Question 1

If the income elasticity of demand for noodles is -2 and the percentage change in the quantity consumed is 5%, what is the percentage change in income?

Accepted Answer

A)   2.5%
B)   10%
C)   -2.5%
D)   -10%
E)   -0.4% C

Question 2

Which one of the following pairs of goods is likely to have a positive cross-price elasticity of demand?

Accepted Answer

A)   pancakes and waffles
B)   fruit and bacon
C)   butter and toast
D)   potatoes and sausage
E)   milk and coffee A

Question 3

Graph the following situations:
a. My cats love Kitty Kat Treats, and I will buy as much as the store has at the current price of $2. But when the price of Kitty Kat Treats increases by even 5 cents, I won't buy any!
b. I will buy 20 bags of Kitty Kat Treats at any price.
c. If the price of Kitty Kat Treats rises by 5%, I'll decrease my quantity demanded by 10%.

Accepted Answer

a.
This situation illustrates perfectly elastic demand. The consumer will purchase an infinite amount at the going price, but he will decrease his quantity demanded to zero if the price rises above that point.
b.
Now the consumer has perfectly inelastic demand, represented by a vertical demand curve that intersects the quantity axis at 20. He will buy 20 bags at any price.
c.
The price elasticity of demand in this case is -2: percentage change in quantity demanded/percentage change in price. This is elastic demand, so the demand curve will be relatively flat.

Question 4

Refer to the following graphs to answer the  questions.
Graph A
Graph B
Graph C
Graph D
Graph E
-Which of these graphs represents relatively price elastic demand for a good?

Accepted Answer

A)   Graph A
B)   Graph B
C)   Graph C
D)   Graph D
E)   Graph E

Question 5

Cellphone companies found that when they raised the price of connecting to wireless hot spots, demand decreased more than proportionally among casual users but decreased less than proportionally among businesspeople. This is because wireless connectivity is a(n) for casual users but a(n) for businesspeople.

Accepted Answer

A)   elastic good; inelastic good
B)   luxury good; necessity good
C)   normal good; inferior good
D)   inelastic good; elastic good
E)   inferior good; normal good

Question 6

If the owner of Sally's Salty Treats finds that, in the long run, she can trade one type of input for another, the price elasticity of supply is:

Accepted Answer

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

Question 7

The government estimates that the demand curve for DVDs is represented by the equation Q _d = -5P + 20 a. Using prices of $2 and $3, determine the price elasticity of demand.

Accepted Answer

The answer of The government estimates that the demand curve...

Question 8

Nita is a devoted Coca-Cola consumer, whereas Becky can drink either Coca-Cola or Pepsi products. Nita's demand for Coca-Cola will be relatively more , while Becky's demand will be relatively more .

Accepted Answer

A)   elastic; inelastic
B)   unrelated to price; elastic
C)   perfectly elastic; elastic
D)   inelastic; elastic
E)   unitary elastic; inelastic

Question 9

Income elasticity of demand for professional haircuts is found to be 1.7. This service is a:

Accepted Answer

A)   normal good and necessity good.
B)   luxury good but not a normal good.
C)   necessity good but not a normal good.
D)   substitute good.
E)   normal good and a luxury good.

Question 10

To keep the percentage change in quantity demanded equally proportional to the percentage change in price when the prices rise by 5%, a consumer would need to quantity demanded by .

Accepted Answer

A)   increase; 5%
B)   decrease; 5%
C)   increase; 10%
D)   decrease; 10%
E)   increase; 2%

Question 11

Used car dealers find that their sales rise in a recession. We can be certain that consumers view used cars as:

Accepted Answer

A)   necessities.
B)   normal goods.
C)   luxuries.
D)   substitutes.
E)   inferior.

Question 12

The demand for Mina's earrings can be represented by the equation:Qd = -2P + 10

a. If the price = $4.50, what is quantity demanded? If the price decreases to $4.00, what is the quantity demanded? What is the price elasticity of demand between these two points along the demand curve?
b. Repeat the calculations in parts (a) and (b) for price = $1.00 and $0.50. Determine the quantity demanded at each price and the price elasticity of demand at this point on the graph.

Accepted Answer

The answer of The demand for Mina's earrings can be...

Question 13

If the cross-price elasticity of demand between Good A and Good B is 3, the price of Good B increases, and the price elasticity of demand for Good B is inelastic, we can expect to see a change in the quantity demanded for Good A:

Accepted Answer

A)   positive, zero
B)   positive, small
C)   negative, infinite
D)   negative, one-for-one
E)   positive, large

Question 14

At a price of $5/hour, Bob wants to hire three workers. When the price rises to $7/hour, Bob wants to hire only two workers. Bob's price elasticity of demand for workers is:

Accepted Answer

A)   -0.83
B)   -1.20
C)   -0.33
D)   -0.40
E)   -0.10

Question 15

The introduction of new gaming systems that can compete effectively with the Nintendo console will make the demand for the Nintendo console become:

Accepted Answer

A)   more price elastic.
B)   more price inelastic.
C)   perfectly price elastic.
D)   perfectly price inelastic.
E)   unchanged.

Question 16

The reason that Darren buys a lot more paintings when the price of art falls is that:

Accepted Answer

A)   there are many substitutes for paintings.
B)   paintings are a necessity.
C)   they complement his home décor.
D)   his income has risen.
E)   art is a luxury.

Question 17

If you know that the price elasticity of demand is:
a. -5, graph the demand curve.
b. -½, graph the demand curve.
c. infinite, graph the demand curve.

Accepted Answer

The answer of If you know that the price elasticity...

Question 18

Assume that a family spends 35% of its income on housing, 20% on travel-related expenses, 10% on utilities, 25% on health care, and 5% on miscellaneous items. Demand for which category will be most responsive to a change in price?

Accepted Answer

A)   miscellaneous
B)   health care
C)   utilities
D)   travel-related expenses
E)   housing

Question 19

Over time, the price elasticity of supply for sunglasses will become more:

Accepted Answer

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

Question 20

The supply curve for Max's Munchies is shown in the accompanying figure.
a. What is the price elasticity of supply between $9 and $10?
b. Is this price elasticity relatively elastic or inelastic? Explain.
c. What happens to this supply curve if Max has difficulty finding workers to make his product?

Accepted Answer

The answer of The supply curve for Max's Munchies is...

Exam 4: Elasticity