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Chapter 5 /Elasticity and Its Application ? 303

35. If the price elasticity of demand for a good is 0.4, then a 10 percent increase in price results in a

a. 0.4 percent decrease in the quantity demanded. b. 2.5 percent decrease in the quantity demanded. c. 4 percent decrease in the quantity demanded. d. 40 percent decrease in the quantity demanded.

ANS: C

NAT: Analytic MSC: Applicative

DIF: 2

LOC: Elasticity

REF: 5-1

TOP: Price elasticity of demand

36. If the price elasticity of demand for a good is 0.25, then a 20 percent decrease in price results in a

a. 0.0125 percent increase in the quantity demanded. b. 4 percent increase in the quantity demanded. c. 5 percent increase in the quantity demanded. d. 80 percent increase in the quantity demanded.

ANS: C

NAT: Analytic MSC: Applicative

DIF: 2

LOC: Elasticity

REF: 5-1

TOP: Price elasticity of demand

37. If the price elasticity of demand for a good is 1.5, then a 3 percent decrease in price results in a

a. 0.5 percent increase in the quantity demanded. b. 2 percent increase in the quantity demanded. c. 4.5 percent increase in the quantity demanded. d. 5 percent increase in the quantity demanded.

ANS: C

NAT: Analytic MSC: Applicative

DIF: 2

LOC: Elasticity

REF: 5-1

TOP: Price elasticity of demand

38. If the price elasticity of demand for a good is 0.8, then which of the following events is consistent with a 4

percent decrease in the quantity of the good demanded? a. a 0.2 percent increase in the price of the good b. a 3.2 percent increase in the price of the good c. a 4.8 percent increase in the price of the good d. a 5 percent increase in the price of the good

ANS: D

NAT: Analytic MSC: Applicative

DIF: 2

LOC: Elasticity

REF: 5-1

TOP: Price elasticity of demand

39. For a particular good, a 2 percent increase in price causes a 12 percent decrease in quantity demanded. Which

of the following statements is most likely applicable to this good? a. There are no close substitutes for this good. b. The good is a luxury.

c. The market for the good is broadly defined. d. The relevant time horizon is short.

ANS: B

NAT: Analytic MSC: Analytical

DIF: 3

LOC: Elasticity

REF: 5-1

TOP: Price elasticity of demand

40. For a particular good, a 12 percent increase in price causes a 3 percent decrease in quantity demanded. Which

of the following statements is most likely applicable to this good? a. There are many substitutes for this good. b. The good is a necessity.

c. The market for the good is narrowly defined. d. The relevant time horizon is long.

ANS: B

NAT: Analytic MSC: Analytical

DIF: 3

LOC: Elasticity

REF: 5-1

TOP: Price elasticity of demand

304 ? Chapter 5 /Elasticity and Its Application

41. For a particular good, a 3 percent increase in price causes a 10 percent decrease in quantity demanded. Which

of the following statements is most likely applicable to this good? a. The relevant time horizon is short. b. The good is a necessity.

c. The market for the good is broadly defined. d. There are many close substitutes for this good.

ANS: D

NAT: Analytic MSC: Analytical

DIF: 3

LOC: Elasticity

REF: 5-1

TOP: Price elasticity of demand

42. For a particular good, a 10 percent increase in price causes a 3 percent decrease in quantity demanded. Which

of the following statements is most likely applicable to this good? a. The relevant time horizon is short. b. The good is a luxury.

c. The market for the good is narrowly defined. d. There are many close substitutes for this good.

ANS: A

NAT: Analytic MSC: Analytical

DIF: 3

LOC: Elasticity

REF: 5-1

TOP: Price elasticity of demand

43. Demand is said to have unit elasticity if elasticity is

a. less than 1. b. greater than 1. c. equal to 1. d. equal to 0.

ANS: C

NAT: Analytic MSC: Definitional

DIF: 1

LOC: Elasticity

REF: 5-1

TOP: Price elasticity of demand

44. Demand is said to be unit elastic if

a. quantity demanded changes by the same percent as the price. b. quantity demanded changes by a larger percent than the price.

c. the demand curve shifts by the same percentage amount as the price. d. quantity demanded does not respond to a change in price.

ANS: A

NAT: Analytic MSC: Definitional

DIF: 2

LOC: Elasticity

REF: 5-1

TOP: Price elasticity of demand

45. Elasticity of demand is closely related to the slope of the demand curve. The more responsive buyers are to a

change in price, the

a. steeper the demand curve will be. b. flatter the demand curve will be.

c. further to the right the demand curve will sit.

d. closer to the vertical axis the demand curve will sit.

ANS: B

NAT: Analytic MSC: Interpretive

DIF: 2

LOC: Elasticity

REF: 5-1

TOP: Price elasticity of demand

46. Elasticity of demand is closely related to the slope of the demand curve. The less responsive buyers are to a

change in price, the

a. steeper the demand curve will be. b. flatter the demand curve will be.

c. further to the right the demand curve will sit.

d. closer to the vertical axis the demand curve will sit.

