Elasticity Graphs
Use the graph below to answer questions 1 &2
1. Which of the demand curves shown in this graph is perfectly inelastic?
A. D1
B. D2
C. D3
D. D4
E. D5
2. Which of the demand curves shown in this graph is perfectly elastic?
A. D1
B. D2
C. D3
D. D4
E. D5
3. If the price elasticity of demand for point 2 equals 1, what must also be true?
A. The value of price elasticity at point 1 is less than 1
B. Point 3 also has a price elasticity of demand equal to 1
C. The value of price elasticity at point 3 is inelastic
D. Point 3 is perfectly inelastic
E. Point 1 is perfectly inelastic
Price Elasticity of Demand Questions
4. Gas prices rose by 12%, percent following a hurricane in the Gulf of Mexico. As a result, the amount of gas purchased
in the week fell by 3%, percent following the price increase.
What is the price elasticity of demand for gas in the week following the price increase?
A.
B.
C.
D.
E.
0.25
-0.75
4
2.5
0.5
Reason: A price elasticity of demand of 0.25 indicates that for every 1% increase in price, the quantity demanded of gas
decreases 0.25%. Remember: the convention in economics is to take the absolute value of the price elasticity of demand,
so this will always be a positive value. The price elasticity of demand is calculated with this formula: PED= %change in
quantity demanded / %change in price
5. The price elasticity of demand for a brand of breakfast cereal is 5.
5. Based on this elasticity, what will be the percentage change in the quantity of breakfast cereal bought as a result of
a 5%, percent decrease in the cereal's price?
A.
B.
C.
D.
E.
-25%
+25%
-1%
+1%
5%
Reason: The 5%, percent decrease in price will cause quantity demanded to increase by 5 times more than the
change in price (since the elasticity coefficient is -5). This means quantity demanded increases by 25%
The table below contains the demand schedule for grapes.
6. What is the price elasticity of demand for grapes when the price increases from $0.50 to $1.00?
A. 5
B. 1
C. 2
D. 0.25
E. 0.2
Other Types of Elasticity Questions
7. When the price of pickles increased 20%, percent, the quantity supplied of pickles increased 80%, percent.
What is the price elasticity of supply and how is that value interpreted?
A.
B.
C.
D.
E.
4; elastic
4; inelastic
0.25; inelastic
0.25; normal good
6; elastic
Reason: The price elasticity of supply is the percentage change in quantity supplied divided by the percentage change in
price. Any value greater than 1 is elastic.
8. When Eric's income was $500, per week he bought 10 fish tacos per week, but when his income increased to $600, per
week he started buying 15 fish tacos per week.
What is Eric's income elasticity of demand for fish tacos?
A.
B.
C.
D.
E.
2
0.1
4
.4
2.5
Reason: Math
9. Farmers can easily grow raspberries or strawberries in the same soil using the same inputs and achieve the same output
per acre in pounds.
All else equal, what is the value of the relative price elasticity of supply of raspberries over two days or two years?
A.
B.
C.
D.
E.
relatively inelastic in two days; relatively elastic in two years
relatively more elastic in two days than in 2 year
relatively more elastic in two years than in two days
relatively elastic in two days; relatively inelastic in two years
relatively inelastic in two days; relatively inelastic in two years
Reason: In the short run, farmers would not be able to respond to price, but in the long run they would be able to respond.
10. Burgin's income elasticity for gizmos is -5.
What happens when Burgin's income increases by 10%, percent?
A.
B.
C.
D.
E.
He will buy 5 more gizmos
He will buy$50 worth of gizmos more
He will buy 5%, percent fewer gizmos
He will buy 50%, percent more gizmos
He will buy 50%, percent fewer gizmos
Reason: An income elasticity of -5,indicates that for every 1% increase in income, Burgin buys 5%, percent fewer gizmos.
Therefore, if his income increases by 10%, percent, he will buy 50%, percent fewer gizmos.
11. When Pam's income increased by 10%, percent, she bought 5% fewer containers of yogurt.
What kind of good does Pam consider yogurt?
A.
B.
C.
