Elasticity and Its Application 1237
Figure 5-13
10.
Refer to Figure 5-13. Between point A and point B, price elasticity of demand using the
midpoint method is equal
to
a. 0.71.
b. 0.85.
c. 1.18.
d. 1.40.
11.
Refer to Figure 5-13. Between point A and point B on the graph, demand is
a.
perfectly elastic.
b.
inelastic.
c.
unit elastic.
d.
elastic, but not perfectly elastic.
12.
Income elasticity of demand measures how
a.
the quantity demanded changes as consumer income changes.
b.
consumer purchasing power is affected by a change in the price of a good.
c.
the price of a good is affected when there is a change in consumer income.
d.
many units of a good a consumer can buy given a certain income level.
13.
To determine whether a good is considered normal or inferior, one could examine the value of the
a.
income elasticity of demand for that good.
b.
price elasticity of demand for that good.
c.
price elasticity of supply for that good.
d.
cross-price elasticity of demand for that good.
14.
Suppose good X has a positive income elasticity of demand. This implies that good X could be
(i)
a normal good.
(ii)
a necessity.
(iii)
an inferior good.
(iv)
a luxury.
a.
(i) only
b.
(i) and (ii) only
c.
(i), (ii), and (iv) only
d.
(iii) only
15.
Suppose good X has a negative income elasticity of demand. This implies that good X is
a.
a normal good.
b.
a necessity.
c.
an inferior good.
d.
a luxury.
16.
If an increase in income results in a decrease in the quantity demanded of a good, then for that
good, the
a.
cross-price elasticity of demand is negative.
b.
price elasticity of demand is elastic.
c.
income elasticity of demand is negative.
d.
income elasticity of demand is positive.
17.
Which of the following should be held constant when calculating an income elasticity of demand?
a.
the quantity of the good demanded
b.
the price of the good
c.
income
d.
All of the above should be held constant.
18.
Which of the following should be held constant when calculating an income elasticity of demand?
a.
the price of the good
b.
prices of related goods
c.
tastes
d.
All of the above should be held constant.
19.
Necessities such as food and clothing tend to have
a.
high price elasticities of demand and high income elasticities of demand.
b.
high price elasticities of demand and low income elasticities of demand.
c.
low price elasticities of demand and high income elasticities of demand.
d.
low price elasticities of demand and low income elasticities of demand.
20.
For which of the following goods is the income elasticity of demand likely highest?
a.
water
b.
diamonds
c.
hamburgers
d.
housing
21.
For which of the following goods is the income elasticity of demand likely highest?
a.
natural gas
b.
doctor’s visits
c.
hamburgers
d.
boats
22.
For which of the following goods is the income elasticity of demand likely lowest?
a.
subscriptions to premium movie channels through the local cable television provider
b.
hi–definition DVD players
c.
champagne
d.
housing
23.
For which of the following goods is the income elasticity of demand likely lowest?
a.
water
b.
sapphire pendant necklaces
c.
filet mignon steaks
d.
fresh fruit
24.
For which of the following types of goods would the income elasticity of demand be positive and
relatively large?
a.
all inferior goods
b.
all normal goods
c.
goods for which there are many complements
d.
luxuries
25.
The income elasticity of demand for caviar tends to be
a.
high because caviar is relatively expensive.
b.
low because caviar is packaged in small containers.
c.
high because buyers generally feel that they can do without it.
d.
low because it is almost always in short supply.
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
26.
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?
a.
0.56
b.
0.75
c.
1.33
d.
1.80
1246 Elasticity and Its Application
27.
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?
a.
0.56
b.
0.75
c.
1.33
d.
1.80
28.
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?
a.
0.00
b.
0.50
c.
1.00
d.
1.50
29.
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?
a.
0.00
b.
0.41
c.
1.00
d.
2.45
30.
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?
a.
0.00
b.
0.41
c.
1.00
d.
2.45
Elasticity and Its Application 1249
Table 5-8
Income
Quantity of Good X
Purchased
$30,000
2
$40,000
6
31.
Refer to Table 5-8. Using the midpoint method, what is the income elasticity of demand for
good X?
a. -3.5
b. –0.29
c.
0.29
d.
3.5
32.
Refer to Table 5-8. Using the midpoint method, the income elasticity of demand for good Y is
a.
2.33, and good Y is a normal good.
b.
-2.33, and good Y is an inferior good.
c.
-0.43, and good Y is a normal good.
d.
-0.43, and good Y is an inferior good.
33.
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
a.
increase by 2.5%, and X is an inferior good.
b.
decrease by 2.5% and X is a normal good.
c.
increase by 10% and X is an inferior good.
d.
decrease by 10% and X is a normal good.
34.
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
a.
considers athletic shoes to be necessities.
b.
considers athletic shoes to be inferior goods.
c.
considers athletic shoes to be normal goods.
d.
has a low price elasticity of demand for athletic shoes.
35.
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
a.
0.32, and Tess regards handbags as inferior goods.
b.
0.32, and Tess regards handbags as normal goods.
c.
3.17, and Tess regards handbags as inferior goods.
d.
3.17, and Tess regards handbags as normal goods.
36.
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
a.
0.43, and Jim regards tickets to sporting events as inferior goods.
b.
0.43, and Jim regards tickets to sporting events as normal goods.
c.
2.33, and Jim regards tickets to sporting events as inferior goods.
d.
2.33, and Jim regards tickets to sporting events as normal goods.
37.
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
a.
negative, and dog biscuits are a normal good.
b.
negative, and dog biscuits are an inferior good.
c.
positive, and dog biscuits are an inferior good.
d.
positive, and dog biscuits are a normal good.
38.
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
a.
positive, so Joan considers hamburger to be an inferior good.
b.
positive, so Joan considers hamburger to be a normal good and a necessity.
c.
negative, so Joan considers hamburger to be an inferior good.
d.
negative, so Joan considers hamburger to be a normal good but not a necessity.
39.
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
a.
be negative, and your roommate‘s would be positive.
b.
be positive, and your roommate’s would be negative.
c.
be zero, and your roommate‘s would approach infinity.
d.
approach infinity, and your roommate‘s would be zero.
40.
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
a.
be negative and your roommate’s would be positive.
b.
be positive and your roommate’s would be negative.
c.
be zero and your roommate‘s would approach infinity.
d.
approach infinity and your roommate‘s would be zero.
41.
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 mac-n-cheese, John’s
a.
is negative, and Bethany’s is positive.
b.
is positive, and Bethany’s is negative.
c.
is zero, and Bethany’s approaches infinity.
d.
approaches infinity, and Bethany’s is zero.
42.
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
a.
is negative, and Laura’s is positive.
b.
is positive, and Laura’s is negative.
c.
is zero, and Laura’s is positive.
d.
is zero, and Laura’s is negative.
43.
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
a.
negative, and the good is an inferior good.
b.
negative, and the good is a normal good.
c.
positive, and the good is a normal good.
d.
positive, and the good is an inferior good.
44.
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
a.
negative, and the good is an inferior good.
b.
negative, and the good is a normal good.
c.
positive, and the good is an inferior good.
d.
positive, and the good is a normal good.
45.
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
a.
2 percent more concerts.
b.
5 percent more concerts.
c.
10 percent more concerts.
d.
20 percent more concerts.
46.
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
a.
and soy-burgers are both normal goods with income elasticities equal to 1.
b.
is an inferior good and soy-burgers are normal goods; both have income elasticities of 1.
c.
is an inferior good with an income elasticity of -1 and soy-burgers are normal goods with an
income elasticity
of 1.
d.
and soy-burgers are both inferior goods with income elasticities equal to –1.