eco module 4

38) Suppose a 4 percent increase in price results in a 2 percent increase in the quantity supplied of a good. Calculate the price elasticity of supply and characterize the product. 2; The product is elastic. 0.2; The product is inelastic. Correct! 0.5; The product is inelastic. 50%; The product is inelastic.

0.5; The product is inelastic.

If 50 units are sold at a price of $20 and 80 units are sold at a price of $15, what is the absolute value of the price elasticity of demand? Use the midpoint formula. a. 0.17 b. 0.62 c. 1.62 d. 5

1.62

29) Which of the following statements is true? a. Whenever a firm raises its price its total revenue will increase. b. When a firm lowers its price its total revenue may either increase or decrease. c. Whenever a firm increases its quantity sold its revenue will increase. d. Total revenue will equal zero when the demand for a product is unit elastic.

When a firm lowers its price its total revenue may either increase or decrease.

Which of the following statements about price elasticity of demand is false? a. The value of the price elasticity of demand is the reciprocal of the value of the demand curve's slope. b. If quantity demanded changes by a larger percentage than the percentage change in price, demand is elastic. c. The value of the price elasticity of demand along a downward-sloping demand curve is always negative. d. A linear downward-sloping demand curve has a varying price elasticity coefficient.

a. The value of the price elasticity of demand is the reciprocal of the value of the demand curve's slope.

35) Consider the following pairs of items: a. shampoo and conditioner b. iPhones and earbuds c. a laptop computer and a desktop computer d. beef and pork e. air travel and weed killer Which of the pairs listed will have a negative cross-price elasticity? a. a and b only b. c and d only c. e only d. a, b, and c only

a. a and b only

If at a price of $24, Octavia sells 36 home-grown orchids and at $30 she sells 24 home-grown orchids, the demand for her orchids is a. elastic. b. inelastic. c. unit elastic. d. perfectly elastic.

a. elastic.

Opera Estate Girls' School is considering increasing its tuition to raise revenue. If the school believes that raising tuition will increase revenue it is assuming that the demand for attending the school is a. inelastic. b. elastic. c. unit elastic. d. perfectly elastic.

a. inelastic.

The larger the share of a good in a consumer's budget, holding everything else constant, the a. more price elastic is a consumer's demand. b. more vertical is a consumer's demand curve. c. more price inelastic is a consumer's demand. d. more unit elastic is a consumer's demand.

a. more price elastic is a consumer's demand.

The price elasticity of an upward-sloping supply curve is always a. positive. b. negative. c. greater than one. d. impossible to determine.

a. positive

) If the cross-price elasticity of demand for two goods is positive, this implies that the two goods are a. substitutes. b. complements. c. inferior. d. normal.

a. substitutes.

Holding everything else constant, the demand for a good tends to be more elastic a. the more substitutes there are for the good. b. the shorter the time period involved. c. the more consumers perceive the good to be a necessity. d. the less important the product is in consumers' budgets.

a. the more substitutes there are for the good.

24) Which of the following is not a determinant of a good's price elasticity of demand? a. the slope of the demand curve b. the share of the good in the consumer's total budget c. whether the good is a luxury or a necessity d. the passage of time

a. the slope of the demand curve

2) Suppose the value of the price elasticity of demand is -3. What does this mean? a. A 1 percent increase in the price of the good causes quantity demanded to increase by 3 percent. b. A 1 percent increase in the price of the good causes quantity demanded to decrease by 3 percent. c. A 3 percent increase in the price of the good causes quantity demanded to decrease by 1 percent. d.A $1 increase in price causes quantity demanded to fall by 3 units.

b. A 1 percent increase in the price of the good causes quantity demanded to decrease by 3 percent.

6) Jenna runs a small boutique in Capitola. She tells one of her suppliers that she is willing to pay $6 for a pair of wool hand warmers and not a dime more. On the basis of this information, what can you conclude about her price elasticity of demand for wool hand warmers? a. It is elastic. b. It is perfectly elastic. c. It is perfectly inelastic. d. The price elasticity coefficient is 0.

b. It is perfectly elastic.

Rank these three items in terms of the elasticity of the demand for them at any given price, from most elastic to least elastic: hot beverages, coffee, and Peet's Coffee. a. hot beverages, coffee, Peet's Coffee b. Peet's Coffee, coffee, hot beverages c. coffee, Peet's Coffee, hot beverages d. coffee, hot beverages, Peet's Coffee

b. Peet's Coffee, coffee, hot beverages

Which of the following statements about price elasticity of demand is true? a. The elasticity coefficient is constant along the demand curve. b. The elastic portion of a straight-line, downward-sloping demand curve corresponds to the segment above the midpoint. c. The inelastic portion of the demand curve corresponds to the segment above the midpoint. d. At the midpoint of the demand curve, the elasticity coefficient is zero.

b. The elastic portion of a straight-line, downward-sloping demand curve corresponds to the segment above the midpoint.

