Homework answers / question archive / Rutgers University - MICROECONO 102 Practice for Elasticity 1) Suppose that in a month the price of a dozen of eggs increases from $1

Rutgers University - MICROECONO 102 Practice for Elasticity 1) Suppose that in a month the price of a dozen of eggs increases from $1

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Rutgers University - MICROECONO 102

Practice for Elasticity

1) Suppose that in a month the price of a dozen of eggs increases from $1.50 to $2. At the same time, the quantity of dozens of eggs demanded decreases from 200 to 150. The price elasticity of demand for dozens of eggs is: A) perfectly inelastic.   B) elastic.        C) inelastic.     D) unitary elastic.

 

2) The midpoint formula for elasticity of demand solves the problem of: A) whether elasticity of demand is really positive or negative.

2. whether to use quantity demanded or supplied.
3. whether to use quantity or price in the numerator.
4. which price or quantity to use as the initial value of the variable.

 

3. Suppose that in a month the price of a gallon of milk increases from $2 to $2.50. At the same time, the quantity of gallons of milk demanded decreases from 100 to 80. The price elasticity of demand for gallons of milk (calculated using the midpoint formula) is approximately: A) 0.11. B) 1.2. C) 1.    D) 0.2.

 

4. Suppose that in a month the price of movie rentals decreases from $3.25 to $3. At the same time, the quantity of movie rentals demanded increases from 100 to 120. The price elasticity of demand for movie rentals (calculated using the midpoint formula) is:

A) unitary elastic.        B) zero. C) inelastic.    D) elastic.

 

5. Suppose that in a month the price of pizza increases from $4 to $5. At the same time, the quantity of pizzas demanded decreases from 200 to 190. The price elasticity of demand for pizza (calculated using the midpoint formula) is: A) 0.1. B) 0.23. C) 0.25. D) 4.35.

 

6. Suppose that in a month the price of a cup of coffee increases from $1 to $1.50. At the same time, the quantity of cups of coffee demanded decreases from 200 to 190. The price elasticity of demand for cups of coffee (calculated using the midpoint formula) is approximately: A) 0.13. B) 0.5. C) 7.8. D) 20.

 

7. In the case of perfectly inelastic demand, the demand curve is: A) vertical.           B) horizontal.

C) upward sloping.      D) downward sloping.

 

8) The price elasticity of demand for furniture is estimated at 1.3. This value means a one percent increase in the A) price of furniture will decrease the quantity of furniture demanded by 1.3 percent. 

2. quantity of furniture demanded will decrease the price of furniture by 1.3 percent.
3. price of furniture will increase the quantity of furniture demanded by 1.3 percent.
4. quantity of furniture demanded will increase the price of furniture by 1.3 percent.

 

9. A 10 percent increase in the quantity of spinach demanded results from a 20 percent decline in its price. The price elasticity of demand for spinach is A) 20.0. B) 10.0. C) 0.5. D) 2.0.

 

10. A local transit authority charges $1 for a bus ride. An economics study suggests that in the price range from $0.50 to

$1.50, the elasticity of demand for bus trips is 1.1. To increase its revenue, the transit authority should  A) leave the fare as it is.    B) raise the fare.         C) lower the fare.

 

11. The marketing people for AT&T believe that if they lower the price of long-distance phone calls by 5 percent, their quantity demanded will increase by 15 percent. If they are correct in their belief, then

1. the total revenue from long-distance phone calls will increase if they lower the price.
2. the demand for long-distance phone calls is income elastic.
3. the demand for long-distance phone calls is price inelastic.
4. the total revenue from long-distance phone calls will decrease if they lower the price.

 

12) The price elasticity of demand for wheat is 0.42. A drought cuts the supply of wheat. What will happen to the farmers' total revenue?

1. The total revenue will not change.
2. The total revenue will increase.
3. The total revenue will decrease.
4. There is not enough information to determine what happens to the total revenue.

 

13) Sara's Strawberry Market maximizes its total revenue by selling strawberries for $1.25 a basket. At a price of $1.25, you predict that ________.

1. Sara's sells most of the strawberries that she grows
2. the demand for strawberries is elastic
3. the demand for strawberries is inelastic
4. the demand for strawberries is unit elastic

 

14) If hot dog vendors at baseball games want to maximize their total sales revenue, they will have to A) sell as many hot dogs as they can, even if it means lowering price.

2. raise their price, even if it means selling fewer hot dogs.
3. set the price of their hot dogs so that the demand is unit elastic.
4. be willing to experience reduced hot dog expenditure by baseball fans.

 

15) The cross elasticity of demand is calculated as the percentage change in the

1. quantity demanded of one good divided by the percentage change in the quantity demanded of another good.
2. price of one good divided by the percentage change in the price of another good.
3. quantity demanded of one good divided by the percentage change in the price of another good D) price of one good divided by the percentage change in the quantity demanded of another good. 

 

16) When the price of milk rose 50 percent, the quantity of milk sold fell 25 percent and the sale of breakfast cereals also fell 25 percent. This set of facts indicates that the A) demand for breakfast cereals is price elastic.

2. cross elasticity between milk and cereal is negative so the two are complements.
3. cross elasticity between milk and cereal is positive so the two are complements.
4. demand for milk is price elastic.

 

17) Suppose that the cross elasticity of demand for Dell computers with respect to Hewlett Packard computers is 2.1. If Hewlett-Packard lowers its price by 5 percent, other things being equal, what will be the percentage change in the quantity of Dell computers demanded?

A) 2.4 percent B) -42 percent C) 10.5 percent D) -10.5 percent

 

18) If a price hike of 5 percent increases the quantity demanded of another good by 2 percent, the goods must be ________ and the cross elasticity of demand equals ________.

A) substitutes; 2.5        B) complements; 0.40             C) substitutes; 0.40     D) complements; 2.5

 

19) If the price of one good increases by 3 percent and the quantity demanded of another good increases by 2 percent, the cross elasticity is ________ and the two goods are ________.

A) 3/2, complements B) 3/2, substitutes       C) 2/3, complements D) 2/3, substitutes

 

20) When Sam's annual income was only $15,000, he purchased 50 pounds of bananas a year. When his income rose to

$18,000, he purchased 55 pounds a year. Therefore,

1. his income elasticity of demand for bananas is negative.
2. his income elasticity and price elasticity of demand for bananas are both greater than one.
3. for Sam, bananas are a normal good.
4. for Sam, bananas are an inferior good.

 

21) For Product X, the income elasticity of demand is -2.56. Which of the following is therefore true? A) Product X is a necessity.   B) Product X is a normal good.

C) Product X is an inferior good.         D) Product X is a luxury.

 

22) Paul's monthly income decreased from $2,500 to $2,300. As a result, he decreased the number of DVDs he rents per month from 5 to 4. Paul's demand for DVD rentals is

A) price elastic. B) price inelastic.      C) income inelastic.    D) income elastic.

 

23) Last year, Jack's income was $15,000 and he bought 50 bags of potato chips. This year his income is $18,000 and he buys 55 bags of potato chips. Therefore, Jack's A) price elasticity of demand for potato chips is 1.66.

2. price elasticity of demand for potato chips is 0.52.
3. income elasticity of demand for potato chips is 1.66.
4. income elasticity of demand for potato chips is 0.52.

 

24) Suppose that the quantity of root beer demanded declines from 103,000 gallons per week to 97,000 gallons per week as a consequence of a 10 percent increase in the price of root beer. The price elasticity of demand is A) 1.66. B) 1.40. C) 0.60. D) 6.00.