Introduction to Microeconomics (ECON 101)1) The p rice elasticity of d emand is a u nits- free measu re of the responsiveness of A) p rice to chan ges in
... [Show More] qu an tity d eman d ed B) qu antity d eman d ed to ch anges in th e p rice of a substitu te or comp lement C) qu antity d emand ed to chan ges in the p rice of the good D) qu antity d emand ed to chan ges in income E) none of the above. An sw er: C 2) If a 10 p ercent rise in price lead s to an 8 p ercent d ecline in qu antity d emand ed , the p rice elasticity of d eman d is A) 0.8. B) 1.25. C) 8. D) 0.125. E) 80. An sw er: A 3) A p rice elasticity of d eman d of 2 means th at a 10 p ercent in crease in p rice will resu lt in a A) 2 p ercen t d ecrease in quantity d emanded . B) 20 p ercent increase in quantity d emanded . C) 5 p ercen t d ecrease in quantity d emanded . D) 2 p ercent increase in quantity d emanded . E) 20 p ercen t d ecrease in quantity d emanded . An sw er: E 4) The price of ap p les falls by 5 p ercent and qu antity demand ed increases by 6 p ercent. This means that the d eman d for ap p les is A) in elastic. B) p erfectly in elastic. C) p erfectly elastic. D) u n itary elastic. E) elastic. An sw er: E 1 Contact: [email protected] 5) Wh ich on e of the following illu strates an in elastic d eman d ? A) A p rice elasticity measu re of infin ity. B) A p rice elasticity m easu re of 1.0. C) A 10 p ercen t in crease in p rice lead s to a 5 p ercen t d ecrease in qu an tity d emand ed D) A 10 p ercen t in crease in p rice lead s to a 20 p ercen t d ecrease in qu an tity d emand ed E) A p rice elasticity m easu re of 2.0. An sw er: C 6) The d emand for good A is u nit elastic if A) a 5 p ercen t in crease in th e p rice of A resu lts in no ch ange in th e qu an tity d eman d ed B) a 5 p ercen t in crease in th e p rice of A cau ses a 10 p ercen t d ecrease in th e qu an tity d eman d ed . C) a 5 p ercen t in crease in th e p rice of A resu lts in a 5 p ercen t ch ange in th e qu an tity d em an d ed D) a 5 p ercen t d ecrease in the p rice of A cau ses an infin ite increase in th e qu antity d eman d ed . E) an y increase in th e p rice of A cau ses a 1 p ercen t d ecrease in th e qu an tity d eman d ed . An sw er: C 7) Su p p ose a rise in the p rice of a good from $6.50 to $7.50 lead s to a decrease in qu antity d emand ed from 10,500 to 9,500 u nits. In this range of the d emand curve, the price elasticity of demand is A) 7. B) 14. C) 0.7. D) 1,000. E) 1. An sw er: C 8) A fall in the p rice of a good from $10.50 to $9.50 resu lts in an in crease in qu an tity d emand ed from 18,800 t 21,200 u nits. The p rice elasticity of d emand in this part of the d emand cu rve is A) 1.2. B) 8.0. C) 2.4. D) 0.8. E) 1.25. An sw er: A 9) Su p p ose the governmet of Nova Scotia wants to redu ce the con sump tion of electricity by 5 percent. The p rice elasticity of d eman d for electricity is 0.40. Ad vise th e Nova Scotia governmen t to A) raise the p rice of electricity by 12.5 p ercent. B) stay aw ay from the m arket an d let the market m echanism fix th e p roblem C) raise the p rice of electricity by 2 p ercent. D) d ecrease th e p rice of electricity by 2 p ercen t E) d ecrease th e p rice of electricity by 12.5 p ercent An sw er: A 10) Wh ich on e of th e following will yield a measu red p rice elasticity of d eman d of 5.0? A 10 p ercent in crease in p rice resu lts in a A) 50 p ercen t d ecrease in quantity d emanded . B) 5 p ercen t d ecrease in quantity d emanded . C) 0.5 p ercent d ecrease in quantity d emand ed . D) 10 p ercen t d ecrease in quantity d emanded . E) 2 p ercen t d ecrease in quantity d emanded . An sw er: A 2 Use the table below to answer the following question(s). Table 4.1 Demand Schedule for Good A. Price ($ p er u nit) Qu an tity d em an d ed (u nits) 9.00 0 8.00 2,000 7.00 4,000 6.00 6,000 5.00 8,000 4.00 