Essentials of Economics 7th Edition by N. Gregory Mankiw – Test Bank

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Elasticity and Its Application

Multiple Choice – Section 00: Introduction

In general, elasticity is a measure of
1. the extent to which advances in technology are adopted by
2. the extent to which a market is
3. how firms’ profits respond to changes in market
4. how much buyers and sellers respond to changes in market

ANSWER: d

POINTS: 1

DIFFICULTY: Difficulty: Easy

LEARNING OBJECTIVES: ECON.MANK.15.22 – LO: 5-0

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

KEYWORDS: BLOOM’S: Knowledge

Elasticity is
1. a measure of how much buyers and sellers respond to changes in market
2. the study of how the allocation of resources affects economic well-being.
3. the maximum amount that a buyer will pay for a
4. the value of everything a seller must give up to produce a

ANSWER: a

POINTS: 1

DIFFICULTY: Difficulty: Easy

LEARNING OBJECTIVES: ECON.MANK.15.22 – LO: 5-0

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

KEYWORDS: BLOOM’S: Knowledge

When studying how some event or policy affects a market, elasticity provides information on the
1. equity effects on the market by identifying the winners and
2. magnitude of the effect on the
3. speed of adjustment of the market in response to the event or
4. number of market participants who are directly affected by the event or

ANSWER: b

POINTS: 1

DIFFICULTY: Difficulty: Moderate

LEARNING OBJECTIVES: ECON.MANK.15.22 – LO: 5-0

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

KEYWORDS: BLOOM’S: Comprehension

When studying how some event or policy affects a market, elasticity provides information on the
1. change in the costs of
2. tradeoff between equality and
3. effect on the budget deficit or
4. direction and magnitude of the

ANSWER: d

POINTS: 1

DIFFICULTY: Difficulty: Moderate

LEARNING OBJECTIVES: ECON.MANK.15.22 – LO: 5-0

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

KEYWORDS: BLOOM’S: Comprehension

NOTES: r

How does the concept of elasticity allow us to improve upon our understanding of supply and demand?
1. Elasticity allows us to analyze supply and demand with greater precision than would be the case in the absence of the elasticity
2. 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
3. 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
4. Without elasticity, it is very difficult to assess the degree of competition within a

ANSWER: a

POINTS: 1

DIFFICULTY: Difficulty: Moderate

LEARNING OBJECTIVES: ECON.MANK.15.22 – LO: 5-0

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

KEYWORDS: BLOOM’S: Comprehension

When consumers face rising gasoline prices, they typically
1. reduce their quantity demanded more in the long run than in the short
2. reduce their quantity demanded more in the short run than in the long
3. do not reduce their quantity demanded in the short run or the long
4. increase their quantity demanded in the short run but reduce their quantity demanded in the long

ANSWER: a

POINTS: 1

DIFFICULTY: Difficulty: Moderate

LEARNING OBJECTIVES: ECON.MANK.15.22 – LO: 5-0

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Price Elasticity of Demand

KEYWORDS: BLOOM’S: Application

A 10 percent increase in gasoline prices reduces gasoline consumption by about
1. 6 percent after one year and 5 percent after five years.
2. 5 percent after one year and 6 percent after five years.
3. 10 percent after one year and 20 percent after five
4. 0 percent after one year and 1 percent after five

ANSWER: b

POINTS: 1

DIFFICULTY: Difficulty: Moderate

LEARNING OBJECTIVES: ECON.MANK.15.22 – LO: 5-0

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Price Elasticity of Demand

KEYWORDS: BLOOM’S: Application

Which of the following statements about the consumers’ responses to rising gasoline prices is correct?
1. About 10 percent of the long-run reduction in quantity demanded arises because people drive less and about 90 percent arises because they switch to more fuel-efficient
2. About 90 percent of the long-run reduction in quantity demanded arises because people drive less and about 10 percent arises because they switch to more fuel-efficient
3. About half of the long-run reduction in quantity demanded arises because people drive less and about half arises because they switch to more fuel-efficient
4. Because gasoline is a necessity, consumers do not decrease their quantity demanded in either the short run or the long

ANSWER: c

POINTS: 1

DIFFICULTY: Difficulty: Moderate

LEARNING OBJECTIVES: ECON.MANK.15.22 – LO: 5-0

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Price Elasticity of Demand

KEYWORDS: BLOOM’S: Application

Multiple Choice – Section 01: The Elasticity of Demand

The price elasticity of demand measures how much
1. quantity demanded responds to a change in
2. quantity demanded responds to a change in
3. price responds to a change in
4. demand responds to a change in

ANSWER: a

POINTS: 1

DIFFICULTY: Difficulty: Easy

LEARNING OBJECTIVES: ECON.MANK.15.23 – LO: 5-1

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Price Elasticity of Demand

KEYWORDS: BLOOM’S: Knowledge

The price elasticity of demand measures
1. buyers’ responsiveness to a change in the price of a
2. the extent to which demand increases as additional buyers enter the
3. how much more of a good consumers will demand when incomes
4. the movement along a supply curve when there is a change in

ANSWER: a

POINTS: 1

DIFFICULTY: Difficulty: Easy

LEARNING OBJECTIVES: ECON.MANK.15.23 – LO: 5-1

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Price Elasticity of Demand

KEYWORDS: BLOOM’S: Knowledge

The price elasticity of demand for a good measures the willingness of
1. consumers to buy less of the good as price
2. consumers to avoid monopolistic markets in favor of competitive
3. firms to produce more of a good as price
4. firms to respond to the tastes of

ANSWER: a

POINTS: 1

DIFFICULTY: Difficulty: Easy

LEARNING OBJECTIVES: ECON.MANK.15.23 – LO: 5-1

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Price Elasticity of Demand

KEYWORDS: BLOOM’S: Comprehension

Which of the following statements about the price elasticity of demand is correct?
1. The price elasticity of demand for a good measures the willingness of buyers of the good to buy less of the good as its price
2. Price elasticity of demand reflects the many economic, psychological, and social forces that shape consumer
3. Other things equal, if good x has close substitutes and good y does not have close substitutes, then the demand for good x will be more elastic than the demand for good y.
4. All of the above are

ANSWER: d

POINTS: 1

DIFFICULTY: Difficulty: Moderate

LEARNING OBJECTIVES: ECON.MANK.15.23 – LO: 5-1

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Price Elasticity of Demand

KEYWORDS: BLOOM’S: Comprehension

Demand is said to be price elastic if
1. the price of the good responds substantially to changes in
2. demand shifts substantially when income or the expected future price of the good
3. buyers do not respond much to changes in the price of the
4. buyers respond substantially to changes in the price of the

ANSWER: d

POINTS: 1

DIFFICULTY: Difficulty: Moderate

LEARNING OBJECTIVES: ECON.MANK.15.23 – LO: 5-1

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Price Elasticity of Demand

KEYWORDS: BLOOM’S: Knowledge

Demand is said to be inelastic if
1. buyers respond substantially to changes in the price of the
2. demand shifts only slightly when the price of the good
3. the quantity demanded changes only slightly when the price of the good
4. the price of the good responds only slightly to changes in

ANSWER: c

POINTS: 1

DIFFICULTY: Difficulty: Moderate

LEARNING OBJECTIVES: ECON.MANK.15.23 – LO: 5-1

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Price Elasticity of Demand

KEYWORDS: BLOOM’S: Knowledge

If demand is price inelastic, then
1. buyers do not respond much to a change in
2. buyers respond substantially to a change in price, but the response is very
3. buyers do not alter their quantities demanded much in response to advertising, fads, or general changes in
4. the demand curve is very

ANSWER: a

POINTS: 1

DIFFICULTY: Difficulty: Moderate

LEARNING OBJECTIVES: ECON.MANK.15.23 – LO: 5-1

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Price Elasticity of Demand

KEYWORDS: BLOOM’S: Knowledge

If the quantity demanded of a certain good responds only slightly to a change in the price of the good, then the
1. demand for the good is said to be
2. demand for the good is said to be
3. law of demand does not apply to the
4. demand curve for the good shifts only slightly in response to a change in

ANSWER: b

POINTS: 1

DIFFICULTY: Difficulty: Easy

LEARNING OBJECTIVES: ECON.MANK.15.23 – LO: 5-1

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Price Elasticity of Demand

KEYWORDS: BLOOM’S: Knowledge

When quantity demanded responds strongly to changes in price, demand is said to be
4. highly

ANSWER: b

POINTS: 1

DIFFICULTY: Difficulty: Easy

LEARNING OBJECTIVES: ECON.MANK.15.23 – LO: 5-1

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Price Elasticity of Demand

KEYWORDS: BLOOM’S: Knowledge

Demand is said to be inelastic if the
1. quantity demanded changes proportionately more than
2. price changes proportionately more than
3. quantity demanded changes proportionately less than
4. quantity demanded changes proportionately the same as

ANSWER: c

POINTS: 1

DIFFICULTY: Difficulty: Moderate

LEARNING OBJECTIVES: ECON.MANK.15.23 – LO: 5-1

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Price Elasticity of Demand

KEYWORDS: BLOOM’S: Knowledge

Demand is elastic if the price elasticity of demand is
1. less than
2. equal to
3. equal to
4. greater than

ANSWER: d

POINTS: 1

DIFFICULTY: Difficulty: Easy

LEARNING OBJECTIVES: ECON.MANK.15.23 – LO: 5-1

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Price Elasticity of Demand

KEYWORDS: BLOOM’S: Knowledge

Demand is inelastic if the price elasticity of demand is
1. less than
2. equal to
3. greater than
4. equal to

ANSWER: a

POINTS: 1

DIFFICULTY: Difficulty: Easy

LEARNING OBJECTIVES: ECON.MANK.15.23 – LO: 5-1

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Price Elasticity of Demand

KEYWORDS: BLOOM’S: Knowledge

Which of the following is not a determinant of the price elasticity of demand for a good?
1. the time horizon
2. the steepness or flatness of the supply curve for the good
3. the definition of the market for the good
4. the availability of substitutes for the good

ANSWER: b

POINTS: 1

DIFFICULTY: Difficulty: Moderate

LEARNING OBJECTIVES: ECON.MANK.15.23 – LO: 5-1

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Price Elasticity of Demand

KEYWORDS: BLOOM’S: Comprehension

The smaller the price elasticity of demand, the
1. more likely the product is a
2. smaller the responsiveness of quantity demanded to a change in
3. more substitutes the product
4. greater the responsiveness of quantity demanded to a change in

ANSWER: b

POINTS: 1

DIFFICULTY: Difficulty: Moderate

LEARNING OBJECTIVES: ECON.MANK.15.23 – LO: 5-1

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Price Elasticity of Demand

KEYWORDS: BLOOM’S: Comprehension

NOTES: r

Whether a good is a luxury or necessity depends on the
1. price of the
2. preferences of the
3. intrinsic properties of the
4. scarcity of the

ANSWER: b

POINTS: 1

DIFFICULTY: Difficulty: Moderate

LEARNING OBJECTIVES: ECON.MANK.15.23 – LO: 5-1

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Price Elasticity of Demand

KEYWORDS: BLOOM’S: Comprehension

Goods with many close substitutes tend to have
1. more elastic
2. less elastic
3. price elasticities of demand that are unit
4. income elasticities of demand that are

ANSWER: a

POINTS: 1

DIFFICULTY: Difficulty: Moderate

LEARNING OBJECTIVES: ECON.MANK.15.23 – LO: 5-1

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Price Elasticity of Demand

KEYWORDS: BLOOM’S: Comprehension

For a good that is a luxury, demand
1. tends to be
2. tends to be
3. has unit
4. cannot be represented by a demand curve in the usual

ANSWER: b

POINTS: 1

DIFFICULTY: Difficulty: Moderate

LEARNING OBJECTIVES: ECON.MANK.15.23 – LO: 5-1

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Price Elasticity of Demand

KEYWORDS: BLOOM’S: Comprehension

For a good that is a necessity, demand
1. tends to be
2. tends to be
3. has unit
4. cannot be represented by a demand curve in the usual

ANSWER: a

POINTS: 1

DIFFICULTY: Difficulty: Moderate

LEARNING OBJECTIVES: ECON.MANK.15.23 – LO: 5-1

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Price Elasticity of Demand

KEYWORDS: BLOOM’S: Comprehension

A good will have a more elastic demand, the
1. greater the availability of close
2. more broad the definition of the
3. shorter the period of
4. more it is regarded as a

ANSWER: a

POINTS: 1

DIFFICULTY: Difficulty: Moderate

LEARNING OBJECTIVES: ECON.MANK.15.23 – LO: 5-1

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Price Elasticity of Demand

KEYWORDS: BLOOM’S: Comprehension

The value of the price elasticity of demand for a good will be relatively large when
1. there are no good substitutes available for the
2. the time period in question is relatively
3. the good is a luxury rather than a
4. All of the above are

ANSWER: c

POINTS: 1

DIFFICULTY: Difficulty: Moderate

LEARNING OBJECTIVES: ECON.MANK.15.23 – LO: 5-1

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Price Elasticity of Demand

KEYWORDS: BLOOM’S: Comprehension

For a good that is a necessity,
1. quantity demanded tends to respond substantially to a change in
2. demand tends to be
3. the law of demand does not
4. All of the above are

ANSWER: b

POINTS: 1

DIFFICULTY: Difficulty: Moderate

LEARNING OBJECTIVES: ECON.MANK.15.23 – LO: 5-1

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Price Elasticity of Demand

KEYWORDS: BLOOM’S: Comprehension

A good will have a more inelastic demand, the
1. greater the availability of close
2. broader the definition of the
3. longer the period of
4. more it is regarded as a

ANSWER: b

POINTS: 1

DIFFICULTY: Difficulty: Moderate

LEARNING OBJECTIVES: ECON.MANK.15.23 – LO: 5-1

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Price Elasticity of Demand

KEYWORDS: BLOOM’S: Comprehension

Other things equal, the demand for a good tends to be more inelastic, the
1. fewer the available
2. longer the time period
3. more the good is considered a luxury
4. more narrowly defined is the market for the

ANSWER: a

POINTS: 1

DIFFICULTY: Difficulty: Moderate

LEARNING OBJECTIVES: ECON.MANK.15.23 – LO: 5-1

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Price Elasticity of Demand

KEYWORDS: BLOOM’S: Comprehension

If the price of natural gas rises, when is the price elasticity of demand likely to be the highest?
1. immediately after the price increase
2. one month after the price increase
3. three months after the price increase
4. one year after the price increase

ANSWER: d

POINTS: 1

DIFFICULTY: Difficulty: Moderate

LEARNING OBJECTIVES: ECON.MANK.15.23 – LO: 5-1

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Price Elasticity of Demand

KEYWORDS: BLOOM’S: Application

If the price of gasoline rises, when is the price elasticity of demand likely to be the highest?
1. immediately after the price increases
2. one month after the price increase
3. three months after the price increase
4. one year after the price increase

ANSWER: d

POINTS: 1

DIFFICULTY: Difficulty: Moderate

LEARNING OBJECTIVES: ECON.MANK.15.23 – LO: 5-1

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Price Elasticity of Demand

KEYWORDS: BLOOM’S: Application

If the price of milk rises, when is the price elasticity of demand likely to be the lowest?
1. immediately after the price increase
2. one month after the price increase
3. three months after the price increase
4. one year after the price increase

ANSWER: a

POINTS: 1

DIFFICULTY: Difficulty: Moderate

LEARNING OBJECTIVES: ECON.MANK.15.23 – LO: 5-1

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Price Elasticity of Demand

KEYWORDS: BLOOM’S: Application

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
1. buyers tend to be much less sensitive to a change in price when given more time to
2. buyers tend to be much more sensitive to a change in price when given more time to
3. buyers will have substantially more real income over a ten-year
4. the quantity supplied of gasoline increases very little in response to an increase in the price of

ANSWER: b

POINTS: 1

DIFFICULTY: Difficulty: Moderate

LEARNING OBJECTIVES: ECON.MANK.15.23 – LO: 5-1

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Price Elasticity of Demand

KEYWORDS: BLOOM’S: Comprehension

The price elasticity of demand for bread
1. is computed as the percentage change in quantity demanded of bread divided by the percentage change in price of
2. depends, in part, on the availability of close substitutes for
3. reflects the many economic, social, and psychological forces that influence consumers’ tastes for
4. All of the above are

ANSWER: d

POINTS: 1

DIFFICULTY: Difficulty: Easy

LEARNING OBJECTIVES: ECON.MANK.15.23 – LO: 5-1

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Price Elasticity of Demand

KEYWORDS: BLOOM’S: Comprehension

The price elasticity of demand for mobile phones
1. will be higher if there is an improvement in the production
2. will be lower if consumers perceive mobile phones to be a
3. is computed as the percentage change in the price of mobile phones divided by the percentage change in quantity of mobile
4. All of the above are

ANSWER: b

POINTS: 1

DIFFICULTY: Difficulty: Easy

LEARNING OBJECTIVES: ECON.MANK.15.23 – LO: 5-1

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Price Elasticity of Demand

KEYWORDS: BLOOM’S: Comprehension

NOTES: r

The price elasticity of demand measures the
1. magnitude of the response in quantity demanded to a change in
2. direction of the shift in the demand curve in response to a market
3. size of the shortage created by the increase in
4. responsiveness of quantity demanded to a change in

ANSWER: a

POINTS: 1

DIFFICULTY: Difficulty: Moderate

LEARNING OBJECTIVES: ECON.MANK.15.23 – LO: 5-1

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Price Elasticity of Demand

KEYWORDS: BLOOM’S: Knowledge

If the price of walnuts rises, many people would switch from consuming walnuts to consuming pecans. But if the price of salt rises, people would have difficulty purchasing something to use in its place. These examples illustrate the importance of
1. the availability of close substitutes in determining the price elasticity of
2. a necessity versus a luxury in determining the price elasticity of
3. the definition of a market in determining the price elasticity of
4. the time horizon in determining the price elasticity of

ANSWER: a

POINTS: 1

DIFFICULTY: Difficulty: Moderate

LEARNING OBJECTIVES: ECON.MANK.15.23 – LO: 5-1

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Price Elasticity of Demand

KEYWORDS: BLOOM’S: Application

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
1. the availability of close substitutes in determining the price elasticity of
2. a necessity versus a luxury in determining the price elasticity of
3. the definition of a market in determining the price elasticity of
4. the time horizon in determining the price elasticity of

ANSWER: b

POINTS: 1

DIFFICULTY: Difficulty: Moderate

LEARNING OBJECTIVES: ECON.MANK.15.23 – LO: 5-1

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Price Elasticity of Demand

KEYWORDS: BLOOM’S: Application

Suppose that Juan Carlos is filling out a survey that he received in the mail. The survey asks him what he would do if the price of his favorite toothpaste increased. Juan Carlos reports that he would switch to a different brand. The survey asks what he would do if the price of all toothpastes increased. Juan Carlos reports that he must use toothpaste, so he would have to adjust his spending elsewhere. These examples illustrate the importance of
1. changes in total revenue in determining the price elasticity of
2. a necessity versus a luxury in determining the price elasticity of
3. the definition of a market in determining the price elasticity of
4. the time horizon in determining the price elasticity of

ANSWER: c

POINTS: 1

DIFFICULTY: Difficulty: Moderate

LEARNING OBJECTIVES: ECON.MANK.15.23 – LO: 5-1

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Price Elasticity of Demand

KEYWORDS: BLOOM’S: Application

Suppose that gasoline prices increase dramatically this month. Lola commutes 100 miles to work each

Over the next few months, Lola drives less on the weekends to try to save money. Within the year, she sells her home and purchases one only 10 miles from her place of employment. These examples illustrate the importance of

the availability of substitutes in determining the price elasticity of
a necessity versus a luxury in determining the price elasticity of
the definition of a market in determining the price elasticity of
the time horizon in determining the price elasticity of

ANSWER: d

POINTS: 1

DIFFICULTY: Difficulty: Moderate

LEARNING OBJECTIVES: ECON.MANK.15.23 – LO: 5-1

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Price Elasticity of Demand

KEYWORDS: BLOOM’S: Application

The demand for Godiva mint chocolates is likely quite elastic because
1. there are many close
2. this particular type of chocolate is viewed as a luxury by many chocolate
3. the market is narrowly
4. All of the above are

ANSWER: d

POINTS: 1

DIFFICULTY: Difficulty: Moderate

LEARNING OBJECTIVES: ECON.MANK.15.23 – LO: 5-1

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Price Elasticity of Demand

KEYWORDS: BLOOM’S: Comprehension

NOTES: r

The demand for grape-flavored Hubba Bubba bubble gum is likely
1. inelastic because there are many close substitutes for grape-flavored Hubba Bubba .
2. elastic because there are many close substitutes for grape-flavored Hubba
3. inelastic because the market is broadly
4. elastic because the market is broadly

ANSWER: b

POINTS: 1

DIFFICULTY: Difficulty: Moderate

LEARNING OBJECTIVES: ECON.MANK.15.23 – LO: 5-1

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Price Elasticity of Demand

KEYWORDS: BLOOM’S: Comprehension

NOTES: r

Which of the following statements is correct?
1. The demand for flat-screen computer monitors is more elastic than the demand for monitors in
2. The demand for grandfather clocks is more elastic than the demand for clocks in
3. The demand for cardboard is more elastic over a long period of time than over a short period of
4. All of the above are

ANSWER: d

POINTS: 1

DIFFICULTY: Difficulty: Moderate

LEARNING OBJECTIVES: ECON.MANK.15.23 – LO: 5-1

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Price Elasticity of Demand

KEYWORDS: BLOOM’S: Comprehension

Which of the following statements is correct?
1. The demand for natural gas is more elastic over a short period of time than over a long period of
2. The demand for smoke alarms is more elastic than the demand for Persian
3. The demand for bourbon whiskey is more elastic than the demand for alcoholic beverages in
4. All of the above are

ANSWER: c

POINTS: 1

DIFFICULTY: Difficulty: Moderate

LEARNING OBJECTIVES: ECON.MANK.15.23 – LO: 5-1

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Price Elasticity of Demand

KEYWORDS: BLOOM’S: Comprehension

Which of the following is likely to have the most price elastic demand?
1. clothing
2. blue jeans
3. Tommy Hilfiger jeans
4. All three would have the same elasticity of demand because they are all

ANSWER: c

POINTS: 1

DIFFICULTY: Difficulty: Moderate

LEARNING OBJECTIVES: ECON.MANK.15.23 – LO: 5-1

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Price Elasticity of Demand

KEYWORDS: BLOOM’S: Application

Which of the following is likely to have the most price elastic demand?
1. ice cream
2. frozen yogurt
3. vanilla ice cream
4. HäagenDazs® vanilla bean ice cream

ANSWER: d

POINTS: 1

DIFFICULTY: Difficulty: Moderate

LEARNING OBJECTIVES: ECON.MANK.15.23 – LO: 5-1

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Price Elasticity of Demand

KEYWORDS: BLOOM’S: Application

Which of the following is likely to have the most price elastic demand?
1. lattés
2. doctor’s visits
3. eggs
4. natural gas

ANSWER: a

POINTS: 1

DIFFICULTY: Difficulty: Moderate

LEARNING OBJECTIVES: ECON.MANK.15.23 – LO: 5-1

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Price Elasticity of Demand

KEYWORDS: BLOOM’S: Application

Which of the following is likely to have the most price elastic demand?
1. dental floss
2. milk
3. salt
4. diamond earrings

ANSWER: d

POINTS: 1

DIFFICULTY: Difficulty: Moderate

LEARNING OBJECTIVES: ECON.MANK.15.23 – LO: 5-1

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Price Elasticity of Demand

KEYWORDS: BLOOM’S: Application

Which of the following is likely to have the most price elastic demand?
1. scissors
2. fruit
3. music downloads
4. toothpaste

ANSWER: c

POINTS: 1

DIFFICULTY: Difficulty: Moderate

LEARNING OBJECTIVES: ECON.MANK.15.23 – LO: 5-1

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Price Elasticity of Demand

KEYWORDS: BLOOM’S: Application

NOTES: r

Which of the following is likely to have the most price inelastic demand?
1. mint-flavored toothpaste
2. toothpaste
3. Colgate mint-flavored toothpaste
4. a generic mint-flavored toothpaste

ANSWER: b

POINTS: 1

DIFFICULTY: Difficulty: Moderate

LEARNING OBJECTIVES: ECON.MANK.15.23 – LO: 5-1

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Price Elasticity of Demand

KEYWORDS: BLOOM’S: Application

Which of the following is likely to have the most price inelastic demand?
1. white chocolate chip with macadamia nut cookies
2. Mrs. Field’s chocolate chip cookies
3. milk chocolate chip cookies
4. cookies

ANSWER: d

POINTS: 1

DIFFICULTY: Difficulty: Moderate

LEARNING OBJECTIVES: ECON.MANK.15.23 – LO: 5-1

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Price Elasticity of Demand

KEYWORDS: BLOOM’S: Application

Which of the following is likely to have the most price inelastic demand?
1. white chocolate chip with macadamia nut cookies
2. hardback novels
3. salt
4. box seats at a major league baseball game

ANSWER: c

POINTS: 1

DIFFICULTY: Difficulty: Moderate

LEARNING OBJECTIVES: ECON.MANK.15.23 – LO: 5-1

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Price Elasticity of Demand

KEYWORDS: BLOOM’S: Application

Which of the following is likely to have the most price inelastic demand?
1. tablet computers
2. leather boots
3. lightbulbs
4. optional textbooks

ANSWER: c

POINTS: 1

DIFFICULTY: Difficulty: Moderate

LEARNING OBJECTIVES: ECON.MANK.15.23 – LO: 5-1

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Price Elasticity of Demand

KEYWORDS: BLOOM’S: Application

NOTES: r

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

ANSWER: b

POINTS: 1

DIFFICULTY: Difficulty: Moderate

LEARNING OBJECTIVES: ECON.MANK.15.23 – LO: 5-1

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Price Elasticity of Demand

KEYWORDS: BLOOM’S: Application

Which of the following is likely to have the most price inelastic demand?
1. chocolate
2. Godiva chocolate
3. Hershey’s chocolate
4. All three would have the same elasticity of demand because they are all

ANSWER: a

POINTS: 1

DIFFICULTY: Difficulty: Moderate

LEARNING OBJECTIVES: ECON.MANK.15.23 – LO: 5-1

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Price Elasticity of Demand

KEYWORDS: BLOOM’S: Application

Which of the following is likely to have the most price inelastic demand?
1. yoga mats
2. prescription medicine
3. protein powder
4. gym memberships

ANSWER: b

POINTS: 1

DIFFICULTY: Difficulty: Moderate

LEARNING OBJECTIVES: ECON.MANK.15.23 – LO: 5-1

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Price Elasticity of Demand

KEYWORDS: BLOOM’S: Comprehension

NOTES: r

Which of the following is likely to have the most price inelastic demand?
1. athletic shoes
2. running shoes
3. Nike running shoes
4. Nike Shox running shoes

ANSWER: a

POINTS: 1

DIFFICULTY: Difficulty: Moderate

LEARNING OBJECTIVES: ECON.MANK.15.23 – LO: 5-1

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Price Elasticity of Demand

KEYWORDS: BLOOM’S: Application

Which of the following is likely to have the most price inelastic demand?
1. lattés
2. filet mignon
3. Grey Goose® vodka
4. milk

ANSWER: d

POINTS: 1

DIFFICULTY: Difficulty: Moderate

LEARNING OBJECTIVES: ECON.MANK.15.23 – LO: 5-1

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Price Elasticity of Demand

KEYWORDS: BLOOM’S: Application

For which of the following goods is the price elasticity of demand most inelastic?
1. pizza
2. large pizza
3. large pepperoni pizza
4. Domino’s large pepperoni pizza

ANSWER: a

POINTS: 1

DIFFICULTY: Difficulty: Moderate

LEARNING OBJECTIVES: ECON.MANK.15.23 – LO: 5-1

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Price Elasticity of Demand

KEYWORDS: BLOOM’S: Comprehension

A person who takes a prescription drug to control high cholesterol most likely has a demand for that drug that is
2. unit
4. highly responsive to changes in

ANSWER: a

POINTS: 1

DIFFICULTY: Difficulty: Moderate

LEARNING OBJECTIVES: ECON.MANK.15.23 – LO: 5-1

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Price Elasticity of Demand

KEYWORDS: BLOOM’S: Comprehension

There are very few, if any, good substitutes for motor oil. Therefore, the
1. demand for motor oil would tend to be
2. demand for motor oil would tend to be
3. demand for motor oil would tend to respond strongly to changes in prices of other
4. 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.

