absolute price elasticity of demand for hot dogs?

A) 0.64 B) 0.80 C) 1.00 D) 1.56

20) Suppose the demand for frozen yogurt cones increases from 400 to 425 cones a day when the

price is reduced from $1.50 to $1.25. In this situation, the elasticity of demand, calculated using

the average method, is

A) 3. B) 1. C) 0.33. D) 1.33.

21) The quantity of raspberries sold at a local store increases from 100 pints to 1,500 pints when the

price is reduced from $4.00 to $1.00. In this situation, the absolute price elasticity of demand for

raspberries is approximately

A) 0.69. B) 6.7. C) 1.46. D) 4.3.

22) Suppose that the price of eggs increases from 75 cents to $1.00 per dozen and as a result a

typical farmer experiences a decrease in egg sales from 300 to 200 dozen per week. Using the

method of average values, the absolute price elasticity of demand is

A) 1.4. B) 0.8. C) 3.0. D) 1.75.

23) If the price of good A increases from $15 to $20 per unit and quantity demanded falls from 1500

to 1000 units, then by using the method of average values, we can calculate the absolute price

elasticity of demand to be

A) 2.6. B) 0.75. C) 1.4. D) 2.4.

24) When price is $5 per unit, quantity demanded is 12 units. When price is $6 per unit, quantity

demanded is 8 units. The value of the absolute price elasticity of demand is approximately

A) 2.20. B) 4.00. C) 1.82. D) 0.36.

Price Quantity Demanded

Per Unit Per Week

$5.5 20

$6.0 18

$6.5 16

$7.0 14

$7.5 12

$8.0 10

25) According to the above table, what is the absolute price elasticity of demand if price falls from

$8.00 to $7.50?

A) 4.00 B) 2.82 C) 1.80 D) 1.21

26) According to the above table, what is the absolute price elasticity of demand when price rises

from $5.50 to $6?

A) 4.00 B) 2.23 C) 1.21 D) 0.50

27) The price elasticity of demand measures

A) the responsiveness of quantity demanded to a change in price.

B) the responsiveness of price to a change in competition.

C) the change in quantity demanded due to a change in price of a substitute good.

D) the change in price due to a change in demand.

28) The responsiveness of quantity demanded of a good to changes in its price is the

A) cross elasticity of demand. B) price elasticity of supply.

C) income elasticity. D) price elasticity of demand.

29) The word best associated with price elasticity of demand is

A) relative. B) total. C) absolute. D) cumulative.

30) The price elasticity of demand is measured by the

A) percentage change in quantity demanded divided by the percentage change in price.

B) percentage change in price divided by the percentage change in quantity demanded.

C) change in quantity demanded divided by the change in price.

D) change in price divided by the change in quantity demanded.

31) The actual value of the price elasticity of demand is always

A) positive because of the law of demand.

B) negative because of the law of demand.

C) positive because of diminishing marginal utility.

D) negative because percentages can only be negative.

32) A 3 percent increase in the price of neckties leads to a 3 percent decrease in the quantity

demanded of neckties. The absolute price elasticity of demand is

A) 3. B) 0.3. C) 1.0. D) 0.01.

33) A 6 percent increase in the price of neckties leads to a 3 percent decrease in the quantity

demanded of neckties. The absolute price elasticity of demand is

A) 3. B) 0.33. C) 0.5. D) 2.

34) A 3 percent increase in the price of neckties leads to a 6 percent decrease in the quantity

demanded of neckties. The absolute price elasticity of demand is

A) 3. B) 2. C) 0.5. D) 0.33.

35) A 2 percent increase in the price of neckties leads to a 5 percent decrease in the quantity

demanded of neckties. The absolute price elasticity of demand is

A) 2.5. B) 1. C) 0.4. D) 0.2.

36) A value of the absolute price elasticity of demand equal to 0.6 indicates that

A) a 6 percent increase in price leads to a 10 percent decrease in quantity demanded.

B) a 10 percent increase in price leads to a 6 percent decrease in quantity demanded.

C) a 0.6 percent increase in price leads to a 1 percent decrease in quantity demanded.

D) a 1 percent increase in price leads to a 6 percent decrease in quantity demanded.

