Ch. 5: Elasticity and Its Application

Which of the following would you expect to have the most inelastic price elasticity of demand? a. The demand for natural gas the day of a price increase. b. The demand for natural gas one year after a price increase. c. The demand for natural gas one month after a price increase. d. The demand for natural gas six months after a price increase.

a. The demand for natural gas the day of a price increase.

If the cross-price elasticity of demand between two goods is positive then the two goods are substitutes. a. True b. False

a. True

When the supply curve is vertical the price elasticity of supply will be zero and supply is perfectly inelastic. a. True b. False

a. True

Goods with more close substitutes tend to have a more inelastic price elasticity of demand. a. True b. False

b. False

This income elasticity of demand must be greater than 1.0 to conclude that the good is a normal good. a. True b. False

b. False

When the cross-price elasticity of demand between two goods is negative we know that the two goods are a. normal goods. b. complements. c. inferior goods. d. substitutes.

b. complements

Moving down and to the right along a linear demand, a. the price elasticity of demand increases. b. demand becomes more inelastic. c. demand becomes more elastic. d. total revenue will always increase.

b. demand becomes more inelastic.

A perfectly elastic demand curve will a. be vertical. b. have a price elasticity of demand equal to zero. c. be horizontal. d. be downward sloping with a slope equal to -1.0.

c. be horizontal

If demand is inelastic, then a. lowering price will increase total revenue. b. lowering the price may increase or decrease total revenue. We would need additional information to know for sure. c. raising price will increase total revenue. d. raising price will lower total revenue

c. raising price will increase total revenue.