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File: Chapter 06 Describing Supply and Demand—Elasticities
True/False
[QUESTION]
1. Price elasticity of demand is the percentage change in price divided by the percentage change
in quantity demanded.
Ans: False
AACSB: Reflective Thinking
Bloom’s: Remember
Difficulty: 01 Easy
Learning Objective: 06-01
Topic: Price Elasticity
Feedback: Price elasticity of demand is the percentage change in quantity demanded divided by
the percentage change in price.
[QUESTION]
2. If the price of a good goes up by 20 percent and the quantity demanded falls by 40 percent,
the price elasticity of demand is 2.
Ans: True
AACSB: Reflective Thinking
Bloom’s: Understand
Difficulty: 02 Medium
Learning Objective: 06-01
Topic: Price Elasticity
Feedback: Elasticity of demand = % change in quantity/% change in price = 40/20 = 2. We
conventionally give elasticity of demand as a positive number, which is why we used the
absolute values of the numerator and denominator in the above equation (we have taken 40
percent instead of –40 percent).
[QUESTION]
3. If the price of corn goes up by $1 a bushel and the quantity supplied rises by 100 bushels, the
price elasticity of supply has to be 100.
Ans: False
AACSB: Reflective Thinking
Bloom’s: Understand
Difficulty: 02 Medium
Learning Objective: 06-01
Topic: Price Elasticity
Feedback: Elasticity is the percentage change in quantity divided by the percentage change in
price. You cannot calculate elasticity with the information given in the question because it is not
given in percentage changes. We need to know the prices and quantities at which the above
changes occur to calculate percentages.
[QUESTION]
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manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
4. Refer to the following graph.
Since the supply curve intersects the horizontal axis, all the points along the supply curve shown
are inelastic.
Ans: True
AACSB: Reflective Thinking
Bloom’s: Understand
Difficulty: 02 Medium
Learning Objective: 06-01
Topic: Price Elasticity
Feedback: All points along a supply curve that intersects the quantity axis have elasticities less
than 1.
[QUESTION]
5. When demand is perfectly inelastic, there is no change in quantity demanded after a change in
price.
Ans: True
AACSB: Reflective Thinking
Bloom’s: Remember
Difficulty: 01 Easy
Learning Objective: 06-01
Topic: Price Elasticity
Feedback: Quantity demanded is not responsive to a price change when demand is perfectly
inelastic.
[QUESTION]
6. Most likely, the elasticity of demand for transportation is greater than the elasticity of demand
for cars.
Ans: False
AACSB: Reflective Thinking
Bloom’s: Understand
Difficulty: 02 Medium
Learning Objective: 06-02
Topic: Substitution and Elasticity
Feedback: Transportation in general has fewer substitutes than does transportation by cars and
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manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
thus has a lower elasticity.
[QUESTION]
7. Revenue remains unchanged along a straight-line demand curve.
Ans: False
AACSB: Reflective Thinking
Bloom’s: Understand
Difficulty: 02 Medium
Learning Objective: 06-03
Topic: Elasticity, Total Revenue, and Demand
Feedback: Revenue is greatest at the midpoint of a straight-line demand curve (where elasticity
of demand equals 1) and falls on either side.
[QUESTION]
8. Refer to the following graph.
[QUESTION]
9. The cross-price elasticity of demand is the percentage change in price divided by the
percentage change in the price of another good.
Ans: False
AACSB: Reflective Thinking
Bloom’s: Remember
Difficulty: 01 Easy
© 2017 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any
manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
Learning Objective: 06-04
Topic: Income and Cross-Price Elasticity
Feedback: The cross-price elasticity of demand is the percentage change in quantity divided by
the percentage change in the price of another good.
[QUESTION]
10. If demand is highly inelastic and supply shifts to the right, the equilibrium price will rise
significantly while quantity will increase only slightly.
Ans: False
AACSB: Reflective Thinking
Bloom’s: Understand
Difficulty: 02 Medium
Learning Objective: 06-05
Topic: The Power of Supply/Demand Analysis
Feedback: A highly inelastic demand curve and a supply curve that shifts to the right will result
in a significant decline in price while quantity increases only slightly.
[QUESTION]
11. When the demand curve is highly inelastic, there is a strong incentive for suppliers to find a
way to collectively reduce the quantity sold in the market and raise the price of the product.
Ans: True
AACSB: Reflective Thinking
Bloom’s: Understand
Difficulty: 02 Medium
Learning Objective: 06-05
Topic: The Power of Supply/Demand Analysis
Feedback: A highly inelastic demand curve means that if suppliers can collectively limit
quantity supplied, total revenue going to suppliers will rise.
Multiple Choice
[QUESTION]
12. Price elasticity of demand is the:
A. change in the quantity demanded of a good divided by the change in the price of that good.
B. change in the price of a good divided by the change in the quantity demanded of that good.
C. percentage change in price of that good divided by the percentage change in the quantity
demanded of that good.
D. percentage change in quantity demanded of a good divided by the percentage change in the
price of that good.
Ans: D
AACSB: Reflective Thinking
Bloom’s: Remember
Difficulty: 01 Easy
Learning Objective: 06-01
Topic: Price Elasticity
Feedback: See the definition of price elasticity of demand.
© 2017 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any
manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
[QUESTION]
13. The price elasticity of supply is the:
A. change in the quantity supplied divided by the change in price.
B. percentage change in the quantity supplied divided by the percentage change in price.
C. change in the price divided by the change in the quantity supplied.
D. percentage change in the price divided by the percentage change in the quantity supplied.
Ans: B
Bloom’s: Remember
Difficulty: 01 Easy
Learning Objective: 06-01
Topic: Price Elasticity
Feedback: See the definition of price elasticity of supply.
[QUESTION]
14. In general, the greater the elasticity, the:
A. smaller the responsiveness of price to changes in quantity.
B. smaller the responsiveness of quantity to changes in price.
C. larger the responsiveness of price to changes in quantity.
D. larger the responsiveness of quantity to changes in price.
Ans: D
AACSB: Reflective Thinking
Bloom’s: Remember
Difficulty: 01 Easy
Learning Objective: 06-01
Topic: Price Elasticity
Feedback: When either demand or supply is highly elastic, the quantity is very responsive to a
change in price.
