Macroeconomics 1st Edition Karlan Test Bank 1

Macroeconomics 1st Edition Karlan
Test Bank
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Chapter 04
Elasticity
Multiple Choice Questions
1. Elasticity measures:
A. how much a market will respond to a change in market conditions.
B. how much consumers and producers will respond to a change in market conditions.
C. how quickly consumers and producers will respond to a change in market conditions.
D. how quickly a market will respond to a change in market conditions.
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2. If supply and demand analysis is a measure of how, then elasticity is a measure of:
A. how much.
B. when.
C. why.
D. how quickly.
3. The concept of elasticity can be applied to:
A. changes in demand, but not supply.
B. changes in supply, but not demand.
C. changes in both supply and demand.
D. neither supply nor demand.
4. Different measurements of elasticity include:
A. income elasticity of demand, income elasticity of supply.
B. price elasticity of demand, price elasticity of supply.
C. cross-price elasticity of demand, income elasticity of supply.
D. preference elasticity of demand, cross-price elasticity of supply.
5. The concept of elasticity can be used to measure responses to a change in:
A. the price of a good.
B. the price of a related good.
C. income.
D. All of these are true.
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6. The most commonly used measures of elasticity are:
A. income elasticity of demand and price elasticity of supply.
B. price elasticity of demand and price elasticity of supply.
C. cross-price elasticity of demand and cross-price elasticity of supply.
D. price elasticity of demand and cross-price elasticity of supply.
7. Price elasticity of demand describes:
A. the size of the percentage change in the quantity demanded of a good or service when its
price changes by one percent.
B. the size of the shift in demand of a good or service when its price changes by one percent.
C. the size of the percentage change in the quantity supplied of a good or service when its
demand changes due to a price change.
D. None of these is true.
8. The percentage change in the quantity demanded of a good or service when its price changes
by one percent is:
A. price elasticity of demand.
B. price elasticity of supply.
C. cross-price elasticity of demand.
D. income elasticity of demand.
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9. When consumers' buying decisions are highly influenced by price, we say that their demand
curve is:
A. highly elastic.
B. less elastic.
C. not very sensitive to changes in the price.
D. unit elastic.
10. When a small percentage change in price causes a large percentage change in the quantity
demanded, we say that they have a:
A. highly elastic demand.
B. highly inelastic demand.
C. low magnitude of response.
D. high magnitude of response.
11. If a good has a highly elastic demand curve, then:
A. a small percentage change in price will cause a large change in quantity demanded.
B. a small percentage change in price will cause virtually no change in quantity demanded.
C. a large percentage change in price will cause a small change in quantity demanded.
D. any percentage change in price will cause an almost immediate response in quantity
demanded.
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12. When consumers' buying decisions are less sensitive to changes in price, we say that their
demand curve is:
A. highly elastic.
B. less elastic.
C. very sensitive to changes in the price.
D. unit elastic.
13. When a large percentage change in price causes a small percentage change in the quantity
demanded, we say that they have a:
A. very elastic demand.
B. less elastic demand.
14. If a good has a less elastic demand curve:
A. then a small percentage change in price will cause a large change in quantity demanded.
B. then any percentage change in price will take a long time to cause a response in quantity
demanded.
C. then a large percentage change in price will cause a small change in quantity demanded.
D. then any percentage change in price will cause an almost immediate response in quantity
demanded.
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15. Mathematically, price elasticity of demand is:
A. the percentage change in the quantity of a good that is demanded in response to a given
percentage change in price.
B. the percentage change in the price of a good that is demanded in response to a given
percentage change in quantity.
C. the percentage change in the quantity of a good that is supplied in response to a given
D. the percentage change in the price of a good that is supplied in response to a given
16. The calculated price elasticity of demand:
A. is always a negative number, although many times is reported as an absolute value.
B. is sometimes a negative number, depending on the magnitude of response.
C. is always a positive number, because price and quantity are directly related in terms of
demand.
D. can be positive or negative, but is always reported as an absolute value.
17. Economists use the percentage change in quantity rather than the absolute change in
quantity because:
A. percentage changes are easier to calculate than absolute changes.
B. the measured elasticity is the same regardless of the unit of measurement for quantity.
C. absolute changes are confusing to convert.
D. absolute changes often result in negative numbers.
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18. The mid-point method of calculating elasticity is often used because:
A. it allows us to have a consistent way to estimate the elasticity of demand between two
points, regardless of the direction of the movement.
B. it is easier to calculate.
C. it is universally understood by all economists.
D. the negative sign can then be ignored.
19. The mid-point method of calculating elasticity:
A. measures the percentage change relative to a point midway between the two points.
B. measures the absolute change relative to a point midway between the two points.
C. measures the percentage change relative to a point midway between demand and supply.
20. Suppose when the price of calculators is $10, the quantity demanded is 100, and when the
price is $12, the quantity demanded drops to 80. Using the mid-point method, the price
elasticity of demand is:
A. 1.5.
B. 0.81.
C. 150 percent.
D. 81 percent.
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21. Suppose when the price of movie tickets is $5, the quantity demanded is 500, and when the
price is $7, the quantity demanded is 300. Using the mid-point method, the price elasticity of
demand is:
A. 1.51.
B. 0.66.
C. 151 percent.
D. 66 percent.
22. Suppose when the price of a can of tuna is $1, the quantity demanded is 250, and when the
price is $2, the quantity demanded is 100. Using the mid-point method, the price elasticity of
demand is:
A. 1.28.
B. 0.78.
C. 128 percent.
D. 78 percent.
23. Suppose when the price of mascara is $12, the quantity demanded is 400, and when the price
is $8, the quantity demanded is 500. Using the mid-point method, the price elasticity of
demand is:
A. 0.56.
B. 1.8.
C. 56.
D. 180.
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24. If the price of a good increases by 10 percent, its quantity demanded drops by 50 percent.
The price elasticity of demand is:
A. 1.
B. 0.2.
C. 5.
D. 2.
25. If the price of a cup of coffee increases by 50 percent, the quantity demanded decreases by
50 percent. The price elasticity of demand is:
A. elastic.
B. inelastic.
C. unit elastic.
D. zero.
26. If the price of hairbrushes decreases by 20 percent, the quantity demanded increases by 2
percent. the price elasticity of demand is:
A. 0.1, and is elastic.
B. 10 and is elastic.
C. 0.1 and is inelastic.
D. 10 and is inelastic.
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27. If the price of a DVD decreases by 50 percent, the quantity demanded increases by 75
percent. The price elasticity of demand is:
A. 1.5 and is elastic.
B. 1.5 and is inelastic.
C. 0.67 and is elastic.
D. 0.67 and is inelastic.
28. Suppose when the price of a cookie is $2.50, the quantity demanded is 50, and when the
price is $1, the quantity demanded is 200. Using the midpoint method, the price elasticity of
demand is:
A. 1.4.
B. 0.72.
C. 140.
D. 72.
29. Some of the determinants of the price elasticity are:
A. availability of substitutes, cost relative to benefit, and scope of market.
B. degree of necessity, cost relative to income, scope of market, and adjustment time.
C. availability of complements, cost relative to income, and scope of market.
D. cost relative to income, scope of demand, and adjustment time.
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30. We need to calculate the price elasticity of demand because:
A. producers need to know that consumers are more sensitive to price changes for some
goods and services than for others.
B. producers need to be able to predict the future preferences of their customers.
C. producers need to know that consumers will have the same response to a price change
regardless of the good or service.
D. producers need to understand what it is their customers demand the most.
31. When a good has a lot of close substitutes available, it is likely to be:
A. more price elastic than goods without close substitutes available.
B. less price elastic than goods without close substitutes available.
C. more price elastic than those with a lot of complement goods available.
D. less price elastic than those with a lot of complement goods available.
32. A box of corn flakes cereal is likely to be:
A. very price elastic, since there are many close substitutes available.
B. less price elastic, since there are many close substitutes available.
C. very price elastic, since the cereal is a unique product.
D. less price elastic, since the cereal is a unique product.
33. Farmfresh brand apple juice is likely to be:
C. very price elastic, since the adjustment time is so fast.
D. less price elastic, since the adjustment time is so slow.
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34. Many say that there is no substitute for a real diamond. This would imply that diamonds:
A. are price elastic.
B. are price inelastic.
C. are unit elastic.
D. are not a sustainable market.
35. Pencils are likely ____________ than diamonds because ___________.
A. less price elastic; they have more available substitutes
B. more price elastic; they have more available substitutes
C. less price elastic; they cost much less than a diamond
D. more price elastic; they have more practical uses
36. Cars are _________ than yachts because _______________.
C. less price elastic; they are more of a necessity good
D. more price elastic; they are more of a necessity good
37. Novels are _____________ than textbooks because __________________.
B. more price elastic; they have less available substitutes
C. less price elastic; they have less available substitutes
D. more price elastic; they have more available substitutes
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38. Spring break vacations are _________________ than tuition payments because
________________.
C. less price elastic; they are more of a luxury good
D. more price elastic; they are more of a luxury good
39. A cup of coffee is ______________ than dinner out at a fancy restaurant because
_________________.
A. less price elastic; it is a smaller portion of one's income
B. more price elastic; it is a smaller portion of one's income
C. less price elastic; it is more of a luxury good
D. more price elastic; it is more of a luxury good
40. A pack of gum is ______________ than a steak because _______________.
41. A pound of coffee is _________________ than a pound sugar of because ________________.
A. less price elastic; it is a larger portion of one's income
B. more price elastic; it is a larger portion of one's income
C. less price elastic; people will have a longer time to adjust to the change in its price
D. more price elastic; people will have a longer time to adjust to the change in its price
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42. A subway ride is ___________________ than a car because ___________________.
43. A movie ticket is _________________ than a ticket to a Broadway show because

