Economics - Homework 5

Calculate the income elasticity if an 8 percent increase in income leads to a 4 percent increase in quantity demanded for organic produce. A. -0.66 B. 0.5 C. 1.5 D. 2

0.5

If the price elasticity of demand for canned soup is estimated at -1.62. What happens to sales revenue if the price of canned soup rises? A. It rises. B. It falls by 162 percent. C. It rises by 1.62 percent. D. It falls.

It falls.

Which of the following statements is true? A. When a firm lowers its price its total revenue may either increase or decrease. B. Whenever a firm increases its quantity sold its revenue will increase. C. Total revenue will equal zero when the demand for a product is unit-elastic. D. Whenever a firm raises its price its total revenue will increase.

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

Total revenue equals A. price per unit times quantity supplied. B. price per unit times quantity sold. C. price per unit times change in quantity sold. D. change in price per unit times quantity sold.

price per unit times quantity sold.

When there few close substitutes available for a good, demand tends to be A. perfectly elastic. B. relatively elastic. C. relatively inelastic. D. perfectly inelastic.

relatively inelastic.

When demand is elastic, a fall in price causes total revenue to rise because A. the increase in quantity sold is large enough to offset the lower price. B. when price falls, quantity sold increases so total revenue automatically rises. C. the percentage increase in quantity demanded is less than the percentage fall in price. D. the demand curve shifts.

the increase in quantity sold is large enough to offset the lower price.

Figure 6-1 Refer to Figure 6-1. A perfectly elastic demand curve is shown in A. Panel A B. Panel B C. Panel C D. Panel D

Panel B

Figure 6-1 Refer to Figure 6-1. The demand curve on which elasticity changes at every point is given in A. Panel A B. Panel B C. Panel C D. none of the above graphs.

Panel C

A demand curve that is horizontal indicates that the commodity A. is a necessity. B. has a large number of substitutes. C. must be very cheap. D. has few substitutes.

has a large number of substitutes.

Income elasticity measures A. how a good's quantity demanded responds to producers' incomes. B. how a good's quantity demanded responds to change in the goods price. C. how a good's quantity demanded responds to change in buyers' incomes. D. how a good's quantity demanded responds to change in the price of another good.

how a good's quantity demanded responds to change in buyers' incomes.

In general, a "big ticket item" such as a house or new car will A. tend to have a more inelastic demand the more time that passes. B. tend to have an inelastic demand because it has many substitutes. C. tend to have a more elastic demand than a lower priced good. D. tend to have an inelastic demand because spending on the item takes up a large share of the average consumer's budget.

tend to have a more elastic demand than a lower priced good.

If a firm lowered the price of the product it sells and found that total revenue did not change, then the demand for its product is A. perfectly elastic. B. perfectly inelastic. C. unit-elastic. D. relatively elastic.

unit-elastic.

If the cross-price elasticity of demand between Breeze Detergent and Faber Detergent is a relatively large positive number, then it indicates that A. consumers have a distinct preference for one brand versus the other. B. the two brands are probably made by the same company. C. the two brands of detergent are close substitutes. D. detergents are necessities.

the two brands of detergent are close substitutes.

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

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 increase in price causes quantity demanded to fall by 3 units. C. A 1 percent increase in the price of the good causes quantity demanded to decrease by 3 percent. D. A 3 percent increase in the price of the good causes quantity demanded to decrease by 1 percent.

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

Figure 6-1 Refer to Figure 6-1. A perfectly inelastic demand curve is shown in A. Panel A B. Panel B C. Panel C D. Panel D

Panel A

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 substitute for another good. B. an inferior good. C. a luxury. D. a necessity.

a luxury.

Price elasticity of demand measures A. how responsive sales are to a change in buyers' incomes. B. how responsive suppliers are to price changes. C. how responsive quantity demanded is to a change in price. D. how responsive sales are to changes in the price of a related good.

how responsive quantity demanded is to a change in price.

The demand for gasoline in the short run is A. unit-elastic because people tend to consume a stable amount of gasoline per period. B. inelastic because there are no good substitutes for gasoline. C. elastic because people can easily switch to public transportation. D. perfectly inelastic because people have no choice but to buy gasoline.

inelastic because there are no good substitutes for gasoline.

If a good has a negative income elasticity of demand, this indicates that the good is A. a substitute with another good. B. a complement with another good. C. normal. D. inferior.

inferior.

The demand for all carbonated beverages is likely to be ________ the demand for Dr. Pepper. A. perfectly elastic compared to B. more elastic than C. less elastic than D. perfectly inelastic compared to

less elastic than

If demand is inelastic, the absolute value of the price elasticity of demand is A. greater than one. B. less than one. C. one. D. greater than the absolute value of the slope of the demand curve.

less than one.

Figure 6-4 Refer to Figure 6-4. The inelastic segment of the demand curve A. is coincident with the horizontal axis. B. lies above the midpoint of the curve. C. is coincident with the vertical axis. D. lies below the midpoint of the curve.

lies below the midpoint of the curve.

The cross-price elasticity of demand measures the A. percentage change in the quantity demanded of one good divided by the percentage change in the price of another good. B. percentage change in the quantity demanded of one good in one location divided by the price of the same good in another location. C. absolute change in the quantity demanded of one good divided by the absolute change in the price of another good. D. percentage change in the price of one good divided by the percentage change in the quantity demanded of another good.

percentage change in the quantity demanded of one good divided by the percentage change in the price of another good.

At a price of $8 per dozen, Chuy sells 40 dozen homemade tamales per week. When he raised her price to $12 per dozen, he still sold 40 dozen per week. Based on this information, the demand for his tamales is A. perfectly inelastic. B. unit-elastic. C. inelastic. D. perfectly elastic.

perfectly inelastic.

If, for a given percentage increase in price, quantity demanded falls by a proportionately smaller percentage, then demand is A. relatively elastic. B. relatively inelastic. C. unit-elastic. D. perfectly elastic.

relatively inelastic.

The income elasticity of demand measures A. how a consumer's purchasing power is affected by a change in the price of a product. B. the income effect of a change in price. C. the responsiveness of quantity demanded to changes in income. D. the percentage change in the price of a product divided by the percentage change in consumer income.

the responsiveness of quantity demanded to changes in income.

A demand curve which is ________ represents perfectly inelastic demand, and a demand curve which is ________ represents inelastic demand. A. horizontal; downward sloping B. upward sloping; horizontal C. vertical; downward sloping D. downward sloping; vertical

vertical; downward sloping

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 decrease by 5 percent. B. will decrease by 45 percent. C. will increase by 45 percent. D. will increase by 5 percent.

will decrease by 45 percent.

If demand is perfectly inelastic, the absolute value of the price elasticity of demand is A. less than one. B. zero. C. more than one. D. equal to the absolute value of the slope of the demand curve.

zero.