ELASTICITY

(You should be able to explain your answers in multiple-choice questions)

1. A good tends to have a small price elasticity of demand if

a. the good is a necessity.

b. there are many close substitutes.

c. the market is narrowly defined.

d. the long-run response is being measured.

2. An increase in a good’s price reduces the total amount consumers spend on the good if the
_________ elasticity of demand is _________ than one.

a. income; less

b. income; greater

c. price; less

d. price; greater

3. A linear, downward-sloping demand curve is

a. inelastic.

b. unit elastic.

c. elastic.

d. inelastic at some points, and elastic at others.

4. the citizens of lilliput spend a higher fraction of their income on food than do the citizens of
Brobdingnag. the reason could be that

a. lilliput has lower food prices, and the price elasticity of demand is zero.
gia tang 1% thi quantity giam 0.5%
b. lilliput has lower food prices, and the price elasticity of demand is 0.5.
the income elasticity of demand is
income tang 1% thi demand tang 0.5%
0.5, it means that as income
c. lilliput has lower income, and the income elasticity of demand is 0.5. increases, the proportion of
income spent on food decreases,
d. lilliput has lower income, and the income elasticity of demand is 1.5. but not as significantly. This would
imply that with lower incomes,
Lilliputians spend a higher fraction
of their income on food.
5. the price of a good rises from $16 to $24, and the quantity supplied rises from 90 to 110 units.
calculated with the midpoint method, the price elasticity of supply is citizens of Lilliput have lower incomes
compared to the citizens of
a. 1/5. Brobdingnag, they will spend a higher
fraction of their income on necessities
like food. This is because, with lower
b. 1/2. incomes, a larger portion of their
budget is allocated to essential items.
c. 2.

d. 5.

6. if the price elasticity of supply is zero, the supply curve is

a. upward sloping.

b. horizontal.

c. vertical. price tang thi quantity van giu nguyen

d. fairly flat at low quantities but steeper at larger quantities.

7. the ability of firms to enter and exit a market over time means that, in the long run,

a. the demand curve is more elastic.

b. the demand curve is less elastic.

c. the supply curve is more elastic.

d. the supply curve is less elastic.

8. An increase in the supply of grain will reduce the total revenue grain producers receive if

a. the supply curve is inelastic.

b. the supply curve is elastic.

c. the demand curve is inelastic. supply tang nhma demand ko thay doi nhieu
--> total revenue giam
d. the demand curve is elastic.

9. in competitive markets, farmers adopt new technologies that will eventually reduce their
revenue because

a. each farmer is a price taker.

b. farmers are short-sighted.

c. regulation requires the use of best practices.

d. consumers pressure farmers to lower prices.

10. Because the demand curve for oil is _________ elastic in the long run, OPEC’s reduction in
the supply of oil had a _________ impact on the price in the long run than it did in the short run.

a. less; smaller

b. less; larger

c. more; smaller

d. more; larger

11. over time, technological advances increase consumers’ incomes and reduce the price of
smartphones. Each of these forces increases the amount consumers spend on smartphones if the
income elasticity of demand is greater than _________ and the price elasticity of demand is
greater than _________.

a. zero; zero
b. zero; one

c. one; zero

d. one; one

12. Suppose that business travelers and vacationers have the following demand for airline tickets
from Chicago to Miami:

a. As the price of tickets rises from $200 to $250, what is the price elasticity of demand for (i)
business travelers and (ii) vacationers? (Use the midpoint method in your calculations.)

b. Why might vacationers and business travelers have different elasticities?

13. Suppose the price elasticity of demand for heating oil is 0.2 in the short run and 0.7 in the
long run.

a. If the price of heating oil rises from $1.80 to $2.20 per gallon, what happens to the quantity of
heating oil demanded in the short run? In the long run? (Use the midpoint method in your
calculations.)

b. Why might this elasticity depend on the time horizon?

14. A price change causes the quantity demanded of a good to decrease by 30 percent, while the
total revenue of that good increases by 15 percent. Is the demand curve elastic or inelastic?
Explain.
15. The price of aspirin rose sharply last month, while the quantity sold remained the same. Five
people suggest various diagnoses of the phenomenon:

Meredith: Demand increased, but supply was perfectly inelastic.

Alex: Demand increased, but it was perfectly inelastic.

Miranda: Demand increased, but supply decreased at the same time.

Richard: Supply decreased, but demand was unit elastic.

Owen: Supply decreased, but demand was perfectly inelastic.

Who could possibly be right? Use graphs to explain your answer