______________.
C. less price elastic; it has less available substitutes
D. more price elastic; it has less available substitutes
44. The longer people have to adjust to a price change:
A. the more elastic their demand will be.
B. the less elastic their demand will be.
C. will not affect the elasticity of their response unless it is a luxury good.
D. will not affect the elasticity of their response unless the good is a necessity.
45. The response in demand of a price increase in subways rides:
A. will be more elastic in six weeks than in six months.
B. will be less elastic in six weeks than in six months.
C. will be the same over that time period.
D. is unpredictable without more information.
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46. The resulting change in the quantity of gas demanded of increasing prices over the last
decade:
A. has been more elastic than it has been in the last six months.
B. has been less elastic than it has been in the last six months.
C. has been relatively the same over that time period.
D. has become a non-issue for people now that they are used to high gas prices.
47. Classical music is _______________ than Beethoven's music because _______________.
C. less price elastic; the scope of the market is more broadly defined
D. more price elastic; the scope of the market is more broadly defined
48. Ice cream is _________________ than frozen treats because ________________.
C. less price elastic; the scope of the market is less broadly defined
D. more price elastic; the scope of the market is less broadly defined
49. Steak is _______________________ than food because _____________________.
A. less price elastic; the scope of the market is more broadly defined
B. more price elastic; the scope of the market is more broadly defined
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50. Shoes are ___________________ than sneakers because __________________.
A. less price elastic; the scope of the market is less broadly defined
B. more price elastic; the scope of the market is less broadly defined
51. Markers are _______________________ than Sharpies because ____________________.
52. Ben & Jerry's ice cream is _________________ than all ice cream because _______________.
53. Dolls are __________________ than Barbie dolls because ___________________.
C. less price elastic; they have more available substitutes
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54. A perfectly elastic demand is one in which:
A. the demand curve is perfectly vertical.
B. the demand curve is perfectly horizontal.
C. measured elasticity is exactly 1.
D. the response to a change in price is immediate.
55. A perfectly elastic demand:
A. means people are extremely sensitive to a change in price.
B. means demand will drop to zero if the price changes by any amount.
C. is demonstrated by a horizontal demand curve.
56. A horizontal demand curve implies:
A. a perfectly inelastic demand.
B. demand will drop to zero if the price changes by any amount.
C. price elasticity is equal to one.
D. people will not respond to any change in price.
57. A perfectly inelastic demand is one in which:
C. the measured elasticity is exactly 1.
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58. A perfectly inelastic demand:
A. means people will not respond to any change in price.
B. means people will respond to any change in price.
C. means demand will drop to zero if the price changes by any amount.
D. is demonstrated by a perfectly horizontal demand curve.
B. means quantity demanded will stay constant regardless of the price.
C. is demonstrated by a perfectly vertical demand curve.
60. The demand for insulin is:
A. likely to be perfectly inelastic over some range of prices.
B. perfectly elastic.
C. a large portion of someone's income.
D. low relative to the supply.
61. Assuming elasticity is reported in absolute value, an elastic demand has a measured
elasticity:
A. greater than one.
B. less than one.
C. of exactly one.
D. greater than zero and less than one.
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62. Assuming elasticity is reported in absolute value, an inelastic demand has a measured
elasticity:
A. of greater than zero.
B. of greater than one.
C. of less than one.
D. of exactly one.
63. Assuming elasticity is reported in absolute value, a measured price elasticity of demand of
1.2 would indicate:
A. an elastic demand, meaning the percentage change in quantity demanded will be greater
than the percentage change in price.
B. an inelastic demand, meaning the percentage change in quantity demanded will be greater
C. an elastic demand, meaning the percentage change in quantity demanded will be less than
the percentage change in price.
D. an inelastic demand, meaning the percentage change in quantity demanded will be less
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0.4 would indicate:
A. an elastic demand, meaning the percentage change in quantity demanded will be greater
B. an inelastic demand, meaning the percentage change in quantity demanded will be greater
C. an elastic demand, meaning the percentage change in quantity demanded will be less than
the percentage change in price.
D. an inelastic demand, meaning the percentage change in quantity demanded will be less
65. Assuming elasticity is reported in absolute value, a measured elasticity of greater than one
implies:
A. the good is elastic.
B. the good is inelastic.
C. the good is unitary elastic.
D. Cannot be determined without more information.
66. Assuming elasticity is reported in absolute value, a measured elasticity of less than one
implies:
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67. In general, the more elastic a demand curve is:
A. the flatter it will be.
B. the steeper it will be.
C. the more bowed-in it will be.
D. the faster it will shift when price changes.
68. Assuming elasticity is reported in absolute value, a measured elasticity of one implies:
A. the percentage change in quantity demanded will exactly equal the percentage change in
price.
B. the percentage change in quantity demanded will always exactly equal one.
C. both the percentage change in price and quantity demanded exactly equal one.
69. Assuming elasticity is reported in absolute value, a unit elastic good:
A. has a measured elasticity of greater than zero.
B. has a measured elasticity of greater than one.
C. has a measured elasticity of less than one.
D. has a measured elasticity of exactly one.
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70. A good whose demand is unitary elastic refers to:
A. one in which the absolute value of the percentage change in the quantity demanded
exactly equals the absolute value of the corresponding percentage change in price.
B. one in which the absolute value of the percentage change in quantity exactly equals one.
C. one in which the absolute value of the percentage change in price exactly equals one.
D. one in which both the absolute value of the percentage change in quantity demanded and
the absolute value of the corresponding percentage change in price equals one.
71. A good that has a unit elastic demand:
A. has a perfectly horizontal demand curve.
B. has a perfectly vertical demand curve.
C. has a measured elasticity greater than 1.
72. Knowing the price elasticity of demand is important in business because:
A. it allows a manager to determine whether a price increase will cause total revenue to rise
or fall.
B. it allows a manager to determine whether an increase in supply will cause total profit to
rise or fall.
C. it allows a manager to determine how to maximize the firm's profits.
D. it allows a manager to determine whether a price increase will cause the demand to rise or
fall.
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73. Total revenue is:
A. the amount that a firm receives from the sale of goods and services.
B. the amount that a firm keeps after all expenses are paid.
C. the amount of sales that get reinvested in the firm.
D. the amount a firm receives from dividends.
74. The amount that a firm receives from the sale of goods and services is:
A. total profit.
B. total revenue.
C. total cost.
D. total benefit.
75. If a manager were to multiply the quantity sold by the price paid for each unit, he would
calculate:
A. total profit.
B. total revenue.
C. total cost.
D. total benefit.
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76. An increase in price:
A. causes a quantity effect.
B. causes a price effect.
C. causes a decrease in revenue that results from selling fewer units of the good, and a
simultaneous increase in revenue that results from receiving a higher price for each unit
sold.
77. A decrease in price:
A. causes a quantity effect, which is an increase in revenue that results from selling fewer
units of the good.
B. causes a price effect, which is a decrease in revenue that results from receiving a lower
price for each unit sold.
C. causes both a price effect and quantity effect.
A. causes a decrease in revenue due to the price effect.
B. causes an increase in revenue due to the price effect.
C. causes an increase in revenue due to the quantity effect.
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A. causes a decrease in revenue due to the quantity effect.
C. does not necessarily have to experience a quantity effect when the demand curve is
downward sloping.
80. When the quantity effect outweighs the price effect:
A. a price increase will cause a drop in revenue.
B. a price increase will cause an increase in revenue.
C. a price decrease will cause a decrease in revenue.
81. A price increase will cause an increase in revenue:
A. when the price effect outweighs the quantity effect.
B. when the quantity effect outweighs the price effect.
C. when demand is perfectly elastic.
D. when demand is unit elastic.
82. A good is inelastic if:
A. total revenue decreases as a result of a price increase.
B. the quantity effect outweighs the price effect of a price increase.
C. the measured elasticity is greater than 1.
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A. total revenue increases as a result of a price increase.
84. A good is unit elastic if:
A. total revenue stays the same as a result of a price increase.
C. the measured elasticity is less than 1.
85. If total revenue increases as a result of a price increase:
A. the good is price elastic.
B. the good is price inelastic.
C. the good is price unit elastic.
D. Any of these could be true.
86. If the quantity effect outweighs the price effect of a price increase, then:
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87. If the quantity effect outweighs the price effect of a price decrease, then:
B. total revenue will rise.
C. the measured elasticity must be more than 1.
88. If the price effect outweighs the quantity effect of a price decrease, then:
A. total revenue will decrease.
C. the measured elasticity must be greater than 1.
89. Elasticity along a demand curve:
A. is constant if the demand curve is linear.
B. changes only when the demand curve is bowed out.
C. changes along any demand curve.
D. changes only when the demand curve is bowed in.
90. Demand tends to be more elastic:
A. when price is high and more inelastic when price is low.
B. when price is low and more inelastic when price is high.
C. when the demand is perfectly inelastic.
D. the higher the quantity demanded.
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91. A linear demand curve:
A. has a constant slope.
B. has a constant elasticity.
C. will be more elastic when price is low and more inelastic when price is high.
D. must be either perfectly inelastic or perfectly elastic.
A. has a measured slope that is the same as the measured elasticity.
B. has a constant slope, but changing elasticity.
C. has a changing slope, but constant elasticity.
D. has a constant slope and a constant elasticity, but they need not equal one another.
93. Price elasticity of supply:
A. is the size of the percentage change in the quantity supplied of a good or service when its
price changes by one percent.
B. measures producers' responsiveness to a change in price.
C. is typically a positive number.
94. The size of the percentage change in the quantity supplied of a good or service when its price
changes is called by one percent is called:
A. price elasticity of supply.
B. price elasticity of demand.
C. cross-price elasticity.
D. income elasticity of supply.
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95. Which elasticity measures producers' responsiveness to a change in price?
A. Price elasticity of supply
B. Price elasticity of demand
C. Cross-price elasticity
D. Income elasticity of supply
96. The price elasticity of supply tells us:
A. the percentage change in quantity supplied as we change the price of the good by one
percent.
B. in which direction the quantity supplied changes as we move along the supply curve.
C. how quickly the supply will respond to a change in price.
D. the magnitude of shift in supply in response to a change in price.
97. Suppose that when the price of coffee beans goes from $1 to $1.20 per pound, production
increases from 90 million pounds of coffee beans per year to 100 million pounds.
Using the mid-point method, the percentage change in quantity supplied would be:
A. 11 percent.
B. 18 percent
C. 0.6.
D. 6.
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98. Suppose that when the price of shoe laces goes from $1 to $2 per pair, production increases
from 90 million pairs per year to 100 million pairs. Using the mid-point method, the price
elasticity of supply would be:
A. 6.28.
B. 66 percent.
C. 10.5 percent.
D. 0.16.
99. Suppose that when the price of pizza goes from $7 to $10 per pie, production increases from
2,500 pies per month to 4,000 pies. Using the mid-point method, the percentage change in
price would be:
A. 35 percent.
B. 46 percent.
C. 1.31.
D. 0.35.
100.Suppose that when the price of pineapples goes from $5 to $3 per pineapple, production
decreases from 3,500 pineapples per year to 2,000 pineapples. Using the mid-point method,
the percentage change in price would be:
A. 0.50.
B. 50 percent.
C. 0.54.
D. 54 percent.
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101.Suppose that when the price of novels goes from $15 to $20 per book, production increases
from 550 million books per year to 800 million books. Using the mid-point method, the price
elasticity of supply would be:
A. 0.77.
B. 28.5 percent.
C. 37 percent.
D. 1.4.
102.A determinant of the price elasticity of supply that is also a determinant of the price elasticity
of demand is:
A. availability of inputs.
B. flexibility of the production process.
C. adjustment time.
D. availability of outputs.
103.Some determinants of the price elasticity of supply are:
A. availability of substitutes, adjustment time.
B. availability of inputs, adjustment time.
C. flexibility of the production process, availability of substitutes.
D. availability of inputs, presence of competition.
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104.A baker of chocolate chip cookies is likely to have a ______________ price elasticity of supply
than the seller of rare baseball cards due to ______________.
A. more elastic; the availability of inputs
B. less elastic; the availability of inputs
C. less elastic; a shorter adjustment time
D. less elastic; a more flexible production process
105.A rare coin dealer is likely to have a _______________ price elasticity of supply than a coffee
shop due to ____________________.
C. more elastic; a longer adjustment time
D. more elastic; a shorter adjustment time
106.A tavern is likely to have a ______________________ price elasticity of supply than an antiques
dealer due to ______________________.
A. more elastic; availability of inputs
B. less elastic; availability of inputs
C. less elastic; a longer adjustment time
D. less elastic; a shorter adjustment time
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107.A farmer is likely to have a _____________ price elasticity of supply than an auto mechanic
due to ________________.
A. more elastic; a more flexible production process
B. less elastic; a more flexible production process
C. less elastic; a less flexible production process
D. more elastic; a less flexible production process
108.A microchip manufacturing plant is likely to have a ______________ price elasticity of supply
than a bread bakery due to _________________.
B. more elastic; greater availability of inputs
D. more elastic; less availability of inputs
109.The price elasticity of supply is __________ elastic over time because ___________.
A. less; producers get accustomed to the price changes
B. less; the ideal number of firms have time to move into or out of the industry
C. more; producers have a longer time to adjust their production decisions
D. more; producers get accustomed to the price changes
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110.Cross-price elasticity refers to:
A. how much the demand for one good changes in response to a change in the price of a
different good.
B. how much the demand for one good changes in response to a change in its price.
C. the magnitude of the shift in demand for a good in response to a change in its price.
111.How much the demand for one good changes in response to a change in the price of a
different good is measured by:
C. income elasticity.
D. cross-price elasticity.
112.If the price of a cup of Dunkin' Donuts coffee rises, while the price of a Starbucks latte
doesn't, we expect the quantity of lattes demanded to:
A. increase as some people switch from coffee to the relatively cheaper latte.
B. decrease as some people switch from coffee to the relatively cheaper latte.
C. increase as some people switch from coffee to the relatively more expensive latte.
D. decrease as some people switch from coffee to the relatively more expensive latte.
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113.If the price of a Domino's pizza decreases, while the price of a Pizza Hut pizza doesn't, we
expect the quantity of Pizza Hut pizza demanded to:
A. decrease as some people switch from Pizza Hut to the relatively cheaper Domino's.
B. increase as some people switch from Pizza Hut to the relatively cheaper Domino's.
C. decrease as some people switch from Pizza Hut to the relatively more expensive Domino's.
D. increase as some people switch from Pizza Hut to the relatively more expensive Domino's.
114.When two goods are substitutes, we expect their cross-price elasticity of demand to:
A. be positive.
B. be negative.
C. be zero.
D. be greater than 1.
115.Considering the concept of cross-price elasticity, when two goods are substitutes:
A. an increase in the price of one will cause an increase in the quantity demanded of the
other.
B. an increase in the price of one will cause a decrease in the quantity demanded of the
other.
C. a decrease in the price of one will cause an increase in the quantity demanded of the
other.
D. Any of these may be true.
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116.Considering the concept of cross-price elasticity, when two goods are complements:
A. an increase in the price of one will cause a decrease in the quantity demanded of the
other.
B. an increase in the price of one will cause an increase in the quantity demanded of the
other.
C. a decrease in the price of one will cause a decrease in the quantity demanded of the
other.
117.When two goods are complements, we expect their cross-price elasticity of demand to:
A. be positive.
B. be negative.
C. be zero.
D. equal 1.
118.Coke and Pepsi would likely have a:
A. more elastic cross-price elasticity of demand than Coke and Sunkist.
B. less elastic cross-price elasticity of demand than Coke and Sunkist.
C. measured cross-price elasticity of demand that is smaller than Coke and Sunkist.
4-36
119.Whether a cross-price elasticity of demand is positive or negative:
A. tells us whether the goods are substitutes or complements.
B. tells us whether the elasticity is reported in absolute value.
C. tells us whether the good is elastic or inelastic.
120.The cross-price elasticity of two goods is -2. This tells us that:
A. the two goods are substitutes.
B. the two goods are complements.
C. the two goods are unrelated.
D. the two goods are inelastic.
121.The cross-price elasticity of demand for peanut butter and jelly is likely:
A. a negative number.
B. a positive number.
C. a very high positive number.
D. 1.
122.If the cross-price elasticity of two goods is 0.25, then we know that:
A. those goods are substitutes because their elasticity is greater than zero.
B. those goods are complements because their elasticity is less than 1.
C. those goods are substitutes because their elasticity is less than 1.
D. those goods are complements because their elasticity is greater than zero.
4-37
123.If the price of jelly goes up by 10 percent, we observe a decrease in the quantity demanded
of peanut butter of 20 percent. The cross-price elasticity of these goods is:
A. 0.5.
B. 2.
C. -0.5.
D. -2.
124.If the price of butter changes by 5 percent, we observe a 25 percent change in the quantity
demanded of margarine. The cross-price elasticity of these goods is:
A. -5.
B. 5.
C. 0.2.
D. -0.2.
125.If the price of cereal changes by 10 percent, we observe a 2 percent change in the quantity of
milk demanded. The cross-price elasticity of these goods is:
A. 5.
B. -5.
C. 0.2.
D. -0.2.
4-38
126.Which pair of goods is likely to have the largest positive cross-price elasticity?
A. Peanut butter and jelly
B. Butter and margarine
C. Ramen noodles and a Rolex watch
D. Cross-price elasticity is always negative, and simply reported in absolute value.
127.Which pair of goods is most likely to have a negative cross-price elasticity?
A. All cross-price elasticities are negative, but often reported in absolute value.
B. Peanut butter and jelly.
C. Butter and margarine.
D. Milk and filet mignon.
128.Income elasticity of demand describes:
A. how much the quantity demanded changes in response to a change in consumers'

