ECO2023 Quiz 3

Suppose an individuals demand for a good is described by the demand function P = 120 - 2Q. Using the mid-point formula, the price elasticity of demand within the range of prices between $30 and $60 is: 0.6 0.9 1.2 1.5

0.6

If the price elasticity of demand for a good at the current price is ED = -2.5, then a: 1 percent increase in price will lead to a 0.25 percent decrease in quantity demanded 1 percent increase in price will lead to a 2.5 percent decrease in quantity demanded 10 percent increase in price will lead to a 2.5 percent decrease in quantity demanded 1 percent increase in price will lead to a 25 percent decrease in quantity demanded 0.25 percent increase in price will lead to a 1 percent decrease in quantity demanded 2.5 percent increase in price will lead to a 10 percent decrease in quantity demanded

1 percent increase in price will lead to a 2.5 percent decrease in quantity demanded

Suppose that at the current prices the price elasticity of demand is 0.82, 2.56, 1.11, and 0.57 for products A, B, C, and D respectively. A one percent decrease in price will increase total revenue (TR) in which of the following: B and D B and C A and D A and B

B and C

Suppose the market demand for a good is described by the demand function P = 200 - 0.1Q. Given demand, the total revenue function relating the total revenues (TR) generated by the good to the quantity of output sold (Q) is: TR = 200P - 0.1P2 TR = 200P - 0.1Q TR = 200Q - 0.1Q2 TR = 200Q2 - 0.1Q

TR = 200Q - 0.1Q2

The price elasticity of demand is often favored over the slope of the demand curve for evaluating the affects of price changes. This is because: i. the price elasticity provides a better means for making cross-product comparisons (e.g., between goods X and Y) when the prices of the products differ ii. the price elasticity is not sensitive to the units in which price and quantity demanded are measured iii. the slope of the demand curve can only be used if the demand curve is linear i ii iii i and ii i, ii, and iii

i and ii

If the price of a good falls from $100 to $90 and as a result the quantity demanded increases from 50 to 60 units, then it may be concluded that demand in this price range: has increased is unit elastic is inelastic is elastic

is elastic

The price elasticity of demand is defined as the: change in quantity demanded divided by the change in price change in price divided by the change in quantity demanded percentage change in price divided by the percentage change in quantity demanded percentage change in quantity demanded divided by the percentage change in price

percentage change in quantity demanded divided by the percentage change in price

Suppose that a 6 percent decrease in the price of good X causes an 4 percent decrease in the quantity demanded of good Y. The cross-price elasticity of demand is therefore: You Answered negative and the goods are substitutes negative and the goods are complements positive and the goods are substitutes positive and the goods are complements

positive and the goods are substitutes

The price elasticity of supply measures how: responsive the quantity supplied of a good is to changes in its price the extent to which labor and capital can be substituted for one another in the production process responsive the quantity supplied of a good is to changes in the price of a substitute good responsive the price of a good is to changes in quantity supplied

responsive the quantity supplied of a good is to changes in its price

The Illinois Central Railroad (ICR) requested for permission by the State of Illinois to increase its commuter train rates by 20 percent. The ICR argued that declining revenues made the rate increase essential in order to maintain operations. Opponents of the rate increase contended that the ICRs revenues would fall if rates were increased. Given this information, it may be concluded that: both groups felt that the demand was elastic but for different reasons both groups felt that the demand was inelastic but for different reasons the ICR felt that the demand for passenger service was inelastic and opponents of the rate increase felt it was elastic the ICR felt that the demand for passenger service was elastic and opponents of the rate increase felt it was inelastic

the ICR felt that the demand for passenger service was inelastic and opponents of the rate increase felt it was elastic

The more broadly a product is defined (for example, gasoline in general versus a specific brand of gasoline): the larger the number of substitutes that exist and the larger the price elasticity of demand the smaller the number of substitutes that exist and the larger the price elasticity of demand the larger the number of substitutes that exist and the smaller the price elasticity of demand the smaller the number of substitutes that exist and the smaller the price elasticity of demand

the smaller the number of substitutes that exist and the smaller the price elasticity of demand

It takes a considerable amount of time to increase the production of nuts, such as almonds, walnuts, and cashews. It follows that: a change in the demand for nuts will not affect their price over a short period (e.g., one year) the supply curve for nuts over a short period (e.g., one year) is less elastic than the supply curve for nuts over a long period (e.g., ten years) an increase in the demand for nuts will result in a larger increase in the quantity supplied over a short period (e.g., one year) compared to a long period (e.g., ten years) the supply curve for nuts over a long period (e.g., ten years) is less elastic than the supply curve for nuts over a short period (e.g, one year)

the supply curve for nuts over a short period (e.g., one year) is less elastic than the supply curve for nuts over a long period (e.g., ten years)