Week 3

1) Price elasticity of demand measuresA) how responsive suppliers are to price changes.B) how responsive sales are to changes in the price of a related good.C) how responsive quantity demanded is to a change in price.D) how responsive sales are to a change in buyersʹ incomes.

2) If the percentage increase in price is 15 percent and the value of the price elasticity of demand is

3, then quantity demandedA) will increase by 45 percent.B) will increase by 5 percent.C) will decrease by 45 percent.D) will decrease by 5 percent.

3) The price elasticity of demand for Stork ice cream is -4. Suppose youʹre told that following a

price increase, quantity demanded fell by 10 percent. What was the percentage change in pricethat brought about this change in quantity demanded?A) 40 percentB) 25 percentC) 2.5 percentD) 0.4 percent

4) A demand curve which is ________ represents perfectly inelastic demand, and a demand curve

which is ________ represents inelastic demand.A) downward sloping; verticalB) horizontal; downward slopingC) vertical; downward slopingD) upward sloping; horizontal

5) If 50 units are sold at a price of $20 and 80 units are sold at a price of $15, what is the value of the price elasticity of demand? Use the midpoint formula.

A) 0.17B) 0.62C) 1.62D) 5Figure 1

6) Refer to Figure 1. Using the midpoint formula, calculate the value of the price elasticity of demand between e and f.

A) 0.32B) 0.4C) 2.5D) 3.125

Figure 2

7) Refer to Figure 2. Which of the following statements is true about the price elasticity of demand?

A) The elasticity coefficient is constant along the demand curve.B) The elastic portion of a straight-line downward sloping demand curve corresponds to the segment above the midpoint.C) The inelastic portion of the demand curve corresponds to the segment above the midpoint.D) At the midpoint of the demand curve, the elasticity coefficient is zero.

8) Refer to Figure 2. At the midpoint of the demand curve, A) the price elasticity coefficient is at a maximum.B) the price elasticity coefficient is at a minimum.C) the price elasticity coefficient is zero.D) the price elasticity coefficient is one.

9) Which of the following products comes closest to having a perfectly inelastic demand?

A) gasolineB) cholesterol medication in generalC) iPhonesD) bus rides

10)When there few close substitutes available for a good, demand tends to beA) perfectly inelastic.B) perfectly elastic.C) relatively inelastic.D) relatively elastic.

11) Jonah lives in a small town where there is only one Mexican restaurant. Which of the following

is likely to be true about the price elasticity of demand for meals at the Mexican restaurant?A) Demand is likely to be perfectly inelastic.B) Demand is likely to be perfectly elastic.C) Demand is likely to be relatively elastic.D) Demand is likely to be relatively inelastic.

12)When demand is elastic, a fall in price causes total revenue to rise becauseA) when price falls, quantity sold increases so total revenue automatically rises.B) the increase in quantity sold is large enough to offset the lower price.C) the percentage increase in quantity demanded is less than the percentage fall in price.D) the demand curve shifts.

13) If a firm lowered the price of the product it sells and found that total revenue did not change,

then the demand for its product is

A) perfectly inelastic.B) perfectly elastic.C) unit-elastic.D) relatively elastic.

14) Income elasticity measuresA) how a goodʹs quantity demanded responds to change in the goods price.B) how a goodʹs quantity demanded responds to change in the price of another good.C) how a goodʹs quantity demanded responds to change in buyersʹ incomes.D) how a goodʹs quantity demanded responds to producersʹ incomes.

15)Calculate the income elasticity if an 8 percent increase in income leads to a 4 percent increase in

quantity demanded for organic produce.A) -0.66B) 0.5C) 1.5D) 2

16)Cross-price elasticity of demand is calculated as theA) percentage change in quantity demanded divided by percentage change in price of a good.B) percentage change in quantity demanded of one good divided by percentage change in price of a different good.C) percentage change in quantity sold divided by percentage change in buyersʹ incomes.D) percentage change in quantity supplied divided by percentage change in price of a good.

17) If the cross-price elasticity of demand for computers and software is negative, this means the

two goods areA) substitutes.B) complements.C) inferior.D) normal.

18)Suppose the cross-price elasticity of demand between grapefruit juice and orange juice is approximately 6. What does this mean?

A) A 1 percent decrease in the price of grapefruit juice leads to a 6 percent increase in orange juice consumption.B) A 6 percent increase in the price of grapefruit juice leads to a 1 percent increase in orange juice consumption.C) If the price of grapefruit juice rises by $1, 6 more cartons of orange juice will be purchased.D) The demand for orange juice is 6 times more than the demand for grapefruit juice.

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Questions for Review:

5. What are the key determinants of the price elasticity of demand? Explain each using examples.