Quiz 4
If a 20 percent decrease in the price of sapphires causes a 15 percent decrease in the quantity of diamonds demanded, then the cross-price elasticity of demand between sapphires and diamonds is:
0.75
Suppose the absolute value of the price elasticity of demand for blueberries is 1.5. If climate change destroys one-fourth of the nation's blueberry crop (and thus reduces supply), how will that affect total revenue, all other things unchanged? (Hint: Consider which direction blueberry prices will go.)
a. Total revenue will fall.
The price elasticity of demand for lettuce has been estimated to be 2.58. If an insect infestation destroys 10% of the nation's lettuce crop, how will that affect total revenue from lettuce, all other things unchanged?
a. Total revenue will fall.
A newspaper typically consumes a smaller fraction of a consumer's budget than a home entertainment system. Therefore, you would expect the demand for:
a. a home entertainment system to be more price-elastic.
If the demand for golf is price-inelastic and your local public golf course increases the greens fees for using the course, you would expect:
a. an increase in total revenue received by the course.
Jessica experienced an increase in her income by 10% this year. In the same year, Jessica's quantity demanded of milk increased by 10% and her quantity demanded for bread increased by 5%. This means that for Jessica:
a. both milk and bread are normal goods.
The cross-price elasticity of electricity with respect to the price of natural gas has been estimated as being equal to 0.2. This implies that:
a. electricity and natural gas are substitutes.
A local restaurant has estimated that the price elasticity of demand for meals is equal to 2. If the restaurant increases menu prices by 5%, they can expect the number of customers to decrease by ________and total revenue to ________.
b. 10%; fall
There is one gas station in a small rural town. The owner of the station claims that he will sell the same quantity of gas, no matter how high or low the price. If he is correct in this assertion, what must be true about the demand curve for gas at his station?
b. It must be vertical with a price elasticity of zero.
The absolute value of the price elasticity of demand for cabbage has been estimated to be 0.25. If an insect infestation destroys 20% of the nation's cabbage crop (and thus reduces supply), how will that affect total expenditures on cabbage, all other things equal? (Hint:Consider the change in cabbage prices.)
b. Total expenditures will rise.
As you move down a linear demand curve, the price elasticity of demand will:
b. decrease.
We would say that sports cars are a normal good if the ___________ for a sports car is __________ .
b. income elasticity of demand; positive.
Assume the absolute value of the price elasticity of demand for corn has been estimated to be 2.33. Flash floods destroy 10% of the nation's crop of corn. Which of the following best describes how this will affect total expenditures on corn, all other things equal? (Hint:Consider the change in corn prices.)
c. Total expenditures will fall.
The absolute value of the price elasticity of demand for ground beef has been estimated to be 1.0. If mad cow disease strikes the United States and a large percentage of the cattle are removed from the market, how will that affect total expenditures on hamburger, all other things equal? (Hint: Consider the change in meat prices.)
c. Total expenditures will remain unchanged.
The absolute value of the price elasticity of demand for cabbage has been estimated to be 0.25. If an insect infestation destroys 20% of the nation's cabbage crop (and thus reduces supply), how will that affect total expenditures on cabbage, all other things equal? (Hint:Consider the change in cabbage prices.)
c. Total expenditures will rise.
If the price elasticity of demand for digital cameras is 0.88, then the demand is _____ and total revenue will ______ if the price of cameras increases.
c. inelastic; increase
If the price elasticity of demand for oranges is 0.65, then the demand is _____ and total revenue will ______ if the price of oranges increases.
c. inelastic; increase
If a good is a necessity with few substitutes, then the price elasticity of demand will tend to be:
c. less price-elastic.
If a university decreases the price of tickets to football games to collect more revenue, it is assuming that the demand for tickets is:
c. price-elastic.
Raina consumes 100% more mechanical pencils when the price of felt-tip pens increases by 50%. For Raina, pencils and pens are ________ and the cross-price elasticity of demand is ________.
c. substitutes; 2
If the price elasticity of demand for beach towels is 1.00, then the demand is _____ and total revenue will ______ if the price of beach towels increases.
c. unit-elastic; remain unchanged.
If 2 goods have a negative cross-price elasticity of demand between them, we would say that these 2 goods are:
complements
The cross-price elasticity of electricity with respect to the price of natural gas has been estimated as being equal to 0.2. This implies that:The price of coffee increases by 10%, and as a result, Alex purchases less donuts. This suggests that to Alex, coffee and donuts are:
complements
Assume the absolute value of the price elasticity of demand for corn has been estimated to be 2.33. Flash floods destroy 10% of the nation's crop of corn. Which of the following best describes how this will affect total expenditures on corn, all other things equal? (Hint:Consider the change in corn prices.)
d. Total expenditures will fall.
The absolute value of the price elasticity of demand for ground beef has been estimated to be 0.5. If mad cow disease strikes the United States and a large percentage of the cattle are removed from the market, how will that affect total expenditures on hamburger, all other things equal? (Hint: Consider the change in meat prices.)
d. Total expenditures will rise.
The absolute value of the price elasticity of demand for soft drinks has been estimated to be 0.55. If the government enacts a major increase in the tax on imported sugar (a major ingredient in soft drink manufacture), how will that affect total expenditures on soft drinks, all other things equal? (Hint: Consider the change in soft drink prices.)
d. Total expenditures will rise.
Suppose the price elasticity of demand for oranges is 0.8. If a fall frost destroys one-third of the nation's orange crop, how will that affect total revenue from oranges, all other things unchanged?
d. Total revenue will rise.
If the demand for golf is unit-price elastic and your local public golf course increases the greens fees for using the course, you would expect:
d. a decrease in the amount of golf played on the course.
