Ch.5: Elasticity and Its Application Flashcards

1
Q

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

A

b. magnitude of the effect on the market.

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2
Q

____ 2. The most basic tools of economics are

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demand and supply.

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3
Q

____ 3. Demand is said to be inelastic if

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

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4
Q

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

A

b. elastic.

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5
Q

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

A

other flavors of ice cream are almost perfect substitutes.

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6
Q

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

A

gives the same answer regardless of the direction of change.

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7
Q

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

A

b. price

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8
Q

___
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

a. 1.

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9
Q

____ 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

A

d. .64.

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10
Q

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

A

40 percent decrease in the quantity demanded.

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11
Q

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

A

be a luxury.

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12
Q

____ 12. Demand is elastic if elasticity is

A

greater than 1.

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13
Q

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

A

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

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14
Q

____ 14. The smaller the price elasticity of demand the

A

steeper the demand curve will be through a given point.

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15
Q

____ 15. A perfectly inelastic demand curve will be

A

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

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16
Q

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

A

It first increases, then decreases.

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17
Q

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

A

D1

18
Q

____ 18. Along a linear demand curve, slope

A

is constant but elasticity changes.

19
Q

____ 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

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demand for candy bars in this price range is elastic.

20
Q

____ 20. The difference between slope and elasticity is that

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slope measures actual changes and elasticity measures percentage changes.

21
Q

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

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d. positive and therefore pizza is a normal good.

22
Q

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

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a. luxuries

23
Q

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

A

b. -2.33

24
Q

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

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b. an inferior good.

25
Q

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

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a. positive.

26
Q

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

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an 18 percent decrease in the quantity of basketballs demanded.

27
Q

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

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supply is said to be inelastic.

28
Q

____ 28. When a supply curve is relatively flat,

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the supply is relatively elastic.

29
Q

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

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d. supply must be perfectly inelastic.

30
Q

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

A

b. elastic.

31
Q

____ 31. A linear supply curve has a

A

constant slope and changing elasticity of supply.

32
Q

____ 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

A

Both a and b are correct.

33
Q

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

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b. and supply are both inelastic.

34
Q

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

A

Both a and b are correct.

35
Q

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

A

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

36
Q

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

A

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

37
Q

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

A

S1

38
Q

____ 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

A

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

39
Q

____ 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

A

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

40
Q

____ 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?

A

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