Transcript Elasticity Sample Questions

Elasticity
Sample Questions
AP Microeconomics
Mr. Bordelon
Which of the following best describes price elasticity of
demand?
A. Price elasticity of demand measures the responsiveness of
the change in the quantity demanded to a change in price.
B. Price elasticity of demand measures the change in price
versus a change in quantity demanded.
C. Price elasticity of demand measures the responsiveness of
the change in slope of the demand curve to a change in
price.
D. Price elasticity of demand measures the change in slope
of the demand curve versus a change in quantity
demanded.
E. Price elasticity of demand measures the responsiveness of
total revenue received by a firm to a change in the quantity
demanded.
Which of the following best describes price elasticity of
demand?
A. Price elasticity of demand measures the responsiveness of
the change in the quantity demanded to a change in price.
B. Price elasticity of demand measures the change in price
versus a change in quantity demanded.
C. Price elasticity of demand measures the responsiveness of
the change in slope of the demand curve to a change in
price.
D. Price elasticity of demand measures the change in slope
of the demand curve versus a change in quantity
demanded.
E. Price elasticity of demand measures the responsiveness of
total revenue received by a firm to a change in the quantity
demanded.
Which of the following best describes the income effect of a
price increase?
A. The price of bacon increases, so Michelle buys more
sausage.
B. The price of corn chips increases, so Michelle buys potato
chips.
C. The tuition at the public university increases, so Michelle
attends a community college.
D. Michelle’s apartment rent increases, so she cancels her
subscription to a monthly magazine.
E. Michelle’s apartment rent increases, so she moves to a
smaller apartment.
Which of the following best describes the income effect of a
price increase?
A. The price of bacon increases, so Michelle buys more
sausage.
B. The price of corn chips increases, so Michelle buys potato
chips.
C. The tuition at the public university increases, so Michelle
attends a community college.
D. Michelle’s apartment rent increases, so she cancels her
subscription to a monthly magazine.
E. Michelle’s apartment rent increases, so she moves to a
smaller apartment.
The income effect of a price change is the effect on the
consumption of a good due to a change in:
A. Income when all prices change in the same proportion.
B. Purchasing power caused by a change in the price of the
good.
C. Income caused by a change in the price of labor.
D. Income sufficient to offset the effect of a price change.
E. Disposable income caused by a change in the marginal
tax rates.
The income effect of a price change is the effect on the
consumption of a good due to a change in:
A. Income when all prices change in the same proportion.
B. Purchasing power caused by a change in the price of the
good.
C. Income caused by a change in the price of labor.
D. Income sufficient to offset the effect of a price change.
E. Disposable income caused by a change in the marginal
tax rates.
The substitution effect of a price change is described by which
of the following statements?
A. When the price of a good falls, consumers have more real
income with the same nominal income and now buy more
of the good.
B. When the price of a good falls, consumers substitute the
lower-priced good for relatively higher-priced goods.
C. The substitution effect is the relative change in the amount
of a good consumed when the price of another good
changes.
D. The substitution effect shows how a change in income
affects the quantity of a good purchased.
E. The substitution effect shows how a price change affects
purchasing power and affects the quantity of a good
purchased.
The substitution effect of a price change is described by which
of the following statements?
A. When the price of a good falls, consumers have more real
income with the same nominal income and now buy more
of the good.
B. When the price of a good falls, consumers substitute the
lower-priced good for relatively higher-priced goods.
C. The substitution effect is the relative change in the amount
of a good consumed when the price of another good
changes.
D. The substitution effect shows how a change in income
affects the quantity of a good purchased.
E. The substitution effect shows how a price change affects
purchasing power and affects the quantity of a good
purchased.
The price elasticity of demand is computed as the percentage
change in:
A. Quantity demanded divided by the percentage change in
quantity supplied.
B. Price divided by the percentage change in quantity
demanded.
C. Quantity demanded divided by the percentage change in
income.
D. Quantity demanded divided by the percentage change in
price.
E. Quantity supplied divided by the percentage change in
price.
The price elasticity of demand is computed as the percentage
change in:
A. Quantity demanded divided by the percentage change in
quantity supplied.
B. Price divided by the percentage change in quantity
demanded.
C. Quantity demanded divided by the percentage change in
income.
D. Quantity demanded divided by the percentage change in
price.
E. Quantity supplied divided by the percentage change in
price.
If the price of a good is increased by 15% and the quantity
demanded changes by 20%, then the absolute value of the
price elasticity of demand is equal to:
A. 0.75
B. Approximately 0.33
C. Approximately 1.33
D. 1
E. zero.
If the price of a good is increased by 15% and the quantity
demanded changes by 20%, then the absolute value of the
price elasticity of demand is equal to:
A. 0.75
B. Approximately 0.33
C. Approximately 1.33
D. 1
E. zero.
There is one gas station in a small rural town. The owner of
the station claims that he will sell the same quantity of gas, no
matter how high or low the price. If he is correct in this
assertion, what must be true about the demand curve for gas
at his station?
