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348 ? Chapter 5 /Elasticity and Its Application

245. If two goods are substitutes, their cross-price elasticity will be

a. positive. b. negative. c. zero.

d. equal to the difference between the income elasticities of demand for the two goods.

ANS: A

NAT: Analytic MSC: Interpretive

DIF: 2

LOC: Elasticity

REF: 5-1

TOP: Cross-price elasticity of demand

246. If two goods are complements, their cross-price elasticity will be

a. positive. b. negative. c. zero.

d. equal to the difference between the income elasticities of demand for the two goods.

ANS: B

NAT: Analytic MSC: Interpretive

DIF: 2

LOC: Elasticity

REF: 5-1

TOP: Cross-price elasticity of demand

247. If, for two goods, the cross-price elasticity of demand is 1.25, then

a. the two goods are luxuries. b. the two goods are substitutes.

c. one of the goods is normal and the other good is inferior.

d. the demand for one of the goods conforms to the law of demand, but the demand for the other good

violates the law of demand.

ANS: B

NAT: Analytic MSC: Interpretive

DIF: 2

LOC: Elasticity REF: 5-1

TOP: Cross-price elasticity of demand

Sec02 - Elasticity and Its Application - The Elasticity of Supply

MULTIPLE CHOICE1.

A key determinant of the price elasticity of supply is the a. time horizon.

b. income of consumers. c. price elasticity of demand.

d. importance of the good in a consumer’s budget.

DIF: 1

LOC: Elasticity

ANS: A

NAT: Analytic MSC: Interpretive2.

REF: 5-2

TOP: Price elasticity of supply

A key determinant of the price elasticity of supply is the a. number of close substitutes for the good in question. b. definition of the market. c. length of the time period.

d. extent to which buyers alter their quantities demanded in response to changes in their incomes.

DIF: 2

LOC: Elasticity

ANS: C

NAT: Analytic MSC: Interpretive3.

REF: 5-2

TOP: Price elasticity of supply

A key determinant of the price elasticity of supply is

a. the ability of sellers to change the price of the good they produce. b. the ability of sellers to change the amount of the good they produce. c. how responsive buyers are to changes in sellers' prices. d. the slope of the demand curve.

DIF: 2

LOC: Elasticity

ANS: B

NAT: Analytic MSC: Interpretive

REF: 5-2

TOP: Price elasticity of supply

Chapter 5 /Elasticity and Its Application ? 349

4.

The supply of a good will be more elastic, the

a. more the good is considered a luxury.

b. broader is the definition of the market for the good. c. larger the number of close substitutes for the good. d. longer the time period being considered.

DIF: 2

LOC: Elasticity

ANS: D

NAT: Analytic MSC: Interpretive5.

REF: 5-2

TOP: Price elasticity of supply

The price elasticity of supply measures how much

a. the quantity supplied responds to changes in input prices.

b. the quantity supplied responds to changes in the price of the good. c. the price of the good responds to changes in supply. d. sellers respond to changes in technology.

DIF: 1

LOC: Elasticity

ANS: B

NAT: Analytic MSC: Definitional6.

REF: 5-2

TOP: Price elasticity of supply

The price elasticity of supply measures how responsive a. sellers are to a change in price.

b. sellers are to a change in buyers' income. c. buyers are to a change in production costs. d. equilibrium price is to a change in supply.

DIF: 1

LOC: Elasticity

ANS: A

NAT: Analytic MSC: Definitional7.

REF: 5-2

TOP: Price elasticity of supply

The price elasticity of supply measures how responsive a. equilibrium price is to equilibrium quantity. b. sellers are to a change in buyers' income. c. sellers are to a change in price.

d. consumers are to the number of substitutes.

DIF: 1

LOC: Elasticity

ANS: C

NAT: Analytic MSC: Definitional8.

REF: 5-2

TOP: Price elasticity of supply

If the quantity supplied responds only slightly to changes in price, then a. supply is said to be elastic. b. supply is said to be inelastic.

c. an increase in price will not shift the supply curve very much.

d. even a large decrease in demand will change the equilibrium price only slightly.

