Flashcards in Chapter 4 Bank questions Deck (50):

1

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1) A price elasticity of demand of 2 means that a 10 percent increase in price will result in a

A) 2 percent decrease in quantity demanded.

B) 20 percent decrease in quantity demanded.

C) 5 percent decrease in quantity demanded.

D) 2 percent increase in quantity demanded.

E) 20 percent increase in quantity demanded.

### b

2

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2) The price elasticity of demand is a units-free measure of the responsiveness of the ________ when all other influences on buying plans remain the same.

A) quantity demanded to a change in the price of a substitute or complement

B) quantity demanded to a change in income

C) quantity demanded of a good to a change in its price

D) price to a change in quantity demanded

E) none of the above

### C

3

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3) The concept used by economists to indicate the responsiveness of the quantity demanded of a good to a change in its price is the

A) cross elasticity of demand.

B) income elasticity of demand.

C) substitute elasticity of demand.

D) price elasticity of demand.

E) elasticity of supply.

### D

4

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4) If a 10 percent rise in price leads to an 8 percent decrease in quantity demanded, the price elasticity of demand is

A) 0.8.

B) 1.25.

C) 8.

D) 0.125.

E) 80.

### A

5

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5) If a large percentage drop in the price level results in a small percentage increase in the quantity demanded,

A) demand is inelastic.

B) demand is elastic.

C) demand is unit elastic.

D) the price elasticity of demand is close to infinity.

E) the price elasticity of demand is zero.

### A

6

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6) The price of apples falls by 5 percent and quantity of apples demanded increases by 6 percent. We conclude that the demand for apples is

A) perfectly elastic.

B) unit elastic.

C) elastic.

D) perfectly inelastic.

E) inelastic.

### C

7

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7) The price of oranges rises by 3 percent and quantity of oranges demanded decreases by 3 percent. We conclude that the demand for oranges is

A) inelastic.

B) elastic.

C) perfectly inelastic.

D) perfect elastic.

E) unit elastic.

### E

8

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8) The price of plums falls by 7 percent and quantity of plums demanded increases by 6.75 percent. We conclude that the demand for plums is

A) inelastic.

B) perfectly elastic.

C) perfectly inelastic.

D) elastic.

E) unit elastic.

### A

9

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9) The price of good A falls by 10 percent and quantity of good A demanded does not change. We conclude that the demand for good A is

A) perfectly elastic.

B) inelastic.

C) perfectly inelastic.

D) elastic.

E) unit elastic.

### C

10

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10) Which one of the following illustrates an inelastic demand?

A) A 10 percent rise in price leads to a 5 percent decrease in quantity demanded.

B) A 10 percent rise in price leads to a 20 percent decrease in quantity demanded.

C) A price elasticity of demand equal to infinity.

D) A price elasticity of demand equal to 1.0.

E) A price elasticity of demand equal to 2.0.

### A

11

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11) Which one of the following illustrates an elastic demand?

A) A 10 percent rise in price leads to a 5 percent decrease in quantity demanded.

B) A 10 percent rise in price leads to a 20 percent decrease in quantity demanded.

C) A price elasticity of demand equal to 0.2.

D) A price elasticity of demand equal to 1.0.

E) A price elasticity of demand equal to zero.

### b

12

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12) If a 12 percent fall in price results in an 8 percent increase in quantity demanded, the price elasticity of demand equals

A) 0.96.

B) 0.12.

C) 0.67.

D) 1.5.

E) 0.8.

### C

13

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13) The demand for good A is unit elastic if

A) a 5 percent fall in the price of A results in an infinite increase in the quantity of A demanded.

B) a 5 percent rise in the price of A results in a 10 percent decrease in the quantity of A demanded.

C) any increase in the price of A results in a 1 percent decrease in the quantity of A demanded.

D) a 5 percent rise in the price of A results in no change in the quantity of A demanded.

E) a 5 percent rise in the price of A results in a 5 percent decrease in the quantity of A demanded.

### E

14

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14) Demand is inelastic if

A) a small change in price results in a large change in quantity demanded.

B) the quantity demanded is very responsive to a change in price.

C) the price elasticity of demand is 0.2.

D) the price does not change when supply increases.

E) a 10 percent change in price results in a 1 percent change in the quantity supplied.

### C

15

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15) If the demand curve for a good is a horizontal line, then the good has

A) zero income elasticity.

B) price elasticity of demand equal to zero.

C) infinite price elasticity of demand.

D) a price elasticity of demand that is likely to rise in the short run.

E) a price elasticity of demand that is likely to fall in the short run.

### C

16

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16) If a 10 percent rise in the price of goods leads to a 10 percent decrease in quantity demanded, the demand curve for this good

A) is vertical.

B) is horizontal.

