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Chapter 5

The document discusses concepts related to elasticity including: 1. A good is more price inelastic if it is a necessity, there are many substitutes, the market is narrowly defined, or the long-run response is being measured. 2. If the price elasticity of demand is greater than one, an increase in price will reduce total spending on the good. 3. A linear downward sloping demand curve can be inelastic, unit elastic, or elastic at different points. 4. Questions/problems relate to concepts like price and income elasticity of demand, as well as price elasticity of supply. Graphs and calculations are used to analyze elasticities in different scenarios.

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40 views4 pages

Chapter 5

The document discusses concepts related to elasticity including: 1. A good is more price inelastic if it is a necessity, there are many substitutes, the market is narrowly defined, or the long-run response is being measured. 2. If the price elasticity of demand is greater than one, an increase in price will reduce total spending on the good. 3. A linear downward sloping demand curve can be inelastic, unit elastic, or elastic at different points. 4. Questions/problems relate to concepts like price and income elasticity of demand, as well as price elasticity of supply. Graphs and calculations are used to analyze elasticities in different scenarios.

Uploaded by

chauanhkhoa.rennes2
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
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Chapter 5.

ELASTICITY

1. A good tends to have a small price elasticity of demand if

a. the good is a necessity.

b. there are many close substitutes.

c. the market is narrowly defined.

d. the long-run response is being measured.

2. An increase in a good’s price reduces the total amount consumers spend on the good if the
___price______ elasticity of demand is ___greater______ than one.

a. income; less

b. income; greater

c. price; less

d. price; greater

3. A linear, downward-sloping demand curve is

a. inelastic.

b. unit elastic.

c. elastic.

d. inelastic at some points, and elastic at others.

4. the citizens of lilliput spend a higher fraction of their income on food than do the citizens of
Brobdingnag. the reason could be that

a. lilliput has lower food prices, and the price elasticity of demand is zero. ( P L < PB , Q L=Q B)

b. lilliput has lower food prices, and the price elasticity of demand is 0.5. ( P L < PB , Q L >Q B)

c. lilliput has lower income, and the income elasticity of demand is 0.5. ( I L < I B ,Q L <Q B)
d. lilliput has lower income, and the income elasticity of demand is 1.5. ( I L < I B ,Q L <Q B)

5. the price of a good rises from $16 to $24, and the quantity supplied rises from 90 to 110 units.
calculated with the midpoint method, the price elasticity of supply is

90−110
100 1
Midpoint method: =
16−24 2
20

a. 1/5.

b. 1/2.

c. 2.

d. 5.

6. if the price elasticity of supply is zero, the supply curve is

a. upward sloping.

b. horizontal.

c. vertical.

d. fairly flat at low quantities but steeper at larger quantities.

7. the ability of firms to enter and exit a market over time means that, in the long run,

a. the demand curve is more elastic.

b. the demand curve is less elastic.

c. the supply curve is more elastic.

d. the supply curve is less elastic.

8. An increase in the supply of grain will reduce the total revenue grain producers receive if

a. the supply curve is inelastic.

b. the supply curve is elastic.


c. the demand curve is inelastic.

d. the demand curve is elastic.

9. Suppose that business travelers and vacationers have the following demand for airline tickets
from Chicago to Miami:

a. As the price of tickets rises from $200 to $250, what is the price elasticity of demand for (i)
business travelers and (ii) vacationers? (Use the midpoint method in your calculations.)

b. Why might vacationers and business travelers have different elasticities?

Business: 0.23

Vacationer: 1.28

10. Suppose the price elasticity of demand for heating oil is 0.2 in the short run and 0.7 in the
long run.

a. If the price of heating oil rises from $1.80 to $2.20 per gallon, what happens to the quantity of
heating oil demanded in the short run? In the long run? (Use the midpoint method in your
calculations.)

b. Why might this elasticity depend on the time horizon?

11. A price change causes the quantity demanded of a good to decrease by 30 percent, while the
total revenue of that good increases by 15 percent. Is the demand curve elastic or inelastic?
Explain.

30 %
ε= <1=¿ inelastic .
50 %
12. The price of aspirin rose sharply last month, while the quantity sold remained the same. Five
people suggest various diagnoses of the phenomenon:

Meredith: Demand increased, but supply was perfectly inelastic.

Alex: Demand increased, but it was perfectly inelastic.

Miranda: Demand increased, but supply decreased at the same time.

Richard: Supply decreased, but demand was unit elastic.

Owen: Supply decreased, but demand was perfectly inelastic.

Who could possibly be right? Use graphs to explain your answer

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