Econ Ch. 5

Assume an increase in the price of a magazine from $3 to $4 causes the quantity demanded of the magazine to decrease from 5,000 to 4,000 copies per month. Using the midpoint formula, the price elasticity of demand coefficient for the magazine is approximately: a. 0.78. b. 1.28. c. 1. d. 0.95.

a. 0.78.

Use the midpoint formula to calculate the price elasticity of demand coefficient for a product if quantity demanded is 125 when price is $4 and quantity demanded is 75 when price is $6. a. 1.25 b. 0.8 c. 5 d. 0.2

a. 1.25

If a seller wants to increase revenue from the sale of a product with a price elasticity of demand coefficient of 1.6, then the seller should: a. decrease price because demand is elastic. b. decrease price because demand is inelastic. c. increase price because demand is elastic. d. increase price because demand is inelastic.

a. decrease price because demand is elastic.

If the income elasticity coefficient for fish tacos is 0.25, then fish tacos are: a. normal goods because the demand for fish tacos increases when income increases. b. normal goods because the demand for fish tacos decreases when income increases. c. inferior goods because the demand for fish tacos increases when income increases. d. inferior goods because the demand for fish tacos decreases when income increases.

a. normal goods because the demand for fish tacos increases when income increases.

Use the midpoint formula to calculate the price elasticity of demand coefficient for a product if quantity demanded is 30 when price is $3 and quantity demanded is 20 when price is $5. a. 1.25 b. 0.8 c. 5 d. 0.2

b. 0.8

Which of the following pairs of goods is most likely to have a cross elasticity of demand coefficient of -1.2? a. Hamburgers and pizza b. Tennis rackets and tennis balls c. Tennis rackets and badminton rackets d. Coffee and tea

b. Tennis rackets and tennis balls

If the supply of a resource is perfectly inelastic, a decrease in the demand for that resource will cause: a. an increase in the equilibrium price, but no change in the equilibrium quantity. b. a decrease in the equilibrium price, but no change in the equilibrium quantity. c. an increase in the equilibrium quantity, but no change in the equilibrium price. d. a decrease in the equilibrium quantity, but no change in the equilibrium price.

b. a decrease in the equilibrium price, but no change in the equilibrium quantity.

If the demand function is linear and downward-sloping, demand is: a. inelastic on the top portion, unit elastic in the middle, and elastic on the bottom portion of the demand function. b. elastic on the top portion, unit elastic in the middle, and inelastic on the bottom portion of the demand function. c. unit elastic on the top portion, elastic in the middle, and inelastic on the bottom portion of the demand function. d. elastic at each price if the function is very flat and inelastic at each price if the function is very steep.

b. elastic on the top portion, unit elastic in the middle, and inelastic on the bottom portion of the demand function.

The demand for a life-saving drug is likely to be: a. elastic because the drug is a necessity. b. inelastic because the drug is a necessity. c. inelastic if there are substitute drugs available. d. elastic if there are no substitute drugs available.

b. inelastic because the drug is a necessity.

If the demand for widgets decreases as consumer income increases, widgets must be a(n) ____ with a ___ income elasticity of demand. a. normal good; positive b. inferior good; negative c. complementary good; negative d. substitute good; positive

b. inferior good; negative

Suppose the income elasticity for medical care is 2 and the income elasticity for dental care is 1.5; these values imply that: a. medical care and dental care are both inferior goods. b. medical care and dental care are both normal goods. c. medical care and dental care are substitutes. d. medical care and dental care are complements.

b. medical care and dental care are both normal goods.

The responsiveness of buyers to changes in the price of a product is measured by: a. equilibrium b. price elasticity of demand. c. the change in supply relative to the change in price. d. income elasticity of demand.

b. price elasticity of demand.

Assume a university, seeking to increase parking revenue, hires a consultant to analyze the demand for covered parking on campus. If the consultant determines that the price elasticity of demand coefficient for covered parking is 0.65, then the university should be advised to: a. add more covered parking and maintain the current price. b. raise the price of covered parking on campus. c. lower the price of covered parking on campus. d. encourage students to carpool and park off campus.

b. raise the price of covered parking on campus.