A. It must be vertical with a price elasticity of zero.
B. It must be vertical with a price elasticity of infinity.
C. It must be horizontal with a price elasticity of zero.
D. It must be horizontal with a price elasticity of infinity.
E. It must be downward sloping with a price elasticity less
than one.
There is one gas station in a small rural town. The owner of
the station claims that he will sell the same quantity of gas, no
matter how high or low the price. If he is correct in this
assertion, what must be true about the demand curve for gas
at his station?
A. It must be vertical with a price elasticity of zero.
B. It must be vertical with a price elasticity of infinity.
C. It must be horizontal with a price elasticity of zero.
D. It must be horizontal with a price elasticity of infinity.
E. It must be downward sloping with a price elasticity less
than one.
Demand for vegetables at a small farmers’ market is steady,
but the supply of vegetables has decreased due to a drought.
This is good news for farmers if demand is:
A. Inelastic and the price effect outweighs the quantity effect.
B. Elastic and the price effect outweighs the quantity effect.
C. Inelastic and the quantity effect outweighs the price effect.
D. Elastic and the quantity effect outweighs the price effect.
E. Inelastic and the price effect is equal to the quantity effect.
Demand for vegetables at a small farmers’ market is steady,
but the supply of vegetables has decreased due to a drought.
This is good news for farmers if demand is:
A. Inelastic and the price effect outweighs the quantity effect.
B. Elastic and the price effect outweighs the quantity effect.
C. Inelastic and the quantity effect outweighs the price effect.
D. Elastic and the quantity effect outweighs the price effect.
E. Inelastic and the price effect is equal to the quantity effect.
The demand for strawberry ice cream tends to be relatively
price-elastic because:
A. It costs so little.
B. It has to be consumed very quickly.
C. For most people, there are many close substitutes for
strawberry ice cream.
D. For most people, there are no close substitutes for
strawberry ice cream.
E. For most people, it is considered a necessity.
The demand for strawberry ice cream tends to be relatively
price-elastic because:
A. It costs so little.
B. It has to be consumed very quickly.
C. For most people, there are many close substitutes for
strawberry ice cream.
D. For most people, there are no close substitutes for
strawberry ice cream.
E. For most people, it is considered a necessity.
If a 20% price increase generates a 20% decrease in quantity
demanded, then this is a(n) _____ response.
A. Inelastic
B. Elastic
C. Unit-elastic
D. Perfectly elastic
E. Perfectly inelastic
If a 20% price increase generates a 20% decrease in quantity
demanded, then this is a(n) _____ response.
A. Inelastic
B. Elastic
C. Unit-elastic
D. Perfectly elastic
E. Perfectly inelastic
Which of the following is true about the price elasticity of
demand?
A. When demand is perfectly inelastic, a rise in price leads to
a decrease in total revenue.
B. When demand is perfectly elastic, a rise in price leads to
an increase in total revenue.
C. When demand is elastic, an increase in price leads to an
increase in total revenue.
D. When demand is elastic, an decrease in price leads to a
decrease in total revenue.
E. When demand is inelastic, a rise in price leads to an
increase in total revenue.
Which of the following is true about the price elasticity of
demand?
A. When demand is perfectly inelastic, a rise in price leads to
a decrease in total revenue.
B. When demand is perfectly elastic, a rise in price leads to
an increase in total revenue.
C. When demand is elastic, an increase in price leads to an
increase in total revenue.
D. When demand is elastic, an decrease in price leads to a
decrease in total revenue.
E. When demand is inelastic, a rise in price leads to an
increase in total revenue.
Which of the following statements is correct?
A. The demand curve is less elastic when the price increases
from $4 to $6 than when it increases from $6 to $8.
B. The demand curve is more elastic when the price increases
from $4 to $6 than when it increases from $6 to $8.
C. The demand curve has the same elasticity when the price
increases from $4 to $6 as when it increases from $6 to $8.
D. The demand curve is unit-elastic when the price increases
from $4 to $6 and when it increases from $6 to $8.
E. The demand curve is the least elastic near the price of $10
and the most elastic near the price of $4.
Which of the following statements is correct?
A. The demand curve is less elastic when the price increases
from $4 to $6 than when it increases from $6 to $8.
B. The demand curve is more elastic when the price increases
from $4 to $6 than when it increases from $6 to $8.
C. The demand curve has the same elasticity when the price
increases from $4 to $6 as when it increases from $6 to $8.
