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Use the following diagram to answer the next question.
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Refer to the diagram. Between the prices of $10 and $8, the price elasticity of demand is: |
| | A) | .5. |
| | B) | .9. |
| | C) | 1.11. |
| | D) | 2. |
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| 2 | |
Use the following diagram to answer the next question.
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Refer to the diagram. Suppose total revenue at price P3 is the same as at price P2. Then, over the price range from P2 to P3, demand is: |
| | A) | relatively elastic. |
| | B) | relatively inelastic. |
| | C) | unit elastic. |
| | D) | perfectly elastic. |
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| 3 | |
Suppose that a 2% increase in income in the economy decreases the quantity of gadgets demanded by 1% at every possible price. This implies that: |
| | A) | the supply of gadgets is elastic. |
| | B) | income elasticity is positive and gadgets are a normal good. |
| | C) | income elasticity is negative and gadgets are a normal good. |
| | D) | income elasticity is negative and gadgets are an inferior good. |
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| 4 | |
The maker of a particular breakfast cereal found that increasing the price from $4.00 to $4.25 per box had no impact on total revenue, but increasing the price further to $4.50 reduced total revenue by 2%. Thus, the demand for the cereal is: |
| | A) | inelastic over the range $4.00 to $4.50. |
| | B) | elastic over the range $4.00 to $4.25 but not over the range $4.25 to $4.50. |
| | C) | unit elastic over the range $4.00 to $4.25 and elastic over the range $4.25 to $4.50. |
| | D) | unit elastic over the range $4.00 to $4.25 and inelastic over the range $4.25 to $4.50. |
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| 5 | |
A firm finds that its price elasticity of demand is 4.0. Currently, the firm is selling 2000 units per month at $5 per unit. If it wishes to increases its quantity sold by 10%, it must lower its price by: |
| | A) | $.40. |
| | B) | $.50. |
| | C) | 2.5%. |
| | D) | 4.0%. |
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| 6 | |
The cross elasticity of demand between two goods is reported to be +0.2. This implies that: |
| | A) | a 2% increase in the price of one shifts the demand curve for the other to the left by 1%. |
| | B) | the two goods are complements. |
| | C) | the two goods are substitutes. |
| | D) | both goods are normal goods. |
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| 7 | |
Which of the following is likely to have the most elastic demand? |
| | A) | Food |
| | B) | Fruit |
| | C) | Bananas |
| | D) | Dole brand bananas |
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| 8 | |
While it is often relatively easy to shift land from production of one type of grain to another, the process takes a considerable amount of time. This implies that: |
| | A) | a change in the demand for wheat will not affect its price in the short run. |
| | B) | the long run supply of oats is more elastic than the long run supply of wheat. |
| | C) | a change in the demand for corn will change quantity supplied more in the short run than the long run. |
| | D) | the supply of barley is more elastic in the long run than the short run. |
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| 9 | |
Suppose legalization—and subsequent regulation—of heroin and cocaine reduces their prices by 50%. Estimates suggest the total quantity of heroin and cocaine demanded would rise by 83% and 42%, respectively. Consequently, legalization would: |
| | A) | increase total expenditures on both heroine and cocaine. |
| | B) | decrease total expenditures on both heroine and cocaine. |
| | C) | increase total expenditures on heroine and decrease total expenditures on cocaine. |
| | D) | decrease total expenditures on heroine and increase total expenditures on cocaine. |
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| 10 | |
Assume that the price of product Y decreases by 5% and the quantity supplied decreases by 2%. The coefficient of price elasticity of supply for good Y is: |
| | A) | negative and therefore Y is an inferior good. |
| | B) | less than one and therefore supply is inelastic. |
| | C) | more than one and therefore supply is elastic. |
| | D) | negative and therefore the supply curve is downsloping. |
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