Chapter 5

Suppose that when the price of good X falls from $6 to $4, the quantity demanded of good Y rises from 30 units to 40 units. Using the midpoint method, the cross-price elasticity of demand is a. -0.71, and X and Y are complements. b. -1.40, and X and Y are complements. c. -0.71, and X and Y are substitutes. d. -1.40, and X and Y are substitutes.

a. -0.71, and X and Y are complements.

Refer to Table 5-7. Using the midpoint method, when income equals $5,000, what is the price elasticity of demand between $8 and $12? a. 0.56 b. 0.75 c. 1.33 d. 1.80

a. 0.56

Refer to Table 5-1. Which of the following is consistent with the elasticities given in Table 5-1? a. A is a luxury and B is a necessity. b. A is a good after an increase in income and B is that same good after a decrease in income. c. A has fewer substitutes than B. d. A is a good immediately after a price increase and B is that same good 3 years after the price increase.

a. A is a luxury and B is a necessity.

Refer to Figure 5-2. As price falls from Pa to Pb, which demand curve represents the most elastic demand? a. D1 b. D2 c. D3 d. All of the above are equally elastic.

a. D1

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 ofthe 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.

a. Elasticity allows us to analyze supply and demand with greater precision than would be the case in the absence ofthe elasticity concept.

Refer to Scenario 5-1. What can you deduce about the type of good Patty's Pizza is and about the relationship between Patty's Pizza and Sue's Subs? a. Patty's Pizza is a normal good and Patty's Pizza and Sue's Subs are substitutes. b. Patty's Pizza is a normal good and Patty's Pizza and Sue's Subs are complements. c. Patty's Pizza is an inferior good and Patty's Pizza and Sue's Subs are substitutes. d. Patty's Pizza is an inferior good and Patty's Pizza and Sue's Subs are complements.

a. Patty's Pizza is a normal good and Patty's Pizza and Sue's Subs are substitutes.

For a particular good, a 10 percent increase in price causes a 3 percent decrease in quantity demanded. Which of the following statements is most likely applicable to this good? a. The relevant time horizon is short. b. The good is a luxury. c. The market for the good is narrowly defined. d. There are many close substitutes for this good.

a. The relevant time horizon is short.

For a particular good, a 5 percent increase in price causes a 15 percent decrease in quantity demanded. Which of the 29 following statements is most likely applicable to this good? a. There are many substitutes for this good. b. The good is a necessity. c. The market for the good is broadly defined. d. The relevant time horizon is short.

a. There are many substitutes for this good.

When the price of chai tea lattés is $5, Maxine buys 20 per month. When the price is $4, she buys 30 per month. Maxine's demand for chai tea lattés is a. elastic, and her demand curve would be relatively flat. b. elastic, and her demand curve would be relatively steep. c. inelastic, and her demand curve would be relatively flat. d. inelastic, and her demand curve would be relatively steep.

a. elastic, and her demand curve would be relatively flat.

Refer to Figure 5-9. If the price falls from point A to point B, total revenue a. increases, and demand is price elastic. b. decreases, and demand is price elastic. c. increases, and demand is price inelastic. d. decreases, and demand is price inelastic.

a. increases, and demand is price elastic.

Which of the following is likely to have the most price elastic demand? a. lattés b. doctor's visits c. eggs d. natural gas

a. lattés

The smaller the price elasticity of demand, the a. steeper the demand curve will be through a given point. b. flatter the demand curve will be through a given point. c. more strongly buyers respond to a change in price between any two prices P1 and P2. d. smaller the decrease in equilibrium price when the supply curve shifts rightward from S1 to S2.

a. steeper the demand curve will be through a given point.

Refer to Table 5-9. Which of the three supply curves represents the least elastic supply? a. supply curve A b. supply curve B c. supply curve C d. There is no difference in the elasticity of the three supply curves.

a. supply curve A

Refer to Figure 5-1. Between point A and point B, the slope is equal to a. -1/4, and the price elasticity of demand is equal to 2/3. b. -1/4, and the price elasticity of demand is equal to 3/2. c. -3/2, and the price elasticity of demand is equal to 1/4. d. -2/3, and the price elasticity of demand is equal to 3/2.

b. -1/4, and the price elasticity of demand is equal to 3/2.

