Class exercises 5 and 6 exam 2

price elasticity of demand

a measure of how much the quantity demanded of a good responds to a change in the price of that good, computed as the percentage change in quantity demanded divided by the percentage change in price

All of the following are considered implicit costs, except: a) paying rent on an existing building. b) interest that could have been earned from the savings account if the money were not used on the existing business c) the wages the entrepreneur could have earned if he or she chose to pursue a career in corporate America. d) forgone entrepreneurial income.

a) paying rent on an existing building.

Using the midpoint method, you can calculate that the price elasticity of demand between $1 and $2 is approximately A) 0.16. B) 0.56. C) 1.8. D) 5.67.

A) 0.16.

The government recently levied a $10 tax on the producers of blue jeans. Using the graph, identify the area(s) that represent the loss of producer surplus due to the tax. A) d + e B) e C) d D) d + e + f

A) d + e

A rancher in Oklahoma decides to raise the price of her beef by 19% over what the prevailing market price equals. If the demand for beef is perfectly elastic, this rancher's quantity demanded will: A. Fall to zero B. Not change C. Fall slightly D. Increase slightly

A. Fall to zero

The cross-price elasticity of demand of complementary goods is: A. Less than 0 B. Equal to 0 C. Greater than 0 D. Between 0 and 1

A. Less than 0

If the quantity supplied responds substantially to a relatively small change in price, supply would be: A. Price elastic B. Price inelastic C. Negatively sloped D. Insensitive to changes in price

A. Price elastic

The price elasticity of a good will tend to be greater: A. The longer the relevant time period B. The fewer the number of substitute goods available C. If it's a staple or necessity with few substitutes D. If all of the above exist

A. The longer the relevant time period

If the price of chocolate-covered peanuts decreases from $1.05 to $0.95 and the quantity demanded increases from 180 bags to 220 bags, this indicates that, if other things are unchanged, the price elasticity of demand using the midpoint method is: A. 0.5 B. 1 C. 2 D. Great than 2 (absolute value)

C. 2

The graph shows the market for hotel rooms in Steamboat, Colorado. Suppose the equilibrium price is $110 and quantity is 250. If the local government levied a $30 tax per night on each hotel room rented, the new equilibrium price will equal ________ and the equilibrium quantity will equal ________. A) $140; 100 B) $130; 150 C) $120; 200 D) $110; 250

B) $130; 150

Using the midpoint method, you can calculate that the price elasticity of demand between $3 and $4 is approximately: A) 0.19. B) 0.54. C) 1. D) 1.86.

B) 0.54.

The government recently levied a $10 tax on the producers of blue jeans. Using the graph, identify the area(s) that represent the loss of consumer surplus due to the tax. A) c B) b + c C) b D) a + b + c

B) b + c

The government recently levied a $10 tax on the producers of blue jeans. Using the graph, identify the area(s) that represent tax revenue. A) a + b + c B) b + d C) c + e D) d + e + f

B) b + d

If the demand for golf is price inelastic and your local public golf course increases the green fees for using the course, you would expect: A. A decrease in total revenue received by the course B. An increase in total revenue received by the course C. An increase in the amount of golf played on the course D. no change in the amount of golf played on the course

B. An increase in total revenue received by the course

The income elasticity of demand for eggs has been estimated to be 0.57. If income grows by 5 percent in a period, how will that affect demand for eggs in that period, all other things unchanged: A. Demand will increase by more than 5.7 percent B. Demand will increase by about 2.9 percent C. Demand will decrease by more than 5.7 percent D. Demand will decrease.

B. Demand will increase by about 2.9 percent

If your purchases of shoes decrease from 11 pairs per year to 9 pairs per year when your income increases from $19,000 to $21,000 then for you, shoes are: A. Normal goods B. Inferior goods C. Substitute goods D. Complementary goods

B. Inferior goods

Each month Jacquelyn spends exactly $50 on ice cream regardless of the price. Jacquelyn's price elasticity of demand for ice cream is: A. zero B. one C. Greater than one D. Less than one

B. one

If the price of a good is increased by 15 percent and the quantity demanded changes by 20 percent, then the price elasticity of demand is equal to: A. 0.75 B. Approximately 0.33 C. Approximately 1.33 D. 1

C. Approximately 1.33

You manage a popular nightclub and lately revenues have been disappointing. Your bouncer suggests that raising drink prices will increase revenues, but your bartender suggests that decreasing drink prices will increase revenues. You aren't sure who is right, but you do know that: A. both the bouncer and bartender think the demand for drinks is inelastic. B. your bouncer thinks the demand for drinks is inelastic, while your bartender thinks the demand for drinks is elastic. C. both the bouncer and bartender think the demand for drinks is elastic. D. both the bouncer and bartender think the demand for drinks is inelastic.

B. your bouncer thinks the demand for drinks is inelastic, while your bartender thinks the demand for drinks is elastic.

Using the midpoint method, you can calculate that the price elasticity of demand between $6 and $7 is approximately: A) 0.19. B) 1. C) 1.86. D) 5.4.

C) 1.86.

Between the two prices, P1 and P2, which demand curve has the highest price elasticity (absolute value)? A) D1 B) D2 C) D3 D) D4

C) D3

The government recently levied a $10 tax on the producers of blue jeans. Using the graph, identify the area(s) that represent deadweight loss. A) a + b + c B) b + d C) c + e D) d + e + f

C) c + e

Using the midpoint method, you can calculate that the price elasticity of demand between $8 and $9 is approximately :A) 0.18. B) 0.56. C) 1.8. D) 5.67.

D) 5.67.

Between the two prices, P1 and P2, which demand curve has the lowest price elasticity (absolute value)? A) D1 B) D2 C) D3 D) D4

D) D4

The government recently levied a $10 tax on the producers of blue jeans. Using the graph, identify the area(s) that represent consumer and producer surplus after the tax was levied. A) a + b + c B) a + b + c + d + e + f C) d + e + f D) a + f

D) a + f

Sandy owns a firm with annual revenue of $1 million. Wages, rent, and other costs are $900,000. Suppose that instead of being an entrepreneur, Sandy could get a job with an annual salary of $250,000. Assume that a job would be as satisfying to Sandy as being an entrepreneur. Calculate Sandy's economic profit. a) $100,000 b) $50,000 c) $0 d) -$150,000

d) -$150,000