43) Which of the following leads a good to have a high elasticity of supply?
I. The good must be produced using unique resources.
II. The good is produced using commonly available resources.
A) I only
B) II only
C) I and II
D) neither I nor II
44) If a good is produced using inputs for which there are no substitutes, the good’s
A) elasticity of supply is likely to be small.
B) elasticity of supply is likely to be large.
C) elasticity of demand will be small.
D) elasticity of demand will be large.
45) Refining gasoline for our cars requires a very specialized resource, crude oil. As a result, the
A) demand for gasoline is price elastic.
B) demand for gasoline is price inelastic.
C) supply of gasoline is price elastic.
D) supply of gasoline is price inelastic.
46) A determinant of the price elasticity of supply is the extent to which
A) consumers like the quality of the good.
B) the demand for the good is relatively elastic.
C) the good has many consumer substitutes.
D) production of the good uses commonly available resources.
47) Goods and services that can be produced by using commonly available resources that could
be allocated to a wide variety of alternative tasks have a supply that is
A) elastic.
B) inelastic.
C) unit elastic.
D) perfectly inelastic.
48) An important determinant of the price elasticity of supply is the extent to which
A) the commodity is a luxury or a necessity.
B) the demand for it is both price and income elastic.
C) the product has many complements or substitutes.
D) production requires the use of particularly scarce or specialized resources.
49) An important determinant of the price elasticity of supply is
A) whether the good is a durable or a nondurable.
B) the time period firms have to adjust to a new price.
C) how well consumers like the commodity.
D) the proportion of the consumer’s total budget spent on the good.
50) As time passes after a change in the price, the supply of a good or service
A) becomes more elastic.
B) becomes less elastic.
C) initially becomes more elastic and then becomes less elastic.
D) initially becomes less elastic and then becomes more elastic.
51) The elasticity of the momentary supply curve for any good always equals
A) zero.
B) one.
C) positive infinity.
D) None of the above answers is correct.
52) Suppose that the price elasticity of supply for oil is 0.1. Then, if the price of oil rises by 20
percent, the quantity of oil supplied will increase
A) by 200 percent.
B) by 20 percent.
C) by 2 percent.
D) by 0.2 percent.
53) When the price of a CD is $13 per CD, 39,000,000 CDs per year are supplied. When the
price is $15 per CD, 41,000,000 CDs per year are supplied. What is the elasticity of supply for
CDs?
A) 2.86
B) 0.35
C) 0.14
D) 0.05
54) If the long-run supply of rice is perfectly elastic, then
A) as people’s incomes rise, the quantity of rice supplied decreases.
B) as the price of corn falls, the quantity of rice demanded decreases.
C) in the long run, a large rise in the price of rice causes no change in the quantity of rice
supplied.
D) in the long run, an increase in the demand for rice leaves the price of rice unchanged.
55) The elasticity of supply does NOT depend on
A) resource substitution possibilities.
B) the fraction of income spent on the product.
C) the time elapsed since the price change.
D) none of the above because all of the factors listed affect the elasticity of supply.
56) In 2012, Canadian farmers did not suffer from drought conditions that affected the United
States, but they did enjoy the higher corn prices. Canadian farmers reacted to the higher price by
planting more corn. Suppose that the price of corn increased by 30 percent and the Canadian
farmers increased the quantity of corn they supply by 20 percent. The supply of corn is
A) perfectly inelastic.
B) unit elastic.
C) elastic.
D) inelastic.
4 News Based Questions
1) Specialty chocolate bars with a high cocoa content have been drawing a lot of attention in
gourmet circles in 2008 but the price of cocoa beans has increased more than 44 percent in this
time period. In response to the increase in the price of cocoa beans, Rogue Chocolatier has
increased the price of their gourmet chocolate bars by 20 percent. Rogue observes the quantity of
their bars sold decreased by 15 percent. Based on this news clip, what does the price elasticity of
demand for gourmet chocolate bars equal?
A) 0.75
B) 1.25
C) 1
D) 0.66
2) Specialty chocolate bars with a high cocoa content have been drawing a lot of attention in
gourmet circles in 2008 but the price of cocoa beans has increased more than 44 percent in this
time period. In response to the increase in the price of cocoa beans, Rogue Chocolatier has
increased the price of their gourmet chocolate bars by 20 percent. Rogue observes the quantity of
their bars sold decreased by 15 percent. This means the price elasticity of demand for gourmet
chocolate bars is ________.
