ELASTICITY REVIEW QUESTIONS
1)
Suppose the demand curve for a good is expressed as Q  50 – 2p. If the good currently sells for
$3, then the price elasticity of demand is
(a)
(b)
(c)
(d)
–3 * (2/50).
–2 * (50/3).
–2 * (3/44).
–3 * (44/2).
Figure 3.2
2)
Figure 3.2 shows the demand curve for crude oil. If the market price is $10 a barrel, what is the
price elasticity of demand?
(a)
(b)
(c)
(d)
3)
Suppose the demand curve for a good is expressed as Q  100  4p. If the good currently sells
for $10, then the price elasticity of demand equals
(a)
(b)
(c)
(d)
4)
.02
–1
–10
–500
1.5.
0.67.
4.
2.5.
If an increase in income results in a rightward parallel shift of the demand curve, then at any
given price, the price elasticity of demand will have
(a)
(b)
(c)
(d)
increased in absolute terms.
decreased in absolute terms.
remained unchanged.
increased, decreased or stayed the same. It cannot be determined.
5)
If the demand curve for comic books is expressed as Q  10,000/p, then demand has a unitary
elasticity
(a)
(b)
(c)
(d)
only when p  10000.
only when p 100.
always.
never.
6)
If the demand curve for a good always has unitary price elasticity, what does this imply about
consumer behavior?
(a) Consumers do not react to a price change.
(b) Consumers will spend a constant total amount on the good.
(c) Consumers are irrational.
(d) Consumers do not obey the Law of Demand.
7)
If the price elasticity of demand for a good is less than one in absolute terms, we say consumers
of this good
(a)
(b)
(c)
(d)
8)
are not very sensitive to price.
are not very sensitive to the quantity they demand.
are very sensitive to price.
are elastic.
If the price of orange juice rises 10%, and as a result the quantity demanded falls by 8%, the
price elasticity of demand for orange juice is
(a)
(b)
(c)
(d)
1.25.
inelastic.
Both A and B above.
Neither A nor B above.
9)
A horizontal demand curve for a good could arise because consumers
(a) are irrational.
(b) are not sensitive to price changes.
(c) view this good as identical to another good.
(d) have no equivalent substitutes for this good.
10)
If a consumer doubles her quantity of ice cream consumed when her income rises by 25%, then
her income elasticity of demand for ice cream is
(a)
(b)
(c)
(d)
11)
8.0.
4.0.
.25.
.08.
The market demand for wheat is Q  100  2p  1pb, where pb is the price of barley. If the price
of wheat is $2, the price elasticity of demand
(a) equals (–4/46).
(b) equals (–46).
(c) equals (–1).
(d) cannot be calculated without more information.
12)
The market demand for wheat is Q  100  2p  1pb  2Y. If the price of wheat, p, is $2, and the
price of barley, pb, is $3, and income, Y, is $1000, the income elasticity of wheat is
(a) 2*(1000/2099).
(b) 2.
(c) 1/2*(1000/2099).
(d) cannot be calculated from the information provided.
13)
The cross price elasticity of demand between two goods will be positive if
(a)
(b)
(c)
(d)
14)
If the price elasticity of demand for cars is -2, a decline in the price of cars by 20% will cause
(a)
(b)
(c)
(d)
15)
the two goods are complements.
the two goods are substitutes.
the two goods are luxuries.
one of the goods is a luxury and the other is a necessity.
40% decline in car purchases and 20% decline in car producer’s revenues.
10% decline in car purchases and 40% decline in car producer’s revenues.
40% rise in car purchases and 20% rise in car producer’s revenues.
10% rise in car purchases and 40% rise in car producer’s revenues.
If the cross price elasticity of demand between X and Y is -3.0, we can conclude that
(a) X and Y are substitutes and a rise in the price of one will cause an increase in the demand for the
other
(b) X and Y are complements and a rise in the price of one will cause an increase in the demand for the
other
(c) X and Y are substitutes and a rise in the price of one will cause a decrease in the demand for the
other
(d) X and Y are complements and a rise in the price of one will cause a decrease in the demand for the
other
16)
A tax cut that raises the after-tax wage rate will most likely result in more hours worked if
(a)
(b)
(c)
(d)
17)
tax rates were low already.
the relevant portion of the labor supply curve is upward sloping.
the relevant portion of the labor supply curve is downward sloping.
workers can be easily fooled.
If workers are in the backward-bending section of their labor supply curves, than an increase in
the income tax rate will
(a)
(b)
(c)
(d)
increase the tax revenue and increase the number of hours worked.
increase the tax revenue and decrease the number of hours worked.
decrease the tax revenue and increase the number of hours worked.
decrease the tax revenue and decrease the number of hours worked.