Chapter 5

Question 1

The more vertical a supply or demand line is…

Answer 1

the more inelastic it is.

Question 2

The more horizontal a supply or demand line is…

Answer 2

the more elastic it is.

Question 3

If the absolute value of E is greater (<) than 1, then the demand curve is

Answer 3

Inelastic

Question 4

What determines price elasticity?

Answer 4

Substitutes (ex. eggs vs. mountain dew)

Question 5

Price elasticity is __ for narrowly defined goods than broad goods.

Answer 5

Higher (ex. blue jeans vs. clothing)

Question 6

Price elasticity is __ for luxuries than necessities.

Answer 6

Higher (ex. insulin vs. cruises)

Question 7

Price elasticity is higher in the long run than in the short run. What does the long run give way to?

Answer 7

More options

Question 8

To calculate elasticity, you divide the ___ by the ___.

Answer 8

% change in quantity by the % change in price.

Question 9

To calculate the % of a change in price or quantity, you take the

Answer 9

end value minus the start value, divide it by the average of the two numbers and then multiply by 100.

Question 10

In a geographic scope, a smaller area results in the supply being

Answer 10

more elastic

Question 11

In general, elasticity is a measure of

Answer 11

how much buyers and sellers respond to changes in market conditions

Question 12

The smaller the price elasticity of demand, the

Answer 12

smaller the responsiveness of quantity demanded to a change in price

Question 13

If the price of walnuts rises, many people would switch from consuming walnuts to consuming pecans. But if the price of salt rises, people would have difficulty purchasing something to use in its place. These examples illustrate the importance of

Answer 13

the availability of close substitutes in determining the price elasticity of demand

Question 14

Which of the following is likely to have the most price elastic demand? Ice cream, frozen yogurt, vanilla ice cream, or Häagen-Dazs® vanilla bean ice cream.

Answer 14

Häagen-Dazs® vanilla bean ice cream

Question 15

Economists compute the price elasticity of demand as the

Answer 15

percentage change in quantity demanded divided by the percentage change in price

Question 16

The midpoint method for calculating elasticities is convenient in that it allows us to

Answer 16

calculate the same value for the elasticity, regardless of whether the price increases or decreases

Question 17

The price elasticity of supply measures how responsive

Answer 17

sellers are to a change in price

Question 18

A key determinant of the price elasticity of supply is the time period under consideration. Which of the following statements best explains this fact?

Answer 18

The number of firms in a market tends to be more variable over long periods of time than over short periods of time

Question 19

The price elasticity of supply along a typical supply curve is

Answer 19

higher at low levels of quantity supplied and lower at high levels of quantity supplied

Question 20

A decrease in supply will cause the largest increase in price when

Answer 20

both supply and demand are inelastic

Question 21

Using the midpoint method, the price elasticity of demand for a good is computed to be approximately 0.75. Which of the following events is consistent with a 10 percent decrease in the quantity of the good demanded?

Answer 21

a 13.33 percent increase in the price of the good