incomes.
B. which way the demand shifts in response to a change in price.
C. how much the quantity demanded changes in response to a change in price.
D. how quickly the market will change in response to a change in consumers' incomes.
129.Ray just got a raise, and decided to splurge on a fancy dinner to celebrate. The change to
Ray's demand for fancy dinners could be captured by the:
4-39
130.Bob got laid off six months ago. He used to go to the movies once a month, but he's only
been twice since losing his job. This type of behavior can be measured using:
A. the price elasticity of demand.
B. the price elasticity of supply.
C. the income elasticity of demand.
D. the cross-price elasticity.
131.Income elasticity will be positive for:
A. all normal goods.
B. all inferior goods.
C. only necessities.
D. only luxury goods with substitutes.
132.A good that has an income elasticity of 0.4 is:
A. a luxury good.
B. a normal good.
C. an inferior good.
D. a substitute good.
133.A good that has an income elasticity of 2.3 is:
A. a luxury good.
B. an inferior good.
C. a necessity good.
D. a complement good.
4-40
134.If a good has an income elasticity of 0.18, which of the following can be said about it?
A. It is a normal good, and a necessity.
B. It is a normal good, and a luxury good.
C. It is an inferior good, and a necessity.
D. It is an inferior good, and a luxury.
135.If a good has an income elasticity of 1.83, which of the following can be said about it?
B. It is an inferior good, and a necessity.
C. The good probably has a lot of close substitutes available.
D. None of these statements is true.
136.It is most likely for ______________ to have an income elasticity less than 1, and
_____________ to have an income elasticity of more than one.
A. coffee; boat
B. boat; car
C. vacation; cell phone
D. filet mignon; chicken
137.It is most likely for which of the following to have an income elasticity greater than zero?
A. Mac n cheese
B. Ramen noodles
C. Store brand cola
D. Deli meat
4-41
138.It is most likely for which of the following to have an income elasticity greater than 1?
A. Deli meat
B. Store brand cola
C. Gold earrings
D. Milk
139.Which of the following is most likely to have an income elasticity between 0 and 1?
A. European vacation
B. Store brand cola
C. Milk
D. Frappuccino
4-42
Chapter 04 Elasticity Answer Key
Multiple Choice Questions
1. Elasticity measures:
A. how much a market will respond to a change in market conditions.
B. how much consumers and producers will respond to a change in market conditions.
C. how quickly consumers and producers will respond to a change in market conditions.
D. how quickly a market will respond to a change in market conditions.
AACSB: Reflective Thinking