[QUESTION]
15. Demand is said to be elastic when the:
A. percentage change in quantity demanded is less than the percentage change in price.
B. percentage change in quantity demanded is greater than the percentage change in price.
C. change in quantity demanded is less than the change in price.
D. change in quantity demanded is greater than the change in price.
Ans: B
AACSB: Reflective Thinking
Bloom’s: Remember
Difficulty: 01 Easy
Learning Objective: 06-01
Topic: Price Elasticity
Feedback: Demand is elastic if the price elasticity of demand is greater than 1. This occurs if the
percentage change in quantity demanded exceeds the percentage change in price. We cannot say
whether demand is elastic based on information about the change in quantity demanded relative
to the change in price because elasticity is a percentage measurement.
© 2017 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any
manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
[QUESTION]
16. Supply is said to be inelastic when the:
A. percentage change in quantity supplied is less than the percentage change in price.
B. percentage change in quantity supplied is greater than the percentage change in price.
C. change in quantity supplied is less than the change in price.
D. change in quantity supplied is greater than the change in price.
Ans: A
AACSB: Reflective Thinking
Bloom’s: Remember
Difficulty: 01 Easy
Learning Objective: 06-01
Topic: Price Elasticity
Feedback: Supply is inelastic if the price elasticity of supply is less than 1. This occurs if the
percentage change in price exceeds the percentage change in quantity supplied. We cannot say
whether supply is inelastic based on information about the change in quantity supplied relative to
the change in price because elasticity is a percentage measurement.
[QUESTION]
17. If quantity demanded falls by 25 percent when price rises by 50 percent, demand is said to
be:
A. elastic.
B. inelastic.
C. proportional.
D. unit elastic.
Ans: B
AACSB: Reflective Thinking
Bloom’s: Understand
Difficulty: 02 Medium
Learning Objective: 06-01
Topic: Price Elasticity
Feedback: Here, the percentage change in quantity demanded is less than the percentage change
in price, so demand is inelastic (Ed < 1).
[QUESTION]
18. If the amount of land supplied remains the same even when the price of land increases, the:
A. supply of land must be perfectly elastic.
B. supply of land must be perfectly inelastic.
C. demand for land must be perfectly elastic.
D. demand for land must be perfectly inelastic.
Ans: B
AACSB: Reflective Thinking
Bloom’s: Understand
Difficulty: 02 Medium
Learning Objective: 06-01
Topic: Price Elasticity
© 2017 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any
manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
Feedback: The supply is perfectly inelastic when quantity supplied remains unchanged after a
change in price.
[QUESTION]
19. The short-run elasticity of demand for gasoline sold at gasoline stations is 0.20. If terrorism
causes the supply of gasoline to fall, resulting in a 5 percent drop in quantity, if other things
remain the same, the price per gallon will increase by:
A. 4 percent.
B. 5 percent.
C. 20 percent.
D. 25 percent.
Ans: D
AACSB: Analytic
Bloom’s: Apply
Difficulty: 03 Hard
Learning Objective: 06-01
Topic: Price Elasticity
Feedback: Price elasticity of demand = % change in quantity/% change in price, implying that
0.2 = 5%/x. Solving for the percentage change in price, or x, yields the prediction of a 25
percent change in price.
[QUESTION]
20. If average movie ticket prices rise by about 5 percent and attendance falls by about 2
percent, other things being equal, the elasticity of demand for movie tickets is about:
A. 0.0.
B. 0.4.
C. 0.6.
D. 2.5.
Ans: B
AACSB: Analytic
Bloom’s: Apply
Difficulty: 03 Hard
Learning Objective: 06-01
Topic: Price Elasticity
Feedback: Price elasticity of demand = % change in quantity/% change in price = 2/5 = 0.4. We
conventionally give elasticity of demand as a positive number, which is why we used the
absolute values of the numerator and denominator in the above equation (we have taken 2
percent instead of –2 percent).
[QUESTION]
21. If average movie attendance is 250 million when prices are $7 a ticket and 200 million when
prices are $9 a ticket, the elasticity of demand for movie tickets is about:
A. 0.0.
B. 0.9.
C. 1.1.
D. 1.8.
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manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
Ans: B
AACSB: Analytic
Bloom’s: Apply
Difficulty: 03 Hard
Learning Objective: 06-01
Topic: Price Elasticity
Feedback: Elasticity = [(250 – 200)/225]/[(9– 7)/8] = 0.9. We state elasticity of demand as
positive.
[QUESTION]
22. A newspaper recently lowered its price from 50 cents to 30 cents, causing the number of
newspapers sold to increase from 240,000 to 280,000. Other things equal, the data imply that the
elasticity of demand for this newspaper is about:
A. 3.25.
B. 0.5.
C. 0.3.
D. 0.15.
Ans: C
AACSB: Analytic
Bloom’s: Apply
Difficulty: 03 Hard
Learning Objective: 06-01
Topic: Price Elasticity
Feedback: Elasticity = [(280,000 – 240,000)/260,000]/[(.3 – .5)/.4] = (40,000/260,000)/(–0.2/.4)
= (.1538)/–.5) = –0.3. We state elasticity of demand as positive.
[QUESTION]
23. If the price elasticity of supply is 0.5, a 10 percent increase in price will cause a:
A. 5 percent increase in quantity supplied.
B. 5 percent decrease in quantity supplied.
C. 20 percent increase in quantity supplied.
D. 20 percent decrease in quantity supplied.
Ans: A
AACSB: Reflective Thinking
Bloom’s: Understand
Difficulty: 02 Medium
Learning Objective: 06-01
Topic: Price Elasticity
Feedback: According to the law of supply, an increase in price causes an increase in quantity
supplied. The price elasticity of supply is the percentage change in quantity supplied divided by
the percentage change in price (0.5 = 5%/10%).
[QUESTION]
24. A price elasticity of demand for a good or service of 1.8 tells us that:
A. the price changes by $1.80 when quantity changes by 1 unit.
B. quantity demanded falls by 1.8 percent when price rises by 1 percent.
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manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
C. the price rises by 1.8 percent when quantity demanded falls by 1 percent.
D. quantity demanded falls by 1.8 units when price changes by $1.
Ans: B
AACSB: Reflective Thinking
Bloom’s: Understand
Difficulty: 02 Medium
Learning Objective: 06-01
Topic: Price Elasticity
Feedback: Price elasticity tells us the percentage change in quantity in response to a percentage
change in price.
[QUESTION]
25. If the price of a good goes up by 5 percent and, in response, the quantity demanded falls by
15 percent, the price elasticity of demand will be:
A. .05.
B. 3.
C. 0.3333.
D. 0.15.
Ans: B
AACSB: Analytic
Bloom’s: Apply
Difficulty: 03 Hard
Learning Objective: 06-01
Topic: Price Elasticity
Feedback: Price elasticity of demand is the percentage change in quantity demanded divided by
the percentage change in price = 15%/5% = 3.
