ch-5

Multiple Choice
Identify the choice that best completes the statement or answers the question.

____ 1. Elasticity is
a. a measure of how much buyers and sellers respond to changes in market conditions.
b. the study of how the allocation of resources affects economic well-being.
c. the maximum amount that a buyer will pay for a good.
d. the value of everything a seller must give up to produce a good.
____ 2. 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.
____ 3. If the price of gasoline rises, when is the price elasticity of demand likely to be the highest?
a. immediately after the price increases
b. one month after the price increase
c. three months after the price increase
d. one year after the price increase
____ 4. If the price of milk rises, when is the price elasticity of demand likely to be the lowest?
a. immediately after the price increase
b. one month after the price increase
c. three months after the price increase
d. one year after the price increase
____ 5. Which of the following is not a determinant of the price elasticity of demand for a good?
a. the time horizon
b. the steepness or flatness of the supply curve for the good
c. the definition of the market for the good
d. the availability of substitutes for the good
____ 6. The greater the price elasticity of demand, the
a. more likely the product is a necessity.
b. smaller the responsiveness of quantity demanded to a change in price.
c. greater the percentage change in price over the percentage change in quantity demanded.
d. greater the responsiveness of quantity demanded to a change in price.
____ 7. Whether a good is a luxury or necessity depends on the
a. price of the good.
b. preferences of the buyer.
c. intrinsic properties of the good.
d. scarcity of the good.
____ 8. The price elasticity of demand for bread
a. is computed as the percentage change in quantity demanded of bread divided by the
percentage change in price of bread.
b. depends, in part, on the availability of close substitutes for bread.
c. reflects the many economic, social, and psychological forces that influence consumers'
 tastes for bread.
d. All of the above are correct.
____ 9. The price elasticity of demand for eggs
a. is computed as the percentage change in quantity demanded of eggs divided by the
percentage change in price of eggs.
b. will be lower if there is a new invention that is a close substitute for eggs.
c. will be higher if consumers consider eggs to be a necessity.
d. All of the above are correct.

Table 5-1
Good Price Elasticity of Demand
A 1.3
B 2.1

____ 10. Refer to Table 5-1. Which of the following is consistent with the elasticities given in Table 5-2?
a. A is a luxury, and B is a necessity.
b. A is a good several years after a price increase, and B is that same good several days after
the price increase.
c. A is a Kit Kat bar, and B is candy.
d. A has fewer substitutes than B.
____ 11. Refer to Table 5-1. Which of the following is consistent with the elasticities given in Table 5-2?
a. A is grapes, and B is fruit.
b. A is T-shirts, and B is socks.
c. A is train tickets before cars were invented, and B is train tickets after cars were invented.
d. A is diamond necklaces, and B is beds.
____ 12. Refer to Table 5-1. Which of the following is consistent with the elasticities given in Table 5-2?
a. A is root beer, and B is carbonated beverages.
b. A is bicycles, and B is mopeds.
c. A is airline tickets in the short run, and B is airline tickets in the long run.
d. A is gourmet coffee, and B is dentist’s visits.
____ 13. 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.
____ 14. For a particular good, a 5 percent increase in price causes a 2 percent decrease in quantity demanded. Which
of the following statements is most likely applicable to this good?
a. There are many close substitutes for this good.
b. The good is a luxury.
c. The market for the good is broadly defined.
d. The relevant time horizon is long.
____ 15. For a particular good, a 12 percent increase in price causes a 3 percent decrease in quantity demanded. Which
of the following statements is most likely applicable to this good?
a. There are many substitutes for this good.
b. The good is a necessity.
c. The market for the good is narrowly defined.
 d. The relevant time horizon is long.
____ 16. 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.
____ 17. 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.
____ 18. For a good that is a luxury, demand
a. tends to be inelastic.
b. tends to be elastic.
c. has unit elasticity.
d. cannot be represented by a demand curve in the usual way.
____ 19. 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.
____ 20. 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
____ 21. For a good that is a necessity, demand
a. tends to be inelastic.
b. tends to be elastic.
c. has unit elasticity.
d. cannot be represented by a demand curve in the usual way.
____ 22. When the price of a good is $5, the quantity demanded is 100 units per month; when the price is $7, the
quantity demanded is 80 units per month. Using the midpoint method, the price elasticity of demand is about
a. 0.22.
b. 0.67.
c. 1.33.
d. 1.50.
____ 23. If a 10% decrease in price for a good results in a 20% increase in quantity demanded, the price elasticity of
demand is
a. 0.50.
b. 1.
c. 1.5.
d. 2.
____ 24. If a 6% decrease in price for a good results in a 2% increase in quantity demanded, the price elasticity of
demand is
a. 0.02.
b. 0.33.
c. 3.
d. 4.

