2.3 AP ECON Elasticities

Multiple Choice

If the value of the price elasticity of supply is 3, which of the following is true?

• Supply is inelastic.

• A percentage increase in price will lead to a relatively smaller percentage increase in quantity supplied.

• The supply curve is downward sloping with respect to the price of output.

• A 10 percent decrease in price will decrease the quantity supplied by 30 percent.

• A 3 percent increase in price will decrease the quantity supplied by 10 percent.

Multiple Choice

In the figure above, at which of the given points is demand most elastic?

• X

• Y

• Z

• The elasticity is the same for all points.

• The relative elasticity cannot be determined with the given information.

Open Ended

Given the initial price of $10 and quantity supplied of 100, and a new price of $20 with quantity supplied of 110, use the midpoint formula to calculate the price elasticity of supply (PES)

Multiple Choice

Assume a 10 percent increase in price increased the market quantity supplied by 20 percent. Which of the following is true?

• The value of the price elasticity of supply is 2.

• The value of the price elasticity of supply is 0.5.

• Supply is price inelastic.

• Demand is price elastic.

• This price-quantity combination violates the law of supply.

Multiple Choice

The cross-price elasticity of demand between goods J and K is -3. A 20 percent decrease in the price of good K will result in a

• 3 percent decrease in the quantity demanded of good K

• 15 percent decrease in the quantity demanded of good K

• 6 percent increase in the quantity demanded of good J

• 12 percent increase in the quantity demanded of good J

• 60 percent increase in the quantity demanded of good J

Multiple Choice

Which of the following statements relating to income elasticity is true?

• A positive value for the income elasticity coefficient indicates an inferior good.

• If good X and good Y have negative income elasticities, then both goods are substitutes.

• With an income elasticity coefficient of 0.6, the demand is inelastic and the good is an inferior good.

• With an income elasticity coefficient of 5, a 10 percent increase in income will lead to a 50 percent increase in the quantity demanded of the good.

• With an income elasticity coefficient of -1.2, a 10 percent increase in income will lead to a 12 percent decrease in the price of the good.

Multiple Choice

Assume the income elasticity of demand for good Z equals -5.0. Which of the following is true?

• Good Z is a normal good.

• Good Z must have an inelastic demand.

• An increase in income will lead to a decrease in demand.

• An increase in income will lead to an increase in demand.

• The income effect of a price increase will be a decrease in quantity demanded at every price.