D. The demand curve is unit-elastic when the price increases
from $4 to $6 and when it increases from $6 to $8.
E. The demand curve is the least elastic near the price of $10
and the most elastic near the price of $4.
The price elasticity of demand for blueberries is 1.5. If climate
change destroys one-fourth of the nation’s blueberry crop, thus
reducing supply, how will that affect the price of blueberries
and total revenue earned by blueberry growers, all other things
unchanged?
A. Price increases; total revenue rises.
B. Price increases; total revenue falls.
C. Price increases; total revenue remains unchanged.
D. Price decreases; total revenue falls.
E. Price decreases; total revenue rises.
The price elasticity of demand for blueberries is 1.5. If climate
change destroys one-fourth of the nation’s blueberry crop, thus
reducing supply, how will that affect the price of blueberries
and total revenue earned by blueberry growers, all other things
unchanged?
A. Price increases; total revenue rises.
B. Price increases; total revenue falls.
C. Price increases; total revenue remains unchanged.
D. Price decreases; total revenue falls.
E. Price decreases; total revenue rises.
If University High School increases the price of football tickets,
this will result in increasing revenues if the price elasticity of
demand is:
A. Price-inelastic.
B. Price-elastic.
C. Equal to 1.
D. Perfectly elastic.
E. Greater than 1.
If University High School increases the price of football tickets,
this will result in increasing revenues if the price elasticity of
demand is:
A. Price-inelastic.
B. Price-elastic.
C. Equal to 1.
D. Perfectly elastic.
E. Greater than 1.
The price of gasoline increases 10% this year. As a result,
which of the following events is most likely to occur?
A. More people will drive their cars.
B. Public transportation usage will decrease.
C. Revenue from gasoline sales will increase if gasoline is an
elastic good.
D. Fewer people will ride bicycles, a substitute for car travel.
E. Gasoline expenditures will increase if gasoline is an elastic
good.
The price of gasoline increases 10% this year. As a result,
which of the following events is most likely to occur?
A. More people will drive their cars.
B. Public transportation usage will decrease.
C. Revenue from gasoline sales will increase if gasoline is an
elastic good.
D. Fewer people will ride bicycles, a substitute for car travel.
E. Gasoline expenditures will increase if gasoline is an elastic
good.
If demand is elastic, then:
A. The price effect dominates the quantity effect, and a fall in
price will cause total revenue to rise.
B. The price effect dominates the quantity effect, and an
increase in price will cause total revenue to rise.
C. The quantity effect dominates the price effect, and an
increase in price causes total revenue to rise.
D. The quantity effect dominates the price effect, and a
decrease in price causes total revenue to rise.
E. The price effect dominates the quantity effect, and an
increase in price causes total revenue to fall.
If demand is elastic, then:
A. The price effect dominates the quantity effect, and a fall in
price will cause total revenue to rise.
B. The price effect dominates the quantity effect, and an
increase in price will cause total revenue to rise.
C. The quantity effect dominates the price effect, and an
increase in price causes total revenue to rise.
D. The quantity effect dominates the price effect, and a
decrease in price causes total revenue to rise.
E. The price effect dominates the quantity effect, and an
increase in price causes total revenue to fall.
The change in the firm’s total revenue resulting from a change
in price from P to T suggests that demand is:
A. Perfectly price-inelastic.
B. Perfectly price-elastic.
C. Price-inelastic.
D. Price unit-elastic.
E. Price-elastic.
The change in the firm’s total revenue resulting from a change
in price from P to T suggests that demand is:
A. Perfectly price-inelastic.
B. Perfectly price-elastic.
C. Price-inelastic.
D. Price unit-elastic.
E. Price-elastic.
The seller’s total revenue at point S equals the:
A. Distance 0P.
B. Distance MS.
C. Area 0TUM.
D. Area 0PSM.
E. Area PSUT.
The seller’s total revenue at point S equals the:
A. Distance 0P.
B. Distance MS.
C. Area 0TUM.
D. Area 0PSM.
E. Area PSUT.
Suppose the price of cereal rose by 25% and the quantity of
milk sold decreased by 50%. Then we know that the:
A. Cross-price elasticity between cereal and milk is -2.
B. Cross-price elasticity between cereal and milk is -0.5.
C. Price elasticity of demand for milk is 2.
D. Cross-price elasticity of demand for milk is 2.
E. Price elasticity of demand for cereal is 0.5.
Suppose the price of cereal rose by 25% and the quantity of
milk sold decreased by 50%. Then we know that the:
A. Cross-price elasticity between cereal and milk is -2.
B. Cross-price elasticity between cereal and milk is -0.5.
C. Price elasticity of demand for milk is 2.
D. Cross-price elasticity of demand for milk is 2.
E. Price elasticity of demand for cereal is 0.5.
The cross-price elasticity of electricity with respect to the price
of natural gas has been estimated to being equal to 0.2. This
implies that:
A. Natural gas and electricity are both normal goods.
B. Electricity and natural gas are complements.
C. Electricity and natural gas are both luxury goods.
D. One of the two goods is inferior while the other is normal,
but we need additional information to determine which of
them is inferior.