Blooms: Remember
Learning Objective: 04-01 Calculate price elasticity of demand using the mid-point method.
Topic: Elasticity
2. If supply and demand analysis is a measure of how, then elasticity is a measure of:
A. how much.
B. when.
C. why.
D. how quickly.

Blooms: Remember
Topic: Elasticity
4-43
3. The concept of elasticity can be applied to:
A. changes in demand, but not supply.
B. changes in supply, but not demand.
C. changes in both supply and demand.
D. neither supply nor demand.

Blooms: Understand
Topic: Elasticity
4. Different measurements of elasticity include:
A. income elasticity of demand, income elasticity of supply.
B. price elasticity of demand, price elasticity of supply.
C. cross-price elasticity of demand, income elasticity of supply.
D. preference elasticity of demand, cross-price elasticity of supply.

Blooms: Remember
Topic: Elasticity
4-44
5. The concept of elasticity can be used to measure responses to a change in:
A. the price of a good.
B. the price of a related good.
C. income.

Blooms: Understand
Topic: Elasticity
6. The most commonly used measures of elasticity are:
A. income elasticity of demand and price elasticity of supply.
B. price elasticity of demand and price elasticity of supply.
C. cross-price elasticity of demand and cross-price elasticity of supply.
D. price elasticity of demand and cross-price elasticity of supply.

Blooms: Remember
Topic: Elasticity
4-45
7. Price elasticity of demand describes:
A. the size of the percentage change in the quantity demanded of a good or service when
its price changes by one percent.
B. the size of the shift in demand of a good or service when its price changes by one
percent.
C. the size of the percentage change in the quantity supplied of a good or service when its
demand changes due to a price change.

Blooms: Understand
Topic: Elasticity
8. The percentage change in the quantity demanded of a good or service when its price
changes by one percent is:
A. price elasticity of demand.
B. price elasticity of supply.
C. cross-price elasticity of demand.

Blooms: Remember
Topic: Elasticity
4-46
9. When consumers' buying decisions are highly influenced by price, we say that their
demand curve is:
A. highly elastic.
B. less elastic.
C. not very sensitive to changes in the price.
D. unit elastic.

Blooms: Understand
Topic: Elasticity
10. When a small percentage change in price causes a large percentage change in the
quantity demanded, we say that they have a:
A. highly elastic demand.
B. highly inelastic demand.

Blooms: Understand
Topic: Elasticity
4-47
11. If a good has a highly elastic demand curve, then:
A. a small percentage change in price will cause a large change in quantity demanded.
B. a small percentage change in price will cause virtually no change in quantity

demanded.
C. a large percentage change in price will cause a small change in quantity demanded.
D. any percentage change in price will cause an almost immediate response in quantity
demanded.

Blooms: Understand
Topic: Elasticity
12. When consumers' buying decisions are less sensitive to changes in price, we say that their
demand curve is:
A. highly elastic.
B. less elastic.
C. very sensitive to changes in the price.
D. unit elastic.

Blooms: Remember
Topic: Elasticity
4-48
13. When a large percentage change in price causes a small percentage change in the
quantity demanded, we say that they have a:
A. very elastic demand.
B. less elastic demand.