ANSWER: a

POINTS: 1

DIFFICULTY: Difficulty: Moderate

LEARNING OBJECTIVES: ECON.MANK.15.23 – LO: 5-1

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Price Elasticity of Demand

KEYWORDS: BLOOM’S: Comprehension

There are very few, if any, good substitutes for automotive tires. Therefore, the demand for automotive tires would tend to be
2. unit
4. highly responsive to changes in income as well as changes in

ANSWER: c

POINTS: 1

DIFFICULTY: Difficulty: Easy

LEARNING OBJECTIVES: ECON.MANK.15.23 – LO: 5-1

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Price Elasticity of Demand

KEYWORDS: BLOOM’S: Application

Economists compute the price elasticity of demand as the
1. percentage change in price divided by the percentage change in quantity
2. change in quantity demanded divided by the change in the
3. percentage change in quantity demanded divided by the percentage change in
4. percentage change in quantity demanded divided by the percentage change in

ANSWER: c

POINTS: 1

DIFFICULTY: Difficulty: Moderate

LEARNING OBJECTIVES: ECON.MANK.15.23 – LO: 5-1

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Price Elasticity of Demand

KEYWORDS: BLOOM’S: Knowledge

The midpoint method is used to compute elasticity because it
1. automatically computes a positive number instead of a negative
2. results in an elasticity that is the same as the slope of the demand
3. gives the same answer regardless of the direction of
4. automatically rounds quantities to the nearest whole

ANSWER: c

POINTS: 1

DIFFICULTY: Difficulty: Moderate

LEARNING OBJECTIVES: ECON.MANK.15.23 – LO: 5-1

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Price Elasticity of Demand

KEYWORDS: BLOOM’S: Comprehension

The midpoint method for calculating elasticities is convenient in that it allows us to
1. ignore the percentage change in quantity demanded and instead focus entirely on the percentage change in
2. calculate the same value for the elasticity, regardless of whether the price increases or
3. assume that sellers’ total revenue stays constant when the price
4. restrict all elasticity values to between 0 and

ANSWER: b

POINTS: 1

DIFFICULTY: Difficulty: Moderate

LEARNING OBJECTIVES: ECON.MANK.15.23 – LO: 5-1

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Price Elasticity of Demand

KEYWORDS: BLOOM’S: Comprehension

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

Price elasticity of demand = .

Price elasticity of demand = .

Price elasticity of demand = .

Price elasticity of demand = .

ANSWER: b

POINTS: 1

DIFFICULTY: Difficulty: Moderate

LEARNING OBJECTIVES: ECON.MANK.15.23 – LO: 5-1

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Price Elasticity of Demand

KEYWORDS: BLOOM’S: Application

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

Price elasticity of demand = .

Price elasticity of demand = .

Price elasticity of demand = .

Price elasticity of demand = .

ANSWER: c

POINTS: 1

DIFFICULTY: Difficulty: Challenging

LEARNING OBJECTIVES: ECON.MANK.15.23 – LO: 5-1

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Price Elasticity of Demand

KEYWORDS: BLOOM’S: Analysis

When the price of candy bars is $1.00, the quantity demanded is 500 per day. When the price falls to $0.80, the quantity demanded increases to 600. Given this information and using the midpoint method, we know that the demand for candy bars is
3. unit
4. perfectly

ANSWER: a

POINTS: 1

DIFFICULTY: Difficulty: Moderate

LEARNING OBJECTIVES: ECON.MANK.15.23 – LO: 5-1

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Price Elasticity of Demand

KEYWORDS: BLOOM’S: Application

NOTES: r

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. 35.
0.43.
c. 33.
2.89.

ANSWER: c

POINTS: 1

DIFFICULTY: Difficulty: Moderate

LEARNING OBJECTIVES: ECON.MANK.15.23 – LO: 5-1

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Price Elasticity of Demand

KEYWORDS: BLOOM’S: Application

NOTES: r

Using the midpoint method, the price elasticity of demand for a good is computed to be approximately 75. Which of the following events is consistent with a 10 percent decrease in the quantity of the good demanded?
1. a 5 increase in the price of the good
2. a 33 percent increase in the price of the good
3. an increase in the price of the good from $7.50 to $10
4. an increase in the price of the good from $10 to $17.50

ANSWER: b

POINTS: 1

DIFFICULTY: Difficulty: Challenging

LEARNING OBJECTIVES: ECON.MANK.15.23 – LO: 5-1

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Price Elasticity of Demand

KEYWORDS: BLOOM’S: Application

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 1 percent increase in the price of the good?
1. The quantity of the good demanded decreases from 250 to
2. The quantity of the good demanded decreases from 200 to
3. The quantity of the good demanded decreases by 05 percent.
4. The quantity of the good demanded decreases by 2 percent.

ANSWER: d

POINTS: 1

DIFFICULTY: Difficulty: Challenging

LEARNING OBJECTIVES: ECON.MANK.15.23 – LO: 5-1

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Price Elasticity of Demand

KEYWORDS: BLOOM’S: Application

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. 22.
0.67.
c. 33.
1.50.

ANSWER: b

POINTS: 1

DIFFICULTY: Difficulty: Easy

LEARNING OBJECTIVES: ECON.MANK.15.23 – LO: 5-1

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Price Elasticity of Demand

KEYWORDS: BLOOM’S: Application

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. 55.
1.83.

ANSWER: a

POINTS: 1

DIFFICULTY: Difficulty: Easy

LEARNING OBJECTIVES: ECON.MANK.15.23 – LO: 5-1

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Price Elasticity of Demand

KEYWORDS: BLOOM’S: Application

When the price of a bracelet was $28 each, the jewelry shop sold 128 per month. When it raised the price to $32 each, it sold 112 per month. Using the midpoint method, the price elasticity of demand for bracelets is
a. 14.
1.
c. 25.
0.13.

ANSWER: b

POINTS: 1

DIFFICULTY: Difficulty: Moderate

LEARNING OBJECTIVES: ECON.MANK.15.23 – LO: 5-1

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Price Elasticity of Demand

KEYWORDS: BLOOM’S: Application

NOTES: r

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

unit
perfectly

ANSWER: b

POINTS: 1

DIFFICULTY: Difficulty: Moderate

LEARNING OBJECTIVES: ECON.MANK.15.23 – LO: 5-1

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Price Elasticity of Demand

KEYWORDS: BLOOM’S: Application

Suppose the price of a bag of tortilla chips decreases from $3.00 to $2.50 and, as a result, the quantity of tortilla chips demanded increases from 200 bags to 300 bags. Using the midpoint method, the price elasticity of demand for tortilla chips in the given price range is
a. 33.
0.45.
c. 20.
3.00.

ANSWER: c

POINTS: 1

DIFFICULTY: Difficulty: Moderate

LEARNING OBJECTIVES: ECON.MANK.15.23 – LO: 5-1

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Price Elasticity of Demand

KEYWORDS: BLOOM’S: Application

Suppose that 50 ice cream cones are demanded at a particular price. If the price of ice cream cones rises from that price by 4 percent, the number of ice cream cones demanded falls to 46. Using the midpoint approach to calculate the price elasticity of demand, it follows that the
1. demand for ice cream cones in this price range is
2. demand for ice cream cones in this price range is
3. demand for ice cream cones in this price range is unit
4. price elasticity of demand for ice cream cones in this price range is

ANSWER: a

POINTS: 1

DIFFICULTY: Difficulty: Moderate

LEARNING OBJECTIVES: ECON.MANK.15.23 – LO: 5-1

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Price Elasticity of Demand

KEYWORDS: BLOOM’S: Application

When the price of chai tea lattés is $5, Maxine buys 20 per month. When the price is $4, she buys 30 per

Maxine’s demand for chai tea lattés is

elastic, and her demand curve would be relatively
elastic, and her demand curve would be relatively
inelastic, and her demand curve would be relatively
inelastic, and her demand curve would be relatively

ANSWER: a

POINTS: 1

DIFFICULTY: Difficulty: Moderate

LEARNING OBJECTIVES: ECON.MANK.15.23 – LO: 5-1

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Price Elasticity of Demand

KEYWORDS: BLOOM’S: Application

NOTES: r

Table 5-1

Good	Price Elasticity of Demand
A	1.9
B	0.8

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

ANSWER: a

POINTS: 1

DIFFICULTY: Difficulty: Challenging

LEARNING OBJECTIVES: ECON.MANK.15.23 – LO: 5-1

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Price Elasticity of Demand

KEYWORDS: BLOOM’S: Analysis

NOTES: r

Refer to Table 5-1. Which of the following is consistent with the elasticities given in Table 5-1?
1. A is laundry detergent and B is
2. A is Diet Pepsi and B is
3. A is food and B is a
4. A is toilet paper and B is

ANSWER: b

POINTS: 1

DIFFICULTY: Difficulty: Challenging

LEARNING OBJECTIVES: ECON.MANK.15.23 – LO: 5-1

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Price Elasticity of Demand

KEYWORDS: BLOOM’S: Analysis

NOTES: r

Refer to Table 5-1. Which of the following is consistent with the elasticities given in Table 5-1?
1. A is pens and B is
2. A is a Snickers bar and B is a Milky Way
3. 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
4. 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

ANSWER: c

POINTS: 1

DIFFICULTY: Difficulty: Challenging

LEARNING OBJECTIVES: ECON.MANK.15.23 – LO: 5-1

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Price Elasticity of Demand

KEYWORDS: BLOOM’S: Analysis

NOTES: r

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

ANSWER: b

POINTS: 1

DIFFICULTY: Difficulty: Moderate

LEARNING OBJECTIVES: ECON.MANK.15.23 – LO: 5-1

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Price Elasticity of Demand

KEYWORDS: BLOOM’S: Application

If the price elasticity of demand for a good is 0, then a 10 percent increase in price results in a
1. 2 percent decrease in the quantity demanded.
2. 5 percent decrease in the quantity
3. 20 percent decrease in the quantity
4. 40 percent decrease in the quantity

ANSWER: c

POINTS: 1

DIFFICULTY: Difficulty: Moderate

LEARNING OBJECTIVES: ECON.MANK.15.23 – LO: 5-1

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Price Elasticity of Demand

KEYWORDS: BLOOM’S: Application

NOTES: r

If the price elasticity of demand for a good is 5, then a 5 percent increase in price results in a
1. 1 percent decrease in the quantity demanded.
2. 1 percent decrease in the quantity
3. 5 percent decrease in the quantity demanded.
4. 10 percent decrease in the quantity

ANSWER: c

POINTS: 1

DIFFICULTY: Difficulty: Moderate

LEARNING OBJECTIVES: ECON.MANK.15.23 – LO: 5-1

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Price Elasticity of Demand

KEYWORDS: BLOOM’S: Application

NOTES: r

If the price elasticity of demand for a good is 5, then a 10 percent increase in price results in a
1. 5 percent decrease in the quantity demanded.
2. 2 percent decrease in the quantity
3. 5 percent decrease in the quantity
4. 50 percent decrease in the quantity

ANSWER: d

POINTS: 1

DIFFICULTY: Difficulty: Moderate

LEARNING OBJECTIVES: ECON.MANK.15.23 – LO: 5-1

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Price Elasticity of Demand

KEYWORDS: BLOOM’S: Application

NOTES: r

If the price elasticity of demand for a good is 3, then a 20 percent decrease in price results in a
1. 015 percent increase in the quantity demanded.
2. 6 percent increase in the quantity demanded.
3. 6 percent increase in the quantity
4. 66 percent increase in the quantity

ANSWER: c

POINTS: 1

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LEARNING OBJECTIVES: ECON.MANK.15.23 – LO: 5-1

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Price Elasticity of Demand

KEYWORDS: BLOOM’S: Application

NOTES: r

If the price elasticity of demand for a good is 2, then a 3 percent decrease in price results in a
1. 4 percent increase in the quantity demanded.
2. 5 percent increase in the quantity demanded.
3. 6 percent increase in the quantity demanded.
4. 6 percent increase in the quantity

ANSWER: c

POINTS: 1

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LEARNING OBJECTIVES: ECON.MANK.15.23 – LO: 5-1

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Price Elasticity of Demand

KEYWORDS: BLOOM’S: Application

NOTES: r

If the price elasticity of demand for a good is 2, then a 3 percent decrease in price results in a
1. 6 percent increase in the quantity demanded.
2. 5 percent increase in the quantity demanded.
3. 2 percent increase in the quantity
4. 6 percent increase in the quantity

ANSWER: a

POINTS: 1

DIFFICULTY: Difficulty: Moderate

LEARNING OBJECTIVES: ECON.MANK.15.23 – LO: 5-1

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Price Elasticity of Demand

KEYWORDS: BLOOM’S: Application

If the price elasticity of demand for a good is 1, then a 3 percent decrease in price results in a
1. 1 percent increase in the quantity demanded.
2. 1 percent increase in the quantity
3. 3 percent increase in the quantity
4. 4 percent increase in the quantity

ANSWER: c

POINTS: 1

DIFFICULTY: Difficulty: Easy

LEARNING OBJECTIVES: ECON.MANK.15.23 – LO: 5-1

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Price Elasticity of Demand

KEYWORDS: BLOOM’S: Application

If the price elasticity of demand for a good is 4, then a 12 percent decrease in price results in a
1. 33 percent increase in the quantity demanded.
2. 3 percent increase in the quantity
3. 30 percent increase in the quantity
4. 48 percent increase in the quantity

ANSWER: d

POINTS: 1

DIFFICULTY: Difficulty: Easy

LEARNING OBJECTIVES: ECON.MANK.15.23 – LO: 5-1

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Price Elasticity of Demand

KEYWORDS: BLOOM’S: Application

If the price elasticity of demand for a good is 4, then which of the following events is consistent with a 2 percent decrease in the quantity of the good demanded?
1. a 8 percent increase in the price of the good
2. a 4 percent increase in the price of the good
3. a 5 percent increase in the price of the good
4. a 8 percent increase in the price of the good

ANSWER: c

POINTS: 1

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LEARNING OBJECTIVES: ECON.MANK.15.23 – LO: 5-1

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Price Elasticity of Demand

KEYWORDS: BLOOM’S: Application

NOTES: r

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?
1. There are no close substitutes for this
2. The good is a
3. The market for the good is broadly
4. The relevant time horizon is

ANSWER: b

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Price Elasticity of Demand

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For a particular good, a 5 percent increase in price causes a 15 percent decrease in quantity demanded. Which of the following statements is most likely applicable to this good?
1. There are many substitutes for this
2. The good is a
3. The market for the good is broadly
4. The relevant time horizon is

ANSWER: a

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Price Elasticity of Demand

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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?
1. There are many close substitutes for this
2. The good is a
3. The market for the good is broadly
4. The relevant time horizon is

ANSWER: c

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Price Elasticity of Demand

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NOTES: r

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?
1. There are no close substitutes for this
2. The good is a
3. The market for the good is broadly
4. The relevant time horizon is

ANSWER: d

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Price Elasticity of Demand

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NOTES: r

For a particular good, a 5 percent increase in price causes a 2 percent decrease in quantity demanded. Which of the following statements is most likely applicable to this good?
1. There are many close substitutes for this
2. The good is a
3. The market for the good is broadly
4. The relevant time horizon is

ANSWER: c

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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?
1. There are many substitutes for this
2. The good is a
3. The market for the good is narrowly
4. The relevant time horizon is

ANSWER: b

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For a particular good, a 3 percent increase in price causes a 10 percent decrease in quantity demanded. Which of the following statements is most likely applicable to this good?
1. The relevant time horizon is
2. The good is a
3. The market for the good is broadly
4. There are many close substitutes for this

ANSWER: d

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Price Elasticity of Demand

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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?
1. The relevant time horizon is
2. The good is a
3. The market for the good is narrowly
4. There are many close substitutes for this

ANSWER: a

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Price Elasticity of Demand

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If a 15% increase in price for a good results in a 20% decrease in quantity demanded, the price elasticity of demand is
a. 75.
1.25.
c. 33.
1.60.

ANSWER: c

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If a 20% increase in price for a good results in a 15% decrease in quantity demanded, the price elasticity of demand is
a. 75.
1.25.
c. 33.
1.60.

ANSWER: a

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If a 10% decrease in price for a good results in a 20% increase in quantity demanded, the price elasticity of demand is
a. 50.
5.

ANSWER: d

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If a 6% decrease in price for a good results in a 2% increase in quantity demanded, the price elasticity of demand is a. 02.
0.33.

ANSWER: b

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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
1. inelastic and equal to
2. elastic and equal to
3. inelastic and equal to 17.
4. elastic and equal to 17.

ANSWER: b

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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
1. inelastic and equal to 67.
2. elastic and equal to 67.
3. inelastic and equal to 50.
4. elastic and equal to 50.

ANSWER: a

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Price Elasticity of Demand

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If the price elasticity of demand for a good is 6, then a 3 percent decrease in price results in
1. a 20 percent increase in the quantity
2. an 18 percent increase in the quantity
3. a 2 percent increase in the quantity
4. a 8 percent increase in the quantity demanded.

ANSWER: b

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If the price elasticity of demand for a good is 2, then a 10 percent decrease in the quantity demanded must be the result of
1. a 2 percent increase in the price.
2. a 5 percent increase in the price.
3. a 5 percent increase in the
4. a 20 percent increase in the

ANSWER: c

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NOTES: n

If the price elasticity of demand for a good is 8, then a 12 percent increase in the quantity demanded must be the result of
1. a 06 percent decrease in the price.
2. a 5 percent decrease in the price.
3. a 6 percent decrease in the price.
4. a 15 percent decrease in the

ANSWER: d

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Price Elasticity of Demand

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NOTES: n

If the price elasticity of demand for a good is 4, then a 14 percent increase in the quantity demanded must be the result of
1. a 1 percent decrease in the price.
2. a 1 percent decrease in the
3. a 10 percent decrease in the
4. a 6 percent decrease in the price.

ANSWER: c

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NOTES: n

Studies indicate that the price elasticity of demand for cigarettes is about 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
1. 30%.
2. 40%.
3. 80%.
4. 250%.

ANSWER: b

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Studies indicate that the price elasticity of demand for beer is about 9. A government policy aimed at reducing beer consumption changed the price of a case of beer from $10 to $20. According to the midpoint method, the government policy should have reduced beer consumption by
1. 30%.
2. 40%.
3. 60%.
4. 74%.

ANSWER: c

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Table 5-2

Price	Quantity
$250	0
$200	30
$150	70
$100	110
$50	150
$0	190

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
1. 3.
2. 8.
3. 8.
4. 0.36.

ANSWER: b

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NOTES: r

Refer to Table 5-2. Using the midpoint method, if the price falls from $150 to $100, the absolute value of the price elasticity of demand is
1. 4.
2. 9.
3. 1.

ANSWER: c

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NOTES: r

Refer to Table 5-2. Using the midpoint method, if the price falls from $100 to $50, the absolute value of the price elasticity of demand is
a. 31.
0.46.
c. 25.
2.17

ANSWER: b

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NOTES: r

Refer to Table 5-2. Using the midpoint method, if the price falls from $200 to $150, the price elasticity of demand is
2. unit

ANSWER: d

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Price Elasticity of Demand

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NOTES: r

Refer to Table 5-2. Using the midpoint method, if the price falls from $100 to $50, the price elasticity of demand is
3. unit

ANSWER: b

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Price Elasticity of Demand

KEYWORDS: BLOOM’S: Analysis

NOTES: r

Table 5-3

Consider the following demand schedule.

Price	Quantity Demanded
$0	1,000
$3	800
$6	600
$9	400
$12	200
$15	0

Refer to Table 5-3. Using the midpoint method, what is the price elasticity of demand between $0 and $3? a. 11
22
40
00

ANSWER: a

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Price Elasticity of Demand

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Refer to Table 5-3. Using the midpoint method, in which range is demand most elastic?
1. $0 to $3
2. $3 to $6
3. $9 to 12
4. $12 to $15

ANSWER: d

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Price Elasticity of Demand

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Table 5-4

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

Price	Quantity
$20	0
$16	3
$12	6
$8	9
$4	12
$0	15

Refer to Table 5-4. Using the midpoint method, what is the price elasticity of demand when price rises from $12 to $16?
1. 43
2. 67
3. 33
4. 4

ANSWER: c

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NOTES: r

Refer to Table 5-4. Using the midpoint method, when price rises from $8 to $12, the price elasticity of demand is a. 4
1
5
33

ANSWER: b

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Price Elasticity of Demand

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NOTES: r

Refer to Table 5-4. Using the midpoint method, when price falls from $8 to $4, the price elasticity of demand is a. 43
67
1
33

ANSWER: a

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NOTES: r

Figure 5-1

Refer to Figure 5-1. Between point A and point B, price elasticity of demand is equal to a. 33.
0.67.
c. 5
2.67.

ANSWER: c

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

ANSWER: b

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Refer to Figure 5-1. Between point A and point B on the graph, demand is
1. perfectly
3. unit
4. elastic, but not perfectly

ANSWER: d

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Price Elasticity of Demand

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Elasticity of demand is closely related to the slope of the demand curve. The more responsive buyers are to a change in price, the
1. steeper the demand curve will
2. flatter the demand curve will
3. further to the right the demand curve will
4. closer to the vertical axis the demand curve will

ANSWER: b

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Elasticity of demand is closely related to the slope of the demand curve. The less responsive buyers are to a change in price, the
1. steeper the demand curve will
2. flatter the demand curve will
3. further to the right the demand curve will
4. closer to the vertical axis the demand curve will

ANSWER: a

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The flatter the demand curve through a given point, the
1. greater the price elasticity of demand at that
2. smaller the price elasticity of demand at that
3. closer the price elasticity of demand will be to the slope of the
4. greater the absolute value of the change in total revenue when there is a movement from that point upward and to the left along the demand

ANSWER: a

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

ANSWER: a

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As we move downward and to the right along a linear, downward-sloping demand curve,
1. both slope and elasticity remain
2. slope changes but elasticity remains
3. both slope and elasticity
4. slope remains constant but elasticity

ANSWER: d

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The difference between slope and elasticity is that slope
1. is a ratio of two changes, and elasticity is a ratio of two percentage
2. is a ratio of two percentage changes, and elasticity is a ratio of two
3. measures changes in quantity demanded more accurately than
4. None of the above is correct; there is no difference between slope and

ANSWER: a

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Suppose demand is perfectly elastic, and the supply of the good in question decreases. As a result,
1. the equilibrium quantity decreases, and the equilibrium price is
2. the equilibrium price increases, and the equilibrium quantity is
3. the equilibrium quantity and the equilibrium price both are
4. buyers’ total expenditure on the good is

ANSWER: a

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A perfectly elastic demand implies that
1. buyers will not respond to any change in
2. any rise in price above that represented by the demand curve will result in a quantity demanded of
3. quantity demanded and price change by the same percent as we move along the demand
4. price will rise by an infinite amount when there is a change in quantity

ANSWER: b

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The case of perfectly elastic demand is illustrated by a demand curve that is
3. downward-sloping but relatively
4. downward-sloping but relatively

ANSWER: b

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When small changes in price lead to infinite changes in quantity demanded, demand is perfectly
1. elastic, and the demand curve will be
2. inelastic, and the demand curve will be
3. elastic, and the demand curve will be
4. inelastic, and the demand curve will be

ANSWER: a

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For a horizontal demand curve,
1. the slope is undefined, and the price elasticity of demand is equal to
2. the slope is equal to 0, and the price elasticity of demand is
3. both the slope and price elasticity of demand are
4. both the slope and price elasticity of demand are equal to

ANSWER: b

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Price Elasticity of Demand

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Suppose demand is perfectly inelastic, and the supply of the good in question decreases. As a result,
1. the equilibrium quantity decreases, and the equilibrium price is
2. the equilibrium price increases, and the equilibrium quantity is
3. the equilibrium quantity and the equilibrium price both are
4. buyers’ total expenditure on the good is

ANSWER: b

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Price Elasticity of Demand

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In the case of perfectly inelastic demand,
1. the change in quantity demanded equals the change in
2. the percentage change in quantity demanded equals the percentage change in
3. infinitely-large changes in quantity demanded result from very small changes in the
4. quantity demanded stays the same whenever price

ANSWER: d

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When demand is perfectly inelastic, the demand curve will be
1. negatively sloped, because buyers decrease their purchases when the price
2. vertical, because buyers purchase the same amount as before whenever the price rises or
3. positively sloped, because buyers increase their purchases when price
4. positively sloped, because buyers increase their total expenditures when price

ANSWER: b

POINTS: 1

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LEARNING OBJECTIVES: ECON.MANK.15.23 – LO: 5-1

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Price Elasticity of Demand

KEYWORDS: BLOOM’S: Comprehension

When demand is perfectly inelastic, the price elasticity of demand
1. is zero, and the demand curve is
2. is zero, and the demand curve is
3. approaches infinity, and the demand curve is
4. approaches infinity, and the demand curve is

ANSWER: a

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NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Price Elasticity of Demand

KEYWORDS: BLOOM’S: Comprehension

A perfectly inelastic demand implies that buyers
1. decrease their purchases when the price
2. purchase the same amount as before when the price rises or
3. increase their purchases only slightly when the price
4. respond substantially to an increase in

ANSWER: b

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LEARNING OBJECTIVES: ECON.MANK.15.23 – LO: 5-1

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TOPICS: DISC: Elasticity

Price Elasticity of Demand

KEYWORDS: BLOOM’S: Comprehension

Marcus says that he would smoke one pack of cigarettes each day regardless of the price. If he is telling the truth,

Marcus’s

demand for cigarettes is perfectly
price elasticity of demand for cigarettes is
income elasticity of demand for cigarettes is
More than one of the above is

ANSWER: a

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LEARNING OBJECTIVES: ECON.MANK.15.23 – LO: 5-1

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Price Elasticity of Demand

KEYWORDS: BLOOM’S: Comprehension

NOTES: r

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

perfectly
unit
perfectly
somewhat inelastic, but not perfectly

ANSWER: b

POINTS: 1

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LEARNING OBJECTIVES: ECON.MANK.15.23 – LO: 5-1

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Price Elasticity of Demand

KEYWORDS: BLOOM’S: Comprehension

NOTES: r

For a vertical demand curve,
1. the slope is undefined, and the price elasticity of demand is equal to
2. the slope is equal to 0, and the price elasticity of demand is
3. both the slope and price elasticity of demand are
4. both the slope and price elasticity of demand are equal to

ANSWER: a

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LEARNING OBJECTIVES: ECON.MANK.15.23 – LO: 5-1

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Price Elasticity of Demand

KEYWORDS: BLOOM’S: Comprehension

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

ANSWER: b

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TOPICS: DISC: Elasticity

Price Elasticity of Demand

KEYWORDS: BLOOM’S: Comprehension

Demand is said to have unit elasticity if the price elasticity of demand is
1. less than
2. greater than
3. equal to
4. equal to

ANSWER: c

POINTS: 1

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LEARNING OBJECTIVES: ECON.MANK.15.23 – LO: 5-1

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Price Elasticity of Demand

KEYWORDS: BLOOM’S: Knowledge

Demand is said to be unit elastic if quantity demanded
1. changes by the same percent as the
2. changes by a larger percent than the
3. changes by a smaller percent than the
4. does not respond to a change in

ANSWER: a

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NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Price Elasticity of Demand

KEYWORDS: BLOOM’S: Knowledge

If the price elasticity of demand is 5, regardless of which two points on the demand curve are used to compute the elasticity, then demand is
1. perfectly inelastic, and the demand curve is
2. elastic, and the demand curve is a straight, downward-sloping
3. perfectly elastic, and the demand curve is
4. elastic, and the demand curve is something other than a straight, downward-sloping

ANSWER: d

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TOPICS: DISC: Elasticity

Price Elasticity of Demand

KEYWORDS: BLOOM’S: Application

When quantity moves proportionately the same amount as price, demand is
1. elastic, and the price elasticity of demand is
2. perfectly elastic, and the price elasticity of demand is infinitely
3. perfectly inelastic, and the price elasticity of demand is
4. unit elastic, and the price elasticity of demand is

ANSWER: d

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NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Price Elasticity of Demand

KEYWORDS: BLOOM’S: Comprehension

When we move upward and to the left along a linear, downward-sloping demand curve, price elasticity of demand
1. first becomes smaller, then
2. always becomes
3. always becomes
4. first becomes larger, then

ANSWER: b

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TOPICS: DISC: Elasticity

Price Elasticity of Demand

KEYWORDS: BLOOM’S: Comprehension

The price elasticity of demand changes as we move along a
1. horizontal demand
2. vertical demand
3. linear, downward-sloping demand
4. All of the above are

ANSWER: c

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TOPICS: DISC: Elasticity

Price Elasticity of Demand

KEYWORDS: BLOOM’S: Comprehension

Figure 5-2

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

ANSWER: a

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TOPICS: DISC: Elasticity

Price Elasticity of Demand

KEYWORDS: BLOOM’S: Application

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?
1. D1
2. D2
3. D3
4. All of the above are equally

ANSWER: c

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TOPICS: DISC: Elasticity

Price Elasticity of Demand

KEYWORDS: BLOOM’S: Application

Figure 5-3

Refer to Figure 5-3. The demand curve representing the demand for a luxury good with several close substitutes is

ANSWER: c

POINTS: 1

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LEARNING OBJECTIVES: ECON.MANK.15.23 – LO: 5-1

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Price Elasticity of Demand

KEYWORDS: BLOOM’S: Application

Refer to Figure 5-3. Jenna says she would buy 10 gallons of gas per week regardless of the price. If this is true, then Jenna’s demand for gas is represented by demand curve

ANSWER: a

POINTS: 1

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LEARNING OBJECTIVES: ECON.MANK.15.23 – LO: 5-1

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Price Elasticity of Demand

KEYWORDS: BLOOM’S: Application

NOTES: r

Refer to Figure 5-3. Which demand curve is perfectly elastic?
1. A
2. B
3. C
4. D