39) Suppose the demand curve for a product is represented by a typical downward-sloping curve. Now suppose the demand for this product increases. Which of the following statements accurately predicts the resulting increase in price? a. The more elastic the supply curve, the greater the price increase. b. The more elastic the supply curve, the smaller the price increase. c. The increase in price is not affected by the elasticity of the supply curve. d. There will be no increase in price if the supply curve is perfectly inelastic.

b. The more elastic the supply curve, the smaller the price increase.

27) Consider a demand curve that has a constant elasticity value of 0. What happens to quantity demanded and total revenue when price increases? a. The quantity demanded and total revenue remain the same. b. The quantity demanded does not change but total revenue increases. c. The quantity demanded and total revenue fall to zero. d. The quantity demanded does not change but total revenue decreases.

b. The quantity demanded does not change but total revenue increases.

Assume that the demand curve for sunblock is linear and downward-sloping. Which of the following statements about the slope of the demand curve for sunblock and the price elasticity of demand for sunblock are true? a. The slope and the price elasticity of demand are constant at all points along the demand curve for sunblock. b. The slope is constant, but the price elasticity of demand is not constant at all points along the demand curve for sunblock. c. The slope is not constant, but the price elasticity of demand is constant at all points along the demand curve for sunblock. d. The slope of the demand curve for sunblock is constant and equal to zero; demand is perfectly inelastic.

b. The slope is constant, but the price elasticity of demand is not constant at all points along the demand curve for sunblock.

33) Economists estimated that the price elasticity of beer is -0.30 and the income elasticity of beer is 0.09. This means that a. an increase in the price of beer will increase the quantity demanded of beer and beer is a normal good. b. an increase in the price of beer will lead to an increase in revenue for beer sellers and beer is a normal good. c. a decrease in the price of beer will lead to an increase in revenue for beer sellers and beer is an inferior good. d. an increase in the price of beer will lead to a decrease in the quantity demanded of beer and beer is a luxury.

b. an increase in the price of beer will lead to an increase in revenue for beer sellers and beer is a normal good.

4) If demand is inelastic, the absolute value of the price elasticity of demand is a. one b. less than one. c. greater than one. d. greater than the absolute value of the slope of the demand curve.

b. less than one.

26) Which of the following could explain why the demand for table salt is inelastic? a. Salt is a luxury good. b. Salt is a rare commodity. c. Households devote a very small portion of their income to salt purchases. d. Salt is a luxury for high-income consumers but a necessity for low-income consumers.

c. Households devote a very small portion of their income to salt purchases.

14) Which of the following statements about the price elasticity of demand along a downward-sloping linear demand curve is true? a. It is inelastic at high prices and elastic at low prices. b. It is unit elastic throughout the demand curve. c. It is elastic at the highest prices and inelastic at the lowest prices. d. It is perfectly elastic at very high prices and perfectly inelastic at very low prices.

c. It is elastic at the highest prices and inelastic at the lowest prices

If a 5 percent increase in income leads to a 10 percent increase in quantity demanded for airline travel, then airline travel is a. a necessity. b. a substitute for another good. c. a luxury. d. an inferior good.

c. a luxury.

Income elasticity measures how a good's quantity demanded responds to a. change in the goods price. b. change in the price of another good. c. change in buyers' incomes. d. producers' incomes.

c. change in buyers' incomes.

17) A linear downward-sloping demand curve has price elasticities (in absolute values) that a. increase as price decreases. b. remain constant along the demand curve. c. decrease as price decreases. d. are greater than or equal to 1.

c. decrease as price decreases.

Price elasticity of demand measures a. how responsive suppliers are to price changes. b. how responsive sales are to changes in the price of a related good. c. how responsive quantity demanded is to a change in price. d. how responsive sales are to a change in buyers' incomes.

c. how responsive quantity demanded is to a change in price.

5) Perfectly inelastic demand is represented by a demand curve which is ________, and relatively inelastic demand is represented by a demand curve which is ________. a. downward sloping; vertical b. horizontal; downward sloping c. vertical; downward sloping d. upward sloping; horizontal

c. vertical; downward sloping

3) If the percentage increase in price is 15 percent and the value of the price elasticity of demand is -3, then quantity demanded a. will increase by 45 percent. b. will increase by 5 percent. c. will decrease by 45 percent. d. will decrease by 5 percent.

c. will decrease by 45 percent.

Which of the following statements is true? a. In general, if a product has few substitutes it will have an elastic demand. b. The more time that passes the more inelastic the demand for a product becomes. c. The demand curve for a necessity is more elastic than the demand curve for a luxury. d. The more narrowly we define a market, the more elastic the demand for a product will be.

d. The more narrowly we define a market, the more elastic the demand for a product will be.

15) If the demand for a life-saving drug was perfectly inelastic and the price doubled, the quantity demanded would a. also double. b. decrease by 50%. c. be cut in half. d.remain constant.

remain constant

19) The midpoint formula is used to measure the elasticity of demand between two points on a demand curve a. when demand is elastic. b. in special cases when the percentage change in the quantity demanded is equal to the percentage change in price. c. to ensure that the elasticity has a negative value. d. to ensure that we have only one value of the price elasticity of demand between two points on a demand curve.

to ensure that we have only one value of the price elasticity of demand between two points on a demand curve.