Assignment 3

Question 1 (1 point)

The price elasticity of demand deals with:

the effect of quantity changes on supply. the effect of price changes on quantity demanded. the effect of price changes on quantity supplied. the effect of price changes on supply. the effect of quantity changes on price.

Question 2 (1 point)

Suppose that when the manager of a local movie theater raises her price from $7.50 to $8.50 total revenue falls. This means that

the demand for movie tickets is inelastic. the supply of movie tickets is elastic. the supply of movie tickets is inelastic. the demand for movie tickets is elastic. Cannot be determined from the information provided.

Question 3 (1 point)

If a 1 percent change in the price of a good causes a 1 percent change in the quantity demanded of that good, the price elasticity of demand is

perfectly elastic. elastic. perfectly inelastic. inelastic. unit-elastic.

Question 4 (1 point)

If the price elasticity of demand, e d , is equal to 2, then a 20 percent increase in quantity demanded would result from a

10 percent increase in price. 20 percent decrease in price. 40 percent increase in price. 10 percent decrease in price. None of these.

Question 5 (1 point)

Referring to the figure above, the demand curve B compared to the demand curve C is

more elastic. varies from being more elastic to being less elastic. less elastic. equal to zero. less than 1.

Question 6 (1 point)

In the figure above, which demand curve is least likely to represent demand for insulin by diabetics?

A B C D E

Question 7 (1 point)

Suppose the price of a product is reduced from $10 to $6 and the quantity demanded increases from 40 to 60 units. From this we can conclude that the price elasticity of demand over this price range is equal to

0.80. 1.2. 1.25. 0.20. Cannot be determined from the information given.

Question 8 (1 point)

If a liquor store owner decides that raising the price of beer can pay for the construction of a new building, then the owner is assuming that the

percentage increase in the price of beer will cause an equal percentage decrease in the quantity demanded. percentage increase in the price of beer will cause a smaller percentage decrease in the quantity demanded. demand for his or her beer is elastic. demand for his or her beer is unit-elastic. percentage increase in the price of beer will cause a greater percentage decrease in the quantity demanded.

Question 9 (1 point)

In the figure above, the section of the demand curve from D to F is

the inelastic range of the demand curve. the elastic range of the demand curve. the unit-elastic part of the demand curve. the perfectly inelastic range of the demand curve. the perfectly elastic range of the demand curve.

Question 10 (1 point)

Which of the following is an example of price discrimination?

Senior citizen discounts Discount airline fares for leisure travelers Grocery coupons "Kids stay free" signs at chain hotels All of these.

Question 11 (1 point)

In general, price-discriminating firms should charge higher prices to those customers

with a lower income elasticity of demand. with more elastic demand. who are taller. with more inelastic demand. with unitary elasticity of demand.

Question 12 (1 point)

Which of the following is not a determinant of the price elasticity of demand?

The prices of resources available to the producer of the good The number of substitutes available for the product The importance of the product in the consumer's total budget The amount of time available to the consumer None of these.

Question 13 (1 point)

If there are few substitutes for a product, few competitors, and a short time period under consideration, then

the price elasticity of demand coefficient is equal to 1. this product has a demand that is price elastic. a given percentage change in price will result in a much larger percentage change in the quantity demanded. the price elasticity of demand is large. if price rises, total revenue (or total consumer expenditures) will also rise.

Question 14 (1 point)

Which of the following is true with respect to the price elasticity of demand?

A coefficient of 1 means that the percentage change in total expenditure is equivalent to the percentage change in price. Elasticity will tend to be greater for a relatively expensive product than for a cheaper one. Elasticity measures the sensitivity of total expenditure to a change in price. Elasticity of demand can be measured by the slope of the demand curve. The coefficient will change with changes in the units of measurement (for instance, going from pounds to ounces).

Question 15 (1 point)

During the spring of 2003, the price of gasoline increased, and it became more expensive to drive sport utility vehicles (SUVs). What is a likely effect of a significant, long-term increase in the price of gasoline?

People may drive less in the next few months and buy larger cars in the future. People may drive less in the next few months and buy smaller cars in the future. People will continue to drive more and buy large SUVs. According to economic theory, there is no relationship between the price of gasoline and the demand for SUVs. None of these.

Question 16 (1 point)

Cross-price elasticity is defined by

the change in quantity demanded divided by the change in income. the percentage change in the price of good X divided by the percentage change in the quantity demanded of good Y. the percentage change in quantity demanded divided by the percentage change in income. the percentage change in the quantity demanded of good X divided by the percentage change in the price of good Y. the percentage change in income divided by the percentage change in quantity demanded.

Question 17 (1 point)

Assume that due to unfavorable pollen conditions in a prime honey-producing area, the price of honey increases by 50 percent. The quantity consumed of herbal tea declines immediately by 25 percent. Everything else held constant,

the cross-price elasticity of demand for herbal tea and honey is positive and therefore the two goods are substitutes. the cross-price elasticity of demand cannot be determined from the information provided. the cross-price elasticity of demand for herbal tea and honey is negative and therefore the two goods are complements. the cross-price elasticity of demand for herbal tea and honey is positive and therefore the two goods are substitutes. the cross-price elasticity of demand for herbal tea and honey is negative and therefore the two goods are substitutes.

Question 18 (1 point)

Income elasticity is a measure of

how much quantity demanded changes in response to a price change. whether goods are substitutes or complements whether goods are normal or inferior. how much quantity supplied changes in response to a price change. None of these.

Question 19 (1 point)

A measure of the responsiveness of quantity supplied to changes in price is known as

income elasticity. price elasticity of supply. price elasticity of demand. cross-price elasticity. None of these.

Question 20 (1 point)

Supply curves applicable to shorter periods of time tend to

be perfectly elastic. approximate horizontal lines parallel to the quantity axis. have a price elasticity of supply that is approximately equal to 1. be more inelastic than supply curves that apply to longer periods of time. be more elastic than supply curves that apply to longer periods of time.

Question 1 (5.00 points)

Suppose your income falls from $15,000 to $13,000, while your demand for soup increases from 5 cans to 7 cans. What is your income elasticity of demand with the midpoint formula? Is soup a normal or inferior good for you?

Question 2 (5.00 points)

Explain why senior citizens can obtain special discounts at movie theaters, drugstores, and other businesses.