TEST BANK chapter 5 elasticity and its application

32 ❖ Chapter 5 /Elasticity and Its Application

Chapter 5
Elasticity and Its Application
TRUE/FALSE
1.
Elasticity measures how responsive quantity is to changes in price.
ANS: T
DIF: 1
REF: 5-0
NAT: Analytic
LOC: Elasticity
TOP: Price elasticity of demand
MSC: Definitional
2.
Measures of elasticity enhance our ability to study the magnitudes of changes.
ANS: T
DIF: 1
REF: 5-0
NAT: Analytic
LOC: Elasticity
TOP: Price elasticity of demand
MSC: Definitional
3.
The demand for bread is likely to be more elastic than the demand for solid-gold bread plates.
ANS: F
DIF: 2
REF: 5-1
NAT: Analytic
LOC: Elasticity
TOP: Price elasticity of demand

MSC: Interpretive
4.
In general, demand curves for necessities tend to be price elastic.
ANS: F
DIF: 1
REF: 5-1
LOC: Elasticity
TOP: Price elasticity of demand

NAT: Analytic
MSC: Interpretive

5.
In general, demand curves for luxuries tend to be price elastic.
ANS: T
DIF: 1
REF: 5-1
LOC: Elasticity
TOP: Price elasticity of demand

NAT: Analytic
MSC: Interpretive

6.
Necessities tend to have inelastic demands, whereas luxuries have elastic demands.
ANS: T
DIF: 2
REF: 5-1
NAT: Analytic
LOC: Elasticity

TOP: Price elasticity of demand
MSC: Interpretive
7.
Goods with close substitutes tend to have more elastic demands than do goods without close substitutes.
ANS: T
DIF: 2
REF: 5-1
NAT: Analytic
LOC: Elasticity
TOP: Price elasticity of demand
MSC: Interpretive
8.
The demand for Rice Krispies is more elastic than the demand for cereal in general.
ANS: T
DIF: 2
REF: 5-1
NAT: Analytic
LOC: Elasticity
TOP: Price elasticity of demand
MSC: Interpretive
9.
The demand for soap is more elastic than the demand for Dove soap.
ANS: F
DIF: 2
REF: 5-1
NAT: Analytic
LOC: Elasticity
TOP: Price elasticity of demand
MSC: Interpretive
10.

The demand for gasoline will respond more to a change in price over a period of five weeks than over a period
of five years.
ANS: F
DIF: 2
REF: 5-1
NAT: Analytic
LOC: Elasticity
TOP: Price elasticity of demand
MSC: Interpretive
11.

Even the demand for a necessity such as gasoline will respond to a change in price, especially over a longer
time horizon.
ANS: T
DIF: 2
REF: 5-1
NAT: Analytic
LOC: Elasticity
TOP: Price elasticity of demand
MSC: Interpretive
12.

The price elasticity of demand is defined as the percentage change in quantity demanded divided by the
percentage change in price.
ANS: T
DIF: 1
REF: 5-1
NAT: Analytic
LOC: Elasticity

TOP: Price elasticity of demand
MSC: Definitional
13.

The price elasticity of demand is defined as the percentage change in price divided by the percentage change
in quantity demanded.
ANS: F
DIF: 1
REF: 5-1
NAT: Analytic
LOC: Elasticity
TOP: Price elasticity of demand
MSC: Definitional


33 ❖ Chapter 5 /Elasticity and Its Application
14.

Suppose that when the price rises by 20% for a particular good, the quantity demanded of that good falls by
10%. The price elasticity of demand for this good is equal to 2.0.
ANS: F
DIF: 2
REF: 5-1
NAT: Analytic
LOC: Elasticity
TOP: Price elasticity of demand
MSC: Analytical
15.

Suppose that when the price rises by 10% for a particular good, the quantity demanded of that good falls by

20%. The price elasticity of demand for this good is equal to 2.0.
ANS: T
DIF: 2
REF: 5-1
NAT: Analytic
LOC: Elasticity
TOP: Price elasticity of demand
MSC: Analytical
16.

If the price of calculators increases by 15 percent and the quantity demanded per week falls by 45 percent as a
result, then the price elasticity of demand is 3.
ANS: T
DIF: 2
REF: 5-1
NAT: Analytic
LOC: Elasticity
TOP: Price elasticity of demand
MSC: Applicative
17. Demand is inelastic if the price elasticity of demand is greater than 1.
ANS: F
DIF: 1
REF: 5-1
NAT: Analytic
LOC: Elasticity
TOP: Inelastic demand
MSC: Definitional
18. A linear, downward-sloping demand curve has a constant elasticity but a changing slope.
ANS: F
DIF: 2

REF: 5-1
NAT: Analytic
LOC: Elasticity
TOP: Price elasticity of demand
MSC: Interpretive
19. Price elasticity of demand along a linear, downward-sloping demand curve increases as price falls.
ANS: F
DIF: 3
REF: 5-1
NAT: Analytic
LOC: Elasticity
TOP: Price elasticity of demand
MSC: Interpretive
20. If the price elasticity of demand is equal to 0, then demand is unit elastic.
ANS: F
DIF: 1
REF: 5-1
NAT: Analytic
LOC: Elasticity
TOP: Price elasticity of demand
MSC: Definitional
21. If the price elasticity of demand is equal to 1, then demand is unit elastic.
ANS: T
DIF: 1
REF: 5-1
NAT: Analytic
LOC: Elasticity
TOP: Price elasticity of demand
MSC: Definitional
22.

Demand for a good is said to be inelastic if the quantity demanded increases substantially when the price falls
by a small amount.
ANS: F
DIF: 1
REF: 5-1
NAT: Analytic
LOC: Elasticity
TOP: Inelastic demand
MSC: Definitional
23.

The midpoint method is used to calculate elasticity between two points because it gives the same answer
regardless of the direction of the change.
ANS: T
DIF: 2
REF: 5-1
NAT: Analytic
LOC: Elasticity
TOP: Midpoint method
MSC: Interpretive
24. The flatter the demand curve that passes through a given point, the more inelastic the demand.
ANS: F
DIF: 2
REF: 5-1
NAT: Analytic
LOC: Elasticity
TOP: Price elasticity of demand
MSC: Interpretive
25. The flatter the demand curve that passes through a given point, the more elastic the demand.

