Chapter

Elasticity and Its Application

1. If price elasticity of demand is 2.0, this implies that consumers would
a. buy twice as much of the good if price falls by 10 percent.
b. require a 2 percent cut in price to raise quantity demanded of the good by 1 percent.
c. buy 2 percent more of the good in response to a 1 percent cut in price.
d. require at least a $2 increase in price before showing any response to the price increase.

2. If the price elasticity of demand within the price range from $1 to $1.25 for carrots is 0.79 and for
radishes is 1.6, then within that price range
a. carrots are more price elastic than radishes.
b. radishes are more price elastic than carrots.
c. carrots and radishes must be substitute goods.
d. carrots and radishes must be complementary goods.

3. Sue’s Bagel Shop wants to estimate how responsive bagels are to a change in cream cheese prices.
To accomplish this task, which of the following data would NOT be needed?
a. percentage change in bagel price
b. original price of cream cheese
c. new quantity of bagels sold
d. original quantity of bagels sold

4. If Weiskamp T-Shirt Co. lowers its price from $6 to $5 and finds that students increase their
quantity demanded from 400 to 600 T-shirts, then the demand for Weiskamp T-shirts within this
price range is
a. price inelastic.
b. price elastic.
c. unit elastic.
d. cross elastic.

5. Demand for which of the following goods is the most likely to be (nearly) perfectly elastic?
a. emergency surgery
b. Ford automobiles
c. Farmer Ben’s wheat
d. diamonds

6. The slope of the demand curve is not the same as the price elasticity of demand because the slope of
a demand curve
a. compares percentage changes in quantity demanded and price.
b. compares absolute changes in quantity demanded and price.
c. obeys the law of demand.
d. is not constant when the demand curve is linear.

7. The cross elasticity of demand for substitute goods must be

a. greater than one.
b. less than one.
c. zero.
d. greater than zero.
8. A 5 percent increase in the price of sugar reduces sugar consumption by about 10 percent. The
increase causes households to
a. spend more on sugar.
b. spend less on sugar.
c. spend the same amount on sugar.
d. consume more goods like coffee and tea that are complements of sugar.

9. In this figure, the slope of the demand curve

a. has a constant value of –2.
b. is higher between points T and U than between points V and W.
c. is lower between points T and U than between points V and W.
d. matches the value of the price elasticity of demand at each point.

10. In this figure, the price elasticity of demand between $12 and $6 using the midpoint method is
a. –.5.
b. –.82.
c. –1.22.
d. –2.00.

11. As a result of heavy spring rains in the Midwestern states, the corn crop declined sharply. If corn
growers experienced an increase in sales revenue, the demand for corn must be
a. price elastic.
b. price inelastic.
c. unitary elastic.
d. perfectly inelastic.

12. The U.S. Post Office finds that it now has extra costs associated with decontaminating first class
mail for anthrax. It is considering a rate hike, but it will only be successful in raising more revenue
to pay for these additional costs if
a. there are many substitutes for first class mail service.
b. no anthrax is found on the mail.
c. the demand for first class mail service is inelastic.
d. the rate increase is a very large one.
13. Suppose that the elasticity of supply of lawn mowers is 1.5. If the price of lawn mowers rises 5
percent, the quantity supplied of lawn mowers would
a. decline 7.5 percent.
b. rise 7.5 percent.
c. rise 1.5 percent.
d. rise 0.3 percent.

14. A decrease in supply will raise the equilibrium price most when demand is
a. relatively elastic.
b. relatively inelastic.
c. unit elastic.
d. perfectly elastic.

15. In this diagram, the price elasticity of supply between points A and B is
a. 2.
b. .33.
c. .66.
d. 3.33.

16. In this diagram, the slope of the supply curve between points A and B is
a. 2.
b. .33.
c. .66.
d. 3.33.

17. A perfectly inelastic supply curve represents a

a. product supply that is extremely responsive to a price change.
b. product with a constant price, regardless of the quantity offered for sale.
c. product in abundant supply.
d. fixed supply of a good.

18. Elasticity of supply becomes __________ elastic over time because __________.
a. less; of the growing scarcity of resources
b. less; suppliers have more time to acquire additional resources to achieve desired capacity
c. more; demand becomes more inelastic
d. more; suppliers have more time to acquire additional resources to achieve desired capacity
19. In which of the markets listed below would you expect the least elastic response from suppliers?
a. fast food
b. soft drink
c. road building
d. Picasso paintings

20. If the price elasticity of supply equals zero, this implies that
a. suppliers can easily change quantity supplied when price changes.
b. the supply curve is perfectly vertical.
c. the percentage change in price of the good supplied is zero.
d. the percentage change in quantity supplied equals the percentage change in price.

21. Elasticity of supply for the long run is

a. always greater than the long-run price elasticity of demand.
b. always zero.
c. perfectly inelastic.
d. always greater than the short-run elasticity of supply.

22. The supply of food

a. is subject to significant technological advance in the long run.
b. is characterized by a large price elasticity of demand.
c. has been decreasing over the long run.
d. can be represented by a horizontal supply curve.

23. One response to increased oil prices that reflects long-run elasticity and not short-run elasticity is
a. gasoline rationing.
b. shorter family vacations.
c. smaller cars.
d. cooler homes and offices in winter.

24. A government seeking to raise revenue would be most likely to tax a good with a
a. high income elasticity of demand.
b. low cross-price demand elasticity.
c. high price elasticity of demand.
d. low price elasticity of demand.

25. When comparing price elasticities of demand for gasoline in the long run to the short run, what can
we say about the long-run elasticities?
a. Within every price range, the price elasticity of demand for gasoline is more elastic in the long
run.
b. Consumers are less sensitive to changes in the price of gasoline in the long run.
c. Within every price range, the price elasticity of demand is less elastic in the long run.
d. The price elasticity of demand for gasoline tends to be unit elastic in the long run.

26. If the fines and jail time for dealing illegal drugs were reduced, we would expect
a. an increased demand for illegal drugs.
b. an increased supply of illegal drugs, a lower price, and higher quantity traded.
c. a decreased supply of illegal drugs, a higher price, and lower quantity traded.
d. no change in the market for illegal drugs because buyers and sellers believe they won’t get
caught.