ECO 153 - Chapter 6 Practice Quiz

In the graph of demand in the market for DVDs below, when the price is $6, demand

is elastic.

Which of the following is true about what happens to the quantity demanded of an inferior good?

It falls when income increases.

Refer to the graph below which shows the demand for DVDs. What happens to price elasticity as we move down the demand curve?

It falls.

What is true about quantity demanded if a good is considered a necessity?

It is not very responsive to changes in income.

Refer to the graph below which shows the demand for DVDs. What happens to total revenue as we move down the demand curve?

It rises up to the midpoint, and then it falls.

If we find that the price elasticity of demand for hamburgers is −1.3 while the price elasticity of demand for textbooks is −0.6, which of the following can we say is true?

The demand for hamburgers is more elastic than the demand for textbooks.

Which of the following is a true statement?

The more narrowly defined a product is, the larger the price elasticity of demand.

What happens when the quantity demanded is very responsive to changes in price?

The percentage change in quantity demanded will be greater than the percentage change in price.

When the percentage change in quantity demanded is greater than the percentage change in price, which of the following is true?

The price elasticity of demand will be greater than 1 in absolute value.

Which of the following statements about the slope and the price elasticity of demand is correct?

The slope is calculated using changes in quantity and price, whereas elasticity is calculated using percentage changes.

When demand is inelastic, what is the relationship between price and total revenue?

They move in the same direction.

If demand is perfectly elastic, then what is the impact of an increase in price?

a decrease in quantity demanded to zero

What is the effect of a cut in price when demand is inelastic?

a decrease in total revenue

What is the cross-price elasticity of demand for two products that are unrelated?

zero

Which of the following is a true statement?

All of the answers are true. (The more substitutes available for a product, the greater the price elasticity of demand; The more time that passes, the more elastic the demand for a product becomes; The demand curve for a luxury is more elastic than the demand curve for a necessity.)

Which of the following is true if quantity demanded is not very responsive to price?

All of the answers are true. (The percentage change in quantity demanded will be less than the percentage change in price; The price elasticity of demand will be less than 1 in absolute value; Demand is inelastic)

The median income in the US increased from $30,000 in 1970s to $45,000 in 1990s. Suppose during the same time, wine consumption increased from roughly 200,000 to 500,000 bottles per year. Using the midpoint formula determine which of the following statements is correct.

The income elasticity of demand is 2.14. This implies that wine is a normal good and a luxury

When demand is elastic, how will an increase in price affect total revenue?

Total revenue will fall.

Which of the following would occur when calculating price elasticity between two points on a demand curve if we are not using the midpoint formula?

We would get a different value for price increases than for price decreases.

Fill in the blanks: An increase in the price of a complement for DVDs will lead to ____________ in the quantity demanded of DVDs, so the cross-price elasticity of demand will be __________.

a decrease; negative

If the income elasticity of SUVs is greater than 1, what is the good considered?

a luxury

If the quantity demanded of a good increases as income increases, then that good must be which of the following?

a normal good

What is total revenue?

all of the answers are correct (the total amount of funds a firm receives from selling a good or service; an amount calculated by multiplying price per unit by the number of units sold; an amount that increases when price increases if demand is inelastic)

Fill in the blanks: An increase in the price of a substitute for iPods will lead to ______________ in quantity demanded of iPods, so the cross-price elasticity of demand will be ____________.

an increase; positive

The income elasticity for peanut butter is −3. This defines peanut butter as what type of good?

an inferior good

Who benefits from the concept of elasticity?

both business managers and policymakers (Elasticity is an important concept not just for business managers but for policymakers as well.)

How is the responsiveness of the quantity demanded to a change in price measured?

by dividing the percentage change in the quantity demanded of a product by the percentage change in the product's price (The responsiveness of the quantity demanded to a change in price is measured by dividing the percentage change in the quantity demanded of a product by the percentage change in the product's price.)

How do economists avoid confusion over units in the computation of elasticity?

by using percentage changes rather than simple differences

If Amazon.com raises its prices by 10 percent and, as a result, the quantity of books demanded on Barnesandnoble.com increases by 35 percent, what do consumers consider the two web sites to be?

close substitutes

If a 20% increase in the price of Red Bull energy drinks results in a decrease in the quantity demanded of 25%, we say demand for Red Bull is ___________ in this range.

elastic

Refer to the graphs above which show two potential demand curves in the market for photocopies at a printing company. In which of the two graphs does a price decrease lead to an increase in total revenue?

in the graph on the right

Refer to the graph below which shows two potential demand curves in the market for photocopies at a printing company. When price falls from $30 to $20, demand is ___________ between points A and C on D2 and demand is ___________ between points A and B on D1.

inelastic; elastic

The price elasticity of demand for a particular brand of raisin bran is, in absolute value,

larger than the price elasticity of demand for all breakfast cereals.

Sarah spends 2% of her weekly budget on chewing gum, and she spends 50% of her weekly budget on books. All else equal, we would expect her demand for chewing gum to be

less elastic than her demand for books.

32. Fill in the blanks. In general, the price elasticity of demand for a good will be _________ elastic the _________ the share of the good in the average consumer's budget.

less; smaller

When demand increases, equilibrium price will rise ________ when supply is _______ elastic.

more; less

What is the name given to the responsiveness of the quantity supplied of a good to a change in its price?

price elasticity of supply (The responsiveness of the quantity supplied of a good to changes in its price is called price elasticity of supply.)

Refer to the graph above which shows two potential demand curves in the market for photocopies at a printing company. If you start at point A on D1, what is the percentage change in quantity demanded when price falls from $30 to $20? Use the midpoint formula to calculate this percentage change.

quantity demanded rises by 55%

Refer to the graph below which shows two potential demand curves in the market for photocopies at a printing company. If you start at point A on D1, what is the percentage change in quantity demanded when the price falls from $30 to $20? Use the midpoint formula to calculate this percentage change.

quantity demanded rises by 55%

Which of the following is the most important determinant of price elasticity of demand?

the availability of substitutes

Which of the following does the midpoint formula use to compute elasticity?

the averages of the initial and final quantity and the initial and final price

Suppose that an innovation in harvesting technology increases the supply of corn. Corn farmers will experience an increase in total revenue when

the demand for corn is elastic.

If you know the value for price elasticity of demand, then which of the following can you compute?

the effect of a price change on the quantity demanded (Price elasticity of demand measures the effect of a change in price on the quantity demanded.)

When an increase in the quantity demanded is not large enough to make up for a decrease in price, total revenue falls. Which graph is more applicable to this statement?

the graph on the left

Which of the following measures is more sensitive to the units chosen for quantity and price?

the slope of a demand or supply curve (The measurement of slope is sensitive to the units chosen for quantity and price. For this reason, we use percentage changes to compute responsiveness.)

Which of the following is true about the value of the price elasticity of demand?

the value is always negative.

What do economists use the concept of elasticity for?

to measure how one economic variable responds to changes in another economic variable

What do economists use the concept of elasticity for?

to measure how one economic variable responds to changes in another economic variable (Economists use the concept of elasticity to measure how one economic variable responds to changes in another economic variable.)

When is a change in price exactly offset by a proportional change in quantity demanded, leaving revenue unaffected?

when demand is unit elastic

When quantity demanded is completely unresponsive to price, what is the value of price elasticity of demand?

zero

If a 20% increase in the price of Red Bull energy drinks results in a decrease in the quantity demanded of 25%, the price elasticity of demand is

−1.25.

Refer to the graph below which shows two potential demand curves in the market for photocopies at a printing company. Between points A and B on D1, what is the price elasticity of demand?

−1.4