Eco 2305 Exam 2
A demand curve that is drawn as a vertical line has a price elasticity of demand equal to:
0.
When the price of hot dogs is $1.50 each, 500 hot dogs are sold every day. After the price falls to $1.35 each, 510 hot dogs are sold every day. At the original price, what is the price elasticity of demand for hot dogs?
0.2
If the absolute value of slope of the demand curve is 2.5, price is $6 per unit, and the quantity demanded is 8 units, then the price elasticity of demand is:
0.3.
If the price of textbooks increases by one percent and the quantity demanded falls by one-half percent, then the price elasticity of demand is equal to:
0.5.
The slope of the demand curve (ignoring the negative sign) is:
0.5.
Which of the following is likely to have the highest price elasticity of demand?
Nike running shoes
Refer to the figure below. Suppose this demand curve shows the demand for lattes at a single coffee shop that charges $2.00 for a latte. If the manager wants to increase total revenue, what should the manager do?
Reduce the price from $2.00 to $1.75.
As one moves down along a linear demand curve (i.e., from high price, low quantity pairs to low price, high quantity pairs), demand:
becomes less elastic.
If the cross-price elasticity of demand between blueberries and yogurt is negative, then the two goods are:
complements.
If two products are substitutes, then the:
cross-price elasticity of demand between them will be positive.
The responsiveness of the quantity demanded of one good to a change in the price of a different good is measured by the:
cross-price elasticity of demand.
Suppose that the demand for electricity has been found to be price inelastic. The most likely explanation for this finding is that:
few substitutes for electricity exist.
All else equal, compared to small-budget items such as paper towels, the price elasticity of demand for big-ticket items such as refrigerators is ______:
higher
If your income elasticity of demand for hot dogs is negative, then:
hot dogs are an inferior good for you.
One implication of the shape of the demand curve facing a perfectly competitive firm is that:
if the firm increases its price above the market price, it will earn zero revenue.
All else equal, the price elasticity of demand for a good tends to be lower:
if the good has few close substitutes.
Pepsi One is a close substitute for Diet Coke. When Pepsi introduced Pepsi One, the price elasticity of demand for Diet Coke ______ and Coke's ability to raise revenues through price increases ______.
increased; was reduced
If the price of textbooks increases by one percent and the quantity demanded falls by one-half percent, then demand for textbooks is:
inelastic
If the San Diego Opera decreases the price of their opera tickets and their total revenue falls, then this suggests that, at the original price, the demand for tickets to the San Diego Opera was:
inelastic.
If demand is ______ with respect to price, a price increase will ______ total revenue.
inelastic; increase
You have found data that indicates that the income elasticity of demand for generic (unbranded) shampoo is -0.7. You should conclude that generic shampoo:
is an inferior good.
Jenny sells lemonade in front of her house in the summer. Several other kids in Jenny's neighborhood also run lemonade stands in the summer. If the lemonade market is perfectly competitive and Jenny is charging the equilibrium price, then Jenny can increase her revenue if she:
keeps the price of her lemonade the same and increases the output.
Demand tends to be ______ in the short run than in the long run.
less elastic
Suppose the price of a Snickers candy bar is $2.00 at both the airport and the grocery store. The price elasticity of demand for a Snickers candy bar at an airport is likely to be ______ the price elasticity of demand for a Snickers candy bar at the grocery store.
less than
Refer to the figure below. At P = 8 and Q = 4, D1 is ______ elastic than D2, which is shown graphically as D1 being _____ D2.
less; steeper than
When calculating price elasticity of demand, if the percentage change in price is negative, then the percentage change in quantity demanded is typically:
positive
At point D, demand is:
price inelastic.
In surveying their alumni, State U's economics department discovered that ramen noodle consumption declined once students graduated and found jobs. One conclusion the survey team might draw from this result is that:
ramen noodles are an inferior good.
If cross-price elasticity of demand between two goods is positive, the two goods are:
substitutes
The price elasticity of demand is a measure of:
the change in quantity demanded of a good that results from a change in its price
When Taylor raised the price of earrings at Taylor's Boutique, her total revenue from selling earrings increased. This suggests that:
the demand for Taylor's earrings at the original price was inelastic.
The owner of a pizza shop observes that when she raises the price of a large pizza, her total revenue decreases, and when she lowers the price of a large pizza, her total revenue increases. This suggests that:
the demand for her large pizzas is elastic with respect to price.