A) elastic
B) inelastic
C) undefined
D) unit elastic
3) Specialty chocolate bars with a high cocoa content have been drawing a lot of attention in
gourmet circles in 2008 but the price of cocoa beans has increased more than 44 percent in this
time period. In response to the increase in the price of cocoa beans, Rogue Chocolatier has
increased the price of their gourmet chocolate bars by 20 percent. Rogue notices their firm’s total
revenue increased after the price increase. We can determine that the demand for Rogue’s bars is
________.
A) inelastic
B) elastic
C) perfectly inelastic
D) unit elastic
4) The cost of basics like milk, bread, potatoes and bananas has jumped in the past year, forcing
families to nix luxuries, steer away from organic goods and buy more house brands. What does
customer Elize Joseph mean when she said, “You can cut back on buying clothes and shoes, but
you can’t do that with food; you have to eat”?
A) The price elasticity of demand for food is higher than for clothes.
B) The price elasticity of demand for food is lower than for clothes.
C) Income elasticity of demand for food is positive.
D) Income elasticity of demand for food is negative.
5) “The Department of Agriculture came out today with its prediction for food price next year—
4 to 5 percent increases on top of this year’s already steep gains… Eggs, dairy products and
cereals are up 10 percent… But the USDA says another big part of the American diet has seen
only moderate price increases. Beef, poultry and pork will be up only 3 percent this year.”
Suppose the price elasticity of demand for beef is elastic. Consumption would then
A) decrease by greater than 3 percent.
B) increase by greater than 3 percent.
C) decrease by less than 3 percent.
D) increase by less than 3 percent.
6) “The Department of Agriculture came out today with its prediction for food price next year—
4 to 5 percent increases on top of this year’s already steep gains… Eggs, dairy products and
cereals are up 10 percent… But the USDA says another big part of the American diet has seen
only moderate price increases. Beef, poultry and pork will be up only 3 percent this year.” If
Raul’s demand for dairy products is unit elastic, his expenditure on dairy will
A) not change.
B) increase less than 10 percent.
C) decrease by 10 percent.
D) increase by 10 percent.
7) “The Department of Agriculture came out today with its prediction for food price next year—
4 to 5 percent increases on top of this year’s already steep gains… Eggs, dairy products and
cereals are up 10 percent… But the USDA says another big part of the American diet has seen
only moderate price increases. Beef, poultry and pork will be up only 3 percent this year.”
Calculate Jennika’s price elasticity of demand for pork if she decreases her consumption by 4
percent.
A) 1.25
B) 1
C) 0.75
D) 0.66
8) “The Department of Agriculture came out today with its prediction for food price next year—
4 to 5 percent increases on top of this year’s already steep gains… Eggs, dairy products and
cereals are up 10 percent… But the USDA says another big part of the American diet has seen
only moderate price increases. Beef, poultry and pork will be up only 3 percent this year.”
Suppose a cattle producer increased the quantity of beef he supplies by 2 percent when the price
of beef increased by 3 percent. His elasticity of supply is
A) inelastic.
B) elastic.
C) perfectly elastic.
D) perfectly inelastic.
9) The price elasticity of demand for movies is approximately 1 and 500,000 tickets are sold per
day. If the average price of a movie ticket increases by 20 percent, the number of tickets sold
each day decreases to ________.
A) 400,000
B) 300,000
C) 420,000
D) 475,000
10) Of the following items, which has the most inelastic demand?
A) food
B) fruit
C) apples
D) Gala apples
11) Apple, the consumer electronics giant, on Tuesday rolled out new versions of its popular
iPod music player. CEO Steve Jobs also unveiled cheaper models of its Touch music player, a
touchscreen-only device. An 8-gigabyte version now costs $230, down from $300. A 32-
gigabyte model costs $400, down from $500. Calculate the price elasticity of demand for a 32
gigabyte Touch player if the quantity demanded increases from 850,000 to 950,000 the month
after the price decrease.
