Economics Test 2
If a 20 percent decrease in the price of tennis rackets increases the quantity demanded of tennis ball 5 percent, the cross-price elasticity of demand is _____. In this case, tennis rackets and tennis balls are considered to be ____.
-0.25; complements
If a 12 percent increase in the price of good B decreases the quantity of good A demanded by 20 percent, the cross-price elasticity of demand for good A is _____ and the two goods are ____.
-1.67; complements
Using the midpoint formula, the price elasticity of demand between point 'a' and point 'b' is ____.
.43
A newspaper story on the effect of higher milk prices on the market for ice cream contained the following: "As a result [of the increase in milk prices], retail prices for ice cream are up 4 percent from last year... And ice cream consumption is down 3 percent." Based on the information given, what is the price elasticity of demand for ice cream?
0.75 (in absolute value)
A gamer is excited to buy the next edition of "Elder Scrolls" and has saved up $70 to buy the game. When the gamer gets to the store, she is excited to learn that the game is on sale for $50. The gamer's consumer surplus is
$20.
The price of bottled water for the Fresh Rain Company has increased from $0.84 to $0.88 per bottle in the last month. Fresh Rain has decreased to increase production from 118 million bottles to 125 million bottles. Using the midpoint formula, the price elasticity of supply for Fresh Rain water is ____.
1.23
Using the midpoint method, the price elasticity of demand between point 'a' and point 'b' is _____.
1.6
If 50 units are sold at a price of $20 and 80 units are sold at a price of $15, what is the absolute value of the price elasticity of demand? Use the midpoint formula.
1.62
If a 5 percent increase in the price of natural gas increases the quantity of residential electricity demanded by 5 percent, the cross-price elasticity is ___. In this case, natural gas and residential electricity are considered ___.
1; substitutes
A 9% increase in income a 18% increase in demand for satellite television. The income elasticity of demand for satellite television is ___. This indicates that satellite television service is ____ good.
2.00; a normal
The price elasticity of demand for Stork ice cream is -4. Suppose you're told that following a price increase, quantity demanded fell by 10 percent. What was the percentage change in price that brought this about?
2.5 percent
Suppose a hurricane decreased the supply of oranges so that the price of oranges rose from $120 a ton to $180 a ton and quantity sold decreased from 800 tons to 240 tons. What is the absolute value of the price elasticity of demand? Use the midpoint formula.
2.69
Refer to the diagram to the right. Using the midpoint formula, calculate the absolute value of the price elasticity of demand between e and f.
3.125
The figure to the right illustrates the effect of rent control in the market for apartments on total surplus. In this case, the rent control prevents a total of ____ mutually beneficial transactions for consumers and producers, because that number of consumers and producers are forced out of the market. For consumers, the loss occurs on the _____ curve between points ____. For producers, the loss occurs on the ____ curve between points _______.
300; demand; a and c; supply; a and b
You are willing to pay $4,500 to have your house painted, and Doug's marginal cost of painting a house is $4,000. If you an Doug agree to split the difference, the price is $____, your consumer surplus is $____, and Doug's producer surplus is $____.
4250; 250; 250
One of the stated objectives of the federal Tobacco Agreement of 1997 was to reduce teenage smoking by 60 percent. The price elasticity of demand for cigarettes by teenagers is 1.30. The price must increase by ___ percent to achieve this target. (Enter your response rounded to the nearest percent.)
46
The equilibrium price of gasoline is $3.00 and the equilibrium quantity is 100 million gallons. Suppose the government sets a maximum price of $2.90. (For producers, each $0.01 increase in price increases quantity supplied by 3 million gallons.) At a price of $2.90, quantity supplied of gasoline will be ___ million gallons.
70
b. The equilibrium price of corn is $__, and the equilibrium quantity is ___ tons. c. At a price of $90, there is excess ___ equal to __ tons.
80; 60; supply; 30
In the figure to the right, Abe's producer surplus is $__, compared to Cecil's producer surplus which is $__. Abe's producer surplus is ____ than Cecil's because Cecil has a ___ marginal cost of production.
8; 4; greater; higher
The graph to the right shows a supply curve and a demand curve and several areas in between. Identify the areas on the figure that represent the following: a. Consumer surplus in the market equilibrium: ____ b. Producer surplus in the market equilibrium: ___ c. Total surplus in the market equilibrium: ___ d. Consumer surplus when the price is $4: ___ e. Producer surplus when the price is $4: ___ f. Total surplus when the price is $4: ___ g. Consumer surplus when the quantity is 40: ___ h. Producer surplus when the quantity is 40: ___ i. Total surplus when the quantity is 40: ___
ABC; DEF; ABCDEF; ABD; F; ABDF; A; BDF; ABDF
If the price elasticity of demand for canned soup is estimated at -1.62. What happens to sales revenue if the price of canned soup rises?
