Elasticity

Multiple choice. Choose the one alternative that best completes the statement or answers
the question. (5 points)

1) Suppose the value of the price elasticity of demand for metro is -5. What does this mean?
a) A $1 increase in price of metro tickets causes quantity demanded to fall by 5 units.
b) A 1 percent increase in the price of metro tickets causes quantity demanded to increase by 5 percent.
c) A 1 percent increase in the price of metro tickets causes quantity demanded to decrease by 5 percent.
d) A 5 percent increase in the price of metro tickets causes quantity demanded to decrease by 1 percent.

2) If the percentage increase in bus fares is 9 percent and the value of the price elasticity of demand is -3,
then quantity demanded
a) Will increase by 3 percent.
b) Will decrease by 27 percent.
c) Will decrease by 3 percent.
d) Will increase by 27 percent.

3) The price elasticity of demand for train is -4. Suppose you’re told that following a price increase,
quantity demanded for train tickets fell by 10 percent. What was the percentage change in price that
brought about this change in quantity demanded?
a) 40 percent b) 25 percent c) 2.5 percent d) 0.4 percent

4) Calculate the income elasticity if an 8 percent increase in income leads to a 4 percent increase in
quantity demanded for taxi.
A) -0.5 (inferior good)
b) 0.5 (normal good)
c) -2(inferior good)
d) 2(normal good)

5) Suppose Go bus lowers the price of its tickets by 10 percent and as a result, Super jet experienced a 16
percent decline in its tickets. What is the value of the cross-price elasticity between the two bus
operators?
a) -1.6 b) -0.625 c) 0.625 d) 1.6

6) If a demand is elastic, an increase in price will:

a) Reduce revenue as the decrease in quantity demanded is proportionally greater than the increase in
price.
b) Reduce revenue as the increase in quantity demanded is proportionally greater than the decrease in
price.
c) Increase revenue as the decrease in quantity demanded is proportionally greater than the increase in
price.
d) Increase revenue as the increase in quantity demanded is proportionally greater than the decrease in
price.

7) If a demand of rail traffic is inelastic, the relationship between price and revenue will be:
A) positive
b) Negative
c) No relation.

8) An unreliable bus company will lose customers to other companies, to rail or most likely to the car.
This is an example of:
a) Price elasticity of demand.
b) Income elasticity.
c) Service elasticity.
d) Cross price elasticity of demand.

9) Demand is unit-elastic when:

a) The percentage change in quantity demanded is equal to the percentage change in price, so the price
elasticity is less than 1 in absolute value.
b) The percentage change in quantity demanded is equal to the percentage change in price, so the price
elasticity is greater than 1 in absolute value.
c) The percentage change in quantity demanded is equal to the percentage change in price, so the price
elasticity is equal to 1 in absolute value.
d) The percentage change in quantity demanded is less than the percentage change in price, so the price
elasticity is less than 1 in absolute value.

10) The higher the proportion of disposable income spent on the mode of travel:
a) The higher the price elasticity of demand.
b) The lower the price elasticity of demand.
c) Has no relation with the price elasticity of demand.

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