Price Elasticity of Demand: Concepts and Applications
1)
The price elasticity of demand ________ in value when moving downward along a ________ line
demand curve. 1) A) falls; straight B) rises; straight C) rises; curved D) falls, curved 2) In general, how a sales tax is divided between buyers and sellers is determined by 2) A) the elasticities of supply and demand. B) who the law says must pay the tax.
C) the government’s choice of whom to tax. D) the revenue needs of government. 3) In the above figure, who pays the larger share of the tax? 3) A) buyers B) sellers C)
C) the government’s choice of whom to tax. D) the revenue needs of government. 3) In the above figure, who pays the larger share of the tax? 3) A) buyers B) sellers C)
Buyers and sellers each pay the same amount of the tax, but the amount each pays is different
than $10 per compact disc. D) Buyers and sellers each pay the same amount of the tax and each pays $10 per compact disc. 4) In the above figure, what is the total tax revenue collected by the government? 4) A) $40 million B) $20 million C) $200 million D) $400 million 5) A good with a vertical demand curve has a demand with 5) A) infinite elasticity. B) unit elasticity. C) varying elasticity. D) zero elasticity. 6) A sales tax is divided so that buyers pay the full amount if 6) A) demand has unitary elasticity. B) demand is perfectly inelastic. C) supply has unitary elasticity. D) supply is perfectly inelastic. 1
7) If goods A and B are complements, then 7) A) their income elasticities of demand are both greater than 1. B) the cross elasticity of demand between A and B is positive. C) the cross elasticity of demand between A and B is negative. D) their income elasticities of demand are both less than 1. 8) Demand is income elastic if 8) A) the good in question has close substitutes. B)
a small percentage increase in income results in a large percentage increase in quantity
Demanded
C)
a large percentage increase in income results in a small percentage increase in quantity
demanded. D) an increase in income does not affect the quantity demanded.
Price
(dollars per bushel)
Quantity demanded
(bushels)
8 2,000
7 4,000
6 6,000
5 8,000
4 10,000
3 12,000
9)
The table above gives the demand schedule for snow peas. If the price of snow peas falls from $4.00
to $3.00 a bushel, total revenue will 9) A) decrease because demand is elastic in this range. B) increase because demand is inelastic in this range. C) decrease because demand is inelastic in this range. D) increase because demand is elastic in this range. 10)
A fall in the price of cabbage from $10.50 to $9.50 per bushel increases the quantity demanded from
18,800 to 21,200 bushels. The price elasticity of demand is 10) A) 1.20. B) 1.25. C) 0.80. D) 8.00. 11) The price elasticity of demand can range between 11) A) zero and one. B) negative one and one. C) zero and infinity. D) negative infinity and infinity. 12)
As the price of camcorders fell during the last decade, consumers’ total expenditures on camcorders
increased. If the demand curve for camcorders did not shift, this fact means that the demand for
camcorders 12) A) is inelastic. B) must be upward sloping. C) must have shifted leftward. D) is elastic. 13)
Freezing temperatures in California have sharply reduced the supply of oranges in the U.S. You
predict that the price of oranges will ________, and the more elastic the demand for oranges, the
________ will be the effect on the price. 13) A) rise; greater B) rise; smaller C) fall; smaller D) fall; greater 2
14) Producers’ total revenue will increase if 14) A) the price rises and demand is inelastic. B) the price rises and demand is elastic. C) income falls and the good is a normal good. D) income increases and the good is an inferior good. 15) The price elasticity of demand equals magnitude of the 15) A)
change in the quantity demanded divided by the change in price. B) change in the price divided by the change in quantity demanded. C) percentage change in the quantity demanded divided by the percentage change in the price. D) percentage change in the price divided by the percentage change in the quantity demanded. 16) In the above figure, which demand curve illustrates perfectly elastic demand? 16) A) G B) I C) H D) J
change in the quantity demanded divided by the change in price. B) change in the price divided by the change in quantity demanded. C) percentage change in the quantity demanded divided by the percentage change in the price. D) percentage change in the price divided by the percentage change in the quantity demanded. 16) In the above figure, which demand curve illustrates perfectly elastic demand? 16) A) G B) I C) H D) J
17)
Suppose that the cross elasticity of demand for Dell computers with respect to Hewlett Packard
computers is 2.1. If Hewlett-Packard lowers its price by 5 percent, other things being equal, what
will be the percentage change in the quantity of Dell computers demanded? 17) A) 2.4 percent B) -42 percent C) -10.5 percent D) 10.5 percent 18)
The demand and the supply for a good are each neither perfectly elastic nor perfectly inelastic. If a
sales tax on sellers of the good is imposed, the tax is paid by 18) A) only buyers. B) only sellers. C) neither buyers nor sellers. D) both buyers and sellers. 19)
Suppose the price elasticity of teenager’s demand for cigarettes is 2.0. If the government imposes a
tax on cigarettes that raises the price by 10 percent, by how much will it reduce teenage smoking? 19) A) by 5 percent B) by 15 percent C) by 10 percent D) by 20 percent 3
20) The figure above illustrates a linear demand curve. If the price falls from $6 to $4, 20) A) quantity demanded increases by more than 100 percent. B) total revenue decreases. C) total revenue remains unchanged. D) total revenue increases.