Elasticity

The price elasticity of demand measures how much

• quantity demanded responds to a change in price.
• quantity demanded responds to a change in income.
• price responds to a change in demand.
• demand responds to a change in supply.

Suppose there is a 6 percent increase in the price of good X and a resulting 6 percent decrease in the quantity of X demanded. Price elasticity of demand for X is

• 0
• 1
• 6
• 36

For a particular good, a 12 percent increase in price causes a 3 percent decrease in quantity demanded. Which of the following statements is most likely applicable to this good?

• There are many substitutes for this good.
• The good is a necessity.
• The market for the good is narrowly defined.
  
• The relevant time horizon is long.

A key determinant of the price elasticity of supply is

• the ability of sellers to change the price of the good they produce.
• the ability of sellers to change the amount of the good they produce.
• how responsive buyers are to changes in sellers' prices.
• the slope of the demand curve.

If the price elasticity of supply is 0.2, and a price increase led to a 3% increase in quantity supplied, then the price increase is about

• 0.07%.
• 0.60%
• 6%
• 15%

Holding all other factors constant and using the midpoint method, if a candy manufacturer increases production by 20 percent when the market price of candy increases from $0.50 to $0.60, then supply is

• inelastic, since the price elasticity of supply is equal to .91.
• inelastic, since the price elasticity of supply is equal to 1.1.
• elastic, since the price elasticity of supply is equal to 0.91.
• elastic, since the price elasticity of supply is equal to 1.1.

Income elasticity of demand measures how

• the quantity demanded changes as consumer income changes.
• consumer purchasing power is affected by a change in the price of a good.
• the price of a good is affected when there is a change in consumer income.
• many units of a good a consumer can buy given a certain income level.

Which of the following statements about the consumers’ responses to rising gasoline prices is correct?

• About 10 percent of the long-run reduction in quantity demanded arises because people drive less and about 90 percent arises because they switch to more fuel-efficient cars.
• About 90 percent of the long-run reduction in quantity demanded arises because people drive less and about 10 percent arises because they switch to more fuel-efficient cars.
• About half of the long-run reduction in quantity demanded arises because people drive less and about half arises because they switch to more fuel-efficient cars.
• Because gasoline is a necessity, consumers do not decrease their quantity demanded in either the short run or the long run.

An advance in farm technology that results in an increased market supply is

• good for farmers because it raises prices for their products but bad for consumers because it raises prices consumers pay for food.
• bad for farmers because total revenue will fall but good for consumers because prices for food will fall.
• good for farmers because it raises prices for their products and also good for consumers because more output is available for consumption.
• bad for farmers because total revenue will fall and bad for consumers because farmers will raise the price of food to increase their total revenue.

OPEC successfully raised the world price of oil in the 1970s and early 1980s, primarily due to

• an inelastic demand for oil and a reduction in the amount of oil supplied.
• a reduction in the amount of oil supplied and a world-wide oil embargo.
• a world-wide oil embargo and an elastic demand for oil.
• a reduction in the amount of oil supplied and an elastic demand for oil.