Seminar 3

By Le Thanh Ha
Type I: True/False question (give a brief explanation)
1. Necessities tend to have inelastic demands, whereas luxuries have elastic demands.
2. Goods with close substitutes tend to have more elastic demands than do goods
without close substitutes.
3. The demand for gasoline will respond more to a change in price over a period of
five weeks than over a period of five years.
4. Price elasticity of demand along a linear, downward-sloping demand curve
increases as price falls.
5. If demand is perfectly inelastic, the demand curve is vertical, and the price elasticity
of demand equals 0.
6. The cross-price elasticity of garlic salt and onion salt is -2, which indicates that
garlic salt and onion salt are substitutes.
Type II: Discussion questions
1. Consider the following pairs of goods. For which of the two goods would you expect
the demand to be more price elastic? Why?
a. water or diamonds
b. insulin or nasal decongestant spray
c. food in general or breakfast cereal
d. gasoline over the course of a week or gasoline over the course of a year
e. personal computers or IBM personal computers
2. Let consider an example: two people go to the gas station they say:
 I want to buy two liters of gasoline
 I want to buy 50k VND of gasoline
What are their demand function? (elastic, inelastic, unit)
3. The demand function is: Q= 6000-30P. Assume that the current price is 75$. What is the
price elasticity of demand?
4. When the price of orange is 16k/kg and the price of tangerine is 14k/kg, the quantity
demanded of tangerine is 30 kg. When the price of orange decreases to 12k/kg, then the
quantity demanded of tangerine is 22 kg. What is the cross-price elasticity of demand for
tangerine?
5. A and B have the following demand for a good
Price Quantity Demaded (A) Quantity Demanded (B)
150 2100 1000
200 2000 800
250 1900 600

As the price of tickets rises from $200 to $250, what is the price elasticity of demand
for (i) A and (ii) B? (Use the midpoint method in your calculations.)

Type III: Multiple Choices

1. When studying how some event or policy affects a market, elasticity provides
information on the
a. equity effects on the market by identifying the winners and losers.
b. magnitude of the effect on the market.
c. speed of adjustment of the market in response to the event or policy.
d. number of market participants who are directly affected by the event or policy.
2. When consumers face rising gasoline prices, they typically
a. reduce their quantity demanded more in the long run than in the short run.
b. reduce their quantity demanded more in the short run than in the long run.
c. do not reduce their quantity demanded in the short run or the long run.
d. increase their quantity demanded in the short run but reduce their quantity
demanded in the long run.

3. Which of the following statements about the consumers’ responses to rising

gasoline prices is correct?
a. About 10 percent of the long-run reduction in quantity demanded arises because
people drive less and about 90 percent arises because they switch to more fuel-
efficient cars.
b. About 90 percent of the long-run reduction in quantity demanded arises because
people drive less and about 10 percent arises because they switch to more fuel-
efficient cars.
c. About half of the long-run reduction in quantity demanded arises because people
drive less and about half arises because they switch to more fuel-efficient cars.
d. Because gasoline is a necessity, consumers do not decrease their quantity
demanded in either the short run or the long run.
 4. For which of the following goods would demand be most elastic?
a. clothing
b. blue jeans
c. Tommy Hilfiger jeans
d. All three would have the same elasticity of demand since they are all related.

5. For a particular good, a 2 percent increase in price causes a 12 percent decrease

in quantity demanded. Which of the following statements is most likely applicable to
this good?
a. There are no close substitutes for this good.
b. The good is a luxury.
c. The market for the good is broadly defined.
d. The relevant time horizon is short.
6. The smaller the price elasticity of demand, the
a. steeper the demand curve will be through a given point.
b. flatter the demand curve will be through a given point.
c. more strongly buyers respond to a change in price between any two prices P1 and
P2.
d. smaller the decrease in equilibrium price when the supply curve shifts rightward
from S1 to S2.
Figure 3.1
Price

Pa

Pb

D1

D3 D2

Quantity

7. Refer to Figure 3.1. As price falls from Pa to Pb, which demand curve represents the
most elastic demand?
a. D1
b. D2
c. D3
d. All of the above are equally elastic.
Figure 3.2
Price
A

Demand
C Quantity

8. Refer to Figure 3.2. The section of the demand curve from A to B represents the
a. elastic section of the demand curve.
b. inelastic section of the demand curve.
c. unit elastic section of the demand curve.
d. perfectly elastic section of the demand curve.
9. Refer to Figure 3.2. If the price increases in the region of the demand curve between
points B and C, we can expect total revenue to
a. increase.
b. stay the same.
c. decrease.
d. first decrease, then increase until total revenue is maximized.
Figure 3.3
Price
15

14 Supply
H
13

12

11
G
10

9
D
8

7
C
6

5
B
4
A
3

25 50 75 100 125 150 175 200 225 250 275 300 325 350 375 400 425 450 475 500 525 550 575 Quantity

10. Refer to Figure 3.3. Along which of these segments of the supply curve is supply
least elastic?
a. between G and H
b. between C and D
c. between A and C
d. between A and B
11. If the price elasticity of demand for a good is 4.0, then a 10 percent increase in price
results in a
a. 0.4 percent decrease in the quantity demanded.
b. 2.5 percent decrease in the quantity demanded.
c. 4 percent decrease in the quantity demanded.
d. 40 percent decrease in the quantity demanded.

12. The price elasticity of demand between point A and point B, using the midpoint
method, is
a. 1. b. 1.5. c. 2. d. 2.5.

13. The elasticity of demand between point B and point C, using the midpoint method, is
a. 0.5. b. 0.75. c. 1.0. d. 1.3.

14. Which of the following price changes would result in no change in sellers’ total
revenue?
a. The price increases from $6 to $9. b. The price increases from $9 to $15.
c. The price decreases from $12 to $9. d. The price decreases from $9 to $5.

Essays
Theo tính toán của Gregory (1957), độ co giãn của cầu theo giá của ô tô tại Mỹ là -.120; độ
co giãn theo thu nhập là +3.00.
a) Muốn tăng doanh thu bán ô tô tại Mỹ, các hãng nên tăng giá hay giảm giá bán?
b) Hiện chưa có tính toán về độ co giãn của cầu theo giá cho ô tô tại Việt Nam. Tuy
nhiên, hãy bình luận xem các hãng ô tô ở Việt Nam muốn tăng doanh thu thì nên
tăng giá hay giảm giá?

Gregory C. Chow 1957, Demand for Automobiles in the United States, Amsterdam: North
Holland Publishing Company.