ANSWER: d

POINTS: 1

DIFFICULTY: Difficulty: Easy

LEARNING OBJECTIVES: ECON.MANK.15.23 – LO: 5-1

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Price Elasticity of Demand

KEYWORDS: BLOOM’S: Knowledge

Refer to Figure 5-3. Which demand curve is perfectly inelastic?
1. A
2. B
3. C
4. D

ANSWER: a

POINTS: 1

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NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Price Elasticity of Demand

KEYWORDS: BLOOM’S: Knowledge

Refer to Figure 5-3. Which demand curve is unit elastic?
1. A
2. B
3. D
4. None of the

ANSWER: d

POINTS: 1

DIFFICULTY: Difficulty: Moderate

LEARNING OBJECTIVES: ECON.MANK.15.23 – LO: 5-1

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Price Elasticity of Demand

KEYWORDS: BLOOM’S: Knowledge

An increase in price causes an increase in total revenue when demand is
3. unit
4. All of the above are

ANSWER: b

POINTS: 1

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LEARNING OBJECTIVES: ECON.MANK.15.23 – LO: 5-1

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Price Elasticity of Demand

KEYWORDS: BLOOM’S: Application

Suppose that demand is inelastic within a certain price range. For that price range,
1. an increase in price would increase total revenue because the decrease in quantity demanded is proportionately less than the increase in
2. an increase in price would decrease total revenue because the decrease in quantity demanded is proportionately greater than the increase in
3. a decrease in price would increase total revenue because the increase in quantity demanded is proportionately smaller than the decrease in
4. a decrease in price would not affect total

ANSWER: a

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NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Price Elasticity of Demand

KEYWORDS: BLOOM’S: Application

When demand is inelastic, the price elasticity of demand is
1. less than 1, and price and total revenue will move in the same
2. less than 1, and price and total revenue will move in opposite
3. greater than 1, and price and total revenue will move in the same
4. greater than 1, and price and total revenue will move in opposite

ANSWER: a

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TOPICS: DISC: Elasticity

Price Elasticity of Demand

KEYWORDS: BLOOM’S: Application

How does total revenue change as one moves downward and to the right along a linear demand curve?
1. It always
2. It always
3. It first increases, then
4. It is unaffected by a movement along the demand

ANSWER: c

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NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Price Elasticity of Demand

KEYWORDS: BLOOM’S: Analysis

On a downward-sloping linear demand curve, total revenue reaches its maximum value at the
1. midpoint of the demand
2. lower end of the demand
3. upper end of the demand
4. It is impossible to tell without knowing prices and quantities

ANSWER: a

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TOPICS: DISC: Elasticity

Price Elasticity of Demand

KEYWORDS: BLOOM’S: Analysis

When demand is inelastic, a decrease in price will cause
1. an increase in total
2. a decrease in total
3. no change in total revenue but an increase in quantity
4. no change in total revenue but a decrease in quantity

ANSWER: b

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TOPICS: DISC: Elasticity

Price Elasticity of Demand

KEYWORDS: BLOOM’S: Application

When demand is elastic, a decrease in price will cause
1. an increase in total
2. a decrease in total
3. no change in total revenue but an increase in quantity
4. no change in total revenue but a decrease in quantity

ANSWER: a

POINTS: 1

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NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Price Elasticity of Demand

KEYWORDS: BLOOM’S: Application

When demand is inelastic, an increase in price will cause
1. an increase in total
2. a decrease in total
3. no change in total revenue but an increase in quantity
4. no change in total revenue but a decrease in quantity

ANSWER: a

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TOPICS: DISC: Elasticity

Price Elasticity of Demand

KEYWORDS: BLOOM’S: Application

When demand is elastic, an increase in price will cause
1. an increase in total
2. a decrease in total
3. no change in total revenue but an increase in quantity
4. no change in total revenue but a decrease in quantity

ANSWER: b

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TOPICS: DISC: Elasticity

Price Elasticity of Demand

KEYWORDS: BLOOM’S: Application

If demand is price inelastic, then when price rises, total revenue
1. will
2. will
3. will remain
4. may rise, fall, or remain unchanged. More information is need to determine the change in total revenue with

ANSWER: b

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TOPICS: DISC: Elasticity

Price Elasticity of Demand

KEYWORDS: BLOOM’S: Analysis

If a change in the price of a good results in no change in total revenue, then
1. the demand for the good must be
2. the demand for the good must be
3. the demand for the good must be unit
4. buyers must not respond very much to a change in

ANSWER: c

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TOPICS: DISC: Elasticity

Price Elasticity of Demand

KEYWORDS: BLOOM’S: Comprehension

When demand is unit elastic, price elasticity of demand equals
1. 1, and total revenue and price move in the same
2. 1, and total revenue and price move in opposite
3. 1, and total revenue does not change when price
4. 0, and total revenue does not change when price

ANSWER: c

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TOPICS: DISC: Elasticity

Price Elasticity of Demand

KEYWORDS: BLOOM’S: Comprehension

If the demand curve is linear and downward sloping, which of the following statements is not correct?
1. Demand is more elastic on the lower part of the demand curve than on the upper
2. Different pairs of points on the demand curve can result in different values of the price elasticity of
3. Different pairs of points on the demand curve result in identical values of the slope of the demand
4. Starting from a point on the upper part of the demand curve, an increase in price leads to a decrease in total

ANSWER: a

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TOPICS: DISC: Elasticity

Price Elasticity of Demand

KEYWORDS: BLOOM’S: Analysis

Total revenue
1. always increases as price
2. increases as price increases, as long as demand is
3. decreases as price increases, as long as demand is
4. remains unchanged as price increases when demand is unit

ANSWER: d

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TOPICS: DISC: Elasticity

Price Elasticity of Demand

KEYWORDS: BLOOM’S: Application

Moving downward and to the right along a linear demand curve, we know that total revenue
1. first increases, then
2. first decreases, then
3. always
4. always

ANSWER: a

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TOPICS: DISC: Elasticity

Price Elasticity of Demand

KEYWORDS: BLOOM’S: Comprehension

Total revenue will be at its largest value on a linear demand curve at the
1. top of the curve, where prices are
2. midpoint of the
3. low end of the curve, where quantity demanded is
4. None of the above is

ANSWER: b

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TOPICS: DISC: Elasticity

Price Elasticity of Demand

KEYWORDS: BLOOM’S: Comprehension

In which of the following situations will total revenue increase?
1. Price elasticity of demand is 2, and the price of the good decreases.
2. Price elasticity of demand is 5, and the price of the good increases.
3. Price elasticity of demand is 0, and the price of the good decreases.
4. All of the above are

ANSWER: d

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TOPICS: DISC: Elasticity

Price Elasticity of Demand

KEYWORDS: BLOOM’S: Analysis

Which of the following is not possible?
1. Demand is elastic, and a decrease in price causes an increase in
2. Demand is unit elastic, and a decrease in price causes an increase in
3. Demand is inelastic, and an increase in price causes an increase in
4. Demand is perfectly inelastic, and an increase in price causes an increase in

ANSWER: b

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TOPICS: DISC: Elasticity

Price Elasticity of Demand

KEYWORDS: BLOOM’S: Application

Which of the following could be the price elasticity of demand for a good for which a decrease in price would increase revenue?
1. 0
2. 4
3. 1
4. 4

ANSWER: d

POINTS: 1

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TOPICS: DISC: Elasticity

Price Elasticity of Demand\

KEYWORDS: BLOOM’S: Comprehension

NOTES: r

Which of the following could be the price elasticity of demand for a good for which an increase in price would increase revenue?
1. 3
2. 1
3. 8
4. None of the above could be

ANSWER: a

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TOPICS: DISC: Elasticity

Price Elasticity of Demand

KEYWORDS: BLOOM’S: Comprehension

NOTES: r

Which of the following could be the price elasticity of demand for a good for which a decrease in price would decrease revenue?
1. 8
2. 1
3. 8
4. 4

ANSWER: a

POINTS: 1

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LEARNING OBJECTIVES: ECON.MANK.15.23 – LO: 5-1

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Price Elasticity of Demand

KEYWORDS: BLOOM’S: Comprehension

NOTES: r

Which of the following could be the price elasticity of demand for a good for which an increase in price would decrease revenue?
1. 6
2. 9
3. 1
4. 6

ANSWER: d

POINTS: 1

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TOPICS: DISC: Elasticity

Price Elasticity of Demand

KEYWORDS: BLOOM’S: Comprehension

NOTES: r

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

50, and an increase in price will result in an increase in total revenue for good A.
50, and an increase in price will result in a decrease in total revenue for good A.
67, and an increase in price will result in an increase in total revenue for good A.
67, and an increase in price will result in a decrease in total revenue for good A.

ANSWER: c

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TOPICS: DISC: Elasticity

Price Elasticity of Demand

KEYWORDS: BLOOM’S: Analysis

The local bakery makes such great cinnamon rolls that consumers do not respond much at all to a change in the price. If the owner is only interested in increasing revenue, she should
1. lower the price of the cinnamon
2. leave the price of the cinnamon rolls
3. raise the price of the cinnamon
4. reduce

ANSWER: c

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LEARNING OBJECTIVES: ECON.MANK.15.23 – LO: 5-1

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TOPICS: DISC: Elasticity

Price Elasticity of Demand

KEYWORDS: BLOOM’S: Comprehension

Consider luxury weekend hotel packages in Las Vegas. When the price is $250, the quantity demanded is 2,000 packages per week. When the price is $280, the quantity demanded is 1,700 packages per week. Using the midpoint method, the price elasticity of demand is about
1. 43, and an increase in the price will cause hotels’ total revenue to decrease.
2. 43, and an increase in the price will cause hotels’ total revenue to increase.
3. 70, and an increase in the price will cause hotels’ total revenue to decrease.
4. 70, and an increase in the price will cause hotels’ total revenue to increase.

ANSWER: a

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TOPICS: DISC: Elasticity

Price Elasticity of Demand

KEYWORDS: BLOOM’S: Application

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. 11.
0.47.
c. 12.
2.11.

ANSWER: b

POINTS: 1

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LEARNING OBJECTIVES: ECON.MANK.15.23 – LO: 5-1

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TOPICS: DISC: Elasticity

Price Elasticity of Demand

KEYWORDS: BLOOM’S: Application

NOTES: r

Hilda’s Hair Hysteria earned $3,750 in total revenue last month when it sold 125 haircuts. This month it earned

$3,600 in total revenue when it sold 90 haircuts. The price elasticity of demand for Hilda’s Hair Hysteria is

a. 33.
0.88.
c. 14.
7.98.

ANSWER: c

POINTS: 1

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LEARNING OBJECTIVES: ECON.MANK.15.23 – LO: 5-1

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TOPICS: DISC: Elasticity

Price Elasticity of Demand

KEYWORDS: BLOOM’S: Application

NOTES: r

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
1. income inelastic, so an increase in the price of wheat will increase the total revenue of wheat
2. income elastic, so an increase in the price of wheat will increase the total revenue of wheat
3. price inelastic, so an increase in the price of wheat will increase the total revenue of wheat
4. price elastic, so an increase in the price of wheat will increase the total revenue of wheat

ANSWER: c

POINTS: 1

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LEARNING OBJECTIVES: ECON.MANK.15.23 – LO: 5-1

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Price Elasticity of Demand

KEYWORDS: BLOOM’S: Application

Suppose that when the price of ginger ale is $2 per bottle, firms can sell 4 million bottles. When the price of ginger ale is $3 per bottle, firms can sell 2 million bottles. Which of the following statements is true?
1. The demand for ginger ale is income inelastic, so an increase in the price of ginger ale will increase the total revenue of ginger ale
2. The demand for ginger ale is income elastic, so an increase in the price of ginger ale will increase the total revenue of ginger ale
3. The demand for ginger ale is price inelastic, so an increase in the price of ginger ale will increase the total revenue of ginger ale
4. The demand for ginger ale is price elastic, so an increase in the price of ginger ale will decrease the total revenue of ginger ale

ANSWER: d

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NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Price Elasticity of Demand

KEYWORDS: BLOOM’S: Application

Suppose that 50 hot dogs are demanded at a particular price. If the price of hot dogs rises from that price by 5 percent, the number of hot dogs demanded falls to 48. Using the midpoint approach to calculate the price elasticity of demand, it follows that the
1. demand for hot dogs in this price range is unit
2. price increase will decrease the total revenue of hot dog
3. price elasticity of demand for hot dogs in this price range is about 22.
4. price elasticity of demand for hot dogs in this price range is about 82.

ANSWER: d

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NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Price Elasticity of Demand

KEYWORDS: BLOOM’S: Application

Suppose that 300 bottles of soda are demanded at a particular price. If the price of a bottle of soda rises from that price by 6 percent, the number of bottles of soda demanded falls to 275. Using the midpoint approach to calculate the price elasticity of demand, it follows that the
1. demand for bottles of soda in this price range is perfectly
2. price increase will increase the total revenue of soda
3. price elasticity of demand for bottles of soda in this price range is about 69.
4. price elasticity of demand for bottles of soda in this price range is about 45.

ANSWER: d

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NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Price Elasticity of Demand

KEYWORDS: BLOOM’S: Application

NOTES: r

When a university bookstore prices chemistry textbooks at $200 each, it generally sells 120 books per month. If it lowers the price to $160, sales increase to 160 books per month. Given this information, we know that the price elasticity of demand for chemistry books is about
1. 29, and a decrease in price from $200 to $160 results in an increase in total revenue.
2. 29, and a decrease in price from $200 to $160 results in a decrease in total revenue.
3. 78, and a decrease in price from $200 to $160 results in an increase in total revenue.
4. 78, and a decrease in price from $200 to $160 results in a decrease in total revenue.

ANSWER: a

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NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Price Elasticity of Demand

KEYWORDS: BLOOM’S: Application

NOTES: r

A city wants to raise revenues to build a new municipal swimming pool next year. The mayor suggests that the city raise the price of admission to the current municipal pools this year to raise revenues. The city manager suggests that the city lower the price of admission to raise revenues. Who is correct?
1. the mayor
2. the city manager
3. The answer depends on the price elasticity of
4. The answer depends on the costs of construction of the new municipal swimming

ANSWER: c

POINTS: 1

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LEARNING OBJECTIVES: ECON.MANK.15.23 – LO: 5-1

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Price Elasticity of Demand

KEYWORDS: BLOOM’S: Comprehension

A city wants to raise revenues to build a new municipal swimming pool next year. The mayor suggests that the city raise the price of admission to the current municipal pools this year to raise revenues. The city manager suggests that the city lower the price of admission to raise revenues. Who is correct?
1. Both the mayor and city manager would be correct if demand were price
2. Both the mayor and city manager would be correct if demand were price
3. The mayor would be correct if demand were price elastic; the city manager would be correct if demand were price
4. The mayor would be correct if demand were price inelastic; the city manager would be correct if demand were price

ANSWER: d

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NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Price Elasticity of Demand

KEYWORDS: BLOOM’S: Comprehension

You have just been hired as a business consultant to determine what pricing policy would be appropriate to increase the total revenue of a bakery. The first step you would take would be to
1. increase the price of every loaf of bread in the
2. look for ways to cut costs and increase profit for the
3. determine the price elasticity of demand for the bakery’s
4. determine the price elasticity of supply for the bakery’s

ANSWER: c

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LEARNING OBJECTIVES: ECON.MANK.15.23 – LO: 5-1

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Price Elasticity of Demand

KEYWORDS: BLOOM’S: Comprehension

You are in charge of the local city-owned aquatic center. You need to increase the revenue generated by the aquatic center to meet expenses. The mayor advises you to increase the price of a day pass. The city manager recommends reducing the price of a day pass. You realize that
1. the mayor thinks demand is elastic, and the city manager thinks demand is
2. both the mayor and the city manager think that demand is
3. both the mayor and the city manager think that demand is
4. the mayor thinks demand is inelastic, and the city manager thinks demand is

ANSWER: d

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LEARNING OBJECTIVES: ECON.MANK.15.23 – LO: 5-1

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Price Elasticity of Demand

KEYWORDS: BLOOM’S: Application

Get Smart University is contemplating an increase in tuition to enhance revenue. If GSU feels that raising tuition would enhance revenue, it is
1. ignoring the law of
2. assuming that the demand for university education is
3. assuming that the demand for university education is
4. assuming that the supply of university education is

ANSWER: c

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NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Price Elasticity of Demand

KEYWORDS: BLOOM’S: Application

If the price elasticity of demand for apples is 8, then a 2.4% increase in the price of apples will decrease the quantity demanded of apples by
1. 92%, and apples sellers’ total revenue will increase as a result.
2. 92%, and apples sellers’ total revenue will decrease as a result.
3. 3%, and apples sellers’ total revenue will increase as a
4. 3%, and apples sellers’ total revenue will decrease as a

ANSWER: a

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NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Price Elasticity of Demand

KEYWORDS: BLOOM’S: Analysis

NOTES: r

If the price elasticity of demand for aluminum foil is 45, then a 2.4% decrease in the price of aluminum foil will increase the quantity demanded of aluminum foil by
1. 66%, and aluminum foil sellers’ total revenue will increase as a result.
2. 66%, and aluminum foil sellers’ total revenue will decrease as a result.
3. 48%, and aluminum foil sellers’ total revenue will increase as a result.
4. 48%, and aluminum foil sellers’ total revenue will decrease as a result.

ANSWER: c

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NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Price Elasticity of Demand

KEYWORDS: BLOOM’S: Analysis

If the demand for donuts is elastic, then a decrease in the price of donuts will
1. increase total revenue of donut
2. decrease total revenue of donut
3. not change total revenue of donut
4. There is not enough information to answer this

ANSWER: a

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NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Price Elasticity of Demand

KEYWORDS: BLOOM’S: Application

If the demand for bananas is elastic, then an increase in the price of bananas will
1. increase total revenue of banana
2. decrease total revenue of banana
3. not change total revenue of banana
4. There is not enough information to answer this

ANSWER: b

POINTS: 1

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NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Price Elasticity of Demand

KEYWORDS: BLOOM’S: Application

If the demand for textbooks is inelastic, then a decrease in the price of textbooks will
1. increase total revenue of textbook
2. decrease total revenue of textbook
3. not change total revenue of textbook
4. There is not enough information to answer this

ANSWER: b

POINTS: 1

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NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Price Elasticity of Demand

KEYWORDS: BLOOM’S: Application

If the demand for textbooks is inelastic, then an increase in the price of textbooks will
1. increase total revenue of textbook
2. decrease total revenue of textbook
3. not change total revenue of textbook
4. There is not enough information to answer this

ANSWER: a

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LEARNING OBJECTIVES: ECON.MANK.15.23 – LO: 5-1

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Price Elasticity of Demand

KEYWORDS: BLOOM’S: Application

Josh mows lawns. If the demand for lawn-mowing service is elastic and Josh wants to increase his total revenue, he should
1. increase the price of his lawn-mowing
2. decrease the price of his lawn-mowing
3. reduce the costs of operating his lawn-mowing
4. More than one of the above is

ANSWER: b

POINTS: 1

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LEARNING OBJECTIVES: ECON.MANK.15.23 – LO: 5-1

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Price Elasticity of Demand

KEYWORDS: BLOOM’S: Comprehension

NOTES: r

Holding all other forces constant, if increasing the price of a good leads to an increase in total revenue, then the demand for the good must be
1. unit
4. None of the above is correct because a price increase always leads to an increase in total

ANSWER: b

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LEARNING OBJECTIVES: ECON.MANK.15.23 – LO: 5-1

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Price Elasticity of Demand

KEYWORDS: BLOOM’S: Application

Holding all other forces constant, if increasing the price of a good leads to a decrease in total revenue, then the demand for the good must be
1. unit
4. None of the above is correct because a price increase always leads to an decrease in total

ANSWER: c

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LEARNING OBJECTIVES: ECON.MANK.15.23 – LO: 5-1

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Price Elasticity of Demand

KEYWORDS: BLOOM’S: Application

Holding all other forces constant, if decreasing the price of a good leads to an increase in total revenue, then the demand for the good must be
1. unit
4. None of the above is correct because a price decrease never leads to an increase in total

ANSWER: c

POINTS: 1

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LEARNING OBJECTIVES: ECON.MANK.15.23 – LO: 5-1

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Price Elasticity of Demand

KEYWORDS: BLOOM’S: Application

Holding all other forces constant, if decreasing the price of a good leads to a decrease in total revenue, then the demand for the good must be
1. unit
4. None of the above is correct because a price decrease never leads to an decrease in total

ANSWER: b

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NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Price Elasticity of Demand

KEYWORDS: BLOOM’S: Application

Suppose you are in charge of setting prices at a local ice cream shop. The business needs to increase its total revenue, and your job is on the line. You evaluate the data and determine that the price elasticity of demand for ice cream at your shop is 8. You should
1. increase the price of ice
2. decrease the price of ice
3. decrease the cost of operating the ice cream
4. increase the price of bottled water also sold at the ice cream shop because its price elasticity of demand is 2.

ANSWER: b

POINTS: 1

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LEARNING OBJECTIVES: ECON.MANK.15.23 – LO: 5-1

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Price Elasticity of Demand

KEYWORDS: BLOOM’S: Application

NOTES: r

Suppose an airline determines that its customers traveling for business have inelastic demand and its customers traveling for vacations have an elastic demand. If the airline’s objective is to increase total revenue, it should
1. increase the price charged to vacationers and decrease the price charged to business
2. decrease the price charged to vacationers and increase the price charged to business
3. decrease the price to both groups of
4. increase the price for both groups of

ANSWER: b

POINTS: 1

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LEARNING OBJECTIVES: ECON.MANK.15.23 – LO: 5-1

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Price Elasticity of Demand

KEYWORDS: BLOOM’S: Analysis

NOTES: r

Your younger sister needs $50 to buy a new bike. She has opened a lemonade stand to make the money she

Your mother is paying for all of the ingredients. She currently is charging 25 cents per cup, but she wants to adjust her price to earn the $50 faster. If you know that the demand for lemonade is elastic, what is your advice to her?

Leave the price at 25 cents and be
Raise the price to increase total
Lower the price to increase total
There isn’t enough information given to answer this

ANSWER: c

POINTS: 1

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LEARNING OBJECTIVES: ECON.MANK.15.23 – LO: 5-1

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Price Elasticity of Demand

KEYWORDS: BLOOM’S: Application

Suppose the point (Q = 3,400, P = $20) is the midpoint on a certain downward-sloping, linear demand curve. Then
1. a decrease in price from $18 to $16 will increase total
2. a decrease in price from $24 to $22 will decrease total
3. a decrease in the price from $21 to $19 will decrease total
4. the maximum value of total revenue is $68,000.

ANSWER: d

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NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Price Elasticity of Demand

KEYWORDS: BLOOM’S: Analysis

NOTES:

Suppose a market has the demand function Qd=20-0.5P. At which of the following prices will total revenue be maximized?
$10
$20
$30
$40

ANSWER: b

POINTS: 1

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NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Price Elasticity of Demand

KEYWORDS: BLOOM’S: Analysis

Suppose a market has the demand function Qd=20-0.5P. Between which of the following price ranges is demand most inelastic?
$0 to $10
$10 to $20
$20 to $30
$30 to $40

ANSWER: a

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LEARNING OBJECTIVES: ECON.MANK.15.23 – LO: 5-1

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Price Elasticity of Demand

KEYWORDS: BLOOM’S: Analysis

Table 5-5

Price	Total Revenue
$5	$70
$6	$78
$7	$84
$8	$88
$9	$90
$10	$90

Refer to Table 5-5. As price rises from $5 to $6, the price elasticity of demand using the midpoint method is approximately
a. 07.
0.18.
c. 41.
2.45.

ANSWER: c

POINTS: 1

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LEARNING OBJECTIVES: ECON.MANK.15.23 – LO: 5-1

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Price Elasticity of Demand

KEYWORDS: BLOOM’S: Application

NOTES: r

Refer to Table 5-5. As price rises from $7 to $8, the price elasticity of demand using the midpoint method is approximately
a. 09.
0.58.
c. 65.
1.53.

ANSWER: c

POINTS: 1

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NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Price Elasticity of Demand

KEYWORDS: BLOOM’S: Application

NOTES: n

Refer to Table 5-5. Demand is unit elastic when quantity demanded changes from
1. 9 to
2. 10 to
3. 10 to
4. There is not enough information given to determine the correct

ANSWER: b

POINTS: 1

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NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Price Elasticity of Demand

KEYWORDS: BLOOM’S: Analysis

NOTES: r

Refer to Table 5-5. When price is between $5 and $9, demand is
2. unit
4. There is not enough information given to determine whether demand is elastic, unit elastic, or

ANSWER: c

POINTS: 1

DIFFICULTY: Difficulty: Challenging

LEARNING OBJECTIVES: ECON.MANK.15.23 – LO: 5-1

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Price Elasticity of Demand

KEYWORDS: BLOOM’S: Analysis

NOTES: r

Table 5-6

Price	Total Revenue
$10	$5,000
$15	$6,000
$20	$6,000
$25	$5,000
$30	$3,000

Refer to Table 5-6. As price rises from $10 to $15, the price elasticity of demand using the midpoint method is approximately
a. 40.
0.56.
c. 80.
2.50.

ANSWER: b

POINTS: 1

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LEARNING OBJECTIVES: ECON.MANK.15.23 – LO: 5-1

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Price Elasticity of Demand

KEYWORDS: BLOOM’S: Application

Refer to Table 5-6. Using the midpoint method, demand is unit elastic when quantity demanded changes from a. 500 to
400 to 300.
c. 300 to
200 to 100.

ANSWER: b

POINTS: 1

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LEARNING OBJECTIVES: ECON.MANK.15.23 – LO: 5-1

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Price Elasticity of Demand

KEYWORDS: BLOOM’S: Analysis

Figure 5-4

Refer to Figure 5-4. Suppose the point labeled B is the “halfway point” on the demand curve and it corresponds

to a price of $5.00. Then, between prices of $4.99 and $5.01, the price elasticity of demand is

less than 1 but greater than
equal to
greater than
equal to

ANSWER: b

POINTS: 1

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LEARNING OBJECTIVES: ECON.MANK.15.23 – LO: 5-1

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Price Elasticity of Demand

KEYWORDS: BLOOM’S: Comprehension

Refer to Figure 5-4. The section of the demand curve from A to B represents the
1. elastic section of the demand
2. inelastic section of the demand
3. unit elastic section of the demand
4. perfectly elastic section of the demand

ANSWER: a

POINTS: 1

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LEARNING OBJECTIVES: ECON.MANK.15.23 – LO: 5-1

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Price Elasticity of Demand

KEYWORDS: BLOOM’S: Comprehension

Refer to Figure 5-4. The section of the demand curve from B to C represents the
1. elastic section of the demand
2. inelastic section of the demand
3. unit elastic section of the demand
4. perfectly elastic section of the demand

ANSWER: b

POINTS: 1

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LEARNING OBJECTIVES: ECON.MANK.15.23 – LO: 5-1

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Price Elasticity of Demand

KEYWORDS: BLOOM’S: Comprehension

Refer to Figure 5-4. The section of the demand curve at point B represents the
1. elastic section of the demand
2. inelastic section of the demand
3. unit elastic section of the demand
4. perfectly elastic section of the demand

ANSWER: c

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NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Price Elasticity of Demand

KEYWORDS: BLOOM’S: Comprehension

Refer to Figure 5-4. Assume the section of the demand curve from A to B corresponds to prices between $8 and $16. Then, when the price changes between $9 and $10,
1. quantity demanded changes proportionately less than the
2. quantity demanded changes proportionately more than the
3. quantity demanded changes the same amount proportionately as
4. the price elasticity of demand equals

ANSWER: b

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LEARNING OBJECTIVES: ECON.MANK.15.23 – LO: 5-1

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Price Elasticity of Demand

KEYWORDS: BLOOM’S: Application

Refer to Figure 5-4. Assume the section of the demand curve from A to B corresponds to prices between $6 and $12. Then, when the price increases from $8 to $10,
1. the percent decrease in the quantity demanded exceeds the percent increase in the
2. the percent increase in the price exceeds the percent decrease in the quantity
3. sellers’ total revenue increases as a
4. it is possible that the quantity demanded fell from 550 to 500 as a

ANSWER: a

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LEARNING OBJECTIVES: ECON.MANK.15.23 – LO: 5-1

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Price Elasticity of Demand

KEYWORDS: BLOOM’S: Application

Refer to Figure 5-4. Assume, for the good in question, two specific points on the demand curve are (Q = 1,000, P= $40) and (Q = 1,500, P = $30). Then which of the following scenarios is possible?
1. Both of these points lie on the section of the demand curve from B to
2. The vertical intercept of the demand curve is the point (Q = 0, P = $60).
3. The horizontal intercept of the demand curve is the point (Q = 1,800, P = $0).
4. Any of these scenarios is

ANSWER: b

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NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Price Elasticity of Demand

KEYWORDS: BLOOM’S: Analysis

Refer to Figure 5-4. The section of the demand curve from B to C represents the
1. elastic section of the demand
2. perfectly elastic section of the demand
3. unit elastic section of the demand
4. inelastic section of the demand

ANSWER: d

POINTS: 1

DIFFICULTY: Difficulty: Moderate

LEARNING OBJECTIVES: ECON.MANK.15.23 – LO: 5-1

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Price Elasticity of Demand

KEYWORDS: BLOOM’S: Comprehension

Refer to Figure 5-4. Assume the section of the demand curve from B to C corresponds to prices between $0 and $15. Then, when the price changes between $7 and $9,
1. quantity demanded changes proportionately less than the
2. quantity demanded changes proportionately more than the
3. quantity demanded changes the same amount proportionately as
4. the price elasticity of demand equals

ANSWER: a

POINTS: 1

DIFFICULTY: Difficulty: Moderate

LEARNING OBJECTIVES: ECON.MANK.15.23 – LO: 5-1

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Price Elasticity of Demand

KEYWORDS: BLOOM’S: Application

Refer to Figure 5-4. Assume, for the good in question, two specific points on the demand curve are (Q = 2,000, P= $15) and (Q = 2,400, P = $12). Then which of the following scenarios is possible?
1. Both of these points lie on section BC of the demand
2. The vertical intercept of the demand curve is the point (Q = 0, P = $22).
3. The horizontal intercept of the demand curve is the point (Q = 5,000, P = $0).
4. Any of these scenarios is

ANSWER: a

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TOPICS: DISC: Elasticity

Price Elasticity of Demand

KEYWORDS: BLOOM’S: Analysis

Refer to Figure 5-4. If the price decreases in the region of the demand curve between points A and B, we can expect total revenue to
2. stay the
4. first decrease, then increase until total revenue is

ANSWER: a

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TOPICS: DISC: Elasticity

Price Elasticity of Demand

KEYWORDS: BLOOM’S: Analysis

Refer to Figure 5-4. If the price increases in the region of the demand curve between points A and B, we can expect total revenue to
2. stay the
4. first increase, then decrease until total revenue is

ANSWER: c

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TOPICS: DISC: Elasticity

Price Elasticity of Demand

KEYWORDS: BLOOM’S: Analysis

Refer to Figure 5-4. If the price decreases in the region of the demand curve between points B and C, we can expect total revenue to
2. stay the
4. first increase, then decrease until total revenue is

ANSWER: c

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TOPICS: DISC: Elasticity

Price Elasticity of Demand

KEYWORDS: BLOOM’S: Analysis

Refer to Figure 5-4. If the price increases in the region of the demand curve between points B and C, we can expect total revenue to
2. stay the
4. first decrease, then increase until total revenue is

ANSWER: a

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TOPICS: DISC: Elasticity

Price Elasticity of Demand

KEYWORDS: BLOOM’S: Analysis

Figure 5-5

Refer to Figure 5-5. Using the midpoint method, demand is unit elastic between prices of
a. $20 and $40.
$40 and$50.
c. $40 and$60.
$50 and$70.

