Principles of Micro-Economics (ECON 2113) EXAM 2

24. Suppose there is a 6 percent increase in the price of good X and a resulting 6 percent decrease in the quantity of X demanded. Price elasticity of demand for X is

b. 1.

23. Which of the following is consistent with the elasticities given in Table 5-1?

b. A is Diet Pepsi and B is soda.

18. Which of the following expressions is valid for the price elasticity of demand?

b. Price elasticity of demand = (Q2-Q1)/[(Q1+Q2)/2] (P2-P1)/[(P1+P2)/2]

21. Using the midpoint method, the price elasticity of demand for a good is computed to be approximately 0.75. Which of the following events is consistent with a 10 percent decrease in the quantity of the good demanded?

b. a 13.33 percent increase in the price of the good

13. Suppose that Jane enjoys Diet Coke so much that she consumes one can every day. Although she enjoys gourmet cheese, she consumes it sporadically. If the price of Diet Coke rises, Jane decreases her consumption by only a very small amount. But if the price of gourmet cheese rises, Jane decreases her consumption by a lot. These examples illustrate the importance of

b. a necessity versus a luxury in determining the price elasticity of demand.

14. Suppose that Jane enjoys Diet Coke so much that she consumes one can every day. Although she enjoys gourmet cheese, she consumes it sporadically. If the price of Diet Coke rises, Jane decreases her consumption by only a very small amount. But if the price of gourmet cheese rises, Jane decreases her consumption by a lot. These examples illustrate the importance of

b. a necessity versus a luxury in determining the price elasticity of demand.

39. If the cross-price elasticity of two goods is negative, then the two goods are

b. complements.

22. Which of the following is consistent with the elasticities given in Table 5-1?

a. A is a luxury and B is a necessity.

27. Refer to Figure 1. As price falls from Pa to Pb, which demand curve represents the most elastic demand?

a. D1

3. How does the concept of elasticity allow us to improve upon our understanding of supply and demand?

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

5. A 10 percent increase in gasoline prices reduces gasoline consumption by about

b 2.5 percent after one year and 6 percent after five years

19. When the price of candy bars is $1.00, the quantity demanded is 500 per day. When the price falls to $0.80, the quantity demanded increases to 600. Given this information and using the midpoint method, we know that the demand for candy bars is

a. inelastic.

4. When consumers face rising gasoline prices, they typically

a. reduce their quantity demanded more in the long run than in the short run.

36. Food and clothing tend to have

a. small income elasticities because consumers, regardless of their incomes, choose to buy relatively constant quantities of these goods.

40. If the cross-price elasticity of two goods is positive, then the two goods are

a. substitutes.

12. For a good that is a necessity, demand

a. tends to be inelastic.

34. While in college, John and Bethany each buy five packages of mac-n-cheese per week. After they graduate and have full-time jobs, John buys six packages per week, but Bethany buys only two packages per week. When looking at income elasticity of demand for mac-n-cheese, John's

b. is positive, and Bethany's is negative.

11. The smaller the price elasticity of demand, the

b. smaller the responsiveness of quantity demanded to a change in price.

10. Which of the following is not a determinant of the price elasticity of demand for a good?

b. the steepness or flatness of the supply curve for the good

32. Refer to Table 1. Using the midpoint method, at a price of $16, what is the income elasticity of demand when income rises from $5,000 to $10,000?

c. 1.00

20. 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

c. 2.33.

25. If the price elasticity of demand for a good is 0.3, then a 20 percent decrease in price results in a

c. 6 percent increase in the quantity demanded.

28. Refer to Figure 1. As price falls from Pa to Pb, we could use the three demand curves to calculate three different values of the price elasticity of demand. Which of the three demand curves would produce the smallest elasticity?

c. D3

16. Which of the following is likely to have the most price elastic demand?

c. Tommy Hilfiger jeans

30. Refer to Figure 2. When price falls from $25 to $20, demand is

c. elastic, since total revenue increases from $2,500 to $4,000.

26. The price elasticity of demand changes as we move along a

c. linear, downward-sloping demand curve.

41. For which pairs of goods is the cross-price elasticity most likely to be positive?

c. pens and pencils

17. Economists compute the price elasticity of demand as the

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

35. Assume that a 4 percent increase in income results in a 2 percent increase in the quantity demanded of a good. The income elasticity of demand for the good is

c. positive, and the good is a normal good.

8. Demand is said to be inelastic if the

c. quantity demanded changes proportionately less than price.

15. Suppose that Juan Carlos is filling out a survey that he received in the mail. The survey asks him what he would do if the price of his favorite toothpaste increased. Juan Carlos reports that he would switch to a different brand. The survey asks what he would do if the price of all toothpastes increased. Juan Carlos reports that he must use toothpaste, so he would have to adjust his spending elsewhere. These examples illustrate the importance of

c. the definition of a market in determining the price elasticity of demand.

37. Cross-price elasticity of demand measures how

c. the quantity demanded of one good changes in response to a change in the price of another good.

29. Refer to Figure 2. When the price is $15, total revenue is a. $1,500.

d. $4,500.

31. Refer to Table 1. Using the midpoint method, when income equals $7,500, what is the price elasticity of demand between $16 and $20?

d. 1.80

33. Last year, Jim bought 8 tickets to sporting events when his income was $30,000. This year, his income is $33,000, and he purchased 10 tickets to sporting events. Holding other factors constant and using the midpoint method, it follows that Jim's income elasticity of demand is about

d. 2.33, and Jim regards tickets to sporting events as normal goods.

6. Which of the following statements about the price elasticity of demand is correct? a. The price elasticity of demand for a good measures the willingness of buyers of the good to buy less of the good as its price increases. b. Price elasticity of demand reflects the many economic, psychological, and social forces that shape consumer tastes. c. Other things equal, if good x has close substitutes and good y does not have close substitutes, then the demand for good x will be more elastic than the demand for good y.

d. All of the above are correct.

7. Demand is said to be price elastic if

d. buyers respond substantially to changes in the price of the good

38. The cross-price elasticity of demand can tell us whether goods are

d. complements or substitutes.

9. Demand is elastic if the price elasticity of demand is

d. greater than 1.

1. In general, elasticity is a measure of

how much buyers and sellers respond to changes in market conditions

2. When studying how some event or policy affects a market, elasticity provides information on the

magnitude of the effect on the market