[QUESTION]
26. Charlie Black will purchase 10 percent more cans of Coke if the price of a can of Coke falls
by 5 percent. Charlie's price elasticity of demand for cans of Coke is:
A. 10.
B. 5.
C. 2.
D. ½.
Ans: C
AACSB: Analytic
Bloom’s: Apply
Difficulty: 03 Hard
Learning Objective: 06-01
Topic: Price Elasticity
Feedback: Price elasticity of demand is the percentage change in quantity demanded divided by
the percentage change in price = 10%/5% = 2.
[QUESTION]
27. As the manager of a ski resort, you want to increase the number of lift tickets sold by 8
percent. Your staff economist has determined that the price elasticity of demand for lift tickets is
© 2017 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any
manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
2. To increase sales by the desired amount, you should decrease the price of a lift ticket by:
A. 2 percent.
B. 4 percent.
C. 8 percent.
D. 16 percent.
Ans: B
AACSB: Analytic
Bloom’s: Apply
Difficulty: 03 Hard
Learning Objective: 06-01
Topic: Price Elasticity
Feedback: Price elasticity of demand = % change in quantity/% change in price = 8/x = 2. Solve
for x.
[QUESTION]
28. Susan's price elasticity of restaurant meals is 2.27. If the price of a restaurant meal falls by 2
percent, the quantity of restaurant meals Susan demands will:
A. increase by 2.27 percent.
B. fall by 2.27 percent.
C. increase by 4.54 percent.
D. increase by 22.7 percent.
Ans: C
AACSB: Analytic
Bloom’s: Apply
Difficulty: 03 Hard
Learning Objective: 06-01
Topic: Price Elasticity
Feedback: Elasticity = x/2 = 2.27. Solve for x.
[QUESTION]
29. Richard Voith estimated the price elasticity of demand for round-trip rail fare to be 0.62. If
fares rose by 30 percent, one would expect the quantity of round-trip tickets purchased to:
A. rise by 18.6 percent
B. fall by 18.6 percent
C. rise by 48.4 percent
D. fall by 48.4 percent
Ans: B
AACSB: Analytic
Bloom’s: Apply
Difficulty: 03 Hard
Learning Objective: 06-01
Topic: Price Elasticity
Feedback: Price elasticity of demand = % change in quantity/% change in price = x/30 = .62.
Solve for x.
[QUESTION]
© 2017 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any
manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
30. It has been estimated that the price elasticity of demand for attending baseball games is 0.23.
Other things held constant, a 10 percent increase in attendance can be explained by a:
A. 43.48 percent fall in the price of a ticket.
B. 43.48 percent rise in the price of a ticket.
C. 23 percent fall in the price of a ticket.
D. 23 percent rise in the price of a ticket.
Ans: A
AACSB: Analytic
Bloom’s: Apply
Difficulty: 03 Hard
Learning Objective: 06-01
Topic: Price Elasticity
Feedback: Price elasticity of demand = % change in quantity/% change in price = 10/x = 0.23.
Solve for x.
[QUESTION]
31. It has been estimated that the price elasticity for cigarettes is 0.164. Assuming there are
currently no taxes on cigarettes, to reduce cigarette purchases 5 percent, the government would
need to tax cigarettes enough to:
A. raise the price by 0.82 percent.
B. lower the price by 0.82 percent.
C. raise the price by 30.5 percent.
D. lower the price by 30.5 percent.
Ans: C
AACSB: Analytic
Bloom’s: Apply
Difficulty: 03 Hard
Learning Objective: 06-01
Topic: Price Elasticity
Feedback: Price elasticity of demand = % change in quantity/% change in price = 5/x = .164.
Solve for x.
[QUESTION]
32. An elasticity of supply of 2.7 means that:
A. supply is inelastic.
B. quantity supplied changes 2.7 units for each 1 percent change in price.
C. quantity supplied changes 2.7 percent for each 1 percent change in price.
D. price changes by 2.7 percent for each 1 percent change in quantity supplied.
Ans: C
AACSB: Reflective Thinking
Bloom’s: Understand
Difficulty: 02 Medium
Learning Objective: 06-01
Topic: Price Elasticity
Feedback: Elasticity is the percentage change in quantity divided by the percentage change in
price.
© 2017 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any
manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
[QUESTION]
33. If the quantity of picture frames supplied increases 15 percent when the price goes up 20
percent, the elasticity of supply is:
A. 15.
B. 20.
C. 1.33.
D. 0.75.
Ans: D
AACSB: Analytic
Bloom’s: Apply
Difficulty: 03 Hard
Learning Objective: 06-01
Topic: Price Elasticity
Feedback: Price elasticity of supply = % change in quantity/% change in price = 15/20 = .75.
[QUESTION]
34. A marketing student observes that when the price of ice cream rises by 10 percent, the
quantity of ice cream a supplier is willing to sell rises by 5 percent. The student correctly
concludes that the elasticity of supply for ice cream is:
A. .2.
B. .5.
C. 2.
D. 5.
Ans: B
AACSB: Reflective Thinking
Bloom’s: Understand
Difficulty: 02 Medium
Learning Objective: 06-01
Topic: Price Elasticity
Feedback: Price elasticity of supply = % change in quantity/% change in price = 5%/10% = .5.
[QUESTION]
35. Measuring the price of gasoline in dollars, an economist calculates the price elasticity of
demand to be .5. What would the price elasticity of demand be if the economist had chosen to
measure the price of gasoline in pennies rather than dollars?
A. .5
B. .05
C. .005
D. 50
Ans: A
AACSB: Reflective Thinking
Bloom’s: Understand
Difficulty: 02 Medium
Learning Objective: 06-01
Topic: Price Elasticity
© 2017 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any
manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
Feedback: Elasticity is independent of units.
[QUESTION]
36. Measuring the price of gasoline in dollars per quart, an economist calculates the price
elasticity of demand to be 1. What would the price elasticity of demand be if the economist had
chosen to measure the price in dollars per gallon?
A. 1
B. 4
C. .25
D. .5
Ans: A
AACSB: Reflective Thinking
Bloom’s: Understand
Difficulty: 02 Medium
Learning Objective: 06-01
Topic: Price Elasticity
Feedback: Elasticity is independent of units.