A) 0.5
B) 1.5
C) 1
D) 0.75
12) Apple, the consumer electronics giant, on Tuesday rolled out new versions of its popular
iPad tablet. Suppose when the price of an iPad decreases by 20 percent, the number of songs
downloaded on iTunes increases by 30 percent. Based on this information iTunes are
A) a normal good.
B) an inferior good.
C) substitutes for iPads.
D) complements to iPads.
13) Apple, the consumer electronics giant, on Tuesday rolled out new versions of its popular
iPhone. The CEO decided to decrease the price of iPhones in an attempt to increase total revenue
from iPhone sales. One of his employees, Jess, disagrees and suggests that an iPhone price
increase will increase total revenue. Who is CORRECT?
A) The CEO is correct if demand is price elastic.
B) The CEO is correct if demand is price inelastic.
C) Jess is correct if demand is price elastic.
D) Jess is correct if demand is unit elastic.
14) In Brazil, the income elasticity of demand for dairy is 0.7 and for fruit and vegetables it is
0.5. These elasticities mean that if the income of Brazilians decreases, they will purchase
________ dairy and ________ fruits and vegetables.
A) less; less
B) more; more
C) more; less
D) less; more
15) Propecia was developed to treat mild to moderate male pattern hair loss in men. Marco has
hair loss and he is willing to pay any amount of money to be able to buy this drug each month.
Marco’s price elasticity of demand is ________.
A) perfectly inelastic
B) perfectly elastic
C) elastic
D) inelastic
16) Netflix is the largest online DVD rental service offering flat rate online streaming to
customers in the United States. Currently, there are approximately 8 million subscribers.
Suppose Netflix increases their average flat rate by 10 percent and observe their total revenues
increase. Based on this information, the
A) price elasticity of demand for Netflix subscription is inelastic.
B) price elasticity of demand for Netflix subscription is elastic.
C) price elasticity of demand for Netflix subscription is unit elastic.
D) income elasticity of demand for Netflix subscription is elastic.
17) Netflix is the largest online DVD rental service offering flat rate online streaming to
customers in the United States. Currently, there are approximately 8 million subscribers.
Suppose Netflix decreases its flat rate rental by 10 percent and an additional 1 million people
subscribe. This information means that Netflix’s demand is
A) elastic.
B) inelastic.
C) unit elastic.
D) perfectly elastic.
18) Redbox rents DVDs for $1 per day via self-service kiosks located across the United States.
In 2007, each kiosk averaged about 50 rentals per day. Suppose Redbox increases their daily
price to $1.50. What is the price elasticity of demand if rentals decrease by 20 per day?
A) 1.25
B) 1.33
C) 1
D) 0.8
19) Redbox rents DVDs for $1 per day via self-service kiosks located across the United States.
The CFO of Redbox wants to identify how responsive consumers are to an increase or decrease
in the daily price of a rental. The economic concept the CFO wants to understand is
A) price elasticity of demand.
B) elasticity of supply.
C) changes in demand.
D) changes in supply.
20) Grape juice prices increased by 20 percent in 2007. Suppose in response grape growers did
not increase or decrease their grape production. The elasticity of supply is best described as
A) perfectly inelastic.
B) perfectly elastic.
C) inelastic.
D) elastic.
21) California is the sole producer of almonds in the United States. Suppose the price for a pound
of almonds has increased during the past year. It is also predicted that almond prices will remain
high. Over time, we predict that the
A) elasticity of supply will increase.
B) elasticity of supply will decrease.
C) elasticity of supply will remain constant.
D) elasticity of supply will increase and then decrease.
22) Most college courses have a required textbook. Previously, textbooks were only available
through the campus bookstore, but now, these texts can be purchased from online retailers, other
bookstores, or students can buy an electronic version of the text. Because of this, we can predict
the price elasticity of demand for textbooks from the campus bookstore is ________.
A) increasing
B) decreasing
C) staying the same
D) increasing and then decreasing
5 Essay Questions
1) “The price elasticity of demand is a measure of how sensitive demanders are to changes in the
price of a product.” Is this statement true or false?
2) What is the price elasticity of demand and how is it measured?
3) When does a decrease in supply raise the price more: When demand is elastic or when
demand is inelastic? When OPEC decreases the supply of oil, the price of gasoline skyrockets.
Hence is the demand for gasoline elastic or inelastic?
4) What are the three cases for the price elasticity of demand? Briefly define each.
