Chapter 3 : ELASTICITY AND ITS APPLICATION PRINCIPLES OF MICROECONOMICS of Microeconomics Seventh Edition 7th N.Greogory Mankiw Business Administration (Faculty of Business Administration) Exercises for practice. Bài tập môn Kinh tế Vi mô
Trang 1CHAPTER 3: ELASTICITY AND ITS APPLICATION
PART 1: TRUE OR FALSE, EXPLAIN?
1 If an increase in the price of pencils from $0.1 to $0.2 reduces the quantity demanded from
1000 pencils to 500 pencils, then the demand for pencils is perfectly inelastic
2 All points in a linear demand curve has the same value of price elasticity of demand (point
elasticity) but different value of slope
3 Price elasticity of demand at the intersection of demand curve and horizontal axis is equal to
price elasticity of demand at the intersection of demand curve and vertical axis
4 When demand is perfectly elastic, total revenue is maximum
5 If demand for a good is inelastic, a rise in its price will result in a decline in total revenue
6 If a good has many substitutes, an increase in its price will result in a rise in total revenue
7 An advance in technology which shifts the market supply curve to the right always raise total
revenue received by producers
8 If 10% increase in good A’s price leads to 10% increase in total revenue, demand for good
A is unitary-elastic
9 When moving along a linear demand curve from the left to the right, total revenue initially
decreases and then increases
10 Considering two demand curves that parallel with each other, at the same price, the closer
to the origin the demand curve is, the more price elastic it is
11 An increase in Iphone’s price makes the demand curve of Samsung (D1) shift to the right
to (D2) and this (D2) is more elastic than (D1) at any quantity level (in absolute value)
12 If government imposes a binding price floor and does not buy all the surplus amount then
the absolute value of price elasticity of demand (point elasticity) will decrease in comparison
with the initial equibrium status
13 When there is a surplus in the market, sellers who sell the goods of which demand are
relatively elastic must reduce their price slightly so as to make it come back to the equilibrium
price level
14 When there is a shortage in the market, sellers who sell the goods of which demand are
inelastic must raise their price significantly so as to return to the equilibrium price level
15 The demand for milk should be more elastic than the demand for TH True Milk
16 The demand for gasoline over 5 weeks is more elastic than that over 5 years
17 The demand for laptop over 3 months is less elastic than that over 3 years
18 If cross-price elasticity between good A and B is negative, an increase in price of good A
will lead to a rightward shift in the demand curve of good B
Trang 219 If the income elasticity of demand for a bus ticket is -2, then it is an inferior good
20 If 4 percent increase in consumer’s income produces 5 percent decrease in the quantity
demanded of good X, the coefficient of income elasticity of demand is negative and therefore,
X is a normal good
21 If 6 percent increase in consumer’s income produces 5 percent increase in the quantity
demanded of good X, the coefficient of income elasticity of demand is positive and therefore,
X is an inferior good
22 Price elasticity of demand for good X is -0,8 Cross-price elasticity of demand between
good X and Y is 1.5 If the price of good X and Y both rise by 10 percent, quantity demanded
of good X will increase by 23 percent
23 Price elasticity of demand for good X is -1,2 Cross-price elasticity of demand between
good X and Y is 1.5 If the price of good X and Y both rise by 10 percent, quantity demanded
of good X will increase by 3 percent
24 All the supply curves going through the origin have constant price elasticity of supply
25 At the market equilibrium point, the absolute value of price elasticity of demand is always
equal to price elasticity of supply
26 Per-unit tax imposed on the producer always makes that producer bears a larger part in total
tax amount in comparison with consumer’s part
27 Per-unit tax imposed on the seller when the absolute value of price elasticity of demand is
greater than that of supply will make buyer suffer a larger tax burden
28 If demand is less elastic than supply, when government imposes a tax per unit on sellers,
buyers will suffer a larger tax burden