ANS: T
DIF: 2
REF: 5-1
NAT: Analytic
LOC: Elasticity
TOP: Price elasticity of demand
MSC: Interpretive
26. If demand is perfectly inelastic, the demand curve is vertical, and the price elasticity of demand equals 0.
ANS: T
DIF: 2
REF: 5-1
NAT: Analytic
LOC: Elasticity
TOP: Perfectly inelastic demand
MSC: Interpretive
27. If demand is perfectly elastic, the demand curve is horizontal, and the price elasticity of demand equals 1.
ANS: F
DIF: 2
REF: 5-1
NAT: Analytic
LOC: Elasticity
TOP: Perfectly elastic demand
MSC: Interpretive


Chapter 5 /Elasticity and Its Application ❖ 34
28. Along the elastic portion of a linear demand curve, total revenue rises as price rises.
ANS: F
DIF: 3
REF: 5-1

NAT: Analytic
LOC: Elasticity
TOP: Total revenue | Price elasticity of demand
MSC: Interpretive
29. If a firm is facing elastic demand, then the firm should decrease price to increase revenue.
ANS: T
DIF: 2
REF: 5-1
NAT: Analytic
LOC: Elasticity
TOP: Total revenue | Price elasticity of demand
MSC: Applicative
30. If a firm is facing inelastic demand, then the firm should decrease price to increase revenue.
ANS: F
DIF: 2
REF: 5-1
NAT: Analytic
LOC: Elasticity
TOP: Total revenue | Price elasticity of demand
MSC: Applicative
31. When demand is inelastic, a decrease in price increases total revenue.
ANS: F
DIF: 2
REF: 5-1
NAT: Analytic
LOC: Elasticity
TOP: Inelastic demand | Total revenue
MSC: Interpretive
32.

The income elasticity of demand is defined as the percentage change in quantity demanded divided by the
percentage change in income.
ANS: T
DIF: 1
REF: 5-1
NAT: Analytic
LOC: Elasticity
TOP: Income elasticity of demand
MSC: Definitional
33.

The income elasticity of demand is defined as the percentage change in quantity demanded divided by the
percentage change in price.
ANS: F
DIF: 1
REF: 5-1
NAT: Analytic
LOC: Elasticity
TOP: Income elasticity of demand
MSC: Definitional
34.

Normal goods have negative income elasticities of demand, while inferior goods have positive income
elasticities of demand.
ANS: F
DIF: 2
REF: 5-1
NAT: Analytic
LOC: Elasticity
TOP: Income elasticity of demand

MSC: Interpretive
35. If the income elasticity of demand for a good is negative, then the good must be an inferior good.
ANS: T
DIF: 1
REF: 5-1
NAT: Analytic
LOC: Elasticity
TOP: Income elasticity of demand
MSC: Interpretive
36. If the cross-price elasticity of demand for two goods is negative, then the two goods are substitutes.
ANS: F
DIF: 2
REF: 5-1
NAT: Analytic
LOC: Elasticity
TOP: Cross-price elasticity of demand
MSC: Interpretive
37. If the cross-price elasticity of demand for two goods is negative, then the two goods are complements.
ANS: T
DIF: 2
REF: 5-1
NAT: Analytic
LOC: Elasticity
TOP: Cross-price elasticity of demand
MSC: Interpretive
38.

Cross-price elasticity of demand measures how the quantity demanded of one good changes as the price of
another good changes.
ANS: T

DIF: 1
REF: 5-1
NAT: Analytic
LOC: Elasticity
TOP: Cross-price elasticity of demand
MSC: Definitional
39. Cross-price elasticity is used to determine whether goods are inferior or normal goods.
ANS: F
DIF: 2
REF: 5-1
NAT: Analytic
LOC: Elasticity
TOP: Cross-price elasticity of demand
MSC: Interpretive
40. Cross-price elasticity is used to determine whether goods are substitutes or complements.
ANS: T
DIF: 2
REF: 5-1
NAT: Analytic
LOC: Elasticity
TOP: Cross-price elasticity of demand
MSC: Interpretive


35 ❖ Chapter 5 /Elasticity and Its Application
41.

The cross-price elasticity of garlic salt and onion salt is -2, which indicates that garlic salt and onion salt are
substitutes.
ANS: F

DIF: 2
REF: 5-1
NAT: Analytic
LOC: Elasticity
TOP: Cross-price elasticity of demand
MSC: Interpretive
42. Price elasticity of supply measures how much the quantity supplied responds to changes in the price.
ANS: T
DIF: 1
REF: 5-2
NAT: Analytic
LOC: Elasticity
TOP: Price elasticity of supply
MSC: Definitional
43. Supply and demand both tend to be more elastic in the long run and more inelastic in the short run.
ANS: T
DIF: 2
REF: 5-1 | 5-2
NAT: Analytic
LOC: Elasticity
TOP: Price elasticities of demand and supply
MSC: Interpretive
44.

If the price elasticity of supply is 2 and the quantity supplied decreases by 6%, then the price must have
decreased by 3%.
ANS: T
DIF: 2
REF: 5-2
NAT: Analytic

LOC: Elasticity
TOP: Price elasticity of supply
MSC: Applicative
45.

Supply is said to be inelastic if the quantity supplied responds substantially to changes in the price, and elastic
if the quantity supplied responds only slightly to price.
ANS: F
DIF: 1
REF: 5-2
NAT: Analytic
LOC: Elasticity
TOP: Price elasticity of supply
MSC: Definitional
46. Supply tends to be more elastic in the short run and more inelastic in the long run.
ANS: F
DIF: 2
REF: 5-2
NAT: Analytic
TOP: Price elasticity of supply
MSC: Interpretive
47.

When the price of knee braces increased by 25 percent, the Brace Yourself Company increased its quantity
supplied of knee braces per week by 75 percent. BYC's price elasticity of supply of knee braces is 0.33.
ANS: F
DIF: 2
REF: 5-2
NAT: Analytic
LOC: Elasticity

TOP: Price elasticity of supply
MSC: Applicative
48.

If a supply curve is horizontal, then supply is said to be perfectly elastic, and the price elasticity of supply
approaches infinity.
ANS: T
DIF: 2
REF: 5-2
NAT: Analytic
LOC: Elasticity
TOP: Perfectly elastic supply MSC:
Interpretive
49. A government program that reduces land under cultivation hurts farmers but helps consumers.
ANS: F
DIF: 2
REF: 5-3
NAT: Analytic
LOC: Elasticity
TOP: Total revenue
MSC: Applicative
50.

OPEC failed to maintain a high price of oil in the long run, partly because both the supply of oil and the
demand for oil are more elastic in the long run than in the short run.
ANS: T
DIF: 2
REF: 5-3
NAT: Analytic
LOC: Elasticity

TOP: OPEC | Price elasticity of demand | Price elasticity of supply
MSC: Applicative
51.

Drug interdiction, which reduces the supply of drugs, may decrease drug-related crime because the demand for
drugs is inelastic.
ANS: F
DIF: 2
REF: 5-3
NAT: Analytic
LOC: Elasticity
TOP: Price elasticity of demand
MSC: Applicative
SHORT ANSWER
1.

Consider the following pairs of goods. For which of the two goods would you expect the demand to be more
price elastic? Why?
a. water or diamonds
b. insulin or nasal decongestant spray
c. food in general or breakfast cereal
d. gasoline over the course of a week or gasoline over the course of a year
e. personal computers or IBM personal computers


Chapter 5 /Elasticity and Its Application ❖ 36
ANS:
a.
b.

