Texas A&M International University

ECO 3320

CHAPTER 6

1)In general, the smaller the price elasticity:

1. 1. the smaller the responsiveness of price to changes in quantity.
   2. the smaller the responsiveness of quantity to changes in price.
   3. the larger the responsiveness of price to changes in quantity.
   4. the larger the responsiveness of quantity to changes in price.

2. A price elasticity of demand of 2.3% implies
   1. Demand is inelastic
   2. Demand is elastic
   3. Demand is unitary elastic
   4. Demand is perfectly elastic

3. A demand for a product is more inelastic
   1. When it has many close substitutes
   2. In the long-run
   3. When it has many complements
   4. None of the above

4. The government decided to reduce taxes on fast-food to increase revenue. The government assumes that fast-food products have
   1. An inelastic demand
   2. An elastic demand
   3. A demand curve that is upward sloping
   4. Unitary elastic demand curve

5. If your income goes down by10% and, in response, the quantity demanded of good x falls by 20%, the income elasticity of demand would be:
   1. 2
   2. 4
   3. .5

d) .20

6. As the price of dvds is raised from $3 to $5, their quantity demanded fell from 200,000 to 180,000. The elasticity of demand of dvds is:

a)              0.21

b)             1.28

c)             3.52

d)            .65

7. When MR<MC firms should raise their prices because
   1. Demand is flat
   2. Demand is upright
   3. Demand is elastic
   4. Demand is inelastic

8. In 2011, Netflix raised prices on its DVDs and internet streaming plan. The Reed Hastings, CEO of Netflix, believes
   1. Netflix is an industry leader thereby making the demand curve inelastic
   2. Netflix is an industry leader thereby making the demand curve elastic
   3. People are willing to pay more for the good
   4. There are many substitutes to Netflix’s products

9. Jim has estimated elasticity of demand for gasoline to be 0.7 in the short-run and 1.8 in the long run. A decrease in taxes on gasoline would:
   1. lower tax revenue in both the short and long run.
   2. raise tax revenue in both the short and long run.
   3. raise tax revenue in the short run but lower tax revenue in the long run.
   4. lower tax revenue in the short run but raise tax revenue in the long run.

10. For complements, cross price elasticity of demand is:
    1. Negative
    2. Positive
    3. between zero and one only
    4. zero.

11. In general, the larger the price elasticity:
    1. the smaller the responsiveness of price to changes in quantity.
    2. the smaller the responsiveness of quantity to changes in price.
    3. the larger the responsiveness of price to changes in quantity.
    4. the larger the responsiveness of quantity to changes in price.

12. A price elasticity of demand of 0.67 implies

1. 1. Demand is inelastic
   2. Demand is elastic
   3. Demand is unitary elastic
   4. Demand is perfectly elastic

13. If your income goes up by 2% and, in response, the quantity demanded of good x rises by 3%, the income elasticity of demand would be:

a) 1.5

2. 6
3. 3

d) .20

14. If your income goes up by 2% and, in response, the quantity demanded of good x rises by 3%, good x can be considered
    1. An inferior good
    2. A normal good
    3. A public good
    4. A private good

15. If your income goes up by 2% and, in response, the quantity demanded of good x falls by 3%, the good x can be considered
    1. An inferior good
    2. A normal good
    3. A public good
    4. A private good

16. As the price of video games is raised from $40 to $45, their quantity demanded fell from 1.5 million copies to 1.2 million copies. The elasticity of demand of video games is:

a) 0.25

b) 1.89

c) 1.66

d) 2.08

17. Based on the information above, video games have
    1. A unit elastic demand curve
    2. A inelastic demand curve
    3. A elastic demand curve
    4. A perfectly elastic demand curve

18. A demand for a product is more elastic
    1. When it has few substitutes
    2. In the long-run
    3. When the expenditure on the product represent a small portion of the budget
    4. When the product is broadly defined

19. For substitutes, cross price elasticity of demand is:
    1. Negative
    2. Positive
    3. between zero and one only
    4. zero.

20. A perfectly inelastic demand curve
    1. Is a horizontal curve parallel to the horizontal axis
    2. Has an elasticity of demand between 0 and 1
    3. Represents the demand curve of a product with no close substitutes
    4. None of the above

21. Which one of the following is true?
    1. Nike has a more inelastic demand curve than shoes
    2. The demand curve for gas is more elastic in the short-run than in the long-run
    3. Cigarettes have a more elastic demands than televisions
    4. Salt has a more inelastic demand than meat

22. If televisions are normal goods, a fall in income will
    1. Increase the demand for cars
    2. Decrease the demand for cars
    3. Have no effect on the demand for cars
    4. None of the above

23. If potatoes are inferior goods, which of the following will increase the demand for these goods?
    1. Increase in the price of a complement
    2. Decrease in income
    3. Decrease in the price of a substitute
    4. Increase in income

24. Jim recently graduated from college. His income increased tremendously from earning $5000 a year to $60,000 a year. Jim decided that instead of renting he will buy a house. This implies that
    1. Houses are normal goods for Jim
    2. Houses are inferior goods for Jim
    3. Renting and Owning are complementary for Jim
    4. Need information on the price of houses