ANSWER: c

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Price Elasticity of Demand

KEYWORDS: BLOOM’S: Application

NOTES: r

Refer to Figure 5-5. Using the midpoint method, between prices of $20 and $30, price elasticity of demand is about
a. 33.
0.4.
c. 33.
3.

ANSWER: a

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TOPICS: DISC: Elasticity

Price Elasticity of Demand

KEYWORDS: BLOOM’S: Application

NOTES: r

Refer to Figure 5-5. Using the midpoint method, between prices of $70 and $80, price elasticity of demand is
a. 33.
0.4.
c. 33.
3.

ANSWER: d

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TOPICS: DISC: Elasticity

Price Elasticity of Demand

KEYWORDS: BLOOM’S: Application

NOTES: r

Refer to Figure 5-5. Using the midpoint method, between prices of $50 and $60, price elasticity of demand is about
a. 22.
0.82.
c. 22.
2.

ANSWER: c

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TOPICS: DISC: Elasticity

Price Elasticity of Demand

KEYWORDS: BLOOM’S: Application

NOTES: r

Refer to Figure 5-5. The maximum value of total revenue corresponds to a price of
a. $20.
$50.
$70
$100.

ANSWER: b

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TOPICS: DISC: Elasticity

Price Elasticity of Demand

KEYWORDS: BLOOM’S: Application

NOTES: r

Refer to Figure 5-5. At a price of $70 per unit, sellers’ total revenue equals
a. $700.
$1050.
c. $1250.
$1400.

ANSWER: b

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TOPICS: DISC: Elasticity

Price Elasticity of Demand

KEYWORDS: BLOOM’S: Application

NOTES: r

Refer to Figure 5-5. At a price of $10 per unit, sellers’ total revenue equals
a. $100.
$450
c. $500.
$1250.

ANSWER: b

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TOPICS: DISC: Elasticity

Price Elasticity of Demand

KEYWORDS: BLOOM’S: Application

NOTES: r

Refer to Figure 5-5. At a price of $50 per unit, sellers’ total revenue equals
a. $500.
$750.
c. $1000.
$1250.

ANSWER: d

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TOPICS: DISC: Elasticity

Price Elasticity of Demand

KEYWORDS: BLOOM’S: Application

NOTES: r

Figure 5-6

Refer to Figure 5-6. For prices above $8, demand is price
1. elastic, and total revenue will rise as price
2. inelastic, and total revenue will rise as price
3. elastic, and total revenue will fall as price
4. inelastic, and total revenue will fall as price

ANSWER: c

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TOPICS: DISC: Elasticity

Price Elasticity of Demand

KEYWORDS: BLOOM’S: Application

Refer to Figure 5-6. For prices below $8, demand is price
1. elastic, and total revenue will rise as price
2. inelastic, and total revenue will rise as price
3. elastic, and total revenue will fall as price
4. inelastic, and total revenue will fall as price

ANSWER: b

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TOPICS: DISC: Elasticity

Price Elasticity of Demand

KEYWORDS: BLOOM’S: Application

Figure 5-7

Refer to Figure 5-7. For prices above $5, demand is price
1. elastic, and raising price will increase total
2. inelastic, and raising price will increase total
3. elastic, and lowering price will increase total
4. inelastic, and lowering price will increase total

ANSWER: c

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TOPICS: DISC: Elasticity

Price Elasticity of Demand

KEYWORDS: BLOOM’S: Comprehension

Refer to Figure 5-7. For prices below $5, demand is price
1. elastic, and raising price will increase total
2. inelastic, and raising price will increase total
3. elastic, and lowering price will increase total
4. inelastic, and lowering price will increase total

ANSWER: b

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TOPICS: DISC: Elasticity

Price Elasticity of Demand

KEYWORDS: BLOOM’S: Comprehension

Figure 5-8

Refer to Figure 5-8. When the price is $15, total revenue is a. $1,500.
$2,500.
c. $3,500.
$4,500.

ANSWER: d

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TOPICS: DISC: Elasticity

Price Elasticity of Demand

KEYWORDS: BLOOM’S: Comprehension

NOTES: r

Refer to Figure 5-8. When price falls from $25 to $20, demand is
1. inelastic, since total revenue decreases from $4,000 to $2,500.
2. inelastic, since total revenue increases from $2,500 to $4,000.
3. elastic, since total revenue increases from $2,500 to $4,000.
4. unit elastic, since total revenue does not

ANSWER: c

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TOPICS: DISC: Elasticity

Price Elasticity of Demand

KEYWORDS: BLOOM’S: Application

NOTES: r

Refer to Figure 5-8. An increase in price from $10 to $15 would
1. increase total revenue by $1,000.
2. decrease total revenue by $1,000.
3. increase total revenue by $500.
4. decrease total revenue by $500.

ANSWER: c

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TOPICS: DISC: Elasticity

Price Elasticity of Demand

KEYWORDS: BLOOM’S: Application

NOTES: r

Refer to Figure 5-8. An increase in price from $15 to $20 would
1. increase total revenue by $500
2. decrease total revenue by $500.
3. increase total revenue by $1,000.
4. decrease total revenue by $1,000.

ANSWER: b

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TOPICS: DISC: Elasticity

Price Elasticity of Demand

KEYWORDS: BLOOM’S: Application

NOTES: r

Figure 5-9

Refer to Figure 5-9. Using the midpoint method, the price elasticity of demand between point A and point B is
a. 33.
5.
0.
0.

ANSWER: d

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TOPICS: DISC: Elasticity

Price Elasticity of Demand

KEYWORDS: BLOOM’S: Analysis

Refer to Figure 5-9. Using the midpoint method, the price elasticity of demand between point C and point D is about
a. 29.
0.54.
c. 86.
2.0.

ANSWER: b

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TOPICS: DISC: Elasticity

Price Elasticity of Demand

KEYWORDS: BLOOM’S: Analysis

Refer to Figure 5-9. If the price falls from point A to point B, total revenue
1. increases, and demand is price
2. decreases, and demand is price
3. increases, and demand is price
4. decreases, and demand is price

ANSWER: a

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TOPICS: DISC: Elasticity

Price Elasticity of Demand

KEYWORDS: BLOOM’S: Analysis

Refer to Figure 5-9. If the price rises from point D to point C, total revenue
1. increases, and demand is price
2. decreases, and demand is price
3. increases, and demand is price
4. decreases, and demand is price

ANSWER: c

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TOPICS: DISC: Elasticity

Price Elasticity of Demand

KEYWORDS: BLOOM’S: Analysis

Figure 5-10

Refer to Figure 5-10. If rectangle D is larger than rectangle A, then
1. demand is elastic between prices P1 and P2.
2. a decrease in price from P2 to P1 will cause an increase in total
3. the magnitude of the percent change in price between P1 and P2 is smaller than the magnitude of the corresponding percent change in quantity
4. All of the above are

ANSWER: d

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TOPICS: DISC: Elasticity

Price Elasticity of Demand

KEYWORDS: BLOOM’S: Analysis

Refer to Figure 5-10. Total revenue when the price is P1 is represented by the area(s)
1. B +
2. A +
3. C +

ANSWER: a

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TOPICS: DISC: Elasticity

Price Elasticity of Demand

KEYWORDS: BLOOM’S: Application

Refer to Figure 5-10. Total revenue when the price is P2 is represented by the area(s)
1. B +
2. A +
3. C +

ANSWER: b

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TOPICS: DISC: Elasticity

Price Elasticity of Demand

KEYWORDS: BLOOM’S: Application

Multiple Choice – Section 01A: The Elasticity of Demand

Figure 5-11

Refer to Figure 5-11. Suppose this demand curve is a straight, downward-sloping line all the way from the horizontal intercept to the vertical intercept. We choose two prices, P1 and P2, and the corresponding quantities demanded, Q1 and Q2, for the purpose of calculating the price elasticity of demand. Also suppose P2 > P1. In which of the following cases could we possibly find that (i) demand is elastic and (ii) a decrease in price from P1 to P2 causes an decrease in total revenue?
a. 0 < P1 < P2 < $10.
$10 < P1 < P2 $20.
c. P1 > $20.
None of the above is correct.

ANSWER: d

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TOPICS: DISC: Elasticity

Price Elasticity of Demand

KEYWORDS: BLOOM’S: Analysis

NOTES: r

Refer to Figure 5-11. If price increases from $10 to $20, total revenue will
1. increase by $120, so demand must be inelastic in this price
2. increase by $320, so demand must be inelastic in this price
3. decrease by $120, so demand must be elastic in this price
4. decrease by $320, so demand must be elastic in this price

ANSWER: a

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TOPICS: DISC: Elasticity

Price Elasticity of Demand

KEYWORDS: BLOOM’S: Application

NOTES: r

Refer to Figure 5-11. A decrease in price from $20 to $10 leads to a
1. decrease in total revenue of $200, so the price elasticity of demand is greater than 1 in this price
2. decrease in total revenue of $200, so the price elasticity of demand is less than 1 in this price
3. decrease in total revenue of $120, so the price elasticity of demand is less than 1 in this price
4. decrease in total revenue of $120, so demand is elastic in this price

ANSWER: c

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Price Elasticity of Demand

KEYWORDS: BLOOM’S: Application

NOTES: r

Figure 5-12

Refer to Figure 5-12. Using the midpoint method, the price elasticity of demand between point X and point Y is
a. 4.
5.

ANSWER: d

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TOPICS: DISC: Elasticity

Price Elasticity of Demand

KEYWORDS: BLOOM’S: Application

NOTES: r

Refer to Figure 5-12. Using the midpoint method, the price elasticity of demand between point Y and point Z is
a. 5.
0.75.
0.
3.

ANSWER: b

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TOPICS: DISC: Elasticity

Price Elasticity of Demand

KEYWORDS: BLOOM’S: Application

NOTES: r

Refer to Figure 5-12. If the price decreased from $36 to $12, total revenue would
1. increase by $4,800, and demand is elastic between points X and
2. increase by $7,200, and demand is elastic between points X and
3. decrease by $4,800, and demand is inelastic between points X and
4. decrease by $7,200, and demand is inelastic between points X and

ANSWER: a

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TOPICS: DISC: Elasticity

Price Elasticity of Demand

KEYWORDS: BLOOM’S: Application

NOTES: r

Refer to Figure 5-12. Sellers’ total revenue would increase if the price
1. increased from $6 to $9.
2. increased from $33 to $36.
3. decreased from $15 to $12.
4. All of the above are

ANSWER: a

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Price Elasticity of Demand

KEYWORDS: BLOOM’S: Application

NOTES: r

Refer to Figure 5-12. Which of the following price changes would result in no change in sellers’ total revenue?
1. The price increases from $15 to $21.
2. The price increases from $18 to $21.
3. The price decreases from $24 to $18.
4. The price decreases from $27 to $24.

ANSWER: c

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Price Elasticity of Demand

KEYWORDS: BLOOM’S: Application

NOTES: r

Refer to Figure 5-12. Sellers’ total revenue would increase if the price
1. increased from $12 to $15.
2. decreased from $39 to $36.
3. decreased from $27 to $24.
4. All of the above are

ANSWER: d

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Price Elasticity of Demand

KEYWORDS: BLOOM’S: Application

NOTES: r

Figure 5-13

Refer to Figure 5-13. Between point A and point B, price elasticity of demand using the midpoint method is equal to
a. 71.
0.85.
c. 18.
1.40.

ANSWER: b

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Price Elasticity of Demand

KEYWORDS: BLOOM’S: Application

Refer to Figure 5-13. Between point A and point B on the graph, demand is
1. perfectly
3. unit
4. elastic, but not perfectly

ANSWER: b

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Price Elasticity of Demand

KEYWORDS: BLOOM’S: Application

Income elasticity of demand measures how
1. the quantity demanded changes as consumer income
2. consumer purchasing power is affected by a change in the price of a
3. the price of a good is affected when there is a change in consumer
4. many units of a good a consumer can buy given a certain income

ANSWER: a

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Income Elasticity of Demand

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To determine whether a good is considered normal or inferior, one could examine the value of the
1. income elasticity of demand for that
2. price elasticity of demand for that
3. price elasticity of supply for that
4. cross-price elasticity of demand for that

ANSWER: a

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Income Elasticity of Demand

KEYWORDS: BLOOM’S: Comprehension

Suppose good X has a positive income elasticity of demand. This implies that good X could be

a normal
a
an inferior
a

(i) only
(i) and (ii) only
(i), (ii), and (iv) only
(iii) only

ANSWER: c

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Income Elasticity of Demand

KEYWORDS: BLOOM’S: Comprehension

Suppose good X has a negative income elasticity of demand. This implies that good X is
1. a normal
2. a
3. an inferior
4. a

ANSWER: c

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Income Elasticity of Demand

KEYWORDS: BLOOM’S: Comprehension

If an increase in income results in a decrease in the quantity demanded of a good, then for that good, the
1. cross-price elasticity of demand is
2. price elasticity of demand is
3. income elasticity of demand is
4. income elasticity of demand is

ANSWER: c

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Income Elasticity of Demand

KEYWORDS: BLOOM’S: Comprehension

Which of the following should be held constant when calculating an income elasticity of demand?
1. the quantity of the good demanded
2. the price of the good
3. income
4. All of the above should be held

ANSWER: b

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Income Elasticity of Demand

KEYWORDS: BLOOM’S: Comprehension

Which of the following should be held constant when calculating an income elasticity of demand?
1. the price of the good
2. prices of related goods
3. tastes
4. All of the above should be held

ANSWER: d

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Income Elasticity of Demand

KEYWORDS: BLOOM’S: Comprehension

Necessities such as food and clothing tend to have
1. high price elasticities of demand and high income elasticities of
2. high price elasticities of demand and low income elasticities of
3. low price elasticities of demand and high income elasticities of
4. low price elasticities of demand and low income elasticities of

ANSWER: d

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TOPICS: DISC: Elasticity

Income Elasticity of Demand

KEYWORDS: BLOOM’S: Comprehension

For which of the following goods is the income elasticity of demand likely highest?
1. water
2. diamonds
3. hamburgers
4. housing

ANSWER: b

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NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Income Elasticity of Demand

KEYWORDS: BLOOM’S: Comprehension

For which of the following goods is the income elasticity of demand likely highest?
1. natural gas
2. doctor’s visits
3. hamburgers
4. boats

ANSWER: d

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NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Income Elasticity of Demand

KEYWORDS: BLOOM’S: Comprehension

For which of the following goods is the income elasticity of demand likely lowest?
1. subscriptions to premium movie channels through the local cable television provider
2. hi-definition DVD players
3. champagne
4. housing

ANSWER: d

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NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Income Elasticity of Demand

KEYWORDS: BLOOM’S: Comprehension

For which of the following goods is the income elasticity of demand likely lowest?
1. water
2. sapphire pendant necklaces
3. filet mignon steaks
4. fresh fruit

ANSWER: a

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NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Income Elasticity of Demand

KEYWORDS: BLOOM’S: Comprehension

For which of the following types of goods would the income elasticity of demand be positive and relatively large?
1. all inferior goods
2. all normal goods
3. goods for which there are many complements
4. luxuries

ANSWER: d

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NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Income Elasticity of Demand

KEYWORDS: BLOOM’S: Comprehension

The income elasticity of demand for caviar tends to be
1. high because caviar is relatively
2. low because caviar is packaged in small
3. high because buyers generally feel that they can do without
4. low because it is almost always in short

ANSWER: c

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TOPICS: DISC: Elasticity

Income Elasticity of Demand

KEYWORDS: BLOOM’S: Comprehension

Table 5-7

The following table shows a portion of the demand schedule for a particular good at various levels of income.

Price	Quantity Demanded (Income = $5,000)	Quantity Demanded (Income = $7,500)	Quantity Demanded (Income = $10,000)
$24	2	3	4
$20	4	6	8
$16	6	9	12
$12	8	12	16
$8	10	15	20
$4	12	18	24

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?
1. 56
2. 75
3. 33
4. 80

ANSWER: d

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NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Price Elasticity of Demand

KEYWORDS: BLOOM’S: Analysis

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?
1. 56
2. 75
3. 33
4. 80

ANSWER: a

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NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Price Elasticity of Demand

KEYWORDS: BLOOM’S: Analysis

Refer to Table 5-7. 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?
1. 00
2. 50
3. 00
4. 50

ANSWER: c

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TOPICS: DISC: Elasticity

Income Elasticity of Demand

KEYWORDS: BLOOM’S: Analysis

Refer to Table 5-7. 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?
1. 00
2. 41
3. 00
4. 45

ANSWER: c

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TOPICS: DISC: Elasticity

Income Elasticity of Demand

KEYWORDS: BLOOM’S: Analysis

Refer to Table 5-7. 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?
1. 00
2. 41
3. 00
4. 45

ANSWER: c

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TOPICS: DISC: Elasticity

Income Elasticity of Demand

KEYWORDS: BLOOM’S: Analysis

Table 5-8

Income

Quantity of Good X Purchased

Quantity of Good Y Purchased

$30,000

$40,000

Refer to Table 5-8. Using the midpoint method, what is the income elasticity of demand for good X?
a. -3.5
-0.29
29
5

ANSWER: d

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TOPICS: DISC: Elasticity

Income Elasticity of Demand

KEYWORDS: BLOOM’S: Application

Refer to Table 5-8. Using the midpoint method, the income elasticity of demand for good Y is
1. 33, and good Y is a normal good.
2. -2.33, and good Y is an inferior
3. -0.43, and good Y is a normal
4. -0.43, and good Y is an inferior

ANSWER: b

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TOPICS: DISC: Elasticity

Income Elasticity of Demand

KEYWORDS: BLOOM’S: Application

Suppose the income elasticity of demand is -0.5 for good X. This implies that a 5% decrease in income will cause the quantity demanded of good X to
1. increase by 5%, and X is an inferior good.
2. decrease by 5% and X is a normal good.
3. increase by 10% and X is an inferior
4. decrease by 10% and X is a normal

ANSWER: a

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TOPICS: DISC: Elasticity

Income Elasticity of Demand

KEYWORDS: BLOOM’S: Analysis

Last year, Max bought 6 pairs of athletic shoes when his income was $35,000. This year, his income is $42,000, and he purchased 8 pairs of athletic shoes. Holding other factors constant, it follows that Max
1. considers athletic shoes to be
2. considers athletic shoes to be inferior
3. considers athletic shoes to be normal
4. has a low price elasticity of demand for athletic

ANSWER: c

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TOPICS: DISC: Elasticity

Income Elasticity of Demand

KEYWORDS: BLOOM’S: Comprehension

NOTES: r

Last year, Tess bought 5 handbags when her income was $54,000. This year, her income is $60,000, and she

purchased 7 handbags. Holding other factors constant, it follows that Tess’s income elasticity of demand is about

32, and Tess regards handbags as inferior goods.
32, and Tess regards handbags as normal goods.
17, and Tess regards handbags as inferior goods.
17, and Tess regards handbags as normal goods.

ANSWER: d

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TOPICS: DISC: Elasticity

Income Elasticity of Demand

KEYWORDS: BLOOM’S: Application

NOTES: r

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
1. 43, and Jim regards tickets to sporting events as inferior goods.
2. 43, and Jim regards tickets to sporting events as normal goods.
3. 33, and Jim regards tickets to sporting events as inferior goods.
4. 33, and Jim regards tickets to sporting events as normal goods.

ANSWER: d

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TOPICS: DISC: Elasticity

Income Elasticity of Demand

KEYWORDS: BLOOM’S: Application

NOTES: r

Danita rescues dogs from her local animal shelter. When Danita’s income rises by 7 percent, her quantity demanded

of dog biscuits increases by 12 percent. For Danita, the income elasticity of demand for dog biscuits is

negative, and dog biscuits are a normal
negative, and dog biscuits are an inferior
positive, and dog biscuits are an inferior
positive, and dog biscuits are a normal

ANSWER: d

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TOPICS: DISC: Elasticity

Income Elasticity of Demand

KEYWORDS: BLOOM’S: Application

Last year, Joan bought 50 pounds of hamburger when her household’s income was $40,000. This year, her household income was only $30,000 and Joan bought 60 pounds of hamburger. All else constant, Joan’s income elasticity of demand for hamburger is
1. positive, so Joan considers hamburger to be an inferior
2. positive, so Joan considers hamburger to be a normal good and a
3. negative, so Joan considers hamburger to be an inferior
4. negative, so Joan considers hamburger to be a normal good but not a

ANSWER: c

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NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Income Elasticity of Demand

KEYWORDS: BLOOM’S: Comprehension

You and your college roommate eat three packages of Ramen noodles each week. After graduation last month, both of you were hired at several times your college income. You still enjoy Ramen noodles very much and buy even more, but your roommate plans to buy fewer Ramen noodles in favor of foods she prefers more. When looking at income elasticity of demand for Ramen noodles, yours would
1. be negative, and your roommate’s would be
2. be positive, and your roommate’s would be
3. be zero, and your roommate’s would approach
4. approach infinity, and your roommate’s would be

ANSWER: b

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TOPICS: DISC: Elasticity

Income Elasticity of Demand

KEYWORDS: BLOOM’S: Comprehension

You and your college roommate eat three packages of Ramen noodles each week. After graduation last month, both of you were hired at several times your college income. Your roommate still enjoys Ramen noodles very much and buys even more, but you plan to buy fewer Ramen noodles in favor of foods you prefer more. When looking at income elasticity of demand for Ramen noodles, yours would
1. be negative and your roommate’s would be
2. be positive and your roommate’s would be
3. be zero and your roommate’s would approach
4. approach infinity and your roommate’s would be

ANSWER: a

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TOPICS: DISC: Elasticity

Income Elasticity of Demand

KEYWORDS: BLOOM’S: Comprehension

While in college, John and Bethany each buy five packages of mac-n-cheese per week. After they graduate and have full-time jobs, John buys six packages per week, but Bethany buys only two packages per week. When looking at income elasticity of demand for macncheese, John’s
1. is negative, and Bethany’s is
2. is positive, and Bethany’s is
3. is zero, and Bethany’s approaches
4. approaches infinity, and Bethany’s is

ANSWER: b

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TOPICS: DISC: Elasticity

Income Elasticity of Demand

KEYWORDS: BLOOM’S: Comprehension

While in college, Marty and Laura each buy 15 bus tickets per month. After they graduate and have full-time jobs, Marty buys 0 bus tickets per month and Laura buys 28 bus tickets per month. Comparing income elasticity of demand for bus tickets, Marty’s
1. is negative, and Laura’s is
2. is positive, and Laura’s is
3. is zero, and Laura’s is
4. is zero, and Laura’s is

ANSWER: a

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TOPICS: DISC: Elasticity

Income Elasticity of Demand

KEYWORDS: BLOOM’S: Comprehension

NOTES: n

Assume that a 4 percent increase in income results in a 2 percent increase in the quantity demanded of a good. The income elasticity of demand for the good is
1. negative, and the good is an inferior
2. negative, and the good is a normal
3. positive, and the good is a normal
4. positive, and the good is an inferior

ANSWER: c

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TOPICS: DISC: Elasticity

Income Elasticity of Demand

KEYWORDS: BLOOM’S: Application

Assume that a 4 percent decrease in income results in a 6 percent increase in the quantity demanded of a good. The income elasticity of demand for the good is
1. negative, and the good is an inferior
2. negative, and the good is a normal
3. positive, and the good is an inferior
4. positive, and the good is a normal

ANSWER: a

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TOPICS: DISC: Elasticity

Income Elasticity of Demand

KEYWORDS: BLOOM’S: Application

Heath’s income elasticity of demand for concerts is 2. All else equal, this means that if his income increases by 10

percent, he will purchase tickets for

2 percent more
5 percent more
10 percent more
20 percent more

ANSWER: d

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TOPICS: DISC: Elasticity

Income Elasticity of Demand

KEYWORDS: BLOOM’S: Application

NOTES: r

When her income increased from $10,000 to $20,000, Heather’s consumption of macaroni decreased from 10 pounds to 5 pounds and her consumption of soy-burgers increased from 2 pounds to 4 pounds. We can conclude that for Heather, macaroni
1. and soy-burgers are both normal goods with income elasticities equal to
2. is an inferior good and soy-burgers are normal goods; both have income elasticities of
3. is an inferior good with an income elasticity of -1 and soy-burgers are normal goods with an income elasticity of
4. and soy-burgers are both inferior goods with income elasticities equal to -1.

ANSWER: c

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TOPICS: DISC: Elasticity

Income Elasticity of Demand

KEYWORDS: BLOOM’S: Application

Food and clothing tend to have
1. small income elasticities because consumers, regardless of their incomes, choose to buy relatively constant quantities of these
2. small income elasticities because consumers buy proportionately more of both goods at higher income levels than they buy at low income
3. large income elasticities because they are
4. large income elasticities because they are relatively

ANSWER: a

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TOPICS: DISC: Elasticity

Income Elasticity of Demand

KEYWORDS: BLOOM’S: Application

Charles purchases 20 basketball tickets per year when his annual income is $50,000 and 25 basketball tickets when his annual income is $60,000. Charles’s income elasticity of demand for basketball ticket is
1. 82, and basketball tickets are a normal good.
2. 82, and basketball tickets are an inferior good.
3. 22, and basketball tickets are a normal good.
4. 22, and basketball tickets are an inferior good.

