Question

1-As we move up the demand curve, the price elasticity of demand * A) increases B) decreases C) becomes unitary D) does not change

2-If the price of lemonade increases relative to the price of grape juice, the demand for: * A) grape juice will decrease. B) grape juice will increase. C) lemonade will decrease. D) lemonade will increase.

3-An increase in price will result in no change in total revenue if: * A) the percentage change in price is large enough to cause quantity demanded to fall to zero. B) the coefficient of elasticity is equal to zero. C) the percentage change in quantity demanded is equal to the percentage change in price (in absolute values). D) the demand function is perfectly elastic.

4-Which of the following pairs of goods would be expected to have a positive cross-price elasticity of demand? * A) coffee and tea. B) gasoline and cars C) tennis racquets and tennis balls. D) hot dogs and hot dog buns.

5-The price elasticity of demand is calculated as: * A) the change in price divided by the change in quantity demanded. B) the change in quantity demanded divided by the change in price. C) the percentage change in price divided by the percentage change in quantity demanded. D) the percentage change in quantity demanded divided by the percentage change in price.

6-Assume the demand for a good is price inelastic, i.e., ed < 1 (in absolute value). This means that if price decreases by 50 percent, quantity demanded will: * A) increase by more than 50 percent. B) decrease by more than 50 percent. C) increase by less than 50 percent. D) decrease by less than 50 percent.

7-Suppose a consumer's income increases from $30,000 to $36,000. As a result, the consumer increases her purchases of compact disks (CDs) from 25 CDs to 30 CDs. What is the consumer's income elasticity of demand for CDs? * A) 0.5 B) 1.0 C) 1.5 D) 2.0

8-As the price of socks increases, what would reasonably be expected to happen to the equilibrium price and equilibrium quantity of shoes? (Socks and shoes are complements.) * A) Equilibrium price would increase and equilibrium quantity would decrease. B) Equilibrium price and quantity would both decrease. C) Equilibrium price would decrease and equilibrium quantity would increase. D) Equilibrium price and quantity would both increase.

9-"Supply" is best defined as the relationship between: * A) the current price of a good and the quantity supplied at that price. B) the price of a good or service and the quantity supplied by producers at each price during a period of time. C) the cost of producing a good and the price consumers are willing to pay for it. D) the quantity supplied and the price people are willing to pay for a good.

10-Which of the following would cause a change in supply, as opposed to a change in quantity supplied, in the market for purchasing new homes? * A) A decrease in the price of rental housing. B) A decrease in the price of new homes C) An increase in the incomes of home buyers. D) An increase in the number of buyers in the market for used homes.

11-Many people consider lentils to be an inferior good. For such people, all else held constant, an increase in income would cause their demand for lentils to: * A) increase. B) stay the same. C) decrease. D) cannot be determined with the information given.

12-For an inferior good, the income elasticity of demand is: * A) positive or negative depending on the share of income accounted for by the good. B) always negative C) positive if income increases and negative when income declines. D) always equal to 1.

13-As the percentage of the consumer's income accounted for by a particular good decreases, demand for the good will: * A) tend to become more price elastic. B) tend to become more price inelastic. C) tend to become closer to unit elastic. D) tend toward being perfectly elastic.

14-Suppose the demand for good X is given by Q_x^d = 300 – 15Px + 20Py - 60I , where Px is the price of good X. Py is the price of some other good Y, and I is income. Assume that Px is currently $50, Py is currently $100, and I is currently $1200 * A) Goods X and Y are complement goods B) The supply is elastic C) Good Y is a normal good D) Good X is an inferior good

Answer 1

1. As we move up along the demand curve, the magnitude of elasticity (in absolute value) increases and the demand becomes price elastic.

Answer: option A

2. Lemonade and grape juice are substitute of each other (one can be consumed in place of the other). When price of lemonade increases relative to the price of the grape juice, quantity demanded for lemonade decreases. As these two are substitutes, now people will consume more grape juice instead of lemonade. It will increase the demand for grape juice.

Answer: option B