C) has slope equal to 1.

D) is a straight line with slope equal to 10.

E) none of the above.

### E

17

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17) A unit elastic demand

A) means that the ratio of a change in quantity demanded to a change in price is equal to 1.

B) means that the ratio of a percentage change in quantity demanded to a percentage change in price is equal to 1.

C) means that the ratio of a change in price to a change in quantity demanded is equal to 1.

D) is illustrated by a horizontal demand curve.

E) is illustrated by a vertical demand curve.

### B

18

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18) Suppose a rise in the price of a good from $6.50 to $7.50 leads to a decrease in the quantity demanded from 10,500 to 9,500 units. In this range of demand, the price elasticity of demand is

A) 14.

B) 7.

C) 1,000.

D) 1.

E) 0.7.

### E

19

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19) A fall in the price of a good from $11.50 to $8.50 results in an increase in the quantity demanded from 19,200 to 20,800 units. The price elasticity of demand is

A) 0.27.

B) 3.75.

C) 0.08.

D) 8.0.

E) 30.

### A

20

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20) A fall in the price of a good from $10.50 to $9.50 results in an increase in the quantity demanded from 18,800 to 21,200 units. The price elasticity of demand is

A) 0.8.

B) 1.25.

C) 1.2.

D) 8.0.

E) 2.4.

### C

21

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21) Suppose the quantity of root beer demanded decreases from 105,000 litres per week to 95,000 litres per week when the price rises by 5 percent. The price elasticity of demand

A) is 2.0.

B) is 0.5.

C) is 10.

D) is inelastic.

E) cannot be computed unless we know the original price and the new price.

### A

22

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22) Suppose that the price elasticity of demand for bottled water in Sackville, New Brunswick is 1.5, while the price elasticity of demand for bottled water in Prince Albert, Saskatchewan is 0.93. This implies that the demand in Sackville is ________ and demand in Prince Albert is ________.

A) unit elastic; unit elastic

B) perfectly elastic; inelastic

C) inelastic; elastic

D) elastic; inelastic

E) elastic; unit elastic

### D

23

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23) Suppose the government of Nova Scotia wants to reduce the consumption of electricity by 5 percent. The price elasticity of demand for electricity is 0.40. You advise the Nova Scotia government to

A) raise the price of electricity by 12.5 percent.

B) raise the price of electricity by 2 percent.

C) lower the price of electricity by 12.5 percent.

D) stay away from the market for electricity and let the market mechanism fix the problem.

E) lower the price of electricity by 2 percent.

### A

24

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24) Suppose the Lethbridge Computer Company decides to increase the quantity of computers it sells by 6 percent. If the price elasticity of demand is 3.5, the company must

A) raise the price of a computer by 1.714 percent.

B) raise the price of a computer by 0.21 percent.

C) lower the price of a computer by 0.21 percent.

D) lower the price of a computer by 1.714 percent.

E) lower the price of a computer by 0.58 percent.

### D

25

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25) If the demand for salmon in Cape Breton Nova Scotia is unit elastic, the price elasticity of demand for salmon equals

A) 1.0.

B) 100.0.

C) 0.10.

D) zero.

E) 10.0.

### A

26

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26) At a price of $15, Jack's quantity demanded of good A is the same as when the price rises to $16. Jack's demand for good A is

A) elastic.

B) inelastic.

C) perfectly elastic.

D) unit elastic.

E) perfectly inelastic.

### E

27

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27) Which one of the following will yield a measured price elasticity of demand of 5.0? A 10 percent rise in price results in a

A) 10 percent decrease in quantity demanded.

B) 5 percent decrease in quantity demanded.

C) 2 percent decrease in quantity demanded.

D) 50 percent decrease in quantity demanded.

E) 0.5 percent decrease in quantity demanded.

### D

28

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31) For which one of the following will demand be the most price inelastic?

A) milk

B) Happy Cow brand milk

C) Happy Cow brand milk in Regina

D) Happy Cow brand milk at Ralph's Grocery Store in Regina

E) All of the above will exhibit the same price elasticity of demand

### A

29

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32) For which one of the following is demand likely to be most inelastic?

A) diamonds

B) insulin for a diabetic

C) potatoes

D) gasoline

E) books

### B

30

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33) Demand will be more inelastic the

A) higher the income level.

B) lower the income level.

C) longer the passage of time after a price increase.

D) fewer good substitutes that are available.

E) larger the fraction of income spent on the good.

### D

31

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34) Demand will be more elastic the

A) higher the income level.

B) lower the income level.

C) longer the passage of time after a price increase.

D) fewer substitutes are available.

E) smaller the fraction of income spent on the good.

34) Demand will be more elastic the

A) higher the income level.

B) lower the income level.

C) longer the passage of time after a price increase.