Diamonds are luxuries, and water is a necessity. Therefore, diamonds have the more elastic demand.
Insulin has no close substitutes, but decongestant spray does. Therefore, nasal decongestant spray has the
more elastic demand.
Breakfast cereal has more substitutes than does food in general. Therefore, breakfast cereal has the more
elastic demand.
The longer the time period, the more elastic demand is. Therefore, gasoline over the course of a year has
the more elastic demand.
There are more substitutes for IBM personal computers than there are for personal computers. Therefore,
IBM personal computers have the more elastic demand.

c.
d.
e.
DIF:
TOP:
2.

2
REF: 5-1
Price elasticity of demand

NAT: Analytic
MSC: Applicative

LOC: Elasticity

You own a small town movie theatre. You currently charge $5 per ticket for everyone who comes to your
movies. Your friend who took an economics course in college tells you that there may be a way to increase
your total revenue. Given the demand curves shown, answer the following questions.
Price

10
9
8
7
6
5
4
3

Adult Demand

2
1
10

20

30

40

50

60

70

80

90 100

Quantity

Price

10
9
8
7
6
5
4
3

Child Demand

2
1
5

a.
b.
c.
d.
e.
f.

10

15

20

25

30

35

40 45

50

55

60

65

70

Quantity

What is your current total revenue for both groups?
The elasticity of demand is more elastic in which market?
Which market has the more inelastic demand?
What is the elasticity of demand between the prices of $5 and $2 in the adult market? Is this
elastic or inelastic?
What is the elasticity of demand between $5 and $2 in the children's market? Is this elastic or

inelastic?
Given the graphs and what your friend knows about economics, he recommends you increase the
price of adult tickets to $8 each and lower the price of a child's ticket to $3. How much could you
increase total revenue if you take his advice?


37 ❖ Chapter 5 /Elasticity and Its Application
ANS:
a.
b.
c.
d.
e.
f.

DIF:
TOP:
3.

Total revenue from children's tickets is $100 and from adult tickets is $250. Total revenue from all
sales would be $350.
The demand for children's tickets is more elastic.
The adult ticket market has the more inelastic demand.
The elasticity of demand between $5 and $2 is 0.26, which is inelastic.
The elasticity of demand between $5 and $2 is 1.0, which is unit elastic.
Total revenue in the adult market would be $320. Total revenue in the children’s market would be
$120, so total revenue for both groups would be $440. $440 - $350 is an increase in total revenue
of $90.
2
REF: 5-1

NAT:
Price elasticity of demand | Total revenue

Analytic

LOC: Elasticity
MSC: Applicative

Use the graph shown to answer the following questions. Put the correct letter(s) in the blank.
Price

A

B

Demand
C

a.
b.
c.
d.

Quantity

g.
h.
i.
j.

The elastic section of the graph is represented by section from _______.
The inelastic section of the graph is represented by section from _______.
The unit elastic section of the graph is represented by section _______.
The portion of the graph in which a decrease in price would cause total revenue to fall would be
from _________.
The portion of the graph in which a decrease in price would cause total revenue to rise would be
from _________.
The portion of the graph in which a decrease in price would not cause a change in total revenue
would be _________.
The section of the graph in which total revenue would be at a maximum would be _______.
The section of the graph in which elasticity is greater than 1 is _______.
The section of the graph in which elasticity is equal to 1 is ______.
The section of the graph in which elasticity is less than 1 is _______.

a.
b.
c.
d.
e.
f.
g.
h.
i.
j.

A to B
B to C
B
B to C
A to B

B
B
A to B
B
B to C

e.
f.

ANS:

DIF:
TOP:

2
REF: 5-1
NAT:
Price elasticity of demand | Total revenue

Analytic

LOC: Elasticity
MSC: Applicative


Chapter 5 /Elasticity and Its Application ❖ 38
4.

Using the midpoint method, compute the elasticity of demand between points A and B. Is demand along this
portion of the curve elastic or inelastic? Interpret your answer with regard to price and quantity demanded.

Now compute the elasticity of demand between points B and C. Is demand along this portion of the curve
elastic or inelastic?
22

Price

20
18

A

16
14
12

B

10
8
6

C

4
2

Demand
100 200 300 400 500 600 700 800 900

Quantity

ANS:
In the section of the demand curve from A to B, the elasticity of demand would be 2.5. This would be an elastic
portion of the curve. This would mean that for every 1 percent change in price, quantity demanded would change by
2.5 percent.
In the section of the demand curve from B to C, the elasticity of demand would be .75. This would be an inelastic
portion of the curve. This would mean that for every 1 percent change in price, quantity demanded would change by
0.75 percent.
DIF:
TOP:
5.

2
REF: 5-1
Price elasticity of demand

NAT: Analytic
MSC: Applicative

LOC: Elasticity

When the Shaffers had a monthly income of $4,000, they usually ate out 8 times a month. Now that the couple
makes $4,500 a month, they eat out 10 times a month. Compute the couple's income elasticity of demand
using the midpoint method. Explain your answer. (Is a restaurant meal a normal or inferior good to the
couple?)

ANS:
The income elasticity of demand for the Shaffers is 1.89. Since the income elasticity of demand is positive, eating
out would be interpreted as a normal good.
DIF:

TOP:
6.

2
REF: 5-1
Income elasticity of demand

NAT: Analytic
MSC: Applicative

LOC: Elasticity

Recently, in Smalltown, the price of Twinkies fell from $0.80 to $0.70. As a result, the quantity demanded of
Ho-Ho's decreased from 120 to 100. What would be the appropriate elasticity to compute? Using the midpoint
method, compute this elasticity. What does your answer tell you?

ANS:
The appropriate elasticity to compute would be cross-price elasticity. The cross-price elasticity for this example
would be 1.36. The two goods are substitutes because the cross-price elasticity is positive.
DIF:
TOP:

2
REF: 5-1
Cross-price elasticity of demand

NAT: Analytic
MSC: Applicative

LOC: Elasticity

39 ❖ Chapter 5 /Elasticity and Its Application

Sec00 - Elasticity and Its Application
MULTIPLE CHOICE
1.

In general, elasticity is a measure of
a. the extent to which advances in technology are adopted by producers.
b. the extent to which a market is competitive.
c. how firms’ profits respond to changes in market prices.
d. how much buyers and sellers respond to changes in market conditions.

ANS: D
NAT: Analytic
2.

DIF: 1
LOC: Elasticity

REF:
TOP:

5-0
Elasticity

MSC: Definitional

DIF: 2

LOC: Elasticity

REF:
TOP:

5-0
Elasticity

MSC: Interpretive

DIF: 2
LOC: Elasticity

REF:
TOP:

5-0
Elasticity

MSC: Interpretive

When consumers face rising gasoline prices, they typically
a. reduce their quantity demanded more in the long run than in the short run.
b. reduce their quantity demanded more in the short run than in the long run.
c. do not reduce their quantity demanded in the short run or the long run.
d. increase their quantity demanded in the short run but reduce their quantity demanded in the long
run.