D.
E.
Complementary with peaches
A normal necessity
A normal luxury
An inferior good
Substitute for eggs
Reason: When Pam's income increases, her demand for this good decreased. The definition of an inferior good is a good
that experiences a decrease in demand when consumer incomes increase.
12. If the cross-price elasticity of demand for good X with respect to good Y equals 0, how is that value interpreted?
A. These goods are complements, and the quantity demanded of good X increases if the price of good Y decreases.
B. These goods are necessities, and the quantity demanded of good X never changes even if the price of good X
changes.
C. These goods are normal goods, and a change in buyers income increases the quantity demanded of good X.
D. These goods are substitutes, and the quantity demanded of good X decreases if the price of good Y decreases.
E. These goods are unrelated, and a change in the price of good Y has no effect on the quantity of good X demanded.
Reason: A cross-price elasticity of demand equal to zero indicates that when the price of good Y increases, there is
no change in quantity demanded of good X. In other words, changes in the price of good Y have no effect on the
demand for good X, and these goods must be unrelated.
13. When the price of canned pickle juice increased 50%, percent, the quantity supplied of pickle juice increased 40%,
percent.
What is the price elasticity of supply, and how is that value interpreted?
A.
B.
C.
D.
E.
0.8; inelastic
0.8; elastic
.10; unit elastic
.10; inelastic
1.25; elastic
Reason: A price elasticity of supply less than 1 indicates that supply is inelastic. Price elasticity of supply is calculated as:
14. The makers of a brand of potato chip know that the prices of other products might increase soon. The cross-price
elasticity of potato chips and four other goods are given below.
Which product is the most complementary for chips?
A.
B.
C.
D.
Product W
Product X
Product Y
Product Z
Reason: The negative sign on this elasticity indicates that these two goods are complements, and it has the largest
elasticity of the two complements in this list.
15. Mera is researching consumer reactions. She has determined that when the price of hand lotion increases 1%, percent,
the quantity demanded of tissues increases 10%.
What kind of elasticity is being measured, and what can Mera determine based on this information?
A.
B.
C.
D.
E.
Price elasticity of demand; tissues are a necessity.
Price elasticity of demand; lotion is a luxury.
Cross-price elasticity of demand; these goods are substitutes.
Cross-price elasticity of demand; these goods are unrelated.
Income elasticity of demand; tissues are a normal good.
Reason: This is a cross-price elasticity of demand because it describes how the quantity demanded of one good changes in
response to a change in the price of another good. This good would have cross-price elasticity equal to 10, which is a
positive number, and positive cross-price elasticities indicate substitute goods.
Total Revenue Questions
16. If the price elasticity of demand for books is 5, what happens if a bookseller increases the price of books?
A. There is no change to the bookseller’s total revenue.
B. The bookseller’s total revenue decreases.
C. Consumer spending on books increases.
D. The bookseller’s total revenue increases.
E. The price elasticity of demand will decrease.
17. If the price elasticity of demand for apples is 3, then what will be the impact on total revenue if price increases?
A. Total revenue will increase
B. Total revenue will not change
C. Total revenue will fall to zero
D. Total revenue will decrease
E. Total revenue triples
18. According to the total revenue rule, what happens when you raise the price on a good with inelastic demand?
A. Total revenue increases.
B. Total revenue falls to zero.
C. Consumer spending on the good stays the same
D. Total revenue doesn’t change.
E. Total revenue decreases.
19. When the price of jackfruit decreased 50%, percent, total revenues earned by jackfruit sellers decreased.
What can be concluded based on this information?
A. The demand for jackfruit is price inelastic.
B. The demand for jackfruit is elastic.
C. The price elasticity of demand for jackfruit is 5
D. The price elasticity of demand for jackfruit is 111.
E. The demand for jackfruit is unit elastic
20. Zikri wants to increase total revenue at his restaurant. The price elasticity of demand for several dishes that he serves
are given in the table below.
What dish should Zikri increase the price of if he wants to increase total revenue?
A. Nasi lemak
B. Pulut
C. Rendang
D. Satay
E. Ulam