29 When government imposes a tax per unit on producer and demand is perfectly inelastic,
producer will suffer all the tax incidence
30 Per-unit tax imposed on the producer of good which demand is perfectly elastic will make
consumer bear all the tax incidence
31 If supply is less elastic than demand, when government imposes a tax of 5.000 VND/unit
on producers, the market price will increase by 5.000 VND
32 If supply is more elastic than demand, when government imposes a tax of 5.000 VND/unit
on producers, the market price will increase by less than 2.500 VND
33 If demand is perfectly inelastic, when the government imposes a tax of 5$/unit on the seller,
the market price will remain unchange
34 If demand is perfectly elastic, when the government imposes a tax per unit on seller, the
market price will increase by the same amount as tax
Trang 3PART 2: MULTIPLE CHOICE QUESTIONS
1 The price elasticity of demand is defined as
A the percentage change in the quantity demanded divided by the percentage change in
income
B the percentage change in income divided by the percentage change in the quantity
demanded
C the percentage change in the quantity demanded of a good divided by the percentage
change in the price of that good
D the percentage change in price of a good divided by the percentage change in the
quantity demanded of that good
2 If a small percentage increase in the price of a good greatly reduces the quantity
demanded for that good, the demand for that good is
A income inelastic C price elastic
B price inelastic D unit price elastic
3 In general, a flatter demand curve is more likely to be
A price elastic C price inelastic
B unit price elastic D none of the above
4 Which of the following would cause a demand curve for a good to be price inelastic?
A The good is a luxury
B There are a great number of substitutes for the good
C The good is a necessity
D The good is an inferior good
5 The demand for which of the following is likely to be the most price inelastic?
A Transportation C bus tickets
B taxi rides D airline tickets
6 If demand curve is linear (a straight line), then price elasticity of demand is
A elastic in the upper portion and inelastic in the lower portion
B inelastic in the upper portion and elastic in the lower portion
C inelastic throughout
D constant along the demand curve
7 If the slope of a demand curve is constant, then the price elasticity of demand for the
good will
A be constant
B become more elastic as price increases
Trang 4C become more elastic as price decreases
D There is not enough information to conclude
8 If demand for a good is perfectly inelastic, then the demand curve will be
A a horizontal line
B a vertical line
C a straight line with a constant negative slope
D flatter and flatter as the price of the good falls
9 A perfectly elastic demand is represented graphically by a
A relatively steep demand curve
B relatively flat demand curve
C vertical demand curve
D horizontal demand curve
10 A decrease in supply (shift to the left) will increase total revenue in that market if
A demand is price inelastic
B supply is price elastic
C supply is price inelastic
D demand is price elastic
11 If an increase in the price of a good has no impact on the total revenue in that market,
demand must be
A price inelastic
B unit price elastic
C price elastic
D All of the above
12 In which of the following instances will total revenue decline?
A price rises and supply is elastic
B price falls and demand is elastic
C price rises and demand is inelastic
D price rises and demand is elastic
13 Technological improvements in agriculture that shift the supply of agricultural
commodities to the right tend to
A increase total revenue to farmers as a whole because the demand for food is elastic
B increase total revenue to farmers as a whole because the demand for food is inelastic
C reduce total revenue to farmers as a whole because the demand for food is elastic
D reduce total revenue to farmers as a whole because the demand for food is inelastic
Trang 514 If the demand for farm products is price inelastic, a good harvest will cause farm
revenues to
A increase
B decrease
C be unchanged
D either increase or decrease, depending on what happens to supply
15 Assume that the demand for wheat is inelastic and that the momentary supply of wheat
is perfectly inelastic Then, a poor harvest will result in which of the following?
