Econ quiz 5

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

A

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

A

Jonah lives in a small town where there is only one Mexican restaurant. Which of the following is likely to be true about the price elasticity of demand for meals at the Mexican restaurant? A) Demand is likely to be relatively price inelastic. B) Demand is likely to be perfectly price inelastic. C) Demand is likely to be relatively price elastic. D) Demand is likely to be perfectly price elastic.

A

Suppose Tinsel Town Videos lowers the price of its movie club membership by 10 percent and as a result, CineArts Videos experienced a 16 percent decline in its movie club membership. What is the value of the cross-price elasticity between the two movie club memberships? A) 1.6 B) 0.625 C) -1.6 D) -0.625

A

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

A (wrong), D(wrong), B(wrong), c

Facing stiff competition, Hendrix College, a small liberal arts institution in Conway, Ark., decided two years ago to bolster its academic offerings, promising students at least three hands-on experiences outside the classroom, including research, internships and service projects. Although it raised tuition and fees by 29 percent, enrollment in the freshman class rose by 37 percent. Based on the information above, the demand for Hendrix College education is: A) relatively inelastic. B) unit elastic. C) perfectly elastic. D) relatively elastic.

A(wrong) , D

Refer to Figure 1. Which of the following statements about price elasticity of demand is true? A) The price elasticity is constant along the demand curve. B) The elastic portion of a 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 price elasticity is equal to zero.

A(wrong), B

Which of the following statements about the price elasticity of demand along a downward-sloping demand curve is true? A) It is elastic at low prices and inelastic at high prices. B) It is inelastic at high prices and elastic at low prices. C) It is elastic at high prices and inelastic at low prices. D) It is unit elastic throughout the demand curve.

A(wrong), c

If the demand for a life-saving drug was perfectly inelastic and the price doubled, the quantity demanded would_________: A) decrease by 50%. B) remain constant. C) also double. D) be cut in half.

B

Income elasticity of demand measures how quantity demanded of a good responds to a_______: A) change in the price of this good. B) change in buyers' incomes. C) change in the price of a substitute good. D) change in producers' incomes.

B

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

B

Refer to Figure 1. The inelastic segment of the demand curve A) lies above the midpoint of the curve. B) lies below the midpoint of the curve. C) is at the midpoint of the curve. D) is coincident with the vertical axis.

B

Suppose that income elasticity of demand for oysters is approximately 5. What does this mean? A) A 1 percent increase in the price of oysters leads to a 5 percent decrease in oysters consumption. B) A 1 percent increase in income leads to a 5 percent increase in oysters consumption. C) A 5 percent increase in the price of oysters leads to a 1 percent decrease in oysters consumption. D) A 5 percent increase in income leads to a 1 percent increase in oysters consumption.

B

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

B

Total revenue equals____: A) change in price per unit times quantity supplied. B) price per unit times quantity demanded. C) price per unit times change in quantity demanded. D) price per unit times quantity supplied.

B

Which of the following items is likely to have the highest price elasticity of demand? (hint: you do not need to have any specific knowledge about any of these goods' markets. Think of the factors that affect PED for any good/service and chose the good/service that is likely to have some or all of the factors that imply high PED). A) a tank of gasoline B) a vacation home in the Swiss Alps C) a meal at Taco Bell D) a bus ride

B

Which of the following products comes closest to having a perfectly inelastic demand? A) bus rides B) cholesterol medication in general C) gasoline D) iPhones

B

Which price strategy would help a company selling a good that has a price elastic demand, to increase its total revenue? A) An increase in the price of its good. B) A decrease in the price of its good (e.g, having some sales, promotions, etc.) C) Leaving the price as it is, because when demand is price elastic, total revenue is already maximized.

B

If at a price of $50, Ghani sells 20 hand-made leather cell-phone covers but at a price of $60, zero units are sold. Based on this information, the demand for his cell-phone covers is______: A) inelastic. B) unit elastic. C) perfectly elastic. D) perfectly inelastic.

C

If the cross-price elasticity of demand for computers and software is negative, it means that they are_____: A) normal goods. B) substitutes. C) complements. D) inferior goods.

C

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

C

Which price strategy would help a company selling a good that has a price inelastic demand, to increase its total revenue? A) Leaving the price as it is, because when demand is price inelastic, total revenue is already maximized. B) A decrease in the price of its good (e.g, having some sales, promotions, etc.) C) An increase in the price of its good.

C

Jaycee Jeans sold 40 pairs of jeans at a price of $40. When it lowered its price to $20, the quantity sold increased to 60 pairs. Calculate the absolute value of the price elasticity of demand. A) 1.67 B) 0.53 C) 0.6 D) 1.0

C (wrong), B(wrong),

Suppose that income elasticity of demand for oysters is approximately 5. What does this mean? A) oysters are an inferior good B) oysters are a normal good overall, and a necessity, in particular C) demand for oysters is price elastic D) oysters are a normal good overall, and a luxury good, in particular

C (wrong), D

The price elasticity of demand for Stork ice cream is -4. Suppose you're told that following a price increase, quantity demanded fell by 10 percent. What was the percentage change in price that brought about this change in quantity demanded? A) +2.5% B) +40% C) +0.4% D) +25%

C(Wrong), B(wrong), A

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

D

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

D

Jenna runs a small boutique in Lansing. One day supplier tells her that they are planning to increase the price of a pair of wool hand warmers from $6 to $6.80. Jenna tells the supplier that she is only 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 the price elasticity of demand for her wool hand warmers? A) It is inelastic. B) It is elastic. C) It is perfectly inelastic. D) It is perfectly elastic. E) It is unit elastic.

D

Refer to Figure 1. At the midpoint of the demand curve________: A) the price elasticity is at a maximum. B) the price elasticity is equal to zero. C) the price elasticity is at a minimum. D) the price elasticity is equal to one, in absolute value.

D

The price elasticity of demand is equal to A) the dollar change in quantity demanded divided by the dollar change in price. B) the percentage change in price divided by the percentage change in quantity demanded. C) the percentage change in demand divided by the percentage change in price. D) the percentage change in quantity demanded divided by the percentage change in price.

D