Question 1

When Sue received a promotion at work, her income rose by 50%. The income elasticity of demand for steak was found to be 1.5. For her, steak is a(n):

Accepted Answer

A)  inferior good. 
B)  necessity. 
C)  complement to potatoes. 
D)  substitute for chicken. 
E)  luxury. 
A)  inferior good. 
B)  necessity. 
C)  complement to potatoes. 
D)  substitute for chicken. 
E)  luxury.

Question 2

Use the accompanying graph to answer the following questions.
a. A study shows the many health benefits of eating eggs for breakfast. Demand rises by 6 units at each price. Draw this on the graph.
b. What is the percentage change in equilibrium price for eggs?
c. If the percentage change in quantity demanded for toast decreased by 1/2 of what you found in part (b) for eggs, what is the cross-price elasticity of demand for eggs and toast?
d. Will this be positive or negative? Are eggs and toast related to each other?

Accepted Answer

a.
This is illustrated with a demand cur

Question 3

We would expect to see a positive cross-price elasticity between:

Accepted Answer

A)  peanut butter and jelly. 
B)  ice cream and frozen yogurt. 
C)  basketballs and steak. 
D)  sneakers and socks. 
E)  computers and iPods. 
A)  peanut butter and jelly. 
B)  ice cream and frozen yogurt. 
C)  basketballs and steak. 
D)  sneakers and socks. 
E)  computers and iPods.

Question 4

A firm knows that the price elasticity of demand for its service is 0 (zero).
a. Graph this demand curve.
b. What should the firm do to the price of its good to raise total revenue?

Accepted Answer

a.A price elasticity of demand equal to

Question 5

If the cross-price elasticity of demand is 6, Good A and Good B are:

Accepted Answer

A)  inferior goods. 
B)  complements. 
C)  substitutes. 
D)  normal goods. 
E)  luxury goods. 
A)  inferior goods. 
B)  complements. 
C)  substitutes. 
D)  normal goods. 
E)  luxury goods.

Question 6

When Clayton starts working at his first full-time job out of college with a $60,000 salary, he is likely to buy more and less .

Accepted Answer

A)  sushi; canned tuna 
B)  ramen noodles; steak 
C)  BMWs; Kias 
D)  computer hardware; computer software 
E)  hamburger; salmon 
A)  sushi; canned tuna 
B)  ramen noodles; steak 
C)  BMWs; Kias 
D)  computer hardware; computer software 
E)  hamburger; salmon

Question 7

Firms are indifferent to changing prices when the price elasticity of demand is:

Accepted Answer

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

Question 8

Jane says that she will always spend $20 a week on lattes. Jane's demand for lattes is price:

Accepted Answer

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

Question 9

For which of the following products should sellers raise the price in order to increase total revenue from college students?

Accepted Answer

A)  blue hooded sweatshirts 
B)  Gatorade 
C)  concert tickets 
D)  textbooks 
E)  spaghetti sauce 
A)  blue hooded sweatshirts 
B)  Gatorade 
C)  concert tickets 
D)  textbooks 
E)  spaghetti sauce

Question 10

When the price of softballs is high, a in price will raise total revenue. When the price is low, the seller should the price to increase total revenue.

Accepted Answer

A)  decrease; raise 
B)  rise; raise 
C)  decrease; decrease 
D)  rise; decrease 
E)  decrease; not change 
A)  decrease; raise 
B)  rise; raise 
C)  decrease; decrease 
D)  rise; decrease 
E)  decrease; not change

Question 11

In the accompanying graph, the price elastic portion of demand is found in the region and the price inelastic portion of demand is found in the region of the graph.

Accepted Answer

A)  middle; lower 
B)  lower; upper 
C)  upper; lower 
D)  middle; middle 
E)  None of these choices are correct. 
A)  middle; lower 
B)  lower; upper 
C)  upper; lower 
D)  middle; middle 
E)  None of these choices are correct.