DIF: 2

LOC: Elasticity

ANS: B

NAT: Analytic MSC: Interpretive9.

REF: 5-2

TOP: Price elasticity of supply

Frequently, in the short run, the quantity supplied of a good is a. impossible, or nearly impossible, to measure. b. not very responsive to price changes.

c. determined by the quantity demanded of the good.

d. determined by psychological forces and other non-economic forces.

DIF: 2

LOC: Elasticity

ANS: B

NAT: Analytic MSC: Interpretive

REF: 5-2

TOP: Price elasticity of supply

350 ? Chapter 5 /Elasticity and Its Application

10. In the long run, the quantity supplied of most goods

a. will increase in almost all cases, regardless of what happens to price. b. cannot respond at all to a change in price.

c. can respond to a change in price, but the change is almost always inconsequential. d. can respond substantially to a change in price.

ANS: D

NAT: Analytic MSC: Interpretive

DIF: 2

LOC: Elasticity

REF: 5-2

TOP: Price elasticity of supply

11. When a supply curve is relatively flat,

a. sellers are not at all responsive to a change in price.

b. the equilibrium price changes substantially when the demand for the good changes. c. the supply is relatively elastic. d. the supply is relatively inelastic.

ANS: C

NAT: Analytic MSC: Interpretive

DIF: 2

LOC: Elasticity

REF: 5-2

TOP: Price elasticity of supply

12. When a supply curve is relatively flat,

a. sellers are not very responsive to changes in price. b. the supply is relatively inelastic. c. the supply is relatively elastic. d. Both a and b are correct.

ANS: C

NAT: Analytic MSC: Interpretive

DIF: 2

LOC: Elasticity

REF: 5-2

TOP: Price elasticity of supply

13. If the price elasticity of supply for wheat is less than 1, then the supply of wheat is

a. inelastic. b. elastic. c. unit elastic.

d. quite sensitive to changes in income.

ANS: A

NAT: Analytic MSC: Interpretive

DIF: 2

LOC: Elasticity

REF: 5-2

TOP: Price elasticity of supply

14. A linear, upward-sloping supply curve has

a. a constant slope and a changing elasticity of supply. b. a changing slope and a constant elasticity of supply. c. both a constant slope and a constant elasticity of supply. d. both a changing slope and a changing elasticity of supply.

ANS: A

NAT: Analytic MSC: Interpretive

DIF: 2

LOC: Elasticity

REF: 5-2

TOP: Price elasticity of supply

15. As price elasticity of supply increases, the supply curve

a. becomes flatter. b. becomes steeper.

c. becomes downward sloping. d. shifts to the right.

ANS: A

NAT: Analytic MSC: Interpretive

DIF: 2

LOC: Elasticity

REF: 5-2

TOP: Price elasticity of supply

Chapter 5 /Elasticity and Its Application ? 351

16. A key determinant of the price elasticity of supply is the time period under consideration. Which of the

following statements best explains this fact?

a. Supply curves are steeper over long periods of time than over short periods of time.

b. Buyers of goods tend to be more responsive to price changes over long periods of time than over

short periods of time.

c. The number of firms in a market tends to be more variable over long periods of time than over short

periods of time.

d. Firms prefer to change their prices in the short run rather than in the long run.

ANS: C

NAT: Analytic MSC: Interpretive

DIF: 2

LOC: Elasticity

REF: 5-2

TOP: Price elasticity of supply

17. Some firms eventually experience problems with their capacity to produce output as their output levels

increase. For these firms,

a. market power is substantial. b. supply is perfectly inelastic.

c. supply is more elastic at low levels of output and less elastic at high levels of output. d. supply is less elastic at low levels of output and more elastic at high levels of output.

