ECON 101 Practice Exam 5

Each month Jessica buys exactly 15 Big Macs regardless of the price. Jessica's price elasticity of demand for Big Macs is: A) 0. B) 1. C) greater than 1. D) less than 1 but greater than 0.

A) 0.

The price of gasoline rises 5% and the quantity of gasoline purchased falls 1%. The price elasticity of demand is equal to _____, and demand is described as _____. A) 0.2; inelastic B) 5; inelastic C) 0.2; elastic D) 5; elastic

A) 0.2; inelastic

If the estimated price elasticity of demand for foreign travel is 4: A) a 20% decrease in the price of foreign travel will increase quantity demanded by 80%. B) the demand for foreign travel is inelastic. C) a 10% increase in the price of foreign travel will increase quantity demanded by 40%. D) a 20% increase in the price of foreign travel will increase quantity demanded by 80%.

A) a 20% decrease in the price of foreign travel will increase quantity demanded by 80%.

Gas prices recently increased by 25%. In response, purchases of gasoline decreased by 5%. According to this finding, the price elasticity of demand for gas is: A) 5. B) 2. C) 0.2. D) 0.5.

C) 0.2.

The only producer of chocolate bunnies in the world, Choco's Bunny Company, recently expanded its production capacity from 1,000 to 2,000 bunnies per day. If the price elasticity of demand for bunnies is 3.33, by how much will the company have to reduce its price to sell the additional 1,000 bunnies (by the midpoint method)? A) 2.5% B) 25% C) 125% D) 20%

D) 20%

Egg producers know that the elasticity of demand for eggs is 0.1. If they want to increase sales by 5%, they will have to lower price by: A) 0.1%. B) 1%. C) 5%. D) 50%.

D) 50%.

(Figure: Demand Curves) Look at the figure Demand Curves. Which graph shows a perfectly elastic demand curve? A) A B) B C) C D) D

D) D

The demand for textbooks is price-inelastic. Which of the following would explain this? A) Many alternative textbooks can be used as substitutes. B) Students have a lot of time to adjust to price changes. C) Textbook purchases consume a large portion of most students' income. D) Textbooks are a necessity.

D) Textbooks are a necessity.

Which of the following goods is likely to have the largest price elasticity of demand? A) a bicycle B) a mountain bike C) a Cannondale mountain bike D) a green Cannondale mountain bike

D) a green Cannondale mountain bike

Which of the following is most likely to have a vertical supply curve? A) salt B) oil C) insulin D) paintings by Van Gogh

D) paintings by Van Gogh

If demand is elastic, the _____ effect dominates the _____ effect, and a(n) _____ in price will cause total revenue to rise. A) price; quantity; decrease B) price; quantity; increase C) quantity; price; increase. D) quantity; price; decrease

D) quantity; price; decrease

Which of the following is NOT a factor in determining the price elasticity of demand? A) the number of available substitutes B) time C) the proportion of the budget spent on the item D) the slope of the supply curve

D) the slope of the supply curve

A newspaper typically consumes a smaller fraction of a consumer's budget than a home entertainment system. Therefore, you would expect the demand for: A) a home entertainment system to be more price-elastic. B) a home entertainment system to be more price-inelastic. C) newspapers to be more price-elastic. D) the two to be equally price-elastic.

A) a home entertainment system to be more price-elastic.

Use of the midpoint method to calculate the price elasticity of demand eliminates the problem of computing: A) different elasticities, depending on whether price decreases or increases. B) different elasticities, because price and quantity are inversely related on the demand curve. C) total revenue when price falls and demand is inelastic. D) total revenue when price falls and demand is elastic.

A) different elasticities, depending on whether price decreases or increases.

A rancher in Oklahoma decides to raise the price of her beef by 19% over the prevailing market price. If the demand for beef is perfectly elastic, this rancher's quantity demanded will: A) fall to 0. B) not change. C) fall slightly. D) increase slightly.

A) fall to 0.

