Supply Elasticity

Chapter 5

Elasticity and Its Application

1. If price elasticity of demand is 2.0, this implies that consumers would

a. buy twice as much of the good if price falls by 10 percent.

b. require a 2 percent cut in price to raise quantity demanded of the good by 1 percent.

c. buy 2 percent more of the good in response to a 1 percent cut in price.

d. require at least a $2 increase in price before showing any response to the price increase.

ANSWER: c buy 2 percent more of the good in response to a 1 percent cut in price.

SECTION: 1 OBJECTIVE: 1

2. If the price elasticity of demand within the price range from $1 to $1.25 for carrots is 0.79 and for radishes is 1.6, then within that price range

a. carrots are more price elastic than radishes.

b. radishes are more price elastic than carrots.

c. carrots and radishes must be substitute goods.

d. carrots and radishes must be complementary goods.

ANSWER: b radishes are more price elastic than carrots.

SECTION: 1 OBJECTIVE: 1

3. Sue’s Bagel Shop wants to estimate how responsive bagels are to a change in cream cheese prices. To accomplish this task, which of the following data would NOT be needed?

a. percentage change in bagel price

b. original price of cream cheese

c. new quantity of bagels sold

d. original quantity of bagels sold

ANSWER: a percentage change in bagel prices

SECTION: 1 OBJECTIVE: 2

4. If Weiskamp T-Shirt Co. lowers its price from $6 to $5 and finds that students increase their quantity demanded from 400 to 600 T-shirts, then the demand for Weiskamp T-shirts within this price range is

a. price inelastic.

b. price elastic.

c. unit elastic.

d. cross elastic.

ANSWER: b price elastic.

SECTION: 1 OBJECTIVE: 1

5. Demand for which of the following goods is the most likely to be (nearly) perfectly elastic?

a. emergency surgery

b. Ford automobiles

c. Farmer Ben’s wheat

d. diamonds

ANSWER: a emergency surgery

SECTION: 1 OBJECTIVE: 2

6. The slope of the demand curve is...