ANS: A
NAT: Analytic

6.

MSC: Definitional

How does the concept of elasticity allow us to improve upon our understanding of supply and demand?
a. Elasticity allows us to analyze supply and demand with greater precision than would be the case in
the absence of the elasticity concept.
b. Elasticity provides us with a better rationale for statements such as “an increase in x will lead to a
decrease in y” than we would have in the absence of the elasticity concept.
c. Without elasticity, we would not be able to address the direction in which price is likely to move in
response to a surplus or a shortage.
d. Without elasticity, it is very difficult to assess the degree of competition within a market.

ANS: A
NAT: Analytic
5.

5-0
Elasticity

When studying how some event or policy affects a market, elasticity provides information on the
a. equity effects on the market by identifying the winners and losers.
b. magnitude of the effect on the market.
c. speed of adjustment of the market in response to the event or policy.
d. number of market participants who are directly affected by the event or policy.

ANS: B
NAT: Analytic
4.

REF:
TOP:

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.

ANS: A
NAT: Analytic
3.

DIF: 1
LOC: Elasticity

DIF: 2
LOC: Elasticity

REF:
TOP:

5-0
Elasticity

MSC: Applicative

A 10 percent increase in gasoline prices reduces gasoline consumption by about
a. 6 percent after one year and 2.5 percent after five years.
b. 2.5 percent after one year and 6 percent after five years.

c. 10 percent after one year and 20 percent after five years.
d. 0 percent after one year and 1 percent after five years.

ANS: B
NAT: Analytic

DIF: 2
LOC: Elasticity

REF:
TOP:

5-0
Elasticity

MSC: Applicative


Chapter 5 /Elasticity and Its Application ❖ 40
7.

Which of the following statements about the consumers’ responses to rising gasoline prices is correct?
a. About 10 percent of the long-run reduction in quantity demanded arises because people drive less
and about 90 percent arises because they switch to more fuel-efficient cars.
b. About 90 percent of the long-run reduction in quantity demanded arises because people drive less
and about 10 percent arises because they switch to more fuel-efficient cars.
c. About half of the long-run reduction in quantity demanded arises because people drive less and
about half arises because they switch to more fuel-efficient cars.
d. Because gasoline is a necessity, consumers do not decrease their quantity demanded in either the
short run or the long run.

ANS: C
NAT: Analytic

DIF: 2
LOC: Elasticity

REF:
TOP:

5-0
Elasticity

MSC: Applicative

Sec01 - Elasticity and Its Application - The Elasticity of Demand
MULTIPLE CHOICE
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.

ANS: A
NAT: Analytic
MSC: Definitional
2.

5-1
Price elasticity of demand

DIF: 1
LOC: Elasticity

REF:
TOP:

5-1
Price elasticity of demand

The price elasticity of demand for a good measures the willingness of
a. consumers to buy less of the good as price rises.
b. consumers to avoid monopolistic markets in favor of competitive markets.
c. firms to produce more of a good as price rises.
d. firms to cater to the tastes of consumers.

ANS: A
NAT: Analytic
MSC: Interpretive
4.

REF:
TOP:

The price elasticity of demand measures
a. buyers’ responsiveness to a change in the price of a good.
b. the extent to which demand increases as additional buyers enter the market.
c. how much more of a good consumers will demand when incomes rise.

d. the movement along a supply curve when there is a change in demand.

ANS: A
NAT: Analytic
MSC: Definitional
3.

DIF: 1
LOC: Elasticity

DIF: 1
LOC: Elasticity

REF:
TOP:

5-1
Price elasticity of demand

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.

ANS: D
NAT: Analytic

MSC: Interpretive

DIF: 2
LOC: Elasticity

REF:
TOP:

5-1
Price elasticity of demand


41 ❖ Chapter 5 /Elasticity and Its Application
5.

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.

ANS: B
NAT: Analytic
MSC: Interpretive
6.

5-1
Price elasticity of demand

DIF: 2

LOC: Elasticity

REF:
TOP:

5-1
Price elasticity of demand

DIF: 2
LOC: Elasticity

REF:
TOP:

5-1
Price elasticity of demand

DIF: 2
LOC: Elasticity

REF:
TOP:

5-1
Price elasticity of demand

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

ANS: A
NAT: Analytic
MSC: Applicative
11.

REF:
TOP:

If the price of natural gas rises, when is the price elasticity of demand likely to be the highest?
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

ANS: D
NAT: Analytic
MSC: Applicative
10.

DIF: 2
LOC: Elasticity

Which of the following is likely to have the most price inelastic demand?
a. white chocolate chip with macadamia nut cookies
b. Mrs. Field’s chocolate chip cookies
c. milk chocolate chip cookies
d. cookies

ANS: D
NAT: Analytic
MSC: Applicative
9.

5-1
Price elasticity of demand

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

ANS: B
NAT: Analytic
MSC: Applicative
8.

REF:
TOP:

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.

ANS: A
NAT: Analytic

MSC: Interpretive
7.

DIF: 2
LOC: Elasticity

DIF: 2
LOC: Elasticity

REF:
TOP:

5-1
Price elasticity of demand

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.


Chapter 5 /Elasticity and Its Application ❖ 42
ANS: B
NAT: Analytic
MSC: Interpretive
12.

5-1
Price elasticity of demand

DIF: 2
LOC: Elasticity

REF:
TOP:

5-1
Price elasticity of demand

DIF: 2
LOC: Elasticity

REF:
TOP:

5-1
Price elasticity of demand

DIF: 2
LOC: Elasticity

REF:
TOP:

5-1
Price elasticity of demand

There are very few, if any, good substitutes for motor oil. Therefore,
a. the demand for motor oil would tend to be inelastic.

b. the demand for motor oil would tend to be elastic.
c. the demand for motor oil would tend to respond strongly to changes in prices of other goods.
d. the supply of motor oil would tend to respond strongly to changes in people’s tastes for large cars
relative to their tastes for small cars.

ANS: A
NAT: Analytic
MSC: Interpretive
17.

REF:
TOP:

The demand for Werthers candy is likely
a. elastic because candy is expensive relative to other snacks.
b. elastic because there are many close substitutes for Werthers.
c. elastic because Werthers are regarded as a necessity by many people.
d. inelastic because it is usually eaten quickly, making the relevant time horizon short.

ANS: B
NAT: Analytic
MSC: Interpretive
16.

DIF: 2
LOC: Elasticity

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.

ANS: D
NAT: Analytic
MSC: Interpretive
15.

5-1
Price elasticity of demand

A person who takes a prescription drug to control high cholesterol most likely has a demand for that drug that
is
a. inelastic.
b. unit elastic.
c. elastic.
d. highly responsive to changes in income.

