Chapter 5 /Elasticity and Its Application ? 313

84. If the price elasticity of demand is 1.5, regardless of which two points on the demand curve are used to

compute the elasticity, then

a. demand is perfectly inelastic, and the demand curve is vertical.

b. demand is elastic, and the demand curve is a straight, downward-sloping line. c. demand is perfectly elastic, and the demand curve is horizontal.

d. demand is elastic, and the demand curve is something other than a straight, downward-sloping line.

ANS: D

NAT: Analytic MSC: Applicative

DIF: 3

LOC: Elasticity

REF: 5-1

TOP: Price elasticity of demand

Table 5-3

The following table shows the demand schedule for a particular good.

Price $15 $12 $9 $6 $3 $0 Quantity 0 5 10 15 20 25 85. Refer to Table 5-3. Using the midpoint method, what is the price elasticity of demand when price rises from

$9 to $12? a. 0.43 b. 0.67 c. 1.50 d. 2.33

ANS: D

NAT: Analytic MSC: Analytical

DIF: 2

LOC: Elasticity

REF: 5-1

TOP: Midpoint method | Price elasticity of demand

86. Refer to Table 5-3. Using the midpoint method, when price rises from $6 to $9, the price elasticity of

demand is a. 0.43 b. 0.67 c. 1.00 d. 1.5

ANS: C

NAT: Analytic MSC: Analytical

DIF: 2

LOC: Elasticity

REF: 5-1

TOP: Midpoint method | Price elasticity of demand

87. Refer to Table 5-3. Using the midpoint method, when price falls from $6 to $3, the price elasticity of

demand is a. 0.43 b. 0.67 c. 1.50 d. 2.33

ANS: A

NAT: Analytic MSC: Analytical

DIF: 2

LOC: Elasticity

REF: 5-1

TOP: Midpoint method | Price elasticity of demand

314 ? Chapter 5 /Elasticity and Its Application

88. 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

NAT: Analytic MSC: Applicative

DIF: 2

LOC: Elasticity

REF: 5-1

TOP: Midpoint method | Price elasticity of demand

89. 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

NAT: Analytic MSC: Interpretive

DIF: 2

LOC: Elasticity

REF: 5-1

TOP: Midpoint method | Price elasticity of demand

90. Suppose the price of Twinkies decreases from $1.45 to $1.25 and, as a result, the quantity of Twinkies

demanded increases from 2,000 to 2,200. Using the midpoint method, the price elasticity of demand for Twinkies in the given price range is a. 2.00. b. 1.55. c. 1.00. d. 0.64.

ANS: D

NAT: Analytic MSC: Applicative

DIF: 2

LOC: Elasticity

REF: 5-1

TOP: Midpoint method | Price elasticity of demand

91. 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

ANS: B

NAT: Analytic MSC: Applicative

DIF: 3

LOC: Elasticity

REF: 5-1

TOP: Midpoint method | Price elasticity of demand

92. 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.

ANS: D

NAT: Analytic MSC: Applicative

DIF: 3

LOC: Elasticity

REF: 5-1

TOP: Midpoint method | Price elasticity of demand

Chapter 5 /Elasticity and Its Application ? 315

93. When the price of a good is $5, the quantity demanded is 100 units per month; when the price is $7, the

quantity demanded is 80 units per month. Using the midpoint method, the price elasticity of demand is about a. 0.22. b. 0.67. c. 1.33. d. 1.50.

ANS: B

NAT: Analytic MSC: Applicative

DIF: 1

LOC: Elasticity

REF: 5-1

TOP: Midpoint method | Price elasticity of demand

94. When the price of a good is $5, the quantity demanded is 120 units per month; when the price is $7, the

quantity demanded is 100 units per month. Using the midpoint method, the price elasticity of demand is about a. 0.55. b. 1.83. c. 2. d. 10.

ANS: A

NAT: Analytic MSC: Applicative

DIF: 1

LOC: Elasticity

REF: 5-1

TOP: Midpoint method | Price elasticity of demand

95. When the price of a watch was $25 each, the jewelry shop sold 20 per month. When it raised the price to $35

each, it sold 14 per month. The price elasticity of demand for watches is about a. 1.66. b. 1.06. c. 0.94. d. 0.60.

ANS: B

NAT: Analytic MSC: Applicative

DIF: 2

LOC: Elasticity

REF: 5-1

TOP: Midpoint method | Price elasticity of demand

96. Which of the following expressions is valid for the price elasticity of demand?

a.

Price elasticity of demand = .

b. c. d.

Price elasticity of demand = Price elasticity of demand = Price elasticity of demand =

DIF: 2

LOC: Elasticity

. . .

REF: 5-1

TOP: Midpoint method | Price elasticity of demand

ANS: B

NAT: Analytic MSC: Applicative

316 ? Chapter 5 /Elasticity and Its Application

97. Which of the following expressions can be used to compute the price elasticity of demand?

a.

Price elasticity of demand = ? .

b. c. d.

Price elasticity of demand = Price elasticity of demand = Price elasticity of demand =

DIF: 3

LOC: Elasticity

? ? ?

. .

.

ANS: C

NAT: Analytic MSC: Analytical

REF: 5-1

TOP: Midpoint method | Price elasticity of demand

98. Suppose that 50 candy bars are demanded at a particular price. If the price of candy bars rises from that price

by 4 percent, the number of candy bars demanded falls to 46. Using the midpoint approach to calculate the price elasticity of demand, it follows that the

a. demand for candy bars in this price range is elastic. b. demand for candy bars in this price range is inelastic. c. demand for candy bars in this price range is unit elastic.

d. price elasticity of demand for candy bars in this price range is 0.

ANS: A

NAT: Analytic MSC: Applicative

DIF: 2

LOC: Elasticity

REF: 5-1

TOP: Midpoint method | Price elasticity of demand

99. When the rental price of DVD movies is $4, Denise rents five per month. When the price is $3, she rents nine

per month. Denise's demand for DVD rentals 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.

ANS: A

NAT: Analytic MSC: Applicative

DIF: 2

LOC: Elasticity

REF: 5-1

TOP: Midpoint method | Price elasticity of demand

Chapter 5 /Elasticity and Its Application ? 317

Figure 5-3

109876543212468101214161820222426QuantityPriceABDemand100. Refer to Figure 5-3. Between point A and point B,

a. the slope is equal to -1/4 and the price elasticity of demand is equal to 2/3. b. the slope is equal to -1/4 and the price elasticity of demand is equal to 3/2. c. the slope is equal to -3/2 and the price elasticity of demand is equal to 1/4. d. the slope is equal to -2/3 and the price elasticity of demand is equal to 3/2.

ANS: B

NAT: Analytic MSC: Applicative

DIF: 2

LOC: Elasticity

REF: 5-1

TOP: Midpoint method | Price elasticity of demand

101. Refer to Figure 5-3. 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.

ANS: D

NAT: Analytic MSC: Applicative

DIF: 2

LOC: Elasticity

REF: 5-1

TOP: Midpoint method | Price elasticity of demand

102. The midpoint method for calculating elasticities is convenient in that it allows us to

a. ignore the percentage change in quantity demanded and instead focus entirely on the percentage

change in price.

b. calculate the same value for the elasticity, regardless of whether the price increases or decreases. c. assume that sellers' total revenue stays constant when the price changes. d. restrict all elasticity values to between 0 and 1.

ANS: B

NAT: Analytic MSC: Interpretive

DIF: 2

LOC: Elasticity

REF: 5-1

TOP: Midpoint method | Price elasticity of demand