module 48 Other Elasticities 481
Section 9 Behind the Demand Curve: Consumer Choice- Using the midpoint method, calculate the price elasticity of
supply for web-design services when the price per hour rises
from $100 to $150 and the number of hours supplied increases
from 300,000 hours to 500,000. Is supply elastic, inelastic,
or unit-elastic?Tackle the Test: Multiple-Choice Questions
- If the cross-price elasticity between two goods is negative, this
means that the two goods are
a. substitutes.
b. complements.
c. normal.
d. inferior.
e. luxuries. - If Kylie buys 200 units of good X when her income is $20,000
and 300 units of good X when her income increases to $25,000,
her income elasticity of demand, using the midpoint method, is
a. 0.06.
b. 0.5.
c. 1.65.
d. 1.8.
e. 2.00. - The income elasticity of demand for a normal good is
a. zero.
b. 1.
c. infinite.
d. positive.
e. negative.
4. A perfectly elastic supply curve is
a. positively sloped.
b. negatively sloped.
c. vertical.
d. horizontal.
e. U-shaped
5. Which of the following leads to a more inelastic price
elasticity of supply?
I. the use of inputs that are easily obtained
II. a high degree of substitutability between inputs
III. a shorter time period in which to supply the good
a. I only
b. II only
c. III only
d. I and II only
e. I, II, and III
Tackle the Test: Free-Response Questions
- Refer to the table below to answer the following questions.
Quantity of Quantity of
Price of Good A Good A Demanded Good B Demanded
$10 100 5
8 110 10
a. Using the midpoint method, calculate the price elasticity of
demand for good A.
b. Give the formula for calculating the cross-price elasticity of
demand between good A and good B.
c. Using the midpoint method, calculate the cross-price
elasticity of demand between good A and good B.
d. What does your answer for part c tell you about the
relationship between the two goods? Explain.
Answer (5 points)
1 point:0.43
1 point:% change in quantity of good B/% change in price of good A or
(change in QB/average QB)/(change in PA/average PA)
1 point:− 3
1 point:They are complements.
1 point:Cross-price elasticity is negative—when the price of good A goes down, in
addition to buying more of good A, people buy more of good B to go along with it.
- Assume the price of corn rises by 20% and this causes suppliers
to increase the quantity of corn supplied by 40%.
a. Calculate the price elasticity of supply.
b. In this case, is supply elastic or inelastic?
c. Draw a correctly labeled graph of a supply curve illustrating
the most extreme case of the category of elasticity you found
in part b (either perfectly elastic or perfectly inelastic supply).
d. What would likely be true of the availability of inputs for a
firm with the supply curve you drew in part c? Explain.