ANS: A
NAT: Analytic
MSC: Interpretive
14.

REF:
TOP:

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.

ANS: A
NAT: Analytic
MSC: Interpretive
13.

DIF: 2
LOC: Elasticity

DIF: 2
LOC: Elasticity

REF:
TOP:

5-1
Price elasticity of demand

Holding all other forces constant, when the price of gasoline rises, the number of gallons of gasoline
demanded would fall substantially over a ten-year period because
a. buyers tend to be much less sensitive to a change in price when given more time to react.
b. buyers tend to be much more sensitive to a change in price when given more time to react.
c. buyers will have substantially more real income over a ten-year period.
d. the quantity supplied of gasoline increases very little in response to an increase in the price of
gasoline.


43 ❖ Chapter 5 /Elasticity and Its Application
ANS: B

NAT: Analytic
MSC: Interpretive
18.

5-1
Price elasticity of demand

DIF: 2
LOC: Elasticity

REF:
TOP:

5-1
Price elasticity of demand

DIF: 2
LOC: Elasticity

REF:
TOP:

5-1
Price elasticity of demand

DIF: 2
LOC: Elasticity

REF:
TOP:

5-1
Price elasticity of demand

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

ANS: B
NAT: Analytic
MSC: Interpretive
23.

REF:
TOP:

Which of the following statements is correct?
a. The demand for natural gas is more elastic over a short period of time than over a long period of
time.
b. The demand for smoke alarms is more elastic than the demand for Persian rugs.
c. The demand for bourbon whiskey is more elastic than the demand for alcoholic beverages in
general.
d. All of the above are correct.

ANS: C
NAT: Analytic
MSC: Interpretive
22.

DIF: 2
LOC: Elasticity

Which of the following statements is correct?
a. The demand for flat-screen computer monitors is more elastic than the demand for monitors in
general.
b. The demand for grandfather clocks is more elastic than the demand for clocks in general.
c. The demand for cardboard is more elastic over a long period of time than over a short period of
time.
d. All of the above are correct.

ANS: D
NAT: Analytic
MSC: Interpretive
21.

5-1
Price elasticity of demand

A good will have a more elastic demand,
a. the greater the availability of close substitutes.
b. the more narrow the definition of the market.
c. the shorter the period of time.
d. the more it is regarded as a necessity.

ANS: A
NAT: Analytic
MSC: Interpretive
20.

REF:
TOP:

A good will have a more inelastic demand,
a. the greater the availability of close substitutes.
b. the broader the definition of the market.
c. the longer the period of time.
d. the more it is regarded as a luxury.

ANS: B
NAT: Analytic
MSC: Interpretive
19.

DIF: 2
LOC: Elasticity

DIF: 2
LOC: Elasticity

REF:
TOP:

5-1
Price elasticity of demand

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.


Chapter 5 /Elasticity and Its Application ❖ 44
ANS: D
NAT: Analytic
MSC: Interpretive
24.

5-1
Price elasticity of demand

DIF: 2
LOC: Elasticity

REF:
TOP:

5-1
Price elasticity of demand

DIF: 2
LOC: Elasticity

REF:
TOP:

5-1
Price elasticity of demand

DIF: 2
LOC: Elasticity

REF:
TOP:

5-1
Price elasticity of demand

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.

ANS: D
NAT: Analytic
MSC: Interpretive
29.

REF:
TOP:

Whether a good is a luxury or necessity depends on
a. the price of the good.
b. the preferences of the buyer.
c. the intrinsic properties of the good.

d. how scarce the good is.

ANS: B
NAT: Analytic
MSC: Interpretive
28.

DIF: 2
LOC: Elasticity

For which of the following goods would demand be most inelastic?
a. chocolate
b. Godiva chocolate
c. Hershey’s chocolate
d. All three would have the same elasticity of demand since they are all related.

ANS: A
NAT: Analytic
MSC: Applicative
27.

5-1
Price elasticity of demand

For which of the following goods would demand be most elastic?
a. clothing
b. blue jeans
c. Tommy Hilfiger jeans
d. All three would have the same elasticity of demand since they are all related.

ANS: C
NAT: Analytic
MSC: Applicative
26.

REF:
TOP:

The value of the price elasticity of demand for a good will be relatively large when
a. there are no good substitutes available for the good.
b. the time period in question is relatively short.
c. the good is a luxury as opposed to a necessity.
d. All of the above are correct.

ANS: C
NAT: Analytic
MSC: Interpretive
25.

DIF: 2
LOC: Elasticity

DIF: 1
LOC: Elasticity

REF:
TOP:

5-1
Price elasticity of demand

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 luxury good.
d. All of the above are correct.


45 ❖ Chapter 5 /Elasticity and Its Application
ANS: A
NAT: Analytic
MSC: Interpretive
30.

5-1
Price elasticity of demand

DIF: 2
LOC: Elasticity

REF:
TOP:

5-1
Price elasticity of demand

DIF: 2
LOC: Elasticity

REF:
TOP:

5-1
Price elasticity of demand

DIF: 2
LOC: Elasticity

REF:
TOP:

5-1
Price elasticity of demand

If the price elasticity of demand for a good is 10.0, then a 4 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.

ANS: D
NAT: Analytic
MSC: Applicative
35.

REF:
TOP:

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.

ANS: D
NAT: Analytic
MSC: Applicative
34.

DIF: 2
LOC: Elasticity

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.

ANS: B
NAT: Analytic
MSC: Applicative
33.

5-1
Price elasticity of demand

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.

ANS: C
NAT: Analytic
MSC: Definitional
32.

REF:
TOP:

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.

ANS: A
NAT: Analytic
MSC: Interpretive
31.

DIF: 1
LOC: Elasticity

DIF: 2
LOC: Elasticity

REF:

TOP:

5-1
Price elasticity of demand

If the price elasticity of demand for a good is 0.4, 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.

ANS: C
NAT: Analytic
MSC: Applicative

DIF: 2
LOC: Elasticity

REF:
TOP:

5-1
Price elasticity of demand


Chapter 5 /Elasticity and Its Application ❖ 46
36.

If the price elasticity of demand for a good is 0.25, then a 20 percent decrease in price results in a
a. 0.0125 percent increase in the quantity demanded.

b. 4 percent increase in the quantity demanded.
c. 5 percent increase in the quantity demanded.
d. 80 percent increase in the quantity demanded.

ANS: C
NAT: Analytic
MSC: Applicative
37.

REF:
TOP:

5-1
Price elasticity of demand

DIF: 2
LOC: Elasticity

REF:
TOP:

5-1
Price elasticity of demand

DIF: 3
LOC: Elasticity

REF:
TOP:

5-1
Price elasticity of demand

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.

ANS: B
NAT: Analytic
MSC: Analytical
41.

