308 ? Chapter 5 /Elasticity and Its Application
Figure 5-2
PricePaPbD1D3D2Quantity59. 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.
ANS: A
NAT: Analytic MSC: Applicative
DIF: 2
LOC: Elasticity
REF: 5-1
TOP: Price elasticity of demand
60. Refer to Figure 5-2. As price falls from Pa to Pb, we could use the three demand curves to calculate three
different values of the price elasticity of demand. Which of the three demand curves would produce the smallest elasticity? a. D1 b. D2 c. D3
d. All of the above are equally elastic.
ANS: C
NAT: Analytic MSC: Applicative
DIF: 2
LOC: Elasticity
REF: 5-1
TOP: Price elasticity of demand
Table 5-1 Good Price Elasticity of Demand A 1.3 B 2.1 61. Refer to Table 5-1. Which of the following is consistent with the elasticities given in Table 5-2? a. A is a luxury and B is a necessity.
b. A is a good several years after a price increase, and B is that same good several days after the price
increase.
c. A is a Kit Kat bar and B is candy. d. A has fewer substitutes than B.
ANS: D
NAT: Analytic MSC: Analytical
DIF: 3
LOC: Elasticity
REF: 5-1
TOP: Price elasticity of demand
Chapter 5 /Elasticity and Its Application ? 309
62. Refer to Table 5-1. Which of the following is consistent with the elasticities given in Table 5-2?
a. A is grapes and B is fruit. b. A is T-shirts and B is socks.
c. A is train tickets before cars were invented, and B is train tickets after cars were invented. d. A is diamond necklaces and B is beds.
ANS: C
NAT: Analytic MSC: Analytical
DIF: 3
LOC: Elasticity
REF: 5-1
TOP: Price elasticity of demand
63. Studies indicate that the price elasticity of demand for cigarettes is about 0.4. A government policy aimed at
reducing smoking changed the price of a pack of cigarettes from $2 to $6. According to the midpoint method, the government policy should have reduced smoking by a. 30%. b. 40%. c. 80%. d. 250%.
ANS: B
NAT: Analytic MSC: Applicative
DIF: 3
LOC: Elasticity
REF: 5-1
TOP: Price elasticity of demand
64. If a 15% increase in price for a good results in a 20% decrease in quantity demanded, the price elasticity of
demand is a. 0.75. b. 1.25. c. 1.33. d. 1.60.
ANS: C
NAT: Analytic MSC: Analytical
DIF: 2
LOC: Elasticity
REF: 5-1
TOP: Price elasticity of demand
65. If a 20% increase in price for a good results in a 15% decrease in quantity demanded, the price elasticity of
demand is a. 0.75. b. 1.25. c. 1.33. d. 1.60.
ANS: A
NAT: Analytic MSC: Analytical
DIF: 2
LOC: Elasticity
REF: 5-1
TOP: Price elasticity of demand
66. If a 10% decrease in price for a good results in a 20% increase in quantity demanded, the price elasticity of
demand is a. 0.50. b. 1. c. 1.5. d. 2.
ANS: D
NAT: Analytic MSC: Analytical
DIF: 2
LOC: Elasticity
REF: 5-1
TOP: Price elasticity of demand
67. If a 6% decrease in price for a good results in a 2% increase in quantity demanded, the price elasticity of
demand is a. 0.02. b. 0.33. c. 3. d. 4.
ANS: B
NAT: Analytic MSC: Analytical
DIF: 2
LOC: Elasticity
REF: 5-1
TOP: Price elasticity of demand
310 ? Chapter 5 /Elasticity and Its Application
68. Suppose that quantity demand rises by 10% as a result of a 15% decrease in price. The price elasticity of
demand for this good is
a. inelastic and equal to 0.67. b. elastic and equal to 0.67. c. inelastic and equal to 1.50. d. elastic and equal to 1.50.
ANS: A
NAT: Analytic MSC: Analytical
DIF: 2
LOC: Elasticity
REF: 5-1
TOP: Price elasticity of demand
69. Suppose that quantity demand falls by 30% as a result of a 5% increase in price. The price elasticity of
demand for this good is a. inelastic and equal to 6. b. elastic and equal to 6. c. inelastic and equal to 0.17. d. elastic and equal to 0.17.
