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Exam 6: Elasticity

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Question 31

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For an inferior good, the income elasticity of demand will be: A.negative. B.positive. C.0. D.determined by the direction of the change in income.

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Question 32

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Figure: The Demand Curve (Figure: The Demand Curve) Look again at the figure The Demand Curve.Using the midpoint method, the price elasticity of demand between $1 and $2 is approximately:

A) 0.16.
B) 0.56.
C) 1.8.
D) 5.67.

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Question 33

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Nico rents 10% more DVDs when his income increases by 20%.Based on this information, we know that: A.DVDs are a normal good. B.DVDs are an inferior good. C.DVDs have many substitutes. D.the price of DVDs has decreased.

The university hopes to raise more revenue by increasing parking fees.This plan will work only if: A.the price effect is larger than the quantity effect. B.the price effect is smaller than the quantity effect. C.the price effect and quantity effect are the D.same.there is no price or quantity effect.

Assume that as your income increases, your consumption of burgers increases.We can assume that you consider burgers: A.a negative good. B.a positive good. C.an inferior good. D.a normal good.

The price of a gallon of gasoline increases 10% this year.As a result, which of the following events is most likely to occur? A.More people will drive their cars. B.Public transportation usage will decrease. C.Gasoline expenditures will increase if gasoline is an inelastic good. D.Fewer people will ride bicycles, a substitute for car travel.

Suppose the cross-price elasticity of demand for butter and margarine is equal to 0.96 but the cross price elasticity for water and lemons is -0.13.This means that butter and margarine are ________ while water and lemons are _. A.complements; substitutes B.substitutes; complements C.inelastic goods; elastic goods D.elastic goods; complements

If you know the cross-price elasticity between two goods is positive, then you know the two goods are: A.substitutes. B.complements. C.normal goods. D.inferior goods.

On a linear demand curve: A.demand is elastic at high prices. B.demand is inelastic at high prices. C.elasticity is the same at all points on the demand curve. D.demand is elastic at low prices.

If two goods are complementary, we can assume that the cross-price elasticity of demand for these goods is: A.between 0 and 1. B.equal to 0. C.greater than 1. D.less than 0.

An important determinant of the price elasticity of demand is the: A.importance of the good in household budgets. C.level of technology. C .quantity of the good supplied. D.extent of government regulation.

Assume the supply curve shifts to the right by a given amount at each price.The price in the market will decline the most if demand is more: A.price-elastic and supply is more price-elastic. B.price-inelastic and supply is more price-elastic. C.price-elastic and supply is more price-inelastic. D.price-inelastic and supply is more price-inelastic.

If the absolute value of the price elasticity of demand is greater than 1, then: A.small percentage changes in the price will lead to much larger changes in the percentage change in the quantity demanded. B.small percentage changes in the price will lead to even smaller changes in the percentage change in the quantity demanded. C.percentage changes in the price will lead to equal percentage changes in the quantity demanded. D.changes in the price will have no impact on changes in the quantity demanded.

Figure: The Demand Curve (Figure: The Demand Curve) Look again at the figure The Demand Curve.Using the midpoint method, the price elasticity of demand between $6 and $8 is approximately:

Figure: The Demand for Shirts (Figure: The Demand for Shirts) Look at the figure The Demand for Shirts.Using the midpoint method, the price elasticity of demand for the segment EF is: A.greater than 1. B.less than the price elasticity of demand for segment FG. C.less than the price elasticity of demand for segment DE. D.greater than the price elasticity of demand for segment AB.

Which of the following will lead to a decrease in total revenue? A.The price goes up and demand is perfectly inelastic. B.The price goes up and demand is price-inelastic. C.The price declines and demand is price-elastic. D.The price increases and demand is price-elastic.

The pair of items that is most likely to have a negative cross-price elasticity of demand is:

The price elasticity of demand can be found by: A.examining only the slope of the demand curve. B.measuring absolute changes in the price and the quantity demanded. C.comparing the percentage change in the quantity demanded to the percentage change in the price. D.knowing that when the price changes, the quantity demanded goes in the opposite direction.

Suppose the cross-price elasticity of demand for pork with respect to the price of chicken is equal to +0.4.What does this tell you about the relation between pork and chicken? What will happen to consumption of pork if the price of chicken falls by 20%?

Figure: The Demand for Notebook Computers (Figure: Demand for Notebook Computers) Look again at the figure The Demand for Notebook Computers.Total revenue at point S equals the: A.distance 0P. B.distance MS. C.area 0TUM. D.area 0PSM.