[QUESTION]
37. If a $100 drop in the price of a $10,000 car resulted in an increase in the quantity of cars
purchased from 100 to 110 and a $100 drop in the price of a $1,000 vacation rental resulted in an
increase in the quantity of weekly vacation homes rented from 100 to 110, the price elasticity of
demand is:
A. greater for the car.
B. less for the car.
C. the same for both the car and the vacation rental.
D. not comparable.
Ans: A
AACSB: Analytic
Bloom’s: Analyze
Difficulty: 03 Hard
Learning Objective: 06-01
Topic: Price Elasticity
Feedback: The percentage rise in quantity was the same for both, but the percentage fall in price
was greater for the vacation rental. Therefore, its elasticity of demand is smaller than that of the
car.
[QUESTION]
38. A sporting goods store observes that as they reduce the price of squash balls from $5 to $4,
their quantity demanded rises from 200 to 220. Rounding to the nearest tenth, they correctly
compute the elasticity of demand of squash balls to be:
A. 0.1.
B. 0.4.
C. 2.3.
D. 5.
Ans: B
© 2017 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any
manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
AACSB: Analytic
Bloom’s: Apply
Difficulty: 03 Hard
Learning Objective: 06-01
Topic: Price Elasticity
Feedback: Elasticity = [(200 – 220)/210]/[(5 – 4)/4.5] = (–20/210)/(1/4.5) = –.095/.222 = –0.4.
We state elasticity of demand as positive.
[QUESTION]
39. As the price of beachfront cottages in Florida was raised from $400,000 to $500,000, their
quantity supplied rose from 2,000 to 2,100. Rounding to the nearest tenth, the elasticity of supply
of beachfront cottages is:
A. 0.4.
B. 0.2.
C. 1.0.
D. 4.6
Ans: B
AACSB: Analytic
Bloom’s: Apply
Difficulty: 03 Hard
Learning Objective: 06-01
Topic: Price Elasticity
Feedback: Elasticity = [(2,100 – 2,000)/2,050]/[(500,000 – 400,000)/450,000] =
(100/2,050)/(100,000/450,000) = 0.2 (rounded).
[QUESTION]
40. As the price of tomatoes fell from $2.5 to $2, the quantity imported from Mexico fell from
1,800 tons to 900 tons. The elasticity of supply of tomatoes imported from Mexico is:
A. 0.25.
B. 0.3
C. 3.0
D. 5.
Ans: C
AACSB: Analytic
Bloom’s: Apply
Difficulty: 03 Hard
Learning Objective: 06-01
Topic: Price Elasticity
Feedback: Elasticity = [(1,800 – 900)/1,350]/[(2 – 2.5)/2.25] = (–900/1,350)/(–0.5/2.25) = 3.0.
We state elasticity of demand as positive.
[QUESTION]
41. As the price of samosas (a kind of food in India) was raised from 2 to 3 rupees (Indian
currency), their quantity demanded fell from 15,000 to 12,000. Rounding to the nearest tenth, the
elasticity of demand of samosas is:
A. 4.
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manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
B. 0.6.
C. 1.8.
D. impossible to determine because we don't know the exchange rate of the rupee.
Ans: B
AACSB: Analytic
Bloom’s: Apply
Difficulty: 03 Hard
Learning Objective: 06-01
Topic: Price Elasticity
Feedback: Elasticity = [(12,000 – 15,000)/13,500]/[(3 – 2)/2.5] = (–3,000/13,500)/(1/2.5) = –0.6.
We state elasticity of demand as positive. Elasticity is a number that measures the general
responsiveness of quantity to changes in price. It does not matter what the currency is.
[QUESTION]
42. Compute the approximate elasticity of supply from the following data:
A. .2
B. .5
C. 2.1
D. 5.0
Ans: C
AACSB: Analytic
Bloom’s: Apply
Difficulty: 03 Hard
Learning Objective: 06-01
Topic: Price Elasticity
Feedback: Elasticity = [(500 – 400)/450]/[(100 – 90)/95] = (100/450)/(10/95) = .22/.11 = 2.1.
[QUESTION]
43. Compute the approximate elasticity of demand from the following data:
A. .87
B. 1.15
C. 1.5
D. 5.0
Ans: B
AACSB: Analytic
© 2017 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any
manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
Bloom’s: Apply
Difficulty: 03 Hard
Learning Objective: 06-01
Topic: Price Elasticity
Feedback: Elasticity = [(11.5 – 13.5)/12.5]/[(23 – 20)/21.5) = (–2/12.5)/(3/21.5) = –.16/.14 = –
1.15. We state elasticity of demand as positive.
[QUESTION]
44. Refer to the graph shown. Calculate the approximate average elasticity of demand as the
price falls from $18 to $0:
A. 3
B. 1
C. 2/3
D. 3/2
Ans: B
AACSB: Analytic
Bloom’s: Apply
Difficulty: 03 Hard
Learning Objective: 06-01
Topic: Price Elasticity
Feedback: Elasticity is [(9 – 0)/4.5]/[(0 – 18)/9] = (2)/(–2) = –1. We state elasticity of demand as
positive.
[QUESTION]
45. Refer to the graph shown. Calculate the approximate elasticity of demand for the line
segment BD:
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manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
A. 3
B. 2
C. ½
D. 3/2
Ans: C
AACSB: Analytic
Bloom’s: Apply
Difficulty: 03 Hard
Learning Objective: 06-01
Topic: Price Elasticity
Feedback: Elasticity is [(9 – 3)/6]/[(0 – 12)/6] = –1/2. We state elasticity of demand as positive.
[QUESTION]
46. Refer to the graph shown. Calculate the approximate elasticity of demand for the line
segment CD:
A. 3
B. 1/3
C. 1/5
D. 5
Ans: C
AACSB: Analytic
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manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
Bloom’s: Apply
Difficulty: 03 Hard
Learning Objective: 06-01
Topic: Price Elasticity
Feedback: Elasticity is [(9 – 6)/7.5]/[(0 – 6)/3] = (3/7.5)/(2) = –.20. We state elasticity of
demand as positive.
[QUESTION]
47. Refer to the graph shown. The elasticity of demand is closest to 1 on line segment:
A. AB
B. BC
C. CD
D. The elasticity is not close to 1 on any of these line segments.
Ans: B
AACSB: Analytic
Bloom’s: Apply
Difficulty: 03 Hard
Learning Objective: 06-01
Topic: Price Elasticity
Feedback: Elasticity of demand will be greater than 1 on segment AB, close to 1 on segment
BC, and less than 1 on segment CD.
