Elasticities

11 Questions | Total Attempts: 2192

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Elasticities

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Questions and Answers
  • 1. 
    When quantity demanded falls more than proportionally in response to a price increase then demand is
    • A. 

      Elastic

    • B. 

      Inelastic

    • C. 

      Unitary

    • D. 

      Infinitely inelastic

  • 2. 
    The coefficient for price elasticity will
    • A. 

      Be the same along a linear demand curve

    • B. 

      Vary at each point along a demand curve

    • C. 

      be infinitely elastic for any vertical demand curve

    • D. 

      Equal zero when changes in quantity demanded exactly offset changes in price

  • 3. 
    If demand is inelastic and price decreases then total revenue will
    • A. 

      Rise

    • B. 

      Fall

    • C. 

      Remain constant

    • D. 

      Equal one

  • 4. 
    An increase in third party insurance charges on motor vehicle licences is imposed by the government in order to raise revenue.  This decision indicates a belief that demand is likely to be
    • A. 

      Income elastic

    • B. 

      Income inelastic

    • C. 

      Price elastic

    • D. 

      Price inelastic

  • 5. 
    Austudy raises student allowances from $150 to $165 per week.  This leads to an average increase from 8 to 10 coffees consumed per week from a sample of students.  This indicates that income elasticity is
    • A. 

      Elastic with a coefficient of 3.4

    • B. 

      inelastic with a coefficient of 1.8

    • C. 

      Elastic with a coefficient of 2.5

    • D. 

      inelastic with a coefficient of 0.4

  • 6. 
    For basic foodstuffs such as bread and milk, income elasticity tends to be (a)   close to zero (b)   greater than one (c)   equal to one (d)   relatively elastic
    • A. 

      close to zero

    • B. 

      Greater than one

    • C. 

      Equal to one

    • D. 

      relatively elastic

  • 7. 
    Which one of the following is characteristic of highly elastic goods? (a)   the good is produced by firms with very low cost structures (b)   the good is regarded by its consumers as a necessity (c)   consumers spend a small percentage of total income on the good (d)       there are a large number of close substitutes for the good
    • A. 

      The good is produced by firms with very low cost structures

    • B. 

      The good is regarded by its consumers as a necessity

    • C. 

      Consumers spend a small percentage of total income on the good

    • D. 

      There are a large number of close substitutes for the good

  • 8. 
    Price elasticity of supply is calculated by dividing the percentage change in
    • A. 

      Quantity supplied by the percentage change in quantity demanded

    • B. 

      Quantity demanded by the percentage change in price

    • C. 

      Quantity supplied by the percentage change in income

    • D. 

      Quantity supplied by the percentage change in price

  • 9. 
    The price of shares in company fall from $4.20 to $3.99 causing sellers to offer 4% more shares for sale than in the previous days trading. We can therefore assume that over this price range supply is
    • A. 

      Relatively inelastic with coefficient of 0.3

    • B. 

      Relatively elastic with a coefficient of 1.25

    • C. 

      Relatively inelastic with a coefficient of 0.8

    • D. 

      Relatively elastic with a coefficient of 2.1

  • 10. 
    If supply is perfectly inelastic and demand decreases then
    • A. 

      Price will fall and quantity remain the same

    • B. 

      Price will rise and quantity will decrease

    • C. 

      Price will fall and quantity will increase

    • D. 

      Price will rise and quantity remain the same

  • 11. 
    Which of the following statements about price elasticity of supply is valid? (a)   the degree of supply elasticity is dependent upon the extent to which the commodity is considered a luxury or a necessity (b)   supply becomes more elastic in the long-run due to a rise in household disposable incomes and consequential increase in demand (c)   supply elasticity ranges from perfectly elastic in the market period to highly inelastic in the long-run (d)   the greater the time allowed for adjustment, the more elastic supply becomes.
    • A. 

      The degree of supply elasticity is dependent upon the extent to which the commodity is considered a luxury or a necessity

    • B. 

      Supply becomes more elastic in the long-run due to a rise in household disposable incomes and consequential increase in demand

    • C. 

      Supply elasticity ranges from perfectly elastic in the market period to highly inelastic in the long-run

    • D. 

      The greater the time allowed for adjustment, the more elastic supply becomes.

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