37) A value of the absolute price elasticity of demand equal to 2.5 indicates that

A) a 5% decrease in price leads to a 2% increase in quantity demanded.

B) a 2% decrease in price leads to a 25% increase in quantity demanded.

C) a 1% decrease in price leads to a 2.5% increase in quantity demanded.

D) a 0.25% decrease in price leads to a 1% increase in quantity.

38) A value of the absolute price elasticity of demand equal to 0.5 indicates that

A) a 0.5% decrease in price leads to a 1% increase in quantity demanded.

B) a 2% decrease in price leads to a 25% increase in quantity demanded.

C) a 1% increase in price leads to a 5% decrease in quantity demanded.

D) a 1% increase in price leads to a 0.5% decrease in quantity demanded.

39) Absolute price elasticities are calculated for four commodities, and the values are: 0.009; 1.0; 3.3;

and 4.1. Which indicates the most price responsive situation?

A) 0.009 B) 1.0 C) 3.3 D) 4.1

40) The value of the absolute price elasticity of demand for good X is 4. The absolute price elasticity

for good Y is 1. Which good s quantity demanded is more responsive to a change in price?

A) Good X. B) Good Y.

C) They are equally responsive. D) Not enough information is given.

41) The value of the absolute price elasticity of demand for good X is 4. The absolute price elasticity

for good Y is 1. Which good s quantity demanded is less responsive to a change in price?

A) Good X. B) Good Y.

C) They are equally responsive. D) Not enough information is given.

42) The less sensitive quantity demanded is to a change in price, the

A) smaller a change in price must be to induce a certain change in quantity demanded.

B) greater the absolute price elasticity of demand.

C) smaller the absolute price elasticity of demand.

D) closer the absolute price elasticity of demand is to one.

43) Wheat is sold in world markets, usually priced in terms of bushels. In the market for wheat, the

price elasticity of demand for wheat would be expressed as

A) the number of bushels of wheat sold.

B) the number of whatever currency is used in purchasing the wheat.

C) the number of dollars spent on wheat.

D) a unitless number.

44) Relative percentage changes are used in measuring price elasticity of demand, so that

A) it does not matter whether price increases or decreases when calculating the elasticity.

B) it does not matter what units are used to measure prices or quantities.

C) we always obtain a positive number.

D) larger numbers indicate greater responsiveness.

45) The actual value of price elasticity of demand

A) measures the relative change in quantity demanded when there is a change in price.

B) will change when the units good is measured in changes.

C) varies with changes in supply.

D) is always negative.

46) The absolute price elasticity of demand for good X is 1.2 when price is measured in dollars. If

price were measured in cents, the price elasticity elasticity of demand would equal

A) 1200 B) 12 C) 1.2 D) 0.012

47) The price elasticity of demand can be computed as

A) change in total utility/change in quantity.

B) change in price/change in quantity demanded.

C) percentage change in quantity demanded/percentage change in price.

D) change in quantity demanded/change in price.

Price Quantity Demanded

Per Unit Per Week

$10.00 25

9.50 30

9.00 35

8.50 40

8.00 45

7.50 50

7.00 55

6.50 60

6.00 65

5.50 70

5.00 75

48) Refer to the above table. What is the absolute price elasticity of demand if a price falls from $7 to

$6.50?

A) 0.85 B) 1.08 C) 1.17 D) 0.92

49) Refer to the above table. What is the absolute price elasticity of demand if a price falls from $7.50

to $7?

A) 10 B) 1.38 C) 0.724 D) 0.1

50) Refer to the above table. What is the absolute price elasticity of demand when a price rises from

$9 to $9.50?

A) 0.35 B) 0.55 C) 2.57 D) 2.85

51) Refer to the above table. What is the absolute price elasticity of demand when a price rises from

$8 to $8.50?

A) 5.15 B) 1.94 C) 0.515 D) 0.194

52) Refer to the above table. What is the absolute price elasticity of demand when price changes

from $5.50 to $5.00?

A) 0.72 B) 0.79 C) 1.38 D) 5.0

53) Refer to the above table. Demand is least price elastic at a price of

A) $10.00. B) $7.50. C) $7.00. D) $5.00.