DIF: 2
LOC: Elasticity

For a particular good, a 2 percent increase in price causes a 12 percent decrease in quantity demanded. Which
of the following statements is most likely applicable to this good?
a. There are no 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 short.

ANS: B
NAT: Analytic
MSC: Analytical
40.

5-1
Price elasticity of demand

If the price elasticity of demand for a good is 0.8, then which of the following events is consistent with a 4
percent decrease in the quantity of the good demanded?
a. a 0.2 percent increase in the price of the good
b. a 3.2 percent increase in the price of the good
c. a 4.8 percent increase in the price of the good
d. a 5 percent increase in the price of the good

ANS: D
NAT: Analytic
MSC: Applicative
39.

REF:
TOP:

If the price elasticity of demand for a good is 1.5, then a 3 percent decrease in price results in a
a. 0.5 percent increase in the quantity demanded.
b. 2 percent increase in the quantity demanded.
c. 4.5 percent increase in the quantity demanded.
d. 5 percent increase in the quantity demanded.

ANS: C
NAT: Analytic
MSC: Applicative
38.

DIF: 2

LOC: Elasticity

DIF: 3
LOC: Elasticity

REF:
TOP:

5-1
Price elasticity of demand

For a particular good, a 3 percent increase in price causes a 10 percent decrease in quantity demanded. Which
of the following statements is most likely applicable to this good?
a. The relevant time horizon is short.
b. The good is a necessity.
c. The market for the good is broadly defined.
d. There are many close substitutes for this good.

ANS: D
NAT: Analytic
MSC: Analytical

DIF: 3
LOC: Elasticity

REF:
TOP:

5-1
Price elasticity of demand

47 ❖ Chapter 5 /Elasticity and Its Application
42.

For a particular good, a 10 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. The relevant time horizon is short.
b. The good is a luxury.
c. The market for the good is narrowly defined.
d. There are many close substitutes for this good.

ANS: A
NAT: Analytic
MSC: Analytical
43.

REF:
TOP:

5-1
Price elasticity of demand

DIF: 2
LOC: Elasticity

REF:
TOP:

5-1

Price elasticity of demand

DIF: 2
LOC: Elasticity

REF:
TOP:

5-1
Price elasticity of demand

Elasticity of demand is closely related to the slope of the demand curve. The less 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.

ANS: A
NAT: Analytic
MSC: Interpretive
47.

DIF: 1
LOC: Elasticity

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.

ANS: B
NAT: Analytic
MSC: Interpretive
46.

5-1
Price elasticity of demand

Demand is said to be unit elastic if
a. quantity demanded changes by the same percent as the price.
b. quantity demanded changes by a larger percent than the price.
c. the demand curve shifts by the same percentage amount as the price.
d. quantity demanded does not respond to a change in price.

ANS: A
NAT: Analytic
MSC: Definitional
45.

REF:
TOP:

Demand is said to have unit elasticity if elasticity is
a. less than 1.
b. greater than 1.
c. equal to 1.
d. equal to 0.

ANS: C
NAT: Analytic
MSC: Definitional
44.

DIF: 3
LOC: Elasticity

DIF: 2
LOC: Elasticity

REF:
TOP:

5-1
Price elasticity of demand

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.

ANS: A
NAT: Analytic
MSC: Analytical

DIF: 3

LOC: Elasticity

REF:
TOP:

5-1
Price elasticity of demand


Chapter 5 /Elasticity and Its Application ❖ 48
48.

The smaller the price elasticity of demand, the
a. steeper the demand curve will be through a given point.
b. flatter the demand curve will be through a given point.
c. more strongly buyers respond to a change in price between any two prices P1 and P2.
d. smaller the decrease in equilibrium price when the supply curve shifts rightward from S1 to S2.

ANS: A
NAT: Analytic
MSC: Analytical
49.

REF:
TOP:

5-1
Price elasticity of demand

DIF: 2

LOC: Elasticity

REF:
TOP:

5-1
Price elasticity of demand

DIF: 2
LOC: Elasticity

REF:
TOP:

5-1
Price elasticity of demand

When we move upward and to the left along a linear, downward-sloping demand curve, price elasticity of
demand
a. first becomes smaller, then larger.
b. always becomes larger.
c. always becomes smaller.
d. first becomes larger, then smaller.

ANS: B
NAT: Analytic
MSC: Interpretive
53.

DIF: 2

LOC: Elasticity

As we move downward and to the right along a linear, downward-sloping demand curve,
a. slope and elasticity both remain constant.
b. slope changes but elasticity remains constant.
c. slope and elasticity both change.
d. slope remains constant but elasticity changes.

ANS: D
NAT: Analytic
MSC: Interpretive
52.

5-1
Price elasticity of demand

Jean-Paul says that he will spend exactly 75 cents a day on M&Ms, regardless of the price of M&Ms. JeanPaul’s demand for M&Ms is
a. perfectly elastic.
b. unit elastic.
c. perfectly inelastic.
d. None of the above answers is correct.

ANS: B
NAT: Analytic
MSC: Interpretive
51.

REF:
TOP:

When quantity moves proportionately the same amount as price, demand is
a. elastic, and the price elasticity of demand is 1.
b. perfectly elastic, and the price elasticity of demand is infinitely large.
c. perfectly inelastic, and the price elasticity of demand is 0.
d. unit elastic, and the price elasticity of demand is 1.

ANS: D
NAT: Analytic
MSC: Interpretive
50.

DIF: 3
LOC: Elasticity

DIF: 2
LOC: Elasticity

REF:
TOP:

5-1
Price elasticity of demand

The price elasticity of demand changes as we move along a
a. horizontal demand curve.
b. vertical demand curve.
c. linear, downward-sloping demand curve.
d. All of the above are correct.

ANS: C

NAT: Analytic
MSC: Interpretive

DIF: 2
LOC: Elasticity

REF:
TOP:

5-1
Price elasticity of demand


49 ❖ Chapter 5 /Elasticity and Its Application
54.

The difference between slope and elasticity is that
a. slope is a ratio of two changes, and elasticity is a ratio of two percentage changes.
b. slope is a ratio of two percentage changes, and elasticity is a ratio of two changes.
c. slope measures changes in quantity demanded more accurately than elasticity.
d. none of the above; there is no difference between slope and elasticity.

ANS: A
NAT: Analytic
MSC: Interpretive
55.

DIF: 2
LOC: Elasticity

5-1
Price elasticity of demand

According to a New York Times article published in November 2005, author Anna Bernasek asserts that a 10
percent increase in the price of gasoline leads to a decline in the quantity demanded of about
a. 0.01 percent.
b. 2 percent.
c. 20 percent.
d. 200 percent.

ANS: B
NAT: Analytic
MSC: Interpretive
56.