Refer to Table 5-8. Using the midpoint method, the income elasticity of demand for good Y is a. 2.33, and good Y is a normal good. b. -2.33, and good Y is an inferior good. c. -0.43, and good Y is a normal good. d. -0.43, and good Y is an inferior good.

b. -2.33, and good Y is an inferior good.

Skip's Sealcoating Service increased its total monthly revenue from $12,000 to $13,500 when it raised the price of driveway repairs from $600 to $750. The price elasticity of demand for Skip's Sealcoating Service is a. 0.11. b. 0.47. c. 1.12. d. 2.11.

b. 0.47.

Refer to Table 5-2. Using the midpoint method, if the price falls from $200 to $150, the absolute value of the price elasticity of demand is a. 5.3. b. 2.8. c. 0.8. d. 0.36.

b. 2.8.

In which of these instances is demand said to be perfectly inelastic? a. An increase in price of 2% causes a decrease in quantity demanded of 2%. b. A decrease in price of 2% causes an increase in quantity demanded of 0%. c. A decrease in price of 2% causes a decrease in total revenue of 0%. d. An increase in price of 2% causes a decrease in quantity demanded of 1/2%.

b. A decrease in price of 2% causes an increase in quantity demanded of 0%.

Refer to Table 5-1. Which of the following is consistent with the elasticities given in Table 5-1? a. A is laundry detergent and B is Tide. b. A is Diet Pepsi and B is soda. c. A is food and B is a yacht. d. A is toilet paper and B is candles.

b. A is Diet Pepsi and B is soda.

Which of the following expressions is valid for the price elasticity of demand? a. Price elasticity of demand = (Q1+Q2) / [(Q2 - Q1) / 2] / (P1 + P2) / [(P2 - P1) / 2] b. Price elasticity of demand = (Q2+Q1) / [(Q1 - Q2) / 2] / (P2 + P1) / [(P1 - P2) / 2] c. Price elasticity of demand = (P2+Q1) / [(P1 - P2) / 2] / (Q2 + Q1) / [(Q1 - Q2) / 2] d. Price elasticity of demand = (P1+Q2) / [(P2 - P1) / 2] / (Q1 + Q2) / [(Q2 - Q1) / 2]

b. Price elasticity of demand = (Q2+Q1) / [(Q1 - Q2) / 2] / (P2 + P1) / [(P1 - P2) / 2]

For a particular good, a 2 percent increase in price causes a 12 percent decrease in quantity demanded. Which of the following statements is most likely applicable to this good? a. There are no close substitutes for this good. b. The good is a luxury. c. The market for the good is broadly defined. d. The relevant time horizon is short.

b. The good is a luxury.

For a particular good, a 12 percent increase in price causes a 3 percent decrease in quantity demanded. Which of the following statements is most likely applicable to this good? a. There are many substitutes for this good. b. The good is a necessity. c. The market for the good is narrowly defined. d. The relevant time horizon is long.

b. The good is a necessity.

Using the midpoint method, the price elasticity of demand for a good is computed to be approximately 0.75. Which of the following events is consistent with a 10 percent decrease in the quantity of the good demanded? a. a 7.5 increase in the price of the good b. a 13.33 percent increase in the price of the good c. an increase in the price of the good from $7.50 to $10 d. an increase in the price of the good from $10 to $17.50

b. a 13.33 percent increase in the price of the good

When demand is elastic, an increase in price will cause a. an increase in total revenue. b. a decrease in total revenue. c. no change in total revenue but an increase in quantity demanded. d. no change in total revenue but a decrease in quantity demanded.

b. a decrease in total revenue.

Suppose that Jane enjoys Diet Coke so much that she consumes one can every day. Although she enjoys gourmet cheese, she consumes it sporadically. If the price of Diet Coke rises, Jane decreases her consumption by only a very small amount. But if the price of gourmet cheese rises, Jane decreases her consumption by a lot. These examples illustrate the importance of a. the availability of close substitutes in determining the price elasticity of demand. b. a necessity versus a luxury in determining the price elasticity of demand. c. the definition of a market in determining the price elasticity of demand. d. the time horizon in determining the price elasticity of demand.

b. a necessity versus a luxury in determining the price elasticity of demand.