If consumers respond to a 10% price reduction by buying twice as much of a particular good, we would conclude that:
the price elasticity of demand at the original price was greater than one
Suppose the company that owns the vending machines on your campus has doubled the price of a can of soda. If they then still sell almost the same number of sodas per day, this suggests:
there are few other places to purchase soda on campus.
Refer to the figure below. If the price of a latte increases from $2.00 to $2.50:
total expenditure would decrease.
If the percentage change in the price of a good is equal to the percentage change in the quantity demanded of that good, then the demand for that good is:
unit elastic.
Suppose that total expenditures for coffee reach a maximum at a price of $5 per pound. At this price, the demand for coffee is:
unit elastic.
Refer to the figure below. At a price of $2, the total expenditure on lattes each hour equals:
$60.
If the quantity demanded of a good is Q when the price for the good is P, the price elasticity of demand for that good at that point is:
(P/Q) × (1/slope)
Refer to the figure below. When P = 4, the price elasticity of demand for the demand curve D1 is ______ and D2 is ______.
1/3; 2/3
Refer to the figure below. When the price is equal to 8, the price elasticity of demand for the demand curve D1 is ______ and for D2 the price elasticity of demand is _____.
1; 4
Refer to the figure below. What is the price elasticity of demand when the price of rice is $6 per pound?
2
The price elasticity of demand at point D is:
2/5.
Refer to the figure below. The absolute value of the slope of the demand curve D1 is ______, and the absolute value of the slope of demand curve D2 is ______.
2; 1/2
If the price of cheese falls by 1 percent and the quantity demanded rises by 3 percent, then the price elasticity of demand for cheese is equal to:
3
Refer to the figure below. For demand curve D1, what is the price elasticity of demand when P = 12?
3
If 20% increase in the price of a good leads to a 60% decrease in the quantity demanded, then what is the price elasticity of demand?
3.
The price elasticity of demand at point A is:
5/2.
Which of the following is a defining characteristic of all perfectly competitive markets?
All firms sell the same standardized product.
Which of the following is NOT a characteristic of a perfectly competitive market?
Each firm in the market sells a somewhat different variant of the good.
Jenny sells lemonade in front of her house in the summer. Several other kids in Jenny's neighborhood also run lemonade stands in the summer. Suppose that the first week of summer, Jenny charged 25 cents for an 8-ounce cup of lemonade, her next-door neighbor Sam charged 50 cents for an 8-ounce cup of lemonade, and Alex across the street charged 15 cents for an 8-ounce cup of lemonade. Assuming the market for lemonade is perfectly competitive, what is most likely to happen?
Eventually prices will equalize across all three lemonade stands.
Refer to the figure below. At P = 4, how does the price elasticity of demand for D1 compare to that for D2?
It will be lower for D1 than D2.
If the absolute value of the price elasticity of demand for cell phone service is 3, then if the price of cell phone service increases by 1%, quantity demanded would:
decrease by 3%.
Jenny sells lemonade in front of her house in the summer. Several other kids in Jenny's neighborhood also run lemonade stands in the summer. The lemonade market in Jenny's neighborhood is more likely to be perfectly competitive if:
each lemonade stand sells the same kind of lemonade.
If the absolute value of the slope of the demand curve is 0.25, price is $8 per unit, and quantity demanded is 12 units, then demand for this good is:
elastic.
To increase total revenue, firms with ______ demand should lower price, and firms with ______ demand should increase price.
elastic; inelastic
All else equal, the price elasticity of demand for small-budget items such as soap tends to be ______ than the price elasticity of demand for big-ticket items such as flat-screen TVs.
lower
A firm that produces a good with many substitutes will most likely find that:
lowering its price will increase total revenue.
The primary objective of most private firms is to:
maximize profit.
The cross-price elasticity of demand between two goods that are substitutes can never be:
negative.
If most consumer goods and services are ______, then most income elasticities are ______.
normal; positive
A profit-maximizing perfectly competitive firm must decide:
only how much to produce, taking price as fixed.
If the percentage change in quantity demanded is zero for any percentage change in the price of the good, demand is classified as
perfectly inelastic.
If the percentage change in quantity demanded is zero for any percentage change in the price of the good, demand is classified as:
perfectly inelastic.