You are on page 1of 10

240 CHAPrER 20: DEMAND AND SUPPL Y ELASTICITY

MULTIPLE CHOICE QUESTIONS



Circle the letter that corresponds to the best answer.

1. Price elasticity of demand measures responsiveness of

quantity demanded to changes in price.

quantity demanded to changes in income.

c. price to changes in quantity demanded.

d. price to changes in demand.

2. If the price elasticity of demand is 1/3, then demand is inelastic.

demand is inelastic over that price range.

c. demand is elastic.

d. demand is elastic over that price range.

I

3. Which of the following is NOT true concerning the price elasticity of demand?

a. Its sign is always negative, due to the law of demand.

b. It is a unitless, dimensionless number.

It equals the percentage change in price divided by the percentage change in quantity demanded.

d. It measures the responsiveness of quantity demanded to changes in price.

4. If price elasticity of demand is calculated using the original price and quantity, then over a given range in the demand curve price elasticity of demand

1) differs, depending on whether price rises or falls.

b. is the same, regardless of whether price rises or falls.

c. is equal to l.

. d. rises as price falls.

5. If price falls by 1 percent and quantity demanded rises by 2 percent, then the price elasticity of demand

a. is inelastic .over that range.

b. is 1/2.

is elastic over that range.

cannot be calculated from this information.

6. If price rises and total revenue rises, then the price elasticity of demand over that range is

a. elastic. inelastic.

c. unitary elastic.

d. eq ual to 1.

7. If price falls and over. that price range demand is inelastic, total revenues will

A remain constant.

'IQ) fall.

c. rise.

d. fall, then rise.

8. If the demand for good A is perfectly inelastic at all prices,

a. quantity demanded does not change as price changes.

b. the law of demand is violated.

c. the demand curveis vertical at the given quantity.

All of the above

\

;.

(

.)

CHAPfER 20: DEMAND AND SUPPLY ELASTICfrY

241

9. If the demand for good A is perfectly elastic,

a. quantity demanded does not vary with price. the demand curve is horizontal.

the demand curve is vertical.

the demand curve is positively sloped.

10. Which of the following is NOT a determinant of the price elasticity of demand?

a. existence and closeness of substitutes

b. proportion of the good to the consumer's budget @ price elasticity of supply

d. length of time allowed for adjustment to a price change

11. If the cross elasticity of demand between good A and good B is positive, the goods are

substi tutes.

b. complements.

c. unrelated.

d. necessities.

12. If the cross ela sticity between good A and good B is -10, then A and Bare

a. close substitutes.

b. near substitutes.

<9 strongly complementary.

d. mildly complementary.

13. Baseballs and baseball bats are

a. substitutes. complements.

c. not related goods.

d. necessities.

14. When the income elasticity of demand for good A is calculated,

a. the price of good A varies.

income changes, which lead to horizontal shifts in the demand curve for good A, are measured.

c. a movement along the demand curve for good A is meas ured.

d. All of the above

15. Analogy: A movement along a demand curve is to price elasticity of demand as a shift in the demand curve is to

a. an increase in demand.

b. changes in taxes or subsidies. income elasticity of demand.

d. substitutes and complements.

16. At current prices for salt, salt is highly price elastic.

inelastic.

c. cross elastic.

d. unitary elastic.

242 CHAPTER 20: DEMAND AND SUPPL Y ELAS'TICIT'Y

1 T Which of the following goods is probably the most highly income elastic?

a. salt

b. food

c. alcoholic beverages private education

18. A perfectly inelastic supply curve

a. shows great quantity supplied responsiveness to price changes.

b. is horizontal at the given price.

indicates zero quantity supplied responsiveness to price changes. is a normal situation.

19. If the s~y of good B is perfectly elastic and price falls, quantity supplied will

a. remain unchanged.

b. rise. / fall.

fall to zero.

20. If price rises, the quantity supplied will be greater the

W longer the time that elapses.

b. more income elastic is the good.

c. higher the price elasticity of demand for the good.

d. All of the above

MATCHING

Choose the item in column (2) that best matches an item in column (l ),

(1)

a. perfectly inelastic demand

b. perfectly elastic demand

c. perfectly inelastic supply ~,

d. perfectly elastic supply ;

e. determinant of price elasticity

f. cross-price elasticity of demand'

g. inelastic

(2)

h. elasticipt coefficient less than

I. horizontal supply curve "

j. complelentary or substitute goods

k. quality of substitutes

L horizontal demand curve m. vertical demand curve

n. vertical supply curve

PROBLEMS

1. Suppose you are given the following data on the market demand and supply for CDs in a small record store. (Use the average elasticity measure.)

Price

Quantity demanded (per week)

Quantity supplied (per week)

$4.00 4.50 5.00 5.50 6.00

50 45 40 35 30

10 15 25 35 45

a. What is the equilibrium price for CDs?

b. What is the price elasticity of demand over the price range $4.50 to $5? Over the range $5.50

to $6? e 77 )

c. What is the price elasticity of supply over the same two ranges of .price?

~ .. ~

(

i>._d I

.:. ~}(

\V .;"\

6'J

~

I·,.

1"1.'

I:'

i ;

.

I

I

.

':I

I

')

I

':, ;i

.! ,

I

;1

'I f

1

'i I I

'I .!

,! ·1 ·f 1

! I

!

:1

., :,1

.. '1 ;"1 .

'1

CHAPTER 20: DEMAND AND SUPPLY ELASTICITY

243

d. Now suppose that most students in the area are working for the minimum wage and that the minimum wage has gone up. As a result, at each price, two more CDs per week are demanded. Calculate the price elasticity of demand over the same ranges as in part (b).

e. After comparing your answers from parts (b) and (d), what can conclude about the

elasticity of demand as the demand curve shifts to the right?

2. Suppose we have the following information for a low-income family:

Income per month

Quantity of hamburger demanded per month

Quantity of steak demanded per month

Period 1 Period 2

$750 $950

Sibs. 5lbs.

21bs. 41bs.

a. What is the income elasticity of demand for hamburger?

b. What is the income elasticity of demand for steak?

c. From our study of demand in an earlier chapter, we know _

whereas is an inferior good .

is a normal good,

3. Suppose the price of color print film h as recently risen by 10 percent due to an increase in the cost of the silver that is used to make film. As a result, less film is being sold in the camera store where you work. You do some checking and find that camera sales are down by 4 percent. What is the cross -price elasticity of cameras and film? Are these two goods complements or substitutes?

.' .'

I

(