Microeconomics Final Exam Study Guide

Other things the same, if a price change causes total revenue to change in the opposite direction, demand is: a. perfectly inelastic. b. relatively inelastic. c. relatively elastic. d. of unit elasticity.

c. relatively elastic.

1. What is the formula for measuring the price elasticity of supply? a. Percentage change in quantity demanded/percentage change in income b. Percentage change in quantity demanded/percentage change in price c. Percentage change in quantity supplied/percentage change in income d. Percentage change in quantity supplied/percentage change in price Correct 2. Suppose the price of apples goes up from $20 to $22 a box. In direct response, Goldsboro Farms supplies 1,200 boxes of apples instead of 1,000 boxes. Compute the coefficient of price elasticity (midpoints approach) for Goldsboro's supply. Instructions: Round your answer to two decimal places. 3. Is its supply elastic, or is it inelastic?

1. d. Percentage change in quantity supplied/percentage change in price Correct 2. 1.91 3. Elastic

A 3 percent increase in the price of tea causes 6 percent increase in the demand for coffee. The cross elasticity of demand for coffee with respect to the price of tea is a. 0.5 b. 0.5 c. -2 d. 2

2

True or False: A normal good would have a positive price-elasticity of demand.

False

True or False: The smaller the number of good substitutes for a product, the greater will be the price elasticity of demand for it.

False

True or False: If price and total revenue are directly related, demand is inelastic.

True

True or False: If the quantity demanded for Good A increases from 40 to 60 when price decreases from $9 to $7, price elasticity of demand in this price range is 1.6.

True

Refer to the above graph. If the price is P3, then the total revenue is represented by area a. B + C + D + E + F + G. b. E + F + G. c. B + C + D. d. A + B + C + D + E + F + G.

a. B + C + D + E + F + G.

Refer to the graph above. Which demand curve is perfectly inelastic? a. D5 b. D3 c. D4 d. D2

a. D5

Which of the following is not characteristic of a product with relatively inelastic demand? a. There are a large number of good substitutes for the good. b. The good is regarded by consumers as a necessity. c. Buyers spend a small percentage of their total income on the product. d. Consumers have had only a short time period to adjust to changes in price.

a. There are a large number of good substitutes for the good.

Suppose the income elasticity of demand for jewelry is −1.40. Other things equal, a 5 percent increase in consumer income will a. decrease the quantity of jewelry purchased by 7 percent. b. decrease the quantity of jewelry purchased by 3.57 percent. c. increase the quantity of jewelry purchased by 3.57 percent. d. increase the quantity of jewelry purchased by 7 percent.

a. decrease the quantity of jewelry purchased by 7 percent.

If a college admits only a fixed number of applicants every year, then the school's supply curve for admissions is a. perfectly inelastic. b. quite flat. c. downward-sloping. d. perfectly elastic

a. perfectly inelastic.

If price and total revenue vary in opposite directions, demand is: a. relatively elastic. b. perfectly elastic. c. relatively inelastic. d. perfectly inelastic.

a. relatively elastic.

Refer to the diagram. In the P1 to P2 price range, we can say a. that demand is elastic with respect to price. b. that demand is inelastic with respect to price. c. that consumer purchases are relatively insensitive to price changes. d. nothing concerning price elasticity of demand.

a. that demand is elastic with respect to price.

Which of the following statements is inconsistent with an elastic demand curve? a. The price-elasticity coefficient is greater than 1. b. Total revenue increases when price increases. c. The relative change in quantity exceeds the relative change in price. d. Buyers are relatively sensitive to price changes.

b. Total revenue increases when price increases.

Suppose the income elasticity of demand for toys is +2.0. This means that: a. toys are an inferior good. b. a 10 percent increase in income will increase the purchase of toys by 2 percent. c. a 10 percent increase in income will increase the purchase of toys by 20 percent. d. a 10 percent increase in income will decrease the purchase of toys by 2 percent.

c. a 10 percent increase in income will increase the purchase of toys by 20 percent.

Suppose the price elasticity of demand for beef is about 1.2. Other things equal, this means that a 15 percent increase in the price of beef will cause the quantity of beef demanded to a. decrease by approximately 12 percent. b. increase by approximately 8 percent. c. decrease by approximately 18 percent. d. decrease by approximately 8 percent.

c. decrease by approximately 18 percent.

The narrower the definition of a product, a. the smaller the number of substitutes and the smaller the price elasticity of demand. b. the smaller the number of substitutes and the greater the price elasticity of demand. c. the larger the number of substitutes and the greater the price elasticity of demand. d. the larger the number of substitutes and the smaller the price elasticity of demand.

c. the larger the number of substitutes and the greater the price elasticity of demand.

A consumer's weekly income is $250, and the consumer buys 12 bars of chocolate per week. When weekly income increases to $280, the consumer buys 13 bars per week. The income elasticity of demand for chocolate by this consumer is about a. 1.2 b. 1.42 c. 0.5 d. 0.71

d. 0.71

Suppose that a 10 percent increase in the price of normal good Y causes a 5 percent decrease in the quantity demanded of normal good X. The coefficient of cross elasticity of demand is a. positive, and therefore these goods are substitutes. b. positive, and therefore these goods are complements. c. negative, and therefore these goods are substitutes. d. negative, and therefore these goods are complements.

d. negative, and therefore these goods are complements.

Refer to the above graphs. For which graph is the supply perfectly inelastic? a. graph D b. graph B c. graph C d. graph A

graph C