Econ 202 Chapter 5 Review (Dr. Cheng)

Last year, Carolyn bought 6 pairs of earrings when her income was $40,000. This year, her income is $52,000, and she purchased 7 pairs of earrings. Holding other factors constant, it follows that Carolyn's income elasticity of demand is about... a) 0.59, and Carolyn regards earrings as a normal good b) 0.59, and Carolyn regards earrings as an inferior good c) 1.7, and Carolyn regards earrings as an inferior good d) 1.7, and Carolyn regards earrings as a normal good

a) 0.59, and Carolyn regards earrings as a normal good

A manufacturer produces 400 units when the market price of $10 per unit and produces 600 units when the market price is $12 per unit. Using the midpoint method, for this range of prices, the price elasticity of supply is about... a) 2.2 b) 2.0 c) 200 d) 0.45

a) 2.2

Assume that a 4 percent decrease in income results in a 6 percent increase in the quantity demanded of a good. The income elasticity of demand for the good is... a) positive, and the good is a normal good b) positive, and the good is an inferior good c) negative, and the good is an inferior good d)

c) negative, and the good is an inferior good

Suppose there is a 6 percent increase in the price of good X and a resulting 6 percent decrease in the quantity of X demanded. Price elasticity of demand for X is..... a) 36 b) 0 c) 6 d) 1

d) 1

If the price elasticity of demand for a good is -10, then a 4 percent increase in price results in a.... a) 2.5 percent decrease in the quantity demanded b) 0.4 percent decrease in the quantity demanded c) 4 percent decrease in the quantity demanded d) 40 percent decrease in the quantity demanded

d) 40 percent decrease in the quantity demanded

When the price of bubble gum is $0.50, the quantity demanded is 400 packs per day. When the price falls to $0.40, the quantity demanded increases to 600. Given this information and using the midpoint method, we know that the demand for bubble gum is... a) unit elastic b) inelastic c) perfectly inelastic d) elastic

d) elastic

Elasticity of demand is closely related to the slope of the demand curve. The more responsive buyers are to a change in price, the... a)steeper the demand curve will be. b) further to the right the demand curve will sit c) closer to the vertical axis the demand curve will sit d) flatter the demand curve will be

d) flatter the demand curve will be

Which of the following statements is correct? a) The demand for flat-screen computer monitors is more elastic than the demand for monitors in general b) The demand for grandfather clocks is more elastic than the demand for clocks in general c) The demand for cardboard is more elastic over a long period of time than over a short period of time d) all of the above

d) all of the above

Suppose goods A and B are substitutes for each other. We would expect the cross-price elasticity between these two goods to be... a) either positive or negative. It depends whether A and B are normal goods or inferior goods b) negative c) either positive or negative. It depends whether the current price level is on the elastic or inelastic portion of the demand curve d) positive

d) positive

A key determinant of the price elasticity of supply is... a) how responsive buyers are to changes in sellers' prices b) the slope of the demand curve c) the ability of sellers to change the price of the good they produce d) the ability of sellers to change the amount of the good they produce

d) the ability of sellers to change the amount of the good they produce

Suppose researchers at the University of Wisconsin discover a new vitamin that increases the milk production of dairy cows. If the demand for milk is relatively inelastic, the discovery will... a) lower price and raise total revenues b) raise price and lower total revenues c) raise both price and total revenues d) lower both price and total revenues

d) lower both price and total revenues

If the price elasticity of demand for a good is 0.8, then which of the following events is consistent with a 4 percent decrease in the quantity of the good demanded? a) a 5 percent increase in the price of the good b) a 0.2 percent increase in the price of the good c) a 3.2 percent increase in the price of the good d) a 4.8 percent increase in the price of the good

a) a 5 percent increase in the price of the good

The price elasticity of demand measures... a) buyer's responsiveness to change in the price of a good b) how much more of a good consumers will demand when income rises c) the movement along a supply curve when there is a change in demand d) the extent to which demand increases as additional buyers enter the market

a) buyer's responsiveness to change in the price of a good

The difference between slope and elasticity is that slope... a) is a ratio of two changes, and elasticity is a ratio of two percentage changes b) is a ratio of two percentage changes, and elasticity is a ratio of two changes c) measures changes in quantity demanded more accurately than elasticity d) none of the above; there is no difference between slope and elasticity

a) is a ratio of two changes, and elasticity is a ratio of two percentage changes

The price elasticity of demand for eggs... a) is computed as the percentage change in quantity demanded of eggs divided by the percentage change in price of eggs b) will be lower if there is a new invention that is a close substitute for eggs c) will be higher if consumers consider eggs to be a necessity d) All of the above

a) is computed as the percentage change in quantity demanded of eggs divided by the percentage change in price of eggs

