Sample Exam Questions/Chapter 6. Use the following to answer question 1: Figure: Estimating Price Elasticity

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1 Sample Exam Questions/Chapter 6 Use the following to answer question 1: Figure: Estimating Price Elasticity 1. (Figure: Estimating Price Elasticity) Look at the figure Estimating Price Elasticity. Between the two prices, P1 and P2, which demand curve has the lowest price elasticity? A) D1 B) D2 C) D3 D) D4 2. After you graduate from college, you open a business selling computers. Many other businesses in your city sell similar but not identical computers. Based on this information, the price elasticity of demand for the computers that your business sells will be: A) 1. B) 0. C) highly elastic. D) highly inelastic. 3. An attorney supplies 40 hours of work per week when her fee is $100 per hour but supplies 60 hours of work per week when her fee rises to $120 per hour. Using the midpoint formula, her elasticity of supply is equal to: A) 1. B) 0.8. C) 2.2. D) Page 1

4. Raina consumes 100% more mechanical pencils when the price of felt-tip pens increases by 50%. For Raina, pencils and pens are, and the cross-price elasticity of demand is. A) complements; 0.

2 4. Raina consumes 100% more mechanical pencils when the price of felt-tip pens increases by 50%. For Raina, pencils and pens are, and the cross-price elasticity of demand is. A) complements; 0.5 B) substitutes; 0.5 C) complements; 2 D) substitutes; 2 5. If an increase in the price of cotton increases total revenue, then the price effect is the quantity effect. A) equal to B) stronger than C) weaker than D) not comparable to 6. Suppose you manage a convenience mart and are in charge of ordering products, but the home office sets the prices. In your area, the income elasticity of demand for peanut butter is 0.5. Because of local factory closings, you expect local incomes to decrease by 20% on average in the next month. As a result, you should stock peanut butter. A) 20% more B) 5% more C) 10% more D) 10% less 7. Suppose the income of canned pinto bean consumers rises. All else equal, we can conclude that: A) the income elasticity of demand is positive if beans are a normal good. B) the income elasticity of demand is positive if beans are an inferior good. C) the cross-price elasticity between beans and other goods is positive. D) the cross-price elasticity between beans and other goods is negative. Use the following to answer question 8: Page 2

3 8. (Table: Johnson's Income and Expenditures) Look at the table Johnson's Income and Expenditures. Johnson's income elasticity of demand for magazines is: A) negative. B) 0. C) between 0 and 1. D) 1. Use the following to answer question 9: Figure: The Demand for Shirts 9. (Figure: The Demand for Shirts) Look at the figure The Demand for Shirts. The price elasticity of demand for the segment BC, by the midpoint method, is: A) greater than B) C) 3. D) All of the following are characteristics of a good with elastic demand EXCEPT: A) a short time to adjust to price changes. B) a large number of substitutes. C) luxury. D) specific brands. Page 3

4 11. When the price of chocolate-covered peanuts decreases from $1.10 to $0.95, the quantity demanded increases from 190 bags to 215 bags. In this price range, the demand for chocolate covered peanuts is, and total revenue will when price decreases. A) elastic; increase B) elastic; decrease C) inelastic; increase D) inelastic; decrease Use the following to answer question 12: Figure: The Demand for Shirts 12. (Figure: The Demand for Shirts) Look at the figure The Demand for Shirts. The Demand for Shirts. At a price of $40, total revenue is: A) $40. B) $200. C) $4,000. D) $8,000. Page 4

5 Use the following to answer question 13: Figure: The Demand Curve 13. (Figure: The Demand Curve) Look at the figure The Demand Curve. By the midpoint method, the price elasticity of demand between $8 and $9 is approximately: A) B) C) D) Page 5

6 Use the following to answer question 14: Figure: The Demand for Shirts 14. (Figure: The Demand for Shirts) Look at the figure The Demand for Shirts. The price elasticity of demand, by the midpoint method, for the segment FG is approximately: A) 0. B) C) 0.5. D) greater than The income elasticity of demand measures: A) how much the quantity demanded changes in response to a price change. B) how much a consumer can buy at given income levels. C) how much consumer purchasing power is affected when prices change. D) how the quantity demanded of a good changes in response to changes in income. 16. If the price elasticity of demand is calculated to be 0.75, then demand is: A) price-inelastic. B) price-elastic. C) price unit-elastic. D) positively sloped. Page 6

7 17. Supply curves tend to be more the more time producers have to adjust to price changes. A) price-inelastic B) price-elastic C) steeply sloped D) inflexible Use the following to answer question 18: Figure: The Demand Curve for Crossings 18. (Figure: The Demand Curve for Bridge Crossings) Look at the figure The Demand Curve for Bridge Crossings. Demand is price between $0.90 and $1.10, since total revenue when the price. A) elastic; increases; decreases B) inelastic; stays the same; decreases C) unit-elastic; stays the same; increases D) inelastic; increases; increases 19. Which of the following is NOT true regarding a price-elastic demand curve? A) Total revenue increases when the price falls. B) The absolute value of the price elasticity is a fraction less than 1. C) The absolute value of the price elasticity is greater than 1. D) The percent changes in the quantity demanded exceed the percent changes in the price for any small change in price. Page 7

8 20. Total revenue will decrease if the price goes and demand is. A) up; perfectly price-inelastic B) up; price-inelastic C) down; price-elastic D) up; price-elastic 21. A perfectly elastic supply curve is: A) horizontal. B) downward-sloping. C) upward-sloping. D) vertical. 22. Demand for vegetables at a small farmers' market is steady, but the supply of vegetables has decreased because of a drought. This is good news for farmers if demand is and the effect outweighs the effect. A) inelastic; price; quantity B) elastic; price; quantity C) inelastic; output; price D) elastic; output; price 23. The pair of items that is most likely to have a negative cross-price elasticity of demand is: A) cashews and peanuts. B) hamburgers and ketchup. C) coffee and tea. D) mustard and aspirin. Page 8

9 Answer Key 1. D 2. C 3. C 4. D 5. B 6. C 7. A 8. D 9. C 10. A 11. D 12. D 13. D 14. B 15. D 16. A 17. B 18. C 19. B 20. D 21. A 22. A 23. B Page 9

Problems: Table 1: Quilt Dress Quilts Dresses Helen 50 10 1.8 9 Carolyn 90 45 1 2

Problems: Table 1: Quilt Dress Quilts Dresses Helen 50 10 1.8 9 Carolyn 90 45 1 2 Problems: Table 1: Labor Hours needed to make one Amount produced in 90 hours: Quilt Dress Quilts Dresses Helen 50 10 1.8 9 Carolyn 90 45 1 2 1. Refer to Table 1. For Carolyn, the opportunity cost of 1