True / False
1. Measures of elasticity enhance our ability to study the magnitudes of changes in quantities in response to changes in
prices or income.
a.
True
b.
False
2. Elasticity measures how responsive quantity is to changes in price.
a.
True
b.
False
3. The price elasticity of demand is defined as the percentage change in quantity demanded divided by the percentage
change in price.
a.
True
b.
False
4. The price elasticity of demand is defined as the percentage change in price divided by the percentage change in quantity
demanded.
a.
True
b.
False
5. The demand for bread is likely to be more elastic than the demand for solid-gold bread plates.
a.
True
b.
False
6. In general, demand curves for necessities tend to be price elastic.
a.
True
b.
False
7. In general, demand curves for luxuries tend to be price elastic.
a.
True
b.
False
8. Goods with close substitutes tend to have more elastic demands than do goods without close substitutes.
a.
True
b.
False
9. The demand for Rice Krispies is more elastic than the demand for cereal in general.
a.
True
b.
False
10. The demand for soap is more elastic than the demand for Dove soap.
a.
True
b.
False
11. Necessities tend to have inelastic demands, whereas luxuries tend to have elastic demands.
a.
True
b.
False
12. The demand for desserts tends to be more inelastic than the demand for red velvet cake.
a.
True
b.
False
13. Demand is inelastic if the price elasticity of demand is greater than 1.
a.
True
b.
False
14. Demand for a good is said to be inelastic if the quantity demanded increases substantially when the price falls by a
small amount.
a.
True
b.
False
15. Demand for a good is said to be inelastic if the quantity demanded increases slightly when the price falls by a large
amount.
a.
True
b.
False
16. 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.
a.
True
b.
False
17. Even the demand for a necessity such as gasoline will respond to a change in price, especially over a longer time
horizon.
a.
True
b.
False
18. 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.
a.
True
b.
False
19. 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.
a.
True
b.
False
20. If the price of calculators increases by 15% and the quantity demanded per week falls by 45% as a result, then the
price elasticity of demand is 3.
a.
True
b.
False
21. If we observe that when the price of chocolate increases by 10%, quantity demanded falls by 5%, then the demand for
chocolate is price inelastic.
a.
True
b.
False
22. If we observe that when the price of chocolate decreases by 10%, quantity demanded increases by 25%, then the
demand for chocolate is price elastic.
a.
True
b.
False
23. The flatter the demand curve that passes through a given point, the more inelastic the demand.
a.
True
b.
False
24. The flatter the demand curve that passes through a given point, the more elastic the demand.
a.
True
b.
False
25. A linear, downward-sloping demand curve has a constant elasticity but a changing slope.
a.
True
b.
False
26. Price elasticity of demand along a linear, downward-sloping demand curve increases as price falls.
a.
True
b.
False
27. Price elasticity of demand along a linear, downward-sloping demand curve decreases as price falls.
a.
True
b.
False
28. The midpoint method is used to calculate elasticity between two points because it gives the same answer regardless of
the direction of the change.
a.
True
b.
False
29. An advantage of using the midpoint method to calculate the price elasticity of demand is that it uses the metric system.
a.
True
b.
False
30. If demand is perfectly elastic, the demand curve is horizontal, and the price elasticity of demand equals 1.
a.
True
b.
False
31. If demand is perfectly inelastic, the demand curve is vertical, and the price elasticity of demand equals 0.
a.
True
b.
False
32. If the price elasticity of demand is equal to 0, then demand is unit elastic.
a.
True
b.
False
33. If the price elasticity of demand is equal to 1, then demand is unit elastic.
a.
True
b.
False
34. 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 elastic.
a.
True
b.
False
35. Along the elastic portion of a linear demand curve, total revenue rises as price rises.
a.
True
b.
False
36. If a firm is facing elastic demand, then the firm should decrease price to increase revenue.
a.
True
b.
False
37. If a firm is facing inelastic demand, then the firm should decrease price to increase revenue.
a.
True
b.
False
38. When demand is inelastic, a decrease in price increases total revenue.
a.
True
b.
False
39. The income elasticity of demand is defined as the percentage change in quantity demanded divided by the percentage
change in income.
a.
True
b.