Frequently, in the short run, the quantity supplied of a good is... a) not very responsive to price changes b) determined by psychological forces and other non-economic forces c) impossible, or nearly impossible, to measure d) determined by the quantity demanded of the good

a) not very responsive to price changes

For which pairs of goods is the cross-price elasticity most likely to be positive? a) pens and pencils b) peanut butter and jelly c) college textbooks and iPods d) bicycle frames and bicycle tires

a) pens and pencils

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

a) reduce their quantity demanded more in the long run than in the short run

Suppose the price of potato chips decreases from $1.45 to $1.25 and, as a result, the quantity of potato chips demanded increases from 2,000 to 2,200. Using the midpoint method, the price elasticity of demand for potato chips in the given price range is... a) 1.55 b) 0.64 c) 1.00 d) 2.00

b) 0.64

Consider luxury weekend hotel packages in Las Vegas. When the price is $250, the quantity demanded is 2,000 packages per week. When the price is $280, the quantity demanded is 1,700 packages per week. Using the midpoint method, the price elasticity of demand is about... a) 1.43, and an increase in the price will cause hotels' total revenue to decrease b) 1.43, and an increase in the price will cause hotels' total revenue to decrease c) 0.70, and an increase in the price will cause hotels' total revenue to increase d) 1.43, and an increase in the price will cause hotels' total revenue to increase

b) 1.43, and an increase in the price will cause hotels' total revenue to decrease

Which of the following is an illustration of the market for original paintings by deceased artist Vincent Van Gogh? a) A b) B c) C d) D

b) B

Which of the following statements is valid when supply is perfectly elastic at a price of $4? a) At a price below $4, quantity supplied is infinite b) The elasticity of supply approaches infinity c) At a price above $4, quantity supplied is zero d) The supply curve is vertical

b) The elasticity of supply approaches infinity

In the market for oil in the short run, demand... a) is elastic and supply is inelastic b) and supply are both inelastic c) and supply are both elastic d) is inelastic and supply is elastic

b) and supply are both inelastic

If the price elasticity of supply is 1.2, and price increased by 5%, quantity supplied would... a) increase by 4.2% b) increase by 6% c) decrease by 4.2% d) decrease by 6%

b) increase by 6%

As we move downward and to the right along a linear, downward-sloping demand curve... a) both slope and elasticity remain constant b) slope remains constant but elasticity changes c) slope changes but elasticity remains constant d) both slope and elasticity change

b) slope remains constant but elasticity changes

If the price of walnuts rises, many people would switch from consuming walnuts to consuming pecans. But if the price of salt rises, people would have difficulty purchasing something to use in its place. These examples illustrate the importance of... a) a necessity versus a luxury in determining the price elasticity of demand b) the availability of close substitutes in determining the price elasticity of demand c) the definition of a market in determining the price elasticity of demand d) the time horizon in determining the price elasticity of demand

b) the availability of close substitutes in determining the price elasticity of demand

Which of the following could be the cross-price elasticity of demand for two goods that are complements? a) 0.2 b) 0 c) -1.3 d) 1.4

c) -1.3

Which of the following is likely to have the most price elastic demand? a) salt b) dental floss c) diamond earrings d) milk

c) diamond earrings

Suppose the cross-price elasticity of demand between hot dogs and mustard is -2.00. This implies that a 20 percent increase in the price of hot dogs will cause the quantity of mustard purchased to... a) rise by 40 percent b) fall by 200 percent c) fall by 40 percent d) rise by 200 percent

c) fall by 40 percent

If the demand for donuts is elastic, then a decrease in the price of donuts will... a) decrease total revenue of donut sellers b) not change total revenue of donut sellers c) increase total revenue of donut sellers d) There is not enough information to answer this question

c) increase total revenue of donut sellers

Goods with many close substitutes tend to have... a) less elastic demands b) income elasticities of demand that are negative c) more elastic demands d) price elasticities of demand that are unit elastic

c) more elastic demands

If soybean farmers know that the demand for soybeans is price inelastic, in order to increase their total revenues they should... a) use more fertilizers and weed killers to increase their yields b) plant additional acres to increase their output c) reduce the number of acres they plant to decrease their output d) both a and b are correct

c) reduce the number of acres they plant to decrease their output

When a supply curve is relatively flat... a) sellers are not very responsive to changes in price b) supply is relatively inelastic c) supply is relatively elastic d) both a and b are correct

c) supply is relatively elastic

For a good that is a luxury, demand... a) tends to be inelastic b) cannot be represented by a demand curve in the usual way c) tends to be elastic d) has unit elasticity

c) tends to be elastic

Cross-price elasticity of demand measures how... a) the price of one good changes in response to a change in the price of another good b) strongly normal or inferior a good is c) the quantity demanded of one good changes in response to a change in the quantity demanded of another good d) the quantity demanded of one good changes in response to a change in the price of another good

d) the quantity demanded of one good changes in response to a change in the price of another good

If sellers do not adjust their quantity supplied at all in response to a change in price, the price elasticity of supply is... a) zero, and the supply curve is horizontal b) infinity, and the supply curve is vertical c) infinity, and the supply curve is horizontal d) zero, and the supply curve is vertical

d) zero, and the supply curve is vertical