ANS: B
NAT: Analytic MSC: Analytical
DIF: 2
LOC: Elasticity
REF: 5-1
TOP: Price elasticity of demand
Table 5-2
The following table shows a portion of the demand schedule for a particular good at various levels of income.
Price $24 $20 $16 $12 $8 $4 Quantity Demanded (Income = $5,000) 2 4 6 8 10 12 Quantity Demanded (Income = $7,500) 3 6 9 12 15 18 Quantity Demanded (Income = $10,000) 4 8 12 16 20 24 70. Refer to Table 5-2. 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
ANS: D
NAT: Analytic MSC: Analytical
DIF: 2
LOC: Elasticity
REF: 5-1
TOP: Price elasticity of demand
71. Refer to Table 5-2. 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
ANS: A
NAT: Analytic MSC: Analytical
DIF: 2
LOC: Elasticity
REF: 5-1
TOP: Price elasticity of demand
Chapter 5 /Elasticity and Its Application ? 311
72. Refer to Table 5-2. Using the midpoint method, at a price of $16, what is the income elasticity of demand
when income rises from $5,000 to $10,000? a. 0.00 b. 0.50 c. 1.00 d. 1.50
ANS: C
NAT: Analytic MSC: Analytical
DIF: 2
LOC: Elasticity
REF: 5-1
TOP: Income elasticity of demand
73. Refer to Table 5-2. Using the midpoint method, at a price of $8, what is the income elasticity of demand
when income rises from $7,500 to $10,000? a. 0.00 b. 0.41 c. 1.00 d. 2.45
ANS: C
NAT: Analytic MSC: Analytical
DIF: 2
LOC: Elasticity
REF: 5-1
TOP: Income elasticity of demand
74. Refer to Table 5-2. Using the midpoint method, at a price of $12, what is the income elasticity of demand
when income rises from $5,000 to $10,000? a. 0.00 b. 0.41 c. 1.00 d. 2.45
ANS: C
NAT: Analytic MSC: Analytical
DIF: 2
LOC: Elasticity
REF: 5-1
TOP: Income elasticity of demand
75. Demand is said to be price 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
NAT: Analytic MSC: Definitional
DIF: 2
LOC: Elasticity
REF: 5-1
TOP: Elastic demand
76. 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
NAT: Analytic MSC: Definitional
DIF: 1
LOC: Elasticity
REF: 5-1
TOP: Elastic demand
77. Demand is elastic if elasticity is
a. less than 1. b. equal to 1. c. equal to 0. d. greater than 1.
ANS: D
NAT: Analytic MSC: Definitional
DIF: 1
LOC: Elasticity
REF: 5-1
TOP: Elastic demand
312 ? Chapter 5 /Elasticity and Its Application
78. For which of the following goods is demand probably most inelastic?
a. camcorders b. insulin c. apples
d. devices that remove cores from apples
ANS: B
NAT: Analytic MSC: Interpretive
DIF: 2
LOC: Elasticity
REF: 5-1
TOP: Elastic demand
79. 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
NAT: Analytic MSC: Definitional
DIF: 2
LOC: Elasticity
REF: 5-1
TOP: Inelastic demand
80. If demand is price 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
NAT: Analytic MSC: Definitional
DIF: 2
LOC: Elasticity
REF: 5-1
TOP: Inelastic demand
81. If the quantity demanded of a certain good responds only slightly to a change in the price of the good, then
a. the demand for the good is said to be elastic. b. the demand for the good is said to be inelastic. c. the law of demand does not apply to the good.
d. the demand curve for the good shifts only slightly in response to a change in price.
ANS: B
NAT: Analytic MSC: Definitional
DIF: 1
LOC: Elasticity
REF: 5-1
TOP: Inelastic demand
82. Demand is inelastic if elasticity is
a. less than 1. b. equal to 1. c. greater than 1. d. equal to 0.
ANS: A
NAT: Analytic MSC: Definitional
DIF: 1
LOC: Elasticity
REF: 5-1
TOP: Inelastic demand
83. Demand is said to be inelastic if the
a. quantity demanded changes proportionately more than price. b. price changes proportionately more than income.
c. quantity demanded changes proportionately less than price. d. quantity demanded changes proportionately the same as price.
ANS: C
NAT: Analytic MSC: Definitional
DIF: 2
LOC: Elasticity
REF: 5-1
TOP: Inelastic demand