54) Refer to the above table. Demand is unit elastic between the prices of

A) $5.00 & $10.00. B) $6.00 & $7.00. C) $6.00 & $6.50. D) $7.00 & $7.50

55) Refer to the above table. What is the absolute price elasticity of demand when price changes

from $6.00 to $6.50?

A) 1.60 B) 1.00 C) 0.65 D) 0.60

56) Price elasticity of demand is the responsiveness of

A) the quantity demanded to a change in price.

B) demand to a change in supply.

C) demand to a change in income.

D) demand for a good to a change in the demand for another good.

57) The price elasticity of demand is the

A) percentage change in quantity demanded divided by the percentage change in price.

B) change in quantity demanded divided by the change in price.

C) percentage change in price divided by the percentage change in quantity demanded.

D) change in price divided by the change in quantity demanded.

58) The result of the calculation of the price elasticity of demand is

A) always positive.

B) always negative.

C) sometimes positive, sometimes negative.

D) always greater than one.

59) Price elasticity of demand basically measures

A) the reliability of a product.

B) the responsiveness of consumers to price changes.

C) the variability of price changes.

D) the percentage change in market price as a result of a change in demand.

60) If the price of gasoline increased by 10 % and consumers responded by purchasing 2 % less

gasoline, the absolute value of price elasticity of demand for gasoline would equal

A) 0.1. B) 0.5. C) 1.5. D) 0.2.

61) If the price of a cola increased by 12 % and consumers responded by purchasing 20 % less cola,

the absolute value of price elasticity of demand for cola would be

A) 0.20. B) 0.80. C) 1.67. D) 1.80.

62) When discussing the price elasticity of demand we generally refer to the absolute price elasticity

of demand by consumers. This means that we will

A) disregard the law of demand.

B) ignore its relationship to demand.

C) disregard the minus sign.

D) consider absolute rather than relative changes.

63) The price elasticity of demand measures

A) changes in demand.

B) how responsive producers are to a change in demand.

C) how responsive consumers are to a change in price.

D) how responsive consumers are to a change in income.

64) If the absolute price elasticity of demand is 2, a 10 percent increase in the price will cause

A) the quantity demanded to decrease by 2 percent.

B) the quantity demanded to decrease by 20 percent.

C) the quantity demanded to decrease by 5 percent.

D) the quantity demanded to decrease by 0.2 percent.

65) If the absolute price elasticity of demand is 0.2, a 10 percent increase in the price will cause

A) the quantity demanded to decrease by 2 percent.

B) the quantity demanded to decrease by 20 percent.

C) the quantity demanded to decrease by 5 percent.

D) the quantity demanded to decrease by 0.2 percent.

66) Consider the following data:

Price of A Quantity Demanded of A

$5 6

$4 10

The absolute value of the price elasticity of demand for product A is

A) 0.44. B) 1.80. C) 0.56. D) 2.25.

67) If the price of oil goes up by 50 % and the quantity demanded goes down by 25%, the absolute

value of the price elasticity of demand is

A) 0.25. B) 0.50. C) 0.75. D) 1.00.

68) The price elasticity of demand is

A) always negative. B) sometimes positive.

C) always positive. D) constant along the demand curve.

69) Owners of a coffee shop finds that they can sell 150 donuts a day when the price of a donut is

$1.20. When they price donuts at $1, they sell 170 donuts. The absolute value of the price

elasticity of demand for donuts is

A) 0.69. B) 1.45. C) 1.00. D) infinity.

70) If the absolute price elasticity of demand for a product is greater than 1, then

A) consumers are relatively insensitive to price changes.

B) consumers are relatively sensitive to price changes.

C) there is a positive relationship between price changes and total revenue.

D) producers are relatively insensitive to price changes.

71) If the absolute price elasticity of demand for a product is less than 1, then

A) consumers are relatively insensitive to price changes.

B) consumers are relatively sensitive to price changes.

C) there is a positive relationship between price changes and total revenue.

D) producers are relatively insensitive to price changes.

72) If the price of gasoline increases from $2.50 per gallon to $3.00 per gallon and the quantity

demanded goes down from 120 million gallons per week to 115 million gallons per week, the

absolute value of price elasticity of demand in that price range is approximately

A) 0.23. B) 4.35. C) 0.93. D) 2.34.

