Chapter 5 Homework

Question 1

If a 5% increase in price leads to an 8% decrease in quantity demanded, demand is

Answer 1

If a 5% increase in price leads to an 8% decrease in quantity demanded, demand is

Question 2

The demand for a good is elastic if

Answer 2

an increase in price leads to a decrease in total revenue

Question 3

If Katherine claims that when it comes to buying shoes, “price is no object,” her demand curve for shoes is likely to be

Answer 3

highly inelastic

Question 4

The more broadly a good is defined,

Answer 4

the fewer substitutes it has so the less elastic is its demand

Question 5

The demand curve for a good that has many perfect substitutes in consumption is likely to be

Answer 5

horizontal

Question 6

The demand for flour is

Answer 6

inelastic because there are few substitutes for flour and it represents a small percentage of a consumer’s budget

Question 7

If people have more time to adjust to a price change,

Answer 7

both supply and demand become more elastic

Question 8

If the price of a good doubles and quantity supplied triples, then

Answer 8

supply is elastic

Question 9

The most important determinant of price elasticity of supply is

Answer 9

technological conditions such as how rapidly costs increase when a firm increases its output

Question 10

Suppose the income elasticity of demand for a private college education is equal to 1.5. This means that

Answer 10

10 percent increase in income causes a 15 percent increase in the demand for a private college education

Question 11

As the economy recovers from a recession, we should expect that

Answer 11

demand for inferior goods will fall and demand for normal goods will rise

Question 12

A 5 percent increase in income leads to a 10 percent decrease in quantity demanded for a service. This service is a(n) __________ good and demand is __________.

Answer 12

inferior; elastic

Question 13

If the income elasticity of demand for a service is 0.6, then a 5 percent increase in income will generate a __________ in quantity demanded

Answer 13

3 percent increase

Question 14

The percentage change in the demand for film divided by the percentage change in the price of cameras indicates

Answer 14

the cross-price elasticity of demand between film and cameras

Question 15

A 10 percent increase in the price of root beer causes a 5 percent increase in the quantity demanded of orange soda. This means that

Answer 15

root beer and orange soda are substitutes