# Ch5-Elasticity.pdf

## Economics 2420 with Hussain,zakir at Middle Tennessee State University *

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Ch5 - Elasticity 1.The price elasticity of demand measures how much a. quantity demanded responds to a change in price. b. quantity demanded responds to a change in income. c. price responds to a change in demand. d. demand responds to a change in supply. 2.Which of the following statements about the price elasticity of demand is correct? a. The price elasticity of demand for a good measures the willingness of buyers of the good to buy less of the good as its price increases. b. Price elasticity of demand reflects the many economic, psychological, and social forces that shape consumer tastes. c. Other things equal, if good x has close substitutes and good y does not have close substitutes, then the demand for good x will be more elastic than the demand for good y. d. All of the above are correct. 3.For a good that is a necessity, a. quantity demanded tends to respond substantially to a change in price. b. demand tends to be inelastic. c. the law of demand does not apply. d. All of the above are correct. 4.Goods with many close substitutes tend to have a. more elastic demands. b. less elastic demands. c. price elasticities of demand that are unit elastic. d. income elasticities of demand that are negative. 5.Which of the following is likely to have the most price inelastic demand? a. mint-flavored toothpaste b. toothpaste c. Colgate mint-flavored toothpaste d. a generic mint-flavored toothpaste 6.The demand for Neapolitan ice cream is likely quite elastic because a. ice cream must be eaten quickly. b. this particular flavor of ice cream is viewed as a necessity by many ice-cream lovers. c. the market is broadly defined. d. other flavors of ice cream are good substitutes for this particular flavor. 7.Other things equal, the demand for a good tends to be more inelastic, the a. fewer the available substitutes. b. longer the time period considered. c. more the good is considered a luxury good. d. more narrowly defined is the market for the good. 1 8.Economists compute the price elasticity of demand as the a. percentage change in price divided by the percentage change in quantity demanded. b. change in quantity demanded divided by the change in the price. c. percentage change in quantity demanded divided by the percentage change in price. d. percentage change in quantity demanded divided by the percentage change in income. 9.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. 0. b. 1. c. 6. d. 36. 10.If the price elasticity of demand for a good is 4.0, then a 10 percent increase in price results in a a. 0.4 percent decrease in the quantity demanded. b. 2.5 percent decrease in the quantity demanded. c. 4 percent decrease in the quantity demanded. d. 40 percent decrease in the quantity demanded. 11.Elasticity of demand is closely related to the slope of the demand curve. The more responsive buyers are to a change in price, the a. steeper the demand curve will be. b. flatter the demand curve will be. c. further to the right the demand curve will sit. d. closer to the vertical axis the demand curve will sit. 12.The flatter the demand curve through a given point, the a. greater the price elasticity of demand at that point. b. smaller the price elasticity of demand at that point. c. closer the price elasticity of demand will be to the slope of the curve. d. greater the absolute value of the change in total revenue when there is a movement from that point upward and to the left along the demand curve. 2 Figure 5-1 A A B B C C D D Quantity Price 13.Refer to Figure 5-1. The demand curve representing the demand for a luxury good with several close substitutes is a. A. b. B. c. C. d. D. 14.Refer to Figure 5-1. Atog says he would buy one cup of coffee per day regardless of the price. If this is true, then Atog's demand for coffee is represented by demand curve a. A. b. B. c. C. d. D. 15.Suppose that quantity demand falls by 30% as a result of a 5% increase in price. The price elasticity of demand for this good is a. inelastic and equal to 6. b. elastic and equal to 6. c. inelastic and equal to 0.17. d. elastic and equal to 0.17. 