Blooms: Understand
Topic: Elasticity
14. If a good has a less elastic demand curve:
A. then a small percentage change in price will cause a large change in quantity
demanded.
B. then any percentage change in price will take a long time to cause a response in
quantity demanded.
C. then a large percentage change in price will cause a small change in quantity
demanded.
D. then any percentage change in price will cause an almost immediate response in
quantity demanded.

Blooms: Understand
Topic: Elasticity
4-49
15. Mathematically, price elasticity of demand is:
A. the percentage change in the quantity of a good that is demanded in response to a

given percentage change in price.
B. the percentage change in the price of a good that is demanded in response to a given
C. the percentage change in the quantity of a good that is supplied in response to a given
D. the percentage change in the price of a good that is supplied in response to a given

Blooms: Remember
Topic: Elasticity
16. The calculated price elasticity of demand:
A. is always a negative number, although many times is reported as an absolute value.
B. is sometimes a negative number, depending on the magnitude of response.
C. is always a positive number, because price and quantity are directly related in terms of
demand.
D. can be positive or negative, but is always reported as an absolute value.

Blooms: Remember
Topic: Elasticity
4-50
17. Economists use the percentage change in quantity rather than the absolute change in
quantity because:
A. percentage changes are easier to calculate than absolute changes.
B. the measured elasticity is the same regardless of the unit of measurement for quantity.
C. absolute changes are confusing to convert.
D. absolute changes often result in negative numbers.

Blooms: Remember
Topic: Elasticity
18. The mid-point method of calculating elasticity is often used because:
A. it allows us to have a consistent way to estimate the elasticity of demand between two
points, regardless of the direction of the movement.
B. it is easier to calculate.
C. it is universally understood by all economists.
D. the negative sign can then be ignored.

Blooms: Remember
Topic: Elasticity
4-51
19. The mid-point method of calculating elasticity:
A. measures the percentage change relative to a point midway between the two points.
B. measures the absolute change relative to a point midway between the two points.
C. measures the percentage change relative to a point midway between demand and
supply.

Blooms: Remember
Topic: Elasticity
20. Suppose when the price of calculators is $10, the quantity demanded is 100, and when the
price is $12, the quantity demanded drops to 80. Using the mid-point method, the price
A. 1.5.
B. 0.81.
C. 150 percent.
D. 81 percent.
AACSB: Analytic
Blooms: Apply
Topic: Calculating Elasticity
4-52
21. Suppose when the price of movie tickets is $5, the quantity demanded is 500, and when
the price is $7, the quantity demanded is 300. Using the mid-point method, the price
A. 1.51.
B. 0.66.
C. 151 percent.
D. 66 percent.
AACSB: Analytic
Blooms: Apply
22. Suppose when the price of a can of tuna is $1, the quantity demanded is 250, and when
the price is $2, the quantity demanded is 100. Using the mid-point method, the price
A. 1.28.
B. 0.78.
C. 128 percent.
D. 78 percent.
AACSB: Analytic
Blooms: Apply
4-53
23. Suppose when the price of mascara is $12, the quantity demanded is 400, and when the
price is $8, the quantity demanded is 500. Using the mid-point method, the price elasticity
of demand is:
A. 0.56.
B. 1.8.
C. 56.
D. 180.
AACSB: Analytic
Blooms: Apply
24. If the price of a good increases by 10 percent, its quantity demanded drops by 50 percent.
The price elasticity of demand is:
A. 1.
B. 0.2.
C. 5.
D. 2.
AACSB: Analytic
Blooms: Apply
4-54
25. If the price of a cup of coffee increases by 50 percent, the quantity demanded decreases
by 50 percent. The price elasticity of demand is:
A. elastic.
B. inelastic.
C. unit elastic.
D. zero.
AACSB: Analytic
Blooms: Apply
26. If the price of hairbrushes decreases by 20 percent, the quantity demanded increases by 2
percent. the price elasticity of demand is:
A. 0.1, and is elastic.
B. 10 and is elastic.
C. 0.1 and is inelastic.
D. 10 and is inelastic.
AACSB: Analytic
Blooms: Apply
4-55
27. If the price of a DVD decreases by 50 percent, the quantity demanded increases by 75
percent. The price elasticity of demand is:
A. 1.5 and is elastic.
B. 1.5 and is inelastic.
C. 0.67 and is elastic.
D. 0.67 and is inelastic.
AACSB: Analytic
Blooms: Apply
28. Suppose when the price of a cookie is $2.50, the quantity demanded is 50, and when the
price is $1, the quantity demanded is 200. Using the midpoint method, the price elasticity
of demand is:
A. 1.4.
B. 0.72.
C. 140.
D. 72.
AACSB: Analytic
Blooms: Apply
4-56
29. Some of the determinants of the price elasticity are:
A. availability of substitutes, cost relative to benefit, and scope of market.
B. degree of necessity, cost relative to income, scope of market, and adjustment time.
C. availability of complements, cost relative to income, and scope of market.
D. cost relative to income, scope of demand, and adjustment time.

Blooms: Understand
Learning Objective: 04-02 Explain how the determinants of price elasticity of demand affect the degree of elasticity.
Topic: Determinants of Elasticity
30. We need to calculate the price elasticity of demand because:
A. producers need to know that consumers are more sensitive to price changes for some
goods and services than for others.
B. producers need to be able to predict the future preferences of their customers.
C. producers need to know that consumers will have the same response to a price change
regardless of the good or service.
D. producers need to understand what it is their customers demand the most.

Blooms: Understand
Topic: Elasticity
4-57
31. When a good has a lot of close substitutes available, it is likely to be:
A. more price elastic than goods without close substitutes available.
B. less price elastic than goods without close substitutes available.
C. more price elastic than those with a lot of complement goods available.
D. less price elastic than those with a lot of complement goods available.

Blooms: Understand
32. A box of corn flakes cereal is likely to be:
C. very price elastic, since the cereal is a unique product.
D. less price elastic, since the cereal is a unique product.

Blooms: Understand
4-58
33. Farmfresh brand apple juice is likely to be:
C. very price elastic, since the adjustment time is so fast.
D. less price elastic, since the adjustment time is so slow.

Blooms: Understand
34. Many say that there is no substitute for a real diamond. This would imply that diamonds:
A. are price elastic.
B. are price inelastic.
C. are unit elastic.
D. are not a sustainable market.

Blooms: Understand
4-59
35. Pencils are likely ____________ than diamonds because ___________.
C. less price elastic; they cost much less than a diamond
D. more price elastic; they have more practical uses

Blooms: Understand
36. Cars are _________ than yachts because _______________.
C. less price elastic; they are more of a necessity good
D. more price elastic; they are more of a necessity good

Blooms: Understand
4-60
37. Novels are _____________ than textbooks because __________________.
C. less price elastic; they have less available substitutes

Blooms: Understand
38. Spring break vacations are _________________ than tuition payments because
________________.

Blooms: Understand
4-61
39. A cup of coffee is ______________ than dinner out at a fancy restaurant because
_________________.
C. less price elastic; it is more of a luxury good
D. more price elastic; it is more of a luxury good

Blooms: Understand
40. A pack of gum is ______________ than a steak because _______________.

Blooms: Understand
4-62
41. A pound of coffee is _________________ than a pound sugar of because ________________.
A. less price elastic; it is a larger portion of one's income
B. more price elastic; it is a larger portion of one's income

Blooms: Understand
42. A subway ride is ___________________ than a car because ___________________.

Blooms: Understand
4-63
43. A movie ticket is _________________ than a ticket to a Broadway show because
______________.

Blooms: Understand
44. The longer people have to adjust to a price change:
A. the more elastic their demand will be.
B. the less elastic their demand will be.
C. will not affect the elasticity of their response unless it is a luxury good.
D. will not affect the elasticity of their response unless the good is a necessity.

Blooms: Understand
4-64
45. The response in demand of a price increase in subways rides:
A. will be more elastic in six weeks than in six months.
B. will be less elastic in six weeks than in six months.
C. will be the same over that time period.
D. is unpredictable without more information.

Blooms: Understand
46. The resulting change in the quantity of gas demanded of increasing prices over the last
decade:
A. has been more elastic than it has been in the last six months.
B. has been less elastic than it has been in the last six months.
C. has been relatively the same over that time period.
D. has become a non-issue for people now that they are used to high gas prices.

