ECO Study Guide Chapt. 5

Tacos and pizza are substitutes. If a 2 percent change in the price of a taco leads to a 4 percent change in the demand for pizza, the cross elasticity of demand equals A. 2. B. -2. C. 1/2. D. -1/2. E. 4.

A. 2.

If a 5 percent decrease in income leads to a 15 percent decrease in the demand for a good, the income elasticity of demand equals A. 3 and the good is a normal good. B. -1/3 and the good is an inferior good. C. 1/3 and demand for the good is income elastic. D. 3 and the good is an inferior good. E. -3 and the demand for the good is income inelastic.

A. 3 and the good is a normal good.

One reason why the price elasticity of supply for DVD players is greater than one is that A. DVD players can be easily stored. B. cost of producing DVD players is small. C. the demand for DVD players is fairly large. D. the storage of DVD players is not possible. E. DVD players require relatively advanced technology for their production

A. DVD players can be easily stored.

If the percentage change in the price of a good exceeds the percentage change in the quantity supplied, then the supply is A. Inelastic. B. unit elastic. C. elastic. D. perfectly elastic. E. perfectly inelastic.

A. Inelastic.

The figure above shows the supply curve for a good with A. a perfectly inelastic supply. B. a perfectly elastic supply. C. an inelastic supply. D. an elastic supply. E. a unit elastic supply.

A. a perfectly inelastic supply.

To determine the price elasticity of demand, we A. compare the percentage change in the quantity demanded to the percentage change in the price. B. need information on consumers' incomes. C. divide the quantity by the price. D. need to know how much is available. E. compare the change in the quantity to the change in price.

A. compare the percentage change in the quantity demanded to the percentage change in the price.

The fact that there is a very limited amount of land in Hong Kong means the supply of new apartments in Hong Kong is A. inelastic. B. unit elastic. C. perfectly elastic. D. limited by the demand. E. elastic.

A. inelastic.

If a 1 percent increase in the price of X increases the quantity demanded of Y by 2 percent, then X and Y are A.substitutes and the cross elasticity of demand equals 2. B. complements and the cross elasticity of demand equals 2. C. substitutes and the cross elasticity of demand equals 1/2. D. complements and the income elasticity of demand equals 2. E. normal goods and the income elasticity of demand of each equals 2.

A. substitutes and the cross elasticity of demand equals 2.

The price of one bedroom apartments in Cheyenne increased from $55,000 to $65,000 and the quantity of apartment for sale increased from 25 to 30. Using the midpoint method, the price elasticity of supply for apartments in Cheyenne is equal to A. 0.08. B. 1.09. C. 2.18. D. 0.916. E. 0.75.

B. 1.09.

In the figure above, (QD= old /10, new/14) using the midpoint method, the price elasticity of demand when the price falls from $8 to $7 is equal to (%cQd/ %cP= elasticity of demand) A. 0.62. B. 2.50. C. 0.40. D. 1.00. E. 1.63.

B. 2.50.

If demand is price inelastic and the price is lowered, which of the following occurs? A. The total revenue of the firms selling the product is unchanged. B. The total revenue of the firms selling the product decreases. C. The total expenditure increases and the total revenue decreases. D. The total expenditure decreases and the total revenue increases. E. The quantity sold decreases.

B. The total revenue of the firms selling the product decreases.

Alan purchases 10 percent fewer bags of chips when his income decreases by 5 percent. Based on only this information, we know that for Alan A. chips are a complement to salsa. B. chips are a normal good. C. chips are an inferior good. D. the price of chips fell. E. chips are a substitute for pretzels.

B. chips are a normal good.

Products X, Y, and Z have price elasticities of 3.0, 0.80, and 1.0 respectively. Total revenue decreases if the price of A. product X falls. B. product Y falls. C. product Z falls. D. product X or product Z falls. E. product Y or product Z falls.

B. product Y falls.

Suppose the price of a box of cereal rises from $4 to $6. Using the midpoint method, what is the percentage change in price? A. 67 percent B. 33 percent C. 40 percent D. 50 percent E. None of the above answers is correct.

C. 40 percent

Based on the data in the table above, ice cream and cake are ________ goods. A. inferior B. substitute C. complementary D. normal E.Both answers B and D are correct.

C. complementary

The price of lumber increased by 10 percent and the quantity supplied increased by 20 percent. The supply of lumber is A. inelastic. B. unit elastic. C. elastic. D. perfectly inelastic. E. perfectly elastic.

C. elastic

Pizza Hut lowers the price of its pizza. The price elasticity of demand for Pizza Hut pizza equals 0.3. What happens to the Pizza Hut's total revenue? A. nothing B. It increases. C. It decreases. D. It becomes negative. E. It might change, but more information is needed to determine if it increases, decreases, or does not change.

C. it decreases

You are more sensitive to a change in price if you A. spend a small percentage of your income on the good. B. do not buy the good regularly. C. spend a lot of your income on the good. D.have a very inelastic demand for the good. E. buy very little of the good.

C. spend a lot of your income on the good.

If a 20 percent increase in the price of a good does not change the quantity supplied, the A. supply is unit elastic. B. supply is elastic. C. supply is perfectly inelastic. D. supply is perfectly elastic. E. None of the above answers is correct.

