ECON Midterm 2 Test 2

The price elasticity of demand for skiing lessons in New Hampshire is over 1. This means that the demand is _____ in New Hampshire.

price elastic

(Table: Johnson's Income and Expenditures) Look at the table Johnson's Income and Expenditures. For Johnson, pizzas are a(n) _____ good.

inferior

If demand _____ and the University of Michigan increases the price of football tickets, revenues will increase.

is price-inelastic

The supply curve for a good will be more elastic if:

production inputs are readily available at a relatively low cost.

If demand is elastic, the _____ effect dominates the _____ effect, and a(n) _____ in price will cause total revenue to rise.

quantity; price; decrease

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 _____.

reduce; less than 5%

Which of the following is NOT a factor in determining the price elasticity of demand?

the slope of the supply curve

The ratio of the percentage change in quantity demanded to the percentage change in price is the _____ elasticity of demand.

price

Suppose the price elasticity of demand for cheeseburgers equals 0.37. This means the overall demand for cheeseburgers is:

price inelastic.

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 _____.

10%; fall

Each month Jessica buys exactly 15 Big Macs regardless of the price. Jessica's price elasticity of demand for Big Macs is:

0.

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:

0.2.

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 _____.

0.2; inelastic

The price elasticity of supply for a good is 3 if a _____ in price leads to a 3% decrease in the quantity supplied.

1% decrease

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)?

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:

50%.

(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?

B

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

D

Which of the following statements is TRUE?

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

If a good has a price-inelastic demand, then which of the following is NOT likely to be characteristic of this good?

It has many substitutes.

The demand for textbooks is price-inelastic. Which of the following would explain this?

Textbooks are a necessity.

Which of the following is NOT true regarding a price-elastic demand curve?

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

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?

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?

Total revenue will rise.

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

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

Which of the following goods is likely to have the largest price elasticity of demand?

a green Cannondale mountain bike

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 home entertainment system to be more price-elastic.

If total revenue goes up when the price falls, demand is said to:

be price-elastic.

The price elasticity of demand can be found by:

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

Use of the midpoint method to calculate the price elasticity of demand eliminates the problem of computing:

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:

fall to 0.

For which of the following is the cross-price elasticity of demand most likely a large positive number?

french fries and onion rings

The long-run price elasticity of supply of crude oil is _____ the short-run price elasticity of supply of crude oil.

greater than

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:

highly inelastic.

After a price decrease, the quantity effect tends to:

increase total revenue

When demand is _____, a rise in price leads to a(n) _____ in total revenue.

inelastic; increase, elastic; decrease

We predict the long-run price elasticity of demand for gasoline to be _____ the short-run price elasticity of demand for it.

larger than

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:

lower prices in South Carolina and raise prices in Alabama.

If the income elasticity of demand for a good is _____, the good is said to be _____.

negative; inferior

If the price of emergency visits to the doctor rose, we would expect:

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

Which of the following is most likely to have a vertical supply curve?

paintings by Van Gogh

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 _____.

substitutes; 2

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 _____.

substitutes; complements

The university hopes to raise more revenue by increasing parking fees. This plan will work only if:

the price effect is larger than the quantity effect.

When the price goes down, the quantity demanded goes up. The price elasticity of demand measures:

the responsiveness of the quantity change to the price change.

Total revenue will decrease if the price goes _____ and demand is _____.

up; price-elastic

A perfectly price-inelastic demand curve is:

vertical.