10,000 3.00 12,000 2.00 14,000 1.00 16,000 0 18,000 11) Refer to Table 4.1. The p rice elasticity of demand between $6 and $7 is A) 1.0. B) 2.0. C) 0.5. D) 2.6. E) 1.3. An sw er: D 12) Deman d will be more in elastic th e A) lower the income level. B) few er good substitu tes that are available. C) higher the income level. D) larger the fraction of income sp ent on the good E) longer the passage of time after a p rice increase. An sw er: B 13) For which one of the following will demand be the most p rice in elastic? A) milk B) H ap p y Cow bran d milk in Regin a C) H ap p y Cow bran d milk D) H ap p y Cow bran d m ilk at Ralp h's Grocery Store in Regina E) All of th e above will exhibit th e same d eman d elasticity An sw er: A 3 Use the figure below to answer the following question(s). Figure 4.2 Figure 4.2 illu strates a linear d emand curve. If the price falls from $13 to $11, w e know A) the effect on total revenu e cannot be determ ined. B) total revenue w ill d ecrease. C) total revenue w ill increase. D) the effect on total revenue can be d etermined only with information on the quantities E) total revenue w ill remain u nchanged. An sw er: C 15) If an increase in p rice cau ses a decrease in total revenue then price elasticity of d emand is A) negative. B) equ al to 1. C) greater than zero bu t less than 1 D) greater than 1. E) zero. An sw er: D 16) The d emand equation for widgets is P = 200 - 5QD. The p rice elasticity of demand between qu antity d eman d ed of 23 and 27 is A) 0.16. B) zero. C) 0.6. D) 1.0. E) 0.20. An sw er: C 4 17) Su p p ose Swiss Chalet in Moncton knows that the d emand for their hal- chicken meals is elastic. If its man ager w ants to in cr ease total reven u e from half- chicken meal sales, he shou ld A) d ecrease th e su p ply of half- chicken meals. B) d o n oth in g. C) in crease th e p rice of h alf- chicken meals. D) keep the p rice of half- chicken meals fixed . E) d ecrease th e p rice of h alf- chicken meals. An sw er: E 18) Su p p ose Nu navu t govern ment d ecid es to rep air Iqalu it road s. One way to generate su fficient fu nd s for this p lan is to in crease taxes on gasolin e p rices. The govern men t will be able to raise total reven u e from gasoline sales only if the d emand for gasolin e is A) u n it elastic. B) p erfectly in elastic. C) in elastic. D) p erfectly elastic. E) elastic. An sw er: C 19) The longer the time that has elasp sed since a price change the more time consu mers w ill have to respond to p rice ch an ges . As a resu lt, d eman d becomes A) zero. B) more elastic. C) u n it elastic. D) p erfectly in elastic. E) more in elastic. An sw er: B 20) The d emand for a good is elastic if A) a d ecrease in p rice resu lts in a d ecrease in total revenu e. B) an increase in p rice resu lts in an in crease in total revenu e. C) the good is a necessity. D) the d emand for the good is very insensitive to changes in price E) an increase in p rice resu lts in a d ecrease in total revenu e. An sw er: E 21) Tina and Brian w ork for the same record ing comp any. Tina claims they wou ld be better off by increasing the p rice of their CDs, w hile Brian claim s they w ould be better off by d ecreasing the price. We can conclud e th at A) Tina thinks the d emand for CDs is p rice inelastic and Brian thinks it is p rice elastic B) Tina thinks the d emand for CDs is p rice elastic and Brian thinks it is p rice inelastic C) Tina thinks the d emand for CDs has p rice elasticity equ al to 1 and Brian thinks p rice elasticity equ als zero. D) Tina and Brian shou ld stick to singing and forget about economics E) Tina thinks the d emand for CDs has price elasticity of zero and Brian thinks p rice elasticity equ als 1 An sw er: A 5 22) A good has a p rice elasticity of 2. If n ew imp orts p u sh d own its p rice from $1.20 to $0.80, the p ercen tag change in qu antity d