(Table: Johnson's Income and Expenditures) Look at the table Johnson's Income and Expenditures. For Johnson, pizzas are a(n) _____ good. A) inferior B) positive C) neutral D) normal

A) inferior

If demand _____ and the University of Michigan increases the price of football tickets, revenues will increase. A) is price-inelastic B) is price-elastic C) has price elasticity equal to 1 D) is perfectly price-elastic

A) is price-inelastic

If the income elasticity of demand for a good is _____, the good is said to be _____. A) negative; inferior B) negative; negative C) positive; positive D) negative; normal

A) negative; inferior

The ratio of the percentage change in quantity demanded to the percentage change in price is the _____ elasticity of demand. A) price B) quantity C) income D) cross-price

A) price

The price elasticity of demand for skiing lessons in New Hampshire is over 1. This means that the demand is _____ in New Hampshire. A) price elastic B) price inelastic C) price unit-elastic. D) perfectly price elastic

A) price elastic

The university president believes that increasing student tuition by 5% will increase revenues. If the president is correct that revenues will increase, then the tuition increase will _____ the number of students enrolling by _____. A) reduce; less than 5% B) reduce; more than 5% C) reduce; exactly 5% D) increase; 5%

A) reduce; less than 5%

The university hopes to raise more revenue by increasing parking fees. This plan will work only if: A) the price effect is larger than the quantity effect. B) the price effect is smaller than the quantity effect. C) the price effect and quantity effect are the same. D) there is no price or quantity effect.

A) the price effect is larger than the quantity effect.

The price elasticity of supply for a good is 3 if a _____ in price leads to a 3% decrease in the quantity supplied. A) 1% increase B) 1% decrease C) 9% decrease D) 9% increase

B) 1% decrease

(Figure: Demand Curves) Look at the figure Demand Curves. Gala apples have many close but not perfect substitutes and are not very expensive. Which graph best represents the demand schedule for Gala apples? A) A B) B C) C D) D

B) B

If a good has a price-inelastic demand, then which of the following is NOT likely to be characteristic of this good? A) It is a necessity and is relatively small proportion of the household budget. B) It has many substitutes. C) Consumers spend a small percentage of their income on it. D) Consumers do not have much time to adjust to market changes.

B) It has many substitutes.

Which of the following is NOT true regarding a price-elastic demand curve? A) Total revenue increases when the price falls. B) The absolute value of the price elasticity is a fraction less than 1. C) The absolute value of the price elasticity is greater than 1. D) The percent changes in the quantity demanded exceed the percent changes in the price for any small change in price.

B) The absolute value of the price elasticity is a fraction less than 1.

The long-run price elasticity of supply of crude oil is _____ the short-run price elasticity of supply of crude oil. A) less than B) greater than C) equal to D) not comparable to

B) greater than

After a price decrease, the quantity effect tends to: A) decrease total revenue. B) increase total revenue. C) make the price effect stronger. D) make the price effect weaker.

B) increase total revenue.

We predict the long-run price elasticity of demand for gasoline to be _____ the short-run price elasticity of demand for it. A) less than B) larger than C) equal to D) not comparable to

B) larger than

If the price of emergency visits to the doctor rose, we would expect: A) a large decline in the number of emergency visits to the doctor. B) only a slight decline in the number of emergency visits to the doctor. C) the number of emergency visits to the doctor to increase. D) the total income of doctors to fall dramatically.

B) only a slight decline in the number of emergency visits to the doctor.

Suppose the price elasticity of demand for cheeseburgers equals 0.37. This means the overall demand for cheeseburgers is: A) price elastic. B) price inelastic. C) price unit-elastic. D) perfectly price inelastic.

B) price inelastic.

Suppose the cross-price elasticity of demand for butter and margarine is equal to 0.96 but the cross-price elasticity for water and lemons is -0.13. This means that butter and margarine are _____, while water and lemons are _____. A) complements; substitutes B) substitutes; complements C) inelastic goods; elastic goods D) elastic goods; complements

B) substitutes; complements

A restaurant manager has estimated that the price elasticity of demand for meals is 2. If the restaurant increases menu prices by 5%, she can expect the number of meals sold to decrease by _____ and total revenue to _____. A) 10%; increase B) 5%; stay constant C) 10%; fall D) 2.5%; fall

C) 10%; fall

Which of the following statements is TRUE? A) When the income elasticity of demand is positive, the good is inferior. B) When the income elasticity of demand is negative, the good is normal. C) Income elasticity of demand measures how much the quantity demanded of a good is affected by changes in consumers' incomes. D) Income elasticity of demand measures the effect of the change in one good's price on the quantity demanded of the other good.