ANSWER: c

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TOPICS: DISC: Elasticity

Income Elasticity of Demand

KEYWORDS: BLOOM’S: Analysis

Tyler purchases 5 pounds of hot dogs per month when his monthly income is $2,000 and 4 pounds of hot dogs per month when his monthly income is $2,200. Tyler’s income elasticity of demand for hot dogs is
1. 33, and hot dogs are a normal good.
2. -2.33, and hot dogs are an inferior
3. 43, and hot dogs are a normal good.
4. -0.43, and hot dogs are an inferior

ANSWER: b

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NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Income Elasticity of Demand

KEYWORDS: BLOOM’S: Analysis

Cross-price elasticity of demand measures how
1. the price of one good changes in response to a change in the price of another
2. the quantity demanded of one good changes in response to a change in the quantity demanded of another
3. the quantity demanded of one good changes in response to a change in the price of another
4. strongly normal or inferior a good

ANSWER: c

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TOPICS: DISC: Elasticity

Cross-Price Elasticity of Demand

KEYWORDS: BLOOM’S: Knowledge

The cross-price elasticity of demand can tell us whether goods are
1. normal or
2. elastic or
3. luxuries or
4. complements or

ANSWER: d

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TOPICS: DISC: Elasticity

Cross-Price Elasticity of Demand

KEYWORDS: BLOOM’S: Comprehension

Which of the following expressions represents a cross-price elasticity of demand?
1. percentage change in quantity demanded of bread divided by percentage change in quantity supplied of bread
2. percentage change in quantity demanded of bread divided by percentage change in price of butter
3. percentage change in price of bread divided by percentage change in quantity demanded of bread
4. percentage change in quantity demanded of bread divided by percentage change in income

ANSWER: b

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TOPICS: DISC: Elasticity

Cross-Price Elasticity of Demand

KEYWORDS: BLOOM’S: Knowledge

If the cross-price elasticity of two goods is negative, then the two goods are
3. normal
4. inferior

ANSWER: b

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TOPICS: DISC: Elasticity

Cross-Price Elasticity of Demand

KEYWORDS: BLOOM’S: Comprehension

If the cross-price elasticity of two goods is positive, then the two goods are
3. normal
4. inferior

ANSWER: a

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TOPICS: DISC: Elasticity

Cross-Price Elasticity of Demand

KEYWORDS: BLOOM’S: Comprehension

If two goods are substitutes, their cross-price elasticity will be
4. equal to the difference between the income elasticities of demand for the two

ANSWER: a

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TOPICS: DISC: Elasticity

Cross-Price Elasticity of Demand

KEYWORDS: BLOOM’S: Comprehension

If two goods are complements, their cross-price elasticity will be
4. equal to the difference between the income elasticities of demand for the two

ANSWER: b

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TOPICS: DISC: Elasticity

Cross-Price Elasticity of Demand

KEYWORDS: BLOOM’S: Comprehension

Suppose goods A and B are substitutes for each other. We would expect the cross-price elasticity between these two goods to be
3. either positive or negative. It depends whether A and B are normal goods or inferior
4. either positive or negative. It depends whether the current price level is on the elastic or inelastic portion of the demand

ANSWER: a

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TOPICS: DISC: Elasticity

Cross-Price Elasticity of Demand

KEYWORDS: BLOOM’S: Comprehension

Which of the following could be the cross-price elasticity of demand for two goods that are complements?
a. -1.3
0
2
4

ANSWER: a

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TOPICS: DISC: Elasticity

Cross-Price Elasticity of Demand

KEYWORDS: BLOOM’S: Comprehension

For which pairs of goods is the cross-price elasticity most likely to be positive?
1. peanut butter and jelly
2. bicycle frames and bicycle tires
3. pens and pencils
4. college textbooks and iPods

ANSWER: c

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TOPICS: DISC: Elasticity

Cross-Price Elasticity of Demand

KEYWORDS: BLOOM’S: Comprehension

For which pairs of goods is the cross-price elasticity most likely to be negative?
1. peanut butter and jelly
2. automobile tires and coffee
3. pens and pencils
4. paperback novels and electronic books for e-readers

ANSWER: a

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TOPICS: DISC: Elasticity

Cross-Price Elasticity of Demand

KEYWORDS: BLOOM’S: Comprehension

If the cross-price elasticity of demand for two goods is 25, then
1. the two goods are
2. the two goods are
3. one of the goods is normal and the other good is
4. the demand for one of the goods conforms to the law of demand, but the demand for the other good violates the law of

ANSWER: b

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TOPICS: DISC: Elasticity

Cross-Price Elasticity of Demand

KEYWORDS: BLOOM’S: Comprehension

If the cross-price elasticity of demand for two goods is -4.5, then
1. the two goods are
2. the two goods are
3. one of the goods is normal while the other good is
4. one of the goods is a luxury while the other good is a

ANSWER: b

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TOPICS: DISC: Elasticity

Cross-Price Elasticity of Demand

KEYWORDS: BLOOM’S: Comprehension

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
1. -1.2, and X and Y are
2. -0.1, and X and Y are
3. 1, and X and Y are substitutes.
4. 2, and X and Y are substitutes.

ANSWER: d

POINTS: 1

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Cross-Price Elasticity of Demand

KEYWORDS: BLOOM’S: Analysis

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
1. substitutes, and have a cross-price elasticity of 60.
2. complements, and have a cross-price elasticity of -0.60.
3. substitutes, and have a cross-price elasticity of 67.
4. complements, and have a cross-price elasticity of -1.67.

ANSWER: c

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Cross-Price Elasticity of Demand

KEYWORDS: BLOOM’S: Application

Suppose that when the price of good X falls from $10 to $8, the quantity demanded of good Y rises from 20 units to 25 units. Using the midpoint method, the cross-price elasticity of demand is
1. -1.0, and X and Y are
2. -1.0, and X and Y are
3. 0, and X and Y are complements.
4. 0, and X and Y are substitutes.

ANSWER: a

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Cross-Price Elasticity of Demand

KEYWORDS: BLOOM’S: Application

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
1. -0.71, and X and Y are
2. -1.40, and X and Y are
3. -0.71, and X and Y are
4. -1.40, and X and Y are

ANSWER: a

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Cross-Price Elasticity of Demand

KEYWORDS: BLOOM’S: Application

Suppose the cross-price elasticity of demand between hot dogs and mustard is -2.00. This implies that a 20 percent increase in the price of hot dogs will cause the quantity of mustard purchased to
1. fall by 200
2. fall by 40
3. rise by 200
4. rise by 40

ANSWER: b

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Cross-Price Elasticity of Demand

KEYWORDS: BLOOM’S: Application

Suppose the cross-price elasticity of demand between peanut butter and jelly is -2.50. This implies that a 20 percent increase in the price of peanut butter will cause the quantity of jelly purchased to
1. fall by 8
2. fall by 50
3. rise by 8
4. rise by 50

ANSWER: b

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Cross-Price Elasticity of Demand

KEYWORDS: BLOOM’S: Application

Maddy purchases 2 pounds of beans and 3 pounds of rice per month when the price of beans is $2 per pound. She purchases 1 pounds of beans and 4 pounds of rice per month when the price of beans is $3 per pound. Maddy’s cross-price elasticity of demand for beans and rice is
1. 71, and they are substitutes.
2. -0.71, and they are
3. 4, and they are substitutes.
4. -1.4, and they are

ANSWER: a

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Cross-Price Elasticity of Demand

KEYWORDS: BLOOM’S: Analysis

NOTES: r

Scenario 5-1

Suppose that when the average college student’s income is $10,000 per year, the annual quantity demanded of Patty’s Pizza is 50 and the annual quantity demanded of Sue’s Subs is 80. Suppose that when the price of Patty’s Pizza increases from $8 to $10 per pie, the quantity demanded of Sue’s Subs increases from 80 to 100. Suppose also that when the average student’s income increases to $12,000 per year, the annual quantity demanded of Patty’s Pizza increases from 50 to 60.

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?
1. Patty’s Pizza is a normal good and Patty’s Pizza and Sue’s Subs are
2. Patty’s Pizza is a normal good and Patty’s Pizza and Sue’s Subs are
3. Patty’s Pizza is an inferior good and Patty’s Pizza and Sue’s Subs are
4. Patty’s Pizza is an inferior good and Patty’s Pizza and Sue’s Subs are

ANSWER: a

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KEYWORDS: BLOOM’S: Analysis

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?
1. The income elasticity is 18 so pizza is a normal good.
2. The income elasticity is -1 so pizza is an inferior
3. The income elasticity is 1 so pizza is unitary
4. The income elasticity is 1 so pizza is a normal

ANSWER: d

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Income Elasticity of Demand

KEYWORDS: BLOOM’S: Analysis

Refer to Scenario 5-1. Using the midpoint method, the cross price elasticity of demand is
1. about 22, and the two goods are substitutes.
2. about -0.005, and the two goods are
3. 1, and the two goods are
4. 1, and the two goods are unitary

ANSWER: c

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Cross-Price Elasticity of Demand

KEYWORDS: BLOOM’S: Analysis

Scenario 5-2

Suppose the demand function for good X is given by: where is the quantity demanded of good X, is the price of good X, and is the price of good Y, which is related to good X.

Refer to Scenario 5-2. Using the midpoint method, if the price of good X is constant at $10 and the price of good Y decreases from $10 to $8, the cross price elasticity of demand is about
1. 57, and X and Y are substitutes.
2. -0.22, and X and Y are
3. -0.80, and X and Y are
4. -2.57, and X and Y are

ANSWER: d

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Cross-Price Elasticity of Demand

KEYWORDS: BLOOM’S: Analysis

Multiple Choice – Section 02: The Elasticity of Supply

The price elasticity of supply measures how much
1. the quantity supplied responds to changes in input
2. the quantity supplied responds to changes in the price of the
3. the price of the good responds to changes in
4. sellers respond to changes in

ANSWER: b

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Price Elasticity of Supply

KEYWORDS: BLOOM’S: Knowledge

The price elasticity of supply measures how responsive
1. sellers are to a change in
2. sellers are to a change in buyers’
3. buyers are to a change in production
4. equilibrium price is to a change in

ANSWER: a

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Price Elasticity of Supply

KEYWORDS: BLOOM’S: Knowledge

The price elasticity of supply measures how responsive
1. equilibrium price is to equilibrium
2. sellers are to a change in buyers’
3. sellers are to a change in
4. consumers are to the number of

ANSWER: c

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Price Elasticity of Supply

KEYWORDS: BLOOM’S: Knowledge

If the quantity supplied responds only slightly to changes in price, then
1. supply is said to be
2. supply is said to be
3. an increase in price will not shift the supply curve very
4. even a large decrease in demand will change the equilibrium price only

ANSWER: b

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Price Elasticity of Supply

KEYWORDS: BLOOM’S: Comprehension

A linear, upward-sloping supply curve has
1. a constant slope and a changing price elasticity of
2. a changing slope and a constant price elasticity of
3. both a constant slope and a constant price elasticity of
4. both a changing slope and a changing price elasticity of

ANSWER: a

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TOPICS: DISC: Elasticity

Price Elasticity of Supply

KEYWORDS: BLOOM’S: Comprehension

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

ANSWER: c

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Price Elasticity of Supply

KEYWORDS: BLOOM’S: Comprehension

A key determinant of the price elasticity of supply is the
1. time
2. income of
3. price elasticity of
4. importance of the good in a consumer’s

ANSWER: a

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TOPICS: DISC: Elasticity

Price Elasticity of Supply

KEYWORDS: BLOOM’S: Comprehension

A key determinant of the price elasticity of supply is the
1. number of close substitutes for the good in
2. extent to which buyers alter their quantities demanded in response to changes in
3. length of the time
4. extent to which buyers alter their quantities demanded in response to changes in their

ANSWER: c

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Price Elasticity of Supply

KEYWORDS: BLOOM’S: Comprehension

A key determinant of the price elasticity of supply is
1. the ability of sellers to change the price of the good they
2. the ability of sellers to change the amount of the good they
3. how responsive buyers are to changes in sellers’
4. the slope of the demand

ANSWER: b

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Price Elasticity of Supply

KEYWORDS: BLOOM’S: Comprehension

If the price elasticity of supply for wheat is less than 1, then the supply of wheat is
3. unit
4. quite sensitive to changes in

ANSWER: a

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Price Elasticity of Supply

KEYWORDS: BLOOM’S: Comprehension

The supply of a good will be more elastic, the
1. more the good is considered a
2. broader is the definition of the market for the
3. larger the number of close substitutes for the
4. longer the time period being

ANSWER: d

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Price Elasticity of Supply

KEYWORDS: BLOOM’S: Comprehension

Frequently, in the short run, the quantity supplied of a good is
1. impossible, or nearly impossible, to
2. not very responsive to price
3. determined by the quantity demanded of the
4. determined by psychological forces and other non-economic

ANSWER: b

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Price Elasticity of Supply

KEYWORDS: BLOOM’S: Comprehension

In the long run, the quantity supplied of most goods
1. will increase in almost all cases, regardless of what happens to
2. cannot respond at all to a change in
3. can respond to a change in price, but the change is almost always
4. can respond substantially to a change in

ANSWER: d

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Price Elasticity of Supply

KEYWORDS: BLOOM’S: Comprehension

Some firms eventually experience problems with their capacity to produce output as their output levels increase. For these firms,
1. market power is
2. supply is perfectly
3. supply is more elastic at low levels of output and less elastic at high levels of
4. supply is less elastic at low levels of output and more elastic at high levels of

ANSWER: c

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Price Elasticity of Supply

KEYWORDS: BLOOM’S: Application

Generally, a firm is more willing and able to increase quantity supplied in response to a price change when
1. the relevant time period is short rather than
2. the relevant time period is long rather than
3. supply is
4. the firm is experiencing capacity

ANSWER: b

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Price Elasticity of Supply

KEYWORDS: BLOOM’S: Application

The price elasticity of supply along a typical supply curve is
2. equal to
3. higher at low levels of quantity supplied and lower at high levels of quantity
4. lower at low levels of quantity supplied and higher at high levels of quantity

ANSWER: c

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Price Elasticity of Supply

KEYWORDS: BLOOM’S: Comprehension

Suppose that two supply curves pass through the same point. One is steep, and the other is flat. Which of the following statements is correct?
1. The flatter supply curve represents a supply that is inelastic relative to the supply represented by the steeper supply
2. The steeper supply curve represents a supply that is inelastic relative to the supply represented by the flatter supply
3. Given two prices with which to calculate the price elasticity of supply, that elasticity would be the same for both
4. A decrease in demand will increase total revenue if the steeper supply curve is relevant, while a decrease in demand will decrease total revenue if the flatter supply cure is

ANSWER: b

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Price Elasticity of Supply

KEYWORDS: BLOOM’S: Comprehension

When a supply curve is relatively flat, the
1. sellers are not at all responsive to a change in
2. equilibrium price changes substantially when the demand for the good
3. supply is relatively
4. supply is relatively

ANSWER: c

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Price Elasticity of Supply

KEYWORDS: BLOOM’S: Comprehension

When a supply curve is relatively flat,
1. sellers are not very responsive to changes in
2. supply is relatively
3. supply is relatively
4. Both a and b are

ANSWER: c

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Price Elasticity of Supply

KEYWORDS: BLOOM’S: Comprehension

As price elasticity of supply increases, the supply curve
1. becomes
2. becomes
3. becomes downward
4. shifts to the

ANSWER: a

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Price Elasticity of Supply

KEYWORDS: BLOOM’S: Comprehension

If the price elasticity of supply is 5, and a price increase led to a 1.8% increase in quantity supplied, then the price increase is about
a. 67%.
0.83%.
c. 20%.
2.70%.

ANSWER: c

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Price Elasticity of Supply

KEYWORDS: BLOOM’S: Analysis

If the price elasticity of supply is 4, and a price increase led to a 5% increase in quantity supplied, then the price increase is about
a. 25%.
1.2%.
c. 2%.
12.5%.

ANSWER: d

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Price Elasticity of Supply

KEYWORDS: BLOOM’S: Analysis

NOTES: r

If the price elasticity of supply is 5, and a price increase led to a 3% increase in quantity supplied, then the price increase is about
a. 2%.
0.5%.
c. 0%.
4.5%.

ANSWER: c

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Price Elasticity of Supply

KEYWORDS: BLOOM’S: Analysis

If the price elasticity of supply is 2, and a price increase led to a 5% increase in quantity supplied, then the price increase is about
a. 24%.
4.2%.
c. 6%.
6.2%.

ANSWER: b

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Price Elasticity of Supply

KEYWORDS: BLOOM’S: Analysis

If the price elasticity of supply is 2, and price increased by 5%, quantity supplied would
1. increase by 2%.
2. increase by 6%.
3. decrease by 2%.
4. decrease by 6%.

ANSWER: b

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Price Elasticity of Supply

KEYWORDS: BLOOM’S: Analysis

If the price elasticity of supply is 8, and price increased by 5%, quantity supplied would
1. increase by 4%.
2. increase by 25%.
3. decrease by 4%.
4. decrease by 25%.

ANSWER: a

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Price Elasticity of Supply

KEYWORDS: BLOOM’S: Analysis

If a 25% change in price results in a 40% change in quantity supplied, then the price elasticity of supply is about
1. 63, and supply is elastic.
2. 63, and supply is inelastic.
3. 60, and supply is elastic.
4. 60, and supply is inelastic.

ANSWER: c

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Price Elasticity of Supply

KEYWORDS: BLOOM’S: Analysis

If a 40% change in price results in a 25% change in quantity supplied, then the price elasticity of supply is about
1. 63, and supply is elastic.
2. 63, and supply is inelastic.
3. 60, and supply is elastic.
4. 60, and supply is inelastic.

ANSWER: b

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Price Elasticity of Supply

KEYWORDS: BLOOM’S: Analysis

If a 15% change in price results in a 20% change in quantity supplied, then the price elasticity of supply is about
1. 33, and supply is elastic.
2. 33, and supply is inelastic.
3. 75, and supply is elastic.
4. 75, and supply is inelastic.

ANSWER: a

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Price Elasticity of Supply

KEYWORDS: BLOOM’S: Analysis

If a 20% change in price results in a 15% change in quantity supplied, then the price elasticity of supply is about
1. 33, and supply is elastic.
2. 33, and supply is inelastic.
3. 75, and supply is elastic.
4. 75, and supply is inelastic.

ANSWER: d

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Price Elasticity of Supply

KEYWORDS: BLOOM’S: Analysis

If a 30 percent change in price causes a 15 percent change in quantity supplied, then the price elasticity of supply is about
1. 5, and supply is elastic.
2. 5, and supply is inelastic.
3. 2, and supply is
4. 2, and supply is

ANSWER: b

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Price Elasticity of Supply

KEYWORDS: BLOOM’S: Application

Suppose the price elasticity of supply for cheese is 6 in the short run and 1.4 in the long run. If an increase in the demand for cheese causes the price of cheese to increase by 15%, then the quantity supplied of cheese will increase by
1. 4% in the short run and 4.6% in the long run.
2. 7% in the short run and 0.7% in the long run.
3. 9% in the short run and 21% in the long
4. 25% in the short run and 7% in the long run.

ANSWER: c

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Price Elasticity of Supply

KEYWORDS: BLOOM’S: Analysis

NOTES: r

Suppose the price elasticity of supply for soccer balls is 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
1. 67% in the short run and 0.17% in the long run.
2. 3% in the short run and 2% in the long run.
3. 6% in the short run and 24% in the long
4. 7% in the short run and 16.7% in the long run.

ANSWER: c

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Price Elasticity of Supply

KEYWORDS: BLOOM’S: Analysis

Suppose the price elasticity of supply for minivans is 3 in the short run and 1.2 in the long run. If an increase in the demand for minivans causes the price of minivans to increase by 5%, then the quantity supplied of minivans will increase by about
1. 5% in the short run and 6% in the long run.
2. 6% in the short run and 5% in the long run.
3. 7% in the short run and 4.2% in the long run.
4. 2% in the short run and 16.7% in the long run.

ANSWER: a

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Price Elasticity of Supply

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If the price elasticity of supply for a window manufacturer is 5,
1. a 10% increase in the price of windows results in a 15% increase in the quantity of windows
2. supply is considered to be
3. the manufacturer is likely operating very near
4. All of the above are

ANSWER: a

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Price Elasticity of Supply

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In which of the following situations would supply be the most elastic?
1. An auto parts manufacturer is operating at
2. A real estate developer in Boston is looking to build condos on the
3. A furniture manufacturer is operating its factory 8 hours per
4. A hotel has all of its rooms booked for each night of the next 3

ANSWER: c

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Scenario 5-3

Suppose that the supply of aged cheddar cheese is inelastic, and the supply of bread is elastic. Both goods are considered to be normal goods by a majority of consumers. Suppose that a large income tax increase decreases the demand for both goods by 10%.

Refer to Scenario 5-3. The price elasticity of supply for aged cheddar cheese could be
a. -1.
5.
5.

ANSWER: c

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Refer to Scenario 5-3. The price elasticity of supply for bread could be
a. -1.
5.
5.

ANSWER: d

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Table 5-9

Supply Curve A

Supply Curve B

Supply Curve C

Price

$1.00

$2.00

$1.00

$3.00

$2.00

$5.00

Quantity Supplied

500

600

900

400

700

Refer to Table 5-9. Which of the three supply curves represents the least elastic supply?
1. supply curve A
2. supply curve B
3. supply curve C
4. There is no difference in the elasticity of the three supply

ANSWER: a

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Refer to Table 5-9. Which of the three supply curves represents the most elastic supply?
1. supply curve A
2. supply curve B
3. supply curve C
4. There is no difference in the elasticity of the three supply

ANSWER: c

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Refer to Table 5-9. Along which of the supply curves does quantity supplied move proportionately more than the price?
1. along supply curve B only
2. along supply curves B and C
3. along all three supply curves
4. Quantity supplied moves proportionately less than the price along all of the three supply curves.

ANSWER: d

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Table 5-10

Supply Curve X

Supply Curve Y

Supply Curve Z

Price

$5.00

$7.00

$5.00

$7.00

$5.00

$7.00

Quantity Supplied

200

300

400

500

Refer to Table 5-10. Using the midpoint method, which of the three supply curves has the most inelastic price elasticity of supply?
1. Supply curve X
2. Supply curve Y
3. Supply curve Z
4. There is no difference in the elasticities of the three supply

ANSWER: c

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Price Elasticity of Supply

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Refer to Table 5-10. Using the midpoint method, which of the three supply curves has the most elastic price elasticity of supply?
1. Supply curve X
2. Supply curve Y
3. Supply curve Z
4. There is no difference in the elasticity of the three supply

ANSWER: a

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A manufacturer produces 400 units when the market price is $10 per unit and produces 600 units when the market price is $12 per unit. Using the midpoint method, for this range of prices, the price elasticity of supply is about
a. 45.
0.
2.

ANSWER: c

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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
1. 45
2. 90
3. 11
4. 20

ANSWER: d

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At a price of $1.20, a local coffee shop is willing to supply 100 cinnamon rolls per day. At a price of $1.40, the coffee shop would be willing to supply 150 cinnamon rolls per day. Using the midpoint method, the price elasticity of supply is about
1. 15
2. 0.375
5
60

ANSWER: d

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On a certain supply curve, one point is (quantity supplied = 200, price = $4.00) and another point is (quantity supplied = 250, price = $4.50). Using the midpoint method, the price elasticity of supply is about
a. 22.
0.53.
c. 00.
1.89.

ANSWER: d

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On a certain supply curve, one point is (quantity supplied = 200, price = $2.00) and another point is (quantity supplied= 250, price = $2.50). Using the midpoint method, the price elasticity of supply is about
a. 2.
5.
0.
5.

ANSWER: c

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Holding all other factors constant and using the midpoint method, if a candy manufacturer increases production by 20 percent when the market price of candy increases from $0.50 to $0.60, then supply is
1. inelastic, since the price elasticity of supply is equal to .91.
2. inelastic, since the price elasticity of supply is equal to 1.
3. elastic, since the price elasticity of supply is equal to 91.
4. elastic, since the price elasticity of supply is equal to 1.

ANSWER: d

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Holding all other factors constant and using the midpoint method, if a tractor manufacturer increases production from 80 to 100 units when price increases by 15 percent, then supply is
1. inelastic, since the price elasticity of supply is equal to 68.
2. inelastic, since the price elasticity of supply is equal to 48.
3. elastic, since the price elasticity of supply is equal to 68.
4. elastic, since the price elasticity of supply is equal to 48.

ANSWER: d

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NOTES: r

Suppose that an increase in the price of melons from $1.30 to $1.80 per pound increases the quantity of melons that melon farmers produce from 2 million pounds to 1.6 million pounds. Using the midpoint method, what is the approximate value of the price elasticity of supply?
1. 67
2. 89
3. 00
4. 13

ANSWER: b

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An increase in the price of cheese crackers from $2.25 to $2.45 per box causes suppliers of cheese crackers to increase their quantity supplied from 125 boxes per minute to 145 boxes per minute. Using the midpoint method, supply is
1. elastic, and the price elasticity of supply is 74.
2. elastic, and the price elasticity of supply is 57.
3. inelastic, and the price elasticity of supply is 74.
4. inelastic, and the price elasticity of supply is 57.

ANSWER: a

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A bakery would be willing to supply 500 bagels per day at a price of $0.50 each. At a price of $0.80, the bakery would be willing to supply 1,100 bagels. Using the midpoint method, the price elasticity of supply for bagels is about
a. 62.
0.77.
c. 24.
1.63.

ANSWER: d

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A t-shirt maker would be willing to supply 75 t-shirts per day at a price of $18.00 each. At a price of $20.00, the t- shirt maker would be willing to supply 100 t-shirts. Using the midpoint method, the price elasticity of supply for t- shirts is about
1. 37, and supply is elastic.
2. 37, and supply is inelastic.
3. 71, and supply is elastic.
4. 71, and supply is inelastic.

ANSWER: c

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NOTES: r

In January the price of dark chocolate candy bars was $2.00, and Willy’s Chocolate Factory produced 80 pounds. In February the price of dark chocolate candy bars was $2.50, and Willy’s produced 110 pounds. In March the price of dark chocolate candy bars was $3.00, and Willy’s produced 140 pounds. The price elasticity of supply of Willy’s dark chocolate candy bars was about
1. 70 when the price increased from $2.00 to $2.50 and 0.76 when the price increased from $2.50 to $3.00.
2. 88 when the price increased from $2.00 to $2.50 and 1.08 when the price increased from $2.50 to $3.00.
3. 42 when the price increased from $2.00 to $2.50 and 1.32 when the price increased from $2.50 to $3.00.
4. 50 when the price increased from $2.00 to $2.50 and 1.18 when the price increased from $2.50 to $3.00.

ANSWER: c

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In January the price of widgets was $1.00, and Wendy’s Widgets produced 80 widgets. In February the price of widgets was $1.50, and Wendy’s Widgets produced 110 widgets. In March the price of widgets was $2.00, and Wendy’s Widgets produced 140 widgets. The price elasticity of supply of Wendy’s Widgets was about
1. 79 when the price increased from $1.00 to $1.50 and 0.84 when the price increased from $1.50 to $2.00.
2. 27 when the price increased from $1.00 to $1.50 and 1.19 when the price increased from $1.50 to $2.00.
3. 79 when the price increased from $1.00 to $1.50 and 1.19 when the price increased from $1.50 to $2.00.
4. 27 when the price increased from $1.00 to $1.50 and 0.84 when the price increased from $1.50 to $2.00.

ANSWER: a

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At price of $1.20, a local pencil manufacturer is willing to supply 150 boxes per day. At a price of $1.40, the manufacturer is willing to supply 170 boxes per day. Using the midpoint method, the price elasticity of supply is about
a. 0.
1.23.
c. 00.
0.81.

ANSWER: d

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At price of $1.30 per pound, a local apple orchard is willing to supply 150 pounds of apples per day. At a price of

$1.50 per pound, the orchard is willing to supply 170 pounds of apples per day. Using the midpoint method, the price elasticity of supply is about

a. 14.
1.00.
c. 875.
0.50.

ANSWER: c

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At price of $1.25, a paper manufacturer is willing to supply 150 spiral notebooks per day. At a price of $1.50, the paper manufacturer is willing to supply 175 spiral notebooks per day. Using the midpoint method, the price elasticity of supply is about
a. 18.
1.00.
c. 85.
0.25.