ANS: C

NAT: Analytic MSC: Applicative

DIF: 3

LOC: Elasticity

REF: 5-2

TOP: Price elasticity of supply

18. Generally, a firm is more willing and able to increase quantity supplied in response to a price change when

a. the relevant time period is short rather than long. b. the relevant time period is long rather than short. c. supply is inelastic.

d. the firm is experiencing capacity problems.

ANS: B

NAT: Analytic MSC: Applicative

DIF: 2

LOC: Elasticity

REF: 5-2

TOP: Price elasticity of supply

19. If two supply curves pass through the same point and one is steep and the other is flat, which of the following

statements is correct?

a. The flatter supply curve represents a supply that is inelastic relative to the supply represented by the

steeper supply curve.

b. The steeper supply curve represents a supply that is inelastic relative to the supply represented by

the flatter supply curve.

c. Given two prices with which to calculate the price elasticity of supply, that elasticity is the same for

both curves.

d. A decrease in demand will increase total revenue if the steeper supply curve is relevant, while a

decrease in demand will decrease total revenue if the flatter supply cure is relevant.

ANS: B

NAT: Analytic MSC: Interpretive

DIF: 2

LOC: Elasticity

REF: 5-2

TOP: Price elasticity of supply

Scenario 5-1

The supply of aged cheddar cheese is inelastic and the supply of bread is elastic. Both goods are considered to be normal goods by a majority of consumers. Suppose that a large income tax increase decreases the demand for both goods by 10%.

20. Refer to Scenario 5-1. The price elasticity of supply for aged cheddar cheese could be

a. -1. b. 0. c. 0.5. d. 1.5.

ANS: C

NAT: Analytic MSC: Interpretive

DIF: 3

LOC: Elasticity

REF: 5-2

TOP: Price elasticity of supply

352 ? Chapter 5 /Elasticity and Its Application

21. Refer to Scenario 5-1. The price elasticity of supply for bread could be

a. -1. b. 0. c. 0.5. d. 1.5.

ANS: D

NAT: Analytic MSC: Interpretive

DIF: 3

LOC: Elasticity

REF: 5-2

TOP: Price elasticity of supply

22. If a 25% change in price results in a 40% change in quantity supplied, then the price elasticity of supply is

a. 0.63, and supply is elastic. b. 0.63, and supply is inelastic. c. 1.60, and supply is elastic. d. 1.60, and supply is inelastic.

ANS: C

NAT: Analytic MSC: Analytical

DIF: 2

LOC: Elasticity

REF: 5-2

TOP: Price elasticity of supply

23. If a 40% change in price results in a 25% change in quantity supplied, then the price elasticity of supply is

a. 0.63, and supply is elastic. b. 0.63, and supply is inelastic. c. 1.60, and supply is elastic. d. 1.60, and supply is inelastic.

ANS: B

NAT: Analytic MSC: Analytical

DIF: 2

LOC: Elasticity

REF: 5-2

TOP: Price elasticity of supply

24. If the price elasticity of supply is 1.5, and a price increase led to a 1.8% increase in quantity supplied, then the

price increase amounted to a. 0.67%. b. 0.83%. c. 1.20%. d. 2.70%.

ANS: C

NAT: Analytic MSC: Analytical

DIF: 2

LOC: Elasticity

REF: 5-2

TOP: Price elasticity of supply

25. If the price elasticity of supply is 1.5, and a price increase led to a 3% increase in quantity supplied, then the

price increase amounted to a. 0.2%. b. 0.5%. c. 2%. d. 4.5%.

ANS: C

NAT: Analytic MSC: Analytical

DIF: 2

LOC: Elasticity

REF: 5-2

TOP: Price elasticity of supply

26. If a 30 percent change in price causes a 15 percent change in quantity supplied, then the price elasticity of

supply is

a. 0.5, and supply is elastic. b. 0.5, and supply is inelastic. c. 2, and supply is inelastic. d. 2, and supply is elastic.

ANS: B

NAT: Analytic MSC: Applicative

DIF: 3

LOC: Elasticity

REF: 5-2

TOP: Price elasticity of supply