Ch.5: Elasticity and Its Application Flashcards
____ 1. When studying how some event or policy affects a market, elasticity provides information on the
b. magnitude of the effect on the market.
____ 2. The most basic tools of economics are
demand and supply.
____ 3. Demand is said to be inelastic if
the quantity demanded changes only slightly when the price of the good changes.
____ 4. If a good is a luxury, demand for the good would tend to be
b. elastic.
____
5.
Chocolate Chip Cookie Dough ice cream would tend to have very elastic demand because
other flavors of ice cream are almost perfect substitutes.
____ 6. The midpoint method is used to compute elasticity because it
gives the same answer regardless of the direction of change.
____ 7. Which of the following is NOT a determinant of the price elasticity of demand for a product?
b. price
___
8.
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
a. 1.
____ 9. Suppose the price of Twinkies is reduced from $1.45 to $1.25 and, as a result, the quantity of Twinkies
demanded increases from 2,000 to 2,200. Using the midpoint method, the price elasticity of demand for
Twinkies in the given price range is
d. .64.
____ 10. If the price elasticity of demand for a good is 4.0, then a 10 percent increase in price would result in a
40 percent decrease in the quantity demanded.
____ 11. If a 15 percent increase in price causes a 30 percent decrease in quantity demanded, this product might
be a luxury.
____ 12. Demand is elastic if elasticity is
greater than 1.
____ 13. Refer to Figure 5-2. If the price decreased from $18 to $6, what would happen to total revenue?
Total revenue would increase by $1200 and demand would be elastic.
____ 14. The smaller the price elasticity of demand the
steeper the demand curve will be through a given point.
____ 15. A perfectly inelastic demand curve will be
vertical, because buyers purchase the same amount whether the price rises or falls.
____ 16. How does total revenue change as one moves down a linear demand curve?
It first increases, then decreases.