ANSWER: c

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Figure 5-14

Refer to Figure 5-14. Over which range is the supply curve in this figure the most elastic? a. $16 to $40
$40 to $100
c. $100 to $220
$220 to $430

ANSWER: a

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Refer to Figure 5-14. Over which range is the supply curve in this figure the least elastic? a. $16 to $40
$40 to $100
c. $100 to $220
$220 to $430

ANSWER: d

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Refer to Figure 5-14. Using the midpoint method, what is the price elasticity of supply between $16 and $40?
a. 125
86
0
5

ANSWER: c

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Refer to Figure 5-14. Using the midpoint method, what is the price elasticity of supply between $100 and $220?
a. 58
67
00
73

ANSWER: a

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Figure 5-15

Refer to Figure 5-15. Along which of these segments of the supply curve is supply least elastic?
1. GH
2. CD
3. AC
4. AB

ANSWER: a

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Refer to Figure 5-15. Along which of these segments of the supply curve is supply most elastic?
1. AB
2. CD
3. DH
4. GH

ANSWER: a

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Refer to Figure 5-15. Using the midpoint method, what is the price elasticity of supply between points A and B? a. 33
0
43
1

ANSWER: a

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Refer to Figure 5-15. Using the midpoint method, what is the price elasticity of supply between points B and C? a. 67
19
84
61

ANSWER: b

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Refer to Figure 5-15. Using the midpoint method, what is the price elasticity of supply between points C and D? a. 21
29
73
36

ANSWER: c

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Refer to Figure 5-15. Using the midpoint method, what is the price elasticity of supply between points D and G? a. 89
26
53
34

ANSWER: c

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Figure 5-16

Refer to Figure 5-16. Using the midpoint method, what is the price elasticity of supply between $4 and $6? a. 75
00
20
25

ANSWER: d

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Refer to Figure 5-16. Using the midpoint method, what is the price elasticity of supply between $6 and $8?
a. 86
00
17
25

ANSWER: c

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Figure 5-17

Refer to Figure 5-17. Using the midpoint method, what is the price elasticity of supply between point A and point B?
1. 4
2. 6
3. 67
4. 16

ANSWER: c

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NOTES: r

Refer to Figure 5-17. Using the midpoint method, what is the price elasticity of supply between point B and point C?
1. 44
2. 29
3. 96
4. 69

ANSWER: a

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NOTES: r

Refer to Figure 5-17. If, holding the supply curve fixed, there were an increase in demand that caused the equilibrium price to increase from $6 to $7, then sellers’ total revenue would
3. remain
4. The effect on total revenue cannot be determined from the given

ANSWER: a

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NOTES: r

Figure 5-18

Refer to Figure 5-18. Using the midpoint method, what is the price elasticity of supply between $4 and $5?
a. 50
56
80
00

ANSWER: c

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Refer to Figure 5-18. Using the midpoint method, what is the price elasticity of supply between $5 and $6?
a. 60
64
57
67

ANSWER: c

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If sellers respond to very small changes in price by adjusting their quantity supplied by extremely large amounts, the price elasticity of supply approaches
1. zero, and the supply curve is
2. zero, and the supply curve is
3. infinity, and the supply curve is
4. infinity, and the supply curve is

ANSWER: c

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Which of the following statements is valid when supply is perfectly elastic at a price of $4?
1. The elasticity of supply approaches
2. The supply curve is
3. At a price below $4, quantity supplied is
4. At a price above $4, quantity supplied is

ANSWER: a

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NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Price Elasticity of Supply

KEYWORDS: BLOOM’S: Comprehension

Which of the following statements is not valid when supply is perfectly elastic?
1. The elasticity of supply approaches
2. The supply curve is
3. Very small changes in price lead to very large changes in quantity
4. The time period under consideration is more likely a short period rather than a long

ANSWER: d

POINTS: 1

DIFFICULTY: Difficulty: Challenging

LEARNING OBJECTIVES: ECON.MANK.15.24 – LO: 5-2

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Price Elasticity of Supply

KEYWORDS: BLOOM’S: Comprehension

When supply is perfectly elastic, the value of the price elasticity of supply is
3. greater than 0 and less than

ANSWER: d

POINTS: 1

DIFFICULTY: Difficulty: Moderate

LEARNING OBJECTIVES: ECON.MANK.15.24 – LO: 5-2

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Price Elasticity of Supply

KEYWORDS: BLOOM’S: Comprehension

As the price elasticity of supply approaches infinity, very small changes in price lead to
1. very large changes in quantity
2. very small changes in quantity
3. no change in quantity
4. None of the above is

ANSWER: a

POINTS: 1

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LEARNING OBJECTIVES: ECON.MANK.15.24 – LO: 5-2

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Price Elasticity of Supply

KEYWORDS: BLOOM’S: Comprehension

If the price elasticity of supply for a good is equal to infinity, then the
1. supply curve is
2. supply curve is
3. supply curve also has a slope equal to
4. quantity supplied is constant regardless of the

ANSWER: b

POINTS: 1

DIFFICULTY: Difficulty: Moderate

LEARNING OBJECTIVES: ECON.MANK.15.24 – LO: 5-2

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Price Elasticity of Supply

KEYWORDS: BLOOM’S: Comprehension

A manufacturer produces 1,000 units, regardless of the market price. For this firm, the price elasticity of supply is
4. negative

ANSWER: b

POINTS: 1

DIFFICULTY: Difficulty: Moderate

LEARNING OBJECTIVES: ECON.MANK.15.24 – LO: 5-2

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Price Elasticity of Supply

KEYWORDS: BLOOM’S: Analysis

If sellers do not adjust their quantity supplied at all in response to a change in price, the price elasticity of supply is
1. zero, and the supply curve is
2. zero, and the supply curve is
3. infinity, and the supply curve is
4. infinity, and the supply curve is

ANSWER: b

POINTS: 1

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LEARNING OBJECTIVES: ECON.MANK.15.24 – LO: 5-2

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Price Elasticity of Supply

KEYWORDS: BLOOM’S: Comprehension

Which of the following statements is valid when the market supply curve is vertical?
1. Market quantity supplied does not change when the price
2. Supply is perfectly
3. An increase in market demand will increase the equilibrium
4. An increase in market demand will not increase the equilibrium

ANSWER: a

POINTS: 1

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LEARNING OBJECTIVES: ECON.MANK.15.24 – LO: 5-2

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Price Elasticity of Supply

KEYWORDS: BLOOM’S: Comprehension

Which of the following statements is not valid when the market supply curve is vertical?
1. Market quantity supplied does not change when the price
2. Supply is perfectly
3. An increase in market demand will increase the equilibrium
4. An increase in market demand will increase the equilibrium

ANSWER: c

POINTS: 1

DIFFICULTY: Difficulty: Moderate

LEARNING OBJECTIVES: ECON.MANK.15.24 – LO: 5-2

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Price Elasticity of Supply

KEYWORDS: BLOOM’S: Comprehension

If the quantity supplied is the same regardless of price, then supply is
2. perfectly
3. perfectly

ANSWER: c

POINTS: 1

DIFFICULTY: Difficulty: Moderate

LEARNING OBJECTIVES: ECON.MANK.15.24 – LO: 5-2

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Price Elasticity of Supply

KEYWORDS: BLOOM’S: Knowledge

If sellers do not adjust their quantities supplied at all in response to a change in price,
1. advances in technology must be
2. the time period under consideration must be very
3. supply is perfectly
4. supply is perfectly

ANSWER: d

POINTS: 1

DIFFICULTY: Difficulty: Moderate

LEARNING OBJECTIVES: ECON.MANK.15.24 – LO: 5-2

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Price Elasticity of Supply

KEYWORDS: BLOOM’S: Comprehension

If the price elasticity of supply is zero, then
1. supply is more elastic than it is in any other
2. the supply curve is
3. the quantity supplied is the same, regardless of
4. a change in demand will cause a relatively small change in the equilibrium

ANSWER: c

POINTS: 1

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LEARNING OBJECTIVES: ECON.MANK.15.24 – LO: 5-2

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Price Elasticity of Supply

KEYWORDS: BLOOM’S: Comprehension

Which of the following is an illustration of the market for original paintings by deceased artist Vincent Van Gogh?

ANSWER: c

POINTS: 1

DIFFICULTY: Difficulty: Moderate

LEARNING OBJECTIVES: ECON.MANK.15.24 – LO: 5-2

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Price Elasticity of Supply

KEYWORDS: BLOOM’S: Application

Figure 5-19

Refer to Figure 5-19. Which of the following statements is not correct?
1. Supply curve A is perfectly
2. Supply curve B is perfectly
3. Supply curve C is unit
4. Supply curve D is more elastic than supply curve

ANSWER: c

POINTS: 1

DIFFICULTY: Difficulty: Moderate

LEARNING OBJECTIVES: ECON.MANK.15.24 – LO: 5-2

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Price Elasticity of Supply

KEYWORDS: BLOOM’S: Analysis

Refer to Figure 5-19. Which of the following statements is correct?
1. Supply curve A is perfectly
2. Supply curve B is perfectly
3. Supply curve C is more inelastic than supply curve
4. Supply curve D is unit

ANSWER: c

POINTS: 1

DIFFICULTY: Difficulty: Moderate

LEARNING OBJECTIVES: ECON.MANK.15.24 – LO: 5-2

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Price Elasticity of Supply

KEYWORDS: BLOOM’S: Analysis

Figure 5-20

Refer to Figure 5-20. Which supply curve is most likely relevant over a very long period of time?
1. S1
2. S2
3. S3
4. All of the above are equally likely to be relevant over a very long period of

ANSWER: c

POINTS: 1

DIFFICULTY: Difficulty: Moderate

LEARNING OBJECTIVES: ECON.MANK.15.24 – LO: 5-2

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Price Elasticity of Supply

KEYWORDS: BLOOM’S: Comprehension

Refer to Figure 5-20. Which supply curve represents perfectly inelastic supply?
1. S1
2. S2
3. S3
4. None of the supply curves is perfectly

ANSWER: a

POINTS: 1

DIFFICULTY: Difficulty: Easy

LEARNING OBJECTIVES: ECON.MANK.15.24 – LO: 5-2

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Price Elasticity of Supply

KEYWORDS: BLOOM’S: Comprehension

Multiple Choice – Section 03 Three Applications of Supply, Demand, and Elasticity

A decrease in supply will cause the largest increase in price when
both supply and demand are
both supply and demand are
demand is elastic and supply is
demand is inelastic and supply is

ANSWER: a

POINTS: 1

DIFFICULTY: Difficulty: Challenging

LEARNING OBJECTIVES: ECON.MANK.15.25 – LO: 5-3

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

KEYWORDS: BLOOM’S: Analysis

A decrease in supply will cause the smallest increase in price when
1. both supply and demand are
2. demand is elastic and supply is
3. both supply and demand are
4. demand is inelastic and supply is

ANSWER: c

POINTS: 1

DIFFICULTY: Difficulty: Challenging

LEARNING OBJECTIVES: ECON.MANK.15.25 – LO: 5-3

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

KEYWORDS: BLOOM’S: Analysis

The discovery of a new hybrid wheat would increase the supply of wheat. As a result, wheat farmers would realize an increase in total revenue if the
1. supply of wheat is
2. supply of wheat is
3. demand for wheat is
4. demand for wheat is

ANSWER: d

POINTS: 1

DIFFICULTY: Difficulty: Moderate

LEARNING OBJECTIVES: ECON.MANK.15.25 – LO: 5-3

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Price Elasticity of Demand

KEYWORDS: BLOOM’S: Application

Because the demand for wheat tends to be inelastic, the development of a new, more productive hybrid wheat would tend to
1. increase the total revenue of wheat
2. decrease the total revenue of wheat
3. decrease the demand for
4. decrease the supply of

ANSWER: b

POINTS: 1

DIFFICULTY: Difficulty: Moderate

LEARNING OBJECTIVES: ECON.MANK.15.25 – LO: 5-3

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Price Elasticity of Demand

KEYWORDS: BLOOM’S: Application

Knowing that the demand for wheat is inelastic, if all farmers voluntarily did not plant wheat on 10 percent of their land, then
1. consumers of wheat would buy more
2. wheat farmers would suffer a reduction in their total
3. wheat farmers would experience an increase in their total
4. the demand for wheat would

ANSWER: c

POINTS: 1

DIFFICULTY: Difficulty: Moderate

LEARNING OBJECTIVES: ECON.MANK.15.25 – LO: 5-3

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Price Elasticity of Demand

KEYWORDS: BLOOM’S: Application

Suppose researchers at the University of Wisconsin discover a new vitamin that increases the milk production of dairy cows. If the demand for milk is relatively inelastic, the discovery will
1. raise both price and total
2. lower both price and total
3. raise price and lower total
4. lower price and raise total

ANSWER: b

POINTS: 1

DIFFICULTY: Difficulty: Moderate

LEARNING OBJECTIVES: ECON.MANK.15.25 – LO: 5-3

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Price Elasticity of Demand

KEYWORDS: BLOOM’S: Comprehension

Suppose that corn farmers want to increase their total revenue. Knowing that the demand for corn is inelastic, corn farmers should
1. plant more corn so that they would be able to sell more each
2. increase spending on fertilizer in an attempt to produce more corn on the acres they
3. reduce the number of acres on which they plant
4. contribute to a fund that promotes technological advances in corn

ANSWER: c

POINTS: 1

DIFFICULTY: Difficulty: Moderate

LEARNING OBJECTIVES: ECON.MANK.15.25 – LO: 5-3

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Price Elasticity of Demand

KEYWORDS: BLOOM’S: Application

Good news for farming can be bad news for farmers because the
1. supply curve for an individual farmer is usually perfectly
2. supply curve for an individual farmer is usually perfectly
3. demand for basic foodstuffs is usually inelastic, meaning that factors that shift supply to the right decrease total revenues to
4. demand for basic foodstuffs is usually elastic, meaning that factors that shift supply to the right increase total revenues to

ANSWER: c

POINTS: 1

DIFFICULTY: Difficulty: Moderate

LEARNING OBJECTIVES: ECON.MANK.15.25 – LO: 5-3

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Price Elasticity of Demand

KEYWORDS: BLOOM’S: Comprehension

If soybean farmers know that the demand for soybeans is inelastic, in order to increase their total revenues they should
1. use more fertilizers and weed killers to increase their
2. plant additional acres to increase their
3. reduce the number of acres they plant to decrease their
4. Both a and b are

ANSWER: c

POINTS: 1

DIFFICULTY: Difficulty: Moderate

LEARNING OBJECTIVES: ECON.MANK.15.25 – LO: 5-3

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Price Elasticity of Demand

KEYWORDS: BLOOM’S: Comprehension

Farm programs that pay farmers not to plant crops on all their land
1. hurt farmers by lowering their total revenue and hurt consumers by causing shortages of some food
2. help farmers by cutting costs, which helps consumers by lowering food
3. help farmers by increasing total revenue in the market but hurt consumers by raising food
4. help farmers directly since they receive government payments but have no real effects on

ANSWER: c

POINTS: 1

DIFFICULTY: Difficulty: Moderate

LEARNING OBJECTIVES: ECON.MANK.15.25 – LO: 5-3

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Price Elasticity of Demand

KEYWORDS: BLOOM’S: Application

There are fewer farmers in the United States today than 200 years ago because of
1. improvements in farm
2. increased government regulations in
3. an elastic demand for
4. environmental programs designed to reduce soil

ANSWER: a

POINTS: 1

DIFFICULTY: Difficulty: Moderate

LEARNING OBJECTIVES: ECON.MANK.15.25 – LO: 5-3

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Price Elasticity of Demand

KEYWORDS: BLOOM’S: Application

How did the farm population in the United States change between 1950 and today?
1. It dropped from 10 million to fewer than 3 million
2. It dropped from 20 million to fewer than 5 million
3. It dropped from 30 million to just over 6 million
4. It increased from 10 million to almost 13 million

ANSWER: a

POINTS: 1

DIFFICULTY: Difficulty: Easy

LEARNING OBJECTIVES: ECON.MANK.15.25 – LO: 5-3

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Thinking Like an Economist Overview of US Economy

KEYWORDS: BLOOM’S: Knowledge

Between 1950 and today there was a
1. 20 percent drop in the number of farmers, but farm output more than
2. 30 percent drop in the number of farmers, but farm output more than
3. 50 percent drop in the number of farmers, but farm output more than
4. 70 percent drop in the number of farmers, but farm output more than

ANSWER: d

POINTS: 1

DIFFICULTY: Difficulty: Moderate

LEARNING OBJECTIVES: ECON.MANK.15.25 – LO: 5-3

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Thinking Like an Economist Overview of US Economy

KEYWORDS: BLOOM’S: Knowledge

An advance in farm technology that results in an increased market supply is
1. good for farmers because it raises prices for their products but bad for consumers because it raises prices consumers pay for
2. bad for farmers because total revenue will fall but good for consumers because prices for food will
3. good for farmers because it raises prices for their products and also good for consumers because more output is available for
4. bad for farmers because total revenue will fall and bad for consumers because farmers will raise the price of food to increase their total

ANSWER: b

POINTS: 1

DIFFICULTY: Difficulty: Moderate

LEARNING OBJECTIVES: ECON.MANK.15.25 – LO: 5-3

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Supply and Demand Supply

KEYWORDS: BLOOM’S: Application

A recent news report lamented the plight of corn farmers in Wisconsin due to a severe drought. Which of the following best describes the effect on corn farmers in Minnesota, where sufficient rainfall occurred?
1. Their revenue increases because price increases and demand is
2. Their revenue increases because price increases and demand is
3. Their revenue decreases because price decreases and demand is
4. Their revenue decreases because price increases and demand is

ANSWER: b

POINTS: 1

DIFFICULTY: Difficulty: Moderate

LEARNING OBJECTIVES: ECON.MANK.15.25 – LO: 5-3

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Price Elasticity of Supply

KEYWORDS: BLOOM’S: Application

Scenario 5-4

The supply of aged cheddar cheese is inelastic, and the supply of bread is elastic. Both goods are considered to be normal goods by a majority of consumers. Suppose that a large income tax increase decreases the demand for both goods by 10%.

Refer to Scenario 5-4. The equilibrium price will
1. increase in both the aged cheddar cheese and bread
2. increase in the aged cheddar cheese market and decrease in the bread
3. decrease in the aged cheddar cheese market and increase in the bread
4. decrease in both the aged cheddar cheese and bread

ANSWER: d

POINTS: 1

DIFFICULTY: Difficulty: Moderate

LEARNING OBJECTIVES: ECON.MANK.15.25 – LO: 5-3

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Supply and Demand Equilibrium

KEYWORDS: BLOOM’S: Application

Refer to Scenario 5-4. The equilibrium quantity will
1. increase in both the aged cheddar cheese and bread
2. increase in the aged cheddar cheese market and decrease in the bread
3. decrease in the aged cheddar cheese market and increase in the bread
4. decrease in both the aged cheddar cheese and bread

ANSWER: d

POINTS: 1

DIFFICULTY: Difficulty: Moderate

LEARNING OBJECTIVES: ECON.MANK.15.25 – LO: 5-3

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Supply and Demand Equilibrium

KEYWORDS: BLOOM’S: Application

Refer to Scenario 5-4. The change in equilibrium price will be
1. greater in the aged cheddar cheese market than in the bread
2. greater in the bread market than in the aged cheddar cheese
3. the same in the aged cheddar cheese and bread
4. Any of the above could be

ANSWER: a

POINTS: 1

DIFFICULTY: Difficulty: Challenging

LEARNING OBJECTIVES: ECON.MANK.15.25 – LO: 5-3

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Price Elasticity of Supply

KEYWORDS: BLOOM’S: Analysis

Refer to Scenario 5-4. The change in equilibrium quantity will be
1. greater in the aged cheddar cheese market than in the bread
2. greater in the bread market than in the aged cheddar cheese
3. the same in the aged cheddar cheese and bread
4. Any of the above could be

ANSWER: b

POINTS: 1

DIFFICULTY: Difficulty: Challenging

LEARNING OBJECTIVES: ECON.MANK.15.25 – LO: 5-3

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Price Elasticity of Supply

KEYWORDS: BLOOM’S: Analysis

Refer to Scenario 5-4. Total consumer spending on aged cheddar cheese will
1. increase, and total consumer spending on bread will
2. increase, and total consumer spending on bread will
3. decrease, and total consumer spending on bread will
4. decrease, and total consumer spending on bread will

ANSWER: d

POINTS: 1

DIFFICULTY: Difficulty: Challenging

LEARNING OBJECTIVES: ECON.MANK.15.25 – LO: 5-3

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Price Elasticity of Supply

KEYWORDS: BLOOM’S: Analysis

Scenario 5-5

Milk has an inelastic demand, and beef has an elastic demand. Suppose that a mysterious increase in bovine infertility decreases both the population of dairy cows and the population of beef cattle by 50 percent.

Refer to Scenario 5-5. The equilibrium price will
1. increase in both the milk and beef
2. increase in the milk market and decrease in the beef
3. decrease in the milk market and increase in the beef
4. decrease in both the milk and beef

ANSWER: a

POINTS: 1

DIFFICULTY: Difficulty: Moderate

LEARNING OBJECTIVES: ECON.MANK.15.25 – LO: 5-3

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Price Elasticity of Demand

KEYWORDS: BLOOM’S: Application

Refer to Scenario 5-5. The equilibrium quantity will
1. increase in both the milk and beef
2. increase in the milk market and decrease in the beef
3. decrease in the milk market and increase in the beef
4. decrease in both the milk and beef

ANSWER: d

POINTS: 1

DIFFICULTY: Difficulty: Moderate

LEARNING OBJECTIVES: ECON.MANK.15.25 – LO: 5-3

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Price Elasticity of Demand

KEYWORDS: BLOOM’S: Application

Refer to Scenario 5-5. The change in equilibrium price will be
1. greater in the milk market than in the beef
2. greater in the beef market than in the milk
3. the same in the milk and beef
4. Any of the above could be

ANSWER: a

POINTS: 1

DIFFICULTY: Difficulty: Challenging

LEARNING OBJECTIVES: ECON.MANK.15.25 – LO: 5-3

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Price Elasticity of Demand

KEYWORDS: BLOOM’S: Analysis

Refer to Scenario 5-5. The change in equilibrium quantity will be
1. greater in the milk market than in the beef
2. greater in the beef market than in the milk
3. the same in the milk and beef
4. Any of the above could be

ANSWER: b

POINTS: 1

DIFFICULTY: Difficulty: Challenging

LEARNING OBJECTIVES: ECON.MANK.15.25 – LO: 5-3

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Price Elasticity of Demand

KEYWORDS: BLOOM’S: Analysis

Refer to Scenario 5-5. Total consumer spending on milk will
1. increase, and total consumer spending on beef will
2. increase, and total consumer spending on beef will
3. decrease, and total consumer spending on beef will
4. decrease, and total consumer spending on beef will

ANSWER: b

POINTS: 1

DIFFICULTY: Difficulty: Challenging

LEARNING OBJECTIVES: ECON.MANK.15.25 – LO: 5-3

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Price Elasticity of Demand

KEYWORDS: BLOOM’S: Analysis

Scenario 5-6

Suppose the government is concerned about firms in the United States importing illegal caviar. As a result, the government increases border patrols to catch illegal shipments. U.S. Customs agents perform DNA testing on the caviar to determine if it comes from endangered species of fish. If so, the government destroys the caviar.

Refer to Scenario 5-6. What would we expect to observe in the caviar market?
1. Equilibrium prices and quantities will
2. Equilibrium prices will increase by more if the demand for caviar is elastic than if demand is
3. Total revenues to caviar firms will increase if the demand for caviar is
4. All of the above are

ANSWER: c

POINTS: 1

DIFFICULTY: Difficulty: Moderate

LEARNING OBJECTIVES: ECON.MANK.15.25 – LO: 5-3

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Price Elasticity of Demand

KEYWORDS: BLOOM’S: Application

Table 5-11

	Supply is	Demand is
Scenario A	elastic	elastic
Scenario B	elastic	inelastic
Scenario C	inelastic	elastic
Scenario D	inelastic	inelastic

Refer to Table 5-11. Which scenario describes the market for oil in the short run in comparison to the long run?
1. Scenario A describes both the short run and the long
2. Scenario D describes both the short run and the long
3. Scenario D describes the short run, whereas scenario A describes the long
4. Scenario C describes the short run, whereas scenario B describes the long

ANSWER: c

POINTS: 1

DIFFICULTY: Difficulty: Moderate

LEARNING OBJECTIVES: ECON.MANK.15.25 – LO: 5-3

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Price Elasticity of Demand

KEYWORDS: BLOOM’S: Comprehension

Refer to Table 5-11. Which scenario describes the market for oil in the short run?
1. A
2. B
3. C
4. D

ANSWER: d

POINTS: 1

DIFFICULTY: Difficulty: Moderate

LEARNING OBJECTIVES: ECON.MANK.15.25 – LO: 5-3

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

KEYWORDS: BLOOM’S: Comprehension

Refer to Table 5-11. Which scenario describes the market for oil in the long run?
1. A
2. B
3. C
4. D

ANSWER: a

POINTS: 1

DIFFICULTY: Difficulty: Moderate

LEARNING OBJECTIVES: ECON.MANK.15.25 – LO: 5-3

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

KEYWORDS: BLOOM’S: Comprehension

In the market for oil in the short run, demand
1. and supply are both
2. and supply are both
3. is elastic and supply is
4. is inelastic and supply is

ANSWER: b

POINTS: 1

DIFFICULTY: Difficulty: Moderate

LEARNING OBJECTIVES: ECON.MANK.15.25 – LO: 5-3

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

KEYWORDS: BLOOM’S: Comprehension

The supply of oil is likely to be
1. inelastic in both the short run and long
2. elastic in both the short run and long
3. elastic in the short run and inelastic in the long
4. inelastic in the short run and elastic in the long

ANSWER: d

POINTS: 1

DIFFICULTY: Difficulty: Moderate

LEARNING OBJECTIVES: ECON.MANK.15.25 – LO: 5-3

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Price Elasticity of Supply

KEYWORDS: BLOOM’S: Comprehension

In the early 1970s, OPEC’s goal was to
1. decrease the world-wide price of oil so that the quantity demanded increased, thus raising total revenues for OPEC
2. increase the world-wide price of oil by reducing the quantity of oil
3. increase the world-wide price of oil by increasing the quantity of oil supplied, thus raising total revenues for OPEC
4. decrease the world-wide price of oil so that quantity demanded

ANSWER: b

POINTS: 1

DIFFICULTY: Difficulty: Moderate

LEARNING OBJECTIVES: ECON.MANK.15.25 – LO: 5-3

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Thinking Like an Economist

KEYWORDS: BLOOM’S: Application

Which of the following was not a reason OPEC failed to keep the price of oil high?
1. Over the long run, producers of oil outside of OPEC responded to higher prices by increasing oil exploration and by building new extraction
2. Consumers responded to higher prices with greater
3. Consumers replaced old inefficient cars with newer efficient
4. The agreement OPEC members signed allowed each country to produce as much oil as each

ANSWER: d

POINTS: 1

DIFFICULTY: Difficulty: Moderate

LEARNING OBJECTIVES: ECON.MANK.15.25 – LO: 5-3

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Thinking Like an Economist

KEYWORDS: BLOOM’S: Application

OPEC successfully raised the world price of oil in the 1970s and early 1980s, primarily due to
1. an inelastic demand for oil and a reduction in the amount of oil
2. a reduction in the amount of oil supplied and a world-wide oil
3. a world-wide oil embargo and an elastic demand for
4. a reduction in the amount of oil supplied and an elastic demand for

ANSWER: a

POINTS: 1

DIFFICULTY: Difficulty: Moderate

LEARNING OBJECTIVES: ECON.MANK.15.25 – LO: 5-3

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Thinking Like an Economist

KEYWORDS: BLOOM’S: Application

Why was OPEC unable to maintain high oil prices in the long run?
1. Demand and supply are both elastic in the long run compared to the short
2. Demand and supply are both inelastic in the long run compared to the short
3. Demand is elastic and supply is inelastic in the long run compared to the short
4. Demand is inelastic and supply is elastic in the long run compared to the short

ANSWER: a

POINTS: 1

DIFFICULTY: Difficulty: Moderate

LEARNING OBJECTIVES: ECON.MANK.15.25 – LO: 5-3

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

KEYWORDS: BLOOM’S: Application

If marijuana were legalized, it is likely that there would be an increase in the supply of marijuana. Advocates of marijuana legalization argue that this would significantly reduce the amount of revenue going to the criminal organizations that currently supply marijuana. These advocates believe that the
1. supply for marijuana is
2. demand for marijuana is
3. supply for marijuana is
4. demand for marijuana is

ANSWER: d

POINTS: 1

DIFFICULTY: Difficulty: Moderate

LEARNING OBJECTIVES: ECON.MANK.15.25 – LO: 5-3

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Price Elasticity of Demand

KEYWORDS: BLOOM’S: Application

Under which of the following conditions would the interdiction of illegal drugs result in a decrease in the quantity of drugs sold and in a decrease in total spending on illegal drugs by drug users?
1. The interdiction has the effect of shifting the demand curve for illegal drugs to the
2. The price elasticity of demand for illegal drugs is 3.
3. The price elasticity of supply for illegal drugs is 8.
4. As a result of the interdiction, the price of illegal drugs increases by 20 percent and the quantity of illegal drugs sold decreases by 16

ANSWER: b

POINTS: 1

DIFFICULTY: Difficulty: Challenging

LEARNING OBJECTIVES: ECON.MANK.15.25 – LO: 5-3

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Price Elasticity of Demand

KEYWORDS: BLOOM’S: Application

Which of the following statements does not help to explain why government drug interdiction increases drug-related crime?
1. The demand for illegal drugs is
2. Interdiction results in drug addicts having a greater need for quick
3. Interdiction results in an increase in the amount of money needed to buy the same amount of
4. Government drug programs are more lenient now with drug offenders than they were in the

ANSWER: d

POINTS: 1

DIFFICULTY: Difficulty: Moderate

LEARNING OBJECTIVES: ECON.MANK.15.25 – LO: 5-3

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Supply and Demand

KEYWORDS: BLOOM’S: Application

Which of the following statements helps to explain why government drug interdiction increases drug-related crime?
1. The direct impact is on buyers, not
2. Successful drug interdiction policies reduce the demand for illegal
3. Drug addicts will have an even greater need for quick cash to support their
4. In the short run, both equilibrium quantities and prices will fall in the markets for illegal

ANSWER: c

POINTS: 1

DIFFICULTY: Difficulty: Moderate

LEARNING OBJECTIVES: ECON.MANK.15.25 – LO: 5-3

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticty

Price Elasticity of Demand

KEYWORDS: BLOOM’S: Application

Which of the following statements is not correct concerning government attempts to reduce the flow of illegal drugs into the country? Drug interdiction
1. raises prices and total revenue in the drug
2. can increase drug-related
3. shifts the demand curve for drugs to the
4. shifts the supply curve of drugs to the

ANSWER: c

POINTS: 1

DIFFICULTY: Difficulty: Moderate

LEARNING OBJECTIVES: ECON.MANK.15.25 – LO: 5-3

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Supply and Demand

KEYWORDS: BLOOM’S: Application

Given the market for illegal drugs, when the government is successful in reducing the flow of drugs into the United States,
1. supply decreases, demand is unaffected, and price
2. demand decreases, supply is unaffected, and price
3. demand and supply both decrease, leaving price essentially
4. supply decreases, demand increases, and price increases

