Chp. 4 & 5 Quiz

Price Elasticity of Demand:

(% change in quantity demanded)/(% change in price)

Suppose that Amanda receives a pay increase. We would expect A) Amanda's demand for inferior goods to decrease. Amanda's demand for each of two goods that are complements to increase. Amanda's demand for normal goods to decrease. to observe Amanda moving down and to the right along her given demand curve.

A) Amanda's demand for inferior goods to decrease. *the demand for inferior goods decreases as pay increases. the demand for normal goods increases as pay increases*

Suppose that 50 ice cream cones are demanded at a particular price. If the price of ice cream cones rises from that price by 4 percent, the number of ice cream cones demanded falls to 46. It follows that the A) demand for ice cream cones in this price range is elastic. B) demand for ice cream cones in this price range is inelastic. C) demand for ice cream cones in this price range is unit elastic. D) price elasticity of demand for ice cream cones in this price range is 0.

A) demand for ice cream cones in this price range is elastic. (an elastic demand means that customers respond greatly to changes in price)

Suppose consumer income decreases. If grass seed is a normal good and the supply of grass seed is perfectly elastic, the equilibrium price of grass seed will A) stay the same, and the quantity sold will decrease. B) stay the same, and the quantity sold will increase. C) increase, and the quantity sold will increase. D) decrease, and the quantity sold will increase

A) stay the same, and the quantity sold will decrease. (because grass seed is a normal good, as income goes down demand also decreases. Because price is perfectly elastic, it will not change no matter the quantity. As demand decreases, quantity decreases.)

The discovery of a new hybrid wheat would increase the supply of wheat. As a result, wheat farmers would realize an decrease in total revenue if the A) demand for wheat is elastic. B) demand for wheat is inelastic. C) supply of wheat is elastic. D) supply of wheat is inelastic.

B) demand for wheat is inelastic. (when something is inelastic, as price rises TR falls. when something is elastic, as price rises TR rises.)

You are in charge of the local city-owned aquatic center. You need to increase the revenue generated by the aquatic center to meet expenses. The mayor advises you to increase the price of a day pass. The city manager recommends decreasing the price of a day pass. You realize that A) both the mayor and the city manager think that demand is elastic. B) the mayor thinks demand is inelastic, and the city manager thinks demand is elastic. C) both the mayor and the city manager think that demand is inelastic D) the mayor thinks demand is elastic, and the city manager thinks demand is inelastic

B) the mayor thinks demand is inelastic, and the city manager thinks demand is elastic. (inelastic: customers will still buy if the price increases. elastic: customers will not buy if the price increases)

If the price elasticity of demand for a good is 2.0, then a 3 percent decrease in price results in a A) 3.0 percent increase in the quantity demanded. B) 0.75 percent increase in the quantity demanded. C) 6.0 percent increase in the quantity demanded. D) 12.0 percent increase in the quantity demanded.

C) 6.0 percent increase in the quantity demanded. ( 2.0=?/3%)

What would happen to the equilibrium price and quantity of lattés if consumers' incomes rise and lattés are a normal good? A) Both the equilibrium price and quantity would decrease. B) The equilibrium price would increase, and the equilibrium quantity would decrease. C) Both the equilibrium price and quantity would increase. D) The equilibrium price would decrease, and the equilibrium quantity would increase.

C) Both the equilibrium price and quantity would increase. (when demand increases, price and quantity increase)

Suppose the incomes of buyers in a market for a particular normal good decrease and there is also an increase in input prices. What would we expect to occur in this market? A) Equilibrium quantity would increase, but the impact on equilibrium price would be ambiguous. B) Equilibrium price would decrease, but the impact on equilibrium quantity would be ambiguous. C) Equilibrium quantity would decrease, but the impact on equilibrium price would be ambiguous. D) Equilibrium price would increase, but the impact on equilibrium quantity would be ambiguous.

C) Equilibrium quantity would decrease, but the impact on equilibrium price would be ambiguous.(when income decreases, demand for a normal good decreases. When input price increases, supply decreases. When supply and demand decrease, quantity decreases)

Suppose the income of buyers in a market for an inferior good decreases and a technological advancement occurs also. What would we expect to happen in the market? A) Equilibrium price would increase, but the impact on equilibrium quantity would be ambiguous. B) Equilibrium quantity would decrease, but the impact on equilibrium price would be ambiguous. C) Equilibrium quantity would increase, but the impact on equilibrium price would be ambiguous. D) Equilibrium price would decrease, but the impact on equilibrium quantity would be ambiguous.

C) Equilibrium quantity would increase, but the impact on equilibrium price would be ambiguous. (when demand and supply increases, quantity increases and price ?)

If textbooks and study guides are complements, then a decrease in the price of textbooks will result in A) fewer textbooks being sold. B) no difference in the quantity sold of either good. C) more study guides being sold. D) fewer study guides being sold.

C) more study guides being sold. *if demand increases for one good, it will raise for another good if they are complementary*

A competitive market is a market in which A) there are only a few sellers. B) an auctioneer helps set prices and arrange sales. C) no individual buyer or seller has any significant impact on the market price. D) the forces of supply and demand do not apply.

C) no individual buyer or seller has any significant impact on the market price.

When the price of a good or service changes, A) the supply curve shifts in the opposite direction. B) the demand curve shifts in the opposite direction. C) there is a movement along a given demand curve. D) the demand curve shifts in the opposite direction.

C) there is a movement along a given demand curve. (price change does not cause a shift in the demand curve. only income, trends and tastes, prices of related goods, expectations as well as the size and composition of the population can shift demand)

If the price elasticity of supply is 2.0, and a price increase led to a 4% increase in quantity supplied, then the price increase is about A) 0.5% B) 4.5% C) 0.2% D) 2.0%

D) 2.0% (set 2.0=4%/?)

Demand is said to be price elastic if A) buyers do not respond much to changes in the price of the good. B) demand shifts substantially when income or the expected future price of the good changes. C) the price of the good responds substantially to changes in demand. D) buyers respond substantially to changes in the price of the good.

D) buyers respond substantially to changes in the price of the good. (think of elasticity like a rubber band. when it is very elastic it stretches a lot but when it is inelastic, it does not stretch a lot)

Which of the following events must cause equilibrium price to rise? A) demand and supply both increase B) demand decreases and supply increases C) demand and supply both decrease D) demand increases and supply decreases

D) demand increases and supply decreases