C. supply is perfectly inelastic.

When the price of a burrito increases from $2 to $4, the quantity demanded decreases from 50 to 40. Using the midpoint method, the price elasticity of demand equals A. 2. B. 3. C. 1/2. D. 1/3. E. 1.

D. 1/3

Based on data in the table above, use the midpoint method to determine the cross elasticity of demand for ice cream and cake. A. The cross elasticity is -1.33. B. The cross elasticity is -4.0. C. The cross elasticity is -1.75. D. The cross elasticity is -0.75. E. The cross elasticity is -0.83.

D. The cross elasticity is - 0.75.

What is measured by the price elasticity of supply? A. The price elasticity of supply is a measure of the slope of the supply curve. B. The price elasticity of supply measures how responsive producers are to changes in the price of other goods. C. The price elasticity of supply measures how responsive producers are to changes in the cost of producing a product. D. The price elasticity of supply measures how responsive producers are to changes in the price of a product. E. The price elasticity of supply measures how responsive producers are to changes in income.

D. The price elasticity of supply measures how responsive producers are to changes in the price of a product.

A product that has a negative income elasticity of demand is ________ good. A. a complementary B. a normal C. a negative D. an inferior E. a substitute

D. an inferior

The price elasticity of demand is a measure of A. how much a change in demand affects the equilibrium price. B. the amount of a product purchased when income increases. C. the equilibrium price of a product. whether a product is a substitute or a complement. D. buyers' responsiveness to changes in the price of a product.

D. buyers' responsiveness to changes in the price of a product.

If the cross elasticity of demand between car insurance and new cars is - 0.41, then car insurance and new cars are A.normal goods. B. inferior goods. C. substitutes. D. complements. E.unrelated goods.

D. complements.

The cross elasticity of demand is a measure of how A. demand for a product changes when income changes. B. total revenue changes when the price of a product changes. C. responsive suppliers are to changes in the price of a product. D. demand for a product changes when the price of a substitute or complement changes. E. responsive consumers are to changes in the price of a product.

D. demand for a product changes when the price of a substitute or complement changes.

If a 10 percent price increase generates a 20 percent decrease in quantity demanded, then demand is A. unit elastic. B. inelastic. C. perfectly inelastic. D. elastic. E. perfectly elastic.

D. elastic.

Which of the following is most likely to have an income elasticity of demand that is less than 1? A. foreign travel B. restaurant meals C. airline travel D. food E. movies

D. food

When the percentage change in the quantity demanded is less than the percentage change in price, then demand is A. unit elastic. B. undefined. C. elastic. D. inelastic. E. irrelevant.

D. inelastic

If the percentage change in price is 10 percent and the demand is elastic, then the percentage change in the quantity demanded A. equals 10 percent. B. equals 0 percent. C. is greater than 0 percent but less than 10 percent. D. is larger than 10 percent. E. More information is needed to determine the magnitude of the change in the quantity demanded.

D. is larger than 10 percent.

One reason why the demand for gasoline is inelastic is because A. people have a long time to shop around for automobiles that use less gas. B. gasoline is a luxury item. C. substitutes for gas abound. D. substitutes for gas are hard to find. E. buses run on diesel fuel rather than gasoline.

D. substitutes for gas are hard to find.

If the price elasticity of demand for a product is 2.5, then a price increase of 1.5 percent decreases the quantity demanded by A. 5.00 percent. B. 1.55 percent. C. 3.50 percent. D. 1.00 percent. E. 3.75 percent.

E. 3.75 percent.

Which of the following is most likely to have an income elasticity of demand that exceeds 1? A. tobacco B. alcoholic beverages C. food D. telephone E. airline travel

E. airline travel

Moving downward along a linear (straight- line) downward- sloping demand curve, the A. total revenue never changes. B. price elasticity of demand does not change. C. quantity demanded decreases. D. demand becomes more elastic. E.demand becomes less elastic.

E. demand becomes less elastic.

If a product is narrowly defined, it is likely to A. be unique and have many substitutes. B. have a larger proportion of income spent on it. C. have few substitutes, and therefore its demand is less elastic. D. be unique, and therefore its demand is inelastic. E. have many substitutes and therefore its demand is elastic.

E. have many substitutes and therefore its demand is elastic.

The price of furnace filters increased by 5 percent and the quantity demanded did not change. The price elasticity of demand for furnace filters is A. elastic. B. unit elastic. C. inelastic. D. perfectly elastic. E. perfectly inelastic.

E. perfectly inelastic.

The cross elasticity of demand for strawberry jelly and grape jelly is likely to be A. negative because they are complements. B. negative because they are substitutes. C. negative because they are inferior goods. D. positive because they are complements. E. positive because they are substitutes.

E. positive because they are substitutes.

Which of the following does NOT influence the price elasticity of demand? A. the number of substitutes available to consumers B. the price of the good relative to total income C. the time period buyers have to respond to a price change D. whether the good is a necessity or a luxury E. the amount by which the demand curve shifts when the price of another good changes

E. the amount by which the demand curve shifts when the price of another good changes

Perfectly inelastic demand means that consumers A. are willing to buy any quantity of the good at a given price, but none at higher prices. B. decrease their consumption as price rises. C.increase their consumption as price rises. D. will buy a huge, almost infinite amount more, if the price falls just a little. E. will buy a certain quantity, regardless of price.

E.will buy a certain quantity, regardless of price.