298 ? Chapter 5 /Elasticity and Its Application

5.

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 does not apply. d. All of the above are correct.

DIF: 2

LOC: Elasticity

ANS: B

NAT: Analytic MSC: Interpretive6.

REF: 5-1

TOP: Price elasticity of demand

Goods with many close substitutes tend to have a. more elastic demands. b. less elastic demands.

c. price elasticities of demand that are unit elastic. d. income elasticities of demand that are negative.

DIF: 2

LOC: Elasticity

ANS: A

NAT: Analytic MSC: Interpretive7.

REF: 5-1

TOP: Price elasticity of demand

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

DIF: 2

LOC: Elasticity

ANS: B

NAT: Analytic MSC: Applicative8.

REF: 5-1

TOP: Price elasticity of demand

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

DIF: 2

LOC: Elasticity

ANS: D

NAT: Analytic MSC: Applicative9.

REF: 5-1

TOP: Price elasticity of demand

If the price of natural gas rises, when is the price elasticity of demand likely to be the highest? a. immediately after the price increase b. one month after the price increase c. three months after the price increase d. one year after the price increase

DIF: 2

LOC: Elasticity

ANS: D

NAT: Analytic MSC: Applicative

REF: 5-1

TOP: Price elasticity of demand

10. If the price of milk rises, when is the price elasticity of demand likely to be the lowest?

a. immediately after the price increase b. one month after the price increase c. three months after the price increase d. one year after the price increase

ANS: A

NAT: Analytic MSC: Applicative

DIF: 2

LOC: Elasticity

REF: 5-1

TOP: Price elasticity of demand

Chapter 5 /Elasticity and Its Application ? 299

11. 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

NAT: Analytic MSC: Interpretive

DIF: 2

LOC: Elasticity

REF: 5-1

TOP: Price elasticity of demand

12. For a good that is a necessity, 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: A

NAT: Analytic MSC: Interpretive

DIF: 2

LOC: Elasticity

REF: 5-1

TOP: Price elasticity of demand

13. 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

NAT: Analytic MSC: Interpretive

DIF: 2

LOC: Elasticity

REF: 5-1

TOP: Price elasticity of demand

14. The demand for Neapolitan 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

NAT: Analytic MSC: Interpretive

DIF: 2

LOC: Elasticity

REF: 5-1

TOP: Price elasticity of demand

15. 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

NAT: Analytic MSC: Interpretive

DIF: 2

LOC: Elasticity

REF: 5-1

TOP: Price elasticity of demand

16. 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

NAT: Analytic MSC: Interpretive

DIF: 2

LOC: Elasticity

REF: 5-1

TOP: Price elasticity of demand

300 ? Chapter 5 /Elasticity and Its Application

17. 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.

ANS: B

NAT: Analytic MSC: Interpretive

DIF: 2

LOC: Elasticity

REF: 5-1

TOP: Price elasticity of demand

18. 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

NAT: Analytic MSC: Interpretive

DIF: 2

LOC: Elasticity

REF: 5-1

TOP: Price elasticity of demand

19. A good will have a more elastic demand,

a. the greater the availability of close substitutes. b. the more narrow the definition of the market. c. the shorter the period of time.

d. the more it is regarded as a necessity.

ANS: A

NAT: Analytic MSC: Interpretive

DIF: 2

LOC: Elasticity

REF: 5-1

TOP: Price elasticity of demand

20. Which of the following statements is correct?

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 clocks in general.

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

NAT: Analytic MSC: Interpretive

DIF: 2

LOC: Elasticity

REF: 5-1

TOP: Price elasticity of demand

21. Which of the following statements is correct?

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

NAT: Analytic MSC: Interpretive

DIF: 2

LOC: Elasticity

REF: 5-1

TOP: Price elasticity of demand

22. Which of the following is not a determinant of the price elasticity of demand for a good?

a. the time horizon

b. the steepness or flatness of the supply curve for the good c. the definition of the market for the good d. the availability of substitutes for the good

ANS: B

NAT: Analytic MSC: Interpretive

DIF: 2

LOC: Elasticity

REF: 5-1

TOP: Price elasticity of demand

Chapter 5 /Elasticity and Its Application ? 301

23. The greater the price elasticity of demand, the

a. more likely the product is a necessity.

b. smaller the responsiveness of quantity demanded to a change in price.

c. greater the percentage change in price over the percentage change in quantity demanded. d. greater the responsiveness of quantity demanded to a change in price.

