ECO232 Chapter 5 Homework
Name: __________________________ Date: _____________
1. Suppose the price of a good rises from $10 to $20 and quantity demanded falls from 500
to 400. If you calculate the elasticity of demand WITHOUT using the midpoint
method, the answer would be _____. If you calculate the elasticity of demand WITH
the midpoint method, the answer would be _____. Economists say _____ when
calculating elasticity.
A) –1/2; –1/3; use the midpoint method
B) –1/3; –1/5; do not use the midpoint method
C) –1/4; –1/4; it doesn't matter which method you use
D) –1/5; –1/3; use the midpoint method
2. On October 1, 2009, the Nintendo Wii's Japanese price dropped from ¥25,000 to
¥20,000. In the three months after the price drop, Japanese sales of the Wii were
approximately 1,040,000. Twelve months earlier, over the same interval at the high
price, sales totaled 890,000. Using the midpoint method, what is the absolute value of
the price elasticity of demand of a Wii console? Is it an elastic or inelastic good?
A) 1.43; inelastic
B) 0.7; inelastic
C) 1.43; elastic
D) 0.7; elastic
Use the following to answer question 3:
Figure: Slave Redemption
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3. (Figure: Slave Redemption) Refer to the figure. Assume the graph illustrates the
Sudanese slave trade. When slave redeemers enter the market, the total number of
freed slaves is ________ and the net number of freed slaves is ________.
A) 1,500; 500
B) 1,000; 400
C) 1,100; 100
D) 500; 1,000
4. A new per unit tax on yacht production decreases the supply of yachts. If yachts are
elastically demanded, what will happen to total revenues from yacht production?
A) They will rise.
B) They will fall.
C) They will remain the same.
D) They will change in an indeterminate direction.
5. The manager of a company notices that the company's total revenue would increase if
she raised the price of the company's product. Accordingly, the manager can assert that
the demand for the company's product is:
A) elastic.
B) inelastic.
C) unit elastic.
D) perfectly elastic.
6. If the demand for a good is estimated to be _____, then firms producing the good will
experience an increase in total revenue if prices fall.
A) .05
B) .75
C) 1
D) 2.5
7. When the demand curve for a good is unit elastic, raising the price of the good by 25
percent will change the revenue of the firm by:
A) 125 percent.
B) 100 percent.
C) 25 percent.
D) 0 percent.
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8. Which one of the following products would tend to have inelastic demand?
A) luxury sedans
B) candy
C) crude oil
D) Black Angus T-bone steak
9. If the price of Good Y falls from $10 to $8, and the quantity demanded of it rises from
1,000 units to 1,200 units, the price elasticity of demand expressed in absolute value is:
A) 1.00.
B) 0.20.
C) 0.82.
D) 1.22.
10. If the demand for currently illegal recreational drugs is highly inelastic and these drugs
became legal, prices would fall. An economist would expect which of the following to
happen in response to the lower price?
A) Total spending on drugs would rise.
B) No one would follow the laws of economics anymore.
C) Many more people would become drug users.
D) Not many more people would become drug users.
11. The elasticity of demand for a good is –0.75. A 4 percent increase in price will cause a:
A) 3 percent decrease in quantity demanded.
B) 5.33 percent increase in quantity demanded.
C) 5.33 percent decrease in quantity demanded.
D) 0.19 percent decrease in quantity demanded.
12. Because of aging requirements it takes many years to make good Scotch. If a
technology were invented that made it possible to create good Scotch literally overnight,
how would the short-run supply of good Scotch change?
A) It would become more elastic.
B) It would become less elastic.
C) Its elasticity would remain the same.
D) It is impossible to say anything about the change.
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13. A new per unit subsidy for almond production in the United States increases the world
supply of almonds. If almonds are inelastically demanded, what will happen to total
revenues from almond production?
A) They will rise.
B) They will fall.
C) They will remain the same.
D) They will change in an indeterminate direction.
14. If the price of Good Y falls from $10 to $8, and the quantity supplied of it falls from
1,000 units to 600 units, the price elasticity of supply is:
A) 2.67.
B) –2.67.
C) 2.25.