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 real 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.

b. buyers tend to be much more sensitive to a change in price when given more time to react.

When the price of an eBook is $15.00, the quantity demanded is 400 eBooks per day. When the price falls to $10.00, the quantity demanded increases to 700. Given this information and using the midpoint method, we know that the demand for eBooks is a. inelastic. b. elastic. c. unit elastic. d. perfectly inelastic.

b. elastic.

Which of the following is likely to have the most price inelastic demand? a. strawberry-banana milk shakes b. gasoline in the short run c. diamond earrings d. box seats at a major league baseball game

b. gasoline in the short run

Which of the following is likely to have the most price inelastic demand? a. mint-flavored toothpaste b. toothpaste c. Colgate mint-flavored toothpaste d. a generic mint-flavored toothpaste

b. toothpaste

Jerome says that he will spend exactly $25 each month on new apps for his mobile device, regardless of the price of apps. Jerome's demand for apps is a. perfectly elastic. b. unit elastic. c. perfectly inelastic. d. somewhat inelastic, but not perfectly inelastic.

b. unit elastic.

Suppose good X has a positive income elasticity of demand. This implies that good X could be (i) a normal good. (ii) a necessity. (iii) an inferior good. (iv) a luxury. a. (i) only b. (i) and (ii) only c. (i), (ii), and (iv) only d. (iii) only

c. (i), (ii), and (iv) only

Refer to Table 5-5. As price rises from $5 to $6, the price elasticity of demand using the midpoint method is approximately a. 0.07. b. 0.18. c. 0.41. d. 2.45.

c. 0.41.

When the price of good A is $50, the quantity demanded of good A is 500 units. When the price of good A rises to $70, the quantity demanded of good A falls to 400 units. Using the midpoint method, the price elasticity of demand for good A is a. 1.50, and an increase in price will result in an increase in total revenue for good A. b. 1.50, and an increase in price will result in a decrease in total revenue for good A. c. 0.67, and an increase in price will result in an increase in total revenue for good A. d. 0.67, and an increase in price will result in a decrease in total revenue for good A.

c. 0.67, and an increase in price will result in an increase in total revenue for good A.

Refer to Scenario 5-1. Using the midpoint method, the cross price elasticity of demand is a. about 0.22, and the two goods are substitutes. b. about -0.005, and the two goods are complements. c. 1, and the two goods are substitutes. d. 1, and the two goods are unitary elastic.

c. 1, and the two goods are substitutes.

Refer to Scenario 5-1. Using the midpoint method, what is the income elasticity of demand for pizza and what does the value indicate about the demand for pizza? a. The income elasticity is 0.18 so pizza is a normal good. b. The income elasticity is -1 so pizza is an inferior good. c. The income elasticity is 1 so pizza is unitary elastic. d. The income elasticity is 1 so pizza is a normal good.

d. The income elasticity is 1 so pizza is a normal good.

Suppose the price of a bag of frozen chicken nuggets decreases from $6.50 to $5.75 and, as a result, the quantity of bags demanded increases from 600 to 800. Using the midpoint method, the price elasticity of demand for frozen chicken nuggets in the given price range is a. 0.35. b. 0.43. c. 2.33. d. 2.89.

c. 2.33.

If the price elasticity of demand for a good is 0.5, then a 5 percent increase in price results in a a. 0.1 percent decrease in the quantity demanded. b. 1 percent decrease in the quantity demanded. c. 2.5 percent decrease in the quantity demanded. d. 10 percent decrease in the quantity demanded.

c. 2.5 percent decrease in the quantity demanded.

Suppose the price elasticity of supply for soccer balls is 0.3 in the short run and 1.2 in the long run. If an increase in the demand for soccer balls causes the price of soccer balls to increase by 20%, then the quantity supplied of soccer balls will increase by about a. 0.67% in the short run and 0.17% in the long run. b. 3% in the short run and 1.2% in the long run. c. 6% in the short run and 24% in the long run. d. 66.7% in the short run and 16.7% in the long run.

c. 6% in the short run and 24% in the long run.