5) If the percentage change in quantity demanded is greater than the percentage change in price,
can you determine if the demand is elastic, unit elastic, or inelastic? Explain your answer.
6) Does the fact that the price elasticity for food is inelastic violate the law of demand?
7) What does a horizontal demand curve indicate about the price elasticity of demand?
8) What happens to the price elasticity of demand moving down along a downward-sloping,
linear demand curve?
9) “The price elasticity of demand is constant along a straight-line demand curve.” Is this
statement true or false?
10) What effect does a price increase have on producers’ total revenue?
11) Explain the total revenue test.
12) A local pizzeria charges $10 for a pizza. The owner of the pizzeria wants to increase the
company’s total revenue. A recent market research shows that the price elasticity of demand for
his pizza is about 1.5. Should the pizzeria lower or raise the price? Explain your answer.
13) If a decrease in price increases total revenue, what can you determine about the elasticity of
demand for the good?
14) The demand for oil is inelastic. So, does an increase in the price of oil mean an increase in
total revenue or a decrease in total revenue for oil producers?
15) If the owner of a local movie theater wanted to increase the theater’s total revenue from
movie admissions, what should the owner do with ticket prices?
16) If a college wanted to increase its revenues from tuition payments, should it increase the
tuition of day and evening students alike?
17) Can electric utility companies always raise their total revenue by raising their rates?
18) You are the brand manager of Crest toothpaste and you observe that when you increase the
price of Crest, your total revenue increases. How is that possible?
19) What factors determine the magnitude of the price elasticity of demand?
20) “The fewer the number of substitutes for a good, the more elastic the demand for that good.”
Is the previous statement true or false?
21) Explain why the number of substitutes influences the price elasticity of demand.
22) Which demand is more price elastic: The demand for all personal computers or the demand
for Dell computers? Explain your answer.
23) Water is considered a necessity. So, is the demand for water elastic or inelastic?
24) Studies have shown that the price elasticity of demand for necessities, such as food, are
higher in developing countries and lower in developed countries. What is the reason for this
difference in elasticity?
25) What kind of elasticity is relevant when you are trying to figure out how a price cut by the
burger shop next door will affect the demand for your pizza? Explain.
26) The price elasticity of demand is always positive, as is the price elasticity of supply. Is the
cross elasticity of demand always positive? Explain your answer.
27) Explain why the cross elasticity of demand for substitute goods is positive and the cross
elasticity of demand for complements is negative.
28) If cable TV subscriptions and movie rentals are substitutes for each other, what is the effect
in each of these markets of an increase in wages for people who work for the cable TV
company? Use your analysis to determine the sign of the cross elasticity of demand between the
quantity of movie rentals and the price of cable TV.
29) “The number of substitutes available affects the price elasticity of demand for a good. So one
way to know if apples and oranges are substitutes for each other is to look at the price elasticity
of demand for each.” Comment on this assertion.
30) How are the cross elasticity of demand and income elasticity of demand similar and how are
they different from the price elasticity of demand?
31) During a recession when people’s incomes drop, grocery chains experience much smaller
declines in sales than do upscale department stores. Explain this phenomenon using the concept
of elasticity.
32) Joe’s monthly income increases from $1,000 to $2,000. As a result, he decreases the number
of his fast food meals from 20 to 5 per month. To Joe, are fast-food meals a normal or an inferior
good? What kind of elasticity can tell the answer? Explain.
33) The income elasticity of demand for store brands of soda (that is, non-name brands) is
negative. What does this fact indicate about consumers’ perceptions about the store brands?
34) What is the price elasticity of supply? List and briefly define three cases of the price
elasticity of supply.
35) Explain why the availability of resources affects the elasticity of supply.
36) If addiction makes cigarettes such a necessity, is it correct to think that cigarettes are
perfectly inelastic in both supply and demand.
37) Is there any set of relationships between price elasticity of supply and total revenue similar to
the relationships between price elasticity of demand and total revenue?
6 Numeric and Graphing Questions
1) Suppose the price of flour increases from $0.80 to $1.00 a pound and the quantity demanded
decreases from 100 pounds to 95 pounds. Using the midpoint method, what is the price elasticity
of demand for flour? Is the demand for flour elastic or inelastic?