240 CHAPTER 20: DEMAND AND SUPPLY ELASTICITY MULTIPLE CHOICE QUESTIONS Circle the letter that corresponds to the best answer. 1. Price elasticity of demand measures responsiveness of (&) quantity demanded to changes in price. ’b. quantity demanded to changes in income. ©. price to changes in quantity demanded, d. price to changes in demand, 2. If the price elasticity of demand is 1/3, then a, demand is inelastic. demand is inelastic over that price range. demand is elastic. d. demand is elastic over that price range. 3, Which of the following is NOT «cue conceming the price elasti a. Its sign is always negative, due to the law of demand. b. [tis a unitless, dimensionless number XD It equals the percentage change in price divided by the percentage change in quantity es demanded. 4. Temeasures the responsiveness of quantity demanded to changes in price. 4, If price elasticity of demand is calculated using the original price and quantity, then over a given ange in the demand curve price elasticity of demand differs, depending on whether price rises oF falls. the same, regardless of whether price rises or fas, ©. is equal to L d. rises as price falls ®; If price falls by | percent and quantity demanded rises by 2 percent, then the price elasticity of demand a. . is inelastic over that range bis 1/2. 9 is elastic over that range. cannot be calculated from this information. 6. If price rises and total revenue rises, then the price elasticity of demand over that range is a. elastic. : ®) inelastic. © unitary elastic. equal to 1 If price falls and over that price range demand is inelastic, total revenues will «remain constant, tt crise . fall, then rise. 8. If the demand for good A is perfectly inelastic at all prices, quantity demanded does not change as price changes. : the law of demand is violated. a b. ¢. the demand curve is vertical atthe given quantity @ Allof the above €. (CHAPTER 20; DEMAND AND SUPPLY ELAS 241 ') % Fe demand for good A is perfectly elastic, quantity demanded does not vary with price ® the demand curve is horizontal. @ the demand curve is vertical. d. the demand curve is positively sloped. ‘ 10, Which of the foliowing is NOT @ determinant of the price elasticity of demand? a. existence and closeness of substitutes b. proportion of the good to the consumer's budge © price elasticity of supply d,_ length of time allowed for adjustment to a price change é i LL. If the cross elasticity of demand between good A and good B is positive, the goods are ‘- @ substitutes 3 complements 4 © unrelated : necessities, % 12. If the cross elasticity between good A and good B is -10, then A and B are close substitutes near substitutes, strongly complementary. mildly complementary. egre 13, Baseballs and baseball bats are a. substitutes e ) ® complements. i not related goods d. necessities 14, When the income elasticity of demand for good A is calculated, a. the price of good A varies. (©) income changes, which lead to horizontal shifts in the demand curve for good A, are measured © amoyement along the demand curve for good A is measured. dA of the above 15. Analogy: A movement along a demand curve is to price elasticity of demand as a shift in the demand curve is to a. an increase in demand. b. changes in taxes or subsidies. © _ income elasticity of demand. . substitutes and complements. 16. At current prices for salt, salt is highly price a. elastic. ©) inelastic. & cross elastic. ( d. unitary elastic242_ CHAPTER 20: DEMAND AND SUPPLY ELASTICITY 17. Which of the following goods is probably the most highly income elastic? a. salt b. food & alcoholic beverages ® private education 18. A perfectly inelastic supply curve a. shows great quantity supplied responsiveness to price changes. b. is horizontal at the given price. © indicates zero quantity supplied responsiveness to price changes. dis anormal situation 19. Ifthe supply of good B is perfectly elastic and price falls, quantity supplied will a, remain unchanged. b. tise. é c_ fall. @) fallto zero, 20. Jf price rises, the quantity supplied will be greater the longer the time that elapses. b. more income elastic is the good. higher the price elasticity of demand for the good d.Allof the above MATCHING Choose the item in column (2) that best matches an item in column (1). ay Q) a, perfectly inelastic demand # h. elasticity coefficient less than 1 b. perfectly elastic demand. | i, horizontal supply curve « c. perfectly inelastic supply. J. compleientary or substitute goods perfectly elastic supply i k. quality of substitutes fe. determinant of price elasticity L horizontal demand curve £. cross-price elasticity of demand \ m. vertical demand curve B inelastic > a. vertical supply curve PROBLEMS 1. Suppose you are given the following data on the market demand and supply for CDs in a small record store, (Use the average elasticity measure.) Price Quantity demanded Quantity supplied (per week) (per week) + 54.00 50, 10 450 45 15 5.00 40 25 5.50 35 35 6.00 30 45 a. What is the equilibrium price for CDs? 5S? b. What is the price elasticity of demand over the price range $4.50 to $52 Over the range $5.50 0 $6? 12 1-77 ; ‘c. What is the price elasticity of supply over the same two ranges of price? ' 4.15- aresae CHAPTER 20: DEMAND AND SUPPLY ELASTICITY _243 44. Now suppose that most students in the area are working for the minimum wage and that the minimum wage has gone up. As a result, at each price, two more CDs per week are demanded, Calculate the price elasticity of demand over the same ranges as in part (b). /-D7 / /.67 €. After comparing your answers from parts (b) and (d), what can you conclude about the price elasticity of demand as the demand curve shifts to the right? heegme mort Pveladdito Suppose we have the foliowing information for a low-income fami Income Quantity of hamburger Quantity of steak per month demanded pet month demanded per month Period 1 $750 8 ibs 2ibs. Period 2 5950 5 Ibs. 4 bbs a, What is the income elasticity of demand for hamburger? b, What is the income elasticity of demand for steak? c. From our study of demand in an earlier chapter, we know _ is @ normal good, whereas _ is an inferior good Suppose the price of color print film has recently risen by 10 percent due to an increase in the cost of the silver that is used to make film. As 2 result, less film is being sold in the camera store Where you work. 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