[QUESTION]
48. Refer to the graph shown. Demand is inelastic on line segment:
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manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
A. AB
B. BC
C. CD
D. The demand is not inelastic on any of these line segments.
Ans: C
AACSB: Analytic
Bloom’s: Apply
Difficulty: 03 Hard
Learning Objective: 06-01
Topic: Price Elasticity
Feedback: Elasticity of demand will be less than 1 on line segment CD, and so demand is
inelastic in this region.
[QUESTION]
49. Refer to the graph shown. The approximate elasticity of segment AD is:
A. 3/4.
B. 3.
C. 4/3.
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manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
D. 4.
Ans: A
AACSB: Analytic
Bloom’s: Apply
Difficulty: 03 Hard
Learning Objective: 06-01
Topic: Price Elasticity
Feedback: Elasticity is [(7 – 1)/4]/[(18 – 0)/9] = (3/2)/(2) = 3/4.
[QUESTION]
50. Refer to the graph shown. The approximate elasticity of segment AC is:
A. 1/3.
B. 1/2.
C. 2/3.
D. 3/2.
Ans: C
AACSB: Analytic
Bloom’s: Apply
Difficulty: 03 Hard
Learning Objective: 06-01
Topic: Price Elasticity
Feedback: Elasticity is [(5 – 1)/3]/[(12 – 0)/6] = (4/3)/(2) = 2/3.
[QUESTION]
51. Refer to the graph shown. The approximate elasticity of segment AB is:
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manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
A. 1/3.
B. 1/2.
C. 2/3.
D. 3/2.
Ans: B
AACSB: Analytic
Bloom’s: Apply
Difficulty: 03 Hard
Learning Objective: 06-01
Topic: Price Elasticity
Feedback: Elasticity is [(3 – 1)/2]/[(6 – 0)/3] = (1)/(2) = 1/2.
[QUESTION]
52. If the supply of a product is inelastic, this implies that a specific percentage change in price
leads to:
A. an equal percentage change in the quantity supplied.
B. a larger percentage change in the quantity supplied.
C. a smaller percentage change in the quantity supplied.
D. no percentage change in the quantity supplied.
Ans: C
AACSB: Reflective Thinking
Bloom’s: Remember
Difficulty: 01 Easy
Learning Objective: 06-01
Topic: Price Elasticity
Feedback: Inelastic supply means that the percentage change in quantity is less than the
percentage change in price.
[QUESTION]
53. If the percentage increase in the quantity supplied equals the percentage increase in the
price, the supply:
A. is elastic.
B. is inelastic.
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manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
C. has unit elasticity.
D. is perfectly elastic.
Ans: C
AACSB: Reflective Thinking
Bloom’s: Remember
Difficulty: 01 Easy
Learning Objective: 06-01
Topic: Price Elasticity
Feedback: See the definition of unit elastic.
[QUESTION]
54. If the percentage increase in the quantity supplied is greater than the percentage increase in
the price, the supply:
A. is elastic.
B. is inelastic.
C. is unit elastic.
D. is perfectly elastic.
Ans: A
AACSB: Reflective Thinking
Bloom’s: Remember
Difficulty: 01 Easy
Learning Objective: 06-01
Topic: Price Elasticity
Feedback: See the definition of elastic.
[QUESTION]
55. If the percentage increase in the quantity supplied is smaller than the percentage increase in
the price, the supply:
A. is elastic.
B. is inelastic.
C. is unit elastic.
D. is perfectly elastic.
Ans: B
AACSB: Reflective Thinking
Bloom’s: Remember
Difficulty: 01 Easy
Learning Objective: 06-01
Topic: Price Elasticity
Feedback: See the definition of inelastic.
[QUESTION]
56. If the price elasticity of demand for a good is inelastic, a price change causes:
A. a zero change in quantity demanded.
B. an infinite change in quantity demanded.
C. a more than proportionate change in quantity demanded.
D. a less than proportionate change in quantity demanded.
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manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
Ans: D
AACSB: Reflective Thinking
Bloom’s: Understand
Difficulty: 02 Medium
Learning Objective: 06-01
Topic: Price Elasticity
Feedback: See the definition of inelastic.
[QUESTION]
57. If quantity demanded does not change when the price changes, the demand:
A. is elastic.
B. is inelastic.
C. has unit elasticity.
D. is perfectly inelastic.
Ans: D
AACSB: Reflective Thinking
Bloom’s: Remember
Difficulty: 01 Easy
Learning Objective: 06-01
Topic: Price Elasticity
Feedback: See the definition of perfectly inelastic.
[QUESTION]
58. If quantity demanded changes infinitely when the price changes, the demand:
A. is slightly elastic.
B. is inelastic.
C. is unit elastic.
D. is perfectly elastic.
Ans: D
AACSB: Reflective Thinking
Bloom’s: Remember
Difficulty: 01 Easy
Learning Objective: 06-01
Topic: Price Elasticity
Feedback: See the definition of perfectly elastic.
[QUESTION]
59. If the quantity of houses supplied in an area increases 10 percent when the price goes up 25
percent, the supply:
A. is elastic.
B. is inelastic.
C. is unit elastic.
D. is perfectly elastic.
Ans: B
AACSB: Analytic
Bloom’s: Analyze
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manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
Difficulty: 03 Hard
Learning Objective: 06-01
Topic: Price Elasticity
Feedback: Elasticity is 10/25 = .4. Since this is less than 1, supply is inelastic.
[QUESTION]
60. If the elasticity of demand for restaurant meals is 2.27, the demand for restaurant meals is:
A. elastic.
B. inelastic.
C. unit elastic.
D. perfectly inelastic.
Ans: A
AACSB: Reflective Thinking
Bloom’s: Understand
Difficulty: 02 Medium
Learning Objective: 06-01
Topic: Price Elasticity
Feedback: Elastic points have elasticities greater than 1.
[QUESTION]
61. If the elasticity of demand for electricity is 0.13, the demand for electricity is:
A. inelastic.
B. elastic.
C. perfectly inelastic.
D. unit elastic.
Ans: A
AACSB: Reflective Thinking
Bloom’s: Understand
Difficulty: 02 Medium
Learning Objective: 06-01
Topic: Price Elasticity
Feedback: Inelastic points have elasticities less than 1.
