Chapter 5
Elasticity and Its Applications
Multiple Choice
1. In general, elasticity is a measure of
a. the extent to which advances in technology are adopted by producers. b. the extent to which a market is competitive.
c. how fast the price of a good responds to a shift of the supply curve or demand curve. d. how much buyers and sellers respond to changes in market conditions. ANS: D PTS: 1 DIF: 1 REF: 5-0 TOP: Elasticity MSC: Definitional
2. When studying how some event or policy affects a market, elasticity provides information on the a. direction of the effect on the market. b. magnitude of the effect on the market.
c. speed of adjustment of the market in response to the event or policy.
d. number of market participants who are directly affected by the event or policy. ANS: B PTS: 1 DIF: 2 REF: 5-0 TOP: Elasticity MSC: Interpretive
3. How does the concept of elasticity allow us to improve upon our understanding of supply and demand?
a. Elasticity allows us to analyze supply and demand with greater precision than would be the case in the absence of
the elasticity concept.
b. Elasticity provides us with a better rationale for statements such as “an increase in x will lead to a decrease in y”
than we would have in the absence of the elasticity concept.
c. Without elasticity, we would not be able to address the direction in which price is likely to move in response to a
surplus or a shortage.
d. Without elasticity, it is very difficult to assess the degree of competition within a market. ANS: A PTS: 1 DIF: 2 REF: 5-0 TOP: Elasticity MSC: Interpretive
4. Elasticity improves our understanding of supply and demand by adding a. measures of equity. b. measures of efficiency.
c. a quantitative element to our analysis. d. a qualitative element to our analysis. ANS: C PTS: 1 DIF: 2 REF: 5-0 TOP: Elasticity MSC: Interpretive
5. The price elasticity of demand measures how much a. quantity demanded responds to a change in price. b. quantity demanded responds to a change in income. c. price responds to a change in demand. d. demand responds to a change in supply. ANS: A PTS: 1 DIF: 1 REF: 5-1 TOP: Price elasticity of demand MSC: Definitional
6. The price elasticity of demand measures
a. buyers’ responsiveness to a change in the price of a good.
b. the extent to which demand increases as additional buyers enter the market. c. how much more of a good consumers will demand when incomes rise. d. the movement along a supply curve when there is a change in demand. ANS: A PTS: 1 DIF: 1 REF: 5-1 TOP: Price elasticity of demand MSC: Definitional
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7. Demand is said to be elastic if
a. the price of the good responds substantially to changes in demand.
b. demand shifts substantially when income or the expected future price of the good changes. c. buyers do not respond much to changes in the price of the good. d. buyers respond substantially to changes in the price of the good. ANS: D PTS: 1 DIF: 2 REF: 5-1 TOP: Elastic demand MSC: Definitional
8. Demand is said to be inelastic if
a. buyers respond substantially to changes in the price of the good. b. demand shifts only slightly when the price of the good changes.
c. the quantity demanded changes only slightly when the price of the good changes. d. the price of the good responds only slightly to changes in demand. ANS: C PTS: 1 DIF: 2 REF: 5-1 TOP: Inelastic demand MSC: Definitional
9. If demand is inelastic, then
a. buyers do not respond much to a change in price.
b. buyers respond substantially to a change in price, but the response is very slow.
c. buyers do not alter their quantities demanded much in response to advertising, fads, or general changes in tastes. d. the demand curve is very flat. ANS: A PTS: 1 DIF: 2 REF: 5-1 TOP: Inelastic demand MSC: Definitional 10. When quantity demanded responds strongly to changes in price, demand is said to be
a. fluid. b. elastic. c. dynamic.
d. highly variable. ANS: B PTS: 1 DIF: 1 REF: 5-1 TOP: Elastic demand MSC: Definitional
11. Which of the following statements about the price elasticity of demand is correct?
a. The price elasticity of demand for a good measures the willingness of buyers of the good to move away from the
good as its price increases.
b. Price elasticity of demand reflects the many economic, psychological, and social forces that shape consumer
tastes.
c. Other things equal, if good x has close substitutes and good y does not have close substitutes, then the demand for
good x will be more elastic than the demand for good y. d. All of the above are correct. ANS: D PTS: 1 DIF: 2 REF: 5-1 TOP: Price elasticity of demand MSC: Interpretive
12. For a good that is a necessity,
a. quantity demanded tends to respond substantially to a change in price. b. demand tends to be inelastic.
c. the law of demand often does not apply. d. All of the above are correct. ANS: B PTS: 1 DIF: 2 REF: 5-1 TOP: Price elasticity of demand MSC: Interpretive
13. For a good that is a luxury, demand
a. tends to be inelastic. b. tends to be elastic. c. has unit elasticity.
d. cannot be represented by a demand curve in the usual way. ANS: B PTS: 1 DIF: 2 REF: 5-1 TOP: Price elasticity of demand MSC: Interpretive
Chapter 5/Elasticity and Its Applications ? 171
14. If a person only occasionally buys a cup of coffee, his demand for coffee is probably
a. represented by a vertical or nearly-vertical demand curve. b. not easily represented by a demand schedule or demand curve. c. inelastic. d. elastic. ANS: D PTS: 1 DIF: 2 REF: 5-2 TOP: Price elasticity of demand MSC: Interpretive
15. A person who takes a prescription drug to control high cholesterol most likely has a demand for that drug that is
a. inelastic. b. unit elastic. c. elastic.
