Exam 2 Review

For a particular good, a 5 percent increase in price causes a 15 percent decrease in quantity demanded. Which of the following statements is most likely applicable to this good? a. There are many substitutes for this good. b. The good is a necessity. c. The market for the good is broadly defined. d. The relevant time horizon is short.

A

If demand is price inelastic then a. buyers do not respond much to a change in price. b. buyers respond substantially to a change in price, but the response is very slow. c. buyers do not alter their quantities demanded much in response to advertising, fads, or general changes in tastes. d. the demand curve is very flat.

A

There are very few, if any, good substitutes for motor oil. Therefore, the a. demand for motor oil would tend to be inelastic. b. demand for motor oil would tend to be elastic. c. demand for motor oil would tend to respond strongly to changes in prices of other goods. d. supply of motor oil would tend to respond strongly to changes in people's tastes for large cars relative to their tastes for small cars.

A

When consumers face rising gasoline prices, they typically a. reduce their quantity demanded more in the long run than in the short run. b. reduce their quantity demanded more in the short run than in the long run. c. do not reduce their quantity demanded in the short run or the long run. d. increase their quantity demanded in the short run but reduce their quantity demanded in the long run.

A

When the price of chai tea lattés is $5, Maxine buys 20 per month. When the price is $4, she buys 30 per month. Maxine's demand for chai tea lattés is a. elastic, and her demand curve would be relatively flat. b. elastic, and her demand curve would be relatively steep. c. inelastic, and her demand curve would be relatively flat. d. inelastic, and her demand curve would be relatively steep

A

. Studies indicate that the price elasticity of demand for cigarettes is about 0.4. A government policy aimed at reducing smoking changed the price of a pack of cigarettes from $2 to $6. According to the midpoint method, the government policy should have reduced smoking by a. 30%. b. 40%. c. 80%. d. 250%.

B

An increase in price causes an increase in total revenue when demand is a. elastic. b. inelastic. c. unit elastic. d. All of the above are possible

B

Suppose you are in charge of setting prices at a local ice cream shop. The business needs to increase its total revenue, and your job is on the line. You evaluate the data and determine that the price elasticity of demand for ice cream at your shop is 1.8. You should a. increase the price of ice cream. b. decrease the price of ice cream. c. decrease the cost of operating the ice cream shop. d. increase the price of bottled water also sold at the ice cream shop because its price elasticity of demand is 1.2.

B

The price elasticity of demand for mobile phones a. will be higher if there is an improvement in the production technology. b. will be lower if consumers perceive mobile phones to be a necessity. c. is computed as the percentage change in the price of mobile phones divided by the percentage change in quantity of mobile phones. d. All of the above are correct.

B

Tyler purchases 5 pounds of hot dogs per month when his monthly income is $2,000 and 4 pounds of hot dogs per month when his monthly income is $2,200. Tyler's income elasticity of demand for hot dogs is a. 2.33, and hot dogs are a normal good. b. -2.33, and hot dogs are an inferior good. c. 0.43, and hot dogs are a normal good. d. -0.43, and hot dogs are an inferior good.

B

When the price of an eBook is $15.00, the quantity demanded is 400 eBooks per day. When the price falls to$10.00, the quantity demanded increases to 700. Given this information and using the midpoint method, we know that the demand for eBooks is a. inelastic. b. elastic. c. unit elastic. d. perfectly inelastic.

B

Which of the following is not a determinant of the price elasticity of demand for a good? a. the time horizon b. the steepness or flatness of the supply curve for the good c. the definition of the market for the good d. the availability of substitutes for the good

B

Demand is said to be inelastic if the a. quantity demanded changes proportionately more than price. b. price changes proportionately more than income. c. quantity demanded changes proportionately less than price. d. quantity demanded changes proportionately the same as price.

C

Suppose the price of a bag of frozen chicken nuggets decreases from $6.50 to $5.75 and, as a result, the quantity of bags demanded increases from 600 to 800. Using the midpoint method, the price elasticity of demand for frozen chicken nuggets in the given price range is a. 0.35. b. 0.43. c. 2.33. d. 2.89.

C

Suppose the price of a bag of tortilla chips decreases from $3.00 to $2.50 and, as a result, the quantity of tortilla chips demanded increases from 200 bags to 300 bags. Using the midpoint method, the price elasticity of demand for tortilla chips in the given price range is a. 0.33. b. 0.45. c. 2.20. d. 3.00.

C

. Suppose that gasoline prices increase dramatically this month. Lola commutes 100 miles to work each weekday. Over the next few months, Lola drives less on the weekends to try to save money. Within the year, she sells her home and purchases one only 10 miles from her place of employment. These examples illustrate the importance of a. the availability of substitutes in determining the price elasticity of demand. b. a necessity versus a luxury in determining the price elasticity of demand. c. the definition of a market in determining the price elasticity of demand. d. the time horizon in determining the price elasticity of demand.

D

In general, elasticity is a measure of a. the extent to which advances in technology are adopted by producers. b. the extent to which a market is competitive. c. how firms' profits respond to changes in market prices. d. how much buyers and sellers respond to changes in market conditions.

D

Suppose that when the price of good X increases from $800 to $850, the quantity demanded of good Y increases from 65 to 70. Using the midpoint method, the cross price elasticity of demand is about a. -1.2, and X and Y are complements. b. -0.1, and X and Y are complements. c. 0.1, and X and Y are substitutes. d. 1.2, and X and Y are substitutes.

D

Using the midpoint method, the price elasticity of demand for a good is computed to be approximately 2. Which of the following events is consistent with a 0.1 percent increase in the price of the good? a. The quantity of the good demanded decreases from 250 to 150. b. The quantity of the good demanded decreases from 200 to 100. c. The quantity of the good demanded decreases by 0.05 percent. d. The quantity of the good demanded decreases by 0.2 percent.

D