D) –2.25.
15. Good X and Good Y are related goods. When the price of Good X rises by 20 percent,
the quantity demanded for Good Y falls by 40 percent. What is the cross-price
elasticity?
A) 2
B) 4
C) –0.5
D) –2
16. Figure: Elasticity and Total Revenue
Refer to the figure. If price falls from $60 to $40, total revenue goes ________, so
demand is ________.
A) down by $100; inelastic
B) down by $480; elastic
C) up by $360; inelastic
D) up by $120; elastic
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17. Figure: Price Decrease and Elasticity
Refer to the figure. If price decreases from $20 to $10, total revenue will:
A) decrease by $1,500, so the demand curve is inelastic.
B) decrease by $2,500, so the demand curve is inelastic.
C) increase by $1,500, so the demand curve is elastic.
D) increase by $2,500, so the demand curve is elastic.
18. The price of good X increases from $55 to $60, and quantity demanded decreases from
500 to 400. The price of good Y increases from $55 to $60, and quantity demanded
decreases from 500 to 475. Given this information, the:
A) consumers who buy good X are less sensitive to price changes than consumers who
buy good Y.
B) demand curve for good X is less elastic than the demand curve for good Y.
C) demand curve for good X is more elastic than the demand curve for good Y.
D) demand curves for good X and good Y violate the law of demand.
19. Istanbul's Dolmabaçe Palace, built near the end of the Ottoman Empire, rests on a
former garden that was created in the eighteenth century at great expense by filling in a
bay. (Dolmabaçe means “filled-in garden” in Turkish.) What does the Dolmabaçe
Palace teach us about the elasticity of supply of land?
A) It is perfectly elastic.
B) It is not perfectly elastic, but close to it.
C) It is perfectly inelastic.
D) It is not perfectly inelastic, but close to it.
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20. Tonya consumes 40 steaks a year when her yearly income is $40,000. After her income
falls to $35,000 a year, she consumes only 35 steaks a year. Calculate her income
elasticity of demand for steaks.
A) –1
B) 1
C) –12.5
D) 12.5
21. Assume that demand increases by 1 percent, the absolute value of price elasticity of
demand is 1.0, and price elasticity of supply is 1.0. What is the percentage price change
in this case?
A) –1.5
B) –0.5
C) 0.5
D) 1.5
22. Table: Elasticity Characteristics
Good X
Few Substitutes
Luxury good
Small part of budget
Good Y
Many Substitutes
Luxury good
Large part of budget
Good Z
Few Substitutes
Necessary good
Small part of budget
The table lists the characteristics of three goods. Good ________ is the most inelastic,
and Good ________ is the most elastic.
A) X; Y
B) Z; Y
C) X; Z
D) Y; X
23. If the price elasticity of demand for a product is 2 in absolute value, and the price
elasticity of supply for the same product is 1, what is the predicted percent change in
price from a 5 percent fall in the supply?
A) a 1.67 percent fall in price
B) a 1.67 percent rise in price
C) a 0.6 percent fall in price
D) a 0.6 percent rise in price
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24. The case for drilling oil in ANWR is strengthened when the:
A) price of oil is lower.
B) negative impact of drilling on the environment is greater.
C) price of oil is higher.
D) elasticity of demand for oil increases.
25. The quantity demanded for cosmetic surgery increased by 12 percent following a period
of strong economic growth that raised consumer income by 4 percent. What type of
good is cosmetic surgery?
A) It is a luxury good since the income elasticity of demand exceeds 1.
B) It is a normal good since the income elasticity is less than 1.
C) It is a necessity since the income elasticity of demand is equal to 1.
D) It is a supernormal good since the income elasticity is greater than 2.
26. If both the supply of and the demand for a good are highly elastic, a shift of either curve
will always result in
A) a decrease in price.
B) an increase in price.
C) a large change in quantity.
D) no change.
Use the following to answer question 27:
Figure: Slave Redemption and Elasticity
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27. (Figure: Slave Redemption and Elasticity) Refer to the figure. Assume the graph
illustrates the Sudanese slave trade. How many slaves are freed after the redemption
program?