Figure 5-2
Price

Pa

Pb

D1

D3 D2

Quantity

____ 25. Refer to Figure 5-2. As price falls from Pa to Pb, which demand curve represents the most elastic demand?
a. D1
b. D2
c. D3
d. All of the above are equally elastic.

Table 5-6
Quantity of Good X Quantity of Good Y
Income Purchased Purchased
$30,000 2 20
$40,000 6 10

____ 26. Refer to Table 5-6. Using the midpoint method, what is the income elasticity of demand for good X?
a. -3.5
b. -0.29
c. 0.29
d. 3.5
____ 27. Refer to Table 5-6. Using the midpoint method, the income elasticity of demand for good Y is
a. 2.33, and good Y is a normal good.
b. -2.33, and good Y is an inferior good.
c. -0.43, and good Y is a normal good.
d. -0.43, and good Y is an inferior good.
____ 28. Necessities such as food and clothing tend to have
a. high price elasticities of demand and high income elasticities of demand.
b. high price elasticities of demand and low income elasticities of demand.
c. low price elasticities of demand and high income elasticities of demand.
 d. low price elasticities of demand and low income elasticities of demand.
____ 29. Suppose good X has a negative income elasticity of demand. This implies that good X is
a. a normal good.
b. a necessity.
c. an inferior good.
d. a luxury.
____ 30. Food and clothing tend to have
a. small income elasticities because consumers, regardless of their incomes, choose to buy
relatively constant quantities of these goods.
b. small income elasticities because consumers buy proportionately more of both goods at
higher income levels than they buy at low income levels.
c. large income elasticities because they are necessities.
d. large income elasticities because they are relatively inexpensive.
____ 31. Tyler purchases 5 pounds of hot dogs per month when his monthly income is $2,000 and 4 pounds of hot
dogs per month when his monthly income is $2,200. Tyler’s income elasticity of demand for hot dogs is
a. 2.33, and hot dogs are a normal good.
b. -2.33, and hot dogs are an inferior good.
c. 0.43, and hot dogs are a normal good.
d. -0.43, and hot dogs are an inferior good.
____ 32. A key determinant of the price elasticity of supply is the
a. time horizon.
b. income of consumers.
c. price elasticity of demand.
d. importance of the good in a consumer’s budget.
____ 33. If the price elasticity of supply is 1.5, and a price increase led to a 1.8% increase in quantity supplied, then the
price increase is about
a. 0.67%.
b. 0.83%.
c. 1.20%.
d. 2.70%.
____ 34. If the price elasticity of supply for a good is equal to infinity, then the
a. supply curve is vertical.
b. supply curve is horizontal.
c. supply curve also has a slope equal to infinity.
d. quantity supplied is constant regardless of the price.

Figure 5-17
Price Price Price Price
SupplyA Supply C

Supply B
Supply D

Quantity Quantity Quantity Quantity

____ 35. Refer to Figure 5-17. Which of the following statements is not correct?
a. Supply curve A is perfectly inelastic.
b. Supply curve B is perfectly elastic.
c. Supply curve C is unit elastic.
d. Supply curve D is more elastic than supply curve C.
____ 36. If soybean farmers know that the demand for soybeans is price inelastic, in order to increase their total
revenues they should
a. use more fertilizers and weed killers to increase their yields.
b. plant additional acres to increase their output.
c. reduce the number of acres they plant to decrease their output.
d. Both a and b are correct.
ch-5
Answer Section

