ECN 104 Lecture Notes - Lecture 6: Substitute Good, Lard, Opportunity Cost
6 Jun 2018
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Chapter4Elasticity,ConsumerSurplus,andProducerSurplus
Copyright©2010McGraw-HillRyersonLimited Page1
CHAPTER 4
Elasticity, Consumer Surplus, and Producer
Surplus
Topic Question numbers
____________________________________________________________________
4.1 Price elasticity of demand 1-49
The price elasticity coefficient and formula 1-26
Interpretation of Ed27-49
4.2 The total-revenue test 50-122
Elastic demand 50-58
Inelastic demand 59-72
Unit elasticity 73
Price elasticity along a linear demand curve 74-84
Price elasticity and the total-revenue curve 85-99
Determinants of price elasticity of demand 100-115
Applications of price elasticity of demand 116-122
4.3 Price elasticity of supply 123-154
Price elasticity of supply 123-141
The market period 142-146
The short run 147-149
The long run 150-152
Applications of price elasticity of supply 153-154
4.4 Cross elasticity and income elasticity of demand 155-192
Cross elasticity of demand 155-177
Income elasticity of demand 178-192
4.5 Elasticity and real-world applications 193-212
Elasticity and tax incidence 193-212
4.6 Consumer and producer surplus 213-228
Consumer surplus 213-219
Producer surplus 220-222
Efficiency revisited 223-226
Efficiency losses (or deadweight losses) 227-228
The last word 229-230
True-False Questions 231-250
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Chapter4Elasticity,ConsumerSurplus,andProducerSurplus
Copyright©2010McGraw-HillRyersonLimited
Page2
1. The price elasticity of demand coefficient indicates:
A) buyer responsiveness to price changes.
B) the extent to which a demand curve shifts as incomes change.
C) the slope of the demand curve.
D) how far business executives can stretch their fixed costs.
Ans: A Level: Easy Main Topic: 4.1 Price elasticity of Demand Page: 83
Subtopic: The price elasticity coefficient and formula Type: Definition
2. The basic formula for the price elasticity of demand coefficient is:
A) absolute decline in quantity demanded/absolute increase in price.
B) percentage change in quantity demanded/percentage change in price.
C) absolute decline in price/absolute increase in quantity demanded.
D) percentage change in price/percentage change in quantity demanded.
Ans: B Level: Moderate Main Topic: 4.1 Price elasticity of Demand
Page: 83 Subtopic: The price elasticity coefficient and formula
Type: Formula
3. The concept of price elasticity of demand measures:
A) the slope of the demand curve.
B) the number of buyers in a market.
C) the extent to which the demand curve shifts as the result of a price decline.
D) the sensitivity of consumers to price changes.
Ans: D Level: Easy Main Topic: 4.1 Price elasticity of Demand Page: 83
Subtopic: The price elasticity coefficient and formula Type: Definition
4. If the price elasticity of demand for a product is 2.5, then a price cut from $2.00 to
$1.80 will:
A) increase the quantity demanded by about 2.5 percent.
B) decrease the quantity demanded by about 2.5 percent.
C) increase the quantity demanded by about 25 percent.
D) increase the quantity demanded by about 250 percent.
Ans: C Level: Moderate Main Topic: 4.1 Price elasticity of Demand
Page: 84 Subtopic: The price elasticity coefficient and formula
Type: Calculation
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Chapter4Elasticity,ConsumerSurplus,andProducerSurplus
Copyright©2010McGraw-HillRyersonLimited
Page3
5. Suppose that as the price of Y falls from $2.00 to $1.90 the quantity of Y demanded
increases from 110 to 118. Then the price elasticity of demand is:
A) 4.00.
B) 2.09.
C) 1.73.
D) 1.37.
Ans: D Level: Moderate Main Topic: 4.1 Price elasticity of Demand
Page: 84 Subtopic: The price elasticity coefficient and formula
Type: Calculation
6. When the price of a product is increased 10 percent, the quantity demanded
decreases 15 percent. In this range of prices, demand for this product is:
A) elastic.
B) inelastic.
C) cross-elastic.
D) unitary elastic.
Ans: A Level: Easy Main Topic: 4.1 Price elasticity of Demand Page: 84
Subtopic: The price elasticity coefficient and formula Type: Calculation
7. If the price elasticity of demand for a product is equal to 0.5, then a 10 percent
decrease in price will:
A) increase quantity demanded by 5 percent.
B) increase quantity demanded by 0.5 percent.
C) decrease quantity demanded by 5 percent.
D) decrease quantity demanded by 0.5 percent.
Ans: A Level: Moderate Main Topic: 4.1 Price elasticity of Demand
Page: 84 Subtopic: The price elasticity coefficient and formula
Type: Calculation
8. The price elasticity of demand for widgets is 0.80. Assuming no change in the
demand curve for widgets, a 16 percent increase in sales implies a:
A) 1 percent reduction in price.
B) 12 percent reduction in price.
C) 40 percent reduction in price.
D) 20 percent reduction in price
Ans: D Level: Moderate Main Topic: 4.1 Price elasticity of Demand
Page: 84 Subtopic: The price elasticity coefficient and formula
Type: Calculation
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