Question 12

Sellers of bottled water find that whether the price falls or rises, the quantity bought by consumers remains unchanged every week. The price elasticity of demand for bottled water is:

Accepted Answer

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

Question 13

Kevin tells the manager at Moo's Ice Cream that he won't buy any ice cream cones costing more than $2, but he will buy a limitless number at any price less than $2. His price elasticity of demand for ice cream cones is:

Accepted Answer

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

Question 14

When quantity demanded and price increase by 10%, you know that price and quantity are to the consumer.

Accepted Answer

A)  equally important 
B)  everything 
C)  nothing 
D)  relatively important 
E)  relatively unimportant 
A)  equally important 
B)  everything 
C)  nothing 
D)  relatively important 
E)  relatively unimportant

Question 15

If the income elasticity of demand is -3, the good will be a(n):

Accepted Answer

A)  complement good. 
B)  substitute good. 
C)  necessity good. 
D)  inferior good. 
E)  luxury good. 
A)  complement good. 
B)  substitute good. 
C)  necessity good. 
D)  inferior good. 
E)  luxury good.

Question 16

Barney owns a bagel business in New York City and he wants to increase his total revenue. He knows that, when bagels are $1, he sells 250 an hour, and when he lowers the price to $0.75, he sells 275 an hour.
a. Calculate the price elasticity of demand for Barney's bagels.
b. Using the price elasticity of demand for Barney's bagels, explain whether he should raise or lower the price to generate more revenue.
c. A bakery moves in across the street from Barney's shop. Explain what is likely to happen to the price elasticity of demand for Barney's bagels.

Accepted Answer

a. Price elasticity of demand = percenta

Question 17

Refer to the accompanying table to answer the  questions. $$\begin{array} { | l | c | c | } 
\hline \begin{array} { l } 
\text { Price of } \
\text { Erasers }
\end{array} & \begin{array} { l } 
\text { Quantity } \
\text { Demanded of } \
\text { Erasers }
\end{array} & \begin{array} { l } 
\text { Quantity } \
\text { Demanded of } \
\text { Pencils }
\end{array} \
\hline \$ .50 & 10 & 12 \
\hline \$ 1.00 & 8 & 11 \
\hline \$ 1.50 & 7 & 10 \
\hline \$ 2.00 & 6 & 9 \
\hline \$ 2.50 & 5 & 8 \
\hline
\end{array}$$
-The price of erasers increases from $0.50 to $1.00 per eraser. By what percentage does the quantity demanded of pencils change? (Use the midpoint method.)

Accepted Answer

A)  8.70% 
B)  22.22% 
C)  -22.22% 
D)  -8.70% 
E)  6.67% 
A)  8.70% 
B)  22.22% 
C)  -22.22% 
D)  -8.70% 
E)  6.67%

Question 18

When would oil producers see the largest percentage decline in the quantity demanded for oil due to an increase in the price of oil today?

Accepted Answer

A)  tomorrow 
B)  in 6 months 
C)  in 2 years 
D)  in 8 years 
E)  in 15 years 
A)  tomorrow 
B)  in 6 months 
C)  in 2 years 
D)  in 8 years 
E)  in 15 years

Question 19

Toyota uses a just-in-time production method to respond to consumer demand for its vehicles. In essence, it relies on various cues to signal when new vehicles should be made rather than stocking inventory. This allows Toyota to respond very quickly to changes in consumer demand. Explain whether this system makes elasticity of supply relatively price elastic or price inelastic.

Accepted Answer

It is easy for Toyota to respond to chan

Question 20

When the price of pencils increases from $1.50 to $2.50, there is an increase in quantity demanded of pens from 100 to 150. The cross-price elasticity of demand between pencils and pens is:

Accepted Answer

A)  1.25. 
B)  0.50. 
C)  0.40. 
D)  0.80. 
E)  0.75. 
A)  1.25. 
B)  0.50. 
C)  0.40. 
D)  0.80. 
E)  0.75.

When Sue received a promotion at work, her income rose by 50%. The income elasticity of demand for steak was found to be 1.5. For her, steak is a(n):

We would expect to see a positive cross-price elasticity between:

A firm knows that the price elasticity of demand for its service is 0 (zero). a. Graph this demand curve. b. What should the firm do to the price of its good to raise total revenue?

