Chapter 6 — Quiz

Multiple choice

Q1. Price elasticity of demand measures: a) How much the price changes when quantity changes b) How responsive quantity demanded is to a change in price c) The slope of the demand curve d) Total revenue

Q2. A good with an elasticity greater than 1 is: a) Inelastic b) Unit elastic c) Elastic d) Perfectly inelastic

Q3. A good with an elasticity less than 1 is: a) Inelastic b) Unit elastic c) Elastic d) Perfectly elastic

Q4. Insulin (for type-1 diabetics) has demand that is: a) Highly elastic b) Highly inelastic c) Unit elastic d) Negative

Q5. Demand is more elastic when: a) There are no substitutes b) The good is a necessity c) The good takes up a small share of the budget d) There are many close substitutes

Q6. The price elasticity of demand for gasoline is: a) Larger in the short run than in the long run b) Larger in the long run than in the short run c) The same in both periods d) Always exactly 1

Q7. Cross-price elasticity of A with respect to B is positive. This means: a) A and B are complements b) A and B are substitutes c) A and B are independent goods d) The demand for A is inelastic

Q8. Income elasticity is negative. This means the good is: a) A luxury b) A necessity c) A normal good d) An inferior good

Q9. A tax is imposed on a good with very inelastic demand. The burden of the tax falls mostly on: a) Producers b) Consumers c) The government d) Foreigners

Q10. A 10% price increase causes a 5% drop in quantity demanded. What is the elasticity? a) 2 b) 0.5 c) 5 d) 50

Q11. A producer raises the price of a good by 10%. The quantity sold falls by 15%, and total revenue: a) Rises b) Falls c) Stays the same d) Cannot be determined

Q12. The empirical evidence on the labor demand elasticity for low-wage workers (per CBO and other studies) suggests: a) An elasticity of 0 b) An elasticity in the range of −0.1 to −0.4 (smaller than a naive model would predict) c) An elasticity of −1 to −2 d) An elasticity that is highly positive

Short answer

SA1. State the formula for price elasticity of demand using the midpoint formula.

SA2. What are the four determinants of price elasticity of demand?

SA3. Distinguish a substitute from a complement using cross-price elasticity.

SA4. Why is the more inelastic side of a market the side that bears more of a tax burden?

SA5. Why is supply almost always more elastic in the long run than the short run?

True / False

TF1. A good with elasticity of 0.8 is elastic. (True / False)

TF2. Income elasticity can be negative. (True / False)

TF3. When demand is elastic, raising the price increases total revenue. (True / False)

TF4. The midpoint formula gives the same answer regardless of which point you treat as the starting point. (True / False)

TF5. The elasticity of demand for any specific brand of soft drink is generally lower than the elasticity for soft drinks as a category. (True / False — be careful!)

Selected answers in appendices/answers-to-selected.md.