McEachern Quiz Elasticity of Demand and Supply

Quiz
Elasticity of Demand and Supply

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1. Which of the following most completely describes the concept of price elasticity of demand?: a. A measure of the responsiveness of quantity demanded to a change in consumer income.
b. A measure of the responsiveness of quantity demanded to a change in the price of a substitute.
c. The percentage change in quantity demanded divided by the percentage change in price.
d. A measure of the responsiveness of quantity demanded to a price change.
e. Both c. and d. above are correct.

2. Fill in the blank: Elasticity is another word for ________________.: a. Rigidity.
b. Seasonal change.
c. Uncertainty.
d. Responsiveness.

3. Suppose that Jasper buys 35 quarts of bottled water each month when the price per quart is $1, while when water goes on sale for $0.60 he buys 45 quarts each month. Using the formula on page 388, what is Jasper's price elasticity of demand for water?: a. -0.25.
b. -0.50.
c. -0.75.
d. -1.00.

4. If the quantity of potatoes demanded rises 2 percent when the price of potatoes declines 10 percent, then the price elasticity of demand is:: a. -0.2
b. -1.
c. -2.
d. -10.
e. Cannot be determined.

5. Fill in the blanks: When the price elasticity of demand falls in the range between 0 and -1.0, that portion of the demand curve is said to be ___________. When the price elasticity of demand equals -1.0, that portion of the demand curve is said to be _________. When the price elasticity of demand is more negative than -1.0, that portion of the demand curve is said to be ___________.: a. Elastic, unitary elastic, inelastic.
b. Inelastic, unitary elastic, elastic.
c. Cross-price elastic, price elastic, income elastic.
d. None of the above.

6. True or false: If the positive effect of a greater quantity demanded exceeds the negative effect of a lower price, total revenue will fall, and that portion of the demand curve is inelastic.: a. True.
b. False.

7. Why is demand more price-elastic on the higher-price end of a linear demand curve than on the lower-price end?: a. Because quantity demanded is larger at the upper end of the demand curve than at the lower end, a 50-unit increase in quantity demanded represents a smaller percentage change at the upper end than at the lower end.
b. Because quantity demanded is smaller at the upper end of the demand curve than at the lower end, a 50-unit increase in quantity demanded represents a larger percentage change at the upper end than at the lower end.
c. Because the price is higher at the upper end than at the lower end of the curve, a $20 decrease in price represents a smaller percent change in price at the upper end than at the lower end.
d. Both a. and c. together are correct.
e. Both b. and c. together are correct.

8. True or false: If the demand curve is linear, consumers are more responsive to a given price change when the initial price is low than when the price is high.: a. True.
b. False.

9.Which of the following demand curves has constant elasticity?: a. A horizontal demand curve.
b. An upward-sloping linear demand curve.
c. A downward-sloping demand curve with constant slope.
d. Both b. and c. above.

10. Suppose that Katrina always buys exactly 5 Rain Forest Bars each week, regardless of whether they are regularly priced at $1 or on sale for $0.50. Based on this information, what is Katrina's price elasticity of demand for Rain Forest Bars on this portion of her demand curve?: a. 0.
b. -1.00.
c. Infinity.
d. Cannot be determined.

11. Which of the following factors will tend to associated with products having a highly price-elastic demand curve?: a. Few close substitutes.
b. A very short time period for consumers to respond to price changes.
c. Many very close substitutes.
d. A per-unit price that is only a very small portion of most people's budget.

12. When a company engages in a substantial amount of image advertising, they are trying to cause consumers to see their product as being unique and distinctive relative to the substitute products made by rival firms. Based on this information, which of the following is true?: a. Successful image advertising tends to make price elasticity of demand lower.
b. Successful image advertising tends to make price elasticity of demand higher.
c. Successful image advertising has no impact on the price elasticity of demand.
d. None of the above.

13. Which of the following goods or services is most likely to have an elastic demand in the short run?: a. Electricity (residential).
b. Gasoline.
c. Milk.
d. Toyota 4-Runner sport-utility vehicles.

14. True or false: The elasticity of supply measures the responsiveness of quantity supplied to a price change. It is calculated as the percent change in quantity supplied divided by the percent change in price. Supply elasticities are positive.: a. True.
b. False.

15. True or false: The longer amount of time it takes for firms have to adjust to a given price change, the more elastic the supply curve is.: a. True.
b. False.

16. Which of the following is most likely to have a negative income elasticity of demand?: a. Plush overseas vacations.
b. Fancy restaurant meals.
c. Day-old bakery goods at a discount bakery.
d. New cars.

17. Which of the following is most likely to have an income elasticity greater than 1?: a. Pork.
b. Fine wine.
c. Gasoline.
d. Rental housing.

18. True or false: Suppose that agricultural technology results in increased grain yield for U.S. farmers. The increased supply of grain will drive down grain prices. Because the demand for grain is price inelastic, lower prices will also result in lower total farm revenue.: a. True.
b. False.

19. Which set of goods is most likely to have the larger cross-price elasticity of demand: Coke and Pepsi, computer hardware and computer software, or fish and bicycles?: a. Coke and Pepsi.
b. Computer hardware and computer software.
c. Fish and bicycles.

20. Suppose that Zark and Bora are related products on the planet Zappo. It is observed that when the price of Zark falls (due to the cyclical nature of the Zark harvest), the quantity of Bora demanded quickly rises. Which of the following can we conclude is true based on this information?: a. Zark and Bora are substitutes.
b. Zark and Bora are complements.
c. Zark and Bora are both luxury goods.
d. Zark and Bora are inferior goods.