If the cross-price elasticity of demand is 6, Good A and Good B are:

When Clayton starts working at his first full-time job out of college with a $60,000 salary, he is likely to buy more and less .

Firms are indifferent to changing prices when the price elasticity of demand is:

Jane says that she will always spend $20 a week on lattes. Jane's demand for lattes is price:

For which of the following products should sellers raise the price in order to increase total revenue from college students?

When the price of softballs is high, a in price will raise total revenue. When the price is low, the seller should the price to increase total revenue.

In the accompanying graph, the price elastic portion of demand is found in the region and the price inelastic portion of demand is found in the region of the graph.

Sellers of bottled water find that whether the price falls or rises, the quantity bought by consumers remains unchanged every week. The price elasticity of demand for bottled water is:

Kevin tells the manager at Moo's Ice Cream that he won't buy any ice cream cones costing more than $2, but he will buy a limitless number at any price less than $2. His price elasticity of demand for ice cream cones is:

When quantity demanded and price increase by 10%, you know that price and quantity are to the consumer.

If the income elasticity of demand is -3, the good will be a(n):

When would oil producers see the largest percentage decline in the quantity demanded for oil due to an increase in the price of oil today?

When the price of pencils increases from $1.50 to $2.50, there is an increase in quantity demanded of pens from 100 to 150. The cross-price elasticity of demand between pencils and pens is:

The Five Foundations of Economics

Model Building and Gains From Trade

The Market at Work: Supply and Demand

Price Controls

The Efficiency of Markets and the Costs of Taxation

Market Inefficiencies: Externalities and Public Goods

Business Costs and Production

Firms in a Competitive Market

Understanding Monopoly

Price Discrimination

Monopolistic Competition and Advertising

Oligopoly and Strategic Behavior

The Demand and Supply of Resources

Income, Inequality, and Poverty

Consumer Choice

Behavioral Economics and Risk Taking

Health Insurance and Health Care

Filters

Exam 4: Elasticity

When Sue received a promotion at work, her income rose by 50%. The income elasticity of demand for steak was found to be 1.5. For her, steak is a(n):

We would expect to see a positive cross-price elasticity between:

A firm knows that the price elasticity of demand for its service is 0 (zero). a. Graph this demand curve. b. What should the firm do to the price of its good to raise total revenue?

If the cross-price elasticity of demand is 6, Good A and Good B are:

When Clayton starts working at his first full-time job out of college with a $60,000 salary, he is likely to buy more and less .

Firms are indifferent to changing prices when the price elasticity of demand is:

Jane says that she will always spend $20 a week on lattes. Jane's demand for lattes is price:

For which of the following products should sellers raise the price in order to increase total revenue from college students?

When the price of softballs is high, a in price will raise total revenue. When the price is low, the seller should the price to increase total revenue.

In the accompanying graph, the price elastic portion of demand is found in the region and the price inelastic portion of demand is found in the region of the graph.

Sellers of bottled water find that whether the price falls or rises, the quantity bought by consumers remains unchanged every week. The price elasticity of demand for bottled water is:

Kevin tells the manager at Moo's Ice Cream that he won't buy any ice cream cones costing more than $2, but he will buy a limitless number at any price less than $2. His price elasticity of demand for ice cream cones is:

When quantity demanded and price increase by 10%, you know that price and quantity are to the consumer.

If the income elasticity of demand is -3, the good will be a(n):

When would oil producers see the largest percentage decline in the quantity demanded for oil due to an increase in the price of oil today?

When the price of pencils increases from $1.50 to $2.50, there is an increase in quantity demanded of pens from 100 to 150. The cross-price elasticity of demand between pencils and pens is:

The Five Foundations of Economics

Model Building and Gains From Trade

The Market at Work: Supply and Demand

Price Controls

The Efficiency of Markets and the Costs of Taxation

Market Inefficiencies: Externalities and Public Goods

Business Costs and Production

Firms in a Competitive Market

Understanding Monopoly

Price Discrimination

Monopolistic Competition and Advertising

Oligopoly and Strategic Behavior

The Demand and Supply of Resources

Income, Inequality, and Poverty

Consumer Choice

Behavioral Economics and Risk Taking

Health Insurance and Health Care

Filters