Ch.5: Elasticity and Its Application

Question 1

____ 1. When studying how some event or policy affects a market, elasticity provides information on the

Answer 1

b. magnitude of the effect on the market.

Question 2

____ 2. The most basic tools of economics are

Answer 2

demand and supply.

Question 3

____ 3. Demand is said to be inelastic if

Answer 3

the quantity demanded changes only slightly when the price of the good changes.

Question 4

____ 4. If a good is a luxury, demand for the good would tend to be

Answer 4

b. elastic.

Question 5

____
5.
Chocolate Chip Cookie Dough ice cream would tend to have very elastic demand because

Answer 5

other flavors of ice cream are almost perfect substitutes.

Question 6

____ 6. The midpoint method is used to compute elasticity because it

Answer 6

gives the same answer regardless of the direction of change.

Question 7

____ 7. Which of the following is NOT a determinant of the price elasticity of demand for a product?

Answer 7

b. price

Question 8

___
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

Answer 8

a. 1.

Question 9

____ 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

Answer 9

d. .64.

Question 10

____ 10. If the price elasticity of demand for a good is 4.0, then a 10 percent increase in price would result in a

Answer 10

40 percent decrease in the quantity demanded.

Question 11

____ 11. If a 15 percent increase in price causes a 30 percent decrease in quantity demanded, this product might

Answer 11

be a luxury.

Question 12

____ 12. Demand is elastic if elasticity is

Answer 12

greater than 1.

Question 13

____ 13. Refer to Figure 5-2. If the price decreased from $18 to $6, what would happen to total revenue?

Answer 13

Total revenue would increase by $1200 and demand would be elastic.

Question 14

____ 14. The smaller the price elasticity of demand the

Answer 14

steeper the demand curve will be through a given point.

Question 15

____ 15. A perfectly inelastic demand curve will be

Answer 15

vertical, because buyers purchase the same amount whether the price rises or falls.

Question 16

____ 16. How does total revenue change as one moves down a linear demand curve?

Answer 16

It first increases, then decreases.

Question 17

____ 17. Refer to Figure 5-4. As price falls from PA to PB, which demand curve is most elastic?

Answer 17

D1

Question 18

____ 18. Along a linear demand curve, slope

Answer 18

is constant but elasticity changes.

Question 19

____ 19. Suppose that 50 candy bars are demanded at a particular price. If the price of candy bars rises by 4 percent,
the number of candy bars demanded falls to 46 candy bars. According to the midpoint method, this means that
the

Answer 19

demand for candy bars in this price range is elastic.

Question 20

____ 20. The difference between slope and elasticity is that

Answer 20

slope measures actual changes and elasticity measures percentage changes.

Question 21

____ 21. If a 6 percent increase in income results in a 10 percent increase in the quantity demanded of pizza, then the

Answer 21

d. positive and therefore pizza is a normal good.

Question 22

____ 22. Which of the following would have a large income elasticity?

Answer 22

a. luxuries

Question 23

____ 23. Refer to Table 5-1. Using the midpoint method, what is the income elasticity of good Y?

Answer 23

b. -2.33

Question 24

____ 24. Refer to Table 5-1. Good Y is

Answer 24

b. an inferior good.

Question 25

____ 25. If two goods are substitutes, their cross-price elasticity will be

Answer 25

a. positive.

Question 26

____ 26. Suppose the price elasticity of demand for basketballs is 1.20. A 15 percent increase in price will result in

Answer 26

an 18 percent decrease in the quantity of basketballs demanded.

Question 27

____ 27. If the quantity supplied responds only slightly to changes in price, then

Answer 27

supply is said to be inelastic.

Question 28

____ 28. When a supply curve is relatively flat,

Answer 28

the supply is relatively elastic.

Question 29

____ 29. If sellers do not respond at all to a change in price,

Answer 29

d. supply must be perfectly inelastic.

Question 30

____ 30. If the elasticity of supply of a product is 2.5, we know that supply is

Answer 30

b. elastic.

Question 31

____ 31. A linear supply curve has a

Answer 31

constant slope and changing elasticity of supply.

Question 32

____ 32. Some firms experience elastic supply curves at low levels of quantity supplied and more inelastic supply
curves at higher levels of quantity supplied because

Answer 32

Both a and b are correct.

Question 33

____ 33. In the market for oil in the short run, demand

Answer 33

b. and supply are both inelastic.

Question 34

____ 34. Advocates of a drug education program over a drug interdiction program would argue that drug education

Answer 34

Both a and b are correct.

Question 35

____ 35. Refer to Figure 5-11. When a new, more productive strawberry was developed which caused supply to
increase, strawberry farmers were

Answer 35

hurt, since both price and total revenue fell due to an inelastic demand curve.

Question 36

____ 36. There are fewer farmers in the United States today than 200 years ago because of

Answer 36

d. increases in farm technology and an inelastic food demand.

Question 37

____ 37. Refer to Figure 5-12. Which supply curve is perfectly inelastic?

Answer 37

S1

Question 38

____ 38. You have just been hired as a business consultant to determine what pricing policy would be appropriate in
order to increase the total revenue of a major shoe store. The first step you would take is to

Answer 38

determine the elasticity of demand for the store’s products.

Question 39

____ 39. You are in charge of the local city-owned golf course. You need to increase the revenue generated by the golf
course in order to meet expenses. The mayor advises you to increase the price of a round of golf. The city
manager recommends reducing the price of a round of golf. You realize that

Answer 39

d. the mayor thinks demand is inelastic and the city manager thinks demand is elastic.

Question 40

____ 40. Suppose that when the price of corn is $2 per bushel, farmers can sell 10 million bushels. When the price of
corn is $3 per bushel, farmers can sell 8 million bushels. Which of the following statements is true?

Answer 40

c.
The demand for corn is price inelastic, and so an increase in the price of corn will increase
the income of corn farmers.