Cross elasticity measures: a. the percentage change in the quantity demanded of one product divided by the percentage change in income. b. the percentage change in the quantity demanded of one product divided by the percentage change in the price of a different product. c. the percentage change in the quantity demanded of one product divided by the percentage change in the price of that product. d. the percentage change in the quantity supplied of one product divided by the percentage change in the price of that product.

b. the percentage change in the quantity demanded of one product divided by the percentage change in the price of a different product.

Ceteris paribus, the demand for a product will be more elastic when: a. the time allowed for adjustment to a price change is very short. b. there are many close substitutes available. c. the product is a necessity. d. spending on the product is small relative to income.

b. there are many close substitutes available.

Which curve represents perfectly elastic demand? (5.2-8) a. D1 b. D2 c. D3 d. D4

c. D3

Which of the following pairs of goods is most likely to have a cross elasticity of demand coefficient of -1.2? a. Beef and chicken b. Hot dogs and hamburgers c. Hot dogs and relish d. French fries and potato chips

c. Hot dogs and relish

Demand that is perfectly elastic graphs as a: a. downward sloping line. b. upward sloping line. c. horizontal line. d. vertical line.

c. horizontal line.

If quantity demanded is 30 when price is $3 and quantity demanded is 20 when price is $5, then total revenue __ if price increases from $3 to $5, implying that demand is _. a. increases; elastic b. decreases; elastic c. increases; inelastic d. decreases; inelastic

c. increases; inelastic

If the demand for electricity is inelastic but not perfectly inelastic, a 10% increase in the price of electricity is likely to: a. lead to no change in the quantity demanded of electricity. b. lead to a decrease in the quantity demanded of electricity of more than 10%. c. lead to a decrease in the quantity demanded of electricity of less than 10%. d. lead to a decrease in the quantity demanded of electricity of exactly 10%.

c. lead to a decrease in the quantity demanded of electricity of less than 10%.

The demand for a product tends to be less elastic if: a. the product is a luxury or something buyers can easily do without. b. the price of the product is large relative to income. c. there are very few good substitutes for the product. d. a lot of time is allowed for consumers to react to a price change.

c. there are very few good substitutes for the product.

Using the midpoint formula, if quantity demanded is 175 when price is $1.10 and quantity demanded is 225 when price is $0.90, the absolute value of the price elasticity of demand coefficient is equal to: a. 0.2 b. 0.25 c. 0.8 d. 1.25

d. 1.25

If an 8% increase in the price of a product results in a 4% decrease in the quantity demanded of the product, then the absolute value of the price elasticity of demand coefficient is _ and demand is said to be _. a. 2; elastic b. 2; inelastic c. 1/2; elastic d. 1/2; inelastic

d. 1/2; inelastic

If a 5 percent decrease in the price of a good results in a 10 percent increase in the quantity demanded, the absolute value of the price elasticity of demand coefficient is __, and demand is said to be ___. a. 1/2; inelastic b. 1/2; elastic c. 2; inelastic d. 2; elastic

d. 2; elastic

Which curve represents perfectly inelastic demand? (5.2-3) a. D1 b. D2 c. D3 d. D4

d. D4

Which of the following pairs of goods is most likely to have a cross elasticity greater than zero? a. Peanut butter and jelly b. Cereal and milk c. Automobiles and steel d. Orange juice and apple juice

d. Orange juice and apple juice

The demand for Smell-Good Shampoo is likely to be: a. elastic because shampoo is a necessity. b. inelastic because shampoo is a necessity. c. inelastic if there are lots of good substitutes for Smell-Good Shampoo available. d. elastic if there are lots of good substitutes for Smell-Good Shampoo available.

d. elastic if there are lots of good substitutes for Smell-Good Shampoo available.`

If the absolute value of the price elasticity of demand for tickets to musicals is 1.2, then the demand for musicals is ___ and a(n) _ in the price of tickets to musicals will lead to an increase in total revenue for musical theatres. a. inelastic; increase b. inelastic; decrease c. elastic; increase d. elastic; decrease

d. elastic; decrease

Products that are necessities with no close substitutes tend to have _ demand curves. a. perfectly elastic b. elastic c. unit elastic d. inelastic

d. inelastic

If the cross elasticity of demand between goods X and Y is 2, goods X and Y are: a. inferior goods. b. complementary goods. c. normal goods. d. substitute goods.

d. substitute goods.