Microeconomics 110 Exam 1.2

If a 15% increase in price for a good results in a 20% decrease in quantity demanded, the price elasticity of demand is: 0.75. 1.25. 1.33. 1.60.

1.33.

Suppose good X has a positive income elasticity of demand. This implies that good X could be : (i)a normal good. (ii)a necessity. (iii)an inferior good. (iv)a luxury. (i) only (i) and (ii) only (i), (ii), and (iv) only (iii) only

(i), (ii), and (iv) only

Which of the following could be the price elasticity of demand for a good for which an increase in price would increase revenue? 0.2 1 1.5 All of the above could be correct.

0.2

Which of the following could be the price elasticity of demand for a good for which a decrease in price would decrease revenue? 0.5 1 1.5 All of the above could be correct.

0.5

If a 20% increase in price for a good results in a 15% decrease in quantity demanded, the price elasticity of demand is 0.75. 1.25. 1.33. 1.60.

0.75.

If the cross-price elasticity of two goods is negative, then the two goods are: necessities. complements. normal goods. inferior goods.

complements.

Frequently, in the short run, the quantity supplied of a good is: impossible, or nearly impossible, to measure. not very responsive to price changes. determined by the quantity demanded of the good. determined by psychological forces and other non-economic forces.

not very responsive to price changes.

If the cross-price elasticity of two goods is positive, then the two goods are substitutes. complements. normal goods. inferior goods.

substitutes.

Elasticity of demand is closely related to the slope of the demand curve. The more responsive buyers are to a change in price, the steeper the demand curve will be. flatter the demand curve will be. further to the right the demand curve will sit. closer to the vertical axis the demand curve will sit.

flatter the demand curve will be.

Whether a good is a luxury or necessity depends on the price of the good. preferences of the buyer. intrinsic properties of the good. scarcity of the good.

preferences of the buyer.

The price elasticity of demand measures how much: quantity demanded responds to a change in price. quantity demanded responds to a change in income. price responds to a change in demand. demand responds to a change in supply.

quantity demanded responds to a change in price.

The smaller the price elasticity of demand, the steeper the demand curve will be through a given point. flatter the demand curve will be through a given point. more strongly buyers respond to a change in price between any two prices P1 and P2. smaller the decrease in equilibrium price when the supply curve shifts rightward from S1 to S2.

steeper the demand curve will be through a given point.

Which of the following could be the price elasticity of demand for a good for which an increase in price would decrease revenue? 0 0.5 1 1.5

1.5

Which of the following could be the price elasticity of demand for a good for which a decrease in price would increase revenue? 0 0.2 1 2.1

2.1

Suppose good X has a negative income elasticity of demand. This implies that good X is a normal good. a necessity. an inferior good. a luxury.

an inferior good.

How does the concept of elasticity allow us to improve upon our understanding of supply and demand? Elasticity allows us to analyze supply and demand with greater precision than would be the case in the absence of the elasticity concept. Elasticity provides us with a better rationale for statements such as "an increase in x will lead to a decrease in y" than we would have in the absence of the elasticity concept. Without elasticity, we would not be able to address the direction in which price is likely to move in response to a surplus or a shortage. Without elasticity, it is very difficult to assess the degree of competition within a market.

Elasticity allows us to analyze supply and demand with greater precision than would be the case in the absence of the elasticity concept.

Under which of the following conditions would the interdiction of illegal drugs result in a decrease in the quantity of drugs sold and in a decrease in total spending on illegal drugs by drug users? The interdiction has the effect of shifting the demand curve for illegal drugs to the right. The price elasticity of demand for illegal drugs is 1.3. The price elasticity of supply for illegal drugs is 0.8. As a result of the interdiction, the price of illegal drugs increases by 20 percent and the quantity of illegal drugs sold decreases by 16 percent.

The price elasticity of demand for illegal drugs is 1.3.

Which of the following is likely to have the most price elastic demand? clothing blue jeans Tommy Hilfiger jeans All three would have the same elasticity of demand because they are all related.

Tommy Hilfiger jeans

Suppose the government is concerned about firms in the United States importing illegal caviar. As a result, the government increases border patrols to catch illegal shipments. U.S. Customs agents perform DNA testing on the caviar to determine if it comes from endangered species of fish. If so, the government destroys the caviar. Refer to Scenario 5-4. What would we expect to observe in the caviar market? Equilibrium prices and quantities will increase. Equilibrium prices will increase by more if the demand for caviar is elastic than if demand is inelastic. Total revenues to caviar firms will increase if the demand for caviar is inelastic. All of the above are correct.