ANSWER: a

POINTS: 1

DIFFICULTY: Difficulty: Moderate

LEARNING OBJECTIVES: ECON.MANK.15.25 – LO: 5-3

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Supply and Demand

KEYWORDS: BLOOM’S: Application

A drug interdiction program that successfully reduces the supply of illegal drugs in the United States likely will
1. raise the price, reduce the quantity, decrease total revenues, and decrease
2. lower the price, increase the quantity, increase total revenues, and increase
3. raise the price, increase the quantity, decrease total revenues, and increase
4. raise the price, reduce the quantity, increase total revenues, and increase

ANSWER: d

POINTS: 1

DIFFICULTY: Difficulty: Challenging

LEARNING OBJECTIVES: ECON.MANK.15.25 – LO: 5-3

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Supply and Demand

KEYWORDS: BLOOM’S: Application

The federal government is concerned about obesity in the United States. Congress is considering two plans. One will ban the production and sale of “junk ” The other will increase nutritioneducation programs and include substantial advertising campaigns to encourage healthy eating habits. The junk-food ban program
1. and the education program will reduce the quantity of junk food sold and raise the
2. and the education program will reduce the quantity of junk food sold and lower the
3. will reduce the quantity of junk food sold and raise the price. The education program will reduce the quantity of junk food sold and lower the
4. will reduce the quantity of junk food sold and lower the price. The education program will reduce the quantity of junk food sold and raise the

ANSWER: c

POINTS: 1

DIFFICULTY: Difficulty: Moderate

LEARNING OBJECTIVES: ECON.MANK.15.25 – LO: 5-3

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Supply and Demand

KEYWORDS: BLOOM’S: Application

The federal government is concerned about the negative effects of cigarette smoking in the United States. Suppose Congress is considering two plans. One plan would limit the production of cigarettes. The other would require manufacturers to include graphic photos on cigarette packages of people suffering cancer’s effects. Which of the following statements is true?
1. Both programs would increase the price of
2. Both programs would reduce the quantity of cigarettes
3. Both programs would decrease revenues for cigarette
4. All of the above are

ANSWER: b

POINTS: 1

DIFFICULTY: Difficulty: Moderate

LEARNING OBJECTIVES: ECON.MANK.15.25 – LO: 5-3

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Supply and Demand

KEYWORDS: BLOOM’S: Application

NOTES: n

The production of methamphetamine (meth) is a social problem in the Midwest. Iowa is considering two potential programs: Operation Methbust would increase the number of sheriffs’ deputies to search out and destroy methamphetamine labs. Operation Say No to Meth would increase the training required of public school teachers so that they could better educate students about the health risks of using meth. Assuming that each program were successful, which of the following statements is correct?
1. Both Operation Methbust and Say No would reduce the demand for
2. Both Operation Methbust and Say No would reduce the supply of
3. Operation Methbust would reduce the demand for meth; Operation Say No would reduce the supply of
4. Operation Methbust would reduce the supply of meth; Operation Say No would reduce the demand for

ANSWER: d

POINTS: 1

DIFFICULTY: Difficulty: Moderate

LEARNING OBJECTIVES: ECON.MANK.15.25 – LO: 5-3

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Supply and Demand

KEYWORDS: BLOOM’S: Comprehension

The production of methamphetamine (meth) is a social problem in the Midwest. Iowa is considering two potential programs: Operation Methbust would increase the number of sheriffs’ deputies to search out and destroy methamphetamine labs. Operation Say No to Meth would increase the training required of public school teachers so that they could better educate students about the health risks of using meth. Assuming that each program were successful, which of the following statements is correct?
1. Both Operation Methbust and Say No would reduce the equilibrium quantity and increase the equilibrium price of
2. Both Operation Methbust and Say No would increase the equilibrium quantity and reduce the equilibrium price of
3. Both Operation Methbust and Say No would reduce the equilibrium quantity of meth; Operation Methbust would increase the equilibrium price, whereas Say No would reduce the equilibrium price of
4. Both Operation Methbust and Say No would reduce the equilibrium price of meth; Operation Methbust would reduce the equilibrium quantity, whereas Say No would increase the equilibrium quantity of

ANSWER: c

POINTS: 1

DIFFICULTY: Difficulty: Moderate

LEARNING OBJECTIVES: ECON.MANK.15.25 – LO: 5-3

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Supply and Demand

KEYWORDS: BLOOM’S: Comprehension

If marijuana were legalized, it is likely that there would be an increase in the demand for marijuana. If demand for marijuana is inelastic and the supply of marijuana is perfectly elastic, this will result in
1. higher prices and higher total revenue from marijuana
2. higher prices but lower total revenue from marijuana
3. the same price and higher total revenue from marijuana
4. the same price but lower total revenue from marijuana

ANSWER: c

POINTS: 1

DIFFICULTY: Difficulty: Moderate

LEARNING OBJECTIVES: ECON.MANK.15.25 – LO: 5-3

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Price Elasticity of Supply

KEYWORDS: BLOOM’S: Application

True/False and Short Answer

Measures of elasticity enhance our ability to study the magnitudes of changes in quantities in response to changes in prices or
1. True
2. False

ANSWER: True

POINTS: 1

DIFFICULTY: Difficulty: Easy

LEARNING OBJECTIVES: ECON.MANK.15.22 – LO: 5-0

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Price Elasticity of Demand

KEYWORDS: BLOOM’S: Knowledge

Elasticity measures how responsive quantity is to changes in
1. True
2. False

ANSWER: True

POINTS: 1

DIFFICULTY: Difficulty: Easy

LEARNING OBJECTIVES: ECON.MANK.15.22 – LO: 5-0

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Price Elasticity of Demand

KEYWORDS: BLOOM’S: Knowledge

The price elasticity of demand is defined as the percentage change in quantity demanded divided by the percentage change in
1. True
2. False

ANSWER: True

POINTS: 1

DIFFICULTY: Difficulty: Easy

LEARNING OBJECTIVES: ECON.MANK.15.23 – LO: 5-1

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Price Elasticity of Demand

KEYWORDS: BLOOM’S: Knowledge

The price elasticity of demand is defined as the percentage change in price divided by the percentage change in quantity
1. True
2. False

ANSWER: False

POINTS: 1

DIFFICULTY: Difficulty: Easy

LEARNING OBJECTIVES: ECON.MANK.15.23 – LO: 5-1

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Price Elasticity of Demand

KEYWORDS: BLOOM’S: Knowledge

The demand for bread is likely to be more elastic than the demand for solid-gold bread
1. True
2. False

ANSWER: False

POINTS: 1

DIFFICULTY: Difficulty: Moderate

LEARNING OBJECTIVES: ECON.MANK.15.23 – LO: 5-1

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Price Elasticity of Demand

KEYWORDS: BLOOM’S: Comprehension

In general, demand curves for necessities tend to be price
1. True
2. False

ANSWER: False

POINTS: 1

DIFFICULTY: Difficulty: Easy

LEARNING OBJECTIVES: ECON.MANK.15.23 – LO: 5-1

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Price Elasticity of Demand

KEYWORDS: BLOOM’S: Comprehension

In general, demand curves for luxuries tend to be price
1. True
2. False

ANSWER: True

POINTS: 1

DIFFICULTY: Difficulty: Easy

LEARNING OBJECTIVES: ECON.MANK.15.23 – LO: 5-1

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Price Elasticity of Demand

KEYWORDS: BLOOM’S: Comprehension

Goods with close substitutes tend to have more elastic demands than do goods without close
1. True
2. False

ANSWER: True

POINTS: 1

DIFFICULTY: Difficulty: Moderate

LEARNING OBJECTIVES: ECON.MANK.15.23 – LO: 5-1

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Price Elasticity of Demand

KEYWORDS: BLOOM’S: Comprehension

The demand for Rice Krispies is more elastic than the demand for cereal in
1. True
2. False

ANSWER: True

POINTS: 1

DIFFICULTY: Difficulty: Moderate

LEARNING OBJECTIVES: ECON.MANK.15.23 – LO: 5-1

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Price Elasticity of Demand

KEYWORDS: BLOOM’S: Comprehension

The demand for soap is more elastic than the demand for Dove
1. True
2. False

ANSWER: False

POINTS: 1

DIFFICULTY: Difficulty: Moderate

LEARNING OBJECTIVES: ECON.MANK.15.23 – LO: 5-1

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Price Elasticity of Demand

KEYWORDS: BLOOM’S: Comprehension

Necessities tend to have inelastic demands, whereas luxuries tend to have elastic
1. True
2. False

ANSWER: True

POINTS: 1

DIFFICULTY: Difficulty: Moderate

LEARNING OBJECTIVES: ECON.MANK.15.23 – LO: 5-1

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Price Elasticity of Demand

KEYWORDS: BLOOM’S: Comprehension

The demand for desserts tends to be more inelastic than the demand for red velvet
1. True
2. False

ANSWER: True

POINTS: 1

DIFFICULTY: Difficulty: Easy

LEARNING OBJECTIVES: ECON.MANK.15.23 – LO: 5-1

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Price Elasticity of Demand

KEYWORDS: BLOOM’S: Knowledge

Demand is inelastic if the price elasticity of demand is greater than
1. True
2. False

ANSWER: False

POINTS: 1

DIFFICULTY: Difficulty: Easy

LEARNING OBJECTIVES: ECON.MANK.15.23 – LO: 5-1

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Price Elasticity of Demand

KEYWORDS: BLOOM’S: Knowledge

Demand for a good is said to be inelastic if the quantity demanded increases substantially when the price falls by a small
1. True
2. False

ANSWER: False

POINTS: 1

DIFFICULTY: Difficulty: Easy

LEARNING OBJECTIVES: ECON.MANK.15.23 – LO: 5-1

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Price Elasticity of Demand

KEYWORDS: BLOOM’S: Knowledge

Demand for a good is said to be inelastic if the quantity demanded increases slightly when the price falls by a large
1. True
2. False

ANSWER: True

POINTS: 1

DIFFICULTY: Difficulty: Easy

LEARNING OBJECTIVES: ECON.MANK.15.23 – LO: 5-1

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Price Elasticity of Demand

KEYWORDS: BLOOM’S: Knowledge

The demand for gasoline will respond more to a change in price over a period of five weeks than over a period of five
1. True
2. False

ANSWER: False

POINTS: 1

DIFFICULTY: Difficulty: Moderate

LEARNING OBJECTIVES: ECON.MANK.15.23 – LO: 5-1

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Price Elasticity of Demand

KEYWORDS: BLOOM’S: Comprehension

Even the demand for a necessity such as gasoline will respond to a change in price, especially over a longer time
1. True
2. False

ANSWER: True

POINTS: 1

DIFFICULTY: Difficulty: Moderate

LEARNING OBJECTIVES: ECON.MANK.15.23 – LO: 5-1

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Price Elasticity of Demand

KEYWORDS: BLOOM’S: Comprehension

Suppose that when the price rises by 20% for a particular good, the quantity demanded of that good falls by 10%.

The price elasticity of demand for this good is equal to 2.0.

True
False

ANSWER: False

POINTS: 1

DIFFICULTY: Difficulty: Moderate

LEARNING OBJECTIVES: ECON.MANK.15.23 – LO: 5-1

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Price Elasticity of Demand

KEYWORDS: BLOOM’S: Analysis

Suppose that when the price rises by 10% for a particular good, the quantity demanded of that good falls by 20%.

The price elasticity of demand for this good is equal to 2.0.

True
False

ANSWER: True

POINTS: 1

DIFFICULTY: Difficulty: Moderate

LEARNING OBJECTIVES: ECON.MANK.15.23 – LO: 5-1

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Price Elasticity of Demand

KEYWORDS: BLOOM’S: Analysis

If the price of calculators increases by 15 percent and the quantity demanded per week falls by 45 percent as a result, then the price elasticity of demand is
1. True
2. False

ANSWER: True

POINTS: 1

DIFFICULTY: Difficulty: Moderate

LEARNING OBJECTIVES: ECON.MANK.15.23 – LO: 5-1

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Price Elasticity of Demand

KEYWORDS: BLOOM’S: Application

If we observe that when the price of chocolate increases by 10%, quantity demanded falls by 5%, then the demand for chocolate is price
1. True
2. False

ANSWER: True

POINTS: 1

DIFFICULTY: Difficulty: Moderate

LEARNING OBJECTIVES: ECON.MANK.15.23 – LO: 5-1

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Price Elasticity of Demand

KEYWORDS: BLOOM’S: Comprehension

If we observe that when the price of chocolate decreases by 10%, quantity demanded increases by 25%, then the demand for chocolate is price
1. True
2. False

ANSWER: True

POINTS: 1

DIFFICULTY: Difficulty: Moderate

LEARNING OBJECTIVES: ECON.MANK.15.23 – LO: 5-1

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Price Elasticity of Demand

KEYWORDS: BLOOM’S: Comprehension

The flatter the demand curve that passes through a given point, the more inelastic the
1. True
2. False

ANSWER: False

POINTS: 1

DIFFICULTY: Difficulty: Moderate

LEARNING OBJECTIVES: ECON.MANK.15.23 – LO: 5-1

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Price Elasticity of Demand

KEYWORDS: BLOOM’S: Comprehension

The flatter the demand curve that passes through a given point, the more elastic the
1. True
2. False

ANSWER: True

POINTS: 1

DIFFICULTY: Difficulty: Moderate

LEARNING OBJECTIVES: ECON.MANK.15.23 – LO: 5-1

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Price Elasticity of Demand

KEYWORDS: BLOOM’S: Comprehension

A linear, downward-sloping demand curve has a constant elasticity but a changing
1. True
2. False

ANSWER: False

POINTS: 1

DIFFICULTY: Difficulty: Moderate

LEARNING OBJECTIVES: ECON.MANK.15.23 – LO: 5-1

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Price Elasticity of Demand

KEYWORDS: BLOOM’S: Comprehension

Price elasticity of demand along a linear, downward-sloping demand curve increases as price
1. True
2. False

ANSWER: False

POINTS: 1

DIFFICULTY: Difficulty: Challenging

LEARNING OBJECTIVES: ECON.MANK.15.23 – LO: 5-1

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Price Elasticity of Demand

KEYWORDS: BLOOM’S: Comprehension

Price elasticity of demand along a linear, downward-sloping demand curve decreases as price
1. True
2. False

ANSWER: True

POINTS: 1

DIFFICULTY: Difficulty: Challenging

LEARNING OBJECTIVES: ECON.MANK.15.23 – LO: 5-1

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Price Elasticity of Demand

KEYWORDS: BLOOM’S: Comprehension

The midpoint method is used to calculate elasticity between two points because it gives the same answer regardless of the direction of the
1. True
2. False

ANSWER: True

POINTS: 1

DIFFICULTY: Difficulty: Moderate

LEARNING OBJECTIVES: ECON.MANK.15.23 – LO: 5-1

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

KEYWORDS: BLOOM’S: Comprehension

An advantage of using the midpoint method to calculate the price elasticity of demand is that it uses the metric
1. True
2. False

ANSWER: False

POINTS: 1

DIFFICULTY: Difficulty: Moderate

LEARNING OBJECTIVES: ECON.MANK.15.23 – LO: 5-1

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Price Elasticity of Demand

KEYWORDS: BLOOM’S: Application

If demand is perfectly elastic, the demand curve is horizontal, and the price elasticity of demand equals
1. True
2. False

ANSWER: False

POINTS: 1

DIFFICULTY: Difficulty: Moderate

LEARNING OBJECTIVES: ECON.MANK.15.23 – LO: 5-1

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Price Elasticity of Demand

KEYWORDS: BLOOM’S: Comprehension

If demand is perfectly inelastic, the demand curve is vertical, and the price elasticity of demand equals
1. True
2. False

ANSWER: True

POINTS: 1

DIFFICULTY: Difficulty: Moderate

LEARNING OBJECTIVES: ECON.MANK.15.23 – LO: 5-1

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Price Elasticity of Demand

KEYWORDS: BLOOM’S: Comprehension

If the price elasticity of demand is equal to 0, then demand is unit
1. True
2. False

ANSWER: False

POINTS: 1

DIFFICULTY: Difficulty: Easy

LEARNING OBJECTIVES: ECON.MANK.15.23 – LO: 5-1

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Price Elasticity of Demand

KEYWORDS: BLOOM’S: Knowledge

If the price elasticity of demand is equal to 1, then demand is unit
1. True
2. False

ANSWER: True

POINTS: 1

DIFFICULTY: Difficulty: Easy

LEARNING OBJECTIVES: ECON.MANK.15.23 – LO: 5-1

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Price Elasticity of Demand

KEYWORDS: BLOOM’S: Knowledge

If we observe that when the price of chocolate increases by 10%, total revenue increases by 10%, then the demand for chocolate is unit price
1. True
2. False

ANSWER: False

POINTS: 1

DIFFICULTY: Difficulty: Moderate

LEARNING OBJECTIVES: ECON.MANK.15.23 – LO: 5-1

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Price Elasticity of Demand

KEYWORDS: BLOOM’S: Comprehension

Along the elastic portion of a linear demand curve, total revenue rises as price
1. True
2. False

ANSWER: False

POINTS: 1

DIFFICULTY: Difficulty: Challenging

LEARNING OBJECTIVES: ECON.MANK.15.23 – LO: 5-1

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Price Elasticity of Demand

KEYWORDS: BLOOM’S: Comprehension

If a firm is facing elastic demand, then the firm should decrease price to increase
1. True
2. False

ANSWER: True

POINTS: 1

DIFFICULTY: Difficulty: Moderate

LEARNING OBJECTIVES: ECON.MANK.15.23 – LO: 5-1

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Price Elasticity of Demand

KEYWORDS: BLOOM’S: Application

If a firm is facing inelastic demand, then the firm should decrease price to increase
1. True
2. False

ANSWER: False

POINTS: 1

DIFFICULTY: Difficulty: Moderate

LEARNING OBJECTIVES: ECON.MANK.15.23 – LO: 5-1

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Price Elasticity of Demand

KEYWORDS: BLOOM’S: Application

When demand is inelastic, a decrease in price increases total
1. True
2. False

ANSWER: False

POINTS: 1

DIFFICULTY: Difficulty: Moderate

LEARNING OBJECTIVES: ECON.MANK.15.23 – LO: 5-1

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Price Elasticity of Demand

KEYWORDS: BLOOM’S: Comprehension

The income elasticity of demand is defined as the percentage change in quantity demanded divided by the percentage change in
1. True
2. False

ANSWER: True

POINTS: 1

DIFFICULTY: Difficulty: Easy

LEARNING OBJECTIVES: ECON.MANK.15.23 – LO: 5-1

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Income Elasticity of Demand

KEYWORDS: BLOOM’S: Knowledge

The income elasticity of demand is defined as the percentage change in quantity demanded divided by the percentage change in
1. True
2. False

ANSWER: False

POINTS: 1

DIFFICULTY: Difficulty: Easy

LEARNING OBJECTIVES: ECON.MANK.15.23 – LO: 5-1

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Income Elasticity of Demand

KEYWORDS: BLOOM’S: Knowledge

Normal goods have negative income elasticities of demand, while inferior goods have positive income elasticities of
1. True
2. False

ANSWER: False

POINTS: 1

DIFFICULTY: Difficulty: Moderate

LEARNING OBJECTIVES: ECON.MANK.15.23 – LO: 5-1

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Income Elasticity of Demand

KEYWORDS: BLOOM’S: Comprehension

If the income elasticity of demand for a good is negative, then the good must be an inferior
1. True
2. False

ANSWER: True

POINTS: 1

DIFFICULTY: Difficulty: Easy

LEARNING OBJECTIVES: ECON.MANK.15.23 – LO: 5-1

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Income Elasticity of Demand

KEYWORDS: BLOOM’S: Comprehension

If we observe that when consumers’ incomes rise by 10%, the quantity demanded of ice cream increases by 5%,

then ice cream is an inferior good.

True
False

ANSWER: False

POINTS: 1

DIFFICULTY: Difficulty: Challenging

LEARNING OBJECTIVES: ECON.MANK.15.23 – LO: 5-1

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Income Elasticity of Demand

KEYWORDS: BLOOM’S: Comprehension

If the cross-price elasticity of demand for two goods is negative, then the two goods are
1. True
2. False

ANSWER: False

POINTS: 1

DIFFICULTY: Difficulty: Moderate

LEARNING OBJECTIVES: ECON.MANK.15.23 – LO: 5-1

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Cross-Price Elasticity of Demand

KEYWORDS: BLOOM’S: Comprehension

If the cross-price elasticity of demand for two goods is negative, then the two goods are
1. True
2. False

ANSWER: True

POINTS: 1

DIFFICULTY: Difficulty: Moderate

LEARNING OBJECTIVES: ECON.MANK.15.23 – LO: 5-1

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Cross-Price Elasticity of Demand

KEYWORDS: BLOOM’S: Comprehension

Cross-price elasticity of demand measures how the quantity demanded of one good changes as the price of another good
1. True
2. False

ANSWER: True

POINTS: 1

DIFFICULTY: Difficulty: Easy

LEARNING OBJECTIVES: ECON.MANK.15.23 – LO: 5-1

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Cross-Price Elasticity of Demand

KEYWORDS: BLOOM’S: Knowledge

Cross-price elasticity is used to determine whether goods are inferior or normal
1. True
2. False

ANSWER: False

POINTS: 1

DIFFICULTY: Difficulty: Moderate

LEARNING OBJECTIVES: ECON.MANK.15.23 – LO: 5-1

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Cross-Price Elasticity of Demand

KEYWORDS: BLOOM’S: Comprehension

Cross-price elasticity is used to determine whether goods are substitutes or
1. True
2. False

ANSWER: True

POINTS: 1

DIFFICULTY: Difficulty: Moderate

LEARNING OBJECTIVES: ECON.MANK.15.23 – LO: 5-1

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Cross-Price Elasticity of Demand

KEYWORDS: BLOOM’S: Comprehension

The cross-price elasticity of garlic salt and onion salt is -2, which indicates that garlic salt and onion salt are
1. True
2. False

ANSWER: False

POINTS: 1

DIFFICULTY: Difficulty: Moderate

LEARNING OBJECTIVES: ECON.MANK.15.23 – LO: 5-1

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Cross-Price Elasticity of Demand

KEYWORDS: BLOOM’S: Comprehension

The cross-price elasticity of demand for bacon and eggs likely would be negative because bacon and eggs are complements for many
1. True
2. False

ANSWER: True

POINTS: 1

DIFFICULTY: Difficulty: Moderate

LEARNING OBJECTIVES: ECON.MANK.15.23 – LO: 5-1

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Cross-Price Elasticity of Demand

KEYWORDS: BLOOM’S: Application

Supply and demand both tend to be more elastic in the long run and more inelastic in the short
1. True
2. False

ANSWER: True

POINTS: 1

DIFFICULTY: Difficulty: Moderate

LEARNING OBJECTIVES: ECON.MANK.15.23 – LO: 5-1

ECON.MANK.15.24 – LO: 5-2

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

KEYWORDS: BLOOM’S: Comprehension

Price elasticity of supply measures how much the quantity supplied responds to changes in the
1. True
2. False

ANSWER: True

POINTS: 1

DIFFICULTY: Difficulty: Easy

LEARNING OBJECTIVES: ECON.MANK.15.24 – LO: 5-2

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Price Elasticity of Supply

KEYWORDS: BLOOM’S: Knowledge

If the price elasticity of supply is 2 and the quantity supplied decreases by 6%, then the price must have decreased by 3%.
1. True
2. False

ANSWER: True

POINTS: 1

DIFFICULTY: Difficulty: Moderate

LEARNING OBJECTIVES: ECON.MANK.15.24 – LO: 5-2

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Price Elasticity of Supply

KEYWORDS: BLOOM’S: Application

Supply is said to be inelastic if the quantity supplied responds substantially to changes in the price and elastic if the quantity supplied responds only slightly to
1. True
2. False

ANSWER: False

POINTS: 1

DIFFICULTY: Difficulty: Easy

LEARNING OBJECTIVES: ECON.MANK.15.24 – LO: 5-2

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Price Elasticity of Supply

KEYWORDS: BLOOM’S: Knowledge

Supply tends to be more elastic in the short run and more inelastic in the long
1. True
2. False

ANSWER: False

POINTS: 1

DIFFICULTY: Difficulty: Moderate

LEARNING OBJECTIVES: ECON.MANK.15.24 – LO: 5-2

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Price Elasticity of Supply

KEYWORDS: BLOOM’S: Comprehension

When the price of knee braces increased by 25 percent, the Brace Yourself Company increased its quantity supplied of knee braces per week by 75 percent. BYC’s price elasticity of supply of knee braces is 33.
1. True
2. False

ANSWER: False

POINTS: 1

DIFFICULTY: Difficulty: Moderate

LEARNING OBJECTIVES: ECON.MANK.15.24 – LO: 5-2

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Price Elasticity of Supply

KEYWORDS: BLOOM’S: Application

If a supply curve is horizontal, then supply is said to be perfectly elastic, and the price elasticity of supply approaches
1. True
2. False

ANSWER: True

POINTS: 1

DIFFICULTY: Difficulty: Moderate

LEARNING OBJECTIVES: ECON.MANK.15.24 – LO: 5-2

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Price Elasticity of Supply

KEYWORDS: BLOOM’S: Comprehension

If we observe that when the price of ice cream rises by 10%, ice cream manufacturers increase the quantity supplied of ice cream by 20%, then the price elasticity of supply is
1. True
2. False

ANSWER: True

POINTS: 1

DIFFICULTY: Difficulty: Moderate

LEARNING OBJECTIVES: ECON.MANK.15.24 – LO: 5-2

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Price Elasticity of Supply

KEYWORDS: BLOOM’S: Analysis

If a t-shirt manufacturer supplies 1,000 t-shirts per week when the price of t-shirts is $10 and supplies 1,200 t-shirts per week when the price of t-shirts is $12, the price elasticity of supply is
1. True
2. False

ANSWER: False

POINTS: 1

DIFFICULTY: Difficulty: Moderate

LEARNING OBJECTIVES: ECON.MANK.15.24 – LO: 5-2

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Price Elasticity of Supply

KEYWORDS: BLOOM’S: Analysis

A government program that reduces land under cultivation hurts farmers but helps
1. True
2. False

ANSWER: False

POINTS: 1

DIFFICULTY: Difficulty: Moderate

LEARNING OBJECTIVES: ECON.MANK.15.25 – LO: 5-3

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Supply and Demand

KEYWORDS: BLOOM’S: Application

A government program that pays farmers not to plant corn on part of their land can help farmers not only through the subsidy payments to farmers who participate in the program but also by raising the market price of
1. True
2. False

ANSWER: True

POINTS: 1

DIFFICULTY: Difficulty: Moderate

LEARNING OBJECTIVES: ECON.MANK.15.25 – LO: 5-3

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Supply and Demand

KEYWORDS: BLOOM’S: Analysis

A discovery that increases wheat yields per acre hurts farmers by increasing supply and lowering their total
1. True
2. False

ANSWER: True

POINTS: 1

DIFFICULTY: Difficulty: Moderate

LEARNING OBJECTIVES: ECON.MANK.15.25 – LO: 5-3

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Price Elasticity of Demand

KEYWORDS: BLOOM’S: Analysis

A discovery that increases wheat yields per acre helps farmers by increasing both supply and total
1. True
2. False

ANSWER: False

POINTS: 1

DIFFICULTY: Difficulty: Moderate

LEARNING OBJECTIVES: ECON.MANK.15.25 – LO: 5-3

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Price Elasticity of Demand

KEYWORDS: BLOOM’S: Analysis

OPEC failed to maintain a high price of oil in the long run, partly because both the supply of oil and the demand for oil are more elastic in the long run than in the short
1. True
2. False

ANSWER: True

POINTS: 1

DIFFICULTY: Difficulty: Moderate

LEARNING OBJECTIVES: ECON.MANK.15.25 – LO: 5-3

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

KEYWORDS: BLOOM’S: Application

The OPEC oil cartel has difficulty maintaining high prices in the long run because the supply of oil is more inelastic in the long run than in the short
1. True
2. False

ANSWER: False

POINTS: 1

DIFFICULTY: Difficulty: Moderate

LEARNING OBJECTIVES: ECON.MANK.15.25 – LO: 5-3

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Price Elasticity of Supply

KEYWORDS: BLOOM’S: Application

Drug interdiction, which reduces the supply of drugs, may decrease drug-related crime because the demand for drugs is
1. True
2. False

ANSWER: False

POINTS: 1

DIFFICULTY: Difficulty: Moderate

LEARNING OBJECTIVES: ECON.MANK.15.25 – LO: 5-3

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Price Elasticity of Demand

KEYWORDS: BLOOM’S: Application

Drug interdiction, which reduces the supply of drugs, will likely be a less effective policy than educating consumers to reduce their demand for drugs because the drug interdiction policy will lower drug prices and reduce the quantity of drugs
1. True
2. False

ANSWER: False

POINTS: 1

DIFFICULTY: Difficulty: Moderate

LEARNING OBJECTIVES: ECON.MANK.15.25 – LO: 5-3

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Price Elasticity of Demand

KEYWORDS: BLOOM’S: Application

A “Just Say No” drug education policy that successfully educates consumers to reduce their demand for drugs will lower drug prices and reduce the quantity of drugs
1. True
2. False

ANSWER: True

POINTS: 1

DIFFICULTY: Difficulty: Moderate

LEARNING OBJECTIVES: ECON.MANK.15.25 – LO: 5-3

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Price Elasticity of Demand

KEYWORDS: BLOOM’S: Application

Consider the following pairs of goods. For which of the two goods would you expect the demand to be more price elastic? Why?
1. water or diamonds
2. insulin or nasal decongestant spray
3. food in general or breakfast cereal
4. gasoline over the course of a week or gasoline over the course of a year
5. personal computers or IBM personal computers

ANSWER:

Diamonds are luxuries, and water is a necessity. Therefore, diamonds have the more elastic
Insulin has no close substitutes, but decongestant spray does. Therefore, nasal decongestant spray has the more elastic
Breakfast cereal has more substitutes than does food in general. Therefore, breakfast cereal has the more elastic
The longer the time period, the more elastic demand is. Therefore, gasoline over the course of a year has the more elastic
There are more substitutes for IBM personal computers than there are for personal computers. Therefore, IBM personal computers have the more elastic

POINTS: 1

DIFFICULTY: Difficulty: Moderate

LEARNING OBJECTIVES: ECON.MANK.15.23 – LO: 5-1

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Price Elasticity of Demand

KEYWORDS: BLOOM’S: Application

You own a small town movie theatre. You currently charge $5 per ticket for everyone who comes to your

Your friend who took an economics course in college tells you that there may be a way to increase your total revenue. Given the demand curves shown, answer the following questions.