25. Assume Coke and Pepsi are substitutes. Holding other things constant, if the price of Coke increases
    1. Demand for Pepsi falls
    2. Demand for Pepsi increases
    3. Quantity demanded for Pepsi falls
    4. Quantity demanded for Pepsi increases

26. A research firm finding concluded that the price elasticity of demand for movie tickets is elastic in the afternoon but inelastic in the evenings. Given this information, to increase overall revenue the theatre owners should
    1. Reduce the ticket prices for the afternoon shows and reduce the ticket prices for the evening shows
    2. Increase the ticket prices for the afternoon shows and reduce the ticket prices for the evening shows
    3. Reduce the ticket prices for the afternoon shows and increase the ticket prices for the evening shows
    4. Increase the ticket prices for the afternoon shows and increase the ticket prices for the evening shows

27. An owner of local salon realized that by decreasing the prices for haircuts, his revenue increased.

This implies that

1. 1. The demand for haircuts is elastic
   2. The demand for haircuts is inelastic
   3. The demand for haircuts is unitary elastic
   4. The demand for haircuts is perfectly elastic

28. The demand for Dell laptops is more price elastic than the demand for laptops as whole. This is best explained by
    1. There are fewer substitutes for Dell laptops than for laptops as whole
    2. There are more substitutes for Dell laptops than for laptops as whole
    3. Dell laptops are luxurious goods
    4. Dell laptops are a necessity

29. The price elasticity of demand for a printer is estimated to be 1 no matter what the price or quantity demanded. An increase in price by 10% will
    1. Increase quantity demanded by 10%
    2. Decrease quantity demanded by 10%
    3. Increase demand by 10%
    4. Decrease demand by 10%

30. Which of the following goods have a negative income elasticity of demand?
    1. Cars
    2. Items from Dollar stores
    3. Shoes
    4. Bread

31. Given that the own-price elasticity of demand for shoes is -2.6, if the price of shoes rises by 8%, what will happen to the quantity of shoes demanded?
    1. It will decrease by 20.8%
    2. It will increase by 20.8%
    3. It will decrease by 2.6%
    4. It will decrease by 2.6%

32. Given the information above, the demand is
    1. unitary.
    2. indeterminate.
    3. elastic.
    4. inelastic.

33. If quantity demanded for rice falls by 2% when price increases 8%, we know that the absolute value of the own-price elasticity of rice is:

A) 2.5.

B) 0.25.

C) 4.

D) 0.40.

34. As the number of substitutes for a good increases, its own-price elasticity becomes more
    1. Unitary
    2. Relatively elastic
    3. relatively inelastic.
    4. perfectly inelastic.

35. The demand for Nike shoes will be                                           than the demand for shoes in general.
    1. More elastic
    2. More inelastic
    3. Less elastic
    4. Less inelastic

36. The demand for insulin will be                                            than the demand for a Caribbean cruise in general.
    1. More elastic
    2. More inelastic
    3. Less elastic
    4. Less inelastic

37. An economist estimated the cross-price elasticity for peanut butter and jelly to be +1.5. Based on this information, we know the goods are
    1. inferior goods.
    2. complements.
    3. inelastic.
    4. substitutes.

38. If the income elasticity of demand of houses is exactly 1.40. Due to a recession, you expect incomes to drop by 25% next year. How will consumers adjust their purchase for houses?
    1. Buy 35% more houses
    2. Buy 35% less houses
    3. Buy 25% more houses
    4. Buy 25% less houses

39. Jim saw a decrease in the quantity demanded for his firm’s product from 8000 to 6000 units a week when he raised the price of the product from $200 to $250. What is Jim’s own price elasticity of demand?

a) 1.29

b) 1

c) 0.25

d) 0.78

40. Jim saw a decrease in the quantity demanded for his firm’s product from 8000 to 6000 units a week when he raised the price of the product from $200 to $250. Based on this information, the demand for Jim’s product is
    1. Elastic
    2. Unitary elastic
    3. Inelastic
    4. Hard to determine

41. A product can be classified to be an inferior good if an increase in the income of buyers causes
    1. A decrease in quantity demanded
    2. A decrease in demand
    3. An increase in demand
    4. An increase in quantity demanded.

42. Assume mortgages and houses are complements in consumption; if the price of mortgages decreases (decreases in interest rates), we would expect to see
    1. An increase in demand for houses
    2. An decrease in demand for houses
    3. An increase in the quantity of houses demanded
    4. An decrease in the quantity of houses demanded

43. Assume Dell and Toshiba computers are substitutes in consumption; if the price of dell computers increases we would expect to see
    1. An increase in demand for Toshiba computers
    2. An decrease in demand for Toshiba computers
    3. An increase in the quantity of Toshiba computers demanded
    4. An decrease in the quantity of Toshiba computers demanded

44. Total revenue falls as the price of a good decreases if the price elasticity of demand is
    1. Elastic
    2. Inelastic
    3. Unitary elastic
    4. Perfectly inelastic

45. What is the most likely effect of the development of cell phones (many use this for time also) on the watch industry?
    1. Increased price elasticity of demand for the watch industry because cell phones are complements