Chap 5

1.
In general, elasticity is
a. the friction that develops between buyer and seller in a market.
b. a measure of how much government intervention is prevalent in a market.
c. a measure of how much buyers and sellers respond to changes in market
conditions.
d. a measure of the competitive nature of a market.
2. Economists use the concept of price elasticity of demand to measure

a. how much buyers respond to changes in the price of the good.
b. how much sellers respond to changes in the price of the good.
c. how much worse off consumers are when the price of the good rises.
d. how much demand responds to changes in buyers' incomes.
3. Demand is said to be elastic

a. if the price of the good responds substantially to changes in demand.
b. if demand shifts substantially when the price of the good changes.
c. if the quantity demanded responds substantially to changes in the price of the
good.
d. if buyers don't respond much to changes in the price of the good.
4. Demand is said to be inelastic

a. if the price of the good responds only slightly to changes in demand.
b. if demand shifts only slightly when the price of the good changes.
c. if buyers respond substantially to changes in the price of the good.
d. if the quantity demanded changes only slightly when the price of the good
changes.
5. If a good is a necessity, demand for the good would tend to be

a. elastic.
b. inelastic.
c. unit elastic.
d. horizontal.
6. If a good is a luxury, demand for the good would tend to be

a. elastic.
b. inelastic.
c. unit elastic.
d. horizontal.
7. If a person has very little concern for his/her health, demand for health care would
tend to be
a. elastic.
b. inelastic.
c. unit elastic.
d. horizontal.
8. Demand for a good would tend to be more elastic,

a. the greater the availability of complements.
b. the longer the period of time considered.
c. the broader the definition of the market.
d. the fewer substitutes there are.
9. Chocolate Chip ice cream would tend to have very elastic demand because
a. other flavors of ice cream are almost perfect substitutes.
b. the market is broadly defined.
c. there are few substitutes.
d. it must be eaten quickly.
10. If there are very few, if any, good substitutes for good A, then
a. the supply of good A would tend to be price elastic.
b. the demand for good A would tend to be price elastic.
c. the demand for good A would tend to be price inelastic.
d. the demand for good A would tend to be income elastic.
11. Holding all other forces constant, when the price of gasoline rises, the number of
gasoline demanded would fall substantially over a ten year period because
a. buyers tend to be much less sensitive to a change in price when given more time
to react.
b. buyers will have substantially more income over a ten year period.
c. buyers tend to be much more sensitive to a change in price when given more
time to react.
d. None of these answers are correct.
12. The demand for a good tends to be more elastic

a. the greater the availability of close substitutes.
b. the narrower the definition of the market.
c. the longer the period of time.
d. All of the above are correct.
13. Economists compute the price elasticity of demand as

a. the percentage change in the price divided by the percentage change in quantity
demanded.
b. the percentage change in the quantity demanded divided by the percentage
change in price.
c. the change in quantity demanded divided by the change in the price.
d. the percentage change in the quantity demanded divided by the percentage
change in income.
14. Suppose there is a 6 percent increase in the price of good X and a resulting 6 percent
decrease in the quantity of X demanded. Price elasticity of demand for X is
a. 1.
b. 6.
c. 0.
d. infinite.
15. Suppose the price of product X is reduced from $1.45 to $1.25 and, as a result, the
quantity of X demanded increases from 2,000 to 2,200. Using the midpoint method,
the price elasticity of demand for X in the given price range is
a. 2.00.
b. 1.55.
c. 1.00.
d. .64.
16. If the price elasticity of demand for a good is 4.0, then a 10 percent increase in price
would result in a
a. 4.0 percent decrease in the quantity demanded.
b. 10 percent decrease in the quantity demanded.
c. 40 percent decrease in the quantity demanded.
d. 400 percent decrease in the quantity demanded.
17. The main reason for using the midpoint method is that it
a. gives the same answer regardless of the direction of change.
b. uses fewer numbers.
c. rounds prices to the nearest dollar.
d. rounds quantities to the nearest whole unit.
18. Demand is elastic if

a. elasticity is less than 1.
b. elasticity is equal to 1.
c. elasticity is greater than 1.
d. elasticity is equal to 0.
19. Demand is said to be unit elastic if

a. the demand curve shifts by the same percentage amount as the price.
b. quantity demanded changes by a larger percent than the price.
c. quantity demanded changes by the same percent as the price.
d. quantity demanded does not respond to a change in price.
20. Elasticity of demand is closely related to the slope of the demand curve. The more
responsive buyers are to a change in price, the ______________ the demand curve.
a. steeper
b. further to the right
c. flatter
d. closer to the vertical axis
21. When demand is inelastic, a decrease in price will cause

a. an increase in total revenue.
b. a decrease in total revenue.
c. no change in total revenue.
d. There is insufficient information to answer this question.
22. You produce jewelry boxes. If the demand for jewelry boxes is elastic and you
want to increase your total revenue, you should
a. decrease the price of your jewelry boxes.
b. increase the price of your jewelry boxes.
c. not change the price of your jewelry boxes.
d. None of the above answers are correct.
23. When demand is elastic in the current price range,

a. an increase in price would increase total revenue because the decrease in quantity
demanded is less than the increase in price.
b. an increase in price would decrease total revenue because the decrease in
quantity demanded is greater than the increase in price.
c. a decrease in price would decrease total revenue because the increase in quantity
demanded is smaller than the decrease in price.
d. a decrease in price would not affect the total revenue.
24. Holding all other forces constant, if raising the price of a good results in less total
revenue,
a. the demand for the good must be elastic.
b. the demand for the good must be inelastic.
c. the demand for the good must be unit elastic.
d. the demand for the good must be perfectly inelastic.
25. If a change in the price of a good results in no change in total revenue,

a. the demand for the good must be elastic.
b. the demand for the good must be inelastic.
c. the demand for the good must be unit elastic.
d. buyers must not respond very much to a change in price.
26. Suppose that 50 candy bars are demanded at a particular price. Using the
midpoint method, if the price of candy bars rises by 4 percent, the number of
candy bars demanded falls to 46 candy bars. This means that
a. the demand for candy bars in this price range is elastic.
b. the demand for candy bars in this price range is inelastic.
c. the price elasticity of demand for candy bars is 0.
d. the demand for candy bars is unit elastic.

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1.

2. Economists use the concept of price elasticity of demand to measure

3. Demand is said to be elastic

4. Demand is said to be inelastic

5. If a good is a necessity, demand for the good would tend to be

6. If a good is a luxury, demand for the good would tend to be

8. Demand for a good would tend to be more elastic,

12. The demand for a good tends to be more elastic

13. Economists compute the price elasticity of demand as

18. Demand is elastic if

19. Demand is said to be unit elastic if

21. When demand is inelastic, a decrease in price will cause

23. When demand is elastic in the current price range,

25. If a change in the price of a good results in no change in total revenue,

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