C) Income elasticity of demand measures how much the quantity demanded of a good is affected by changes in consumers' incomes.

A hotel has a capacity of 100 rooms in the short run. Which of the following statements best describes the short-run elasticity of supply for rooms at this hotel? A) The supply is elastic at quantities above 100 rooms but inelastic at quantities below 100 rooms. B) The elasticity of supply is equal to 1 in the short run but infinitely elastic in the long run. C) The elasticity of supply is zero in the short run because the short-run supply curve is vertical. D) The supply is infinitely elastic in the short run but perfectly inelastic in the long run.

C) The elasticity of supply is zero in the short run because the short-run supply curve is vertical.

The price elasticity of demand for fresh tomatoes has been estimated to be 2.22. If a new insecticide and fertilizer treatment yields a 20% increase in the nation's fresh tomato crop, how will that affect total revenue from fresh tomatoes, all other things unchanged? A) Total revenue will remain unchanged. B) Total revenue will fall. C) Total revenue will rise. D) The information is insufficient to answer the question.

C) Total revenue will rise.

If total revenue goes up when the price falls, demand is said to: A) be price-inelastic. B) be price unit-elastic. C) be price-elastic. D) have positive price elasticity.

C) be price-elastic.

The price elasticity of demand can be found by: A) examining only the slope of the demand curve. B) measuring absolute changes in price and quantity demanded. C) comparing the percentage change in quantity demanded to the percentage change in price. D) knowing that when price changes, quantity demanded goes in the opposite direction.

C) comparing the percentage change in quantity demanded to the percentage change in price.

For which of the following is the cross-price elasticity of demand most likely a large positive number? A) hockey pucks and hockey sticks B) DVDs and milk C) french fries and onion rings D) all of these, because the cross-price elasticity is always a positive number

C) french fries and onion rings

A major state university in the South recently raised tuition by 12%. An economics professor at this university asked his students, "How many of you will transfer to another university because of the increase in tuition?" One student in about 300 said that he or she would transfer. Based on this information, the price elasticity of demand for education at this university is: A) 1. B) highly elastic. C) highly inelastic. D) 0.

C) highly inelastic.

When demand is _____, a rise in price leads to a(n) _____ in total revenue. A) perfectly inelastic; decrease B) perfectly elastic; increase C) inelastic; increase D) elastic; decrease

C) inelastic; increase D) elastic; decrease

Suppose the price elasticity of demand for fishing lures equals 1.5 in South Carolina and 0.63 in Alabama. To increase revenue, fishing lure manufacturers should: A) lower prices in each state. B) raise prices in each state. C) lower prices in South Carolina and raise prices in Alabama. D) leave prices unchanged in South Carolina and raise prices in Alabama.

C) lower prices in South Carolina and raise prices in Alabama.

The supply curve for a good will be more elastic if: A) spending on the good accounts for a large share of a consumer's income. B) the good is a luxury item. C) production inputs are readily available at a relatively low cost. D) there is very little time for producers to respond to a price change.

C) production inputs are readily available at a relatively low cost.

Raina consumes 100% more mechanical pencils when the price of felt-tip pens increases by 50%. For Raina, pencils and pens are _____, and the cross-price elasticity of demand is _____. A) complements; 0.5 B) substitutes; -0.5 C) complements; 2 D) substitutes; 2

D) substitutes; 2

When the price goes down, the quantity demanded goes up. The price elasticity of demand measures: A) how much the price goes down. B) how much the equilibrium price goes up. C) the responsiveness of the price change to an income change. D) the responsiveness of the quantity change to the price change.

D) the responsiveness of the quantity change to the price change.

Total revenue will decrease if the price goes _____ and demand is _____. A) up; perfectly price-inelastic B) up; price-inelastic C) down; price-elastic D) up; price-elastic

D) up; price-elastic

A perfectly price-inelastic demand curve is: A) horizontal. B) downward-sloping. C) upward-sloping. D) vertical.

D) vertical.