MULTIPLE CHOICE

1. ANS: A PTS: 1 DIF: 1 REF: 5-0

NAT: Analytic LOC: Elasticity TOP: Elasticity MSC: Definitional
2. ANS: A PTS: 1 DIF: 1 REF: 5-1
NAT: Analytic LOC: Elasticity TOP: Price elasticity of demand
MSC: Definitional
3. ANS: D PTS: 1 DIF: 2 REF: 5-1
NAT: Analytic LOC: Elasticity TOP: Price elasticity of demand
MSC: Applicative
4. ANS: A PTS: 1 DIF: 2 REF: 5-1
NAT: Analytic LOC: Elasticity TOP: Price elasticity of demand
MSC: Applicative
5. ANS: B PTS: 1 DIF: 2 REF: 5-1
NAT: Analytic LOC: Elasticity TOP: Price elasticity of demand
MSC: Interpretive
6. ANS: D PTS: 1 DIF: 2 REF: 5-1
NAT: Analytic LOC: Elasticity TOP: Price elasticity of demand
MSC: Interpretive
7. ANS: B PTS: 1 DIF: 2 REF: 5-1
NAT: Analytic LOC: Elasticity TOP: Price elasticity of demand
MSC: Interpretive
8. ANS: D PTS: 1 DIF: 1 REF: 5-1
NAT: Analytic LOC: Elasticity TOP: Price elasticity of demand
MSC: Interpretive
9. ANS: A PTS: 1 DIF: 1 REF: 5-1
NAT: Analytic LOC: Elasticity TOP: Price elasticity of demand
MSC: Interpretive
10. ANS: D PTS: 1 DIF: 3 REF: 5-1
NAT: Analytic LOC: Elasticity TOP: Price elasticity of demand
MSC: Analytical
11. ANS: C PTS: 1 DIF: 3 REF: 5-1
NAT: Analytic LOC: Elasticity TOP: Price elasticity of demand
MSC: Analytical
12. ANS: C PTS: 1 DIF: 3 REF: 5-1
NAT: Analytic LOC: Elasticity TOP: Price elasticity of demand
MSC: Analytical
13. ANS: D PTS: 1 DIF: 2 REF: 5-1
NAT: Analytic LOC: Elasticity TOP: Price elasticity of demand
MSC: Applicative
14. ANS: C PTS: 1 DIF: 3 REF: 5-1
NAT: Analytic LOC: Elasticity TOP: Price elasticity of demand
MSC: Analytical
15. ANS: B PTS: 1 DIF: 3 REF: 5-1
NAT: Analytic LOC: Elasticity TOP: Price elasticity of demand
 MSC: Analytical
16. ANS: B PTS: 1 DIF: 2 REF: 5-1
NAT: Analytic LOC: Elasticity TOP: Price elasticity of demand
MSC: Interpretive
17. ANS: A PTS: 1 DIF: 2 REF: 5-1
NAT: Analytic LOC: Elasticity TOP: Elastic demand
MSC: Interpretive
18. ANS: B PTS: 1 DIF: 2 REF: 5-1
NAT: Analytic LOC: Elasticity TOP: Elastic demand
MSC: Interpretive
19. ANS: B PTS: 1 DIF: 2 REF: 5-1
NAT: Analytic LOC: Elasticity TOP: Inelastic demand
MSC: Interpretive
20. ANS: B PTS: 1 DIF: 2 REF: 5-1
NAT: Analytic LOC: Elasticity TOP: Inelastic demand
MSC: Applicative
21. ANS: A PTS: 1 DIF: 2 REF: 5-1
NAT: Analytic LOC: Elasticity TOP: Inelastic demand
MSC: Interpretive
22. ANS: B PTS: 1 DIF: 1 REF: 5-1
NAT: Analytic LOC: Elasticity TOP: Midpoint method | Price elasticity of demand
MSC: Applicative
23. ANS: D PTS: 1 DIF: 2 REF: 5-1
NAT: Analytic LOC: Elasticity TOP: Price elasticity of demand
MSC: Analytical
24. ANS: B PTS: 1 DIF: 2 REF: 5-1
NAT: Analytic LOC: Elasticity TOP: Price elasticity of demand
MSC: Analytical
25. ANS: A PTS: 1 DIF: 2 REF: 5-1
NAT: Analytic LOC: Elasticity TOP: Price elasticity of demand
MSC: Applicative
26. ANS: D PTS: 1 DIF: 2 REF: 5-1
NAT: Analytic LOC: Elasticity TOP: Income elasticity of demand | Midpoint method
MSC: Applicative
27. ANS: B PTS: 1 DIF: 2 REF: 5-1
NAT: Analytic LOC: Elasticity TOP: Income elasticity of demand | Midpoint method
MSC: Applicative
28. ANS: D PTS: 1 DIF: 2 REF: 5-1
NAT: Analytic LOC: Elasticity TOP: Income elasticity of demand
MSC: Interpretive
29. ANS: C PTS: 1 DIF: 1 REF: 5-1
NAT: Analytic LOC: Elasticity TOP: Income elasticity of demand
MSC: Interpretive
30. ANS: A PTS: 1 DIF: 2 REF: 5-1
NAT: Analytic LOC: Elasticity TOP: Income elasticity of demand
MSC: Applicative
31. ANS: B PTS: 1 DIF: 2 REF: 5-1
NAT: Analytic LOC: Elasticity TOP: Income elasticity of demand
MSC: Analytical
32. ANS: A PTS: 1 DIF: 1 REF: 5-2
NAT: Analytic LOC: Elasticity TOP: Price elasticity of supply
MSC: Interpretive
33. ANS: C PTS: 1 DIF: 2 REF: 5-2
NAT: Analytic LOC: Elasticity TOP: Price elasticity of supply
MSC: Analytical
34. ANS: B PTS: 1 DIF: 2 REF: 5-2
NAT: Analytic LOC: Elasticity TOP: Price elasticity of supply | Perfectly elastic supply
MSC: Interpretive
35. ANS: C PTS: 1 DIF: 2 REF: 5-2
NAT: Analytic LOC: Elasticity TOP: Price elasticity of supply
MSC: Analytical
36. ANS: C PTS: 1 DIF: 2 REF: 5-3
NAT: Analytic LOC: Elasticity TOP: Price elasticity of demand | Total revenue
MSC: Interpretive