emanded will be A) a rise of 2 p ercen t. B) a fall of 80 p ercent. C) a rise of 40 p ercent. D) a rise of 80 p ercent. E) a fall of 40 p ercent. An sw er: D 23) The income elasticity of d emand equals the percentage change in A) income d ivid ed by the percentage change in qu antity demanded B) qu antity d emand ed d ivided by the p ercentage chan ge in p rice C) qu antity d emand ed d ivid ed by th e p ercentage ch ange in in come D) p rice d iv id ed by th e p ercen tage ch ange in in come. E) p rice d iv id ed by th e p ercen tage ch an ge in q u an tity d eman d ed An sw er: C 24) Fred 's in come h as ju st risen from $840 p er week to $1,160 p er week. As a resu lt, he d ecid es to p u rch ase 24 p ercen t more bu bble g u m p er week. Th e in come elasticity of Fred 's d eman d for bu b ble gu m is A) 0.32. B) 1.33. C) 0.75. D) 0.24. E) 24. An sw er: C 25) Su p p ose there is a 20 p ercen t increase in income that causes the qu antity of good A d em and ed to in crease from 19,200 to 20,800 units. The income elasticity of d emand for good A is A) 0.05. B) 1.2. C) 2.0. D) 0.8. E) 0.4. An sw er: E 26) The cross elasticity of d emand betw een any tw o good s is d efined as the A) p ercen tage ch an ge in th e p rice of on e good d iv id ed by th e p ercen tage ch an ge in th e p rice of th e oth er good. B) p ercen tage chan ge in th e q u antity of a good d emand ed d ivid ed by th e p ercen tage ch an ge in its p rice C) p ercen tage ch an ge in th e q u an tity of a good d eman d ed d iv id ed by th e p ercen tage ch an ge in in come D) p ercen tage chan ge in th e q u antity d eman d ed of on e good d ivid ed by th e p ercen tage ch an ge in th p rice of th e oth er good . E) change in the p rice elasticity of d eman d for one good divid ed by the change in the price elasticity o d eman d for th e oth er good . An sw er: D 6 27) If the cross elasticity of d emand between goods A an d B is p ositive, then A) A an d B are su bstitu tes. B) the d emands for A an d B are both p rice elastic. C) A an d B are comp lemen ts. D) the d emands for A an d B are both p rice in elastic. E) A an d B are in d ep end en t from each oth er. An sw er: A 28) If the quantity d emand ed of chicken increases by 1.25 percent when the p rice of beef increases by 2.5 p ercen t, th e corss- p rice elasticity of d eman d betw een ch ick en an d beef is A) 0.5. B) - 3.125. C) 2.0. D) - 0.5. E) 3.125. An sw er: A 29) If good A is a su bstitu te for good B, then the cross elasticity is A) zero. B) in finity. C) 12. D) between in fin ity an d zero. E) less than zero. An sw er: D 30) Wh en p rice goes from $1.50 to $2.50, qu an tity su p p lied in creases from 9,000 to 11,000 u n its. Wh at is th p rice elasticity of su p p ly ? A) 0.8. B) 2.5. C) 0.4. D) 4.0. E) - 0.4 An sw er: C 31) The price of good A d eclines by 10 p ercen t and qu an tity d em and ed d oes not ch ange. This im p lies that th e d eman d for good A is A) in elastic. B) p erfectly in elastic. C) p erfectly elastic. D) u n it elastic. E) elastic. An sw er: B 32) If a 10 p ercent increase in the p rice of goods leads to a 10 p ercent d ecrease in quantity d emand ed , its d em an d cu rve A) is u n it elastic. B) is a straigh t line with slop e equ al to 10 C) has slope equal to 1. D) is v ertical. E) is h orizon tal. An sw er: A 7 If the d emand for Salmon fish in Cap e Breton N ova Scotia is unit elastic, the price elasticity for salmon fish is A) 0.10. B) 100.0. C) 1.0. D) 10.0. E) zero. An sw er: C 34) At a p rice of $15, Jack d emand s th e same amoun t of good A as w hen th e p rice rises to $16. Therefore, Jack's d eman d for good A is A) p erfectly in elastic. B) elastic. C) u n it elastic. D) p erfectly elastic. E) in elastic. An sw er: A Use the table below to answer the following question(s). Table 4.1 Demand Schedule for Good A. Price ($ p er u n [Show Less]