It falls.
Which of the following statements about the price elasticity of demand along a downward-sloping linear demand curve is true?
It is elastic at high prices and inelastic at low prices.
In an attempt to encourage a healthy society, the government is making soft drink manufacturers pay a tax for every bottle or can of soda they produce. What will be the effect on the market for soft drinks?
Supply falls and equilibrium price increases.
Suppose you own a bookstore. You believe that you can sell 40 copies per day of the latest John Grisham novel when the price is $35. You consider lowering the price to $25 and believe this will increase the quantity sold to 50 books per day. Compute the price elasticity of demand using the midpoint formula and these data. Select the correct implication from your work.
The demand for the John Grisham book is inelastic. Revenue will fall if the price is lowered.
Of the following, which is the best example of good with a perfectly inelastic demand?
a diabetic's demand for insulin
If tolls on a toll road can be raised significantly before commuters will consider using a free alternative, then an increase in tolls will result in
an increase in total revenue.
The price elasticity of demand for cigarettes among teenagers is 1.3. If the price of cigarettes increases by 20%, the quantity of cigarettes demeaned by teenagers will
decrease by 26%.
Consider the market for fastfood restaurant meals. If consumer income increases, and fastfood restaurant meals are inferior goods, what happens to the demand fro fastfood restaurant meals? As a result of the change in consumer income, equilibrium price of meals will ___ and equilibrium quantity of meals will ___.
decrease; decrease
Consider the market for private college tuition. If tuition at public colleges decrease, what will happen in the market for private college education? As a result, the equilibrium price of private colleges will __________ and the equilibrium quantity demanded for private education will _________.
decrease; decrease
Excess supply of a product will cause the price to ____. As a consequence of the price change, the quantity demanded will _____, and the quantity supplied will _____. At the current market price Pmarket of $9.000, there is an excess supply of ___ thousand pizzas per month.
decrease; increase; decrease; 18
In the figure to the right, the rent control (price ceiling of apartments is set to $300. Rent control ____ the quantity of apartments, ___ producer surplus from what it would be if the market were in equilibrium, ____ consumer surplus from what it would be if the market were in equilibrium and ___ the total market surplus.
decreases; decreases; increases; decreases
The harmattan (dry wind) ___ the supply of cocoa from West Africa and ___ the world price of cocoa.
decreases; increases
The individual supply curve is positively sloped because a higher price
encourages a firm to increase its output by purchasing more materials and hiring more workers.
If we are on the upper portion of a linear demand curve, a decrease in price will ____ total revenue.
increase
Suppose demand is inelastic and the price increases. Total revenue will ____.
increase
An excess demand for a product will cause the price to _____. As a consequence of the price change, the quantity demanded will ____ and the quantity supplied will ____. Referring to the diagram to the right, at the current market price 'PMarket' of $5, there is an excess demand of __ thousand pizzas per month.
increase; decrease; increase; 18
If tolls on a toll road can be raised significantly before commuters will consider using a free alternative, demand for using the toll road must be
inelastic.
The intersection of the supply curve and the demand curve is known the ____
market equilibrium
The market equilibrium
maximizes the total surplus of the market because it guarantees that all mutually beneficial transactions will happen
If demand is inelastic, the percentage change in
quantity demanded is less than the percentage change in price.
Facing stiff competition, Hendrix College, a small liberal art institution in Conway, Ark., decided two years ago to bolster its academic offerings, promising students at least three hands - on experiences outside the classroom, including research, internships and service projects. Although it raised tuition and fees by 29 percent, enrollment in the freshman class rose by 37 percent. Based on the information above, the demand for Hendrix College education is ____.
relatively price inelastic
Suppose in the production of pears, the short-run supply elasticity is 0.25, while the long-run supply elasticity is 3.40. In the short run, a 20% increase in the price of pears will cause the quantity supplied of pears to _____. In the long run, a 20% increase in the price of pears will cause the quantity supplied of pears to____.
rise by 5%; rise by 68%
When prices decrease, total revenue
rises when demand is price elastic.
The change in demand causes a ____ the demand curve. A change in quantity demanded causes a _____ the demand curve.
shift of; movement along
The most important determinant of the price elasticity of demand for a good is
the availability of substitutes for the good
A decrease in demand occurs when
the demand curve shifts left because a variable other than price of the product changed.
Atlantic Coffee has recently decided to raise its prices by 10%. It was shocked by its customers to the price increase when sales dropped 24%. Such a sharp drop in sales occurred because
the demand for a specific brand of coffee is highly elastic.
At the midpoint of the demand curve, in absolute value,
the price elasticity coefficient is one