Refer to Table 5-1. Which of the following is consistent with the elasticities given in Table 5-1? a. A is pens and B is pencils. b. A is a Snickers bar and B is a Milky Way bar. c. A is an airline ticket from Chicago to New York demanded by a vacationer and B is an airline ticket from Chicago to New York demanded by a business traveler. d. A is a bottle of water demanded by a tourist in a desert and B is a bottle of water demanded by a tourist in a rain forest.

c. A is an airline ticket from Chicago to New York demanded by a vacationer and B is an airline ticket from Chicago to New York demanded by a business traveler.

Refer to Figure 5-3. The demand curve representing the demand for a luxury good with several close substitutes is a. A. b. B. c. C. d. D.

c. C.

Which of the following expressions can be used to compute the price elasticity of demand? a. Price elasticity of demand = • [Q2 - Q1 / [(Q1 + Q2) / 2]] * [P1 + P2 / [(P2 - P1) / 2]] b. Price elasticity of demand = • [(Q1 + Q2 / 2)] / [(Q1 - Q2) / 2] * [P2 - P1 / [(P1 + P2) / 2]] c. Price elasticity of demand = • [Q2 - Q1 / Q1 + Q2] * [P1 + P2 / P2 - P1] d. Price elasticity of demand = • [Q2 - Q1 / Q1 + Q2] * [P2 - P1 / P1 + P2]

c. Price elasticity of demand = • [Q2 - Q1 / Q1 + Q2] * [P1 + P2 / P2 - P1]

For a particular good, an 8 percent increase in price causes a 4 percent decrease in quantity demanded. Which of the following statements is most likely applicable to this good? a. There are many close substitutes for this good. b. The good is a luxury. c. The market for the good is broadly defined. d. The relevant time horizon is long.

c. The market for the good is broadly defined.

A key determinant of the price elasticity of supply is the time period under consideration. Which of the following statements best explains this fact? a. Supply curves are steeper over long periods of time than over short periods of time. b. Buyers of goods tend to be more responsive to price changes over long periods of time than over short periods of time. c. The number of firms in a market tends to be more variable over long periods of time than over short periods of time. d. Firms prefer to change their prices in the short run rather than in the long run.

c. The number of firms in a market tends to be more variable over long periods of time than over short periods of time.

Refer to Figure 5-9. If the price rises from point D to point C, total revenue a. increases, and demand is price elastic. b. decreases, and demand is price elastic. c. increases, and demand is price inelastic. d. decreases, and demand is price inelastic.

c. increases, and demand is price inelastic.

Which of the following is likely to have the most price elastic demand? a. scissors b. fruit c. music downloads d. toothpaste

c. music downloads

Suppose that when the price of wheat is $2 per bushel, farmers can sell 10 million bushels. When the price of wheat is $3 per bushel, farmers can sell 8 million bushels. Which of the following statements is true? The demand for wheat is a. income inelastic, so an increase in the price of wheat will increase the total revenue of wheat farmers. b. income elastic, so an increase in the price of wheat will increase the total revenue of wheat farmers. c. price inelastic, so an increase in the price of wheat will increase the total revenue of wheat farmers. d. price elastic, so an increase in the price of wheat will increase the total revenue of wheat farmers.

c. price inelastic, so an increase in the price of wheat will increase the total revenue of wheat farmers.

Last month, sellers of good Y took in $100 in total revenue on sales of 50 units of good Y. This month sellers of good Y raised their price and took in $120 in total revenue on sales of 40 units of good Y. At the same time, the price of good X stayed the same, but sales of good X increased from 20 units to 40 units. We can conclude that goods X and Y are a. substitutes, and have a cross-price elasticity of 0.60. b. complements, and have a cross-price elasticity of -0.60. c. substitutes, and have a cross-price elasticity of 1.67. d. complements, and have a cross-price elasticity of -1.67.

c. substitutes, and have a cross-price elasticity of 1.67.

Refer to Table 5-9. Which of the three supply curves represents the most elastic supply? a. supply curve A b. supply curve B c. supply curve C d. There is no difference in the elasticity of the three supply curves.

c. supply curve C

Some firms eventually experience problems with their capacity to produce output as their output levels increase. For these firms, a. market power is substantial. b. supply is perfectly inelastic. c. supply is more elastic at low levels of output and less elastic at high levels of output. d. supply is less elastic at low levels of output and more elastic at high levels of output.

c. supply is more elastic at low levels of output and less elastic at high levels of output.