Total revenues to caviar firms will increase if the demand for caviar is inelastic.

There are very few, if any, good substitutes for motor oil. Therefore, the demand for motor oil would tend to be inelastic. demand for motor oil would tend to be elastic. demand for motor oil would tend to respond strongly to changes in prices of other goods. 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.

demand for motor oil would tend to be inelastic.

The supply of aged cheddar cheese is inelastic, and the supply of bread is elastic. Both goods are considered to be normal goods by a majority of consumers. Suppose that a large income tax increase decreases the demand for both goods by 10%. Refer to Scenario 5-2. The equilibrium price will: increase in both the aged cheddar cheese and bread markets. increase in the aged cheddar cheese market and decrease in the bread market. decrease in the aged cheddar cheese market and increase in the bread market. decrease in both the aged cheddar cheese and bread markets.

decrease in both the aged cheddar cheese and bread markets.

Milk has an inelastic demand, and beef has an elastic demand. Suppose that a mysterious increase in bovine infertility decreases both the population of dairy cows and the population of beef cattle by 50 percent. Refer to Scenario 5-3. The equilibrium quantity will: increase in both the milk and beef markets. increase in the milk market and decrease in the beef market. decrease in the milk market and increase in the beef market. decrease in both the milk and beef markets.

decrease in both the milk and beef markets.

The supply of aged cheddar cheese is inelastic, and the supply of bread is elastic. Both goods are considered to be normal goods by a majority of consumers. Suppose that a large income tax increase decreases the demand for both goods by 10%. Refer to Scenario 5-2. Total consumer spending on aged cheddar cheese will: increase, and total consumer spending on bread will increase. increase, and total consumer spending on bread will decrease. decrease, and total consumer spending on bread will increase. decrease, and total consumer spending on bread will decrease.

decrease, and total consumer spending on bread will decrease.

The supply of aged cheddar cheese is inelastic, and the supply of bread is elastic. Both goods are considered to be normal goods by a majority of consumers. Suppose that a large income tax increase decreases the demand for both goods by 10%. Refer to Scenario 5-2. The change in equilibrium quantity will be: greater in the aged cheddar cheese market than in the bread market. greater in the bread market than in the aged cheddar cheese market. the same in the aged cheddar cheese and bread markets. Any of the above could be correct.

greater in the bread market than in the aged cheddar cheese market.

The greater the price elasticity of demand, the more likely the product is a necessity. smaller the responsiveness of quantity demanded to a change in price. greater the percentage change in price over the percentage change in quantity demanded. greater the responsiveness of quantity demanded to a change in price.

greater the responsiveness of quantity demanded to a change in price.

Milk has an inelastic demand, and beef has an elastic demand. Suppose that a mysterious increase in bovine infertility decreases both the population of dairy cows and the population of beef cattle by 50 percent. Refer to Scenario 5-3. The equilibrium price will: increase in both the milk and beef markets. increase in the milk market and decrease in the beef market. decrease in the milk market and increase in the beef market. decrease in both the milk and beef markets.

increase in both the milk and beef markets.

Milk has an inelastic demand, and beef has an elastic demand. Suppose that a mysterious increase in bovine infertility decreases both the population of dairy cows and the population of beef cattle by 50 percent. Refer to Scenario 5-3. Total consumer spending on milk will: increase, and total consumer spending on beef will increase. increase, and total consumer spending on beef will decrease. decrease, and total consumer spending on beef will increase. decrease, and total consumer spending on beef will decrease.

increase, and total consumer spending on beef will decrease.

The difference between slope and elasticity is that slope is a ratio of two changes, and elasticity is a ratio of two percentage changes. is a ratio of two percentage changes, and elasticity is a ratio of two changes. measures changes in quantity demanded more accurately than elasticity. none of the above; there is no difference between slope and elasticity.

is a ratio of two changes, and elasticity is a ratio of two percentage changes.

When studying how some event or policy affects a market, elasticity provides information on the: equity effects on the market by identifying the winners and losers. magnitude of the effect on the market. speed of adjustment of the market in response to the event or policy. number of market participants who are directly affected by the event or policy.

magnitude of the effect on the market.

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

the steepness or flatness of the supply curve for the good

A key determinant of the price elasticity of supply is the time horizon. income of consumers. price elasticity of demand. importance of the good in a consumer's budget.

time horizon.

A manufacturer produces 1,000 units, regardless of the market price. For this firm, the price elasticity of supply is: infinity. zero. one. negative one.

zero.