Chapter 5/Elasticity and Its Applications ? 199
176. Last month, sellers of good Y took in $100 in total revenue on sales of 50 units of good Y. This month sellers of good
Y raised their price and took in $120 in total revenue on sales of 40 units of good Y. At the same time, the price of good X stayed the same, but sales of good X increased from 20 units to 40 units. We can conclude that goods X and Y are
a. substitutes, and have a cross-price elasticity of 0.60. b. complements, and have a cross-price elasticity of 0.60. c. substitutes, and have a cross-price elasticity of 1.67. d. complements, and have a cross-price elasticity of 1.67. ANS: C PTS: 1 DIF: 3 REF: 5-1
TOP: Cross-price elasticity of demand | Substitutes MSC: Applicative
177. Suppose the cross-price elasticity of demand between hot dogs and mustard is -2.00. This implies that a 20 percent
increase in the price of hot dogs will cause the quantity of mustard purchased to a. fall by 200 percent. b. fall by 40 percent. c. rise by 200 percent. d. rise by 40 percent. ANS: B PTS: 1 DIF: 2 REF: 5-1 TOP: Cross-price elasticity of demand MSC: Applicative 178. 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 PTS: 1 DIF: 2 REF: 5-1 TOP: Cross-price elasticity of demand MSC: Interpretive
179. 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 and the demand for the other good violates the
law of demand.
ANS: B PTS: 1 DIF: 2 REF: 5-1 TOP: Cross-price elasticity of demand MSC: Interpretive 180. Food and clothing tend to have
a. small income elasticities because consumers, regardless of their incomes, choose to buy relatively constant
quantities of these goods.
b. small income elasticities because consumers buy proportionately more of both goods at higher income levels than
they buy at low income levels.
c. large income elasticities because they are necessities.
d. large income elasticities because they are relatively inexpensive. ANS: A PTS: 1 DIF: 2 REF: 5-1 TOP: Income elasticity of demand MSC: Applicative
181. The income elasticity of demand for caviar tends to be
a. high because caviar is relatively expensive.
b. low because caviar is packaged in small containers.
c. high because buyers generally feel that they can do without it. d. low because it is almost always in short supply. ANS: C PTS: 1 DIF: 2 REF: 5-1 TOP: Income elasticity of demand MSC: Interpretive
200 ? Chapter 5/Elasticity and Its Applications
182. Suppose the income elasticity of demand for basketballs is 1.20. A 3 percent increase in the price of basketballs will
result in
a. a 3.6 percent decrease in the quantity of basketballs demanded. b. a 3.6 percent increase in the quantity of basketballs demanded. c. a 4 percent decrease in the number of basketballs demanded. d. None of the above is correct. ANS: D PTS: 1 DIF: 2 REF: 5-1 TOP: Income elasticity of demand MSC: Applicative
183. Get Smart University is contemplating an increase in tuition to enhance revenue. If GSU feels that raising tuition
would enhance revenue, they are a. ignoring the law of demand.
b. assuming that the demand for university education is elastic. c. assuming that the demand for university education is inelastic. d. assuming that the supply of university education is elastic. ANS: C PTS: 1 DIF: 2 REF: 5-1 TOP: Price elasticity of demand MSC: Applicative
184. 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. ANS: B PTS: 1 DIF: 1 REF: 5-2 TOP: Price elasticity of supply MSC: Definitional 185. 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. ANS: A PTS: 1 DIF: 1 REF: 5-2 TOP: Price elasticity of supply MSC: Definitional
186. 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 PTS: 1 DIF: 2 REF: 5-2 TOP: Price elasticity of supply MSC: Applicative 187. On a certain supply curve, one point is (quantity supplied = 200, price = $4.00) and another point is (quantity
supplied = 250, price = $4.50). Using the midpoint method, the price elasticity of supply is about a. 0.22. b. 0.53. c. 1.89. d. 2.22. ANS: C PTS: 1 DIF: 1 REF: 5-2 TOP: Price elasticity of supply MSC: Definitional 188. 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. ANS: B PTS: 1 DIF: 2 REF: 5-2 TOP: Price elasticity of supply MSC: Interpretive
Chapter 5/Elasticity and Its Applications ? 201
189. 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. ANS: B PTS: 1 DIF: 2 REF: 5-2 TOP: Short run | Quantity supplied MSC: Interpretive
190. Holding all other factors constant and using the midpoint method, if a pencil manufacturer increases production by
20 percent when the market price of pencils increases from $0.50 to $0.60, then supply is a. inelastic, since the price elasticity of supply is equal to .91. b. inelastic, since the price elasticity of supply is equal to 1.1. c. elastic, since the price elasticity of supply is equal to 0.91. d. elastic, since the price elasticity of supply is equal to 1.1. ANS: D PTS: 1 DIF: 2 REF: 5-2 TOP: Price elasticity of supply MSC: Applicative 191. 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. ANS: B PTS: 1 DIF: 2 REF: 5-2 TOP: Price elasticity of supply MSC: Interpretive
192. A key determinant of the price elasticity of supply is
a. the length of the time period. b. the definition of the market.
