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Chapter 5 - M/C with answers
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9/12/24, 3:47 Chapter 5 - M/C withPM answers
Chapter 5
Elasticity and Its Application
TRUE/FALSE
1. Elasticity measures how responsive quantity is to changes in
price. ANS: T
2. Measures of elasticity enhance our ability to study the magnitudes of
changes. ANS: T
3. The demand for bread is likely to be more elastic than the demand for solid-gold bread
plates. ANS: F
4. In general, demand curves for necessities tend to be price
elastic. ANS: F
5. In general, demand curves for luxuries tend to be price
elastic. ANS: T
6. Necessities tend to have inelastic demands, whereas luxuries have elastic
demands. ANS: T
7. Goods with close substitutes tend to have more elastic demands than do goods without close
substitutes. ANS: T
8. The demand for Rice Krispies is more elastic than the demand for cereal in
general. ANS: T
9. The demand for soap is more elastic than the demand for Dove
soap. ANS: F
10. The demand for gasoline will respond more to a change in price over a period of five weeks than over a
period of five years.
ANS: F
11. Even the demand for a necessity such as gasoline will respond to a change in price, especially over a
longer time horizon.
ANS: T
12. The price elasticity of demand is defined as the percentage change in quantity demanded divided by
the percentage change in price.
ANS: T
13. The price elasticity of demand is defined as the percentage change in price divided by the percentage
change in quantity demanded.
ANS: F
32
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PM answers
33 Chapter 5 /Elasticity and Its Application
14. 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.
ANS: F
15. 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.
ANS: T
16. 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 3.
ANS: T
17. Demand is inelastic if the price elasticity of demand is greater than
1. ANS: F
18. A linear, downward-sloping demand curve has a constant elasticity but a changing
slope. ANS: F
19. Price elasticity of demand along a linear, downward-sloping demand curve increases as price
falls. ANS: F
20. If the price elasticity of demand is equal to 0, then demand is unit
elastic. ANS: F
21. If the price elasticity of demand is equal to 1, then demand is unit
elastic. ANS: T
22. Demand for a good is said to be inelastic if the quantity demanded increases substantially when the price
falls by a small amount.
ANS: F
23. The midpoint method is used to calculate elasticity between two points because it gives the same
answer regardless of the direction of the change.
ANS: T
24. The flatter the demand curve that passes through a given point, the more inelastic the
demand. ANS: F
25. The flatter the demand curve that passes through a given point, the more elastic the
demand. ANS: T
26. If demand is perfectly inelastic, the demand curve is vertical, and the price elasticity of demand equals
0. ANS: T
27. If demand is perfectly elastic, the demand curve is horizontal, and the price elasticity of demand equals
1. ANS: F
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PM answers
Chapter 5 /Elasticity and Its Application 34
28. Along the elastic portion of a linear demand curve, total revenue rises as price
rises. ANS: F
29. If a firm is facing elastic demand, then the firm should decrease price to increase
revenue. ANS: T
30. If a firm is facing inelastic demand, then the firm should decrease price to increase
revenue. ANS: F
31. When demand is inelastic, a decrease in price increases total
revenue. ANS: F
32. The income elasticity of demand is defined as the percentage change in quantity demanded divided by
the percentage change in income.
ANS: T
33. The income elasticity of demand is defined as the percentage change in quantity demanded divided by
the percentage change in price.
ANS: F
34. Normal goods have negative income elasticities of demand, while inferior goods have positive
income elasticities of demand.
ANS: F
35. If the income elasticity of demand for a good is negative, then the good must be an inferior
good. ANS: T
36. If the cross-price elasticity of demand for two goods is negative, then the two goods are
substitutes. ANS: F
37. If the cross-price elasticity of demand for two goods is negative, then the two goods are
complements. ANS: T
38. Cross-price elasticity of demand measures how the quantity demanded of one good changes as the price
of another good changes.
ANS: T
39. Cross-price elasticity is used to determine whether goods are inferior or normal
goods. ANS: F
40. Cross-price elasticity is used to determine whether goods are substitutes or
complements. ANS: T
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35 Chapter 5 /Elasticity and Its Application
41. The cross-price elasticity of garlic salt and onion salt is -2, which indicates that garlic salt and onion salt
are substitutes.
ANS: F
42. Price elasticity of supply measures how much the quantity supplied responds to changes in the
price. ANS: T
43. Supply and demand both tend to be more elastic in the long run and more inelastic in the short
run. ANS: T
44. If the price elasticity of supply is 2 and the quantity supplied decreases by 6%, then the price must
have decreased by 3%.
ANS: T
45. 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 price.
ANS: F
46. Supply tends to be more elastic in the short run and more inelastic in the long
run. ANS: F
TOP: Price elasticity of supply
47. 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 0.33.
ANS: F
48. If a supply curve is horizontal, then supply is said to be perfectly elastic, and the price elasticity of
supply approaches infinity.
ANS: T
49. A government program that reduces land under cultivation hurts farmers but helps
consumers. ANS: F
50. 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 run.
ANS: T
51. Drug interdiction, which reduces the supply of drugs, may decrease drug-related crime because the demand
for drugs is inelastic.
ANS: F
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