[QUESTION]
62. George Davis and Michael Wohlgenant estimate that for every 1 percent increase in the
price of Christmas trees, quantity demanded falls by 0.6 percent. The demand for Christmas trees
is:
A. inelastic.
B. elastic.
C. perfectly inelastic.
D. unit elastic.
Ans: A
AACSB: Reflective Thinking
Bloom’s: Understand
Difficulty: 02 Medium
Learning Objective: 06-01
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manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
Topic: Price Elasticity
Feedback: Elasticity = 0.6/1 = 0.6. Inelastic points have elasticities less than 1.
[QUESTION]
63. Elizabeth Savoca estimated that for every 1 percent increase in tuition costs at a college, 2.4
percent fewer students applied to that college. This indicates that the elasticity of applying to
college is:
A. inelastic.
B. elastic.
C. perfectly inelastic.
D. unit elastic.
Ans: B
AACSB: Reflective Thinking
Bloom’s: Understand
Difficulty: 02 Medium
Learning Objective: 06-01
Topic: Price Elasticity
Feedback: Elasticity = 2.4/1 = 2.4. Elastic points have elasticities greater than 1.
[QUESTION]
64. If consumers won't pay more than 59 cents for a pack of gum and at 59 cents they will buy
an almost infinite amount, price elasticity of demand at 59 cents is:
A. inelastic.
B. elastic.
C. perfectly elastic.
D. perfectly inelastic.
Ans: C
AACSB: Reflective Thinking
Bloom’s: Understand
Difficulty: 02 Medium
Learning Objective: 06-01
Topic: Price Elasticity
Feedback: The response to an increase in price above 59 cents is enormous; thus, demand is
perfectly elastic.
[QUESTION]
65. Refer to the following table to answer the question. Demand is most elastic between:
A. $2 and $4.
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manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
B. $4 and $6.
C. $6 and $8.
D. $8 and $10.
Ans: D
AACSB: Analytic
Bloom’s: Apply
Difficulty: 03 Hard
Learning Objective: 06-01
Topic: Price Elasticity
Feedback: Elasticity rises as price rises along a straight-line demand curve. The highest price
range is the most likely candidate. Doing the calculations, we find that elasticity between $8 and
$10 is 1.5 and is less than 1 (inelastic) in all the other ranges.
[QUESTION]
66. Refer to the following table to answer the question. Demand is inelastic between:
A. $6 and $8.
B. $8 and $10.
C. $10 and $12.
D. $12 and $14.
Ans: A
AACSB: Analytic
Bloom’s: Apply
Difficulty: 03 Hard
Learning Objective: 06-01
Topic: Price Elasticity
Feedback: Elasticity rises as price rises along a straight-line demand curve. The lowest price
range is the most likely candidate. Doing the calculations, we find that elasticity between $6 and
$8 is 0.875 but is more than 1 (elastic) in all the other ranges.
[QUESTION]
67. Refer to the following table to answer the question. Supply shown by the table is:
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manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
A. elastic.
B. unit elastic.
C. inelastic.
D. changing as price changes.
Ans: B
AACSB: Analytic
Bloom’s: Apply
Difficulty: 03 Hard
Learning Objective: 06-01
Topic: Price Elasticity
Feedback: This curve goes through the origin and is unit elastic along all points.
[QUESTION]
68. Refer to the table shown to answer the question. Between $2 and $2.20, demand is:
A. elastic.
B. unit elastic.
C. inelastic.
D. perfectly elastic.
Ans: B
AACSB: Analytic
Bloom’s: Apply
Difficulty: 03 Hard
Learning Objective: 06-01
Topic: Price Elasticity
Feedback: Between $2 and $2.20 elasticity is (.2/2.1)/(–10/105) = –1. We state demand
elasticities as positive by convention.
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manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
[QUESTION]
69. Refer to the table shown to answer the question. Between $1.60 and $1.80, demand is:
A. elastic.
B. unit elastic.
C. inelastic.
D. perfectly elastic.
Ans: C
AACSB: Analytic
Bloom’s: Apply
Difficulty: 03 Hard
Learning Objective: 06-01
Topic: Price Elasticity
Feedback: Between $1.60 and $1.80 elasticity is (10/125)/(-.2/1.70) = -0.68. We state demand
elasticities as positive by convention.
[QUESTION]
70. Refer to the table shown to answer the question. Between $2.20 and $2.40, demand is:
A. elastic.
B. unit elastic.
C. inelastic.
D. perfectly elastic.
Ans: A
AACSB: Analytic
Bloom’s: Apply
Difficulty: 03 Hard
Learning Objective: 06-01
Topic: Price Elasticity
Feedback: Between $2.20 and $2.40 elasticity is (10/95)/(–.2/2.3) = 1.21. We state demand
elasticities as positive by convention.
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manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
[QUESTION]
71. Refer to the graph shown. Which of the following curves demonstrates a perfectly inelastic
demand curve?
A. A
B. B
C. C
D. None of the curves
Ans: C
AACSB: Reflective Thinking
Bloom’s: Remember
Difficulty: 01 Easy
Learning Objective: 06-01
Topic: Price Elasticity
Feedback: A perfectly inelastic curve is vertical because there is never any change in quantity
demanded.
[QUESTION]
72. Refer to the graph shown. Which of the following curves demonstrates a perfectly elastic
demand curve?
A. A
B. B
C. C
D. None of the curves
Ans: A
AACSB: Reflective Thinking
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manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
Bloom’s: Remember
Difficulty: 01 Easy
Learning Objective: 06-01
Topic: Price Elasticity
Feedback: A perfectly elastic curve is horizontal because there is never any change in price.
[QUESTION]
73. Along a straight-line demand curve, elasticity:
A. rises as price rises.
B. declines as price rises.
C. is equal to slope.
D. is always zero.
Ans: A
AACSB: Reflective Thinking
Bloom’s: Understand
Difficulty: 02 Medium
Learning Objective: 06-01
Topic: Price Elasticity
Feedback: Elasticity is infinite at the price axis intercept and declines to zero at the quantity axis
intercept.
[QUESTION]
74. Which of the following statements is true about a downward-sloping demand curve that is a
straight line?
A. The slope and the elasticity are the same at all points.
B. The slope remains the same, but elasticity rises as you move down the demand curve.
C. The slope remains the same, but elasticity falls as you move down the demand curve.
D. The slope and the elasticity fall as you move down the demand curve.
Ans: C
AACSB: Reflective Thinking
Bloom’s: Understand
Difficulty: 02 Medium
Learning Objective: 06-01
Topic: Price Elasticity
Feedback: The slope of a straight line is always the same, and the elasticity falls as one moves
down the demand curve.