E. Electricity and natural gas are substitutes.
The cross-price elasticity of electricity with respect to the price
of natural gas has been estimated to being equal to 0.2. This
implies that:
A. Natural gas and electricity are both normal goods.
B. Electricity and natural gas are complements.
C. Electricity and natural gas are both luxury goods.
D. One of the two goods is inferior while the other is normal,
but we need additional information to determine which of
them is inferior.
E. Electricity and natural gas are substitutes.
What would happen in the market for canned pinto beans if
individuals’ incomes increase?
A. The income elasticity of demand would be positive if beans
are a normal good.
B. The income elasticity of demand would be positive if beans
are an inferior good.
C. The cross-price elasticity between beans and other goods
would be positive.
D. The cross-price elasticity between beans and other goods
would be negative.
E. The demand curve for pinto beans would shift outward if
pinto beans were inferior goods.
What would happen in the market for canned pinto beans if
individuals’ incomes increase?
A. The income elasticity of demand would be positive if beans
are a normal good.
B. The income elasticity of demand would be positive if beans
are an inferior good.
C. The cross-price elasticity between beans and other goods
would be positive.
D. The cross-price elasticity between beans and other goods
would be negative.
E. The demand curve for pinto beans would shift outward if
pinto beans were inferior goods.
The income elasticity of demand for eggs has been estimated
to be 0.6. If income grows by 5% in a period, how will that
affect demand for eggs in that period, all other things
unchanged?
A. Quantity demand will increase by more than 6%.
B. Quantity demand will increase by 6%.
C. Quantity demand will decrease by 3%.
D. Quantity demand will increase by 1.8%.
E. Quantity demand will increase by 3%.
The income elasticity of demand for eggs has been estimated
to be 0.6. If income grows by 5% in a period, how will that
affect demand for eggs in that period, all other things
unchanged?
A. Quantity demand will increase by more than 6%.
B. Quantity demand will increase by 6%.
C. Quantity demand will decrease by 3%.
D. Quantity demand will increase by 1.8%.
E. Quantity demand will increase by 3%.
The price elasticity of supply is computed as the percentage
change in:
A. Quantity supplied divided by the percentage change in
quantity demanded.
B. Quantity supplied divided by the percentage change in
price.
C. Price divided by the percentage change in quantity
supplied.
D. Quantity supplied divided by the percentage change in
consumer income.
E. Quantity supplied divided by the percentage change in
price of a related good.
The price elasticity of supply is computed as the percentage
change in:
A. Quantity supplied divided by the percentage change in
quantity demanded.
B. Quantity supplied divided by the percentage change in
price.
C. Price divided by the percentage change in quantity
supplied.
D. Quantity supplied divided by the percentage change in
consumer income.
E. Quantity supplied divided by the percentage change in
price of a related good.
It is very difficult for Julia to find inexpensive and available
inputs for her business. Because of this, we would predict that
Julia’s price elasticity of supply would be:
A. Elastic
B. Inelastic
C. Unit-elastic
D. Perfectly elastic
E. A value greater than 1
It is very difficult for Julia to find inexpensive and available
inputs for her business. Because of this, we would predict that
Julia’s price elasticity of supply would be:
A. Elastic
B. Inelastic
C. Unit-elastic
D. Perfectly elastic
E. A value greater than 1
Decreases in input costs and the longer the length of time
since a price change will tend to:
A. Increase the price elasticity of supply.
B. Decrease price elasticity of supply.
C. Have no impact on the price elasticity of supply.
D. Decrease the income elasticity of demand.
E. Increase the price elasticity of demand.
Decreases in input costs and the longer the length of time
since a price change will tend to:
A. Increase the price elasticity of supply.
B. Decrease price elasticity of supply.
C. Have no impact on the price elasticity of supply.
D. Decrease the income elasticity of demand.
E. Increase the price elasticity of demand.
 Elasticity
 Elasticity of Demand
 Midpoint method (why we
use it)
 Calculating Ed
 Inelastic vs. Elastic vs. Unit
Elastic
 Substitution and Income
Effects
 Inelastic vs. Elastic vs. Unit
Elastic on a Demand Curve
 Total Revenue and Unit
Elasticity
 Perfect Inelastic vs. Perfect
Elastic
 Cross-Price Elasticity
 Income Elasticity
 Elasticity of Supply