False
40. The income elasticity of demand is defined as the percentage change in quantity demanded divided by the percentage
change in price.
a.
True
b.
False
41. Normal goods have negative income elasticities of demand, while inferior goods have positive income elasticities of
demand.
a.
True
b.
False
42. If the income elasticity of demand for a good is negative, then the good must be an inferior good.
a.
True
b.
False
43. 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.
a.
True
b.
False
44. If the cross-price elasticity of demand for two goods is negative, then the two goods are substitutes.
a.
True
b.
False
45. If the cross-price elasticity of demand for two goods is negative, then the two goods are complements.
a.
True
b.
False
46. Cross-price elasticity of demand measures how the quantity demanded of one good changes as the price of another
good changes.
a.
True
b.
False
47. Cross-price elasticity is used to determine whether goods are inferior or normal goods.
a.
True
b.
False
48. Cross-price elasticity is used to determine whether goods are substitutes or complements.
a.
True
b.
False
49. The cross-price elasticity of garlic salt and onion salt is –2, which indicates that garlic salt and onion salt are
substitutes.
a.
True
b.
False
50. The cross-price elasticity of demand for bacon and eggs likely would be negative because bacon and eggs are
complements for many people.
a.
True
b.
False
51. Supply and demand both tend to be more elastic in the long run and more inelastic in the short run.
a.
True
b.
False
52. Price elasticity of supply measures how much the quantity supplied responds to changes in the price.
a.
True
b.
False
53. If the price elasticity of supply is 2 and the quantity supplied decreases by 6%, then the price must have decreased by
3%.
a.
True
b.
False
54. 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.
a.
True
b.
False
55. Supply tends to be more elastic in the short run and more inelastic in the long run.
a.
True
b.
False
56. 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.
a.
True
b.
False
57. If a supply curve is horizontal, then supply is said to be perfectly elastic, and the price elasticity of supply approaches
infinity.
a.
True
b.
False
58. 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 2.
a.
True
b.
False
59. 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 2.
a.
True
b.
False
60. A government program that reduces land under cultivation hurts farmers but helps consumers.
a.
True
b.
False
61. 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 corn.
a.
True
b.
False
62. A discovery that increases wheat yields per acre hurts farmers by increasing supply and lowering their total revenues.
a.
True
b.
False
63. A discovery that increases wheat yields per acre helps farmers by increasing both supply and total revenues.
a.
True
b.
False
64. 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.
a.
True
b.
False
65. 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 run.
a.
True
b.
False
66. Drug interdiction, which reduces the supply of drugs, may decrease drug-related crime because the demand for drugs
is inelastic.
a.
True
b.
False
67. 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
demanded.
a.
True
b.
False
68. 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 demanded.
a.
True
b.
False
69. Necessities tend to have elastic demands, whereas luxuries tend to have inelastic demands.
a.
True
b.
False
70. Demand is elastic if the price elasticity of demand is greater than 1.
a.
True
b.
False
71. If we observe that when the price of chocolate candy bars increases by 10%, quantity demanded decreases total by
10%, then the demand for chocolate candy bars is unit price elastic.
a.
True
b.
False
72. If a firm that produces honey is facing elastic demand, then the firm would decrease price to increase revenue.
a.
True
b.
False
73. Normal goods have positive income elasticities of demand, while inferior goods have negative income elasticities of
demand.
a.
True
b.
False
74. If we observe that when a consumer’s income rises by 10%, the quantity demanded of chocolate candy bars increases
by 15%, then chocolate candy bars are are a normal good for that consumer.
a.
True
b.
False
75. If the cross-price elasticity of demand for two goods is negative, then the two goods are substitutes.
a.
True
b.
False
76. If the price elasticity of supply is 0.5 and the quantity supplied decreases by 6%, then the price must have decreased
by 3%.
a.
True
b.
False
77. Helen’s Honey Hut supplies 20 jars of honey per week when the price of honey is $6 per jar and supplies 30 jars per
week when the price of is $8 per jar, so the price elasticity of supply over this price range is 1.4.
a.
True
b.
False
78. A government program that reduces land under cultivation can help farmers by raising prices but hurts consumers.
a.
True
b.
False