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.
____ 17. Refer to Figure 5-4. As price falls from PA to PB, which demand curve is most elastic?
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____ 18. Along a linear demand curve, slope
is constant but elasticity changes.
____ 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
demand for candy bars in this price range is elastic.
____ 20. The difference between slope and elasticity is that
slope measures actual changes and elasticity measures percentage changes.
____ 21. If a 6 percent increase in income results in a 10 percent increase in the quantity demanded of pizza, then the
d. positive and therefore pizza is a normal good.
____ 22. Which of the following would have a large income elasticity?
a. luxuries
____ 23. Refer to Table 5-1. Using the midpoint method, what is the income elasticity of good Y?
b. -2.33
____ 24. Refer to Table 5-1. Good Y is
b. an inferior good.
____ 25. If two goods are substitutes, their cross-price elasticity will be
a. positive.
____ 26. Suppose the price elasticity of demand for basketballs is 1.20. A 15 percent increase in price will result in
an 18 percent decrease in the quantity of basketballs demanded.
____ 27. If the quantity supplied responds only slightly to changes in price, then
supply is said to be inelastic.
____ 28. When a supply curve is relatively flat,
the supply is relatively elastic.
____ 29. If sellers do not respond at all to a change in price,
d. supply must be perfectly inelastic.
____ 30. If the elasticity of supply of a product is 2.5, we know that supply is
b. elastic.
____ 31. A linear supply curve has a
constant slope and changing elasticity of supply.
____ 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
Both a and b are correct.
____ 33. In the market for oil in the short run, demand
b. and supply are both inelastic.
____ 34. Advocates of a drug education program over a drug interdiction program would argue that drug education
Both a and b are correct.
____ 35. Refer to Figure 5-11. When a new, more productive strawberry was developed which caused supply to
increase, strawberry farmers were
hurt, since both price and total revenue fell due to an inelastic demand curve.
____ 36. There are fewer farmers in the United States today than 200 years ago because of
d. increases in farm technology and an inelastic food demand.
____ 37. Refer to Figure 5-12. Which supply curve is perfectly inelastic?
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____ 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
determine the elasticity of demand for the store’s products.
____ 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
d. the mayor thinks demand is inelastic and the city manager thinks demand is elastic.
____ 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?
c.
The demand for corn is price inelastic, and so an increase in the price of corn will increase
the income of corn farmers.