What is your current total revenue for both groups?
The elasticity of demand is more elastic in which market?
Which market has the more inelastic demand?
What is the elasticity of demand between the prices of $5 and $2 in the adult market? Is this elastic or inelastic?
What is the elasticity of demand between $5 and $2 in the children’s market? Is this elastic or inelastic?
Given the graphs and what your friend knows about economics, he recommends you increase the price of adult tickets to $8 each and lower the price of a child’s ticket to $3.

How much could you increase total revenue if you take his advice?

ANSWER:

Total revenue from children’s tickets is $100 and from adult tickets is $250. Total revenue from all sales would be $350.
The demand for children’s tickets is more
The adult ticket market has the more inelastic
The elasticity of demand between $5 and $2 is 21, which is inelastic.
The elasticity of demand between $5 and $2 is 0, which is unit elastic.
Total revenue in the adult market would be $320. Total revenue in the children’s market would be $120, so total revenue for both groups would be $440. $440 – $350 is an increase in total revenue of $90.

POINTS: 1

DIFFICULTY: Difficulty: Moderate

LEARNING OBJECTIVES: ECON.MANK.15.23 – LO: 5-1

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Price Elasticity of Demand

KEYWORDS: BLOOM’S: Application

Use the graph shown to answer the following questions. Put the correct letter(s) in the

The elastic section of the graph is represented by section
The inelastic section of the graph is represented by section
The unit elastic section of the graph is represented by section .
The portion of the graph in which a decrease in price would cause total revenue to fall would be
The portion of the graph in which a decrease in price would cause total revenue to rise would be
The portion of the graph in which a decrease in price would not cause a change in total revenue would be
The section of the graph in which total revenue would be at a maximum would be

_______.

The section of the graph in which elasticity is greater than 1 is .
The section of the graph in which elasticity is equal to 1 is .
The section of the graph in which elasticity is less than 1 is .

ANSWER: a. A to B

B to C
B
B to C
A to B
B
B
A to B
B
B to C

POINTS: 1

DIFFICULTY: Difficulty: Moderate

LEARNING OBJECTIVES: ECON.MANK.15.23 – LO: 5-1

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Price Elasticity of Demand

KEYWORDS: BLOOM’S: Application

Using the midpoint method, compute the elasticity of demand between points A and B. Is demand along this portion of the curve elastic or inelastic? Interpret your answer with regard to price and quantity demanded. Now compute the elasticity of demand between points B and C. Is demand along this portion of the curve elastic or inelastic?

ANSWER:

In the section of the demand curve from A to B, the elasticity of demand would 2.5. This would be an elastic portion of the curve. This would mean that for every 1 percent change in price, quantity demanded would change by 2.5 percent.

In the section of the demand curve from B to C, the elasticity of demand would be .75. This would be an inelastic portion of the curve. This would mean that for every 1 percent change in price, quantity demanded would change by 0.75 percent.

POINTS: 1

DIFFICULTY: Difficulty: Moderate

LEARNING OBJECTIVES: ECON.MANK.15.23 – LO: 5-1

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Price Elasticity of Demand

KEYWORDS: BLOOM’S: Application

When the Shaffers had a monthly income of $4,000, they usually ate out 8 times a month. Now that the couple makes $4,500 a month, they eat out 10 times a month. Compute the couple’s income elasticity of demand using the midpoint method. Explain your answer. Is a restaurant meal a normal or inferior good to the couple?

ANSWER: The income elasticity of demand for the Shaffers is 1.89. Since the income elasticity of demand is positive, eating out would be interpreted as a normal good.

POINTS: 1

DIFFICULTY: Difficulty: Moderate

LEARNING OBJECTIVES: ECON.MANK.15.23 – LO: 5-1

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Income Elasticity of Demand

KEYWORDS: BLOOM’S: Application

Recently, in Smalltown, the price of Twinkies fell from $0.80 to $0.70. As a result, the quantity demanded of Ho- Ho’s decreased from 120 to 100. What would be the appropriate elasticity to compute? Using the midpoint method, compute this elasticity. What does your answer tell you?

ANSWER: The appropriate elasticity to compute would be cross-price elasticity. The cross-price elasticity for this example would be 1.36. The two goods are substitutes because the cross-price elasticity is positive.

POINTS: 1

DIFFICULTY: Difficulty: Moderate

LEARNING OBJECTIVES: ECON.MANK.15.23 – LO: 5-1

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Cross-Price Elasticity of Demand

KEYWORDS: BLOOM’S: Application

Problems

The measure of how willing consumers are to buy less of a good as its price rises is called

ANSWER: price elasticity of demand.

POINTS: 1

DIFFICULTY: Difficulty: Easy

LEARNING OBJECTIVES: ECON.MANK.15.23 – LO: 5-1

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Price Elasticity of Demand

KEYWORDS: BLOOM’S: Knowledge

Suppose that good X has few close substitutes and that good Y has many close substitutes. Which good would you expect to have more price inelastic demand?

ANSWER: good X

POINTS: 1

DIFFICULTY: Difficulty: Moderate

LEARNING OBJECTIVES: ECON.MANK.15.23 – LO: 5-1

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Price Elasticity of Demand

KEYWORDS: BLOOM’S: Analysis

Suppose that good X has few close substitutes and that good Y has many close substitutes. Which good would you expect to have more price elastic demand?

ANSWER: good Y

POINTS: 1

DIFFICULTY: Difficulty: Moderate

LEARNING OBJECTIVES: ECON.MANK.15.23 – LO: 5-1

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Price Elasticity of Demand

KEYWORDS: BLOOM’S: Analysis

Suppose that good X is a luxury and that good Y is a necessity. Which good would you expect to have more price inelastic demand?

ANSWER: good Y

POINTS: 1

DIFFICULTY: Difficulty: Moderate

LEARNING OBJECTIVES: ECON.MANK.15.23 – LO: 5-1

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Price Elasticity of Demand

KEYWORDS: BLOOM’S: Analysis

Suppose that good X is a luxury and that good Y is a necessity. Which good would you expect to have more price elastic demand?

ANSWER: good X

POINTS: 1

DIFFICULTY: Difficulty: Moderate

LEARNING OBJECTIVES: ECON.MANK.15.23 – LO: 5-1

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Price Elasticity of Demand

KEYWORDS: BLOOM’S: Analysis

For which of the following goods would demand be most price elastic: a car, a sedan, a Honda sedan, a Honda Accord, a black Honda Accord?

ANSWER: a black Honda Accord

POINTS: 1

DIFFICULTY: Difficulty: Moderate

LEARNING OBJECTIVES: ECON.MANK.15.23 – LO: 5-1

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Price Elasticity of Demand

KEYWORDS: BLOOM’S: Comprehension

Suppose the price of natural gas, a typical fuel for heating homes, rises in January in Alaska. Would you expect the price elasticity of demand for natural gas to more inelastic immediately after the price increase or at some point in the future?

ANSWER: The price elasticity of demand would be more inelastic immediately after the price increase.

POINTS: 1

DIFFICULTY: Difficulty: Moderate

LEARNING OBJECTIVES: ECON.MANK.15.23 – LO: 5-1

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Price Elasticity of Demand

KEYWORDS: BLOOM’S: Analysis

Suppose the price of gas increases by 20%. Will demand be more elastic if consumers have 3 weeks or 3 years to adjust to this price change?

ANSWER: 3 years

POINTS: 1

DIFFICULTY: Difficulty: Easy

LEARNING OBJECTIVES: ECON.MANK.15.23 – LO: 5-1

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Price Elasticity of Demand

KEYWORDS: BLOOM’S: Application

Table 5-12
	Price	Quantity Demanded
	$0	50
	$2	40
	$4	30
	$6	20
	$8	10

Refer to Table 5-12. Using the midpoint method, what is the price elasticity of demand between $2 and $4?

ANSWER: The price elasticity of demand is 0.43.

POINTS: 1

DIFFICULTY: Difficulty: Moderate

LEARNING OBJECTIVES: ECON.MANK.15.23 – LO: 5-1

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Price Elasticity of Demand

KEYWORDS: BLOOM’S: Application

Refer to Table 5-12. Using the midpoint method, what is the price elasticity of demand between $6 and $8?

ANSWER: The price elasticity of demand is 2.33.

POINTS: 1

DIFFICULTY: Difficulty: Moderate

LEARNING OBJECTIVES: ECON.MANK.15.23 – LO: 5-1

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Price Elasticity of Demand

KEYWORDS: BLOOM’S: Application

Refer to Table 5-12. Between which two quantities listed is demand most inelastic?

ANSWER: between 50 and 40

POINTS: 1

DIFFICULTY: Difficulty: Moderate

LEARNING OBJECTIVES: ECON.MANK.15.23 – LO: 5-1

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Price Elasticity of Demand

KEYWORDS: BLOOM’S: Application

NOTES: n

Refer to Table 5-12. Between which two quantities listed is demand most elastic?

ANSWER: between 10 and 20

POINTS: 1

DIFFICULTY: Difficulty: Moderate

LEARNING OBJECTIVES: ECON.MANK.15.23 – LO: 5-1

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Price Elasticity of Demand

KEYWORDS: BLOOM’S: Application

NOTES: n

Refer to Table 5-12. Between which two quantities listed is demand unit elastic?

ANSWER: between 20 and 30

POINTS: 1

DIFFICULTY: Difficulty: Moderate

LEARNING OBJECTIVES: ECON.MANK.15.23 – LO: 5-1

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Price Elasticity of Demand

KEYWORDS: BLOOM’S: Application

NOTES: n

Table 5-13

Consider the following demand schedule.

Price	Quantity Demanded
$0	1,000
$3	800
$6	600
$9	400
$12	200
$15	0

Refer to Table 5-13. Using the midpoint method, demand is unit elastic when price changes from

ANSWER: $6 to $9.

POINTS: 1

DIFFICULTY: Difficulty: Moderate

LEARNING OBJECTIVES: ECON.MANK.15.23 – LO: 5-1

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Price Elasticity of Demand

KEYWORDS: BLOOM’S: Analysis

Refer to Table 5-13. Using the midpoint method, what is the price elasticity of demand between $12 and $15?

ANSWER: 9

POINTS: 1

DIFFICULTY: Difficulty: Moderate

LEARNING OBJECTIVES: ECON.MANK.15.23 – LO: 5-1

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Price Elasticity of Demand

KEYWORDS: BLOOM’S: Analysis

Refer to Table 5-13. Using the midpoint method, between which two prices is price elasticity of demand most inelastic?

ANSWER: $0 to $3

POINTS: 1

DIFFICULTY: Difficulty: Moderate

LEARNING OBJECTIVES: ECON.MANK.15.23 – LO: 5-1

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Price Elasticity of Demand

KEYWORDS: BLOOM’S: Analysis

Suppose demand is given by the equation:

Using the midpoint method, what is the price elasticity of demand between $1 and $2?

ANSWER: The price elasticity of demand is 0.18.

POINTS: 1

DIFFICULTY: Difficulty: Moderate

LEARNING OBJECTIVES: ECON.MANK.15.23 – LO: 5-1

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Price Elasticity of Demand

KEYWORDS: BLOOM’S: Application

Suppose demand is given by the equation:

Using the midpoint method, what is the price elasticity of demand between $7 and $8?

ANSWER: The price elasticity of demand is 3.00.

POINTS: 1

DIFFICULTY: Difficulty: Moderate

LEARNING OBJECTIVES: ECON.MANK.15.23 – LO: 5-1

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Price Elasticity of Demand

KEYWORDS: BLOOM’S: Application

Suppose demand is given by the equation:

Using the midpoint method, what is the price elasticity of demand between $1 and $2?

ANSWER: The price elasticity of demand is 1.00.

POINTS: 1

DIFFICULTY: Difficulty: Moderate

LEARNING OBJECTIVES: ECON.MANK.15.23 – LO: 5-1

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Price Elasticity of Demand

KEYWORDS: BLOOM’S: Application

Suppose demand is given by the equation:

Using the midpoint method, what is the price elasticity of demand between $2 and $4?

ANSWER: The price elasticity of demand is 1.00.

POINTS: 1

DIFFICULTY: Difficulty: Moderate

LEARNING OBJECTIVES: ECON.MANK.15.23 – LO: 5-1

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Price Elasticity of Demand

KEYWORDS: BLOOM’S: Application

Suppose a market has the demand function Qd=20-0.5P. Using the midpoint method, what is the price elasticity of demand between $30 and $40?

ANSWER: 7

POINTS: 1

DIFFICULTY: Difficulty: Moderate

LEARNING OBJECTIVES: ECON.MANK.15.23 – LO: 5-1

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Price Elasticity of Demand

KEYWORDS: BLOOM’S: Analysis

Suppose the price elasticity of demand for good A is 25. If the price of good A increases by 20%, what will be the resulting percentage change in quantity demanded for good A?

ANSWER: Quantity demanded will fall by 25%.

POINTS: 1

DIFFICULTY: Difficulty: Moderate

LEARNING OBJECTIVES: ECON.MANK.15.23 – LO: 5-1

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Price Elasticity of Demand

KEYWORDS: BLOOM’S: Application

What is the price elasticity of demand at any point on a perfectly inelastic demand curve?

ANSWER: The price elasticity of demand is zero.

POINTS: 1

DIFFICULTY: Difficulty: Moderate

LEARNING OBJECTIVES: ECON.MANK.15.23 – LO: 5-1

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Price Elasticity of Demand

KEYWORDS: BLOOM’S: Analysis

What is the price elasticity of demand at any point on a perfectly elastic demand curve?

ANSWER: The price elasticity of demand is infinity.

POINTS: 1

DIFFICULTY: Difficulty: Moderate

LEARNING OBJECTIVES: ECON.MANK.15.23 – LO: 5-1

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Price Elasticity of Demand

KEYWORDS: BLOOM’S: Analysis

Adam and Barb go to the store to purchase some lottery tickets. Without looking at the price, Adam says “I’ll take 10 lottery tickets,” and Barb says “I’ll take $10 worth of lottery ” What is each person’s price elasticity of demand for lottery tickets?

ANSWER: Since Adam wants 10 tickets regardless of the price, his demand curve is vertical, which is perfectly inelastic. Therefore, Adam’s price elasticity of demand is zero.

Barb’s price elasticity of demand is unit elastic, or 1.0.

POINTS: 1

DIFFICULTY: Difficulty: Challenging

LEARNING OBJECTIVES: ECON.MANK.15.23 – LO: 5-1

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Price Elasticity of Demand

KEYWORDS: BLOOM’S: Application

Suppose demand is given by the equation:

At what price will total revenue be maximized?

ANSWER: Total revenue will be maximized at the midpoint of a linear demand curve – $5 with this demand curve.

POINTS: 1

DIFFICULTY: Difficulty: Moderate

LEARNING OBJECTIVES: ECON.MANK.15.23 – LO: 5-1

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Price Elasticity of Demand

KEYWORDS: BLOOM’S: Application

Suppose demand is given by the equation:

At what point along this demand curve will total revenue be maximized?

ANSWER: Total revenue is constant at $80 along this entire demand curve.

POINTS: 1

DIFFICULTY: Difficulty: Challenging

LEARNING OBJECTIVES: ECON.MANK.15.23 – LO: 5-1

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Price Elasticity of Demand

KEYWORDS: BLOOM’S: Application

Suppose a market has the demand function Qd=20-0.5P. At what price will total revenue be maximized?

ANSWER: $20

POINTS: 1

DIFFICULTY: Difficulty: Moderate

LEARNING OBJECTIVES: ECON.MANK.15.23 – LO: 5-1

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Price Elasticity of Demand

KEYWORDS: BLOOM’S: Analysis

Suppose the price elasticity of demand for a product is 5. If a supplier wants to increase revenue, what change should it make to price, if any?

ANSWER: increase price

POINTS: 1

DIFFICULTY: Difficulty: Moderate

LEARNING OBJECTIVES: ECON.MANK.15.23 – LO: 5-1

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Price Elasticity of Demand

KEYWORDS: BLOOM’S: Analysis

Suppose the price elasticity of demand for a product is 1. If a supplier wants to increase revenue, what change should it make to price, if any?

ANSWER: No change, revenue is maximized.

POINTS: 1

DIFFICULTY: Difficulty: Moderate

LEARNING OBJECTIVES: ECON.MANK.15.23 – LO: 5-1

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Price Elasticity of Demand

KEYWORDS: BLOOM’S: Analysis

Suppose the price elasticity of demand for a product is 3. If a supplier wants to increase revenue, what change should it make to price, if any?

ANSWER: Reduce price

POINTS: 1

DIFFICULTY: Difficulty: Moderate

LEARNING OBJECTIVES: ECON.MANK.15.23 – LO: 5-1

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Price Elasticity of Demand

KEYWORDS: BLOOM’S: Analysis

Suppose you manage a baseball stadium. To pay the salary for a star player, you would like to increase the total revenue from ticket sales. Should you increase or decrease the price of a ticket to increase revenue?

ANSWER: If demand is inelastic, then raise the price to increase total revenue. If demand is elastic, then lower the price to increase total revenue.

POINTS: 1

DIFFICULTY: Difficulty: Challenging

LEARNING OBJECTIVES: ECON.MANK.15.25 – LO: 5-3

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Price Elasticity of Demand

KEYWORDS: BLOOM’S: Application

If the cross-price elasticity of demand between two goods is negative, what is the relationship between the two goods?

ANSWER: The goods are complements.

POINTS: 1

DIFFICULTY: Difficulty: Moderate

LEARNING OBJECTIVES: ECON.MANK.15.23 – LO: 5-1

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Cross-Price Elasticity of Demand

KEYWORDS: BLOOM’S: Analysis

NOTES: r

If the cross-price elasticity of demand between two goods is positive, what is the relationship between the two goods?

ANSWER: The goods are substitutes.

POINTS: 1

DIFFICULTY: Difficulty: Moderate

LEARNING OBJECTIVES: ECON.MANK.15.23 – LO: 5-1

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Cross-Price Elasticity of Demand

KEYWORDS: BLOOM’S: Analysis

NOTES: r

Scenario 5-7

Suppose the demand function for good X is given by: where is the quantity demanded of good X, is the price of good X, and is the price of good Y, which is related to good X.

Refer to Scenario 5-7. Using the midpoint method, if the price of good Y is $10 and the price of good X decreases from $5 to $3, what is the price elasticity of demand for good X? Is the demand elastic, unitary elastic, or inelastic?

ANSWER: 0.4 and inelastic

POINTS: 1

DIFFICULTY: Difficulty: Challenging

LEARNING OBJECTIVES: ECON.MANK.15.23 – LO: 5-1

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Price Elasticity of Demand

KEYWORDS: BLOOM’S: Analysis

Refer to Scenario 5-7. Good X and Good Y are related as

ANSWER: complements.

POINTS: 1

DIFFICULTY: Difficulty: Moderate

LEARNING OBJECTIVES: ECON.MANK.15.23 – LO: 5-1

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Cross-Price Elasticity of Demand

KEYWORDS: BLOOM’S: Analysis

Refer to Scenario 5-7. Using the midpoint method, if the price of good X is $10 and the price of good Y increases from $8 to $10, the cross price elasticity of demand is about

ANSWER: -2.57.

POINTS: 1

DIFFICULTY: Difficulty: Challenging

LEARNING OBJECTIVES: ECON.MANK.15.23 – LO: 5-1

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Cross-Price Elasticity of Demand

KEYWORDS: BLOOM’S: Analysis

If the income elasticity of demand for a good is –1.40, is the good a normal or inferior good?

ANSWER: The good is an inferior good.

POINTS: 1

DIFFICULTY: Difficulty: Moderate

LEARNING OBJECTIVES: ECON.MANK.15.23 – LO: 5-1

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Income Elasticity of Demand

KEYWORDS: BLOOM’S: Analysis

If the income elasticity of demand for a good is 56, is the good a normal or inferior good?

ANSWER: The good is a normal good.

POINTS: 1

DIFFICULTY: Difficulty: Moderate

LEARNING OBJECTIVES: ECON.MANK.15.23 – LO: 5-1

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Income Elasticity of Demand

KEYWORDS: BLOOM’S: Analysis

Scenario 5-8

Consider the markets for mobile and landline telephone service. Suppose that when the average income of residents of Plainville is $55,000 per year, the quantity demanded of landline telephone service is 12,500 and the quantity demanded of mobile service is 28,000. Suppose that when the price of mobile service rises from $100 to $120 per month, the quantity demanded of landline service decreases to 11,000. Suppose also that when the average income increases to $60,000, the quantity demanded of mobile service increases to 33,000.

Refer to Scenario 5-8. Considering the income elasticity, what type of good is mobile telephone service?

ANSWER: normal good

POINTS: 1

DIFFICULTY: Difficulty: Easy

LEARNING OBJECTIVES: ECON.MANK.15.23 – LO: 5-1

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Income Elasticity of Demand

KEYWORDS: BLOOM’S: Comprehension

Refer to Scenario 5-8. Using the midpoint method, what is the income elasticity of demand for mobile service?

ANSWER: 1.88

POINTS: 1

DIFFICULTY: Difficulty: Moderate

LEARNING OBJECTIVES: ECON.MANK.15.23 – LO: 5-1

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Income Elasticity of Demand

KEYWORDS: BLOOM’S: Application

Refer to Scenario 5-8. Considering the cross price elasticity of demand for mobile and landline telephone service, is the cross price elasticity of demand positive or negative and do the consumers of Plainville regard these goods as substitutes or complements?

ANSWER: The cross price elasticity of demand is negative and consumers regard the two goods as complements.

POINTS: 1

DIFFICULTY: Difficulty: Moderate

LEARNING OBJECTIVES: ECON.MANK.15.23 – LO: 5-1

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Cross-Price Elasticity of Demand

KEYWORDS: BLOOM’S: Comprehension

Refer to Scenario 5-8. Using the midpoint method, what is the cross price elasticity of demand for landline and mobile service?

ANSWER: -0.70

POINTS: 1

DIFFICULTY: Difficulty: Moderate

LEARNING OBJECTIVES: ECON.MANK.15.23 – LO: 5-1

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Income Elasticity of Demand

KEYWORDS: BLOOM’S: Application

With regard to elasticity, if a firm has a longer time to adjust to a price increase, supply will be more

ANSWER: elastic.

POINTS: 1

DIFFICULTY: Difficulty: Moderate

LEARNING OBJECTIVES: ECON.MANK.15.24 – LO: 5-2

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Price Elasticity of Supply

KEYWORDS: BLOOM’S: Comprehension

With regard to elasticity, as a firm nears its production capacity, supply becomes more

ANSWER: inelastic.

POINTS: 1

DIFFICULTY: Difficulty: Moderate

LEARNING OBJECTIVES: ECON.MANK.15.24 – LO: 5-2

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Price Elasticity of Supply

KEYWORDS: BLOOM’S: Comprehension

In the short run, as compared to the long run, both the price elasticity of demand and the price elasticity of supply tend to be more

ANSWER: inelastic.

POINTS: 1

DIFFICULTY: Difficulty: Moderate

LEARNING OBJECTIVES: ECON.MANK.15.25 – LO: 5-3

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

KEYWORDS: BLOOM’S: Comprehension

Figure 5-21

Refer to Figure 5-21. Using the midpoint method, what is the price elasticity of supply between $15 and $25?

ANSWER: The price elasticity of supply is 1.33.

POINTS: 1

DIFFICULTY: Difficulty: Moderate

LEARNING OBJECTIVES: ECON.MANK.15.24 – LO: 5-2

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Price Elasticity of Supply

KEYWORDS: BLOOM’S: Application

Refer to Figure 5-21. Using the midpoint method, what is the price elasticity of supply between $25 and $35?

ANSWER: The price elasticity of supply is 1.20.

POINTS: 1

DIFFICULTY: Difficulty: Moderate

LEARNING OBJECTIVES: ECON.MANK.15.24 – LO: 5-2

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Price Elasticity of Supply

KEYWORDS: BLOOM’S: Application

Refer to Figure 5-21. Using the midpoint method, what is the price elasticity of supply between $5 and $15?

ANSWER: The price elasticity of supply is 2.

POINTS: 1

DIFFICULTY: Difficulty: Moderate

LEARNING OBJECTIVES: ECON.MANK.15.24 – LO: 5-2

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Price Elasticity of Supply

KEYWORDS: BLOOM’S: Application

NOTES: n

If the quantity supplied is exactly the same regardless of the price, supply is

ANSWER: perfectly inelastic.

POINTS: 1

DIFFICULTY: Difficulty: Moderate

LEARNING OBJECTIVES: ECON.MANK.15.24 – LO: 5-2

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Price Elasticity of Supply

KEYWORDS: BLOOM’S: Comprehension

If a supply curve is perfectly vertical, what is the value of the price elasticity of supply?

ANSWER: 0

POINTS: 1

DIFFICULTY: Difficulty: Easy

LEARNING OBJECTIVES: ECON.MANK.15.24 – LO: 5-2

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Price Elasticity of Supply

KEYWORDS: BLOOM’S: Comprehension

If a supply curve is perfectly horizontal, what is the value of the price elasticity of supply?

ANSWER: infinity

POINTS: 1

DIFFICULTY: Difficulty: Easy

LEARNING OBJECTIVES: ECON.MANK.15.24 – LO: 5-2

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Price Elasticity of Supply

KEYWORDS: BLOOM’S: Comprehension

Suppose a freeze in Florida significantly reduces the supply of oranges this year. As a result, would you expect the total revenue from the sale of orange juice to rise or fall?

ANSWER: Since oranges are an input into the production of orange juice, the increase in the price of oranges will reduce the supply of orange juice. When the price of orange juice rises, total revenue may rise or fall. If the demand for orange juice is inelastic, then total revenue will rise. On the other hand, if the demand for orange juice is elastic, then total revenue will fall.

POINTS: 1

DIFFICULTY: Difficulty: Challenging

LEARNING OBJECTIVES: ECON.MANK.15.25 – LO: 5-3

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Price Elasticity of Supply

KEYWORDS: BLOOM’S: Application

Suppose a farmer knows that he will be able to harvest and sell 3,000 bushels of wheat. Would he prefer a market in which conditions are favorable and most farmers harvest large crops or a market in which conditions are unfavorable and many farmers harvest small crops? Why?

ANSWER: The farmer prefers a market in which conditions are unfavorable because a smaller supply will result in a higher market price. Because demand is inelastic, a higher price leads to higher revenue.

POINTS: 1

DIFFICULTY: Difficulty: Moderate

LEARNING OBJECTIVES: ECON.MANK.15.25 – LO: 5-3

NATIONAL STANDARDS: United States – BUSPROG: Analytic

TOPICS: DISC: Elasticity

Price Elasticity of Demand

KEYWORDS: BLOOM’S: Comprehension

Essentials of Economics 7th Edition by N. Gregory Mankiw - Test Bank

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Table 5-1

Table 5-2

Table 5-3

Table 5-4

Figure 5-1

Figure 5-2

Figure 5-3

Table 5-5

Table 5-6

Figure 5-4

Figure 5-5

Figure 5-6

Figure 5-7

Figure 5-8

Figure 5-9

Figure 5-10

Figure 5-11

Figure 5-12

Figure 5-13

Table 5-7

Table 5-8

Scenario 5-1

Scenario 5-2

Scenario 5-3

Table 5-9

Table 5-10

Figure 5-14

Figure 5-15

Figure 5-16

Figure 5-17

Figure 5-18

Figure 5-19

Figure 5-20

Scenario 5-4

Scenario 5-5

Scenario 5-6

Table 5-11

Table 5-12

Table 5-13

Scenario 5-7

Scenario 5-8

Figure 5-21

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