A an increase in wheat farmers' revenue
B an increase in the demand for wheat because it is in short supply
C a fall in the price of wheat
D an increase in the momentary supply of wheat
16 When the supply curve of corn shifts leftward, farmers' revenue because _
A decreases; supply is elastic
B increases; supply is inelastic
C decreases; demand is elastic
D increases; demand is inelastic
17 What effect will an increase in the price have on total revenue if demand is elastic?
A Total revenue will increase
B Total revenue will decrease
C Total revenue will first decrease and then increase
D Total revenue will remain unchanged
18 When the percentage change in price is greater than the resulting percentage change
in quantity demanded
A a decrease in price will increase total revenue
B demand may be either elastic or inelastic
C an increase in price will increase total revenue
D demand is elastic
19 The price elasticity of demand tends to be more elastic
A at points further up and to the left along the demand curve
B at points further down and to the right along the demand curve
C when the demand curve becomes steeper
D when the demand curve is vertical
20 If consumers think that there are very few substitutes for a good, then
Trang 6A supply would tend to be price elastic
B demand would tend to be price inelastic
C demand would tend to be price elastic
D supply would tend to be price inelastic
21 A good will tend to have an inelastic demand if
A the good has many close substitutes
B the good is a luxury
C the market is defined very broadly
D the time horizon is long
22 The elasticity of demand for a product is likely to be greater
A if the product is a necessity, rather than a luxury good
B the greater the amount of time over which buyers adjust to a price change
C the smaller the proportion of one's income spent on the product
D the smaller the number of substitute products available
23 A firm can sell more or less output at a constant price Demand is thus
A perfectly inelastic C relatively inelastic
B perfectly elastic D relatively elastic
24 Ceteris paribus, the fewer substitutes there are for a good the more the
demand for the good, and the longer period of time people have to adjust to a price change
of a non-durable good, the more the demand is
A elastic; elastic
B elastic; inelastic
C inelastic; elastic
D inelastic; inelastic
25 The Illinois Central Railroad once asked the Illinois Commerce Commission for
permission to increase its commuter rates by 20% The railroad argued that declining
revenues made this rate increase essential Opponents of the rate increase contended that
the railroad's revenues would fall because of the rate hike It can be concluded that
A both groups felt that the demand was elastic but for different reasons
B both groups felt that the demand was inelastic but for different reasons
C the railroad felt that the demand for passenger service was inelastic and opponents of
the rate increase felt it was elastic
D the railroad felt that the demand for passenger service was elastic and opponents of the
rate increase felt it was inelastic
Trang 726 Which of the following statements is not correct?
A If the relative change in price is greater than the relative change in the quantity
demanded associated with it, demand is inelastic
B In the range of prices in which demand is elastic, total revenue will diminish as price
decreases
C Total revenue will not change if price varies within a range where the elasticity
coefficient is unity
D Demand tends to be elastic at high prices and inelastic at low prices
27 If the price elasticity of demand for a good is -1.5, then a 5% decrease in the price of
the good will cause a
A 7.5% increase in the quantity demanded
B 7.5% decrease in the quantity demanded
C 3.33% increase in the quantity demanded
D 3.33% decrease in the quantity demanded
28 Suppose you produce tie-dyed t-shirts You notice that when you charge $10 per shirt,
you sell 200 shirts Also, when you raise the price to $12, you sell 150 shirts As the price
goes up from $10 to $12, your total revenue , therefore the demand for
tie-dyed t-shirts must be
A increases; elastic C decreases; elastic
B increases; inelastic D decreases; inelastic
29 Suppose that at a price of €30 per month, there are 30,000 subscribers to cable
television in Small Town If Small Town Cablevision raises its price to €40 per month, the
number of subscribers will fall to 20,000 Using the midpoint method for calculating the
elasticity, what is the price elasticity of demand for cable TV in Small Town?
A -1.4 C -0.75
B -0.66 D -2.0
30 If a firm needs to decrease its total revenue, the firm should the price if the
demand for its product is
A raise, inelastic C drop, elastic
B raise, elastic D drop, unit elastic
31 Suppose that General Cars increases the price of its Cadiclap model from $13,500 to
$16,500 As a result of this, the quantity demanded of the Cadiclap model decreases from
600,000 to 400,000 per year Find the price elasticity of demand of the Cadiclap using the
mid-point method
Trang 8A -3.0 C -2.0
B -0.5 D -0.3
32 Suppose that consumers' incomes rise by 3% and this causes demand for a good to
increase by 4.5% What is the income elasticity of demand?