REF:
TOP:

DIF: 2
LOC: Elasticity

REF:
TOP:

5-1
Price elasticity of demand

According to a New York Times article published in November 2005, author Anna Bernasek asserts that a 10
percent increase in the price of electricity leads to a decline in the quantity demanded of about
a. 0.01 percent.

b. 3 percent.
c. 30 percent.
d. 300 percent.

ANS: B
NAT: Analytic
MSC: Interpretive

DIF: 2
LOC: Elasticity

REF:
TOP:

5-1
Price elasticity of demand

Figure 5-1
Price

A
B
C
D

D
C
B
A

57.

Quantity

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.

ANS: C
NAT: Analytic
MSC: Applicative

DIF: 2
LOC: Elasticity

REF:
TOP:

5-1
Price elasticity of demand


Chapter 5 /Elasticity and Its Application ❖ 50
58.

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.

ANS: A
NAT: Analytic
MSC: Applicative

DIF: 3
LOC: Elasticity

REF:
TOP:

5-1
Perfectly inelastic demand

Figure 5-2
Price

Pa
Pb

D1
D3

D2
Quantity

59.

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.

ANS: A
NAT: Analytic
MSC: Applicative
60.

DIF: 2
LOC: Elasticity

REF:
TOP:

5-1
Price elasticity of demand

Refer to Figure 5-2. As price falls from Pa to Pb, we could use the three demand curves to calculate three
different values of the price elasticity of demand. Which of the three demand curves would produce the
smallest elasticity?
a. D1
b. D2
c. D3
d. All of the above are equally elastic.

ANS: C
NAT: Analytic
MSC: Applicative

DIF: 2
LOC: Elasticity

REF:
TOP:

5-1
Price elasticity of demand

Table 5-1
Good
Price Elasticity of Demand
A
1.3
B
2.1
61.

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.

51 ❖ Chapter 5 /Elasticity and Its Application
ANS: D
NAT: Analytic
MSC: Analytical
62.

REF:
TOP:

5-1
Price elasticity of demand

DIF: 3
LOC: Elasticity

REF:
TOP:

5-1
Price elasticity of demand

DIF: 2
LOC: Elasticity

REF:
TOP:

5-1
Price elasticity of demand

If a 20% increase in price for a good results in a 15% decrease in quantity demanded, the price elasticity of
demand is
a. 0.75.
b. 1.25.
c. 1.33.
d. 1.60.

ANS: A
NAT: Analytic
MSC: Analytical
66.

DIF: 3
LOC: Elasticity

If a 15% increase in price for a good results in a 20% decrease in quantity demanded, the price elasticity of
demand is
a. 0.75.
b. 1.25.
c. 1.33.
d. 1.60.

ANS: C
NAT: Analytic
MSC: Analytical
65.

5-1
Price elasticity of demand

Studies indicate that the price elasticity of demand for cigarettes is about 0.4. A government policy aimed at
reducing smoking changed the price of a pack of cigarettes from $2 to $6. According to the midpoint method,
the government policy should have reduced smoking by
a. 30%.
b. 40%.
c. 80%.
d. 250%.

ANS: B
NAT: Analytic
MSC: Applicative
64.

REF:
TOP:

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.

ANS: C
NAT: Analytic
MSC: Analytical
63.

DIF: 3
LOC: Elasticity

DIF: 2
LOC: Elasticity

REF:
TOP:

5-1
Price elasticity of demand

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.

ANS: D
NAT: Analytic
MSC: Analytical

DIF: 2
LOC: Elasticity

REF:
TOP:

5-1
Price elasticity of demand

Chapter 5 /Elasticity and Its Application ❖ 52
67.

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.

ANS: B
NAT: Analytic
MSC: Analytical
68.

REF:
TOP:

5-1
Price elasticity of demand

Suppose that quantity demand rises by 10% as a result of a 15% decrease in price. The price elasticity of
demand for this good is
a. inelastic and equal to 0.67.
b. elastic and equal to 0.67.
c. inelastic and equal to 1.50.
d. elastic and equal to 1.50.

ANS: A
NAT: Analytic

MSC: Analytical
69.

DIF: 2
LOC: Elasticity

DIF: 2
LOC: Elasticity

REF:
TOP:

5-1
Price elasticity of demand

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.

ANS: B
NAT: Analytic
MSC: Analytical

DIF: 2
LOC: Elasticity

REF:

TOP:

5-1
Price elasticity of demand

Table 5-2
The following table shows a portion of the demand schedule for a particular good at various levels of income.

Price
$24
$20
$16
$12
$8
$4
70.

Quantity Demanded
(Income = $7,500)
3
6
9
12
15
18

Quantity Demanded
(Income = $10,000)
4
8

12
16
20
24

Refer to Table 5-2. Using the midpoint method, when income equals $7,500, what is the price elasticity of
demand between $16 and $20?
a. 0.56
b. 0.75
c. 1.33
d. 1.80

ANS: D
NAT: Analytic
MSC: Analytical
71.

Quantity Demanded
(Income = $5,000)
2
4
6
8
10
12

DIF: 2
LOC: Elasticity

REF:

TOP:

5-1
Price elasticity of demand

Refer to Table 5-2. Using the midpoint method, when income equals $5,000, what is the price elasticity of
demand between $8 and $12?
a. 0.56
b. 0.75
c. 1.33
d. 1.80


53 ❖ Chapter 5 /Elasticity and Its Application
ANS: A
NAT: Analytic
MSC: Analytical
72.

5-1
Income elasticity of demand

DIF: 2
LOC: Elasticity

REF:
TOP:

5-1
Income elasticity of demand

DIF: 2
LOC: Elasticity

REF:
TOP:

5-1
Income elasticity of demand

DIF: 2
LOC: Elasticity

REF:
TOP:

5-1
Elastic demand

When quantity demanded responds strongly to changes in price, demand is said to be
a. fluid.
b. elastic.
c. dynamic.
d. highly variable.

ANS: B
NAT: Analytic
MSC: Definitional
77.

REF:
TOP:

Demand is said to be price elastic if
a. the price of the good responds substantially to changes in demand.
b. demand shifts substantially when income or the expected future price of the good changes.
c. buyers do not respond much to changes in the price of the good.
d. buyers respond substantially to changes in the price of the good.

ANS: D
NAT: Analytic
MSC: Definitional
76.

DIF: 2
LOC: Elasticity

Refer to Table 5-2. Using the midpoint method, at a price of $12, what is the income elasticity of demand
when income rises from $5,000 to $10,000?
a. 0.00
b. 0.41
c. 1.00
d. 2.45

ANS: C
NAT: Analytic
MSC: Analytical
75.

5-1

Price elasticity of demand

Refer to Table 5-2. Using the midpoint method, at a price of $8, what is the income elasticity of demand
when income rises from $7,500 to $10,000?
a. 0.00
b. 0.41
c. 1.00
d. 2.45

ANS: C
NAT: Analytic
MSC: Analytical
74.