Blooms: Understand
4-65
47. Classical music is _______________ than Beethoven's music because _______________.

Blooms: Understand
48. Ice cream is _________________ than frozen treats because ________________.

Blooms: Understand
4-66
49. Steak is _______________________ than food because _____________________.

Blooms: Understand
50. Shoes are ___________________ than sneakers because __________________.

Blooms: Understand
4-67
51. Markers are _______________________ than Sharpies because ____________________.

Blooms: Understand
52. Ben & Jerry's ice cream is _________________ than all ice cream because _______________.

Blooms: Understand
4-68
53. Dolls are __________________ than Barbie dolls because ___________________.
C. less price elastic; they have more available substitutes

Blooms: Understand
54. A perfectly elastic demand is one in which:
C. measured elasticity is exactly 1.

Blooms: Understand
Topic: Perfect Elasticity
4-69
55. A perfectly elastic demand:
A. means people are extremely sensitive to a change in price.
B. means demand will drop to zero if the price changes by any amount.
C. is demonstrated by a horizontal demand curve.

Blooms: Understand
56. A horizontal demand curve implies:
A. a perfectly inelastic demand.
B. demand will drop to zero if the price changes by any amount.
C. price elasticity is equal to one.
D. people will not respond to any change in price.

Blooms: Understand
4-70
57. A perfectly inelastic demand is one in which:
C. the measured elasticity is exactly 1.

Blooms: Understand
B. means people will respond to any change in price.
C. means demand will drop to zero if the price changes by any amount.
D. is demonstrated by a perfectly horizontal demand curve.

Blooms: Understand
4-71
B. means quantity demanded will stay constant regardless of the price.
C. is demonstrated by a perfectly vertical demand curve.

Blooms: Understand
60. The demand for insulin is:
A. likely to be perfectly inelastic over some range of prices.
B. perfectly elastic.
C. a large portion of someone's income.
D. low relative to the supply.

Blooms: Understand
4-72
61. Assuming elasticity is reported in absolute value, an elastic demand has a measured
elasticity:
A. greater than one.
B. less than one.
C. of exactly one.
D. greater than zero and less than one.

Blooms: Understand
Topic: Measured Elasticity
62. Assuming elasticity is reported in absolute value, an inelastic demand has a measured
elasticity:
A. of greater than zero.
B. of greater than one.
C. of less than one.
D. of exactly one.

Blooms: Understand
4-73
1.2 would indicate:
A. an elastic demand, meaning the percentage change in quantity demanded will be

greater than the percentage change in price.
B. an inelastic demand, meaning the percentage change in quantity demanded will be

C. an elastic demand, meaning the percentage change in quantity demanded will be less
D. an inelastic demand, meaning the percentage change in quantity demanded will be

less than the percentage change in price.

Blooms: Understand
4-74
0.4 would indicate:
A. an elastic demand, meaning the percentage change in quantity demanded will be

B. an inelastic demand, meaning the percentage change in quantity demanded will be

C. an elastic demand, meaning the percentage change in quantity demanded will be less
D. an inelastic demand, meaning the percentage change in quantity demanded will be

less than the percentage change in price.

Blooms: Understand
65. Assuming elasticity is reported in absolute value, a measured elasticity of greater than one
implies:

Blooms: Understand
4-75
66. Assuming elasticity is reported in absolute value, a measured elasticity of less than one
implies:

Blooms: Understand
67. In general, the more elastic a demand curve is:
A. the flatter it will be.
B. the steeper it will be.
C. the more bowed-in it will be.
D. the faster it will shift when price changes.

Blooms: Understand
4-76
68. Assuming elasticity is reported in absolute value, a measured elasticity of one implies:
A. the percentage change in quantity demanded will exactly equal the percentage change
in price.
B. the percentage change in quantity demanded will always exactly equal one.
C. both the percentage change in price and quantity demanded exactly equal one.

Blooms: Understand
69. Assuming elasticity is reported in absolute value, a unit elastic good:
A. has a measured elasticity of greater than zero.
B. has a measured elasticity of greater than one.
C. has a measured elasticity of less than one.
D. has a measured elasticity of exactly one.

Blooms: Understand
4-77
70. A good whose demand is unitary elastic refers to:
A. one in which the absolute value of the percentage change in the quantity demanded
exactly equals the absolute value of the corresponding percentage change in price.
B. one in which the absolute value of the percentage change in quantity exactly equals
one.
C. one in which the absolute value of the percentage change in price exactly equals one.
D. one in which both the absolute value of the percentage change in quantity demanded
and the absolute value of the corresponding percentage change in price equals one.

Blooms: Understand
71. A good that has a unit elastic demand:
A. has a perfectly horizontal demand curve.
B. has a perfectly vertical demand curve.
C. has a measured elasticity greater than 1.

Blooms: Understand
4-78
72. Knowing the price elasticity of demand is important in business because:
A. it allows a manager to determine whether a price increase will cause total revenue to
rise or fall.
B. it allows a manager to determine whether an increase in supply will cause total profit
to rise or fall.
C. it allows a manager to determine how to maximize the firm's profits.
D. it allows a manager to determine whether a price increase will cause the demand to
rise or fall.

Blooms: Understand
Topic: Total Revenue and Elasticity
73. Total revenue is:
A. the amount that a firm receives from the sale of goods and services.
B. the amount that a firm keeps after all expenses are paid.
C. the amount of sales that get reinvested in the firm.
D. the amount a firm receives from dividends.

Blooms: Understand
Topic: Total Revenue
4-79
74. The amount that a firm receives from the sale of goods and services is:
A. total profit.
B. total revenue.
C. total cost.
D. total benefit.

Blooms: Understand
75. If a manager were to multiply the quantity sold by the price paid for each unit, he would
calculate:
A. total profit.
B. total revenue.
C. total cost.
D. total benefit.

Blooms: Understand
4-80
A. causes a quantity effect.
B. causes a price effect.
C. causes a decrease in revenue that results from selling fewer units of the good, and a
simultaneous increase in revenue that results from receiving a higher price for each
unit sold.

Blooms: Understand
Topic: Price and Quantity Effects
A. causes a quantity effect, which is an increase in revenue that results from selling fewer
units of the good.
B. causes a price effect, which is a decrease in revenue that results from receiving a
lower price for each unit sold.
C. causes both a price effect and quantity effect.

Blooms: Understand
4-81
A. causes a decrease in revenue due to the price effect.
C. causes an increase in revenue due to the quantity effect.

Blooms: Understand
A. causes a decrease in revenue due to the quantity effect.
C. does not necessarily have to experience a quantity effect when the demand curve is
downward sloping.

Blooms: Understand
4-82
80. When the quantity effect outweighs the price effect:
A. a price increase will cause a drop in revenue.
B. a price increase will cause an increase in revenue.
C. a price decrease will cause a decrease in revenue.

Blooms: Understand
81. A price increase will cause an increase in revenue:
A. when the price effect outweighs the quantity effect.
B. when the quantity effect outweighs the price effect.
C. when demand is perfectly elastic.
D. when demand is unit elastic.

Blooms: Understand
4-83
A. total revenue decreases as a result of a price increase.

Blooms: Understand
A. total revenue increases as a result of a price increase.

Blooms: Understand
4-84
84. A good is unit elastic if:
A. total revenue stays the same as a result of a price increase.
C. the measured elasticity is less than 1.

Blooms: Understand
85. If total revenue increases as a result of a price increase:

Blooms: Understand
Topic: Total Revenue and Elasticity
4-85
86. If the quantity effect outweighs the price effect of a price increase, then:

Blooms: Understand
87. If the quantity effect outweighs the price effect of a price decrease, then:
B. total revenue will rise.
C. the measured elasticity must be more than 1.

Blooms: Understand
4-86
88. If the price effect outweighs the quantity effect of a price decrease, then:
A. total revenue will decrease.
C. the measured elasticity must be greater than 1.

Blooms: Understand
89. Elasticity along a demand curve:
A. is constant if the demand curve is linear.
B. changes only when the demand curve is bowed out.
C. changes along any demand curve.
D. changes only when the demand curve is bowed in.

Blooms: Understand
Topic: Elasticity along a Demand Curve
4-87
90. Demand tends to be more elastic:
A. when price is high and more inelastic when price is low.
B. when price is low and more inelastic when price is high.
C. when the demand is perfectly inelastic.
D. the higher the quantity demanded.

