Name:    Chapter 5 practice questions

Multiple Choice
Identify the letter of the choice that best completes the statement or answers the question.

1.

When studying how some event or policy affects a market, elasticity provides information on the
 a. direction of the effect on the market. b. magnitude of the effect on the market. c. efficiency of the effect on the market. d. equity of the effect on the market.

2.

Demand is said to be elastic if
 a. the price of the good responds substantially to changes in demand. b. demand shifts substantially when the price of the good changes. c. buyers do not respond much to changes in the price of the good. d. the quantity demanded responds substantially to changes in the price of the good.

3.

Demand for a good would tend to be more inelastic the
 a. fewer the available substitutes. b. longer the time period considered. c. more the good is considered a luxury good. d. more narrowly defined the market is.

4.

When the price of bubble gum is \$0.50, the quantity demanded is 400 packs per day. When the price falls to \$0.40, the quantity demanded increases to 600. Given this information and using the midpoint method, you know that the demand for bubble gum is
 a. inelastic. b. elastic. c. unit elastic. d. perfectly inelastic.

5.

Suppose there is a 6 percent increase in the price of good X and a resulting 6 percent decrease in the quantity of X demanded. Price elasticity of demand for X is
 a. 1. b. 6. c. 0. d. infinite.

6.

If the price elasticity of demand for a good is 4.0, then a 10 percent increase in price would result in a
 a. 4.0 percent decrease in the quantity demanded. b. 10 percent decrease in the quantity demanded. c. 40 percent decrease in the quantity demanded. d. 400 percent decrease in the quantity demanded.

7.

Demand is inelastic if elasticity is
 a. less than 1. b. equal to 1. c. greater than 1. d. equal to 0.

Figure 5-1

8.

Refer to Figure 5-1. The section of the demand curve labeled C represents the
 a. elastic section of the demand curve. b. perfectly elastic section of the demand curve. c. unit elastic section of the demand curve. d. inelastic section of the demand curve.

9.

In any market, total revenue is price
 a. divided by the price elasticity of demand. b. multiplied by quantity. c. plus quantity. d. multiplied by quantity minus the costs of production.

10.

Which of the following would be true as the elasticity of supply approaches infinity?
 a. Very small changes in price will lead to very large changes in quantity supplied. b. Very large changes in price will lead to very small changes in quantity supplied. c. Very small changes in price will lead to no change in quantity supplied. d. Very large changes in price will lead to no change in quantity supplied.