Which of the following goods is likely to have the largest price elasticity of demand?
d. a green Cannondale mountain bike
The demand for strawberry ice cream tends to be relatively price-elastic because:
d. for most people there are many close substitutes for strawberry ice cream.
When a public transit system (such as a subway or bus line) raises its fares, it may experience an increase in total revenue. This suggests that demand is:
d. price-inelastic.
If 2 goods have a positive cross-price elasticity of demand between them, we would say that these 2 goods are:
d. substitutes.
If a 10 percent increase in the price of lodging at a ski resort causes a 12 percent decrease in the quantity of skis rented, then the cross-price elasticity of demand between lodging and ski rentals is:
-1.20
If a 25 percent decrease in the price of sapphires causes a 15 percent decrease in the quantity of diamonds demanded, then the cross-price elasticity of demand between sapphires and diamonds is:
0.60
Egg producers know that the elasticity of demand for eggs is 0.1. If they want to increase sales by 5%, they will have to lower price by ________%.
50
Egg producers know that the elasticity of demand for eggs is 0.1. If they want to increase sales by 5%, they will have to lower price by:
50
The price elasticity of demand for fresh tomatoes has been estimated to be 2.22. If a new insecticide and fertilizer treatment yields a 20% increase in the nation's fresh tomato crop, how will that affect total revenue from fresh tomatoes, all other things unchanged?
c. Total revenue will rise.
We would say that sports cars are an inferior good if the ___________ for a sports car is __________ .
c. income elasticity of demand; negative.
The price elasticity of demand along a demand curve with a constant slope:
c. increases in absolute value as the price rises.
Sometimes airlines raise ticket prices as the flight departure date approaches in the hope of increasing revenue. The airlines raise their prices on the assumption that:
d. consumer demand becomes less price-elastic as departure time approaches.
If the price elasticity of demand for coffeemakers is 1.15, then the demand is _____ and total revenue will ______ if the price of coffeemakers increases.
d. elastic; decrease
If the price elasticity of demand for coffeemakers is 1.50, then the demand is _____ and total revenue will ______ if the price of coffeemakers increases.
d. elastic; decrease
If the price elasticity of demand for concert tickets is 2.12, then the demand is _____ and total revenue will ______ if the price of concert tickets increases.
d. elastic; decrease
The absolute value of the price elasticity of demand for gasoline in the long run has been estimated to be 1.5. If an extended war in the Middle East caused the price of oil (from which gasoline is made) to increase and remain high for a decade, how would that affect total expenditures on gasoline in the long run, all other things equal? (Hint: Consider the change in gasoline prices.)
total expenditures would fall
If 2 goods are substitutes, then the cross-price elasticity of demand between them is:
positive
If a 15 percent decrease in the price of sapphires causes a 20 percent decrease in the quantity of diamonds demanded, then the cross-price elasticity of demand between sapphires and diamonds is:
1.33
Egg producers know that the elasticity of demand for eggs is 0.1. If they want to increase sales by 3%, they will have to lower price by ________%.
30
A local restaurant has estimated that the price elasticity of demand for meals is equal to 2. If the restaurant decreases menu prices by 5%, they can expect the number of customers to increase by ________and total revenue to ________.
a. 10%; increase
There are several close substitutes for Bayer aspirin but fewer substitutes for a complete medical examination. Therefore, you would expect the demand for:
a. Bayer aspirin to be more price-elastic.
The absolute value of the price elasticity of demand for milk has been estimated to be somewhere between 0.49 and 0.63. If a new system of feeding and milking cows yields a 15% increase in the production of milk throughout the country, how will that affect total expenditures on milk, all other things equal? (Hint: Consider the change in milk prices.)
b. Total expenditures will fall.
Suppose the price of cereal rose by 25% and the quantity of milk sold decreased by 50%. Then we know that the:
b. cross-price elasticity between cereal and milk is -2.
The absolute value of the price elasticity of demand for gasoline in the short run has been estimated to be 0.1. If a war in the Middle East causes the price of oil (from which gasoline is made) to increase, how will that affect total expenditures on gasoline in the short run, all other things equal? (Hint: Consider the change in gasoline prices.)
a. Demand will not change much, but total expenditures will rise.
The absolute value of the price elasticity of demand for fresh zucchini has been estimated to be 2.25. A new irrigation system yields a 25% increase in the nation's crop of fresh zucchini. Which of the following best describes how this will affect total expenditures on zucchini, all other things equal? (Hint: Consider the change in zucchini prices.)
a. Total expenditures will rise.
If the University of Michigan increases the price of football tickets, this will result in increasing revenues if the price elasticity of demand is:
a. price-inelastic.
Suppose the cross-price elasticity of demand for butter and margarine is equal to 0.96 while the answer for water and lemon is -0.13. This means that butter and margarine are ________ while water and lemon are ________.
a. substitutes; complements
Suppose the cross-price elasticity between demand for Burger King burgers and the price of McDonald's burgers is 0.8. If McDonald's increases the price of its burgers by 10%, then:
c. Burger King will sell 8% more burgers.
There are several close substitutes for Quaker State oil but fewer substitutes for a complete check-up of your car's engine. We can expect the demand for:
c. Quaker State oil to be more price-elastic.
Suppose the price elasticity of demand for oranges is 1.8. If a fall frost destroys one-third of the nation's orange crop, how will that affect total revenue from oranges, all other things unchanged?
d. Total revenue will fall.
In general, we would predict the price elasticity of demand for Gala apples would be:
elastic
We would say that apples are an inferior good if the ___________ for apples is __________ .
income elasticity of demand; negative
If 2 goods are complements, then the cross-price elasticity of demand between them is:
negative