[QUESTION]
75. Along a straight-line supply curve:
A. elasticity rises as price rises.
B. elasticity declines as price declines.
C. elasticity is equal to slope.
D. the change in elasticity depends on the supply curve in question.
Ans: D
AACSB: Reflective Thinking
Bloom’s: Understand
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manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
Difficulty: 02 Medium
Learning Objective: 06-01
Topic: Price Elasticity
Feedback: If the supply curve intersects the price axis, elasticity declines as price rises. If the
supply curve intersects the quantity axis, elasticity rises as price rises.
[QUESTION]
76. Refer to the following graph.
[QUESTION]
77. Refer to the following graph.
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manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
Elasticity is greatest at point:
A. A.
B. B.
C. C.
D. It is the same everywhere along this supply curve.
Ans: C
AACSB: Reflective Thinking
Bloom’s: Understand
Difficulty: 02 Medium
Learning Objective: 06-01
Topic: Price Elasticity
Feedback: If the supply curve intersects the price axis, elasticity declines as price rises. If the
supply curve intersects the quantity axis, elasticity rises as price rises. (Unless the supply curve is
horizontal or vertical.)
[QUESTION]
78. Refer to the following graph.
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manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
A. A.
B. B.
C. C.
D. It is the same everywhere along this supply curve.
Ans: D
AACSB: Reflective Thinking
Bloom’s: Understand
Difficulty: 02 Medium
Learning Objective: 06-01
Topic: Price Elasticity
Feedback: If the supply curve intersects the origin, the elasticity is 1 along the entire supply
curve.
[QUESTION]
79. Refer to the graph shown. At which point is elasticity 1?
A. A
B. B
C. C
D. D
Ans: B
\
AACSB: Reflective Thinking
Bloom’s: Understand
Difficulty: 02 Medium
Learning Objective: 06-01
Topic: Price Elasticity
Feedback: A straight-line demand curve is unit elastic only at its midpoint of the quantity axis.
[QUESTION]
80. Refer to the graph shown. At which point is elasticity zero?
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manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
A. A
B. B
C. C
D. D
Ans: D
AACSB: Reflective Thinking
Bloom’s: Remember
Difficulty: 01 Easy
Learning Objective: 06-01
Topic: Price Elasticity
Feedback: Elasticity is zero at the quantity axis intercept.
[QUESTION]
81. Refer to the graph shown. At which point is elasticity infinite?
A. A
B. B
C. C
D. D
Ans: A
AACSB: Reflective Thinking
Bloom’s: Remember
Difficulty: 01 Easy
© 2017 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any
manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
Learning Objective: 06-01
Topic: Price Elasticity
Feedback: Elasticity is infinite at the price axis intercept.
[QUESTION]
82. Refer to the graph shown. Which point has an elasticity greater than 1?
A. E
B. B
C. C
D. D
Ans: B
AACSB: Reflective Thinking
Bloom’s: Understand
Difficulty: 02 Medium
Learning Objective: 06-01
Topic: Price Elasticity
Feedback: Points to the left of the x-axis midpoint are elastic (greater than 1).
[QUESTION]
83. Refer to the graph shown. Which point has an elasticity less than 1?
A. A
B. B
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manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
C. C
D. D
Ans: D
AACSB: Analytic
Bloom’s: Understand
Difficulty: 02 Medium
Learning Objective: 06-01
Topic: Price Elasticity
Feedback: Points to the right of the x-axis midpoint are inelastic (elasticity less than 1).
[QUESTION]
84. Refer to the graph shown. Which supply curve is unit elastic?
A. A
B. B
C. C
D. D
Ans: B
AACSB: Reflective Thinking
Bloom’s: Understand
Difficulty: 02 Medium
Learning Objective: 06-01
Topic: Price Elasticity
Feedback: Supply curves that intersect the origin have elasticity of 1 (unit elastic).
[QUESTION]
85. Refer to the graph shown. For which curve does the price elasticity of supply decrease as
price increases?
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manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
A. A
B. B
C. C
D. D
Ans: C
AACSB: Reflective Thinking
Bloom’s: Understand
Difficulty: 02 Medium
Learning Objective: 06-01
Topic: Price Elasticity
Feedback: Supply curves that intersect the price axis have decreasing price elasticity (assuming
they are not horizontal).
[QUESTION]
86. Refer to the graph shown. Which supply curve is perfectly elastic?
A. A
B. B
C. C
D. D
Ans: A
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manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
AACSB: Reflective Thinking
Bloom’s: Understand
Difficulty: 02 Medium
Learning Objective: 06-01
Topic: Price Elasticity
Feedback: Horizontal supply curves are perfectly elastic.
[QUESTION]
87. Refer to the graph shown. Which supply curve is perfectly inelastic?
A. A
B. B
C. C
D. D
Ans: D
AACSB: Reflective Thinking
Bloom’s: Understand
Difficulty: 02 Medium
Learning Objective: 06-01
Topic: Price Elasticity
Feedback: Vertical supply curves are perfectly inelastic.
[QUESTION]
88. Refer to the graph shown. When price rises by 10 percent, quantity supplied rises by 10
percent. Which curve best demonstrates the elasticity of supply in this example?
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manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
A. A
B. B
C. C
D. D
Ans: B
AACSB: Reflective Thinking
Bloom’s: Understand
Difficulty: 02 Medium
Learning Objective: 06-01
Topic: Price Elasticity
Feedback: Elasticity is 1. Supply curves that intersect the origin have elasticity of 1 (unit
elastic).
[QUESTION]
89. Refer to the following graph.
Which of the following curves demonstrates a unit elastic demand curve? (That is, a curve where
elasticity is 1 at each point.)
A. A
B. B
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manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
C. C
D. None of the curves
Ans: D
AACSB: Reflective Thinking
Bloom’s: Understand
Difficulty: 02 Medium
Learning Objective: 06-01
Topic: Price Elasticity
Feedback: Elasticity goes from infinity to zero along a straight-line demand curve. It has unit
elasticity only at its midpoint of the quantity axis.
[QUESTION]
90. Refer to the graph shown. Which supply curve is elastic?
A. A
B. B
C. C
D. None of the curves
Ans: C
AACSB: Reflective Thinking
Bloom’s: Understand
Difficulty: 02 Medium
Learning Objective: 06-01
Topic: Price Elasticity
Feedback: Supply curves that intersect the price axis are elastic.
