Question 1

About six months ago, Pat lost the job as vice president of a local bank. Since losing the job, Pat still has the Sunday newspaper delivered every week. For Pat, the Sunday newspaper is

Accepted Answer

A)  income inelastic. 
B)  price inelastic. 
C)  an inferior good. 
D)  a normal good because Pat still buys the paper even with a big loss of income.

Question 2

A fall in the price of X from $12 to $8 causes an increase in the quantity of Y demanded from 900 to 1,100 units. What is the cross elasticity of demand between X and Y?

Accepted Answer

A)  0.5 
B)  -0.5 
C)  2 
D)  -2

Question 3

Along a straight-line demand curve, as the price falls the

Accepted Answer

A)  demand becomes more elastic. 
B)  demand becomes less elastic. 
C)  elasticity of demand is constant. 
D)  demand is always unitary elastic.

Question 4

If the cross elasticity of demand is -5 between french fries and orange drink, then french fries

Accepted Answer

A)  and orange drink are complements. 
B)  and orange drink are substitutes. 
C)  are a normal good and orange drink is an inferior good. 
D)  are an inferior good and orange drink is a normal good.

Question 5

Bus rides and canned soup are inferior goods, so the ________ elasticity of demand is ________.

Accepted Answer

A)  cross; positive 
B)  income; positive 
C)  income; negative 
D)  cross; negative

Question 6

A necessity (such as food and shelter) generally has an inelastic demand.

Accepted Answer

A) True 
 B)False

Question 7

A university conducts a survey of students, which shows that a 10 percent tuition hike would lead to a 7 percent decrease in the enrollment. If the university wants to increase its total revenue, it should ________ tuition because the demand for education at this university is ________.

Accepted Answer

A)  raise; elastic 
B)  not raise; elastic 
C)  raise; inelastic 
D)  not raise; inelastic

Question 8

The demand for food in poor countries is

Accepted Answer

A)  inelastic and more inelastic than in rich countries. 
B)  inelastic but more elastic than in rich countries. 
C)  elastic but less elastic than in rich countries. 
D)  elastic and more elastic than in rich countries.

Question 9

When the price of a Caesar salad is $5.00, the demand for Caesar salads is elastic, and when the price is $4.00, the demand is inelastic. If Mike's Roadside Restaurant cuts the price from $5.00 to $4.00, its total revenue from Caesar salads

Accepted Answer

A)  will increase. 
B)  will decrease. 
C)  will remain the same. 
D)  might increase, decrease, or remain the same.

Question 10

Suppose that the price elasticity of supply for oil is 0.1. Then, if the price of oil rises by 20 percent, the quantity of oil supplied will increase

Accepted Answer

A)  by 200 percent. 
B)  by 20 percent. 
C)  by 2 percent. 
D)  by 0.2 percent.

Question 11

Supply is elastic if

Accepted Answer

A)  a 1 percent change in price leads to a larger percentage change in quantity supplied. 
B)  a 1 percent change in price leads to a smaller percentage change in quantity supplied. 
C)  the slope of the supply curve is positive. 
D)  the good in question is a normal good.

Question 12

-The above figure shows the demand curve for movie rentals from Redbox. If Redbox lowered its price from $4.00 to $3.50, then total revenue would ________ because demand is ________.

Accepted Answer

A)  decrease; elastic 
B)  increase; elastic 
C)  decrease; inelastic 
D)  increase; inelastic

Question 13

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 14

When the price of a hot dog rises 10 percent, your expenditure on hot dogs increases. Hence, it is certain that

Accepted Answer

A)  hot dogs are a normal good for you. 
B)  hot dogs are an inferior good for you. 
C)  your demand for hot dogs is elastic. 
D)  your demand for hot dogs is inelastic.

Question 15

You are the new vice president in charge of advertising at Taco Bell. In your upcoming advertising campaign, you plan to degrade the fast food competitor whose product is the closest substitute for Taco Bell's tacos. That would be the fast food chain whose cross elasticity of demand with your tacos is equal to

Accepted Answer

A)  negative 2.11. 
B)  negative 1.75. 
C)  positive 1.55. 
D)  positive 1.00.

Question 16

-Cory enjoys listening to all types of music. His demand schedules for CDs in 2009 and 2010 are shown in the table above. Cory's income was $30,000 in 2009 and $35,000 in 2010. In 2010, he bought an iPad so he started to download music files from the Internet.
a) Draw Cory's demand curves for CDs in 2009 and 2010. How did Cory's demand for CDs change? Why?
b) For each year, calculate Cory's price elasticity of demand as the price of CDs decreases from $16 to $12. (Use the midpoint method in your calculations.)
c) Why might the price elasticity of Cory's demand for CDs in 2010 be different from that in 2009?
d) If all CD buyers have the same demand as does Cory, what price should the record companies charge in 2010 to maximize their total revenue from CD sales?

Accepted Answer

The answer of 
-Cory enjoys listening to all types of...

Question 17

Suppose that the demand for corn is price inelastic. If a technological advance makes corn farms more productive, the equilibrium price of corn will ________ and the farmers' total revenue will ________.

Accepted Answer

A)  rise; increase 
B)  rise; decrease 
C)  fall; increase 
D)  fall; decrease

Question 18

A hot dog vendor on a street corner could increase the quantity of hot dogs her customers demand by 12 percent if she lowers the price of a hot dog 10 percent. The demand for the hot dogs is

Accepted Answer

A)  cross elastic. 
B)  arc elastic. 
C)  unit elastic. 
D)  elastic.

Question 19

As Mary's income increases by 20 percent, her demand for tickets to National Hockey League games increases by 10 percent. Mary's demand for tickets is income ________; for Mary, hockey tickets are ________ good.

Accepted Answer

A)  elastic; a normal 
B)  inelastic; a normal 
C)  elastic; an inferior 
D)  inelastic; an inferior

Question 20

-The figure above illustrates a linear demand curve. By comparing the price elasticity in the $2 to $4 price range with the elasticity in the $8 to $10 range, you can conclude that the elasticity is

Accepted Answer

A)  greater in the $8 to $10 range. 
B)  greater in the $2 to $4 range. 
C)  the same in both price ranges. 
D)  greater in the $8 to $10 range when the price rises but greater in the $2 to $4 range when the price falls.

Exam 4: Elasticity