Econ practice test chapter 5

For a vertical demand curve, a. The market for the good is broadly defined. b. The good is a luxury. c. The relevant time horizon is long. d. There are many close substitutes for this good.

a. The market for the good is broadly defined.

If the price elasticity of demand for a good is 2, then a 10 percent decrease in the quantity demanded must be the result of a. a 5 percent increase in the price. b. a 2.5 percent increase in the price. c. a 0.2 percent increase in the price. d. a 20 percent increase in the price.

a. a 5 percent increase in the price.

A key determinant of the price elasticity of supply is the a. price elasticity of demand. b. time horizon. c. income of consumers. d. importance of the good in a consumer's budget.

b. time horizon.

A key determinant of the price elasticity of supply is the time period under consideration. Which of the following statements best explains this fact? a. Firms prefer to change their prices in the short run rather than in the long run. b. Supply curves are steeper over long periods of time than over short periods of time. c. The number of firms in a market tends to be more variable over long periods of time than over short periods of time. d. Buyers of goods tend to be more responsive to price changes over long periods of time than over short periods of time.

c. The number of firms in a market tends to be more variable over long periods of time than over short periods of time.

Which of the following is likely to have the most price elastic demand? a. clothing b. blue jeans c. Tommy Hilfiger jeans d. All three would have the same elasticity of demand because they are all related.

c. Tommy Hilfiger jeans

A good will have a more elastic demand, the a. shorter the period of time. b. more it is regarded as a necessity. c. greater the availability of close substitutes. d. more broad the definition of the market.

c. greater the availability of close substitutes.

If the demand for donuts is elastic, then a decrease in the price of donuts will a. decrease total revenue of donut sellers. b. There is not enough information to answer this question. c. increase total revenue of donut sellers. d. not change total revenue of donut sellers.

c. increase total revenue of donut sellers.

Danita rescues dogs from her local animal shelter. When Danita's income rises by 7 percent, her quantity demanded of dog biscuits increases by 12 percent. For Danita, the income elasticity of demand for dog biscuits is a. positive, and dog biscuits are an inferior good. b. negative, and dog biscuits are an inferior good. c. positive, and dog biscuits are a normal good. d. negative, and dog biscuits are a normal good.

c. positive, and dog biscuits are a normal good.

A perfectly inelastic demand implies that buyers a. increase their purchases only slightly when the price falls. b. decrease their purchases when the price rises. c. purchase the same amount as before when the price rises or falls. d. respond substantially to an increase in price.

c. purchase the same amount as before when the price rises or falls.

A manufacturer produces 400 units when the market price is $10 per unit and produces 600 units when the market price is $12 per unit. Using the midpoint method, for this range of prices, the price elasticity of supply is about a. 2.0. b. 0.45. c. 200. d. 2.2.

d. 2.2.

A person who takes a prescription drug to control high cholesterol most likely has a demand for that drug that is a. highly responsive to changes in income. b. elastic. c. unit elastic. d. inelastic.

d. inelastic.