MicroEcon Chap 6

Gas prices recently increased by 25%. In response, purchases of gasoline decreased by 5%. According to this finding, the price elasticity of demand for gas is: a) 5. b) 0.5. c) 2. d) 0.2.

d) 0.2.

(Figure: Demand Curves) Look at the figure Demand Curves. Which graph shows a perfectly elastic demand curve? a) C b) A c) B d) D

d) D

(Table: Price Elasticity) Look at the table Price Elasticity. What is the price elasticity of demand between $1.50 and $1.25? a) 1.22 b) 1.75 c) 1.50 d) 1.00

a) 1.22

The price of notebooks is $5, and at that price consumers demand 12 notebooks. If the price rises to $7, consumers will decrease consumption to 4 notebooks. Using the midpoint formula, what is the price elasticity of demand for notebooks? a) 3 b) 6 c) 0.33 d) 0.17

a) 3

There are several close substitutes for Bayer aspirin but fewer substitutes for a complete medical examination. Therefore, all other things equal, you would expect the demand for: a) Bayer aspirin to be more price-elastic. b) the two to be equally price-elastic. c) Bayer aspirin to be more price-inelastic. d) medical exams to be more price-elastic.

a) Bayer aspirin to be more price-elastic.

The price elasticity of demand can be found by: a) comparing the percentage change in quantity demanded to the percentage change in price. b) examining only the slope of the demand curve. c) knowing that when price changes, quantity demanded goes in the opposite direction. d) measuring absolute changes in price and quantity demanded.

a) comparing the percentage change in quantity demanded to the percentage change in price.

The price elasticity of demand along a demand curve with a constant slope: a) decreases in absolute value as quantity demanded rises. b) is equal to the slope. c) is less than the slope. d) is greater than the slope.

a) decreases in absolute value as quantity demanded rises.

A men's tie store sold an average of 30 ties per day at $5 per tie but sold 50 of the same ties per day at $3 per tie. The price elasticity of demand, by the midpoint method, is: a) equal to 1. b) greater than 1 but less than 3. c) greater than zero but less than 1. d) greater than 3.

a) equal to 1.

A major state university in the South recently raised tuition by 12%. An economics professor at this university asked his students, "How many of you will transfer to another university because of the increase in tuition?" One student in about 300 said that he or she would transfer. Based on this information, the price elasticity of demand for education at this university is: a) highly inelastic. b) highly elastic. c) 1. d) 0.

a) highly inelastic

The income elasticity of demand of an inferior good: a) is less than 0. b) cannot be determined. c) is equal to 0. d) is greater than 0.

a) is less than zero

Suppose that an increase in the price of a good leads to an increase in total revenue. Ignoring other factors (like supply), at its current price the good must be: a) price-inelastic. b) price-elastic. c) inferior. d) perfectly price-elastic.

a) price inelastic

Since the price of walnuts increases as the demand for cashews increases, we can assume that these two goods are: a) substitutes. b) unrelated. c) superior. d) inferior.

a) substitutes

A good is likely to have an inelastic demand curve if: a) the good has few available substitutes. b) the good is a luxury. c) the consumer has significant time to respond to the price change. d) the good accounts for a large share of consumer income.

a) the good has few available substitutes.

There is one gas station in a small rural town. The owner of the station claims that he will sell the same quantity of gas no matter how high or low the price. If he is correct in this assertion, the demand curve for gas at his station must be _____, with a price elasticity of _____. a) vertical; zero b) vertical; infinity c) horizontal; infinity d) horizontal; zero

a) vertical;zero

The income elasticity of demand for eggs has been estimated to be 0.57. If income grows by 5% in a period, all other things unchanged, demand will: a) decrease by more than 5.7%. b) increase by about 2.9%. c) decrease by less than 5.7%. d) increase by more than 5.7%.

b) increase by about 2.9%.

If a change in price causes total revenue to change in the same direction, we can conclude that the demand is: a) price elastic. b) price inelastic. c) zero elastic. d) price unit-elastic.

b) price inelastic

If the price of chocolate-covered peanuts increases and the demand for strawberry licorice twists increases, this indicates that these two goods are: a) normal goods. b) substitute goods. c) complementary goods. d) inferior goods.

b) substitute goods

Goods are _____ when the cross-price elasticity of demand is positive and _____ when the cross-price elasticity of demand is negative. a) inelastic; elastic b) substitutes; complements c) complements; substitutes d) elastic; inelastic

b) substitutes; complements

Suppose the price of university sweatshirts increases from $10 to $20 and the quantity supplied increases from 20 to 30. The price elasticity of supply, using the midpoint formula, is: a) 1.66. b) 1.50. c) 0.60. d) 0.66

c) 0.60

If the price of a good increases by 20% and the quantity demanded changes by 15%, then the price elasticity of demand is equal to: a) approximately 0.33. b) 1. c) 0.75. d) approximately 1.33.

c) 0.75.

(Table: Market for Pizza) Look at the table Market for Pizza. When income changes from $1,000 to $1,400 per month, the income elasticity of demand for pizza, by the midpoint method, at a price of $14 per pizza is: a) 1.25. b) -1. c) 1.5. d) 1.

c) 1.5

A newspaper typically consumes a smaller fraction of a consumer's budget than a home entertainment system. Therefore, you would expect the demand for: a) a home entertainment system to be more price-inelastic. b) the two to be equally price-elastic. c) a home entertainment system to be more price-elastic. d) newspapers to be more price-elastic.

c) a home entertainment system to be more price-elastic.

When the price of chocolate-covered peanuts decreases from $1.10 to $0.95, the quantity demanded increases from 190 bags to 215 bags. In this price range, the demand for chocolate covered peanuts is _____, and total revenue will _____ when price decreases. a) inelastic; increase b) elastic; increase c) inelastic; decrease d) elastic; decrease

c) inelastic; decrease

The price elasticity of demand for fresh tomatoes has been estimated to be 2.22. If a new insecticide and fertilizer treatment yields a 20% increase in the nation's fresh tomato crop, how will that affect total revenue from fresh tomatoes, all other things unchanged? a) The information is insufficient to answer the question. b) Total revenue will remain unchanged. c) Total revenue will rise. d) Total revenue will fall.

c) total revenue will rise

(Figure: The Demand Curve for Oil) Look at the figure The Demand Curve for Oil. The price elasticity of demand between $20 and $21 is _____, since the price elasticity is _____. a) price-elastic; less than 1. b) price-elastic; a negative number. c) price unit-elastic; equal to 1. d) price-inelastic; less than 1.

d) price-inelastic; less than 1.