Econ chapter 5 practice test

An increase in demand will have a _____ effect on price and a _____ effect on output when supply is relatively elastic. a. smaller: larger b. larger: larger c. larger: smaller d. smaller: smaller

a. smaller: larger

Income elasticity of demand measures: a. the sensitivity of quantity demanded to changes in consumers' income. b. the sensitivity of markets to changes in buyer's income. c. the sensitivity of price to changes in income. d. the sensitivity of sellers to changes in buyer's incomes.

a. the sensitivity of quantity demanded to changes in consumers' income.

A storeowner notices that when the price of cigarettes increases by 10 percent, the quantity demanded decreases by 4 percent. Therefore, the price elasticity of demand is: a. −0.4. b. −4.0. c. −2.5. d. 0.4.

a. −0.4.

The price elasticity of demand is calculated as the: a. percentage change in price divided by the percentage change in quantity demanded. b. percentage change in quantity demanded divided by the percentage change in price. c. absolute change in quantity demanded divided by the absolute change in price. d. percentage change in demand divided by the percentage change in price.

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

At a given time, a university has a fixed number of classrooms with a fixed number of seats per classroom. This indicates that: a. classroom seats are inferior goods. b. the supply of classroom seats is perfectly inelastic. c. the demand for classroom seats is fixed. d. the supply of classroom seats is perfectly elastic.

b. the supply of classroom seats is perfectly inelastic.

If the price of movie admissions rises from $8 to $10, the quantity demanded of tickets falls from 2,000 per week to 1,800 per week. Therefore, the price elasticity of demand for movies is (use the midpoint formula): a. +2.11. b. −0.47. c. −2.11. d. +0.47.

b. −0.47.

If a ten percent increase in income leads to a 15 percent decrease in quantity demanded for a good, income elasticity is: a. 0.67. b. −1.5. c. 1.5. d. −0.67

b. −1.5.

Cross price elasticity of demand measures: a. The sensitivity of the price of one good to a change in the price of a related good. b. The sensitivity of the price one good to a change in the quantity demanded of a related good. c. The sensitivity of the quantity demanded of one good to a change in the price of a related good. d. The sensitivity of the quantity demanded of one good to a change in the quantity demanded of a related good.

c. The sensitivity of the quantity demanded of one good to a change in the price of a related good.

An increase in supply will have a ______ effect on price and a ______ effect on output when demand is relatively inelastic. a. smaller; larger b. larger; larger c. larger; smaller d. smaller; smaller

c. larger; smaller

Restrictions on the supply of illegal drugs such as cocaine and heroin have led to an increase in total expenditure since: a. the supply of illegal drugs in strongly inelastic. b. the demand for illegal drugs in strongly elastic. c. the demand for illegal drugs is strongly inelastic. d. the supply of illegal drugs is strongly elastic.

c. the demand for illegal drugs is strongly inelastic.

If the price of milk falls from $4 to $3 per gallon, the quantity demanded rises from 2 gallons per week to 3 gallons per week. Therefore, the price elasticity of demand for milk is (use the midpoint formula): a. −0.71. b. +1.4. c. −1.4. d. +0.71.

c. −1.4.

If the price of Pepsi increases by 5%, the quantity of Coke demanded increases by 2%. Therefore, the cross-price elasticity of Coke with respect to Pepsi is: a. 1.0. b. 0.2. c. 2.5. d. 0.4.

d. 0.4.

Which of the following is likely to have the most elastic demand? a. Day-care services b. Lawn mowers c. College textbooks d. Aquafina bottled water

d. Aquafina bottled water

Data shows that when the price of food rises by 1.0 percent, the quantity demanded of entertainment falls 0.7 percent. This indicates food and entertainment are: a. Substitute goods. b. Normal goods. c. Inferior goods. d. Complement goods.

d. Complement goods.

Which of the following is likely to have the least elastic demand? a. Budweiser beer b. Gasoline during the next year c. Chevron gasoline d. Gasoline during the next month

d. Gasoline during the next month

Which of the following will NOT affect the price elasticity of demand for a product? a. Whether the good is a luxury or a necessity b. How much consumers spend on the good relative to their income c. The number of possible substitutes a product has d. The price of the good

d. The price of the good

If the income elasticity for ground beef is −0.20 then ground beef: a. is income elastic. b. is an economic luxury. c. is a normal good d. is an inferior good.

d. is an inferior good.

When Angel's car wash raised the price of a carwash from $6.00 to $6.50, the number of car washes sold fell from 2000 per week to none. The price elasticity of demand is: a. relatively inelastic. b. unit elastic. c. perfectly inelastic. d. perfectly elastic.

d. perfectly elastic.

Price elasticity of demand measures the: a. sensitivity of a good's demand to changes in price. b. sensitivity of sellers to changes in a good's price. c. sensitivity of a good's price to changes in quantity demanded. d. sensitivity of a good's quantity demanded to changes in price.

d. sensitivity of a good's quantity demanded to changes in price.

Price elasticity of supply measures the: a. sensitivity of a good's supply to changes in price. b. the extent to which the supply curve shifts when price changes. c. sensitivity of a good's price to changes in demand. d. sensitivity of a good's quantity supplied to changes in price.

d. sensitivity of a good's quantity supplied to changes in price.