Chapter 5/Elasticity and Its Application 25 Chapter 5 Elasticity and Its Application If price elasticity of demand is 2.0, this implies that consumers would a buy twice as much of the good if price falls by 10 percent b require a 2 percent cut in price to raise quantity demanded of the good by 1 percent c buy 2 percent more of the good in response to a 1 percent cut in price d require at least a $2 increase in price before showing any response to the price increase If the price elasticity of demand within the price range from $1 to $1.25 for carrots is 0.79 and for radishes is 1.6, then within that price range a carrots are more price elastic than radishes b radishes are more price elastic than carrots c carrots and radishes must be substitute goods d carrots and radishes must be complementary goods Sue’s Bagel Shop wants to estimate how responsive bagels are to a change in cream cheese prices. To accomplish this task, which of the following data would NOT be needed? a percentage change in bagel price b original price of cream cheese c new quantity of bagels sold d original quantity of bagels sold If Weiskamp TShirt Co. lowers its price from $6 to $5 and finds that students increase their quantity demanded from 400 to 600 Tshirts, then the demand for Weiskamp Tshirts within this price range is a price inelastic b price elastic 26 Chapter 5/Elasticity and Its Application c unit elastic d cross elastic Demand for which of the following goods is the most likely to be (nearly) perfectly elastic? a emergency surgery b Ford automobiles c Farmer Ben’s wheat d diamonds The slope of the demand curve is not the same as the price elasticity of demand because the slope of a demand curve a compares percentage changes in quantity demanded and price b compares absolute changes in quantity demanded and price c obeys the law of demand d is not constant when the demand curve is linear The cross elasticity of demand for substitute goods must be a greater than one b less than one c zero d greater than zero A 5 percent increase in the price of sugar reduces sugar consumption by about 10 percent. The increase causes households to a spend more on sugar b spend less on sugar c spend the same amount on sugar Chapter 5/Elasticity and Its Application 27 d consume more goods like coffee and tea that are complements of sugar In this figure, the slope of the demand curve a has a constant value of –2 b is higher between points T and U than between points V and W c is lower between points T and U than between points V and W d matches the value of the price elasticity of demand at each point 10 In this figure, the price elasticity of demand between $12 and $6 using the midpoint method is a –.5 b –.82 c –1.22 d –2.00 11 As a result of heavy spring rains in the Midwestern states, the corn crop declined sharply. If corn growers experienced an increase in sales revenue, the demand for corn must be a price elastic b price inelastic c unitary elastic d perfectly inelastic 12 The U.S. Post Office finds that it now has extra costs associated with decontaminating first class mail for anthrax. It is considering a rate hike, but it will only be successful in raising more revenue to pay for these additional costs if a there are many substitutes for first class mail service b no anthrax is found on the mail 28 Chapter 5/Elasticity and Its Application c the demand for first class mail service is inelastic d the rate increase is a very large one 13 Suppose that the elasticity of supply of lawn mowers is 1.5. If the price of lawn mowers rises 5 percent, the quantity supplied of lawn mowers would a decline 7.5 percent b rise 7.5 percent c rise 1.5 percent d rise 0.3 percent 14 A decrease in supply will raise the equilibrium price most when demand is a relatively elastic b relatively inelastic c unit elastic d perfectly elastic 15 In this diagram, the price elasticity of supply between points A and B is a b .33 c .66 d 3.33 16 In this diagram, the slope of the supply curve between points A and B is Chapter 5/Elasticity and Its Application 29 a b c d .33 .66 3.33 17 A perfectly inelastic supply curve represents a a product supply that is extremely responsive to a price change b product with a constant price, regardless of the quantity offered for sale c product in abundant supply d fixed supply of a good 18 Elasticity of supply becomes elastic over time because a less; of the growing scarcity of resources b less; suppliers have more time to acquire additional resources to achieve desired capacity c more; demand becomes more inelastic d more; suppliers have more time to acquire additional resources to achieve desired capacity 19 In which of the markets listed below would you expect the least elastic response from suppliers? a fast food b soft drink c road building d Picasso paintings 20 If the price elasticity of supply equals zero, this implies that a suppliers can easily change quantity supplied when price changes 30 Chapter 5/Elasticity and Its Application b the supply curve is perfectly vertical c the percentage change in price of the good supplied is zero d the percentage change in quantity supplied equals the percentage change in price 21 Elasticity of supply for the long run is a always greater than the longrun price elasticity of demand b always zero c perfectly inelastic d always greater than the shortrun elasticity of supply 22 The supply of food a is subject to significant technological advance in the long run b is characterized by a large price elasticity of demand c has been decreasing over the long run d can be represented by a horizontal supply curve 23 One response to increased oil prices that reflects longrun elasticity and not shortrun elasticity is a gasoline rationing b shorter family vacations c smaller cars d cooler homes and offices in winter 24 A government seeking to raise revenue would be most likely to tax a good with a a high income elasticity of demand b low crossprice demand elasticity c high price elasticity of demand d low price elasticity of demand 25 When comparing price elasticities of demand for gasoline in the long run to the short run, what can we say about the longrun elasticities? a Within every price range, the price elasticity of demand for gasoline is more elastic in the long run b Consumers are less sensitive to changes in the price of gasoline in the long run c Within every price range, the price elasticity of demand is less elastic in the long run d The price elasticity of demand for gasoline tends to be unit elastic in the long run 26 If the fines and jail time for dealing illegal drugs were reduced, we would expect a an increased demand for illegal drugs b an increased supply of illegal drugs, a lower price, and higher quantity traded c a decreased supply of illegal drugs, a higher price, and lower quantity traded d no change in the market for illegal drugs because buyers and sellers believe they won’t get caught ...26 Chapter 5/Elasticity and Its Application c unit elastic d cross elastic Demand for which of the following goods is the most likely to be (nearly) perfectly elastic?... increase causes households to a spend more on sugar b spend less on sugar c spend the same amount on sugar Chapter 5/Elasticity and Its Application 27 d consume more goods like coffee and tea that are complements of sugar... there are many substitutes for first class mail service b no anthrax is found on the mail 28 Chapter 5/Elasticity and Its Application c the demand for first class mail service is inelastic