Blooms: Understand
A. has a constant slope.
B. has a constant elasticity.
C. will be more elastic when price is low and more inelastic when price is high.
D. must be either perfectly inelastic or perfectly elastic.

Blooms: Understand
4-88
A. has a measured slope that is the same as the measured elasticity.
B. has a constant slope, but changing elasticity.
C. has a changing slope, but constant elasticity.
D. has a constant slope and a constant elasticity, but they need not equal one another.

Blooms: Understand
93. Price elasticity of supply:
A. is the size of the percentage change in the quantity supplied of a good or service when
its price changes by one percent.
B. measures producers' responsiveness to a change in price.
C. is typically a positive number.

Blooms: Understand
Learning Objective: 04-03 Calculate price elasticity of supply using the mid-point method.
Topic: Price Elasticity of Supply
4-89
94. The size of the percentage change in the quantity supplied of a good or service when its
price changes is called by one percent is called:
D. income elasticity of supply.

Blooms: Understand
95. Which elasticity measures producers' responsiveness to a change in price?
A. Price elasticity of supply
B. Price elasticity of demand
C. Cross-price elasticity
D. Income elasticity of supply

Blooms: Understand
4-90
96. The price elasticity of supply tells us:
A. the percentage change in quantity supplied as we change the price of the good by one
percent.
B. in which direction the quantity supplied changes as we move along the supply curve.
C. how quickly the supply will respond to a change in price.
D. the magnitude of shift in supply in response to a change in price.

Blooms: Understand
97. Suppose that when the price of coffee beans goes from $1 to $1.20 per pound, production
increases from 90 million pounds of coffee beans per year to 100 million pounds.
Using the mid-point method, the percentage change in quantity supplied would be:
A. 11 percent.
B. 18 percent
C. 0.6.
D. 6.
AACSB: Analytic
Blooms: Apply
4-91
98. Suppose that when the price of shoe laces goes from $1 to $2 per pair, production
increases from 90 million pairs per year to 100 million pairs. Using the mid-point method,
the price elasticity of supply would be:
A. 6.28.
B. 66 percent.
C. 10.5 percent.
D. 0.16.
AACSB: Analytic
Blooms: Apply
99. Suppose that when the price of pizza goes from $7 to $10 per pie, production increases
from 2,500 pies per month to 4,000 pies. Using the mid-point method, the percentage
change in price would be:
A. 35 percent.
B. 46 percent.
C. 1.31.
D. 0.35.
AACSB: Analytic
Blooms: Apply
4-92
100. Suppose that when the price of pineapples goes from $5 to $3 per pineapple, production
decreases from 3,500 pineapples per year to 2,000 pineapples. Using the mid-point
method, the percentage change in price would be:
A. 0.50.
B. 50 percent.
C. 0.54.
D. 54 percent.
AACSB: Analytic
Blooms: Apply
101. Suppose that when the price of novels goes from $15 to $20 per book, production
increases from 550 million books per year to 800 million books. Using the mid-point
method, the price elasticity of supply would be:
A. 0.77.
B. 28.5 percent.
C. 37 percent.
D. 1.4.
AACSB: Analytic
Blooms: Apply
4-93
102. A determinant of the price elasticity of supply that is also a determinant of the price
A. availability of inputs.
B. flexibility of the production process.
C. adjustment time.
D. availability of outputs.
AACSB: Analytic
Blooms: Apply
Learning Objective: 04-04 Explain how the determinants of price elasticity of supply affect the degree of elasticity.
Topic: Determinants of Price Elasticity of Supply
103. Some determinants of the price elasticity of supply are:
A. availability of substitutes, adjustment time.
B. availability of inputs, adjustment time.
C. flexibility of the production process, availability of substitutes.
D. availability of inputs, presence of competition.
AACSB: Analytic
Blooms: Apply
4-94
104. A baker of chocolate chip cookies is likely to have a ______________ price elasticity of
supply than the seller of rare baseball cards due to ______________.
C. less elastic; a shorter adjustment time
D. less elastic; a more flexible production process
AACSB: Analytic
Blooms: Apply
105. A rare coin dealer is likely to have a _______________ price elasticity of supply than a
coffee shop due to ____________________.
C. more elastic; a longer adjustment time
D. more elastic; a shorter adjustment time
AACSB: Analytic
Blooms: Apply
4-95
106. A tavern is likely to have a ______________________ price elasticity of supply than an
antiques dealer due to ______________________.
A. more elastic; availability of inputs
B. less elastic; availability of inputs
C. less elastic; a longer adjustment time
D. less elastic; a shorter adjustment time
AACSB: Analytic
Blooms: Apply
107. A farmer is likely to have a _____________ price elasticity of supply than an auto mechanic
due to ________________.
B. less elastic; a more flexible production process
D. more elastic; a less flexible production process
AACSB: Analytic
Blooms: Apply
4-96
108. A microchip manufacturing plant is likely to have a ______________ price elasticity of
supply than a bread bakery due to _________________.
B. more elastic; greater availability of inputs
D. more elastic; less availability of inputs
AACSB: Analytic
Blooms: Apply
109. The price elasticity of supply is __________ elastic over time because ___________.
A. less; producers get accustomed to the price changes
B. less; the ideal number of firms have time to move into or out of the industry
C. more; producers have a longer time to adjust their production decisions
D. more; producers get accustomed to the price changes
AACSB: Analytic
Blooms: Apply
4-97
110. Cross-price elasticity refers to:
A. how much the demand for one good changes in response to a change in the price of a
different good.
B. how much the demand for one good changes in response to a change in its price.
C. the magnitude of the shift in demand for a good in response to a change in its price.
AACSB: Analytic
Blooms: Apply
Learning Objective: 04-05 Calculate cross-price elasticity of demand; and interpret the sign of the elasticity.
Topic: Cross-Price Elasticity
111. How much the demand for one good changes in response to a change in the price of a
different good is measured by:
C. income elasticity.
D. cross-price elasticity.
AACSB: Analytic
Blooms: Apply
4-98
112. If the price of a cup of Dunkin' Donuts coffee rises, while the price of a Starbucks latte
doesn't, we expect the quantity of lattes demanded to:
A. increase as some people switch from coffee to the relatively cheaper latte.
B. decrease as some people switch from coffee to the relatively cheaper latte.
C. increase as some people switch from coffee to the relatively more expensive latte.
D. decrease as some people switch from coffee to the relatively more expensive latte.
AACSB: Analytic
Blooms: Apply
113. If the price of a Domino's pizza decreases, while the price of a Pizza Hut pizza doesn't, we
expect the quantity of Pizza Hut pizza demanded to:
A. decrease as some people switch from Pizza Hut to the relatively cheaper Domino's.
B. increase as some people switch from Pizza Hut to the relatively cheaper Domino's.
C. decrease as some people switch from Pizza Hut to the relatively more expensive
Domino's.
D. increase as some people switch from Pizza Hut to the relatively more expensive
Domino's.
AACSB: Analytic
Blooms: Apply
4-99
114. When two goods are substitutes, we expect their cross-price elasticity of demand to:
A. be positive.
B. be negative.
C. be zero.
D. be greater than 1.
AACSB: Analytic
Blooms: Apply
115. Considering the concept of cross-price elasticity, when two goods are substitutes:
A. an increase in the price of one will cause an increase in the quantity demanded of the
other.
B. an increase in the price of one will cause a decrease in the quantity demanded of the
other.
C. a decrease in the price of one will cause an increase in the quantity demanded of the
other.
D. Any of these may be true.
AACSB: Analytic
Blooms: Apply
4-100
116. Considering the concept of cross-price elasticity, when two goods are complements:
A. an increase in the price of one will cause a decrease in the quantity demanded of the
other.
B. an increase in the price of one will cause an increase in the quantity demanded of the
other.
C. a decrease in the price of one will cause a decrease in the quantity demanded of the
other.
AACSB: Analytic
Blooms: Apply
117. When two goods are complements, we expect their cross-price elasticity of demand to:
A. be positive.
B. be negative.
C. be zero.
D. equal 1.
AACSB: Analytic
Blooms: Apply
4-101
118. Coke and Pepsi would likely have a:
A. more elastic cross-price elasticity of demand than Coke and Sunkist.
B. less elastic cross-price elasticity of demand than Coke and Sunkist.
C. measured cross-price elasticity of demand that is smaller than Coke and Sunkist.
AACSB: Analytic
Blooms: Apply
119. Whether a cross-price elasticity of demand is positive or negative:
A. tells us whether the goods are substitutes or complements.
B. tells us whether the elasticity is reported in absolute value.
C. tells us whether the good is elastic or inelastic.
AACSB: Analytic
Blooms: Apply
4-102
120. The cross-price elasticity of two goods is -2. This tells us that:
A. the two goods are substitutes.
B. the two goods are complements.
C. the two goods are unrelated.
D. the two goods are inelastic.
AACSB: Analytic
Blooms: Apply
121. The cross-price elasticity of demand for peanut butter and jelly is likely:
A. a negative number.
B. a positive number.
C. a very high positive number.
D. 1.
AACSB: Analytic
Blooms: Apply
4-103
122. If the cross-price elasticity of two goods is 0.25, then we know that:
A. those goods are substitutes because their elasticity is greater than zero.
B. those goods are complements because their elasticity is less than 1.
C. those goods are substitutes because their elasticity is less than 1.
D. those goods are complements because their elasticity is greater than zero.
AACSB: Analytic
Blooms: Apply
123. If the price of jelly goes up by 10 percent, we observe a decrease in the quantity
demanded of peanut butter of 20 percent. The cross-price elasticity of these goods is:
A. 0.5.
B. 2.
C. -0.5.
D. -2.
AACSB: Analytic
Blooms: Apply
4-104
124. If the price of butter changes by 5 percent, we observe a 25 percent change in the quantity
demanded of margarine. The cross-price elasticity of these goods is:
A. -5.
B. 5.
C. 0.2.
D. -0.2.
AACSB: Analytic
Blooms: Apply
125. If the price of cereal changes by 10 percent, we observe a 2 percent change in the quantity
of milk demanded. The cross-price elasticity of these goods is:
A. 5.
B. -5.
C. 0.2.
D. -0.2.
AACSB: Analytic
Blooms: Apply
4-105
126. Which pair of goods is likely to have the largest positive cross-price elasticity?
A. Peanut butter and jelly
B. Butter and margarine
C. Ramen noodles and a Rolex watch
D. Cross-price elasticity is always negative, and simply reported in absolute value.
AACSB: Analytic
Blooms: Apply
127. Which pair of goods is most likely to have a negative cross-price elasticity?
A. All cross-price elasticities are negative, but often reported in absolute value.
B. Peanut butter and jelly.
C. Butter and margarine.
D. Milk and filet mignon.
AACSB: Analytic
Blooms: Apply
4-106
128. Income elasticity of demand describes:
A. how much the quantity demanded changes in response to a change in consumers'

