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Exam 5: Price Elasticity of Demand and Supply

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Question 1

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If the value of the price elasticity of demand is 0.2, this means that:

A) a 20 percent decrease in price causes a 1 percent increase in quantity demanded.
B) a 0.2 percent decrease in price causes a 1 percent increase in quantity demanded.
C) a 5 percent decrease in price causes a 1 percent increase in quantity demanded.
D) a 0.2 percent decrease in price causes a 0.2 percent increase in quantity demanded.

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Question 2

Multiple Choice

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In the long run, price elasticities of demand are usually

A) greater than they are in the short run because consumers have time to adjust.
B) the same as they are in the short run because tastes don't change.
C) less than they are in the short run because prices rise over time.
D) less than they are in the short run because real prices fall over time.

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Question 3

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The short-run price elasticity of demand for airline travel is 0.05, while the long-run elasticity is 2.36. This means that a significant increase in airline ticket prices will cause airline companies to:

If the percentage change in the quantity demanded of a good is greater than the percentage change in price, price elasticity of demand is:

The longer the time period under study,

Exhibit 5-2 Price and quantity demanded data $\begin{array} { | c | c | } \hline \text { Price } & \text { Quantity Demanded } \\\hline 5 & 20 \\4 & 25 \\3 & 30 \\2 & 35 \\1 & 40 \\\hline\end{array}$ Using Exhibit 5-2, what is the price elasticity of demand when the price falls from five dollars to four?

In the country of Bora Bora, consumers buy large quantities of alcohol, tobacco, and coffee. Last year, the prices of these goods each increased by 10 percent. The quantities demanded for these goods fell by 10, 3, and 8 percent, respectively. If the government is thinking about imposing a unit tax on one of these goods, which good should they choose to tax to raise the most tax revenue, and why?

A local doughnut shop reduced the price of its doughnuts from $4 per dozen to $3.50 per dozen, and as a result, the daily sales increased from 300 to 400 dozen. This indicates that the price elasticity of demand for the doughnuts was:

If a good has a price elasticity of demand coefficient less than one, then:

The demand for gasoline will be most elastic

If the percentage change in the quantity demanded of a good is less than the percentage change in price, price elasticity of demand is:

For which of the following goods are consumers likely to have the most elastic demand?

If an excise tax is placed on a product that has a perfectly inelastic demand, then:

If the demand for cigarettes is highly inelastic, this indicates that:

If demand for a good is elastic, then the price elasticity will be:

The elastic portion of the downward-sloping straight-line demand curve lies:

As one moves down a straight-line, down-sloping demand curve, price elasticity will:

If an increase in the price of a product from $1 to $2 per unit leads to a decrease in the quantity demanded from 100 to 80 units, then demand is:

If Stimpson University increases tuition in order to increase its revenue, it will:

A lower price elasticity of demand coefficient occurs when: