Page 523 - Krugmans Economics for AP Text Book_Neat

3. Using the midpoint method, calculate the price elasticity of from 300,000 hours to 500,000. Is supply elastic, inelastic,
supply for web-design services when the price per hour rises or unit-elastic?
from $100 to $150 and the number of hours supplied increases

Tackle the Test: Multiple-Choice Questions
1. If the cross-price elasticity between two goods is negative, this 4. A perfectly elastic supply curve is
means that the two goods are a. positively sloped.
a. substitutes. b. negatively sloped.
b. complements. c. vertical. Section 9 Behind the Demand Curve: Consumer Choice
c. normal. d. horizontal.
d. inferior. e. U-shaped
e. luxuries.
5. Which of the following leads to a more inelastic price
2. If Kylie buys 200 units of good X when her income is $20,000 elasticity of supply?
and 300 units of good X when her income increases to $25,000, I. the use of inputs that are easily obtained
her income elasticity of demand, using the midpoint method, is II. a high degree of substitutability between inputs
a. 0.06. III. a shorter time period in which to supply the good
b. 0.5. a. I only
c. 1.65. b. II only
d. 1.8. c. III only
e. 2.00. d. I and II only
e. I, II, and III
3. The income elasticity of demand for a normal good is
a. zero.
b. 1.
c. infinite.
d. positive.
e. negative.

Tackle the Test: Free-Response Questions

1. Refer to the table below to answer the following questions. 2. Assume the price of corn rises by 20% and this causes suppliers
Quantity of Quantity of to increase the quantity of corn supplied by 40%.
Price of Good A Good A Demanded Good B Demanded a. Calculate the price elasticity of supply.
$10 100 5 b. In this case, is supply elastic or inelastic?
8 110 10 c. Draw a correctly labeled graph of a supply curve illustrating
a. Using the midpoint method, calculate the price elasticity of the most extreme case of the category of elasticity you found
demand for good A. in part b (either perfectly elastic or perfectly inelastic supply).
b. Give the formula for calculating the cross-price elasticity of d. What would likely be true of the availability of inputs for a
demand between good A and good B. firm with the supply curve you drew in part c? Explain.
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 Q B /average Q B )/(change in P A /average P A )

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.

module 48 Other Elasticities 481