3 Table 5-3 The following table shows the demand schedule for a particular good. Price Quantity $15 0 $12 5 $9 10 $6 15 $3 20 $0 25 16.Refer to Table 5-3. Using the midpoint method, what is the price elasticity of demand when price rises from $9 to $12? a. 0.43 b. 0.67 c. 1.50 d. 2.33 17.Refer to Table 5-3. Using the midpoint method, when price rises from $6 to $9, the price elasticity of demand is a. 0.43 b. 0.67 c. 1.00 d. 1.5 18.Refer to Table 5-3. Using the midpoint method, when price falls from $6 to $3, the price elasticity of demand is a. 0.43 b. 0.67 c. 1.50 d. 2.33 19.Which of the following expressions is valid for the price elasticity of demand? a. Price elasticity of demand = . b. Price elasticity of demand = . c. Price elasticity of demand = . d. Price elasticity of demand = . 4 20.Total revenue a. always increases as price increases. b. increases as price increases, as long as demand is elastic. c. decreases as price increases, as long as demand is inelastic. d. remains unchanged as price increases when demand is unit elastic. 21.In which of the following situations will total revenue increase? a. Price elasticity of demand is 1.2, and the price of the good decreases. b. Price elasticity of demand is 0.5, and the price of the good increases. c. Price elasticity of demand is 3.0, and the price of the good decreases. d. All of the above are correct. Figure 5-11 Demand 50 100 150 200 250 300 350 400 450 500 550 Quantity 5 10 15 20 25 30 35 40 45 50 55 Price 22.Refer to Figure 5-11. When the price is $30, total revenue is a. $3,000. b. $5,000. c. $7,000. d. $9,000. 23.Refer to Figure 5-11. When price falls from $50 to $40, it can be inferred that demand between those two prices is a. inelastic, since total revenue decreases from $8,000 to $5,000. b. inelastic, since total revenue increases from $5,000 to $8,000. c. elastic, since total revenue increases from $5,000 to $8,000. d. unit elastic, since total revenue does not change. 24.Refer to Figure 5-11. An increase in price from $20 to $30 would a. increase total revenue by $2,000. b. decrease total revenue by $2,000. c. increase total revenue by $1,000. d. decrease total revenue by $1,000. 5 25.Refer to Figure 5-11. An increase in price from $30 to $35 would a. increase total revenue by $250 b. decrease total revenue by $250. c. increase total revenue by $500. d. decrease total revenue by $500. Figure 5-16 Q1 P1 S1 S2 S3 Quantity Price 26.Refer to Figure 5-16. Which supply curve represents perfectly inelastic supply? a. S1 b. S2 c. S3 d. None of the supply curves is perfectly inelastic. 27.If the price elasticity of supply is zero, then a. supply is more elastic than it is in any other case. b. the supply curve is horizontal. c. the quantity supplied is the same, regardless of price. d. a change in demand will cause a relatively small change in the equilibrium price. 28.If the price elasticity of supply for a good is equal to infinity, then a. the supply curve is vertical. b. the supply curve is horizontal. c. the supply curve also has a slope equal to infinity. d. the quantity supplied is constant regardless of the price. 6 29.Which of the following statements helps to explain why government drug interdiction increases drug-related crime? a. The direct impact is on buyers, not sellers. b. Successful drug interdiction policies reduce the demand for illegal drugs. c. Drug addicts will have an even greater need for quick cash to support their habits. d. In the short run, both equilibrium quantities and prices will fall in the markets for illegal drugs. 30.Which of the following statements is not correct concerning government attempts to reduce the flow of illegal drugs into the country? a. Drug interdiction raises prices and total revenue in the drug market. b. Drug interdiction can increase drug-related crime. c. Drug interdiction shifts the demand curve for drugs to the left. d. Drug interdiction shifts the supply curve of drugs to the left. 31.Given the market for illegal drugs, when the government is successful in reducing the flow of drugs into the United States, a. supply decreases, demand is unaffected, and price increases. b. demand decreases, supply is unaffected, and price decreases. c. demand and supply both decrease, leaving price essentially unchanged. d. supply decreases, demand increases, and price increases substantially as a result. 