Refer to Table 5-3. Using the midpoint method, in which range is demand most elastic? a. $0 to $3 b. $3 to $6 c. $9 to 12 d. $12 to $15

d. $12 to $15

Suppose that when the price of good X increases from $800 to $850, the quantity demanded of good Y increases from 65 to 70. Using the midpoint method, the cross price elasticity of demand is about a. -1.2, and X and Y are complements. b. -0.1, and X and Y are complements. c. 0.1, and X and Y are substitutes. d. 1.2, and X and Y are substitutes.

d. 1.2, and X and Y are substitutes.

Refer to Table 5-7. Using the midpoint method, when income equals $7,500, what is the price elasticity of demand between $16 and $20? a. 0.56 b. 0.75 c. 1.33 d. 1.80

d. 1.80

At a price of $1.00, a local coffee shop is willing to supply 100 cinnamon rolls per day. At a price of $1.20, the coffee shop would be willing to supply 150 cinnamon rolls per day. Using the midpoint method, the price elasticity of supply is about a. 0.45 b. 0.90 c. 1.11 d. 2.20

d. 2.20

Last year, Jim bought 8 tickets to sporting events when his income was $30,000. This year, his income is $33,000, and he purchased 10 tickets to sporting events. Holding other factors constant and using the midpoint method, it follows that Jim's income elasticity of demand is about a. 0.43, and Jim regards tickets to sporting events as inferior goods. b. 0.43, and Jim regards tickets to sporting events as normal goods. c. 2.33, and Jim regards tickets to sporting events as inferior goods. d. 2.33, and Jim regards tickets to sporting events as normal goods.

d. 2.33, and Jim regards tickets to sporting events as normal goods.

In which of the following situations will total revenue increase? a. Price elasticity of demand is 1.2, and the price of the good decreases. b. Price elasticity of demand is 0.5, and the price of the good increases. c. Price elasticity of demand is 3.0, and the price of the good decreases. d. All of the above are correct.

d. All of the above are correct.

Refer to Table 5-9. Along which of the supply curves does quantity supplied move proportionately more than the price? a. along supply curve B only b. along supply curves B and C c. along all three supply curves d. None. Quantity supplied moves proportionately less than the price along all of the three supply curves.

d. None. Quantity supplied moves proportionately less than the price along all of the three supply curves.

Using the midpoint method, the price elasticity of demand for a good is computed to be approximately 2. Which of the following events is consistent with a 0.1 percent increase in the price of the good? a. The quantity of the good demanded decreases from 250 to 150. b. The quantity of the good demanded decreases from 200 to 100. c. The quantity of the good demanded decreases by 0.05 percent. d. The quantity of the good demanded decreases by 0.2 percent.

d. The quantity of the good demanded decreases by 0.2 percent.

For a particular good, an 8 percent increase in price causes a 12 percent decrease in quantity demanded. Which of the following statements is most likely applicable to this good? a. There are no close substitutes for this good. b. The good is a necessity. c. The market for the good is broadly defined. d. The relevant time horizon is long.

d. The relevant time horizon is long.

Which of the following is likely to have the most price inelastic demand? a. white chocolate chip with macadamia nut cookies b. Mrs. Field's chocolate chip cookies c. milk chocolate chip cookies d. cookies

d. cookies

Refer to Figure 5-1. Between point A and point B on the graph, demand is a. perfectly elastic. b. inelastic. c. unit elastic. d. elastic, but not perfectly elastic.

d. elastic, but not perfectly elastic.

Refer to Table 5-2. Using the midpoint method, if the price falls from $200 to $150, the price elasticity of demand is a. zero. b. unit elastic. c. inelastic. d. elastic.

d. elastic.

Necessities such as food and clothing tend to have a. high price elasticities of demand and high income elasticities of demand. b. high price elasticities of demand and low income elasticities of demand. c. low price elasticities of demand and high income elasticities of demand. 35 d. low price elasticities of demand and low income elasticities of demand.

d. low price elasticities of demand and low income elasticities of demand.