d. highly responsive to changes in income. ANS: A PTS: 1 DIF: 2 REF: 5-1 TOP: Price elasticity of demand MSC: Interpretive
16. Other things equal, the demand for a good tends to be more inelastic, the
a. fewer the available substitutes. b. longer the time period considered.
c. more the good is considered a luxury good.
d. more narrowly defined is the market for the good. ANS: A PTS: 1 DIF: 2 REF: 5-1 TOP: Inelastic demand MSC: Interpretive
17. The demand for Chocolate Chip Cookie Dough ice cream is likely quite elastic because
a. ice cream must be eaten quickly.
b. this particular flavor of ice cream is viewed as a necessity by many ice-cream lovers. c. the market is broadly defined.
d. other flavors of ice cream are good substitutes for this particular flavor. ANS: D PTS: 1 DIF: 2 REF: 5-1 TOP: Price elasticity of demand | Substitutes MSC: Interpretive 18. The demand for Werthers candy is likely
a. elastic because candy is expensive relative to other snacks. b. elastic because there are many close substitutes for Werthers.
c. elastic because Werthers are regarded as a necessity by many people.
d. inelastic because it is usually eaten quickly, making the relevant time horizon short. ANS: B PTS: 1 DIF: 2 REF: 5-1 TOP: Price elasticity of demand MSC: Interpretive
19. There are very few, if any, good substitutes for motor oil. Therefore,
a. the demand for motor oil would tend to be inelastic. b. the demand for motor oil would tend to be elastic.
c. the demand for motor oil would tend to respond strongly to changes in prices of other goods.
d. the supply of motor oil would tend to respond strongly to changes in people’s tastes for large cars relative to their
tastes for small cars.
ANS: A PTS: 1 DIF: 2 REF: 5-1 TOP: Price elasticity of demand MSC: Interpretive
20. Holding all other forces constant, when the price of gasoline rises, the number of gallons 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 tend to be much more sensitive to a change in price when given more time to react. c. buyers will have substantially more income over a ten-year period.
d. the quantity supplied of gasoline increases very little in response to an increase in the price of gasoline. ANS: B PTS: 1 DIF: 2 REF: 5-1 TOP: Price elasticity of demand MSC: Interpretive
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21. A good will have a more inelastic demand,
a. the greater the availability of close substitutes. b. the broader the definition of the market. c. the longer the period of time.
d. the more it is regarded as a luxury. ANS: B PTS: 1 DIF: 2 REF: 5-1 TOP: Price elasticity of demand MSC: Interpretive
22. It is likely that
a. the demand for flat-screen computer monitors is more elastic than the demand for monitors in general. b. the demand for grandfather clocks is more elastic than the demand for wristwatches.
c. the demand for cardboard is more elastic over a long period of time than over a short period of time. d. All of the above are correct. ANS: D PTS: 1 DIF: 2 REF: 5-1 TOP: Price elasticity of demand MSC: Interpretive
23. It is likely that
a. the demand for natural gas is more elastic over a short period of time than over a long period of time. b. the demand for smoke alarms is more elastic than the demand for Persian rugs.
c. the demand for bourbon whiskey is more elastic than the demand for alcoholic beverages in general. d. All of the above are correct. ANS: C PTS: 1 DIF: 2 REF: 5-1 TOP: Price elasticity of demand MSC: Interpretive
24. When the price of bubble gum is $0.50, the quantity demanded is 400 packs per day. When the price falls to $0.40,
the quantity demanded increases to 600. Given this information and using the midpoint method, we know that the demand for bubble gum is a. inelastic. b. elastic. c. unit elastic.
d. perfectly inelastic. ANS: B PTS: 1 DIF: 2 REF: 5-1
TOP: Price elasticity of demand | Midpoint method MSC: Applicative
25. Economists compute the price elasticity of demand as the
a. percentage change in price divided by the percentage change in quantity demanded. b. change in quantity demanded divided by the change in the price.
c. percentage change in quantity demanded divided by the percentage change in price. d. percentage change in quantity demanded divided by the percentage change in income. ANS: C PTS: 1 DIF: 2 REF: 5-1 TOP: Price elasticity of demand MSC: Definitional
26. Suppose you calculate the price elasticity of demand for a certain good and you report that the elasticity is 0.8. The
fact that the elasticity is a positive number means that
a. when the price of the good increases, the quantity demanded increases in response. b. demand for the good is elastic.
c. you have dropped the minus sign and reported the absolute value of the elasticity. d. the good has close substitutes and/or the good is a luxury. ANS: C PTS: 1 DIF: 2 REF: 5-1 TOP: Price elasticity of demand MSC: Interpretive
27. The midpoint method is used to compute elasticity because it
a. automatically computes a positive number instead of a negative number. b. results in an elasticity that is the same as the slope of the demand curve. c. gives the same answer regardless of the direction of change. d. automatically rounds quantities to the nearest whole unit. ANS: C PTS: 1 DIF: 2 REF: 5-1
TOP: Price elasticity of demand | Midpoint method MSC: Interpretive
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