D) fewer substitutes are available.

E) smaller the fraction of income spent on the good.

### C

32

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38) The quantity of apples demanded decreases by 8 percent when the price rises by 8 percent. The demand for apples is

A) unit elastic.

B) inelastic.

C) elastic.

D) perfectly elastic.

E) perfectly inelastic.

### A

33

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39) A perfectly vertical demand curve indicates that the price elasticity of demand for the good is

A) zero.

B) greater than zero but less than 1.

C) 1.

D) greater than 1.

E) negative.

### A

34

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40) Factors that influence the elasticity of demand include

A) the closeness of substitutes.

B) the price of complements but not the price of substitutes.

C) income.

D) preferences.

E) the price of substitutes and complements.

### A

35

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41) A given percentage rise in the price of a good is likely to result in a larger percentage decrease in the quantity of the good demanded

A) the shorter the passage of time.

B) the larger the proportion of income spent on it.

C) the harder it is to obtain good substitutes.

D) all of the above.

E) none of the above.

### B

36

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42) Suppose a fall in the price of a good from $10 to $8 leads to an increase in quantity demanded from 20 to 24 units. The price elasticity of demand is

A) 1.

B) 9/11.

C) 11/9.

D) 2.0.

E) 4.5/11.

### B

37

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43) For which one of the following will demand be the most price elastic?

A) daily newspapers

B) Ontario newspapers

C) Toronto newspapers

D) The Toronto Star

E) Each of the above will exhibit the same price elasticity of demand

### D

38

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44) Suppose this coming winter France will have unusually bad weather, and that next year's wine crop will be substantially reduced. Select the best statement.

A) The French wine supply will increase as price rises.

B) If the demand for French wine is elastic, wine producers will experience an increase in total revenue.

C) The initial change in the market will create a surplus of French wine.

D) In the final equilibrium, price and quantity will be higher.

E) none of the above

### E

39

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46) If the price elasticity of demand is 2, then a 1 percent fall in price

A) doubles the quantity demanded.

B) decreases the quantity demanded by half.

C) increases the quantity demanded by 2 percent.

D) decreases the quantity demanded by 2 percent.

E) increases the quantity demanded by 0.5 percent.

### C

40

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47) The demand for a good will be more price inelastic,

A) the higher is its price.

B) the larger is the percentage of income spent on it.

C) the longer is the passage of time.

D) the smaller the supply of the good.

E) the fewer substitutes are available for the good.

### E

41

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48) A union leader who claims that "higher wages increase living standards without causing unemployment" believes that the demand for labour is

A) income elastic.

B) income inelastic.

C) perfectly elastic.

D) perfectly inelastic.

E) unit elastic.

### D

42

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49) Business people speak about price elasticity of demand without using the actual term. Which one of the following statements reflects elastic demand for a good?

A) "A price cut won't help me. It won't increase sales, and I'll just get less money for each unit."

B) "I don't think a price cut will make any difference to my bottom line. What I may gain from selling more I would lose on the lower price."

C) "My customers are real bargain hunters. Since I set my prices just a few cents below my competitors, customers have flocked to the store, and sales are booming."

D) "With the recent economic recovery, people have more income to spend and sales are booming, even at the previous prices."

E) none of the above

### C

43

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50) If a rise in price results in a decrease in total revenue, then the price elasticity of demand is

A) negative.

B) zero.

C) greater than zero but less than 1.

D) equal to 1.

E) greater than 1.

### E

44

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51) Suppose that Simon Fraser University decides to raise tuition fees to increase the total revenue it receives from students. This policy works only if the demand for a Simon Fraser University education is

A) unit elastic.

B) inelastic.

C) elastic.

D) greater than the demand for a University of Western Ontario education.

E) perfectly elastic.

### B

45

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52) The demand for a good is perfectly elastic when the price elasticity of demand is

A) equal to infinity.

B) between infinity and 1.

C) equal to 1.

D) between 1 and zero.

E) equal to zero.

### A

46

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53) When the price elasticity of demand is ________, demand for the good is perfectly inelastic.

A) equal to infinity

B) greater than 1

C) equal to 1

D) between 1 and zero

E) equal to zero

### E

47

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54) When the price elasticity of demand is ________, demand for the good is elastic.

A) equal to infinity

B) greater than 1

C) equal to 1

D) between 1 and zero

E) equal to zero

### B

48

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55) When the price elasticity of demand is ________, demand for the good is unit elastic.

A) equal to infinity

B) greater than 1

C) equal to 1

D) between 1 and zero

E) equal to zero.

### C

49

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56) When the price elasticity of demand is ________, demand for the good is inelastic.

A) equal to infinity

B) greater than 1

C) equal to 1

D) between 1 and zero

E) equal to zero

### D

50