Question 1

If the price elasticity of demand for a good is less than one in absolute value, economists would characterize consumers of this good

Accepted Answer

A) as not very sensitive to price. 
B) as not very sensitive to the quantity they demand. 
C) as very sensitive to price. 
D) as elastic.

Question 2

On a linear demand curve, the lower the price

Accepted Answer

A) the less elastic is demand. 
B) the more elastic is demand. 
C) the elasticity equals -1. 
D) the elasticity equals zero.

Question 3

If the elasticity of demand is -2.3 when calculated using the point elasticity method and -3.4 using the arc elasticity method, then

Accepted Answer

A) you should use the point elasticity. 
B) it is OK to use either one. 
C) there must be a mistake in the calculations. 
D) you should use the arc elasticity.

Question 4

The percentage change in the quantity supplied in response to a percentage change in the price is known as the

Accepted Answer

A) slope of the supply curve. 
B) excess supply. 
C) price elasticity of supply. 
D) All of the above.

Question 5

If demand is elastic

Accepted Answer

A) then a 1% decrease in price leads to a rise in quantity of greater than 1%. 
B) then a 1% decrease in price leads to a rise in quantity of less than 1%. 
C) then a 1% decrease in prices leads to a rise in quantity of 1%. 
D) then a 1% decrease in price leads to a fall in quantity greater than 1%.

Question 6

-The above figure shows the demand curve for crude oil. If the market price is $10 a barrel, what is the price elasticity of demand?

Accepted Answer

A) -.02 
B) -1 
C) -10 
D) -500

Question 7

If it is difficult to substitute for a good in the short run, but easy in the long run, then

Accepted Answer

A) the elasticity of demand is more elastic in the short run. 
B) the elasticity of demand is more elastic in the long run. 
C) the good is an inferior good. 
D) elasticity changes along the demand curve.

Question 8

-The above figure shows the demand curve for crude oil. The demand curve has unitary price elasticity when price equals

Accepted Answer

A) $0. 
B) $1. 
C) $10. 
D) $20.

Question 9

If the price of a slice of pizza rises from $2.50 to $3, and quantity demanded falls from 10,000 slices to 7,400 slices, calculate the arc price elasticity.

Accepted Answer

A) -1.92 
B) -1.64 
C) -4 
D) -2

Question 10

Suppose the demand function for a good is expressed as Q = 100 - 4p. If the good currently sells for $10, then the point price elasticity of demand equals

Accepted Answer

A) -1.5. 
B) -0.67. 
C) -4. 
D) -2.5.

Question 11

A horizontal demand curve for a good could arise because consumers

Accepted Answer

A) are irrational. 
B) are not sensitive to price changes. 
C) view this good as identical to another good. 
D) have no equivalent substitutes for this good.

Question 12

When using extrapolation to forecast

Accepted Answer

A) a time series of past observations is used. 
B) there is a large error term in the results. 
C) predictions can only be made about the future. 
D) dummy variables can skew the results.

Question 13

An R2 close to 1

Accepted Answer

A) does not happen with real data. 
B) indicates that almost all of the variation in the dependent variable is explained by the regression. 
C) does not explain variation as well as an R2 that is above 2. 
D) means that the regression line does not fit the data very well.

Question 14

If demand is inelastic

Accepted Answer

A) then it changes very little in response to a price change. 
B) then it changes significantly in response to a price change. 
C) then demand is zero. 
D) then demand is infinite.

Question 15

Horizontal and vertical demand curves

Accepted Answer

A) have constant elasticities. 
B) are not possible in the real world. 
C) have elasticities that change with price. 
D) cannot have their elasticities computed using the point method.

Question 16

If the price of a slice of pizza rises from $2.50 to $3, and quantity demanded falls from 10,000 slices to 7,400 slices, using the formula for arc price elasticity what is the percentage change in price?

Accepted Answer

A) 18.18% 
B) 29.89% 
C) 20% 
D) 16.67%

Question 17

A 95% confidence interval

Accepted Answer

A) indicates that there is 95% confidence that the value of the estimated coefficient is correct. 
B) indicates that there is 95% confidence that the degrees of freedom explain the data correctly. 
C) is a range of of values that gives a 95% probability that the true value of the coefficient is within the specified interval. 
D) is the probability that we have obtained the true value of the coefficient with 95% accuracy.

Question 18

The goodness of the fit of a line is measured by the

Accepted Answer

A) R2 statistic. 
B) t-statistic. 
C) unbiased coefficient. 
D) standard error.

Question 19

The percentage change in the quantity demanded in response to a percentage change in the price is known as the

Accepted Answer

A) slope of the demand curve. 
B) excess demand. 
C) price elasticity of demand. 
D) All of the above.

Question 20

Forecasts based on an economic theory as opposed to historical data are called

Accepted Answer

A) causal econometric forecasts. 
B) non-time-series forecasts. 
C) dummy forecasts. 
D) explanatory variable forecasts.

Exam 3: Empirical Methods for Demand Analysis