7 32.Which of the following is an illustration of the market for original paintings by deceased artist Vincent Van Gogh? a. S D Quantity Price b. S D Quantity Price c. S D Quantity Price d. SD Quantity Price a. A b. B c. C d. D 8 Answers: 1. ANS: A DIF: 1 REF: 5-1 NAT: Analytic LOC: Elasticity TOP: Price elasticity of demand MSC: Definitional 2.ANS: D DIF: 2 REF: 5-1 NAT: Analytic LOC: Elasticity TOP: Price elasticity of demand MSC: Interpretive 3. ANS: B DIF: 2 REF: 5-1 NAT: Analytic LOC: Elasticity TOP: Price elasticity of demand MSC: Interpretive 4. ANS: A DIF: 2 REF: 5-1 NAT: Analytic LOC: Elasticity TOP: Price elasticity of demand MSC: Interpretive 5. ANS: B DIF: 2 REF: 5-1 NAT: Analytic LOC: Elasticity TOP: Price elasticity of demand MSC: Applicative 6. ANS: D DIF: 2 REF: 5-1 NAT: Analytic LOC: Elasticity TOP: Price elasticity of demand MSC: Interpretive 7. ANS: A DIF: 2 REF: 5-1 NAT: Analytic LOC: Elasticity TOP: Price elasticity of demand MSC: Interpretive 8.ANS: C DIF: 2 REF: 5-1 NAT: Analytic LOC: Elasticity TOP: Price elasticity of demand MSC: Definitional 9.ANS: B DIF: 2 REF: 5-1 NAT: Analytic LOC: Elasticity TOP: Price elasticity of demand MSC: Applicative 10.ANS: D DIF: 2 REF: 5-1 NAT: Analytic LOC: Elasticity TOP: Price elasticity of demand MSC: Applicative 11. ANS: B DIF: 2 REF: 5-1 NAT: Analytic LOC: Elasticity TOP: Price elasticity of demand MSC: Interpretive 12. ANS: A DIF: 3 REF: 5-1 NAT: Analytic LOC: Elasticity TOP: Price elasticity of demand MSC: Analytical 9 13. ANS: C DIF: 2 REF: 5-1 NAT: Analytic LOC: Elasticity TOP: Price elasticity of demand MSC: Applicative 14. ANS: A DIF: 3 REF: 5-1 NAT: Analytic LOC: Elasticity TOP: Perfectly inelastic demand MSC: Applicative 15. ANS: B DIF: 2 REF: 5-1 NAT: Analytic LOC: Elasticity TOP: Price elasticity of demand MSC: Analytical 16. ANS: D DIF: 2 REF: 5-1 NAT: Analytic LOC: Elasticity TOP: Midpoint method | Price elasticity of demand MSC: Analytical 17. ANS: C DIF: 2 REF: 5-1 NAT: Analytic LOC: Elasticity TOP: Midpoint method | Price elasticity of demand MSC: Analytical 18. ANS: A DIF: 2 REF: 5-1 NAT: Analytic LOC: Elasticity TOP: Midpoint method | Price elasticity of demand MSC: Analytical 19. ANS: B DIF: 2 REF: 5-1 NAT: Analytic LOC: Elasticity TOP: Midpoint method | Price elasticity of demand MSC: Applicative 20. ANS: D DIF: 2 REF: 5-1 NAT: Analytic LOC: Elasticity TOP: Total revenue | Price elasticity of demand MSC: Applicative 21. ANS: D DIF: 2 REF: 5-1 NAT: Analytic LOC: Elasticity TOP: Total revenue | Price elasticity of demand MSC: Analytical 22. ANS: D DIF: 1 REF: 5-1 NAT: Analytic LOC: Elasticity TOP: Total revenue | Price elasticity of demand MSC: Interpretive 23. ANS: C DIF: 2 REF: 5-1 NAT: Analytic LOC: Elasticity TOP: Total revenue | Price elasticity of demand MSC: Applicative 24. ANS: C DIF: 2 REF: 5-1 NAT: Analytic LOC: Elasticity TOP: Total revenue | Price elasticity of demand MSC: Applicative 25. ANS: B DIF: 2 REF: 5-1 NAT: Analytic LOC: Elasticity TOP: Total revenue | Price elasticity of demand MSC: Applicative 10 26. ANS: A DIF: 1 REF: 5-2 NAT: Analytic LOC: Elasticity TOP: Perfectly inelastic supply MSC: Interpretive 27. ANS: C DIF: 2 REF: 5-2 NAT: Analytic LOC: Elasticity TOP: Perfectly inelastic supply MSC: Interpretive 28. ANS: B DIF: 2 REF: 5-2 NAT: Analytic LOC: Elasticity TOP: Perfectly elastic supply MSC: Interpretive 29. ANS: C DIF: 2 REF: 5-3 NAT: Analytic LOC: Elasticity TOP: Government | Price elasticity of demand MSC: Applicative 30. ANS: C DIF: 2 REF: 5-3 NAT: Analytic LOC: Elasticity TOP: Government | Demand | Supply MSC: Applicative 31. ANS: A DIF: 2 REF: 5-3 NAT: Analytic LOC: Elasticity TOP: Government | Demand | Supply MSC: Applicative 32. ANS: C DIF: 2 REF: 5-2 NAT: Analytic LOC: Elasticity TOP: Perfectly inelastic supply MSC: Applicative 11

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