ANS: D

NAT: Analytic MSC: Interpretive

DIF: 2

LOC: Elasticity

REF: 5-1

TOP: Price elasticity of demand

24. The value of the price elasticity of demand for a good will be relatively large when

a. there are no good substitutes available for the good. b. the time period in question is relatively short. c. the good is a luxury as opposed to a necessity. d. All of the above are correct.

ANS: C

NAT: Analytic MSC: Interpretive

DIF: 2

LOC: Elasticity

REF: 5-1

TOP: Price elasticity of demand

25. For which of the following goods would demand be most elastic?

a. clothing b. blue jeans

c. Tommy Hilfiger jeans

d. All three would have the same elasticity of demand since they are all related.

ANS: C

NAT: Analytic MSC: Applicative

DIF: 2

LOC: Elasticity

REF: 5-1

TOP: Price elasticity of demand

26. For which of the following goods would demand be most inelastic?

a. chocolate

b. Godiva chocolate c. Hershey’s chocolate

d. All three would have the same elasticity of demand since they are all related.

ANS: A

NAT: Analytic MSC: Applicative

DIF: 2

LOC: Elasticity

REF: 5-1

TOP: Price elasticity of demand

27. Whether a good is a luxury or necessity depends on

a. the price of the good.

b. the preferences of the buyer.

c. the intrinsic properties of the good. d. how scarce the good is.

ANS: B

NAT: Analytic MSC: Interpretive

DIF: 2

LOC: Elasticity

REF: 5-1

TOP: Price elasticity of demand

28. The price elasticity of demand for bread

a. is computed as the percentage change in quantity demanded of bread divided by the percentage

change in price of bread.

b. depends, in part, on the availability of close substitutes for bread.

c. reflects the many economic, social, and psychological forces that influence consumers' tastes for

bread.

d. All of the above are correct.

ANS: D

NAT: Analytic MSC: Interpretive

DIF: 1

LOC: Elasticity

REF: 5-1

TOP: Price elasticity of demand

302 ? Chapter 5 /Elasticity and Its Application

29. The price elasticity of demand for eggs

a. is computed as the percentage change in quantity demanded of eggs divided by the percentage

change in price of eggs.

b. will be lower if there is a new invention that is a close substitute for eggs. c. will be higher if consumers consider eggs to be a luxury good. d. All of the above are correct.

ANS: A

NAT: Analytic MSC: Interpretive

DIF: 1

LOC: Elasticity

REF: 5-1

TOP: Price elasticity of demand

30. 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

NAT: Analytic MSC: Interpretive

DIF: 2

LOC: Elasticity

REF: 5-1

TOP: Price elasticity of demand

31. 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

NAT: Analytic MSC: Definitional

DIF: 2

LOC: Elasticity

REF: 5-1

TOP: Price elasticity of demand

32. 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. 0. b. 1. c. 6. d. 36.

ANS: B

NAT: Analytic MSC: Applicative

DIF: 2

LOC: Elasticity

REF: 5-1

TOP: Price elasticity of demand

33. If the price elasticity of demand for a good is 4.0, then a 10 percent increase in price results in a

a. 0.4 percent decrease in the quantity demanded. b. 2.5 percent decrease in the quantity demanded. c. 4 percent decrease in the quantity demanded. d. 40 percent decrease in the quantity demanded.

ANS: D

NAT: Analytic MSC: Applicative

DIF: 2

LOC: Elasticity

REF: 5-1

TOP: Price elasticity of demand

34. If the price elasticity of demand for a good is 10.0, then a 4 percent increase in price results in a

a. 0.4 percent decrease in the quantity demanded. b. 2.5 percent decrease in the quantity demanded. c. 4 percent decrease in the quantity demanded. d. 40 percent decrease in the quantity demanded.

ANS: D

NAT: Analytic MSC: Applicative

DIF: 2

LOC: Elasticity

REF: 5-1

TOP: Price elasticity of demand