c. the number of close substitutes for the good in question.
d. the extent to which buyers alter their quantities demanded in response to changes in their incomes. ANS: A PTS: 1 DIF: 2 REF: 5-2 TOP: Price elasticity of supply MSC: Interpretive 193. 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. ANS: D PTS: 1 DIF: 2 REF: 5-2 TOP: Price elasticity of supply MSC: Interpretive
202 ? Chapter 5/Elasticity and Its Applications
Figure 5-10 194. Refer to Figure 5-10. The price elasticity of supply between point A and point B, using the midpoint method, is
approximately a. 0.58. b. 0.71. c. 1.06. d. 1.4. ANS: B PTS: 1 DIF: 2 REF: 5-2 TOP: Price elasticity of supply MSC: Applicative 195. Refer to Figure 5-10. The price elasticity of supply between point B and point C, using the midpoint method, is
approximately a. 1.44. b. 1.29. c. 0.96. d. 0.78. ANS: D PTS: 1 DIF: 2 REF: 5-2 TOP: Price elasticity of supply MSC: Applicative 196. Refer to Figure 5-10. If, holding the supply curve fixed, there were an increase in demand that caused the
equilibrium price to increase from $6 to $8, then sellers’ total revenue would a. increase. b. decrease.
c. remain unchanged.
d. The effect on total revenue cannot be determined from the given information. ANS: A PTS: 1 DIF: 2 REF: 5-2 TOP: Total revenue MSC: Applicative
Chapter 5/Elasticity and Its Applications ? 203
Figure 5-11 197. Refer to Figure 5-11. Which supply curve represents perfectly inelastic supply?
a. S1 b. S2 c. S3
d. It is impossible to tell without more information. ANS: A PTS: 1 DIF: 1 REF: 5-2 TOP: Perfectly inelastic supply MSC: Interpretive
198. Refer to Figure 5-11. Which supply curve is most likely relevant over a very long period of time?
a. S1 b. S2 c. S3
d. All of the above are equally likely to be relevant over a very long period of time. ANS: C PTS: 1 DIF: 2 REF: 5-2 TOP: Perfectly elastic supply MSC: Interpretive
199. Suppose that an increase in the price of carrots from $1.30 to $1.80 per pound increases the quantity of carrots that
carrot farmers produce from 1.2 million pounds to 1.6 million pounds. Using the midpoint method, what is the approximate value of the price elasticity of supply? a. -1.04 b. 0.67 c. 0.89 d. 1.13 ANS: C PTS: 1 DIF: 2 REF: 5-2 TOP: Price elasticity of supply MSC: Applicative 200. An increase in the price of pure chocolate morsels from $2.25 to $2.45 causes suppliers of chocolate morsels to
increase their quantity supplied from 125 bags per minute to 145 bags per minute. Supply is a. elastic and the price elasticity of supply is 1.74. b. elastic and the price elasticity of supply is 0.57. c. inelastic and the price elasticity of supply is 1.74. d. inelastic and the price elasticity of supply is 0.57. ANS: A PTS: 1 DIF: 3 REF: 5-2 TOP: Price elasticity of supply MSC: Applicative