# Elasticities

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Kerikeri
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Quizzes Created: 5 | Total Attempts: 4,438
Questions: 11 | Attempts: 3,898  Settings  .

• 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

A. Elastic
Explanation
When quantity demanded falls more than proportionally in response to a price increase, it indicates that demand is elastic. This means that consumers are sensitive to price changes and a small increase in price leads to a relatively large decrease in the quantity demanded.

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• 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

B. Vary at each point along a demand curve
Explanation
The coefficient for price elasticity will vary at each point along a demand curve because price elasticity measures the responsiveness of quantity demanded to changes in price. The degree of responsiveness can vary depending on various factors such as the slope of the demand curve, the availability of substitutes, and consumer preferences. Therefore, the coefficient for price elasticity will be different at different points along the demand curve.

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• 3.

### If demand is inelastic and price decreases then total revenue will

• A.

Rise

• B.

Fall

• C.

Remain constant

• D.

Equal one

B. Fall
Explanation
When demand is inelastic, it means that the quantity demanded is not very responsive to changes in price. Therefore, when the price decreases, the decrease in revenue from selling each unit at a lower price is not offset by the increase in quantity sold. As a result, the total revenue will fall.

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• 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

D. Price inelastic
Explanation
The correct answer is price inelastic. When the government increases third party insurance charges on motor vehicle licenses, it suggests that they believe the demand for these licenses is likely to be price inelastic. This means that even with an increase in price, the demand for motor vehicle licenses is not expected to significantly decrease. This implies that people are willing to pay higher prices for these licenses, regardless of the increase in cost.

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• 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

C. Elastic with a coefficient of 2.5
Explanation
The increase in student allowances from \$150 to \$165 per week led to an average increase in coffee consumption from 8 to 10 coffees per week. This indicates that the change in income had a significant impact on the demand for coffee, resulting in a relatively large increase in consumption. The coefficient of 2.5 suggests that for every 1% increase in income, there is a 2.5% increase in coffee consumption. Therefore, the income elasticity of coffee is elastic, meaning that a change in income has a proportionally larger effect on coffee consumption.

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• 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

A. close to zero
Explanation
When income elasticity is close to zero for basic foodstuffs such as bread and milk, it means that the demand for these items does not significantly change with changes in income. This suggests that these items are necessities and consumers will continue to purchase them regardless of their income level. In other words, even if people's income increases or decreases, their demand for basic foodstuffs remains relatively constant.

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• 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

D. There are a large number of close substitutes for the good
Explanation
The characteristic of highly elastic goods is that there are a large number of close substitutes for the good. This means that consumers have many alternative options to choose from if the price of the good increases, making their demand for the specific good more sensitive to changes in price.

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• 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

D. Quantity supplied by the percentage change in price
Explanation
Price elasticity of supply measures the responsiveness of quantity supplied to a change in price. It is calculated by dividing the percentage change in quantity supplied by the percentage change in price. This ratio helps determine how much the quantity supplied will change in response to a change in price. A higher value of price elasticity of supply indicates a more elastic supply, meaning that producers are more responsive to price changes and will adjust their quantity supplied accordingly.

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• 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

C. Relatively inelastic with a coefficient of 0.8
Explanation
The given information states that the price of shares fell from \$4.20 to \$3.99, causing sellers to offer 4% more shares for sale compared to the previous day's trading. This indicates that the quantity supplied increased by a small percentage in response to a decrease in price. A coefficient of 0.8 suggests that the supply is relatively inelastic, meaning that a change in price has a relatively smaller impact on the quantity supplied. Therefore, the correct answer is that supply is relatively inelastic with a coefficient of 0.8.

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• 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

A. Price will fall and quantity remain the same
Explanation
If supply is perfectly inelastic, it means that the quantity supplied cannot be adjusted in response to changes in demand. Therefore, even if demand decreases, the quantity supplied will remain the same. However, since demand has decreased, there will be a surplus of goods in the market, leading to a decrease in price. Hence, the correct answer is that the price will fall and the quantity will remain the same.

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• 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.

A. The degree of supply elasticity is dependent upon the extent to which the commodity is considered a luxury or a necessity
Explanation
The answer is valid because the degree of supply elasticity is indeed dependent upon the extent to which the commodity is considered a luxury or a necessity. Luxury goods tend to have more elastic supply as consumers are more likely to decrease their demand if the price increases. On the other hand, necessities have less elastic supply as consumers are less likely to decrease their demand even if the price increases. Therefore, the elasticity of supply is influenced by the nature of the commodity being considered.

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