73) If the price of corn chips increases from $2.00 per bag to $3.00 per bag and the quantity

demanded goes down from 100 million bags per week to 50 million bags per week, the absolute

value of price elasticity of demand in that price range is

A) 0.50. B) 1.67. C) 0.93. D) 2.33.

74) At a price of $10, quantity demanded is 30 units. When the price rises to $11, quantity

demanded is 24 units. What is the absolute price elasticity of demand?

A) 0.5 B) 0.43 C) 2.33 D) 6.0

75) If the absolute value of the price elasticity of demand for a product is 1.5, and the price of a

product increased 30 percent, then the quantity demanded will decline by

A) 45 percent. B) 20 percent. C) 5 percent. D) 10 percent.

76) What is the price elasticity of demand? How is the price elasticity of demand calculated?

77) Price elasticity of demand is measured using percentage changes. Why?

78) The slope of the demand curve gives the elasticity of demand. Do you agree or disagree?

Why?

79) Price elasticity measures how many more units of a good that consumers will buy given a

decrease in price. Do you agree or disagree? Explain.

18 Miller Economics Today, 16th Edition

19.2 Price Elasticity Ranges

1) The greater is the absolute price elasticity of demand, the

A) larger is the responsiveness of quantity demanded to the price change.

B) smaller is the responsiveness to a price change.

C) larger is the income of the buyer.

D) higher is the change in demand to an income change.

2) Suppose that the absolute price elasticity for cookies equals 0.53. We could then say that the

demand for cookies is

A) elastic. B) inelastic.

C) unit elastic. D) perfectly elastic.

3) When demand is perfectly inelastic, the demand curve is

A) horizontal. B) vertical.

C) upward sloping. D) downward sloping.

4) If the absolute value of the price elasticity of demand for a product is greater than 1, then

A) quantity demanded is not very sensitive to price changes.

B) demand is elastic.

C) demand is unit elastic.

D) demand is inelastic.

5) If the absolute price elasticity of demand for automobiles is equal to 0.75, we say

A) that demand is inelastic.

B) that demand is elastic.

C) that there is a strong responsiveness of quantity demanded to automobiles price cuts.

D) none of the above is correct.

6) Inelastic demand implies

A) that a one percent increase in price results in a smaller than one percent decrease in

quantity demanded.

B) that a one percent increase in price results in a larger than one percent decrease in quantity

demanded.

C) that a one percent cut in price results in a larger than one percent increase in quantity

demanded.

D) that a one percent decrease or increase in price induces no change in total revenue.

7) Elastic demand implies

A) that a one percent increase in price results in a smaller than one percent decrease in

quantity demanded.

B) that a one percent increase in price results in a larger than one percent decrease in quantity

demanded.

C) that a one percent cut in price results in a larger than one percent increase in quantity

demanded.

D) that a one percent decrease or increase in price induces no change in total revenue.

8) If the calculated price elasticity of demand between two points is 4, demand is

A) inelastic. B) elastic.

C) unresponsive to price. D) unit elastic.

9) When the calculated price elasticity of demand is 0.45, demand is

A) perfectly inelastic. B) elastic.

C) unit elastic. D) inelastic.

10) When the absolute percentage change in quantity demanded is just equal to the percentage

change in price, demand is

A) elastic. B) perfectly inelastic.

C) unit elastic. D) relatively inelastic.

11) Price elasticities are calculated for four goods, and the values are: 4.1; 3.7; 1.0; 0.002. Which price

elasticity is most elastic?

A) 4.1 B) 3.7 C) 1.0 D) 0.002

12) The more sensitive people are to a change in price, the

A) greater a change in price must be to induce a certain change in quantity demanded.

B) greater is the price elasticity of demand.

C) smaller the price elasticity of demand.

D) closer the price elasticity of demand is to one.

13) An inelastic demand indicates that

A) quantity demanded does not vary with changes in the price.

B) relatively small changes in price lead to relatively large changes in quantity demanded.

C) relatively large changes in price are required to obtain a relatively small change in quantity

demanded.

D) relatively large changes in quantity demanded lead to relatively large changes in price.

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