REF:
TOP:

Refer to Table 5-2. Using the midpoint method, at a price of $16, what is the income elasticity of demand
when income rises from $5,000 to $10,000?
a. 0.00
b. 0.50
c. 1.00
d. 1.50

ANS: C
NAT: Analytic
MSC: Analytical
73.

DIF: 2

LOC: Elasticity

DIF: 1
LOC: Elasticity

Demand is elastic if elasticity is
a. less than 1.
b. equal to 1.
c. equal to 0.
d. greater than 1.

REF:
TOP:

5-1
Elastic demand


Chapter 5 /Elasticity and Its Application ❖ 54
ANS: D
NAT: Analytic
MSC: Definitional
78.

5-1
Elastic demand

DIF: 2
LOC: Elasticity

REF:
TOP:

5-1
Inelastic demand

DIF: 2
LOC: Elasticity

REF:
TOP:

5-1
Inelastic demand

DIF: 1
LOC: Elasticity

REF:
TOP:

5-1
Inelastic demand

REF:
TOP:

5-1
Inelastic demand

Demand is inelastic if elasticity is
a. less than 1.
b. equal to 1.
c. greater than 1.
d. equal to 0.

ANS: A
NAT: Analytic
MSC: Definitional
83.

REF:
TOP:

If the quantity demanded of a certain good responds only slightly to a change in the price of the good, then
a. the demand for the good is said to be elastic.
b. the demand for the good is said to be inelastic.
c. the law of demand does not apply to the good.
d. the demand curve for the good shifts only slightly in response to a change in price.

ANS: B
NAT: Analytic
MSC: Definitional
82.

DIF: 2
LOC: Elasticity

If demand is price inelastic, then
a. buyers do not respond much to a change in price.

b. buyers respond substantially to a change in price, but the response is very slow.
c. buyers do not alter their quantities demanded much in response to advertising, fads, or general
changes in tastes.
d. the demand curve is very flat.

ANS: A
NAT: Analytic
MSC: Definitional
81.

5-1
Elastic demand

Demand is said to be inelastic if
a. buyers respond substantially to changes in the price of the good.
b. demand shifts only slightly when the price of the good changes.
c. the quantity demanded changes only slightly when the price of the good changes.
d. the price of the good responds only slightly to changes in demand.

ANS: C
NAT: Analytic
MSC: Definitional
80.

REF:
TOP:

For which of the following goods is demand probably most inelastic?
a. camcorders
b. insulin

c. apples
d. devices that remove cores from apples

ANS: B
NAT: Analytic
MSC: Interpretive
79.

DIF: 1
LOC: Elasticity

DIF: 1
LOC: Elasticity

Demand is said to be inelastic if the
a. quantity demanded changes proportionately more than price.
b. price changes proportionately more than income.
c. quantity demanded changes proportionately less than price.
d. quantity demanded changes proportionately the same as price.

ANS: C
NAT: Analytic
MSC: Definitional

DIF: 2
LOC: Elasticity

REF:
TOP:

5-1
Inelastic demand


55 ❖ Chapter 5 /Elasticity and Its Application
84.

If the price elasticity of demand is 1.5, regardless of which two points on the demand curve are used to
compute the elasticity, then
a. demand is perfectly inelastic, and the demand curve is vertical.
b. demand is elastic, and the demand curve is a straight, downward-sloping line.
c. demand is perfectly elastic, and the demand curve is horizontal.
d. demand is elastic, and the demand curve is something other than a straight, downward-sloping line.

ANS: D
NAT: Analytic
MSC: Applicative

DIF: 3
LOC: Elasticity

REF:
TOP:

5-1
Price elasticity of demand

Table 5-3
The following table shows the demand schedule for a particular good.
Price

$15
$12
$9
$6
$3
$0
85.

Quantity
0
5
10
15
20
25

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

ANS: D
NAT: Analytic
MSC: Analytical
86.

5-1
Midpoint method | Price elasticity of demand

DIF: 2
LOC: Elasticity

REF:
TOP:

5-1
Midpoint method | Price elasticity of demand

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

ANS: A
NAT: Analytic
MSC: Analytical
88.

REF:
TOP:

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

ANS: C
NAT: Analytic
MSC: Analytical
87.

DIF: 2
LOC: Elasticity

DIF: 2
LOC: Elasticity

REF:
TOP:

5-1
Midpoint method | Price elasticity of demand

When the price of bubble gum is $0.50, the quantity demanded is 400 packs per day. When the price falls to
$0.40, the quantity demanded increases to 600. Given this information and using the midpoint method, we
know that the demand for bubble gum is
a. inelastic.
b. elastic.
c. unit elastic.
d. perfectly inelastic.


Chapter 5 /Elasticity and Its Application ❖ 56
ANS: B

NAT: Analytic
MSC: Applicative
89.

REF:
TOP:

5-1
Midpoint method | Price elasticity of demand

DIF: 2
LOC: Elasticity

REF:
TOP:

5-1
Midpoint method | Price elasticity of demand

DIF: 3
LOC: Elasticity

REF:
TOP:

5-1
Midpoint method | Price elasticity of demand

Using the midpoint method, the price elasticity of demand for a good is computed to be approximately 2.
Which of the following events is consistent with a 0.1 percent increase in the price of the good?

a. The quantity of the good demanded decreases from 250 to 150.
b. The quantity of the good demanded decreases from 200 to 100.
c. The quantity of the good demanded decreases by 0.05 percent.
d. The quantity of the good demanded decreases by 0.2 percent.

ANS: D
NAT: Analytic
MSC: Applicative
93.

DIF: 2
LOC: Elasticity

Using the midpoint method, the price elasticity of demand for a good is computed to be approximately 0.75.
Which of the following events is consistent with a 10 percent decrease in the quantity of the good demanded?
a. a 7.5 increase in the price of the good
b. a 13.33 percent increase in the price of the good
c. an increase in the price of the good from $7.50 to $10
d. an increase in the price of the good from $10 to $17.50

ANS: B
NAT: Analytic
MSC: Applicative
92.

5-1
Midpoint method | Price elasticity of demand

Suppose the price of Twinkies decreases 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. 2.00.
b. 1.55.
c. 1.00.
d. 0.64.

ANS: D
NAT: Analytic
MSC: Applicative
91.

REF:
TOP:

The midpoint method is used to compute elasticity because it
a. automatically computes a positive number instead of a negative number.
b. results in an elasticity that is the same as the slope of the demand curve.
c. gives the same answer regardless of the direction of change.
d. automatically rounds quantities to the nearest whole unit.

ANS: C
NAT: Analytic
MSC: Interpretive
90.

DIF: 2
LOC: Elasticity

DIF: 3
LOC: Elasticity

REF:
TOP:

5-1
Midpoint method | Price elasticity of demand

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.

ANS: B
NAT: Analytic
MSC: Applicative

DIF: 1
LOC: Elasticity

REF:
TOP:

5-1
Midpoint method | Price elasticity of demand