End of Chapter Assessment

Chapter 3: Elasticity and its Applications

Part I. True or False: Write TRUE beside the number if the statement is correct. Otherwise, write FALSE.

_________________1. Income elasticity of demand is only applicable to quantity demanded.

_________________2. Elasticity may be determined depending on the necessity of a good.

_________________3. A perfectly inelastic supply is depicted as a horizontal line.

_________________4. Cross-price elasticity may determine whether two goods are substitutes or complements.

_________________5. Price, being the independent variable, is in the numerator of the different formula for
elasticity.

_________________6. The midpoint method provides a less accurate quantitative measure as it allows for uniformity
in a volatile movement in quantity and price.

_________________7. The more specific indication of a product, the more inelastic it shall be.

_________________8. An answer of less than 1 in IED means that the good is inferior.

_________________9. Negative amounts in the computation of elasticity does not mean it is inelastic.

_________________10. PED observes the quantity demanded of a good.

Part II. Multiple Choice: Encircle the letter of the correct answer.

1 Unit elastic is an elasticity that is equal to:

. A. Zero
B. One
C. Ten
D. One hundred

2 CPED determines the relationship between:

. A. Complements and substitutes
B. Price and demand
C. Income and demand
D. Price and supply

3 A perfectly inelastic demand means that QD will not change regardless of:
. A. Supply
B. Quantity
C. Price
D. Equilibrium

4 Percent change in price is computed by:

. A. Dividing the difference of the two periods by the price in the first period
B. Multiplying the old price with the new price.
C. Dividing the new price with the difference between the prices of the two periods.
D. None of the above.

5 Elasticity is a:
. A. Measure of relationship
B. Determinant of direction
C. Sometimes in absolute number
D. Always involves Q and P