A) 1,000
B) 400
C) 600
D) 1,400
28. The price of cigars is $10, with a quantity demanded of 1,000 per day. If the price
increases to $12, the quantity demanded declines to 800 per day. What is the absolute
value of elasticity of demand?
A) 1.00
B) 0.82
C) 1.22
D) 12.2
29. If the price of cocoa rises by 20 percent, the quantity supplied of cocoa rises by 4
percent. What is the elasticity of supply?
A) 5
B) 2
C) 0.2
D) 0.008
30. If the supply of rental housing increases causing its price to fall and apartment dwellers
move into bigger apartments that cost the same as their old ones, we can infer that the:
A) demand for apartments is elastic.
B) supply of apartments is elastic.
C) demand for apartments is unit elastic.
D) demand for apartments is inelastic.
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31. Figure: Slave Redemption with Perfectly Elastic Supply
Refer to the figure. Assume the graph illustrates the Sudanese slave trade. If the supply
curve is perfectly elastic as it is in the graph, a rise in the demand for slaves (from D1 to
D2) causes:
A) the number of people in slavery to fall to zero after the redemption program.
B) the price of slaves to remain unchanged.
C) 900 additional people to enter slavery temporarily before they are released.
D) the supply of slaves in Sudan to decrease.
32. The elasticity of demand for oil is –0.5 and the elasticity of supply is 0.20. If the
demand for oil increases 10 percent, what happens to the price of oil?
A) It increases by 14 percent.
B) It decreases by 20 percent.
C) It increases by 8 percent.
D) It increases by 40 percent.
33. A 4 percent increase in the price of beer will cause a 1 percent decline in the quantity of
beer demanded. The demand for beer is:
A) elastic.
B) unitary elastic.
C) inelastic.
D) elastic at 4 (in absolute value).
34. If the price elasticity of demand for a product is 1 in absolute value, and the price
elasticity of supply of the same product is 1, what is the predicted percent change in
price from a 1 percent increase in demand?
A) a rise in price of 0.5 percent
B) a rise in price of 2 percent
C) a fall in price of 0.5 percent
D) a fall in price of 2 percent
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35. Farmers can produce more milk at lower cost, but Americans want to drink only so
much milk. This suggests that the demand curve for milk is:
A) elastic.
B) inelastic.
C) unit elastic.
D) unaffected by elasticity.
36. On June 14, 2011, the Delaware Senate approved a gun buyback program. The yearlong
program would authorize the state to pay $100 for every gun turned over to police. What
sort of guns should Delaware officials expect to get if this plan becomes law?
A) Small guns, usually used as self-defense in bad neighborhoods.
B) Heavy guns, usually used by criminals to support their illegal enterprises.
C) Nonworking guns, usually kept in someone's back closet.
D) Guns that use a lot of bullets very quickly.
37. When the supply curve in the Sudanese slave trade is perfectly ________, every slave
bought by the redeemers results in/is ________ held in captivity.
A) inelastic; more slaves
B) inelastic; one less slave
C) inelastic; redeemed at a lower price than expected
D) elastic; redeemed at a higher price than expected
38. If the price elasticity of supply is 0.75, then when the price of Good Y falls by 10
percent, the quantity supplied of Good Y:
A) rises by 7.5 percent.
B) rises by 133 percent.
C) falls by 7.5 percent.
D) falls by 133 percent.
39. Which of the following statements about the price elasticity of supply in the Sudanese
slave trade is correct?
A) When the supply curve is more elastic, every slave bought by the redeemers is one
fewer slave held in captivity.
B) When the supply curve is perfectly inelastic, every slave bought by the redeemers
is one fewer slave held in captivity.
C) When the supply curve is less elastic, every slave bought by the redeemers is one
additional enslaved person.
D) When the supply curve is more inelastic, every slave bought by the redeemers is
one additional enslaved person.
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40. A new per unit subsidy for hybrid car production increases the supply of hybrid cars. If
hybrid cars are elastically demanded, what will happen to total revenues from hybrid car
production?
A) They will rise.
B) They will fall.
C) They will remain the same.
D) They will change in an indeterminate direction.
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