[QUESTION]
91. Refer to the graph shown. When price rises by 20 percent, quantity supplied rises by 25
percent. Which curve best demonstrates elasticity in this example?
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manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
A. A
B. B
C. C
D. None of the curves
Ans: C
AACSB: Reflective Thinking
Bloom’s: Understand
Difficulty: 02 Medium
Learning Objective: 06-01
Topic: Price Elasticity
Feedback: Supply is elastic. Supply curves that intersect the price axis are elastic.
[QUESTION]
92. Refer to the graph shown. Which supply curve is inelastic?
A. A
B. B
C. C
D. None of the curves
Ans: A
AACSB: Reflective Thinking
Bloom’s: Understand
© 2017 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any
manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
Difficulty: 02 Medium
Learning Objective: 06-01
Topic: Price Elasticity
Feedback: Supply curves that intersect the quantity axis are inelastic.
[QUESTION]
93. Refer to the graph shown. When price declines by 11 percent, quantity supplied falls by 8
percent. Which curve best demonstrates the elasticity in this example?
A. A
B. B
C. C
D. None of the curves
Ans: A
AACSB: Reflective Thinking
Bloom’s: Understand
Difficulty: 02 Medium
Learning Objective: 06-01
Topic: Price Elasticity
Feedback: The example demonstrates an inelastic supply curve. Supply curves that intersect the
quantity axis are inelastic.
[QUESTION]
94. If the supply curve intersects the vertical (price) axis, the supply curve has an elasticity:
A. less than 1.
B. equal to 1.
C. greater than 1.
D. that is indeterminate.
Ans: C
AACSB: Reflective Thinking
Bloom’s: Remember
Difficulty: 01Easy
Learning Objective: 06-01
Topic: Price Elasticity
Feedback: Supply curves that intersect the price axis are elastic (Elasticity > 1).
© 2017 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any
manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
[QUESTION]
95. A supply curve that intersects the horizontal (quantity) axis is:
A. inelastic.
B. elastic.
C. perfectly elastic.
D. unit elastic.
Ans: A
AACSB: Reflective Thinking
Bloom’s: Remember
Difficulty: 01 Easy
Learning Objective: 06-01
Topic: Price Elasticity
Feedback: Supply curves that intersect the horizontal axis are inelastic.
[QUESTION]
96. A perfectly elastic supply curve would:
A. intersect the two axes at the origin.
B. intersect the horizontal axis.
C. be horizontal.
D. be vertical.
Ans: C
AACSB: Reflective Thinking
Bloom’s: Understand
Difficulty: 02 Medium
Learning Objective: 06-01
Topic: Price Elasticity
Feedback: Quantity supplied would change enormously with a small change in price. This is
true only for a horizontal supply curve.
[QUESTION]
97. The supply curve with the greatest elasticity is one with slope of:
A. 1/2.
B. 1.
C. 2.
D. impossible to say.
Ans: D
AACSB: Analytic
Bloom’s: Analyze
Difficulty: 03 Hard
Learning Objective: 06-01
Topic: Price Elasticity
Feedback: Slope is not the same as elasticity. The trick with supply curves is the price intercept.
If it is positive, it is elastic. If it is negative (cuts the horizontal axis), it is inelastic.
© 2017 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any
manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
[QUESTION]
98. Refer to the following graph.
[QUESTION]
99. Refer to the following graph.
© 2017 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any
manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
B. B
C. C
D. D
Ans: D
AACSB: Analytic
Bloom’s: Analyze
Difficulty: 03 Hard
Learning Objective: 06-01
Topic: Price Elasticity
Feedback: P/Q × ∆Q/∆P. In all these demand curves ∆Q/∆P are the same and P is the same.
Since the only thing that changes is quantity, the point where Q is the largest has the smallest
elasticity.
[QUESTION]
100. The demand for a good is inelastic. Which of the following would be an explanation for
this?
A. The good is a necessity.
B. The good is specifically defined.
C. The good costs a large portion of one's total income.
D. The time interval considered is long.
Ans: A
AACSB: Reflective Thinking
Bloom’s: Understand
Difficulty: 02 Medium
Learning Objective: 06-02
Topic: Substitution and Elasticity
Feedback: Necessities tend to be price inelastic.
[QUESTION]
101. The demand for a good is inelastic. Which of the following would be the most likely
explanation for this?
A. The good is narrowly defined.
B. The good is broadly defined.
C. The good costs a large portion of one's total income.
D. The time interval considered is long.
Ans: B
AACSB: Reflective Thinking
Bloom’s: Understand
Difficulty: 02 Medium
Learning Objective: 06-02
Topic: Substitution and Elasticity
Feedback: Broadly defined goods have few substitutes; thus, demand for them is price inelastic.
[QUESTION]
102. The demand for a good is elastic. Which of the following would be the most likely
explanation for this?
© 2017 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any
manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
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—Con perdón de usted, señora —dijo levantándose—. Ya está ah
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El licenciado salió un momento como para curiosear, y al poco rato
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—¡Jesús, María y José! —exclamó la dama llena de turbación—
Me voy, me voy... Señor Lobo, ¿por dónde salgo de modo que no
encuentre...?
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pieza por oscuros pasillos, donde había alcarrazas, muebles viejos y
esteras sin uso...—. No es muy bueno el tránsito; pero saldrá usted a
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chicas.
—Ya, ya veo la salida... Adiós; gracias, señor Lobo. Vaya usted
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Al poner el pie en el callejón, pasaba por delante de ella, tocándola
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Cruzáronse dos exclamaciones de sorpresa.
—¡Señora!
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Era un fraile de la Merced, alto, huesudo, muy viejo, de vacilante
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de elegantes pliegues. Apoyábase el caduco varón en un palo, y a
andar movía la cabeza, mejor dicho, se le movía la cabeza, cual si su
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—¿A dónde va el viejecito? —le dijo la señora con bondad.
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—Precisamente de eso vengo.
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a muerte.
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mueva usted los piececillos con tanta presteza, que no puedo seguirla
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infelices, me parece que veo en él a un compañero de viaje.
Después de recorrer medio Madrid con la pausa que la andadura de
su paternidad exigía, entraron en la cárcel. Al subir por la inmunda
escalera, la dama ofreció su brazo al anciano, que lo aceptó
bondadosamente, diciendo:
—Gracias... Si estos escalones fueran los del cielo, no me costaría
más trabajo subirlos... Gracias; se reirán de esta pareja; ¿pero qué nos
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XX