Question 1

If your annual income rose by 10 percent and you increased your purchases of shoes from 2 pairs to 3 pairs each year, then your demand for shoes is

Accepted Answer

A)  income inelastic and equal to 0.50. 
B)  income elastic and equal to 1.50. 
C)  income inelastic. 
D)  income elastic.

Question 2

-The table above gives the demand schedule for a good. Using the midpoint method, find the price elasticity of demand between points A and B, between B and C, between C and D, and between D and E.

Accepted Answer

The answer of 
-The table above gives the demand schedule...

Question 3

If demand for Farmer John's maple syrup is inelastic, then when Farmer John raises the price of maple syrup, his total revenue will

Accepted Answer

A)  increase. 
B)  decrease. 
C)  stay the same. 
D)  probably change, but more information is needed to determine if the total revenue increases, decreases, or stays the same.

Question 4

Which of the following represents a price elastic supply?

Accepted Answer

A)  The quantity demanded increases 18 percent as a result of a decrease in the price of 8 percent. 
B)  The price rises by 8 percent causing the quantity demanded to fall by 10 percent. 
C)  The quantity supplied increases by 21 percent as a result of an increase in the price of 12 percent. 
D)  The price rises by 22 percent causing the quantity supplied to increase by 3 percent.

Question 5

The marketing people at Ben and Jerry's Ice Cream Company believe that if they lower the price of their Cherry Garcia flavor ice cream by 25 percent, the quantity demanded will increase by 5 percent. If they are correct in their belief, then

Accepted Answer

A)  the demand for Cherry Garcia is price elastic. 
B)  their total revenue from Cherry Garcia will increase if they lower the price. 
C)  the demand for Cherry Garcia is income elastic. 
D)  their total revenue from Cherry Garcia will decrease if they lower the price.

Question 6

If the demand is unit elastic, a price cut will leave the quantity demanded unchanged.

Accepted Answer

A) True 
 B)False

Question 7

Starting at the top of a straight-line downward sloping demand curve, as the price falls, total expenditures will

Accepted Answer

A)  initially increase and then decrease. 
B)  initially decrease and then increase. 
C)  increase along the entire demand curve. 
D)  decrease along the entire demand curve.

Question 8

Of the following, demand is likely to be the least elastic for

Accepted Answer

A)  Ford automobiles. 
B)  Toyota automobiles. 
C)  compact disc players. 
D)  toothpicks.

Question 9

If a good is inferior, its income elasticity will be

Accepted Answer

A)  0. 
B)  1.0. 
C)  negative. 
D)  positive.

Question 10

Specialty chocolate bars with a high cocoa content have been drawing a lot of attention in gourmet circles in 2008 but the price of cocoa beans has increased more than 44 percent in this time period. In response to the increase in the price of cocoa beans, Rogue Chocolatier has increased the price of their gourmet chocolate bars by 20 percent. Rogue notices their firm's total revenue increased after the price increase. We can determine that the demand for Rogue's bars is ________.

Accepted Answer

A)  inelastic 
B)  elastic 
C)  perfectly inelastic 
D)  unit elastic

Question 11

"The Department of Agriculture came out today with its prediction for food price next year-4 to 5 percent increases on top of this year's already steep gains… Eggs, dairy products and cereals are up 10 percent... But the USDA says another big part of the American diet has seen only moderate price increases. Beef, poultry and pork will be up only 3 percent this year." Suppose a cattle producer increased the quantity of beef he supplies by 2 percent when the price of beef increased by 3 percent. His elasticity of supply is

Accepted Answer

A)  inelastic. 
B)  elastic. 
C)  perfectly elastic. 
D)  perfectly inelastic.

Question 12

The cross elasticity of demand is calculated as the percentage change in the

Accepted Answer

A)  quantity demanded of one good divided by the percentage change in the price of another good 
B)  price of one good divided by the percentage change in the quantity demanded of another good. 
C)  quantity demanded of one good divided by the percentage change in the quantity demanded of another good. 
D)  price of one good divided by the percentage change in the price of another good.

Question 13

What is the price elasticity of demand and how is it measured?

Accepted Answer

The answer of What is the price elasticity of demand...

Question 14

-The above figure shows the demand curve for movie rentals from Redbox. If Redbox raised its price from $2.50 to $3.00, between these two prices the price elasticity of demand equals

Accepted Answer

A)  1.2. 
B)  0.8. 
C)  2.0. 
D)  0.5.

Question 15

The price elasticity of demand for movies is approximately 1 and 500,000 tickets are sold per day. If the average price of a movie ticket increases by 20 percent, the number of tickets sold each day decreases to ________.

Accepted Answer

A)  400,000 
B)  300,000 
C)  420,000 
D)  475,000

Question 16

If a price hike of 5 percent increases the quantity demanded of another good by 2 percent, the goods must be ________ and the cross elasticity of demand equals ________.

Accepted Answer

A)  substitutes; 0.40 
B)  substitutes; 2.5 
C)  complements; 0.40 
D)  complements; 2.5

Question 17

Many younger people eat peanut butter AND jelly, whereas many older people eat peanut butter OR jelly. This suggests that the cross elasticity of demand between peanut butter and jelly is

Accepted Answer

A)  negative for youngsters and positive for oldsters. 
B)  positive for youngsters and negative for oldsters. 
C)  negative for youngsters and zero for oldsters. 
D)  positive for youngsters and zero for oldsters.

Question 18

The price elasticity of demand is defined as the magnitude of the

Accepted Answer

A)  change in quantity demanded divided by the change in price. 
B)  change in price divided by the change in quantity demanded. 
C)  percentage change in quantity demanded divided by the percentage change in price. 
D)  percentage change in price divided by the percentage change in quantity demanded.

Question 19

-In the above figure, at point b on the demand curve, a price cut of one dollar will

Accepted Answer

A)  increase total revenue. 
B)  decrease total revenue. 
C)  leave total revenue unchanged. 
D)  have an indeterminate effect on total revenue.

Question 20

An increase in Abigail's income decreases her demand for used cars. For her, used cars are

Accepted Answer

A)  a normal good. 
B)  an inferior good. 
C)  a complement to any good. 
D)  a substitute good.

Exam 4: Elasticity