Chapter 5
Elasticity and Its Applications
Test B
1. The elasticity of demand measures
a. the increase in demand as additional buyers enter the market.
b. a buyer’s responsiveness to a change in the price of a good.
c. how much less of a good consumers will demand when incomes fall.
d. the increase in supply that will occur from an increase in the price of a good.
ANSWER: b. a buyer’s responsiveness to a change in the price of a good. TYPE: M KEY1: D SECTION: 1 OBJECTIVE: 1 RANDOM: Y
2. Demand is said to be inelastic if
a. consumers hardly respond to a change in price.
b. consumers respond substantially to a change in price.
c. consumers respond directly to a change in income.
d. the change in quantity demanded is equal to the change in pric
e.
ANSWER: a. consumers hardly respond to a change in price.
TYPE: M KEY1: D SECTION: 1 OBJECTIVE: 1 RANDOM: Y
3. The elasticity of demand for luxuries tends to be
a. greater than 1.
b. equal to 1.
c. less than 1.
d. equal to 0.
ANSWER: c. less than 1.
TYPE: M KEY1: D SECTION: 1 OBJECTIVE: 1 RANDOM: Y
4. Milky Way candy bars tend to have an elastic demand because
a. the candy bar market is too broadly defined.
b. there are many close substitutes for Milky Ways.
c. Milky Ways are considered by some to be a necessity.
d. it is usually eaten quickly and therefore the time horizon is short.
ANSWER: b. there are many close substitutes for Milky Ways.
TYPE: M KEY1: D SECTION: 1 OBJECTIVE: 2 RANDOM: Y
5. Economists compute elasticity using the midpoint method primarily because it
a. is the simplest method to compute elasticity.
b. uses the same equation that is used to compute slope.
c. automatically rounds quantities to the nearest whole unit.
d. gives the same answer regardless of the direction of chang
e.
ANSWER: d. gives the same answer regardless of the direction of change. TYPE: M KEY1: D SECTION: 1 OBJECTIVE: 2 RANDOM: Y
52 Chapter 5/Elasticity and Its Applications
6. Demand is elastic if elasticity is
a. equal to 1.
b. equal to 0.
c. less than 1.
d. greater than 1.
ANSWER: d. greater than 1.
TYPE: M KEY1: D SECTION: 1 OBJECTIVE: 2 RANDOM: Y
NOTE: THE FOLLOWING QUESTION IS REPEATED FROM THE ON-LINE QUIZZES. YOUR STUDENTS MAY HAVE ALREADY SEEN THIS QUESTION AND ITS ANSWER.
7. A demand curve that is a downward-sloping straight line will have
a. a positive slope.
b. higher elasticity at the top than at the bottom.
c. lower elasticity at the top than at the bottom.
d. constant elasticity throughout its length.
ANSWER: b. higher elasticity at the top than at the bottom.
TYPE: M KEY1: D SECTION: 1 OBJECTIVE: 2 RANDOM: Y
8. When the price of Pokemon cards are $.50, the quantity demanded is 400 cards per day. When
the price falls to $.40, the quantity demanded increases to 600. Given this information and using the midpoint method, you know that the demand for Pokemon cards is
a. elastic.
b. inelasti
c.
c. unit elastic.
d. perfectly inelastic.
ANSWER: a. elastic.
TYPE: M KEY1: E SECTION: 2 OBJECTIVE: 3 RANDOM: Y
9. A perfectly inelastic demand is
a. vertical because buyers purchase the same amount whether the price rises or falls.
b. negatively sloped because buyers decrease their purchases when the price rises.
c. positively sloped because buyers respond by increasing their purchases when price
rises.
d. horizontal because buyers increase their purchases by huge amounts with slight
changes in price.
ANSWER: a. vertical because buyers purchase the same amount whether the price
rises or falls.
TYPE: M KEY1: D SECTION: 1 OBJECTIVE: 2 RANDOM: Y
10. Total revenue changes as one moves down a linear demand curve by
a. decreasing.
b. increasing.
c. decreasing, then increasing.
d. increasing, then decreasing.
ANSWER: d. increasing, then decreasing.
TYPE: M KEY1: D SECTION: 1 OBJECTIVE: 2 RANDOM: Y