A 1.50 C -1.50
B 0.67 D -0.67
33 Suppose that a good has an income elasticity of demand of -2.0 This means that the
good is
A Normal good C A substitute
B Inferior good D A complement
34 The price of good A increases from $4.50 to $5.50 This causes the quantity demanded
of good B to increase from 900 to 1100 units per month Find the cross price elasticity of
demand using the mid-point method
A -1.0 C +1.0
B +2.0 D -2.0
35 Suppose that two goods have a cross-price elasticity of demand of -0.8 This means
that these goods are
A Normal C substitutes
B Inferior D complements
36 If the income elasticity of demand for a good is negative, it must be
A an elastic good C a normal good
B an inferior good D a luxury good
37 If the cross-price elasticity between two goods is negative, they are likely to be
A substitutes C necessities
B complements D luxuries
38 If the income elasticity of demand for cereal is -.25 and the income elasticity of demand
for peaches is 1.5 then
A cereal and peaches are substitutes
B cereal and peaches are complements
C cereal is a normal good and peaches are an inferior good
D cereal is an inferior good and peaches are normal goods
39 If a supply curve for a good is price elastic, then
A the quantity supplied is sensitive to changes in the price of that good
B the quantity demanded is insensitive to changes in the price of that good
Trang 9C the quantity demanded is sensitive to changes in the price of that good
D the quantity supplied is insensitive to changes in the price of that good
40 In general, a steeper supply curve is more likely to be
A price elastic C price inelastic
B unit price elastic D none of the above
41 If a fisherman must sell all of his daily catch before it spoils for whatever price he is
offered, once the fish are caught the fisherman's price elasticity of supply for fresh fish is
A zero
B infinite
C one
D unable to be determined from this information
42 The price elasticity of supply measures how
A easily labor and capital can be substituted for one another in the production
process
B responsive the quantity supplied of X is to changes in the price of X
C responsive the quantity supplied of Y is to changes in the price of X
D responsive quantity supplied is to a change in incomes
43 If supply is price inelastic, the value of the price elasticity of supply must be
A infinite
B zero
C less than 1
D greater than 1
44 The main determinant of elasticity of supply is the
A number of close substitutes for the product available to consumers
B amount of time the producer has to adjust inputs in response to a price change
C urgency of consumer wants for the product
D number of uses for the product
45 If the supply of product X is perfectly elastic, an increase in its demand will raise
A equilibrium quantity but reduce equilibrium price
B equilibrium quantity but equilibrium price will be unchanged
C equilibrium price but reduce equilibrium quantity
D equilibrium price but equilibrium quantity will be unchanged
46 Suppose that a 20% increase in the price of normal good Y causes a 10% decline in
the quantity demanded of normal good X The coefficient of cross elasticity of demand is
Trang 10A negative and therefore these goods are substitutes
B negative and therefore these goods are complements
C positive and therefore these goods are substitutes
D positive and therefore these goods are complements
47 The larger the positive cross-price elasticity coefficient of demand between products
X and Y, the
A stronger their complementariness
B greater their substitutability
C smaller the price elasticity of demand for both products
D the less sensitive purchases of each are to increases in income
48 Which of the following statements is not correct?
A The larger an item is in one's budget, the greater the price elasticity of demand
B The price elasticity of demand is greater for necessities than it is for luxuries
C The larger the number of close substitutes available, the greater will be the price
elasticity of demand for a particular product
D The price elasticity of demand is greater the longer the time period under consideration
in terms of non-durable goods
49 Which of the following elasticities represents the movement along demand curve?
A Cross-price elasticity of demand
B Income elasticity of demand
C Price elasticity of demand
D Price elasticity of supply
50 The surplus caused by a binding price floor will be greatest if
A demand is inelastic and supply is elastic
B supply is inelastic and demand is elastic
C both supply and demand are elastic
D both supply and demand are inelastic
51 Assume the demand for a product is perfectly inelastic If government establishes a
price floor that is $2 above the equilibrium price, the resulting
A shortage will be greater the more elastic the supply
B shortage will be greater the less elastic the supply
C surplus will be greater the more elastic the supply
D surplus will be greater the less elastic the supply
52 Other things equal, the shortage associated with a price ceiling will be greater the