ECON Exam 1: Chapter 5

2. Demand is said to be __________ when the quantity demanded changes at the same proportion as the price. A. elastic B. unit elastic C. inelastic D. independent

B.

3. When demand is inelastic: A. price elasticity of demand is greater than 1. B. consumers are not very responsive to changes in price. C. the percentage change in quantity demanded resulting from a price change is greater than the percentage change in price. D. demand curves appear to be fairly flat.

B.

4. Billy Bob's Barber Shop knows that a 5 percent increase in the price of their haircuts results in a 15 percent decrease in the number of haircuts purchased. What is the elasticity of demand facing Billy Bob's Barber Shop? A. 0.15 B. 3.0 C. 0.10 D. 0.05

B.

5. If the demand curve for a life-saving medicine is perfectly inelastic, then a reduction in supply will cause the equilibrium price to: A. rise and the equilibrium quantity to fall. B. rise and the equilibrium quantity to stay the same. C. rise and the equilibrium quantity to rise. D. stay the same and the equilibrium quantity to fall.

B.

6. If the demand curve is perfectly elastic, then an increase in supply will: A. decrease the price but result in no change in the quantity exchanged. B. increase the quantity exchanged but result in no change in the price. C. increase the price but result in no change in the quantity exchanged. D. increase both the price and the quantity exchanged.

B.

A 10 percent decrease in the price of potato chips leads to a 30 percent increase in the quantity of soda demanded. It appears that: A. elasticity of demand for potato chips is 3. B. cross-price elasticity of demand for soda is -3. C. elasticity of demand for potato chips is 3. D. elasticity of demand for soda 3.

B.

A 10 percent increase in the price of soda leads to a 20 percent increase in the quantity of iced tea demanded. It appears that: A. elasticity of demand for soda 0.5 and is inelastic. B. elasticity of demand for iced tea is 2 and is elastic. C. cross-price elasticity of demand for soda is -0.5. D. cross-price elasticity of demand for iced tea is -2.

B.

1. The price elasticity of demand measures the: A. responsiveness of quantity demanded to a change in quantity supplied. B. responsiveness of price to a change in quantity demanded. C. responsiveness of quantity demanded to a change in price. D. responsiveness of quantity demanded to a change in income.

C.

7. Suppose that Bobo purchases 1 pizza per month when the price is $19 and 3 pizzas per month when the price is $15. What is the price elasticity of Bobo's demand curve? A. 0.235 B. 2.00 C. 4.25 D. 6.33

C. 4.25

9. A price cut will increase the total revenue a firm receives if the demand for its product is: A. unit inelastic. B. unit elastic. C. inelastic. D. elastic.

D.

Supply is said to be ____________ when the quantity supplied is very responsive to changes in price. A. independent B. inelastic C. unit elastic D. elastic

D.

The elasticity of supply is defined as the ________ change in quantity supplied divided by the _______ change in price. A. total; percentage B. percentage; marginal C. marginal; percentage D. percentage; percentage

D.

13. A 25 percent decrease in the price of breakfast cereal leads to a 20 percent increase in the quantity of cereal demanded. As a result: A. total revenue will decrease. B. total revenue will increase. C. total revenue will remain constant. D. the elasticity of demand will increase.

A.

14. The price elasticity of demand for tickets to local baseball games is estimated to be equal to 0.89. In order to boost ticket revenues, an economist would advise: A. increasing the price of game tickets because demand is inelastic. B. not changing the price of game tickets because demand is unit elastic. C. increasing the price of game tickets because demand is elastic. D. decreasing the price of game tickets because demand is elastic.

A.

21. If the supply curve for a product is vertical, then the elasticity of supply is: A. equal to zero. B. equal to 1. C. greater than 1 but less than infinity. D. equal to infinity.

A.

22. If the supply curve for a product is horizontal, then the elasticity of supply is: A. equal to infinity. B. greater than 1 but less than infinity. C. equal to 1. D. equal to zero.

A.

24. When economists are sketching examples of demand and supply, it is common to sketch a demand or supply curve that is close to vertical, and then to refer to that curve as _________. A. inelastic B. elastic C. unitary elasticity D. income elasticity

A.

25. When economists are sketching examples of a demand or supply curve that is close to horizontal, they refer to that demand or supply curve as ____________. A. elastic B. inelastic C. having zero elasticity D. price inelasticity

A.

If cola and iced tea are good substitutes for consumers, then it is likely that: A. their cross price elasticities are greater than zero. B. their price elasticities of demand are less than one. C. their income elasticities are less than zero. D. their price elasticities of supply are less than one .

A.

Refer to Figure 5-1. Graph B represents a demand curve that is relatively __________. Total revenue __________ as the price decreases from $10 to $5. A. inelastic; decreases B. elastic; decreases C. elastic; increases D. inelastic; increases

A.

12. The demand for a product is unit elastic. At a price of $20, 10 units of a product are sold. If the price is increased to $40, then one would expect sales to equal: A. 20 units. B. 10 units. C. 5 units. D. 0 units.

C.

23. A perfectly elastic supply curve is: A. upward sloping to the right. B. downward sloping to the left. C. horizontal. D. vertical.

C.

8. Suppose that Mimi plays golf 5 times per month when the price is $40 and 4 times per month when the price is $50. What is the price elasticity of Mimi's demand curve? A. 0.1 B. 0.8 C. 1.0 D. 10.0

C.

A 10 percent increase in income leads to a 15% decrease in the quantity of macaroni and cheese demanded but no change in the price of macaroni and cheese. From this information, we can assume: A. macaroni is a normal good and price elasticity of demand is greater than 1. B. macaroni is an inferior good and price elasticity of supply is equal to zero. C. macaroni is an inferior good and price elasticity of supply is infinite. D. macaroni is an inferior good and price elasticity of demand is less than 1.

C.

Refer to Figure 5-1. With reference to Graph A, at a price of $10, total revenue equals: A. $1,000. B. $500. C. $400. D. $200.

C.