incomes.
B. which way the demand shifts in response to a change in price.
C. how much the quantity demanded changes in response to a change in price.
D. how quickly the market will change in response to a change in consumers' incomes.
AACSB: Analytic
Blooms: Apply
Learning Objective: 04-06 Calculate income elasticity of demand; and interpret the sign of the elasticity.
Topic: Income Elasticity
129. Ray just got a raise, and decided to splurge on a fancy dinner to celebrate. The change to
Ray's demand for fancy dinners could be captured by the:
AACSB: Analytic
Blooms: Apply
4-107
130. Bob got laid off six months ago. He used to go to the movies once a month, but he's only
been twice since losing his job. This type of behavior can be measured using:
A. the price elasticity of demand.
B. the price elasticity of supply.
C. the income elasticity of demand.
D. the cross-price elasticity.
AACSB: Analytic
Blooms: Apply
131. Income elasticity will be positive for:
A. all normal goods.
B. all inferior goods.
C. only necessities.
D. only luxury goods with substitutes.
AACSB: Analytic
Blooms: Apply
4-108
132. A good that has an income elasticity of 0.4 is:
A. a luxury good.
B. a normal good.
C. an inferior good.
D. a substitute good.
AACSB: Analytic
Blooms: Apply
133. A good that has an income elasticity of 2.3 is:
A. a luxury good.
B. an inferior good.
C. a necessity good.
D. a complement good.
AACSB: Analytic
Blooms: Apply
4-109
134. If a good has an income elasticity of 0.18, which of the following can be said about it?
B. It is a normal good, and a luxury good.
C. It is an inferior good, and a necessity.
D. It is an inferior good, and a luxury.
AACSB: Analytic
Blooms: Apply
135. If a good has an income elasticity of 1.83, which of the following can be said about it?
B. It is an inferior good, and a necessity.
C. The good probably has a lot of close substitutes available.
D. None of these statements is true.
AACSB: Analytic
Blooms: Apply
4-110
136. It is most likely for ______________ to have an income elasticity less than 1, and
_____________ to have an income elasticity of more than one.
A. coffee; boat
B. boat; car
C. vacation; cell phone
D. filet mignon; chicken
AACSB: Analytic
Blooms: Apply
137. It is most likely for which of the following to have an income elasticity greater than zero?
A. Mac n cheese
B. Ramen noodles
C. Store brand cola
D. Deli meat
AACSB: Analytic
Blooms: Apply
4-111
138. It is most likely for which of the following to have an income elasticity greater than 1?
A. Deli meat
B. Store brand cola
C. Gold earrings
D. Milk
AACSB: Analytic
Blooms: Apply
139. Which of the following is most likely to have an income elasticity between 0 and 1?
A. European vacation
B. Store brand cola
C. Milk
D. Frappuccino
AACSB: Analytic
Blooms: Apply
4-112

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Multiple Choice Questions

A. how much a market will respond to a change in market conditions.

D. how quickly a market will respond to a change in market conditions.

3. The concept of elasticity can be applied to:

A. changes in demand, but not supply.

B. changes in supply, but not demand.

C. changes in both supply and demand.

D. neither supply nor demand.

4. Different measurements of elasticity include:

A. income elasticity of demand, income elasticity of supply.

B. price elasticity of demand, price elasticity of supply.

C. cross-price elasticity of demand, income elasticity of supply.

D. preference elasticity of demand, cross-price elasticity of supply.

5. The concept of elasticity can be used to measure responses to a change in:

A. the price of a good.

B. the price of a related good.

D. All of these are true.

A. income elasticity of demand and price elasticity of supply.

B. price elasticity of demand and price elasticity of supply.

C. cross-price elasticity of demand and cross-price elasticity of supply.

D. price elasticity of demand and cross-price elasticity of supply.

7. Price elasticity of demand describes:

D. None of these is true.

A. price elasticity of demand.

B. price elasticity of supply.

C. cross-price elasticity of demand.

D. income elasticity of demand.

C. not very sensitive to changes in the price.

A. highly elastic demand.

B. highly inelastic demand.

C. low magnitude of response.

D. high magnitude of response.

11. If a good has a highly elastic demand curve, then:

C. very sensitive to changes in the price.

A. very elastic demand.

B. less elastic demand.

C. low magnitude of response.

D. high magnitude of response.

14. If a good has a less elastic demand curve:

16. The calculated price elasticity of demand:

A. is always a negative number, although many times is reported as an absolute value.

B. is sometimes a negative number, depending on the magnitude of response.

D. can be positive or negative, but is always reported as an absolute value.

A. percentage changes are easier to calculate than absolute changes.

C. absolute changes are confusing to convert.

D. absolute changes often result in negative numbers.

C. it is universally understood by all economists.

D. the negative sign can then be ignored.

19. The mid-point method of calculating elasticity:

D. None of these is true.

A. 0.1, and is elastic.

C. 0.1 and is inelastic.

A. 1.5 and is elastic.

B. 1.5 and is inelastic.

C. 0.67 and is elastic.

D. 0.67 and is inelastic.

29. Some of the determinants of the price elasticity are:

A. availability of substitutes, cost relative to benefit, and scope of market.

C. availability of complements, cost relative to income, and scope of market.

D. cost relative to income, scope of demand, and adjustment time.

B. producers need to be able to predict the future preferences of their customers.

D. producers need to understand what it is their customers demand the most.

35. Pencils are likely __ than diamonds because _.

36. Cars are _ than yachts because _______.

37. Novels are _ than textbooks because ______.

40. A pack of gum is than a steak because _.

41. A pound of coffee is _ than a pound sugar of because .

47. Classical music is _ than Beethoven's music because _.

48. Ice cream is _ than frozen treats because .

49. Steak is ___ than food because _.

51. Markers are ___ than Sharpies because .