ANS: A

NAT: Analytic MSC: Interpretive

DIF: 2

LOC: Elasticity

REF: 5-1

TOP: Price elasticity of demand

Chapter 5 /Elasticity and Its Application ? 305

47. The flatter the demand curve through a given point, the

a. greater the price elasticity of demand at that point. b. smaller the price elasticity of demand at that point.

c. closer the price elasticity of demand will be to the slope of the curve.

d. greater the absolute value of the change in total revenue when there is a movement from that point

upward and to the left along the demand curve.

ANS: A

NAT: Analytic MSC: Analytical

DIF: 3

LOC: Elasticity

REF: 5-1

TOP: Price elasticity of demand

48. The smaller the price elasticity of demand, the

a. steeper the demand curve will be through a given point. b. flatter the demand curve will be through a given point.

c. more strongly buyers respond to a change in price between any two prices P1 and P2.

d. smaller the decrease in equilibrium price when the supply curve shifts rightward from S1 to S2.

ANS: A

NAT: Analytic MSC: Analytical

DIF: 3

LOC: Elasticity

REF: 5-1

TOP: Price elasticity of demand

49. When quantity moves proportionately the same amount as price, demand is

a. elastic, and the price elasticity of demand is 1.

b. perfectly elastic, and the price elasticity of demand is infinitely large. c. perfectly inelastic, and the price elasticity of demand is 0. d. unit elastic, and the price elasticity of demand is 1.

ANS: D

NAT: Analytic MSC: Interpretive

DIF: 2

LOC: Elasticity

REF: 5-1

TOP: Price elasticity of demand

50. Jean-Paul says that he will spend exactly 75 cents a day on M&Ms, regardless of the price of M&Ms.

Jean-Paul’s demand for M&Ms is a. perfectly elastic. b. unit elastic.

c. perfectly inelastic.

d. None of the above answers is correct.

ANS: B

NAT: Analytic MSC: Interpretive

DIF: 2

LOC: Elasticity

REF: 5-1

TOP: Price elasticity of demand

51. As we move downward and to the right along a linear, downward-sloping demand curve,

a. slope and elasticity both remain constant. b. slope changes but elasticity remains constant. c. slope and elasticity both change.

d. slope remains constant but elasticity changes.

ANS: D

NAT: Analytic MSC: Interpretive

DIF: 2

LOC: Elasticity

REF: 5-1

TOP: Price elasticity of demand

52. When we move upward and to the left along a linear, downward-sloping demand curve, price elasticity of

demand

a. first becomes smaller, then larger. b. always becomes larger. c. always becomes smaller.

d. first becomes larger, then smaller.

ANS: B

NAT: Analytic MSC: Interpretive

DIF: 2

LOC: Elasticity

REF: 5-1

TOP: Price elasticity of demand

306 ? Chapter 5 /Elasticity and Its Application

53. The price elasticity of demand changes as we move along a

a. horizontal demand curve. b. vertical demand curve.

c. linear, downward-sloping demand curve. d. All of the above are correct.

ANS: C

NAT: Analytic MSC: Interpretive

DIF: 2

LOC: Elasticity

REF: 5-1

TOP: Price elasticity of demand

54. The difference between slope and elasticity is that

a. slope is a ratio of two changes, and elasticity is a ratio of two percentage changes. b. slope is a ratio of two percentage changes, and elasticity is a ratio of two changes. c. slope measures changes in quantity demanded more accurately than elasticity. d. none of the above; there is no difference between slope and elasticity.

ANS: A

NAT: Analytic MSC: Interpretive

DIF: 2

LOC: Elasticity

REF: 5-1

TOP: Price elasticity of demand

55. According to a New York Times article published in November 2005, author Anna Bernasek asserts that a 10

percent increase in the price of gasoline leads to a decline in the quantity demanded of about a. 0.01 percent. b. 2 percent. c. 20 percent. d. 200 percent.

ANS: B

NAT: Analytic MSC: Interpretive

DIF: 2

LOC: Elasticity

REF: 5-1

TOP: Price elasticity of demand

56. According to a New York Times article published in November 2005, author Anna Bernasek asserts that a 10

percent increase in the price of electricity leads to a decline in the quantity demanded of about a. 0.01 percent. b. 3 percent. c. 30 percent. d. 300 percent.

ANS: B

NAT: Analytic MSC: Interpretive

DIF: 2

LOC: Elasticity

REF: 5-1

TOP: Price elasticity of demand

Chapter 5 /Elasticity and Its Application ? 307

Figure 5-1

PriceABCDCBAQuantityD57. Refer to Figure 5-1. The demand curve representing the demand for a luxury good with several close

substitutes is a. A. b. B. c. C. d. D.

ANS: C

NAT: Analytic MSC: Applicative

DIF: 2

LOC: Elasticity

REF: 5-1

TOP: Price elasticity of demand

58. Refer to Figure 5-1. Atog says he would buy one cup of coffee per day regardless of the price. If this is

true, then Atog's demand for coffee is represented by demand curve a. A. b. B. c. C. d. D.

ANS: A

NAT: Analytic MSC: Applicative

DIF: 3

LOC: Elasticity

REF: 5-1

TOP: Perfectly inelastic demand